Accounting Standard Disclosure Required in Australia - Case Study Example

Table of Contents Executive Summary 2 Introduction 3 Accounting Standard Disclosure Required in Australia 3 Current Accounting Policies 5 Bridging the Gap 7 Recommended Actions 9 Conclusion 10 References 11 Executive Summary The report brings forward the changes with regard to the accounting disclosure policies which has been made by ASIC and highlights the manner it impact organizations. This has been aided by looking into the manner the different corporate entities have adhered to it. The report shows that Suez Environment has been able to work and present the financial statement as per the requirement of ASIC but requires certain changes in areas like off balance sheet arrangement, current and non current estimates, Revenue Recognition, and Expense Deferral & Other Income. This is an aspect which Suez Environment has to improve so that the overall financial statement improves and will thereby facilitate the user of to take better decisions. Introduction The Australian corporate sector has witnessed changes with regard to the different disclosure principle in the financial statement after the global crisis. Australian Securities & Investment Commission (ASIC) which is the governing body has made a lot of changes which the corporate entities have to achieve. This has been done to reduce the shocks and ensure that the decision taken by the user of the financial statement is better. This report presents the different disclosure changes which have taken place in the financial statement. To examine the changes of the policy in the financial statement the financial statement of Suez Environment has been analyzed. This will help to present the manner in which Suez Environment has highlighted the different requirements and the gap which exist between the proposed ASIC requirements and the one followed by Suez Environment. This will help to develop the required strategy for the future through which the gap will be filled and the importance of the financial sector reporting will be increased. This will help to improve the relevance of decision making and ensure that the goals are better achieved. Accounting Standard Disclosure Required in Australia Australian Securities & Investment Commission (ASIC) which is the governing body in Australia has made certain changes in the disclosure principle after the global economic recession and continues to do so. This is done to improve the validity and reliability of the financial statement and some of the proposed changes by ASIC are as Estimates & Accounting Policy Judgments ASIC requires that complete disclosure regarding the estimates and accounting policy judgment pertaining to asset, income expenses and revenue is provided. The corporate entities have to provide complete and total description of all the transactions and have to ensure that no material information is concealed. This requires that the director takes on the additional responsibility and verifies all the books of accounts to ensure that all information which has material significance is provided in the financial statement (ASIC, 2013). Revenue Recognition, Expense Deferral & Other Income ASIC has stated that assets which should be recorded as up front revenues by ensuring that they are recognized as financial assets instead of tangible assets. This will ensure that the financia asset is recognized at fair value instead of amortized value. This will multiply the effectiveness of the financial statement as the user of the financial statement will be able to understand the manner in which the organization performed and will bring forward different highlights and areas which will help to improve the overall efficiency of the system to work (ASIC, 2013). Asset Value ASIC has made it mandatory that all assets including goodwill are carried at fair value and not at the amortized value. The corporate entities have to ensure that the real value which is the present value of the asset is provided. This will help to include the evolving environmental factors and ensure that the actual economic condition of the business is considered and will reveal the true and actual position of the entity (ASIC, 2013). Off Balance Sheet Arrangement ASIC provides that complete description has to be provided for off balance sheet items and the reason for having those items as off balance sheet has to be provided. It is the role of the corporate entity to provide complete description and reason as to why the financial assets is considered an off balance sheet item and it is the duty of the director to ensure that it is clearly provided (ASIC, 2013). Current versus Non Current Classification ASIC requires that the financial statement must clearly disclose the current and non current assets and liabilities. This will help to ensure that the user are able to gauge the liquidity better, ASIC has further provided that any asset or liability will be considered as current only if it is converted into liquid cash within a period of 12 months. In case any asset or liability which was treated as current has been converted into non current classification then complete details for the transaction along with the reason for such a change has to be provided (ASIC, 2013). Thus, ASIC has made major changes in the disclosure principle and requires more material information to be provided so that the user of the financial statement are able to take better decisions and improve the overall relevance of the financial statement while taking decisions. Current Accounting Policies Suez Environment in their financial statement has taken the required steps to ensure that the financial statement and the books of account clearly highlights the different requirements of the disclosure policy. This is done on the backdrop that it will help to improve the process of decision making and ensure that the users of the financial statement are able to find complete information. Some of the specific disclosures seen in Suez Environment are as Estimates & Accounting Policy Judgments Suez Environment has provided complete disclosure related to the different material transaction that has taken place with regard to asset, liability, revenue and expenses. The financial statement provides complete disclosure with reard to sector, segment and area. In addition to it the financial statement also provides complete description of each transaction and looks to highlight the different accounting policies it has followed and ensures a proper disclosure to ensure that all material information is provided. Revenue