Australian Accounting Standards Board(AASB) Essay

Question:

Discuss about the Australian Accounting Standards Board(AASB).

Answer:

Introduction

The current study presents a detailed illustration of different systems and mechanisms of accounting that can assist in monitoring, controlling as well as directing business operations with special indication to different operational functions of Qantas Airways. Qantas Airways is the largest airline in Australia from the perspective of size of the fleet, different international flights and worldwide destinations (Qantas.com.au 2016). Qantas Airways possess the share of around 65% of the domestic market in Australia and carries just about 14.9% of overall passengers travelling both “to and from” Australia. However, the size of the fleet of the company Qantas Airways is recorded to be around 131 that carries out operations throughout 85 destinations. (Qantas.com.au 2016).

In addition, the current study presents a critical evaluation of different concepts of measurement that can points out towards the need for reviewing the compliance towards different rules for measurement, assessment of the General Purpose Financial Reports prepared and presented for different users of financial information of Qantas Airways (Yong et al., 2016). Furthermore, the current study also detects diverse issues associated to the process of measurement. In addition to this, the present report also expounds in depth the concepts of prudence and compliance to the conceptual configuration for financial reporting (Qantas.com.au 2016).

Evaluation of the General Purpose Financial Reports:

Different concepts of Measurement: Conceptual Framework

The conceptual framework essentially indicates the intentions of as well as the principles of the general purpose financial reporting. Again, in other words, the conceptual structure is an effectual tool that can assist the board of the company in the process of development of the financial standards founded on different notions. In addition to this, the conceptual structure also helps preparers of specific general-purpose financial reports to build up effectual and simultaneously reliable strategies of accounting while the financial standard can authorize the selection of the particular accounting plan (Williams, 2016). Besides this, the conceptual structure also supports the course of comprehending with interpreting the accounting standards. Additionally, the intent and function of the conceptual structure is also to enhance the overall structure of financial coverage by offering an absolute, restructured and all together comprehensible set of principles (Aasb.gov.au. 2016).

The financial statements of the Qantas Airways, complying with the “Conceptual Framework AASB” helps in managing different intentions of the financial declarations, diverse qualitative uniqueness that in turn establishes the usefulness of the financial statements (Uyar & Gungormus, 2016). However, there are diverse components that can shape the entire financial declarations. The essential elements of the financial declaration comprise of the current and non-current assets, current and non-current liabilities as well as shareholders’ equity. The different items of the financial reports elucidate the financial situation of the corporation. Again, the structure also helps in the process of evaluation of the financial health of the corporation from the perspective of income, operating expenses and the profit (Aasb.gov.au. 2016). Besides this, the conceptual framework also explains in detail different criterion and the decisive factors for recognition and acknowledgment of diverse items in the financial declarations of the corporation.

Problems of Measurement in the context of the AASB Standard and Framework

The accounting standard AASB 13 Fair Value Measurement refers to the process of establishment of a single as well as principles-based structure for measurement at fair value at the time there is a need for the Australian Accounting Standard. Again, the AASB 13 normally does not transform at the time when a particular business entity need to make use of the fair value. Therefore, the AASB 13 comprises of different notions regarding the best exercise, assessment principle and has need of application of a fair value (Uno & Bartelmus, 2013).

The income proceeds of the company Qantas Airways is recorded to be $15816 million during 2015 where the net income proceeds for the passenger adds $13667 million along with the net freight revenue that provides $936 million (Qantas.com.au 2016). Again, the Board of the corporation Qantas pursues a charter and is liable for the establishment and evaluation of the tactical direction and supervision of the overall process of execution of the strategy of Qantas Airways. In addition to this, the CEO of the business is accountable for day to day administration of the operations of the entire Qantas group. Again, the company secretary is liable directly to the Board as well as the Chairperson on different affairs associated to the appropriate functioning of the company. The board of the corporation Qantas Airways is appropriately structured and separated into four committees (Schrand et al., 2016). The committee includes the (“Audit committee, Nominations committee, Remuneration Committee and the Safety, Environment, Environment and security committee”) to augment the shareholders’ value. Over and above this, the Board of the company also complies with the “Group’s Continuous Disclosure Policy” that calls for the need of preparation and presentation of timely and all together balanced disclosures that can ensure orderly trading of the issued shares of the corporation in a well informed market. Again, Qantas Airways also has a “Shareholder Communication Policy” that successfully promotes two different effectual ways of communication with the relevant shareholders of the corporation. The board of directors of the company is responsible for the presentation of the remuneration report that in turn complies with the principles conditioned under” Section 30A of the Corporation Act 2001”. In addition to this, the review of the remuneration report replicates the fact that the short-term incentive plan can be regarded as the “Annual at risk incentive plan” for diverse members of the workforce of the Qantas Airways. The Board of the corporation Qantas Airways also assesses the performance of all the members of staff against the factors slated in the scorecard measured at approximately (140%). However, the “long-term incentive plan” is the policy of the incentive payments to the executives that are essentially assessed based on the “three-year performance plan” of the company. Thus, the strong financial condition of the corporation Qantas Airways also aided the management of the company to handle the downturn and attain good financial even for the period of the period of the Global Financial Crisis (Schipper et al., 2016).

