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ACC706 Accounting Issues and Theory Assignment
Main intention of a business organisation should promote relevancy and transparency in the financial statements so that it presents true and fair view before its users and stakeholders. Every company should maintain its accounts on the basis of reliability, relevancy, understand ability and comparability concepts so that it can bring transparency in the financial statements. Company while preparing financial statements should consider accounting theories. Accounting theories includes those remethodologies used in study and application of financial reporting principles. These theories are applicable and adopted equally by all the business organisations in order to prepare their financial accounts. Accounting theories are used to give shape the financial statements of organisation, means it increases the importance and usefulness of financial information provided in the accounts. Companies operating in Australia follow accounting principles and standard issued by Australia Accounting standard Board and it also follow principles and standards issued by IFRS (International Financial Reporting Standard) and meet the requirement of General Purpose Financial Accounting. “JB Hi-Fi Limited” is operating in retail industry and covered market of Australia and New Zealand. It was incorporated in the year 1947 and it’s headquarter is located at Australia. It deals with consumer products like CDs, DVDs, Blue-ray disks and video games and large home appliances etc. It got listed on Australian stock exchange and floated there since year 2003. Company follows Australian Accounting Standards which are the legislative requirements for corporations. Financial statement of JB Hi-Fi limited has comply with the provisions international Financial Reporting Standard. Company follows historical cost convention accounting for fixed assets.
“JB Hi-Fi Limited is a listed company and come under Australian ASX top 100 listed corporations. Those companies come under this group must maintain this position by making full and transparent disclosure of financial information and attaining top ratings from credit rating agencies like Standard and Poor’s(S&P) and ASX. For issuing ratings credit rating agencies consider transparency and clarity of the financial statements of the company and accounting policies, standards adopted and used by the company as per its nature and standard of business.
Accounts of the company follow conceptual frame work in order to maintain transparency and fairness. Conceptual framework includes:
Concept of business accrual: Company disclose all the income and expenses in the period in which it is related. This concept is applicable for outstanding expenses and prepaid incomes. These all are shows in accounts in which they relate not when they actually cleared by clients or company (Thornton, 2015).
Relevant: Financial accounts should always provide relevant information to its users and stakeholders. Relevancy means if any management person or users or stakeholder wants to take decisions on the basis of financial performance of the company than their decisions should be directly related with the information provided in books of accounts of the company (Musvoto & Gouws, 2011).
Reliable: Financial statement should always provide reliable information which met with objective criteria of the company. Every information provided in the financial accounts should have some evidence so that user can use financial information with full trust and confidence.
Understand ability: Financial statement should produce information in such a format that any person having knowledge of business and finance can easily comprehend it and make use for decision making. All the information should be provided in specified format analysis can be done easily.
Comparability: Financial information should present in such a way that it can be compared with past accounting figures or accounts of competitive companies. Comparison helps in analysing the performance of the company with reference of previous time period and with performance of competitors or rivals.
Going concern concept: Company follows going concern concept in accountancy. Financial statements are prepared on the assumptions that company will served to society for a long period of time. If management finds that there is probability that company can go for liquidation then in that case company should make note for this in its separate financial statements and consolidated financial statement.
Dual nature concept: Company follows dual entry concept for making presentation of its financial accounts. According to this concept every monetary transaction affects credit and debit side of the accounting statements.
Principle of Prudence:Company follows concept of prudence in accounts. It does not overestimates of its revenue including future revenue and always makes provisions for contingent liabilities. This concept helps in preparing consolidated financial accounts.
JB Hi-Fi Limited has adopted these concepts in its financial and accounting system in order to maintain usefulness of the accounts.
Accounting policies are specified rules and procedures used to prepare financial statements by the company. These policies are used for making disclosures of information in financial statement. Accounting standards are the parts of these policies (Colson, et. al., 2010). “JB Hi-Fi Limited” company adopt some accounting policies which are as follows:
Name of Policies
Intangible asset includes Goodwill, Brand image and trademarks of the company. Goodwill is allocated to group’s cash generating unites and impairment is also allocated annually to the goodwill (Cohen, J.A. 2011).
Stocks are stated at their net realisable value.net realisable means estimated selling price minus estimated cost.
Investment and other financial assets
Investment in subsidiaries is shown at cost and investment in associate is accounted as per equity method in consolidated financial statement and cost method in separate financial statement.
Plan and equipments
Plants and equipments are shown at cost less depreciation value and impairment cost (if any).
Revenue is calculated at the fair value of consideration received.
Payables are shown at their amortised value.
Trade receivables are also shown at amortise cost less provisions made for impairment.
Accounting standards are those guidelines which are used for preparing and presenting business income statements and balance sheet, cash flow statement etc (Ahmed, et. al. 2016). Some of the accounting standards are followed by the company in the accounting system which is as follows:
Consolidation of financial Statement: JB Hi-Fi Limited follows AASB-10 for consolidated financial statement in its account statement. It provides separate accounting information and consolidated accounting information which includes financial performance of its wholly owned subsidiaries.
Joint Arrangements: Company follows AASB- 11 of joint arrangements. Company enters into contract with other entities and exercise control over an entity. Presently company’s wholly owned subsidiary is “The Good Guys” with whom company has made joint arrangement.
Disclosure of interest in other entity: company make investment in companies other than its subsidiary and also having interest in their profits. Company follow AASB-12 and disclose its interest in those companies in the financial statement.
Impairment of assets: Company follows the disclosure requirement of treatment made with intangible asset. Company follows AASB- 136 which provides provisions related with impairment of intangible assets.
