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Advanced Financial Accounting

Introduction to Conceptual Framework

The Conceptual Framework (CF) project of the IASB (International Accounting Standards Board) has identified the need for general purpose financial reporting of the business corporations. The reports are developed to provide significant information to the users that assist them to take various types of decisions. This report has been prepared to describe and critically discuss the objective behind the preparation of general purpose financial reports (GPFR’s) by business corporations. The annual report of a selected company, that is, West African Resources Ltd, has been examined for assessing whether it follows the requirements of GPFR as stated within the CF project.

GPFR: Definition, Description, Critical Discussion & Identification

A general purpose financial report is a report that has been developed by business corporations for presenting their financial information for satisfying the different needs of their various stakeholder groups mainly investors, shareholders, government and others. The financial statements are largely difficult to be understood for the general users who does not have good knowledge of the accounting field and therefore cannot adequately examine the financial performance of a business entity (Epstein and Jermakowicz 2010). The financial statements are developed by a business entity for the general users who cannot command special information from the entity such as tax authorities or government agencies. The GPFR’s includes the primary financial statements developed by an entity that are supported by series of more detailed notes and thus these reports contain both financial and non-financial data to be presented to the users. The GPFR’s are developed on an accrual basis which means that transactions are recognized when a performance obligation has been occurred irrespective of the fact about the payment or receiving the cash. They also presents current and past year results for assisting the users to gain a better understanding of the trends (Gokten 2017).

The GPFR’s give information about the financial position of a reporting entity that mainly includes knowledge about its economic resources, that is, the assets owned and the claims present, that is, the liabilities need to be paid at a specific point of time. A general report gives information about the effects of the transactions that have a significant impact on changing the economic resources and claims of an entity (Deegan 2016). This type of information provides useful input for decisions that relates to providing resources to an entity from the users. The reporting entity is defined as an entity having the presence of users who are dependent on the GPFR provide by it for developing an understanding of financial position and performance and taking significant decisions on the basis of this information provided.

The objective of GPFR has laid to the foundation of developing CF and as per the project its main purpose can be stated as follows:

  • The major objective of developing a general purpose financial report is to depict financial information about a reporting entity that is highly useful for its present and potential users. The users mainly include investors, lenders and creditors that are involved in making decisions about providing resources to an entity. The decisions mainly related to buy, sell or hold the bet or equity instruments, giving loans or other credit resources.
  • The reports provide information relating to the returns that are expected to be realized from the specific debt or equity instruments by assessing the amount, time and uncertainty about the future net cash flows of an entity (IFRS Foundation 2011).
  • The GPFR’s also provides an assessment of the future prospects of net cash inflows of an entity to the present and potential users requiring information about the resources of an entity. This is also examined by analyzing the effectiveness of the entity’s management and governing board in discharging their responsibilities such as protection of resources, ensuring compliance with relevant laws and regulations and other such responsibilities.
  • The primary users of the GPFR’s are regarded as the present and potential investors, creditor and lenders that do not have direct access to any other information and thus need to reply on the information of these reports. The primate users also need to consider other sources as well such as analyzing economic or market conditions, evaluating the political stability and company outlooks as the GPFR’s is not able to meet all the requirements of the primary users (Langenderfer and Porter 2014)

The general public or citizens can be regarded as the primary users of the financial reports prepared for the general use. The service recipients and some resource providers are largely dependence on the information given by the GPFRs for accountability and decision-making purposes. In addition to this, the financial advisors, public interests, lobby groups, analysts and other users also require the information that is given by a general report for meeting their different purposes. The individual primary users have varying or conflicting requirements and thus Board intends to provide the information for meeting the needs of the maximum number of primary users (Kolitz 2016).

The scope of financial reporting provided by the GPFR’s has established the boundary around the financial transactions or other activities that are required to be protected within these reports. The major information that is provided by the GPFR’s include assessment about the financial position and cash flows, compliance with legislations, potential financial and non-financial information and other type of explanatory information required for enhancing the disclosure of the reports prepared. Thus, it can be said that a general purpose report has a significant role to be played in communicating the required information users required for accountability and decision-making purposes (Dagwell, Wines and Lambert 2015).

Objective of the GPFR’s within Existing Conceptual Framework Project

The framework of accounting has provided assistance to the IASB for developing consistent accounting policies or standards for providing relevant and reliable information to the users. In this context, it has provided the objective of the general purpose financial reports and its ahs regarded that the information need to be of high quality so that it is useful for the present and potential users. This is because financial reports are developed on the basis of estimates and judgments and therefore it is necessary that they must be accurate for providing quality information to the users. As such, the CF has identified and stated the fundamental and enhancing qualitative characteristics for ensuring that the users receive quality financial information and are able to meet the objective of the GPFR’s.

The selected company West African Resources Ltd is an ASX listed entity and is recognized gold company that is highly dedicated towards creating value for the shareholders by acquiring and development of the gold projects. The notes section of the annual report of the company has clearly stated that its consolidated financial statements are the general purpose financial statements and are developed as per the Corporations Act 2001 and AASB standards and other legal requirements. The analysis of the objectives of GPFR achieved by the company can be carried out by comparing the information depicted within its financial reports as per the qualitative characteristics of the CF. The compliance of the financial report developed by the company as per the fundamental and enhancing qualitative features is carried out as below:

Fundamental Qualitative Characteristics

The relevance and faithful presentation are the two fundamental qualitative features of the CF and they need to be present within the information provided by the GPFR’s for meet its specific objectives.

