Company Background

The conceptual framework is referred as the system of ideas and objectives that results in the formation of the reliable set of rules and values. Particularly, in the areas of accounting, the rule and standards sets down the function, nature and limits of financial accounting as well as financial statements. The conceptual framework is usually viewed as the analytical tool carrying numerous variation and contexts (Díaz et al. 2015). The conceptual framework is useful in making conceptual differences and organization of ideas. The stronger conceptual framework captures things that are real and it is executed in a manner which is easy to remember and implement.

The present report is associated with the implementation of conceptual framework in accounting procedure for identifying and reporting on significant items that are stated in the annual report of the company. The chosen company for the assignment is Brambles Ltd. The IASB introduced the conceptual framework to assist the board in developing the new accounting standards that can enhance the process of reporting. The introduction of conceptual framework would result in harmonization of the accounting practices of a business. A qualitative discussion would be presented in this report regarding the Brambles Ltd financial statements.

Brambles Industries Limited offers both the domestic and international supply chain logistics solutions. The company provides reusable pallets, containers and crates. Brambles circular business models continues to the share and reuse as the world’s largest pool of reusable crates, pallets and containers (Brambles 2018). This allows the company to serve its customers whereas minimising the effect on the environment and enhancing the efficiency as well as safety of the supply chains across the world. Brambles Ltd platforms creates an invisible backbone of international supply chains, mainly serving the fast moving customer goods, beverage, fresh produce retail and general manufacturing industries. Large brands across the world trust Brambles to assist them in transporting life essentials in more effective, safely and sustainable manner.  

On assessing the annual financial statement for Brambles Industries Ltd the stakeholder theory is held appropriate for the company. The main purpose of choosing the stakeholder theory is place focus on the interrelated relationships between the customers and business, communities, investors, employees and people that have stake in Brambles Industries Ltd. The stakeholder theory enables Brambles Industries Ltd to create value for its shareholders as well as its stakeholders that are involved in the day to activities of the business.

Theory Appropriate for the Brambles Industries Ltd

Issues associated to sales forecasting and related expenses: The accounting issues for Brambles is involves the sales forecast and associated expenditure that facilitates financial estimations for the future comparison. The inherent sales estimations regarding the financial performance might turn out to be unreliable. The sales might decline substantially from the earlier years with the cost of doing business can increase without any notice. Furthermore, Brambles sales cycle might be longer than anticipated. Therefore, these accounting issues can result in immediate financial problems that might affect the strategic planning.

Inappropriate profitability assumptions: As evident in case of Brambles, the strategic planning of the company is dependent on the success of the financial planning. Brambles is dependent on the equity capital financing for meeting its strategic objectives and may turn out to be disappointing if the cash management is untimely. Brambles Industries Ltd profitability assumptions is excessively optimistic as there may be inadequate retained earnings available for making re-investment in strategic planning.

In financial reporting, the conceptual framework is regarded as the theory of accounting which is prepared by the standard setting body against which the practical problems can be objectively tested. The conceptual framework is regarded as the body of fundamentals and interrelated objectives (Sheppes et al. 2014). The objectives of the conceptual framework is to recognize the goals and purpose of financial reporting as well as the underlying fundamentals that assist in attaining those objectives. The objectives of the conceptual framework is stated below;

1. The objectives of conceptual framework is to introduce consistency in accounting practice which is usually followed by several businesses. This implies that the alternative treatments that are available for transactions should be reduced to introduce consistent accounting practice.
2. The objective of conceptual framework is to make sure that the annual financial statements of businesses are peppered in a manner that the relevant information are represented in the financial statements (Bridgett et al. 2015). This would enable the shareholders, probable investors, creditors and lenders to make use of the relevant information in undertaking decision relating to the future investments and current shareholder’s holdings of shares. The financial statements are often viewed as the performance matrix report for a business. As evident in the situation of Brambles Ltd, the financial statement of the Brambles reflects noteworthy information that are required by the shareholders to make decision regarding the future investments. The statement of profit and loss, statement of financial position and cash flow statement is prepared effectively that can offer the shareholders with the in depth information about company’s overall performance and how the business is using the shareholders fund.
3. Another conceptual framework objective is to effectively report the sum of cash produced by a company. The conceptual framework is useful in determining the resources that the business would be required for producing future inflow of cash (Macve 2015). On analysing the annual report of Brambles, the key drivers of the cash flow form the profitability, capital expenditure and movements in the working capital. Over the period of five years a strong growth in profitability for Brambles Ltd has been witnessed. This is largely driven by significant investments in capital expenses to support the growth. The capital expenditure of Brambles Ltd has increased to support the growth of pallets operations with one-time change in the process of payment which ultimately increased the working capital (Brambles 2018). The significant improvement during the 2018 replicates improved EBITDA, stronger working capital management, greater collection of assets and US$ 150 million inflow of cash originating from the repayment of HFG joint venture loan, which offset increased the cash capital expenses.
4. The conceptual framework is considered useful in predicting all the necessary information that relates to the assets, liabilities, income and expenditure of the business. This information is considered helpful in provide a clear understanding of the business financial terms (Barker and Teixeira 2018). The Brambles Ltd in its statement of profit and loss account reflected the growth in sales, direct cost efficiencies and indirect reduction in costs all through the group.

The central objective of the conceptual framework of reporting is to make sure that the financial statement of the business is prepared in compliance with the framework requirements (Libby 2017). The framework acts as the means of objectively representing the financial statements since the guidelines that are mentioned in the conceptual framework is aimed at helping the business in preparing the annual report that displays all the relevant information to the general public. The conceptual framework promotes simplicity and clarity in offering financial information so that all the related parties of the company can better understand the financial information and then form a decision for making investment.

