Consideration of the conceptual framework objective
The primary purpose of the financial statements that are prepared by an organization is to provide an overview into the financial proceedings of the company so that the stakeholders of business and other third parties get an idea about the business conducted by the organization for the particular financial year and can effectively measure the financial performance of the company. However, the financial statements prepared should be done in accordance to the policies and accounting standards laid down by the different regulating bodies that aim to integrate the accounting policies and rules of treatment worldwide.
This particular study is aimed at understanding the different standards that are mandatory to maintain while preparing the books of accounts. The company that has been chosen for the purpose of this study is Caltex Australia Limited. The annual report for the financial year of 2016 has been chosen for the purpose of research
Before, considering whether the accounting statements of Caltex Australia Limited adhere to the laid down measures, the conceptual framework that should be strictly adhered to while preparing the financial statements should be properly understood. A conceptual framework essentially describes the financial reporting issues such as the characteristics, objectives of the financial statements, the quality of the disclosed financial information, and the effectiveness of these particulars to its users (Crawford and Power 2015).
It has been mentioned in the annual report of Caltex Australia Limited that the financial statements of the firm has been prepared in accordance to the Australian Accounting Standards and the Corporations Act, 2001. The auditor who is responsible for evaluating the financial statements of the firm has also confirmed this fact. The conceptual framework laid down by the Australian Accounting Standards Board states that the financial statements should be prepared in such a way that they achieve the objective of representing a true and fair view of the financial performance of the company. It has been further stated that the accounting statement should also aid the auditor in making an opinion and assist the users in the efficient utilization of the accounting statements of the company.
It has been stated in the annual report of Caltex Australia Limited that the financial report also complies with the International Financial Reporting standards. Furthermore, the annual report also reveals that the consolidated financial reports have been prepared on the historical cost basis. The derivative financial instrument, though, has been measured at fair value. The management of Caltex Australia Limited provides appropriate notes to the financial statements that clearly explain the estimates and assumptions that has been undertaken in order to make the foundation of the preparation of the accounting particulars clear and concise. Evidently, the management has also provided enough information in relation to the estimations that have been undertaken for the measurement of the significant risk of materiality in the future accounting period to come. Notes regarding impairment of assets, foreign exchange proceedings and other related financial components have been provided in the annual report of the company. This proves that the accounting statements of the firm have been very effectively constructed according to the conceptual framework of the accounting regulatory bodies (Newberry 2015).
Criteria of Recognition
Figure: Notes to the accounting statements (the basis of preparation)
Source: (Caltex, 2017)
Moreover, the accounting statements prepared by the administration of the company include the major financial statements of the statements of cash flow, statement of equity, the income statement and most importantly the balance sheet for the financial year of 2016. All these statements are essential for reflecting the real and fair view of the financial condition of the company and are vigorously accessed by the third parties and other stakeholders of business. These accounting statements have been prepared by complying to the regulations of the Australian Accounting Standards Board (Henderson 2015). The balance sheet that has been prepared by the company discloses corresponding notes in relation to each financial component that has been included in the computation part. Further, it has been stated in the annual report of the company that a number of new standards and the amendment to the standard have not been applied for the purpose of the preparation of the financial statements. This implies that the management of the firm continuously updates and modifies its accounting statements in accordance to the changes and amendments in the accounting standards (Chand, Patel and White 2015).
Figure: Balance Sheet
Source: (Caltex, 2017)
Thus, the administration of Caltex Australia Limited has strictly adhered to the accounting conceptual framework for the preparation of the accounting statements that have been established by the Australian Accounting Standards Board.
