Discussion
Qantas airline and Virgin Australia are the ASX listed two companies that have been selected for analysis of conceptual framework in light of requirement of financial reporting. Report investigates whether the annual report of these two companies prepare statement of financial complying with the accounting standard and whether they are charged with corporate governance. It also discuses about the prudence inclusion in the conceptual framework would help in addressing the corporate reporting disparity (Kung et al. 2013). ASX listed companies are required to report on the extent of meeting the principles and interpretations of securities exchange as per the listing rule.
Various relevant principles of the corporate governance are required to be considered by the broad of directors. Business activities of different entities determines the different aspect of financial reporting as indicated by IASB. Due to neutrality concept along with inconsistency possibilities has led to removal of prudency in the framework of accounting standard. The optimistic bias of the prepares of financial statement are required to be offset by inclusion of prudence (Dakis 2016). This is so because when compared to upside potential, it is downside risks that affects the investors.
Protection, enhancement and creation of value of shareholders value is the core of corporate governance. The board has endorsed the third edition Australian Securities exchange (ASX) corporate governance recommendation and principles. In accordance to this, organization has the taken the opportunity to disclose in the corporate governance statement in the year 2016. Organization has lodged corporate governance in aligned with ASX principles.
The consolidated financial statements of the group is arranged by complying with the Corporation act, 2001 and accounting standard of Australia that is adopted by Australian accounting standard board. There is compliance of the consolidated financial statements with the “International Financial reporting standards and interpretation” adopted by International accounting standard board. Several assumptions and estimates are review on ongoing basis. Application of standards of AASB comes with the judgment of management and this has a significant effect on the estimates with the significant material adjustment risk in future period and on the consolidated financial statements (Bond et al 2016).
At the time of finance guarantee is issued, they are recognized as financial liability. In accordance with AASB 137, liability is to measure at fair value and subsequently determining the higher value. Fair value of financial liability is determined as the difference in net cash flows that is determined at present value.
In the preparation of financial report, there are several interpretations involved that are referred to as IFRS interpretations and several interpretations issued by Australian accounting standard are encompassed in it. Principles of historical costs are used for measuring several items involved in financial statements preparations. Several items are not involved in the valuation of non-current assets. Derivative financial instruments and valuation of many other assets are carried at fair value. Significant accounting policies are mentioned in the financial statements notes (Cameron 2014).
Items of plant, equipment and property is stated at costs and this is done after deducting the impairment losses and accumulated depreciation. Assets generating cash flow are assessed as cash flow generating unit that comprise of intangible assets and related infrastructure. A judgment is required or identification of cash flow generating unit of assets and this requires identification of lowest segregation of assets generating cash flows that are largely independent (Carey et al. 2014).
Analysis of Qantas airline conceptual framework
As per definition of AASB 136, lowest segregation of assets giving rise to cash flow generating unit is required as per the judgment of management.
Benefits reserves in accordance with the AASB 119 are recognized in the comprehensive income that comprise of the benefits of measurement of net defined benefits.
The remuneration report, consolidated financial statements of the Qantas group that complies with Corporation act, 2001 gives a true and fair view of the performance for the financial year ended on that date and financial position of the group as on 30th June, 2016. It also complies with the Australian accounting standard interpretations .There are several notes to financial statements that depicts that the organization is complying with the International financial reporting standards. It is determined by the directors of the Qantas that organizing the financial report that does not include material misstatement arising from fraud and errors is necessary to depicts actual financial position. It is stated by directors in note 29(A)I that the group comply with Australian accounting standard 101 in preparation of financial statements (Kober et al. 2013). The understanding of the financial performance and position of the group is aligned with true and fair view.
AASB 9 has been amended to involve a new expected credit sales model for calculation of impairment on financial assets. There will not be any material influence on the financial statement of the group due to the adoption of this standard. Under AASB 15 (Revenue from contract), recognition of revenue is done by establishing a comprehensive framework. Qantas are currently assessing impact of this particular standard due to application of this standard. AASB 117 lease have been replaced by AASB 16 lease. Recognizing the right to use of assets is associated with lease liability of Qantas. Using the effective rate method of interest, interest expense will be recognized in the income statement (Qantas.com.au 2017). The above listed standards are available for adoption in early on 30th June 2016. However, Qantas airlines has not applied these standards in the preparation of financial statements.