Relevance

As per the criteria of relevance, the information provided by a general report of a corporation need to have the capability of making a difference in the decisions of the users and therefore should possess both confirmatory and predictive value (IFRS Foundation 2011). The financial report of West African Resources Ltd has included information about revenue for the present year that can be used as a base for estimating the future financial growth and thus predictive value while it can also be compared with the past year revenue figures for ensuring previous evaluations and thereby having confirmatory value.

The revenue information is presented in the income statement of the company and the required disclosures are made in the notes section (West African Resources Limited: Annual Report 2019).

Faithful Representation

The information presented within a financial report need to be complete, neutral and also error-free so that it is able to faithfully represent the economic and other phenomena that it intends to present. The omission of some information can lead to its manipulation and therefore can have the possibility of falsely depicting the financial position. Also, it should not have any type of biasness and as such need to be neutral in all form. The financial report of the company selected ahs also complied with this requirement of the CF project by including an auditor declaration statement that has stated that all type of information whether financial or non-financial included within the GPFR;s of the corporation are materially correct and complies with relevant rules and policies(West African Resources Limited: Annual Report 2019).

Enhancing Qualitative Characteristics

The understandability, comparability, timeliness and verifiability are the enhancing characteristics of the information as states by the CF.

Understandability

It is highly necessary for the business entities to present information in an easy manner so that it is able to respond to the various needs and knowledge base of users. The financial report of the selected company presents information in an understandable format as it has provided detailed explanation of the relevant accounting policies or methods that are used for developing and presenting the financial statements (IFRS Foundation 2011). This information enables the users to easily interpret the financial results of the company and thus aid an investor to gain an adequate understanding of its financial position.

Comparability

The GPFR’s of a corporation need to present the information in a format so that the users can easily identify the similarities and differences across the two set of phenomena. As such, the information need to be consistent that is it is highly necessary for the application of same accounting principles or policies for developing and presenting the information presented within the financial report (Macve 2015). The selected company in accordance with their quality of the information has applied the consistent accounting policies that are AASB rules and corporations Act 2001 for presenting the information within its financial report. Also, the financial statements depict the financial information in a comparable format where the financial figures can be easily compared across the two reporting period (West African Resources Limited: Annual Report 2019).

Verifiability

The financial reports developed by a business corporation also need to present the information in a format so that it can be easily verified. The verification of the information can be done through directly observation or indirectly with the application of specific accounting policies or methods to ensure the value that has been calculated (Mbobo 2016). In this context, the GPFR if the West African Resources Ltd has presented the key financial facts an figures in a numerical format so that it can be easily verified directly and also the specific accounting methods that has been applied for calculating the value of different financial items has been provided in detail in the notes section. As such, it can be ensured that the information depicted is verified and therefore meet the objective of GPFR.

Timeliness

The information need to be updated and current to enhance its usefulness for the present and potential users of the GOFR’s. The financial reports of the selected company as such disclose its GPFR’s on annual abase so that the users received current information to make reliable decisions (West African Resources Limited: Annual Report 2019).

Thus, it can be said that the objective of GPFR to provide relevant and reliable information to the users is adequately met by the allocated company financial report by complying with the qualitative features of the CF project.

Conclusion on Advanced Financial Accounting

The GPFR objective intends to protect the interest of the users as provided by the framework project of the IASB as inferred from the discussion carried above. The major users of the information presented within the GOFR’s are citizens, service recipients and resource providers. The companies need to meet the qualitative features of the CF for developing their GPFR’s for meeting its varying objectives and satisfying the common needs of the users.

References for Advanced Financial Accounting

Dagwell, R., Wines, G. and Lambert, C. 2015. Corporate Accounting in Australia. Pearson Higher Education AU.

Deegan, C. 2016. Financial Accounting, 8th Edition. McGraw-Hill Education Australia.

Epstein, B. and Jermakowicz, E. 2010. WILEY Interpretation and Application of International Financial Reporting Standards 2010. US: John Wiley & Sons.

Gokten, S. 2017. Accounting and Corporate Reporting: Today and Tomorrow. BoD – Books on Demand.

IFRS Foundation. 2011. Conceptual Framework. [Online]. Available at: https://edisciplinas.usp.br/pluginfile.php/207967/mod_resource/content/1/framework.pdf#:~:text=OB2%20The%20objective%20of%20general,providing%20resources%20to%20the%20entity. [Accessed on: 3 May 2020].

Kolitz, D. 2016. Financial Accounting: A Concepts-Based Introduction. UK: Routledge.

Langenderfer, H. and Porter, G. 2014. Rational Accounting Concepts (RLE Accounting). UK: Routledge.

Macve, R. 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, or Threat. Routledge.

Mbobo, M. 2016. Operationalising the Qualitative Characteristics of Financial Reporting. International Journal of Finance and Accounting.

West African Resources Limited: Annual Report. 2019. [Online]. Available at: https://www.westafricanresources.com/wp-content/uploads/2020/03/02218962.pdf [Accessed on: 3 May 2020].

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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