The criteria of recognition of the important financial components such as the assets, liabilities, expenses and revenue gained by the firm have been effectively laid down by the AASB. This states that an accounting component will only be recognized when such recognition displays a providence to the users of the accounting statements, with financial information that is relevant in respect to the liability, asset, expenditure, income or any kind of change in the equity. It is further established by AASB that the recognition should provide the users with reliable reflection of the respective financial components in the books of accounts and should also ensure an accrual of economic benefit. Therefore, as it can be understood from the above discussion the criteria of recognition can be listed down as follows:
- The respective asset or liability that has to be recognized should certainly exist
- The probability of business incurring an inflow or outflow of cash relation to these financial component should be high
- The measurement of the valuation of the liability or the asset should have to be executed with ease
In the financial report of Caltex Australia Limited, the management of the firm has provided enough information into the recognition of the different liabilities and assets. For instance, the revenue incurred by the Caltex Australia Limited from the sale of goods has been recognized on the basis of fair value consideration of the receivables, discounts and allowances. Furthermore, the rental income that has been incurred by the firm has been recognized and valued on a straight-line basis over the leasing terms (Barth 2015). Furthermore, it is observed from the annual report of the company that the cost of disposal of the fixed assets of the firm like property, plant and equipment has been recognized on the date on which the contract of sale has been settled. This indicates that the firm effectively recognizes the financial components or prepares its financial statements on cash basis, that is the respective loss or gain is recorded on the date on which there is inflow or outflow of cash in real, rather than on the date of mere occurrence of such an event (Mardini, Crawford and Power 2015).
Fundamental features of financial reporting that enhances the quality of the prepared statements
Figure: Criteria of Recognition
Source: (Caltex, 2017)
These factors effectively prove that the company has adhered to the recognition criteria and has provided enough disclosure in the annual report for the purpose of the better understanding of the users of financial statements.
The features of the financial statements that enhance the quality of the financial information disclosed by the statements essentially include the timeliness, verifiability, comparability and understandability of the information that is essentially reflected by the different accounting particulars of the firm. The primary objective for the preparation of the accounting statements are to give a clear idea about the activities and the corresponding results of such actions by the company to the stakeholders of business, so that they can judge the financial performance of the company and take decisions effectively.
Caltex Australia Limited adheres to the criteria of timeliness by effectively recording the financial transactions at the time when there is in real outflow or inflow of cash in business. This gives a clear view of the accounting statements of the company (Barth 2013).
Secondly, the accounting statements of Caltex Australia Limited prepared in accordance to the International Financial Reporting Standard provide a common foundation, on the basis of which the financial results and proceedings of the different firms can be compared in order to get a comparable view of the company.
The verifiability of the accounting statements can be confirmed from the opinion of the auditor, who affirm the fact that the financial statements have been prepared in accordance to the accounting standards and provide enough scope for the proper interpretation of the books of accounts of Caltex Australia Limited by the users.
Therefore, it can be evidently stated that the financial information revealed by the accounting statements of Caltex Australia Limited meet all the qualitative enhancing features that have been stated by AASB in its accounting standards.
Conclusion
Thus, as it can be obtained from the executed analysis, the books of accounts of Caltex Australia Limited have been prepared in accordance to the established standards of the concerned regulatory body. The conceptual framework has effectively strengthened the base of preparation of the accounting particulars and has resulted in a clear, concise and easy to comprehend financial statements of the firm
References
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.
Barth, M.E., 2015. Financial accounting research, practice, and financial accountability. Abacus, 51(4), pp.499-510.
Caltex. (2017). Caltex Australia | Fuels, Convenience Retail & Lubricants. [online] Available at: https://www.caltex.com.au/ [Accessed 11 Dec. 2017].
Chand, P., Patel, A. and White, M., 2015. Adopting international financial reporting standards for small and medium?sized enterprises. Australian Accounting Review, 25(2), pp.139-154.
Crawford, L. and Power, D.M., 2015. Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8. Journal of Applied Accounting Research, 16(1), pp.2-27.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Mardini, G.H., Crawford, L. and Power, D.M., 2015. Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8: Evidence from Jordan. Journal of Applied Accounting Research, 16(1), pp.2-27.
Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), pp.371-376.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
