Public Interest and Its Relevance to Financial Reporting - Assignment Example

Name: Lecturer: Course name: Course code: Date: Question one Public interest and its relevance to financial reporting Abstract For a couple of years, the nature of financial reporting has transformed to meet the varying requirement of users of the financial report. The Business and capital markets have turn out to be more difficult, with greater difficulty in business approach, sources of threat and ambiguity, as well as greater complexity in how threat is administered. This progression reflects a craving for information that is significant to users, even if such information may be more subjective and less dependable. Financial reporting disclosure prerequisites and practices have as well had to act in response to these transformations by changing from just providing breaks of line items on the face of the financial statements to providing more comprehensive principles, together with disclosures of hypothesis, models, substitute’s ascertainment bases and sources of assessment indecision, amongst others. Disclosures have turn out to be the matching item in the calculus of how to offer trustworthy, important informational decision. Every company are mandated by the Australian accounting standard board (AASB) as well as the international financial reporting standard(IFRS) to prepare its annual or quarterly report in conformity with the laid down accounting disclosure principles. The company financial; statement should be prepared and must portray the business as a going concern .The reason for this is that, the financiers of the company are interested with the company’s performance and are majorly concerned with returns inform of profit the company made over the last financial year since, the shareholders had invested some funds inform of equity capital in the company .In this regard, shareholders would be keen on the financial report of the company and places reliance on the information provided by the reporting in concluding on the financial situation of the company. Introduction Public interest on the financial report of a listed company has increased in the present years due to increase in the need of the accountability by way of corporate and compliance governance by the directors. Many companies such as the HIH have collapsed due to poor corporate governance by the top level executive in running the business and hence the need for public interest has increased in recent years. This is due to the fact, shareholders have invested huge sum of money in the business by way of equity capital and are thus interested on how such funds are invested since, company law provides that legal entity is distinct from those who govern the business and hence the business has a legal entity of suing and be sued as well as it will exist into a foreseeable future. This facto consequently will not make the directors of the company bare the loss that the business suffers but instead the existing shareholders. Potential investors who would wish to invest in a potential company will thus take a longtime in analyzing the reported financial statement in order to ascertain the growth of the company as well as the performance in the security market and hence they will be in a good position to analyze and make a decision of whether to invest or not in the business. This is the reason why public interest on the company’s financial statement is increasing the in recent years. The increase of public interest on the company’s financial report Public interest on the need of the company’s financial report has increased in recent years. This is due to the fact that many business fails to observe the corporate social responsibilities in running the business and thus the company can lead to collapse.HIH limited is an example of a company which collapsed at the expense of the shareholders due to poor corporate governance principle. The business did not ensure that full accounting disclosures and compliance were put in place in their daily operation. The shareholders of the company suffered huge loss and consequently emergence of public interest in recent years was eminent. The company law on the other hand provides that the company is a legal entity and distinct from the directors who run the company and hence, any loss suffered by the business will not be compensated by the directors but instead the business will suffer loss that might threaten the business to wind up and shareholders will incur huge losses as well. Other than shareholders, investors are as well interested on the financial report of the company since, in recent years, many business are listed on the stock exchange hence it can be easy to track the company’s performance both historic and future trend before making a viable investment opportunity. An ideal investment opportunity can only be achieved where an investors has a full information about the company. In this regard, this information can only be ascertained where an investor access the financial report of the company every financial year. Question two Accounting policy adopted by Graincorp Company Introduction Graincorp Limited is a public corporation listed on the Australian Securities Exchange. The company's central part of the business is receiving as well as providing storage of grain and associated product in Australia the Corporation was originally incorporated