ACC302: Social Accountability in Accounting- Advanced Accounting Report

May 24, 2018
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Question: Advanced Accounting Report

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Report Writing Assignment

Task Details:

Assignment 1:

Download the latest annual report of any two listed companies. Annual Reports are available on the company website or ASX website.

Analyse annual reports of your chosen companies in light of the reporting requirements imposed on accountants and those charged with governance of corporations. Your analysis should include the following:

  • Are the annual reports in compliance with the conceptual framework and AASB standard requirements?
  • You need to use extracts from the annual reports to support your analysis.
  • Provide screen shots of the relevant sections from the reports in your assignment.
  • If they are not in compliance, explain the reason.
  • How the conceptual framework revision to include Prudence is likely to address the disparity in Corporate Reporting
  • You may find the explanations in the notes to the financial statements or in the Director’s Report.
  • Compare and contrast the two annual reports, identify the differences in disclosures of these corporations.
  • Reference to material of Advanced Accounting and a critical analysis of the annual reports is required.

Students are to critically analyse and develop supported recommendations and conclusions, in reference to the relevant accounting framework (see Topics 1-5).

The analysis and supported recommendations need to be formatted into a professional report as would be expected in a modern organisation by management and clients.

Research requirements:

Students need to support their analysis and recommendations with the text and minimum of 10 recent and relevant academic journal articles. Other sources may also be used but students need to be confident of the academic validity of such sources.

Assessment 2:

Purpose: This assessment is designed to allow students to research and analyse current social issues in accounting and evaluate their impact on various stakeholders. As a group assessment, it further develops students’ team working skills. This assessment relates to Learning Outcomes a, b, c and d.

Topic: Social Accountability in Accounting

Task Details:

Groups are to research one specific issue of their choice relating to accounting related social accountability (Topic 8, Chapter 9) that is prominent in today’s Australian business environment. As a result of their research groups need to develop a presentation detailing the issue, including examples, and explaining the implications for various stakeholders. The presentation should conclude with supported specific recommendations as to how organisations and their accounting advisors should proceed in light of the analysis.

Research requirements:

Groups need to support their analysis and recommendations with a minimum of 5 recent and relevant academic journal articles. Other sources may also be used but groups need to be confident of the academic validity of such sources.

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Solution:

Executive summary

The report briefly explains the Conceptual Framework for Financial Reporting, the underlying assumptions of the framework and its objectives. In the light of the explanation the Annual Reports of two Australian mining companies listed with the Australian Stock Exchange namely Rimfire Pacific Mining Limited and Capital Mining NL are studied and their compliance to the Conceptual Framework is discussed. The Chairman’s Report, Director’s Report, income

Statement, Balance sheet, Statement of Changes in Equity, and the Cash Flow Statement are studied with details. It is found that both the companies have complied with the requirements of the framework. So long as corporate governance is concerned, it is found that both the companies have done well in this regard. The following sections of the report consist of the discussion of the statements and reports provided in the Annual Reports 2015 of the two reporting entities.

Introduction

The business world has acquired a global nature and alongside financial information as provided by companies has been playing a more serious role in the international business scenario. Keeping these in mind, the International Accounting Standard board (IASB) has collaborated with supreme accounting standard boards of different countries in presenting a set of universally accepted financial reporting standard. In accordance with this initiative, the

Australian government, on 3 rd July 2002 announced through the Financial Reporting Council (FRC) that Australian companies must comply with those standards as produced by the International Accounting Standard Board. On January 1, 2005 the AASB declared that the reporting entities of Australia issuing general purpose financial report under the Corporations Act 2001 would adopt the Reporting Standard as prescribed by (AIFRS) while preparing annual reports for periods beginning on or after January 1, 2005 (Gallery et al. 2008).

In this background and in the face of wide spread criticism against the accounting practices of the collapsed corporate giants like Enron and WorldCom in the US and OneTel and HIH in Australia, more emphasis was placed on the Conceptual framework of financial reporting which is intended to increase the robustness of the standard setting process, ensure consistency in developing future standards, and help the users of the financial statements in their interpretation of information provided by the reporting entities as the framework provides the principles on which the financial statements and reports are prepared (IASB 2015). The conceptual Framework for Financial Reporting was prepared by the IASC in 1989. The framework was adopted by IASB in 2001(IASB 2015). In this report two ASX listed mining companies namely Rimfire Pacific Mining NL and Capital Mining Limited are taken, to analyze through their

financial reports 2015, the extent to which their reporting comply with the Conceptual Framework of Financial Reporting. In doing the analysis, emphasis is given on the qualitative characteristics of the information provided in the reports as well as the nature of corporate governance of the two companies Brown and Tarca 2005).

Conceptual Framework for Financial Reporting

The IASC approved the IASB Framework on Conceptual Framework on Financial Reporting in April 1989, which was published by IASC in July 1989. In September 2010 the objectives of general purpose financial reporting and the qualitative characteristics of financial information required to be provided by the reporting entities were revised by IASB (Deloitte 2015). The Conceptual Framework takes into account the following concepts (IFRS 2013);

  1. The financial reporting objectives;
  2. The qualitative characteristics of the useful financial information in the financial statements.
  3. How to define, recognize, and measure the basic elements of financial statements.
  4. The capital and their maintenance concepts.

The general purpose financial reporting is done with the objective of providing useful financial information to the users of the financial statement and reports about the reporting entity so that the users can take decisions about allocation of financial resources by the company. But all the useful information as required by users namely existing and potential investors, providers of loans and trade creditors are rarely available under general purpose financial reporting (Mohrle and Jennifer 2008).