Assessment of the measurement of items in the financial reports of Qantas Airways

The assessment of the financial reports includes evaluation of the consolidated financial statements of the Qantas Airways that are in essence the general-purpose financial reports. The corporation Qantas Airways prepares the “general purpose financial reports” in compliance to standards specified in the Australian “Accounting Standards Board (AASB)” along with the “Corporation Act”. Besides this, the corporation also prepares and presents the financial statements in line with the “International Accounting Standards Board” as well as the “International Financial Reporting Standards” (Ryan et al., 2014).

Assets: According to the financial declarations registered for the period of the year 2015, the total assets of the corporation are recorded to be $17530 million. Again, the assets possessed by the company are essentially expressed in terms of the Australian Dollars that are essentially the operational currency of the particular firm. However, the process of evaluation of assets stated in the financial statements reveal the fact that the assets can be categorized as the “as held for sale” that are essentially measured at lower value of the identified cost compared to the fair value after the subtraction of the costs incurred for sales. Nevertheless, the “net defined asset” of the company Qantas Airways is recorded at the fair value of diverse plan assets after subtraction of the current value of the definite benefit obligation (Richard & David, 2016).

Liabilities: As recorded in the financial statement of the corporation Qantas Airways, the overall liabilities of the corporation Qantas Airways stands at $14083 million during the period 2015. Nevertheless, the balance sheet of the company records both the current as well as different non-current interest-bearing liabilities that can be utilized for financing the functions of the business of Qantas Airways. As per the annual financial report of the company Qantas Airways, the item of liability in the balance sheet of the company is recorded based on the historical cost and valued at the operational currency that happens to be the Australian Dollar. The net defined liability of the company is calculated at the fair value of different plan liabilities after subtraction of the present value of the defined advantage requirements (Rankin et al., 2012).

Equity: A study of the balance sheet of the corporation Qantas Airways replicates the fact that the equity of the shareholders of the company stands at $344 million during the year 2015. As mentioned in the annual declaration of the firm, the derivatives expressed at the fair value by means of the profit as well as loss is calculated at the fair value (Rahman, 2013). Therefore, the company uses different model on accounting the derivatives that calls for the need of the fair value measurement.

Inventory: The financial position and the degree of efficiency of the operations of the company can be analyzed from the evaluation of the level of inventory of the firm. The inventory of the company Qantas Airways augmented and rose to $322 million during 2015 from the recorded figure of $317 in the year ago period. The reason behind the augmentation of the inventory is primarily owing to the increase in the engineering expendables; shrink in different consumable stores and the reduction of the work in progress. However, the lack of potential of the firm to manage the inventory of the Qantas Airways might perhaps weaken the competitive position of the business (Qantas.com.au 2016).Accounts receivable, provision for bad debt and doubtful debt: As mentioned in the annual consolidated financial declarations of the firm Qantas Airways, the accounts receivables of the company are registered to be $959 million in the year 2015. The annual declarations for the company reveal the fact that the current receivables of the company Qantas Airways declined from $1196 million to $959 million during the period 2015. Again, the numeral for the non-current receivables in the balance sheet also reflects a decrease from the $158 million during 2014 to $134 million in the year ago period (Myers, 2016). Again, the decline in the overall accounts receivables can direct towards the decrease in both the trade debtors as well as the sundry debtors. Again, the company essentially recognizes the trade receivables at the fair value and are enumerates the same at amortized cost using the interest method after subtraction of different payments for impairment. Again, the administration of Qantas Airways formulated an optimal framework for capital by simultaneously lessening the debt and escalating the liquidity that led to the enhancement of the return on employed capital to around 16%. However, the “transformation program” of Qantas Airway also assisted the business in making the repayments of roughly $1 billion of the total net debt of the corporation Qantas Airways (Qantas.com.au 2016).