The corporate governance policies and practice of the Virgin Australia complies with the corporate governance principle and recommendation of ASX. Several recommendations and ASX principle has been laid down in the annual report of the group. There is an internal investor relation of the group as required by listing rules of ASX.
Consolidated financial statement of Virgin Australia are financial statement for usual purpose that have been organized by complying with the Corporation Act, 2001 and Australian accounting standards. In addition to this, the consolidated financial statements also aligns with the International Financial reporting standard that has been adopted by IASB (International accounting standard board). The group from early July, 2014 has adopted AASB 9 Financial instruments that introduces a new hedge accounting model for simplifying the accounting requirement of hedging (Bond et al. 2016). For the measurement and classification of financial liabilities and assets, AASB 9 has simplified and improved the approach. Adoption of this standard has not impacted the measurement and classification of assets and liabilities.
Analysis of Virgin Australia conceptual framework
The inconsistencies identified the applying the AASB 132 Financial instrument offsetting criteria is provided by the application of guidance to the standard.
There are some new accounting standard that have been issued but not yet effective. The have not been used in preparing the financial statements in the current year.
The new standard involves AASB 15 (Revenue from contracts) under which a comprehensive framework is determined for recognizing the revenue. The existing revenue guidance of AASB 18 has been replaced by the introduction of this standard. Virgin Australia has initiated assessment of this standard. Another amendment is made to AASB 101 (Presentation to financial statements). This amendment would encourage companies like Virgin Australia to apply professional judgment in determining the disclosure of financial statements (Virginaustralia.com 2017).
The group adopts to the provisions of AASB 9 in retrospectively adjusting the time value on options for qualifying the relations of hedging.
It is the responsibility of director to prepare the financial statement that gives and fair view and complies with the accounting standard along with complying with the international financial reporting standard.
It can be seen that Consolidated financial statement of Virgin Australia are financial statement for usual purpose that have been organized according to Corporation Act, 2001 and Australian accounting standards. In addition to this, the consolidated financial statements also complies with the International Financial reporting standard that has been adopted by IASB (International accounting standard board). Qantas airline also follows the same standard and prepares the financial statements of the group is prepared in accordance with the Corporation act, 2001 and accounting standard of Australia that is adopted by Australian accounting standard board. Unlike Qantas Group, Virgin Australia has adopted AASB 9 Financial instruments that introduces a new hedge accounting model for simplifying the accounting requirement of hedging (Chen 2015).
Using the prudence in the conceptual framework, an organization is able to address the disparity in corporate reporting. When making the judgment, prudence is regarded as caution that would lead to neutrality. An organization is not able to overstate and understate the liabilities sand assets by incorporating prudence. Conceptual framework should set out qualitative characteristic of reliable information by prudence inclusion as IASB proposal (He et al. 2016). Accounting standard should make it very clear that for accounting policies elaboration on standards used by companies.
Some of the information about future financial reporting should be included in the basic reporting of financial statement. For the robust recognition of liabilities and assets of the companies, prudence role in setting of the standard should be considered. The conceptual framework of financial systems should be resolved.
Conclusion:
From the above discussion and analysis, it can be concluded that the financial position of both the organization that is Qantas airlines and Virgin Australia are arranged by complying with the Australian Accounting standards and International Financial reporting standard. Reporting group is required to state clearly that the reporting standards of internal Financial reporting complies with the Australian accounting standards.
Reference:
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Cameron, R.A., 2014. Applying the Materiality Concept: The Case of Abnormal Items. CORPORATE OWNERSHIP & CONTROL, p.428.
Carey, P., Potter, B. and Tanewski, G., 2014. AASB Research Report No.
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He, L., Evans, E. and He, R., 2016. The Impact of AASB 8 Operating Segments on Analysts’ Earnings Forecasts: Australian Evidence. Australian Accounting Review, 26(4), pp.330-340.
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Qantas.com.au. (2017). Available at: https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf [Accessed 20 Apr. 2017].
Steele, N., 2015. Accounting: Get the numbers right. Company Director, 31(5), p.41.
Virginaustralia.com. (2017). Available at: https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/annual-financial-report-2015.pdf [Accessed 20 Apr. 2017].
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