Underlying assumptions of financial statements: In accordance with the objectives accrual basis of accounting is adopted in preparing the profit & Loss statement, Balance sheet, Cash flow statement, and other statements and reports. Accrual basis of accounting is preferred to cash basis as the former serves better purpose for assessment of the entity’s past and future performance as it provides useful information about the resources of the company, the claim there of and also their changes (Lugo 2007). Next comes the concept of going concern. While preparing the financial statements it is assumed that the company would continue to operate and neither is it going to be liquidated nor will it scale down its operation in the near future. In the circumstances where the company is likely to be liquidated or would materially cut down operation, different basis could be adopted and the same must be disclosed in the report.

Qualitative characteristics of financial reporting information:Qualitative characteristics refer what make the information useful to the users. The qualitative characteristics are fundamental and enhancing. Fundamental characteristics are relevance and faithfulness of information, while comparability, verifiability, timeliness, and understandability are the enhancing characteristics. (Christopher and Christian 2014).

Analysis of compliance

This section of the report throws light on the financial statements and reports of 2015of the two ASX listed companies namely Rimfire Pacific Mining NL and Capital Mining Limited on the basis of the above discussion about the Conceptual Framework for Financial Reporting, and the underlying assumptions and the qualitative characteristics as mentioned above.

Analysis of Rimfire Pacific Mining NL Annual Report 2015

Directors’ Report: The directors’ report on the financial position is quite elaborate in explaining the major financial transactions as reported in the financial statements. Increase in net asset of the company from $12,077,162 at 30 June 2014 to $12,383,004 at 30 June 2015 as evident from the balance sheet of the company as reported in the annual report. The directors divulged about raising of capital to the extent of $1.093m with a right issue completed in December 2014 (Rimfire Annual Report 2015). The Directors’ Report in Annual Report of Rimfire (2015) states “Additionally, $1.163m in Aus Industry R&D funding was received in the period. Also, the Company was able to draw upon the grant that was awarded from the NSW Department of Resources and Industry, for New Frontiers Cooperative Drilling funds. This will provide a contribution of approx. $175,000 in the 2015~16 period, towards drilling programs undertaken by the Company, within the greater Sorpresa area. These funding sources were non dilutionary to shareholders.” The disclosure of the status of directors and their remuneration show the sign of corporate governance by the company, as is evident from the following table.

Details of remuneration for the year ended 30 June 2015

report-table

The composition of board of directors is in line with the ASX Corporate Governance Council’s recommendations that states that composition should be such that it provides the company with a broad base of industry, business, technical and corporate skill and experience which are necessary to represent the shareholders and fulfill the objectives of the reporting entity (ASX 2015). In addition, each of the directors is entitled to take professional

advice and the expenses are to be borne by the company should it be required by him to carry out his responsibilities in proper manner.

Underlying assumptions of Conceptual Framework for Financial Reporting: The accounting policies adopted in preparing the statement of income, balance sheet, and the statement showing cash flow are in adherence to the underlying assumptions of Conceptual Framework namely accrual basis and going concern concepts.

Qualitative characteristics of financial reporting information: There is no prima facie evidence in any statement or report that signals to lack of qualitative characteristics in the information provided by the company.

Directors’ Report: The Directors’ Report includes detailed description of the significant changes in the state of affairs (Capital Mining Annual Report 2015). The company presently does not have any executive director after resignation of the executive director Robert McCauley on 5 August 2015. The present non-executive directors of the company are Peter Torney, Peter Dykes, and Anthony Dunlop. The directors’ interest in shares and options are

given in the following table.

report-table-acc

Robert McCauley and James Ellingford have resigned. The qualifications and experience of the directors show that the composition of the directors is in line with the recommendations of the ASX Corporate Governance Council. The policy adopted by the company in determining the nature and amount of remuneration to the directors reflects adherence to principle of corporate governance (Capital Mining Annual Report 2015).

Underlying assumptions of Conceptual Framework for Financial Report: The financial report of the entity is prepared on the basis of going concern concept. A loss of $4,190,433 had been incurred by the consolidated entity in 2015 and had net cash out flow from operating activities of $1,444,191. The accounts have been prepared on accrual basis. Thus the underlying assumptions are satisfied by the reporting entity in preparing the annual report.

Qualitative characteristics of financial reporting information: Scrutiny of the financial report and notes signifies that the information as provided therein possess the qualitative characteristics of financial information and information to the contrary is not seen.

Differences in the two reports

Analysis of the two reports reveals the following differences.

  • Rimfire annual report includes a separate corporate governance statement; Capital Mining report has no such separate corporate governance statement.
  • The Chairman’s Report in the Rimfire Annual Report has a section dedicated to Economic Outlook.; no such section is available in the Directors’ Report in the Capital Mining Annual Report.
  • More technical details are provided in the Annual Report of Capital Mining; in the Annual Report of Rimfire such details are not found.
  • The Annual Report of the Capital Mining includes a section detailing matters at the end of financial period; no such section is included in the Annual Report of Rimfire.
  • Rimfire adopts a single valuation technique for valuing its assets and liabilities; Capital Mining uses more than one valuation techniques for this purpose.

 

Conclusion

From the above discussion on the financial reports and statements provided by the Two reporting entities in their respective Annual Reports 2015 it can be concluded that the reports are prepared in Accordance with the AASB guidelines and also comply with the Conceptual Framework for Financial Reporting. The Chairman’s Report and Directors’ Report look optimistic and the users of their financial reports and statement are expected to make good

use of the information provided in the reports.

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