as a New South Wales public sector organization, Government Grain crane in 1917 (Kurt Ramin, 2013). It was incorporated to ship grain from home assortment points located on railways throughout the grain-producing regions of New South Wales. The business afterward came to be called the Grain Handling Authority. In1992, the business was privatized with a preponderance of shares being shifted to grain growers, as well as listed on Australian Stock market in the year in 1998.the company is listed in the security market and some of the company’s accounting policies adopted were as follows 1. Leases and leaseback Where a considerable segment of threats and incentives of possession are preserved by the lessor, then they are categorized as operating leases. Lease rental costs, as well as superior rentals in relation to operating leases, are expensed to the integrated income statement on a straight-line basis for a time of the let out (Harvey Kapnick, 2004). Gains and losses from proceeds of sales and leaseback business consequential in operating lease And where the value of the retail price is at fair value, are documented right away in the consolidated income statement. Where the value of retail is below fair value, whichever gains and losses are right away documented in the consolidated income statement, excluding e the loss is rewarded for by prospect lease payments less than market price, it is an overdue and amortized in percentage to the lease imbursement over the period for which the useful life of the asset. Where the retail price is higher than the fair value, the surplus over fair value is postponed and amortized over the useful life of the assets, where the profits consequential on retailing and leaseback dealings consequential in finance leases, the surplus of retailing proceeds over the carrying amount is delayed and amortized over the lease term. Lease categorization is made at the commencement of the let out. Lease categorization is altered merely if, at any time throughout the let out, the parties to the lease contract be in agreement to alter the provisions of the lease in a way that it would have been classified 2. Goodwill This stand for the surplus of the consideration reassign over the fair value of the portion of the net realized assets at the time of purchase. Goodwill is tested for impairment yearly or more often if events or alterations in situations point out a prospective impairment and is carried at cost with a reduction of build up impairment losses. For the reason of impairment testing, goodwill is assigned to money producing units or collection of money generating units that are anticipated to advantage from the dealing amalgamation in which the goodwill occurred (Gibson, 2010). An impairment loss is documented and accounted for when the carrying value of the money generating units surpass its recoverable value. Impairment losses on goodwill are not invalidated. Gains and losses on the selling of a business comprise of the carrying amount of goodwill involving the business disposed. Intangible assets are capitalized at historical cost simply when prospect economic advantages are plausible. Price entails the value of the acquisition jointly with every unswervingly attributable cost. Insubstantial assets are amortized on a straight-line basis over their anticipated useful lives. For fly Emirates airline, the anticipated useful of their intangibles are as follows: Service rights 15 years Trade names 20 years Contractual rights 15 years Computer software 5 years Impairment of non-financial assets Goodwill is not subjected to amortization moreover it is tested yearly for impairment. Additional non-financial assets are appraised for impairment when occasion or alteration points out that the carrying amount might not be realized. An impairment loss is documented for the sum by which the asset’s carrying total surpasses its realizable value (Fernando, 2009). The recoverable value is the higher of an asset’s fair value minus outlay to trade and worth in use. For the reason of evaluating impairment, assets are clustered at the lowest intensity for which there are independently identifiable flows .Other Non-financial assets instead of goodwill are appraised at the closing financial reporting time for probable reverse of the impairment loss. 3. Loans and receivables Loans and receivables are non-derivative financial assets with determinable expenditure that are not quoted in a dynamic security market. Such values are at first realized at fair value as well as operation costs and carried at amortized cost by appreciating the effective interest technique. The values are derecognized when rights to take delivery of cash flows have terminated or have been shifted along with considerably all the threat and rewards of possession. At each year ending financial reporting time, an appraisal is made whether there is any purpose confirmation of impairment. Where essential, the carrying value is written down through the consolidated income statement to the current worth of anticipated prospect cash flows discounted at the effective interest rate calculated at early acknowledgment. Question three Users after amendment to the framework will result in the creation of more decision useful information for all the users of financial statements. The amendment of Australian conceptual framework (AASB CF 2013-1) will lead to provision of