The recognition criteria must be followed to fairly represent the financial statements of a business. This also requires recording the items based on the requirements of the conceptual framework. The AASB has issued accounting standard that lay down the guidelines to be valued for treating the financial items and hence make sure that the annual reports represent true and fair view (Spiceland et al. 2018). The criteria for identifying the item is related to the economic benefits and items reliability. There are numerous items that are significant and the same has been identified by the Brambles Ltd is discussed below;

Brambles Industries Accounting Issues

Assets: 

As per the general purpose financial framework the assets should be subdivided in short and long term type which is better known as current and non-current assets individually. Brambles ltd assets are presented in the statement of financial position as current and non-current assets (Handel, Valerio and Sánchez Puerta 2016). Brambles Ltd also reports the intangible assets in the form of investments that is reflected under the non-current assets of the business. Brambles Ltd identifies the financial assets based on the fair value through the profit and loss (Brambles 2018). It identifies the PPE at their stated cost which is net of any depreciation or impairment. The cost includes the expenses which is attributable directly to the cost of acquiring the assets.

Liabilities:

The liabilities are recognized in the balance sheet given it is obvious it is obvious that the economic resources of the business will be flown out during the upcoming period for meeting any obligations and the sum of obligations can be determined consistently (Zhang and Andrew 2014). As evident from the annual report of Brambles Ltd the company measures the lease liability which represents the obligations of making future lease payments. The liability is measured initially at the present value and includes the variable lease payments which is dependent on the rate but does not takes into the account the variable lease payments.

Incomes:

Under the present accounting policies of Brambles Ltd the revenues that is earned on issue of pooling equipment is identified on issue and revenue that is earned from the daily hire is identified over the time. The segments sales revenue is measured on the same basis as stated in the statement of comprehensive income (Lewandowski 2016). Brambles ltd identifies the revenues up to the extent which is probable that the economic benefits would flow into the Brambles and the revenue can be measured reasonably. The revenues are measures based on the fair value for the considerations received or receivables.  

The expenses are reported in the profit and loss depending upon the direct relation with the costs occurred for deriving a particular items of income. Usually, it is regarded as the matching of revenues with the costs and involves simultaneous reporting of the liabilities or reducing the assets (Cajaiba-Santana 2014). Expenses such as finance costs are recognized during the year in which they are occurred.

Equity:

The ordinary shares of Brambles Ltd are classified under the contributed equity. The company does not recognize the profit and loss on the purchase, sales, issues or cancellations of equity that is owned by Brambles Ltd equity instruments. The incremental costs are directly attributed to the issue of new shares or options is represented in the equity as the deduction from the proceeds of issue.

Conceptual Framework Accounting Objectives

As evident from the annual report of Brambles Ltd, the annual report comprises of qualitative characteristics which is stated below;

Relevance: The principles of relevancy states that the financial reports of a business must include the information that are relevant and can be used by the shareholders for decision making (Hoyle, Schaefer and Doupnik 2015). Brambles Ltd follows the relevant standards of AASB, IAS and the company also provides a detailed explanation of treatment of items that are stated in the annual report.

Faithful Representation: The information that is obtained from the Brambles Ltd financial report states that the auditors are of the opinion that the company follows the Corporations Act 2001. This includes that the company provides a true and fair view of the company’s financial position and its financial performance for the year ended.

The enhancing qualitative characteristics of the Brambles Ltd is stated below;

1. Comparability:The results of the financial statements are of Brambles can be easily comparable with the earlier year results which confirms this principle. Brambles Ltd has also made used of trends of five years for comparative analysis to enables the users to measure the performance effectively.
2. Verifiability:The principles of verifiability provides the treatments of items that are presented in the annual reports. In case of Brambles Ltd, sufficient notes to accounts is provided in the annual statements.
3. Timeliness:The principles of timeliness ensures that the users are provided with information in a timely manner for making decision (Clifton and Moura 2017). For Brambles Ltd, the time of offering financial statements is usually at the end of financial year when the financial reports of the company are published for public access.
4. Understandability:Considering the understandability the data that is presented by Brambles Ltd in the financial report can be entirely understood based on the requirements of GPFR since every items is reported under the correct heads.

According to the requirements of GPFR the financial statements must be presented in a way that it helps the users in taking decision. As evident Bramble Ltd reported the underlying profit and also represented the profit from the continuing operations prior to finance cost (Brambles 2018). It offers the users of financial statement to better understand the results of business. Furthermore, the company has disclosed the significant items to help the users of financial statements to better understand the business results of Brambles.

By considering the accounting issues of Brambles Industries Ltd the executives and management must be shouldered with weighing and recognizing the corporate opportunities by developing the strategic vision for the Brambles Industries business. In addition to this, the accounting issues of Brambles Industries Ltd can be further addressed if the financial contingencies for equity capital funding is allocated in the direction of adequate cash management.

Conclusion:

On a conclusive note the financial statement prepared by Brambles Ltd is in compliance with the relevant accounting standards and conceptual framework reporting. The financial statements are prepared by taking into account the qualitative characteristics. The auditors have also stated that the business represents true and fair view which ultimately increases the reliability of annual reports.

References:

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Brambles Corporate Site. 2018. Annual Reports. [online] Available at: https://www.brambles.com/annual-reports [Accessed 17 Dec. 2018].

Brambles Corporate Site. 2018. AR2018 About. [online] Available at: https://www.brambles.com/ar2018-about [Accessed 17 Dec. 2018].

Brambles Corporate Site. 2018. Financial Review. [online] Available at: https://www.brambles.com/ar2018-financial-review [Accessed 17 Dec. 2018].

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