Employee benefits: Company provide wages and salaries, offer equity shares to employees of the company. Wages and equity shares are coming under the head of employee benefits and incentives. Company follow provisions related with employee benefit in AASB-119.
Separate Financial statements: Company also maintain separate financial statement in which it shows financial information related with its performance. It maintains separate accounts as per AASB-127.
Cash flow Statements: Company makes cash flow statements and provides information related with cash and cash equivalent. Cash flow statement includes information of cash in hand and in bank, net of outstanding bank overdraft etc as per the provisions under AASB-107.
Earnings Per share: As per the provisions of AASB-133 company provides information regarding EBIT and earning per share. Company make full disclosure regarding earnings of shareholders before providing tax and after providing tax.
Along with these accounting standards company adopts and follow amendments made under some accounting standards. These amendments are as follows:
Amendments related with provisions of employee benefits.
Amendment made in AASB 2011-4 which removes key management personals disclosure requirements.
Amendment made in AASB 2012-2 which amends disclosure requirement of offsetting financial assets and liabilities.
Amendment made in AASB -13 which is related with fair value measurements of fixed assets (Sutton et. al. 2015).
Company follows all the accounting standards issued by Australian accounting standard board and also adopt the amendments made in them time to time by the board. However these amendments not make any serious impact on the material of financial statements but they change the disclosure requirement for the company. For example: company adopt AASB-10related with consolidated financial statement which requires updating of companies policies related with consolidation of financial accounts. There are certain new standard issued by board but not yet effective these standards are related with materiality of information, recoverable amount disclosure from non financial assets. These applicable standards are met the requirement of IFRS Australia (Adibah et. al. 2013).
Report of the board makes a compliance statement regarding the presentation and disclosure of financial information. Compliance statement describes that company follow the applicable accounting policies and standard to represent their accounting information. Company follows standard issued by AASB and IFRS. Company follows applicable rules and provisions of corporation Act, 2001 so that financial statement gives true and fair view to the users and stakeholders of the company. Company formulates budgets and estimates disclose them in their financial accounts.
By analysing the accounting statements company users can compare actual performance with those estimates and budgets and identify the deviations from them. Company also made full disclosure of financial performance of its subsidiaries and prepare consolidated financial statement as per applicable accounting standards and meeting the criteria of accounting policies. Company describes that it monitors compliances with financial policies on monthly basis in order to notify non compliances.
Company is listed on stock exchange it compliance all the rules and regulations related with listing and continuous listing. In the compliance statement directors declares that they follow all the applicable rules related with environment.
Ethical practices follow by company for accounting
Accounting standards are considered as ethical practices which company may adopt in its financial statements. Company does not make any default in presenting financial information if it follows format principles issued by accounting authorities. JB Hi-Fi Limited is coming under Australian ASX top 100 listed company it should follow ethical practice and disclose full information regarding investment, secured loan made by the company. If Company adopt unethical practice in accounting then it result a great loss of company itself and it affect the goodwill and brand image of the company. Apart from adopting Australian accounting Standards Company should follow International financial reporting standard and general purpose financial reporting to keep transparency in its financial accounts. Company should adopt human ethics in sense of morality in business accountancy with an intention of creating financial transparency among stakeholders and other general users of the company (Roberts &D.H. 2010).
Conclusion and Recommendation
In ACC706 Accounting Issues and Theory Assignment, We discussion made on accounting concepts, policies and standards explains their importance in the presentation of financial information of company towards management, stakeholders and users. Company should practice ethical code of conduct in accounting also so that managers, investors and creditors of the company are confident that the financial recordkeeping practices of accounting professionals are fair and honest and consistent with applicable accounting standards. Good practice of accounting ethics increase reliability and trust of users. Company should make provisions for taking strict actions against accounting professionals if they are not practicing ethical codes. Company should follow generally accepted accounting principles in order to bring reliability in the financial statements.
Applicability of accounting disclosures are increased as the company got listed on stock exchange. True and fair view of financial accounts is necessary because it affects not the decisions and strategies of managers of the company but also it affects stakeholders at large. Financial statements help in taking decisions related with investment and returns. Fair financial statements help in knowing liquidity and insolvency position of the company. JB Hi-Fi Limited practices good accounting policies and show financial information within conceptual framework of accounting.
Adibah Wan Ismail, W., Anuar Kamarudin, K., van Zijl, T. & Dunstan, K. 2013, "Earnings quality and the adoption of IFRS-based accounting standards", Asian Review of Accounting,vol. 21, no. 1, pp. 53-73.
Ahmed, M.U., Sabirzyanov, R. & Rosman, R. 2016, "A critique on accounting for murabaha contract: A comparative analysis of IFRS and AAOIFI accounting standards", Journal of Islamic Accounting and Business Research, vol. 7, no. 3, pp. 190-201.
Cohen, J.A. 2011, Wiley Finance: Intangible Assets: Valuation and Economic Benefit (1),Wiley.
Colson, R.H., Bloomfield, R., Christensen, T.E., Jamal, K., Moehrle, S., Ohlson, J., Penman, S., Stober, T., Sunder, S. & Watts, R.L. 2010, "Response to the Financial Accounting Standards Board's and the International Accounting Standards Board's Joint Discussion Paper Entitled Preliminary Views on Revenue Recognition in Contracts with Customers: American Accounting Association's Financial Accounting Standards Committee (AAA FASC)", Accounting Horizons, vol. 24, no. 4, pp. 689.