2.How the Revised Conceptual Framework to Incorporate the aspect of Prudence is Probable to Concentrate on the Inconsistency in Corporate Recording.
1.Conceptual framework is considered to be a rational system of interrelated fundamentals and objectives that are anticipated to lead to steady standards and rules that prescribe the function, nature, and restrictions on financial reporting and accounting. The aspect of conceptual framework help to prepare a financial statement that is consistent all over the globe which means that the organizations following this framework would prepare financial statements which are similar in all respect (Azhar, Carlton, Olsen, and Ahmad, 2011). Preparing the company financial records in accordance with the set rules and standards often enable the preparers to make reliable accounting guidelines when no AASB standards apply to a specific transaction or event or when the principle permits a selection of accounting principle. Basing on this aspect, the conceptual framework allows different companies chose their own methods of accounting within the boundaries of the GAAP and IFRS and AASB.
The two companies which are selected for this particular analysis are Air New Zealand from New Zealand and Qantas Airlines which is an Australian transportation firm. The main objective of this project is to evaluate if the company financial and operations statements produced for recording to stakeholders and other shareholders are in conformity with the Australian Accounting Standards Board policies and conform to the designed conceptual framework to ensure company registered demonstrates a true and fair evaluation of their trade (Hufschmidt, 2011). Both Air New Zealand and Qantas are old firms involved in their business for more than eight decades, and their operations are considered to be less or more with the stakeholder’s anticipations which are probable to address the inconsistency in business reporting.
Conceptual framework analysis with reference to the yearly reports of Air New Zealand Company in light of the reporting requirements imposed on those in charged with company governance and accountants
Air New Zealand Company
Air New Zealand Company is deliberated to be a New Zealand national airline domiciled in Auckland, New Zealand. The carrier operates programmed passenger voyages to twenty-one and thirty-one international terminuses in approximately nineteen nations around the United Kingdom and the Pacific Rim. It is listed as AIZ on the Australian Stock Exchange which means that the company is bounded by periodic and continuous disclosure rules
According to Air New Zealand Company, the contemporary framework of accounting meets the needs of the users of the financial records as basically prescribed in the entire objectives of the conceptual framework of accounting. This provides a set of principles that needed to be followed during the time of accounting for both transactions and the events in the financial statements. The conceptual framework articulates that companies operating in Australia are mandated to lodge and prepare their financial records with ASIC often at the conclusion of the fiscal year (Gagliardi, Grimshaw, Brouwers, Palda, and Lemieux-Charles, 2011). Basing on the relevance to this aspect, annual financial reports are needed to be audited so as to ensure that the company’s financial statements demonstrate true and fair view. According to Air New Zealand Company financial statements the company has been keeping their books in accordance with the required standards. From the financial statements, the company has been recognizing their income immediately when they are realized and not when services have been rendered to customers or clients. Basically in airline transportation companies, treatment of revenue is often vital since they receive payments from diverse sources. Direct payment from clients is often recognized when the payment has completed between the entity and the customer.
The company utilizes the aspect of conceptual framework inrevenue recognitionin that no revenue should be realized or recorded until the transaction price has definitely been determined. Determination of transaction price is important since it will assist the airline firm to assess the amount that is to be recorded in their financial statements because the recording of unclear information often provides wrong notions to investors as it misrepresents the entity financial position (Huinink, Br?derl, Nauck, Walper, Castiglioni, and Feldhaus, 2011). The company accountants and those charged with governance are often required to ensure that the firms maintain and record their respective financial records in accordance with the set rules and regulations so as to uphold their transparency.
According to the concepts of conceptual framework firms should lodge its financial statements annually. Air New Zealand Company has been lodging its financial statements annually as a set principle. This is because, in accordance with the AASB Framework, listed companies have to lodge its annual financial records with the ASIC in three months of the conclusion of the financial period and half year financial records within seventy-five days of the end of the half year. This aspect ensures that the company management has the clear insight that ensures that the firms produce its financial records in conformity with the principles provided(Boons, Spekkink, and Mouzakitis, 2011). From the company financial records, the financial records have been prepared on the historical cost basis of the exemption of some items in specific accounting and auditing principles and are basically presented in New Zealand which is the groups’ functional currency.
Basing on the aspect of conceptual framework firms should reviews the estimates and assumptions on an ongoing basis of accounting. Estimates and assumptions are based on past experience and other factors as suitable to the specific circumstances (Sedlmair, Heinzl, Bruckner, Piringer, and M?ller, 2014). This has been essential aspects that have enabled Air New Zealand Company to maintain its financial records in accordance with the set rules and principles so as to show the true and fair opinion of the firm financial reports. The basic preparation of firm financial statements necessitates the utilization of certain critical accounting estimates because diverse areas that encompass a higher magnitude of complexity or judgment or areas where estimates and assumptions are vital to the financial records are disclosed within the specific policy.
The conceptual framework also expects that Air New Zealand Company should maintains its assets at the historical cost. The company manager follows the conceptual framework guidelines in that the assets are stated at the amount of cash equivalents or cash paid or fair cost of the given deliberation so as to obtain them at the period of acquisition (Sheppes, Scheibe, Suri, Radu, Blechert, and Gross, 2014). The company also records its liabilities at the quantity of the proceeds gained in exchange for the liability or some situations at the amounts of cash equivalents or cash anticipated to be compensated so as to satisfy the obligations in the normal business course.
Qantas Airlines Company
Qantas Airlines Company is considered to be the flag airline of Australia and the country carrier by global flights, fleet size, and international terminuses. The carrier firm was founded in 1920 as Northern Territory and Queensland Aerial Services Company. Brisbane and Melbourne Airport are the two main hubs for the company. It is listed as QAN in the Australian Stock Exchange (ASX) which means that the company is also bounded by periodic and continuous disclosure rules.
Conceptual framework analysis with reference to the yearly reports of Qantas Airlines Company in light of the reporting requirements imposed on those in charged with company governance and accountants
Basing on the company financial, it is revealed that the boards of directors are responsible for ensuring that the firm has an appropriate corporate governance framework so as to ensure the protection, creation, and enhancement of stakeholder’s value through utilization of the set principles and guidelines by AASB (Wagner, and Fortin, 2013). The company financial records have been maintained to completely and accurately record and describe the company transactions, economic positions, and performance. The company revenues have been disclosed suitably in conformity with the significant regulatory frameworks, accounting principles, and the group's accounting and finance principles.
The conceptual framework articulates that Qantas Airlines Company should record their revenues at fair cost since the fair price is the quantity at which a security can be traded or an obligation established between conversant and enthusiastic parties in an arm’s length contract. The revenues that relate to long-term contracts recording is the distinctive revenue recorded by the company (Azhar, Carlton, Olsen, and Ahmad, 2011). According to the company annual reports, the company gains or losses have been fully acknowledged immediately in other inclusive revenue as the gains, and the losses are not consequently acknowledged in the net revenue. This aspect is vital since it ensures that the company financial records are maintained in accordance with the set rules and regulations which are likely to address the disparity in corporate reporting.
According to Qantas Airlines Company, the basic conceptual framework have been observed in that expenses and income have been presented in the revenue statements in diverse ways in order to offer statistics that is considered significant for financial decision making. It is basically a standard practice to extricate between those particular items of expenses and income that rise in the course of the ordinary actions of the firm and those that do not. The basic distinction has been made on the base that the basis of an element is vital in assessing the ability of the company to make cash equivalents and cash in the near future. Qantas Airlines Company has been ensuring that its financial records have been made in accordance with the set principles and guidelines so as to show its actual financial position clearly. Over the past three years, the company net income has been on an upward movement which basically demonstrates that its managers are maximizing the company assets to pay off its outstanding obligations and earning revenues for its shareholders.
According to Qantas Airlines Company plant, properties, and equipment have been maintained at historical costs as a set guidelines because most of the properties have depreciation deducted so as to show its actual market price. The conceptual framework accentuates that companies should recognize its assets in the balance sheets when it is likely that the future financial benefits will drift to the firm and that the assets have a value or cost that can be measured consistently (Wagner, and Fortin, 2013). Basically, according to the AASB, assets should not be documented in the statement of financial position when expenses have been sustained for which it is considered unlikely that financial benefits will flow to the company beyond the present accounting period. The income has also been acknowledged in the statement of income when a rise in imminent economic advantages related to a rise in an asset or a decline of obligation has risen that can be reliably measured. This particular aspect means that in effect that acknowledgment of income happens concurrently with the recognition of rising in assets or liability decrease as needed by the conceptual frameworks in accounting.
2.The revision of conceptual framework to incorporate the aspect of prudence is probable to address the inconsistency in corporate recording
observing the set guidelines by the AASB. According to the analysis, Air New Zealand Company annual reports show that the company is highly profitable because of its enhanced business operations globally. Qantas Airlines Company financial report shows that the company maintains records its assets at the historical cost method where they are stated at the amount of cash equivalents or cash paid. This aspect is quite significant because it demonstrates the current market price of its assets. This aspect is quite different with that of Air New Zealand Company because its financial reports show that the assets are approved at the cash that could presently be acquired by selling the assets in a systematic disposal.
The revisions will also address the aspect of revenue recognitions properly because recognition of revenues given transaction of the credible evidence for the agreement, occurrence of the delivery of products or services, the price of the seller to the buyer is determinable and the collectability is realistically assured. Both financial reports were prepared in accordance with the stipulated policies and principles that show the actual position of the companies (Hu, Ching, and Chao, 2011). This aspect is vital for investors who seek to acquire more control in these firms since they can learn the fate of the company through financial statements analysis. Investors need this significant information as it will assist them to make choices that apprehend their investments on if to increase, maintain, dispose, or decrease their investments overall.
The two companies follow the conceptual frameworks effectively because according to the company financial records, overheads have been recognized in the statement of income when a decline in future financial benefits that are interrelated to a decline in an asset or a rise of obligation has risen. In this particular situation, expenditures recognition occurs concurrently with the recognition of a rise in liabilities or a decline in assets. The accounting standard articulates that a company should recognize any increases or decrease in the value of expenses in the financial statements so as to come up with the actual revenues.
I recommend that the companies should prepare and maintain their financial records in accordance with the provided guidelines to ensure effectiveness. The contemporary frameworks require that the procedures for allocations are always intended to recognize overheads in the accounting period in which the economic advantages linked with these particular items expired or are consumed. I also recommend contemporary frameworks utilization as this will assist the Airlines Companies to recognize both their incomes and expenses immediately when they occur. Basing on the relevance of conceptual framework concept, it is vital since the accounting standards are initiated so as to ensure concise preparation and to report the company’s financial statements which are likely to address the disparity in corporate reporting.
Air New Zealand Company financial reports 2014, 2015 and 2016. Retrieved from
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