Recognition, Expense Deferral & Other Income The financial statement of Suez Environment is unclear with regard to the requirements of ASIC. ASIC has stated that assets which should be recorded as up front revenues by ensuring that they are recognized as financial assets instead of tangible assets. This will ensure that the financial asset is recognized at fair value instead of amortized value. Instead, the financial statement doesn’t provide a disclosure which will help to understand whether the financial assets have been recognized at fair value or not. In case of goodwill the asset is shown as fair value as changes in depreciation has been accounted but for other financial assets no complete description is provided which shows lack of clarity and disclosure. Asset Value Suez Environment has partially agreed to the requirements provided by ASIC. The financial statement and the disclosure reveal that some of the assets have been provided at fair value. For instance changes in depreciation, intangibles and plant and machinery have been made. The above mentioned assets have been classified at fair value and the changes have been accounted through depreciation. In case of other assets no description has been provided regarding the fair value and creates doubt whether the financial statement reveals the true and actual position. Off Balance Sheet Arrangement Sued Environment hasn’t provided any details in the disclosure regarding the off balance sheet items which creates doubt and uncertainity whether the organization has any off balance sheet item or not. Current versus Non Current Classification Suez Environment has divided the assets and liabilities into current and non current classification but haven’t provided any details whether any current asset or liabilities was converted into non current classification and no description for the same along with the reason has been provided. Bridging the Gap The requirements of ASIC and the manner in which Suez Environment prepares the financial statements highlights the following gaps ASIC has stated that assets which should be recorded as up front revenues by ensuring that they are recognized as financial assets instead of tangible assets. This will ensure that the financial asset is recognized at fair value instead of amortized value. The financial statement of Suez Environment is unclear with regard to the requirements of ASIC. Instead, the financial statement doesn’t provide a disclosure which will help to understand whether the financial assets have been recognized at fair value or not. ASIC has made it mandatory that all assets including goodwill are carried at fair value and not at the amortized value. Suez Environment has partially agreed to the requirements provided by ASIC. The financial statement and the disclosure reveal that some of the assets have been provided at fair value. For instance changes in depreciation, intangibles and plant and machinery have been made whereas in case of other assets no information has been provided ASIC provides that complete description has to be provided for off balance sheet items and the reason for having those items as off balance sheet has to be provided. Sued Environment hasn’t provided any details in the disclosure regarding the off balance sheet items which creates doubt and uncertainity whether the organization has any off balance sheet item or not ASIC requires that the financial statement must clearly disclose the current and non current assets and liabilities. In case any asset or liability which was treated as current has been converted into non current classification then complete details for the transaction along with the reason for such a change has to be provided. Suez Environment has divided the assets and liabilities into current and non current classification but haven’t provided any details whether any current asset or liabilities was converted into non current classification and no description for the same along with the reason has been provided Thus, there exist some gaps between the requirements of ASIC and the manner in which the financial statement has been prepared by Suez Environment Recommended Actions Suez Environment has to take the following steps to ensure that they comply with the ASIC requirements Suez Environment has to strengthen their discsloure and ensure that the financial assets are disclosed at fair value. This should be accompanied by a complete disclosure which will highlight the manner in which a financial asset will help in generation of revenue in the future and need not be amortized. Suez Environment has to provide complete details regarding depreciation for the entire asset holding. This will help to ensure that the assets are at carrying value and will help to understand the manner in which the performance will be changed in the future. This will also ensure that the environmental factors are considered and assist in decision making Suez Environment has to provide complete disclosure regarding the classification of current and non current assets and liabilities. Clear and complete information regarding the transactions should be provided and if any asset or liability which was treated as current has been classified as non current should be stated and the reason for that change should also be provided. Suez Environment has to provide a disclosure regarding the off balance sheet item and completely disclose the reason for it being treated as an off balance sheet item and the implication it will have for the users of the financial statement Conclusion This report shows the different disclosure changes which have taken place in the financial statement by examining the changes for Suez Environment. This will help to present the manner in which Suez Environment has highlighted the different requirements and the gap which exist between the proposed ASIC requirements and the one followed by Suez Environment. This will help to develop the required strategy for the future through which the gap will be filled and the importance of the financial sector reporting will be increased. This will help to improve the relevance of decision making and ensure that the goals are better achieved. References ASIC, 2013. Attachment to 12-140MR: ASIC’s areas of focus for 30 June 2012 financial reports. Retrieved on April 23, 2013 from http://www.asic.gov.au/asic/asic.nsf/byheadline/Attachment+to+12-140MR%3A+ASIC%E2%80%99s+areas+of+focus+for+30+June+2012++financial+reports?openDocument Suez Environment. 2013. Suez Environment. Retrieved on April 23, 2013 from http://www.suez-environnement.com/ Read More