Plant, property and equipment (PPE): As per the annual financial declarations of the firm, the plant, property and equipment of Qantas Airways amounted to $136 million in the year 2015. Nevertheless, the plant, property and equipment (PPE) of the company Qantas Airways were registered to be $134 million in the year 2014. The reports marked the 1.4% increase in the plant, property as well as equipment in 2015. The analysis of the financial reports reflects the fact that the non-recurring fair value calculation for the PPE that are classified as “held for sale” can further be categorized under the fair value ladder based on utilization of different inputs of appraisal mechanism (Yong et al. 2016).

Depreciation: As per the reports declared in the annual statements, it can be hereby ascertained that the depreciation and at the same time amortization cost were recorded to be lesser with $195 million after reduction ensuing from different non-cash impairment to the Qantas International fleet. Depreciation and amortization expenses were essentially lower than the $195 million of the diminution ensuing from the non-cash harm to the Qantas International fleet”. Again, the depreciation and amortization expense was essentially registered to be $1422 million in the year 2015 that increased from the year ago figure of $1096 million (Qantas.com.au 2016). The management of the organization refers to the straight-line process of depreciation based on the various financial items of plant, property as well as equipment except only the land that are not depreciated. The rate of depreciation of diverse owned assets are in essence calculated to allocate different owned assets that are calculated after subtraction of the estimated residual value over the anticipated economic life of the asset of the Qantas Group. In addition to this, the assets of the company are generally devalued from the acquisition date as regards internally produced assets from the time the definite asset can be applied (Miller & Power, 2013).

“Treatment of leases”: The Qantas Group fundamentally leases a particular airline under finance leases that has the expiry dates ranging between one and ten years (Kang & Gray, 2013). On the other hand, analysis of the financial declaration reveals the fact that the total finance leases of the company Qantas Airways is equal to $1498 million where the operating lease amounts to $2782 million. The financial reports also reveal the fact that the capitalized operating lease liability is in essence calculated at fair value at the particular commencement date of the lease. Again, the measurement of the lease needs to be re-enumerated over a particular term of the lease founded on both principal and interest that is almost similar to finance lease (Qantas.com.au 2016).

Analysis of the process of reporting revenue in the financial reports of Qantas Airways:

Relationship between the measurement employed and the provision of decision-making

The preparer of the financial statements of Qantas Airways essentially complies with the Corporation Act 2001 along with different Listing Rules stated under the Australian Stock Exchange (Aasb.gov.au. 2016). Furthermore, the management of the organization Qantas Airways has adopted the strategy of providing constant disclosures that in turn can help the financiers of the firm in getting a clear understanding regarding the financial performance as well as the financial position of the firm (Henderson et al., 2015). Besides this, the continuous disclosure can also help in augmenting the confidence of the investors regarding the transparency, reliability and integrity of the operations of the organization and the financial statements declared by the corporation.

The process of preparation as well as presentation of the financial statement of the firm also follows the conceptual framework AASB (CF). The conceptual framework provides a clear overview regarding the definition and objectives of the financial statements along with the scope and the criteria for recognition of the data. The framework also helps in understanding the process of measurement of different items in the financial statements. Accordingly, the investors can examine the effectiveness of the business by using the financial statement of the firm prepared using different accounting standards of the AASB (Edwards, 2013).

The system of measurement employed also indicates the orientation of the preparers of the financial system to prudence in the conceptual configuration. The compliance of the financial declarations to relevant standards can thereby ensure the overall steadiness in the financial information and make certain the nature of the neutrality of diverse activities (Atrill & McLaney, 2016). Again, the conformation with the relevant standards for measurement of the financial statements and adherence to different guiding principles can help in avoidance of different attempts of deliberate misstatements in the financial reporting. Therefore, the presentation of the financial statements as per the conceptual framework can help in minimizing the errors in the statements of the company and generate investor’s confidence. The financiers can thereby rely on the financial statements and arrive at useful decisions (DRURY, 2013).

The update as well as improvement of the conceptual framework indicates the process of elimination of the IASB with particular point of reference to diverse notions of prudence. The procedure of updating and at the same time developing the notion of prudence needs to exclude noteworthy factors of faithful representation (Deegan, 2013). The up gradation of the standards also indicates the system of updating diverse point of references to the conceptual framework that in turn refers to the anticipated amendments to the standards, namely the “AASB 2, AASB 3, AASB 4, AASB 6, AASB 101, AASB 108, AASB 134” among many others (Barth, 2013).