relevant information that will aid potential users of the financial statement in that the company will to survive without the investor who invest into the business and thus the capital base of the company will increase, the creditors of the company will as need to ascertain the company’s performance since they are interest ion comprehending the business situation of the company and concluding on whether to provide loan facilities or not (Fernando, 2011). In this regard, it is apparent that a company will be mandated to provide full disclosures of their financial statement and ensure that the key stakeholders of the company, financial statement fully comprehend the financial report of the company. The key users of the financial statement and the need of the company in ensuring that financial statement is comprehensible are as follows 1. Lenders The lenders to the company are always interested in understanding how the business is well performing as well ascertaining the return from investment in order to guarantee return of their loans. In this regard, many companies will ensure that only relevant and vital informati0on are provided in the financial statement since, lenders will assess the company’s financial statement on concluding whether to provide loan or not based on the financial report of the company of a given closing financial year. In this regard, Many companies will be forced to adhere to AASB CF 2013-1 if they will going for the loan to finance their daily business operation .A company that do not provide a fully reliable financial information that clearly reflect the true and fair financial situation of the business will face financial difficulty and might as well end up wounding up since, the lenders are not contented with the report of their financial statement (Calder, 2008). This amendment consequently is ideal to both parties since, it helps the lender in avoiding these risky companies that might fail in repaying their loans back and also it aids the business since, compliance with AAASB guarantee business continuity in that, all accounting disclosures are fully adhered with and thus the company can be depicted as a going concern hence encouraging lenders to provide more fiancé to the business. 2. Potential investors Investors willing to invest in a company will merely not just conclude on their investment decision from viewing the company’s overall outside performance but, they perform a detail scrutiny on the company’s performance, the return on capital as well as return on profit on a yearly or quarterly basis (Colley, 2003). The investment decision as ideal to the business since it will increase the capital base of the company and as well enhance the liquidity ratio. This in return will make the company to survive in a stiff economic situation into a foreseeable future. The company consequently is mandated that they provide a fully reliable financial statement to the investors so that they can make wise investment decision of whether to invest or not. The company should therefore ensures that all the accounting disclosures are fully disclosed in the financial statement and the investors can fully comprehend the financial report of the company, in this regard, the going concern assumption of the business will be guaranteed. 3. The creditors Creditors of the company owe the business some cash for service rendered or product supplied to be paid within an agreed period of time. They are therefore interested in the financial performance of the company in that, A company should therefore ensures that its financial statement provide a fully reliable report as well as the disclosures in which it can be relied upon by creditors in ascertaining the liquidity as well as the profitability position of the that company. This due to the fact, a debt agreement can only be agreed with those companies that have a strong profitability and liquidity ration since, this ratio depict how strong the company is in repaying the amount for goods bought on credit. In this regard, a company must ensure that financial statement provides fully reliable information and that all the accounting disclosures have been fully adhered with (Arun Kumar Basu, 2013). the financial statement for Graincorp limited as a good example of how it gives full disclosures on the creditors of the company as well as how the company intend to pay the debt owed .in this regard, the creditors o the company will get contented with the company’s performance based on the information provided by the financial statement Bibliography Arun Kumar Basu, ‎.A.K.‎.S., 2013. Studies in Accounting and Finance: Contemporary Issues an. Calder, A., 2008. Corporate Governance: A Practical Guide to the Legal. Colley, J.L., 2003. Corporate Governance. Fernando, A.C., 2009. Corporate Governance: Principles, Policies and Practices. Fernando, A.C., 2011. Corporate Ethics, Governance, and Social Responsibility. Gibson, C., 2010. Financial Reporting and Analysis: Using Financial. Harvey Kapnick, ‎.(.a.C., 2004. In the public interest: accounting and financial reporting. Harvey Kapnick, ‎.(.a.C., 2004. In the public interest: accounting and financial reporting. Kurt Ramin, ‎.R., 2013. IFRS and XBRL: How to improve Business Reporting. Stella Fearnley, ‎.B.‎.H., 2011. Reaching Key Financial Reporting Decisions: How Directors. Young, M.R., 2003. Financial Reporting Handbook - Page L-91. Read More