General Purpose Financial Reporting
This report involves in the analysis of the compliance of one of the ASX top 100 companies with the required standards of the Conceptual Framework. For this reason, 3D oil has been taken into consideration. The main area of interest of 3D Oil is the Gippsland Basin that has been one of the major oil and gas producing region of Australia. The main strategy of the company is to target a combination of favourable technical as well as commercial consideration along with the exploitation of niche position (3doil.com.au 2018).
General Purpose Financial Reporting
Business organizations have different kinds of stakeholders having interests on different operation of the firms. These stakeholders need various information related to the organizations for different decision-making purposes. The main aim of the general purpose financial reporting is to provide firms with the required standards and regulations for the preparation and presentation of the financial statements so that the information need of the stakeholders can be fulfilled (Kang and Gray 2013).
As per the 2017 Annual Report of 3D Oil, the company has prepared as well as presented all the required general purpose financial statements for the fulfilment of the information need of their stakeholders (3doil.com.au 2018). The 2017 Annual Report of 3D Oil also shows that the company has adopted the principles of Australian Accounting Standard, Australian Accounting Standards Board (AASB) and Corporations Act 2001 for preparing and presenting their general purpose financial statements. Further compliance of the company can be seen with the standards of International Accounting Standards Board (IASB) (3doil.com.au 2018). The compliance of the company with these aspects ensures the overall responsibility of the company in providing the detailed financial information related to the overall assessment of the performance as well as financial position of the company (3doil.com.au 2018).
Target Audience of the General Purpose Financial Report
Business organizations prepare and present the financial statements for fulfilling the information need of their target audience for the ease of the decision-making process. For every company, the primary target audience includes the existing as well as potential investors, lenders, creditors, suppliers, clients and government as they use the financial information for various decision-making purposes (Barth 2013).
In case of 3D Oil, the target audience can obtain the general purpose financial statements from their official website as the company has made them publicly available. These general purpose financial statements of 3D Oil includes different segment of information so that the users can easily access them (3doil.com.au 2018). Apart from this, the company has provided the notes to the financial statements that include the required justification, clarification and assumptions of the accounting works of the company. The aim of the company has been to provide the target audience with the information about the company’s performance, compliance, financial position and financial as well as investing (3doil.com.au 2018).
Recognition Criteria of the Elements of Financial Statements
As per the Conceptual Framework, firms have the obligation to recognize a financial item in case it involves either inflow or outflow of resources for the company and their cost or value can be measured in the most reliable manner (Perera and Chand 2015).
Target Audience of the General Purpose Financial Report
According to the 2017 Annual Report of 3D Oil, the company has ensured the recognition of their various financial elements in fair value and historical cost based on their nature. On a more specific note, 3D Oil has adopted the correct mechanism as per AASB Conceptual Framework for the recognition of revenue, assets, liabilities and others (aasb.gov.au 2018). In addition, the notes to the financial statements of 3D Oil contain the adopted recognition process of various items like tax, foreign currency and others. It indicates towards the full compliance of the company with the required recognition criteria (3doil.com.au 2018).
Fundamental Qualitative Characteristics
Relevance and Faithful Representation are the fundamental qualitative characteristics.
Relevance: Firms must ensure the faithful representation of financial information with the aim to make the information relevant to the decision-making process of the target audience (Zhang and Andrew 2014). As per the 2017 Annual Report of 3D Oil, users can predict the future performance of the company from the provided financial information and they can also obtain the result of their previous evaluation from the information. The example of revenue, other income and expenses can be presented in this case (3doil.com.au 2018).
Faithful Representation: Provided financial information must be free from errors, neutral and complete so that they do not mislead the target audience. For this reason, the provided financial information must reflect the underlying events, assumptions and others (Francis, Pinnuck and Watanabe 2013). As per the 2017 Annual Report of 3D Oil, the company has provided the financial information in such a manner so that they can cover both the natural and numerous description of the financial elements (3doil.com.au 2018). It can be seen from the following examples from the 2017 Annual Report of 3D Oil.
As per the above figure, 3D Oil has provided natural as well as numerical description of the property, plant and equipment of their business. In addition, the report of the auditor shows that 3D Oil has carried out the process of financial reporting in the true and fair manner by complying with all the required regulations and standards (3doil.com.au 2018).
Enhancing Qualitative Characteristics
The enhancing qualitative characteristics are Comparability, Verifiability, Timeliness and Understandibility.
Comparability: The provided financial information of the firms must be comparable with the same information of other companies or the same company’s different period so that the target audience can analyse the trend of financial performance and position (Shivakumar 2013). As per the 2017 Annual Report of 3D Oil, their demonstrated financial information is comparable with other companies; and evidence is provided below by comparing the information of 3D Oil with other company.
At the same time, the annual reports of 3D Oil includes the financial information of previous year.
Verifiability: The target audience of 3D Oil can verify the stated methods used in their financial reporting process in the presence of basic accounting knowledge and independent observation (3doil.com.au 2018).
Timeliness: There must not be any delay for the firms in publishing their general purpose financial statements as old information can hamper the decision-making process of the target audience. 3D Oil has ensured the timely announcement of their quarterly, half-yearly and annual report for the target audience and they can be obtained in the official website of 3D Oil (3doil.com.au 2018).
Understandability: Target audience can make effective investment decisions in case financial information is readily understandable and it demands the information to be clear and concise. As per the 2017 Annual report of 3D Oil, the firm has ensured the attachment of required documentation as well as notes supporting their accounting and financial works as they ensures easy understanding for the target audience. Some of them are shown below related to income tax and equity (3doil.com.au 2018).
Recommendation
It is recommended to the management of 3D Oil to maintain their adherence with the above-discussed regulations and guiding principles of Conceptual Framework with the aim to avoid the accounting issues. Apart from this, it is also recommended to 3D Oil that they need to ensure providing sufficient information to the target audience related to the planning of organisational funds for maintaining positive relation with them.
Conclusion
According to the above discussion, 3D Oil has maintained their adherence with the regulations of Conceptual Framework related to prepare and present the general purpose financial statements for delivering required information to their target audience such as investors, suppliers and others. In addition, the presence of both the fundamental and enhancing qualitative characteristics can be seen in the financial reporting of 3D Oil.
References
3doil.com.au. (2018). Annual Report 2017. [online] Available at: https://3doil.com.au/pdfs/20171002-3D-Oil-Limited-Glossy-Annual-Report-30-June-2017-ASX-FINAL.pdf [Accessed 15 Dec. 2018].
3doil.com.au. 2018. 3D Oil : About 3D Oil: Overview. [online] Available at: https://www.3doil.com.au/about/overview [Accessed 15 Dec. 2018].
Aasb.gov.au. (2018). Conceptual Framework. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-04_COMPjun14_07-14.pdf [Accessed 15 Dec. 2018].
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.
Francis, J.R., Pinnuck, M.L. and Watanabe, O., 2013. Auditor style and financial statement comparability. The Accounting Review, 89(2), pp.605-633.
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.
Perera, D. and Chand, P., 2015. Issues in the adoption of international financial reporting standards (IFRS) for small and medium-sized enterprises (SMES). Advances in accounting, 31(1), pp.165-178.
Santos.com. (2018). Annual Report 2017. [online] Available at: https://www.santos.com/media/4319/2017-annual-report.pdf [Accessed 15 Dec. 2018].
Shivakumar, L., 2013. The role of financial reporting in debt contracting and in stewardship. Accounting and Business Research, 43(4), pp.362-383.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.
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