The investors can analyze the performance of the organization by studying the inventory level of the organization and the effectiveness of the organization in conversion of the inventory to sales before arriving at any decision (Bonin, 2013). The measurements of the plant, property and equipment using the relevant accounting standards can help the investors in understanding the value and thereby help the financiers to become responsive to different options of investment of the firm on the PPE. The investments of the corporation on the PPE might possibly indicate towards the outflow of cash that can help in generation of revenue in the future period (Chan et al., 2016). Therefore, the items presented in the financial statements as per the required standards can help the shareholders of the company and the wider community of the financiers in understanding financial position of the firm and boost their sentiments.

Conclusion

The financiers can evaluate different items of the financial reports of the corporation Qantas Airways and presents the different concepts of the financial measurements. In addition to this, the current study also helps in understanding the problems related to measurement in the present context of the present AAASB standards and framework with special orientation to the operations of the company Qantas Airways. Again, the above-mentioned study has helped in gaining a deep understanding regarding the issues related to the measurement of different items of the financial reports in the context of AASB. Furthermore, the above study also helps in gaining an oversight on the relationship between the measurement employed in the Qantas Airways and the provision of the different decision.

Reference List

Aasb.gov.au. (2016). Australian Accounting Standards Board (AASB) - Home. [online] Available at: [Accessed 23 Aug. 2016].

Atrill, P., & McLaney, E. (2016). Financial Accounting for Decision Makers 8th edn. Pearson Higher Ed.

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

Bonin, H., (2013). Generational accounting: theory and application. Springer Science & Business Media.

Chan, S. H., Song, Q., Rivera, L. H., & Trongmateerut, P. (2016). Using an educational computer program to enhance student performance in financial accounting. Journal of Accounting Education.

Crawford, C. W. (2016). ACTG 201.05: Principles of Financial Accounting.

Deegan, C., (2013). Financial accounting theory. McGraw-Hill Education Australia.

DRURY, C.M., (2013). Management and cost accounting. Springer.

Edwards, J.R., (2013). A History of Financial Accounting (RLE Accounting)(Vol. 29). Routledge.

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

Kang, H. and Gray, S.J., (2013). Segment reporting practices in Australia: Has IFRS 8 made a difference?. Australian Accounting Review, 23(3), pp.232-243.

Miller, P. and Power, M., (2013). Accounting, organizing, and economizing: Connecting accounting research and organization theory. The Academy of Management Annals, 7(1), pp.557-605

Myers, L. P. (2016). Knowledge structures and their relevance for teaching and learning in introductory financial accounting. South African Journal of Accounting Research, 30(1), 79-95.

Qantas.com.au, (2016) Retrieved 29 August 2016, from

Rahman, A.R., (2013). The Australian Accounting Standards Review Board (RLE Accounting): The Establishment of Its Participative Review Process. Routledge.

Rankin, M., Stanton, P.A., McGowan, S.C., Ferlauto, K. and Tilling, M., (2012). Contemporary issues in accounting. John Wiley and Sons Australia, Limited.

Richard, L., & David, P. (2016). Advanced financial accounting.

Ryan, C., Mack, J., Tooley, S. and Irvine, H., (2014). Do Not?€ђFor?€ђProfits Need Their Own Conceptual Framework?. Financial Accountability & Management,30(4), pp.383-402.

Schipper, K., Francis, J., & Weil, R. (2016). Financial Accounting: Introduction to Concepts, Methods and Uses. Cengage Learning.

Schrand, C. M., Armstrong, C. S., Taylor, D. J., Verrecchia, R. E., Wagenhofer, A., Casey, R. J., ... & Hribar, P. (2016). Journal of Financial Reporting A Publication of the Financial Accounting and Reporting Section of the American Accounting Association.

Uno, K. and Bartelmus, P. eds., (2013). Environmental accounting in theory and practice (Vol. 11). Springer Science & Business Media.

Uyar, A., & Gungormus, A. H. (2016). Factors associated with student performance in financial accounting course. European Journal of Economic and Political Studies, 4(2), 141-156

Williams, B. J. (2016). The new frontiers of accounting fraud: The impact of accounting standards convergence on fair and accurate financial reporting (Doctoral dissertation, UTICA COLLEGE).

Yong, K.O., Lim, C.Y. and Tan, P., (2016). Theory and practice of the proposed conceptual framework: Evidence from the field. Advances in Accounting.

How to cite this essay: