Role Of Accounting In Standard Setting Essay


1. Are the Annual Reports in Compliance with the Conceptual Framework and AASB Standard requirements?
2.How the Conceptual Framework Revision to include Prudence is likely to address the disparity in Corporate Reporting is a requirement in your analysis.
3.Compare and Contrast the two Annual Reports, identify the differences in Disclosures of these Corporations.



The present report consists of analysis on different aspects of annual report of two companies based in Australia and listed on Australian Stock Exchange by considering the recent year’s financial report. The chosen organizations belong to the retailing industry Harvey Norman and its competitor Woolworths Limited ( 2016) (Woolworths 2016). The study covers the analysis on compliance of conceptual framework along with the Australian Accounting Standards Board (AASB) standard requirements for recognizing financial information. The report includes the concept of accounting role in setting standard, international accounting and measuring accounting along with the capital market and normative accounting. Additionally, prudence level addressing the disparity in corporate reporting for the selected companies has been evaluated while identifying the differences in financial report disclosures.


Background of the organizations

Harvey Norman, based on Australia, is a large multinational retailing organization deals in furniture, computers, bedding and other diversified products as electronic gadgets. The company has been founded in 1982 by Gerry Harvey and Ian Norman having the headquarters in Australia ( 2016). Currently, the organization has around 194 locations while the current revenue amounted to $5.3 billion and operating income amounted to $523 million ( 2016).

Woolworths Limited is considered a strong competitor of Harvey Norman and is a second largest retailer in Australia founded in the year 1924 founded primarily by Percy Christmas and Stanley Chatterton. The current value of the organization has been $30.2 billion while the operating income $1.6 billion and number of locations more than 3,800 in the region of Australia (Woolworths 2016). The significant business of the organization includes Australian division food products and petrol products which consists of two- third of the total revenue i.e. $39.4 million (Woolworths 2016).

1.Conceptual framework and AASB standard compliances

Conceptual framework of accounting is an analytical tool that includes various principles and regulations to recognize and represent the accounting information in the financial statements of the organization. The primary characteristic of the conceptual framework includes prudence level, reliability and relevance of the financial information for the benefit of stakeholders. It requires the organizations to follow the prudence level while recognizing incomes and expenses along with the relevant financial information (Ball, Li and Shivakumar 2015). The purpose of preparing and presenting financial statement is to provide relevant and reliable information to the users to obtain true and fair view on the company’s performance. Another requirement of conceptual framework is to follow accrual basis and going concern basis while presenting the financial report to determine the sustainability and stability of the company (Lang and Stice-Lawrence 2015).

Considering the financial report of Harvey Norman, it can be said that the annual report has been prepared and presented by complying the regulations of conceptual framework. The company recorded the incomes and expenditure by considering the prudence level and on accrual basis whereas the assets and liabilities at fair value (refer appendix 1). The organization had followed AASB standards to value the assets and reporting the financial information of subsidiary groups. The company also followed the standard of AASB on foreign exchange with respect to translating the accounting information of subsidiary to determine equivalent value, which involved foreign current transactions (refer appendix 2). It has been noted that the company followed AASB standard on segment reporting to disclose the business activities based on the geographical region ( 2016).

Similarly, the financial report of Woolworths Limited has been analyzed to determine the compliance of conceptual framework and AASB standards. Increasing trend in the earnings and material disclosures on expenses represents the compliance of accrual basis and going concern basis while presenting the financial statements. The financial statement of income reflected sales revenue for the group business after providing corporate tax, which states the compliance of accounting standards and conceptual framework. Consolidated income of the company along with the consolidated profit $2,146 million has been recognized as per the AASB standards on revenue recognition (Woolworths 2016). Accrued payments during the year like financial charges and other expenses have been classified as actually paid and outstanding payment to recognize in the income stamen and balance sheet respectively. Interim dividend, which is paid has been recorded in the income statement whereas dividend payable in the balance sheet as liability reflects the compliance of conceptual framework.

For the purpose of setting standard is to provide uniform principles and regulations for accounting in public interest to present the accountable and transparent financial statements. Similarly, international accounting provides the uniform regulations to recognize the financial information in terms of value and methods so that performance of the company can be evaluated in equivalent form (Chauvey et al. 2015). Accordingly, Harvey Norman followed the consolidation standards and equivalent amount of foreign currency in Australian Dollar terms while Woolworths Limited also follows the international accounting system to present the standalone and consolidated financial information.

2.Prudence level addressing the Corporate Reporting disparity

Prudence level refers to the recognition of accounting statements by applying the reasonable estimates for incomes and expenses following the conservative approach. Prudence level of accounting conceptual framework states that the incomes or revenues are not recognized by overestimating while the expenses or expected losses are not recognized by underestimating. However, corporate reporting provides the recognition and disclosure of accounting information for integrated reporting, comprehensive reporting, corporate governance and sustainability reporting (Tracey 2015). It is essential for the listed companies to consider the capital market requirements for trading of equity securities and long- term debt by complying the financial regulations and other market regulatory system. Besides, Normative Accounting is a theory required to be followed by organizations to present the economic value of the organization in subsequent years beneficial for the investors or company itself (Barker 2015).

The annual report of Harvey Norman discloses the performance level, financial position and material disclosure along with the relationship strength in terms of consumers, community, investors and other stakeholders. It reflects the comprehensive income attributable to the owners $278 million while that to minority owners $2 million during the year 2015 and the earnings per share of the company was 24.51 cents which provides the positive performance and economic value to the investors ( 2016).

Besides, Annual report of Woolworths Limited provides the material disclosure with respect to the financial performance, financial position along with the measurement to provide economic value to the consumers. The company also provided the statement for corporate governance representing the shareholding and respective values for the equity capital considering the top 20 shareholders (refer appendix 5). It is essential to revise the conceptual framework applicable to the financial information of the company over the period to evaluate the provisional losses and expenses. Standard rates, limitations of the specific organizational value based on the income benchmark should be analyzed to remove the disparity in corporate reporting (Woolworths 2016). Accordingly, Harvey Norman recognized the services value with respect to the employees for the reporting period following the cost rates for recording lease provisions based on the inflation rates, investment return and other administrative expenses. Moreover, financial report of Woolworths estimated the expenses for employee benefits, insurance and restructuring expenses based on 12 months for annual leave and long- service leave considering the discounting rate

3.dentification of differences in corporation disclosures

Recognition of financial report of Harvey Norman and Woolworths are similar and identical while there are certain differences in presenting the organizational resources value and other expenses. Financial statements of Harvey Norman do not cover a specific report on the material business risk whereas Woolworths Limited constitutes a particular report stating the material business risk. Additionally, annual report of Harvey Norman constitutes certain theory on Normative accounting, Positive accounting along with the capital market presentation which is not presented in the annual report of Woolworths Limited. Difference on estimates and judgments to determine the financial value of income statements and financial position, which is based on historical cost and the current market conditions in the financial report of Woolworths Limited (Woolworths 2016). On the contrary, Harvey Norman followed the estimates for recognizing the value of assets and other resources based on future events including the recognition of provision or borrowing repayments of accounting information ( 2016). It has been observed that the specific details on financial information to evaluate the efficiency has not been presented in the financial report of Woolworths with respect to capital funds, borrowing and other operational expenses.

Segment reporting in accordance with AASB is required to be provided by the organizations to reflect the performance with respect to geographical region, business diversification and production and income level as per different locations. Accordingly, segment reporting of Harvey Norman provides brief segment disclosure on the product trading and product incomes and other costs ( 2016). On the contrary, Woolworths Limited presented the segment reporting based on the operating and geographical details for presentation on employee benefits, lease expenses, rental payments and other costs. Further, recognition and disclosure of dividend amount of both the organization is different with respect to the interim dividend and final dividend to be paid to the shareholders for the reporting financial year (Woolworths 2016). Harvey Norman provided dividend information on interim period had been recognized as expenses along with the financial charges whereas proposed dividend has been recognized based on the franking credit balance for the reporting period (refer appendix 7). Besides, recognition of dividend for Harvey Norman has been considered on payment basis for current year’s interim dividend and previous year’s final dividend. Dividend amount for ordinary shares, DRP shares and Treasury has been considered and recognized in separate accounting heads in Harvey Norman’s financial statement.


Considering the financial statements analysis of Harvey Norman and Woolworths Limited it can be recommended that the organizations follow accounting principles to present material disclosures for the use of stakeholders. It is recommended that Harvey Norman should comply the conceptual framework requirements to provide material disclosures by maintaining the reliability and relevance of the business information. Similarly, Woolworths Limited is recommended to follow the requirements of AASB standards along with the international accounting principles for recognizing accounting information. It is further recommended that Harvey Norman provide specific report to disclose the material business risk, which has been provided by Woolworths Limited. Additionally, Woolworths Limited is recommended to include theory on positive accounting or normative accounting to present the economic value of organization to the users. On the contrary, Harvey Norman is suggested to provide clear and detailed report on segment business functions in compliance with AASB and international accounting standard.


In view of the analysis of the financial report of both the Australian retailing organizations, it can be said that the conceptual framework and accounting standards has been complied with. Apart from certain differences, both the organizations provided material disclosures and followed the concept of prudence, reliability and relevance for presenting true and fair view of the organizational performance. The organizations also complied and presented the corporate governance report along with the sustainability report and other legal regulations for the benefit of community, investors and other stakeholders. Harvey Norman and Woolworths followed the accounting standards in terms of consolidation, comprehensive income, presentation of financial information involving foreign exchange to provide uniform level of performance to the users. Such presentation and recognition would provide the users and other stakeholders in taking better business and investment decisions.

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