Objectives of AASB Conceptual Framework

Discuss about the Measuring and Reporting on Social Performance.

The main purpose of this report is to analyse and evaluate different financial standards and principles of conceptual framework for accounting. In the recent years, business organizations all over the work is facing different types of issues related to their financial accounting due to the non-compliance with required accounting standards and principles. In order to avoid these issues, business entities are needed to follow the regulations and standards of accounting conceptual framework. In Australia, the Australian Accounting Standard Board (AASB) has provided the necessary financial standards and regulations through the release of accounting conceptual framework with the assistance of International Accounting Standard Board (IASB) (aasb.gov.au 2018). All the business entities listed under Australian Stock Exchange (ASX) must comply with these regulations and standards for the accurate preparation and presentation of financial reports. For the purpose of this study, Woodside Petroleum Limited is taken into consideration. Woodside Petroleum is a major Australian oil and gas company having global presence and the company is renowned for their world-class capabilities. It need to be mentioned that the company is listed under ASX in the name of ‘WPL’ (woodside.com.au 2018).  

As per the above discussion, AASB and IASB have developed the accounting conceptual framework for bringing accuracy in the process of financial reporting for the Australian business entities. In order to achieve this objective, AASB has introduced three objectives of its conceptual framework that the companies are required to achieve through their financial reporting.  They are mentioned below:

1. It is the objective of the conceptual framework of AASB to provide the users of financial information with all the necessary information related with the economic resources of the business entities so that they can judge the financial standing of those organizations (gov.au 2018).
2. It is the second objective of the AASB conceptual framework to provide the users with all the required information about the necessary economic phenomena of the business entities so that they can judge the financial performance of those companies over the years (gov.au 2018).
3. It is the third objective of AASB conceptual framework to provide the users with the information about the necessary aspects for their determination of the change in financial performance of the business entities over the years (gov.au 2018).

Now, it is required to determine whether Woodside Petroleum has become able to achieve all these three objectives of AASB conceptual framework through their financial reporting.

The above figure is the consolidated statement of financial position of Woodside Petroleum released in the 2017 Annual Report. All the necessary financial information about the economic resources of the company can be obtained from this statement for the ascertainment of the financial position of the company (woodside.com.au 2018).

The above figure is the consolidated income statement of Woodside Petroleum released in the 2017 Annual Report. For the determination of the financial performance of Woodside Petroleum, all the required financial information related to revenue, cost of goods sold, net profit and others can be obtained from the above financial statement (woodside.com.au 2018).

The above figure is the consolidated statement of change in equity of Woodside Petroleum released in the 2017 Annual Report. For the determination of the change in financial performance of the company, all the required financial information about the change in profit, change in comprehensive income and others can be obtained from the above statement (woodside.com.au 2018).

Analysis of Woodside Petroleum’s Financial Statements

The analysis of the 2017 Annual report of Woodside Petroleum also shows that the company follows the regulations of Corporations Act 2001, Australian Accounting Standard and the authoritative pronouncement of AASB. Apart from this, Woodside Petroleum also complies with the standards of IASB and International Financial Reporting Standards (IFRS) for the purpose of their financial reporting (woodside.com.au 2018).   

Apart from the above-discussed objectives, the conceptual framework of AASB has provided the ASX listed companies with some criteria for the recognition of the major financial elements and they are assets, liabilities, equity, revenue and expenses. All the companies are required to comply with these recognition criteria. Now, it is required to determine whether Woodside Petroleum complies with all the recognition criteria or not.

Asset: For the recognition of assets, entities are required to follow these two criteria:

• It is probable that the business organization will receive the future economic benefits embodied with the asserts, and
• The cost of the assets can be measured reliably (gov.au 2018).

Woodside Petroleum has different kinds of assets. According to AASB 116, the company measures their fixed assets like oil and property,  property, plant and equipment at cost value after deducting accumulated depreciation and impairment costs. The amount of trade receivables is recognized are recognized at fair value and measured at amortized costs. In addition, inventories are also recognized at lower of cost and net realizable value. Thus, it can be seen that the costs of the assets are measurable and the company becomes benefitted from these assets (woodside.com.au 2018).

Liability: Liabilities are recognized in case of the fulfilment of the following criteria:         

• It is probable that the business organization will have to sacrifice the future economic benefits embodied with the liabilities, and
• The cost of the liabilities can be measured reliably (gov.au 2018).

The presence of different liabilities can be seen in Woodside Petroleum. The company measures the value of trade payables at amortized when goods and services are received and the company has to repay them at fair value. Provisions are recognized in case the company has any present financial obligation due to the occurrence of any past events. Woodside Petroleum has to pay all of their borrowings in the future date and they are recognized at fair value after deducting transaction costs (woodside.com.au 2018). Thus, it can be observed that Woodside Petroleum has to sacrifice their future benefits as the company has to pay their liabilities.  

Equity: At the time of the recognition of equity, the business entities are required to follow the same recognition criteria as the recognition of assets and liabilities (aasb.gov.au 2018).

            In Woodside Petroleum, ordinary shares are classified as equity and the company measures them at the value of consideration received. In the share capital, the cost to issue the shares is shown as deduction (woodside.com.au 2018). Thus, it can be seen that the company will be beneficial from the issues of shares and the cost of them can be measured.

Compliance of Woodside Petroleum with Recognition Criteria

Revenue: Business organizations recognize their revenue in the following cases:

• It is probable that he inflow of the economic future benefits will be occurred to the favour of the company, and
• The outflow of the future benefits can be measured reliably (gov.au 2018).

Woodside Petroleum recognizes their business revenue at the fair value of the considerable received or receivable to the extent that the future economic benefits will be flown to the company (woodside.com.au 2018).

Expenses: Business organizations recognize their expenses in the following cases:

• It is probable that he outflow of the economic future benefits will be occurred against the company, and
• The consumption or loss in economic benefit can be measured reliably (gov.au 2018).

Woodside Petroleum recognizes the expenses of the business at the time of their occurrence and they are measured at fair value (woodside.com.au 2018).

According to the conceptual framework of AASB, the financial statements of the companies require to possess two fundamental qualitative characteristics. They are Relevance and Faithful Representation:

Relevance: With the help of relevant financial information, the users of financial information can make effective investment decisions (Barth, 2013). From the earlier discussion, it can be seen that Woodside Petroleum releases all the financial statements trough the later annual report so that the users can acquire the relevant financial information (woodside.com.au 2018).

Faithful Representation: Faithful representation ensures the correct representation of the values of the economic phenomena of the companies (Henderson et al. 2015). From the auditor report of Woodside Petroleum, it can be seen that the company has complied with all the required standards and regulations of Corporations Act 2001, Australian Accounting standard, AASB and others that ensure the faithful representation of financial phenomena (woodside.com.au 2018).

Apart from fundamental characteristics, there are four enhancing qualitative characteristics. They are Comparability, Verifiability, Timeliness and Understandability.

Comparability: It helps in the identification of similarities and differences in the financial aspects of the companies (Luke 2016). The users of financial statements can compare the financial information of Woodside Petroleum with the other companies by easily understand them (woodside.com.au 2018).

Verifiability: Faithful representation helps the users in verifying the financial information of the companies (Biondi and Lapsley 2014). As the financial statements of Woodside Petroleum are faithfully presented, users can easily verify the information (woodside.com.au 2018).

Timeliness: It helps the users in getting required financial information at correct time (Birt, Muthusamy and Bir 2017). The timely release of financial statements by Woodside Petroleum helps the users in getting the required financial information at the correct time (woodside.com.au 2018).

Understandability: It helps the users in comprehending the financial treatments of the companies (Limijaya 2017). With the help of reasonable financial knowledge, the users can understand the financial information of Woodside Petroleum (woodside.com.au 2018).

Conclusion

From the above discussion, it can be observed that Woodside Petroleum complies with all the required standards and principles of Corporations Act 2001, AASB, Australian Accounting Standard, IASB and IFRS. For the reason of all of these compliances, Woodside Petroleum does not have to face any accounting issues. For this reason, it is required for all the ASX listed companies to comply with the AASB conceptual framework to avoid the accounting issues.

References

Aasb.gov.au. (2018). Conceptual Framework for Financial Reporting. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 19 Apr. 2018].

Aasb.gov.au. (2018). Definition and Recognition of the Elements of Financial Statements. [online] Available at: https://www.aasb.gov.au/admin/file/content102/c3/SAC4_3-95.pdf [Accessed 19 Apr. 2018].

Aasb.gov.au. (2018). Property, Plant and Equipment. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun14_07-14.pdf [Accessed 19 Apr. 2018].

Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.

Biondi, L. and Lapsley, I., 2014. Accounting, transparency and governance: the heritage assets problem. Qualitative Research in Accounting & Management, 11(2), pp.146-164.

Birt, J.L., Muthusamy, K. and Bir, P., 2017. XBRL and the qualitative characteristics of useful financial information. Accounting Research Journal, 30(01), pp.107-126.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Limijaya, A., 2017. One Financial Reporting Global Language: The Ultimate Goal?. Jurnal Riset Akuntansi dan Keuangan, 5(1), pp.1277-1292.

Luke, B., 2016. Measuring and reporting on social performance: from numbers and narratives to a useful reporting framework for social enterprises. Social and Environmental Accountability Journal, 36(2), pp.103-123.

Woodside.com.au. (2018). About Us | Woodside Energy. [online] Available at: https://www.woodside.com.au/About-Us/Pages/about-us.aspx [Accessed 19 Apr. 2018].

Woodsideannouncements.app.woodside. (2018). Annual Report 2017. [online] Available at: https://woodsideannouncements.app.woodside/14.02.2018+Annual+Report+2017.pdf [Accessed 19 Apr. 2018].