BAO2202 Financial Accounting
The assignment provides you with the opportunity to develop an in-depth understanding of measurement and recognition issues related to financial accounting. As accountants, we are concerned about providing decision-useful information to the users of financial statements for their decision making. To provide decision-useful information to the users of financial statements, accountants often require applying guidance given in accounting standards by using their judgment.
You are required to answer the following questions:
1.The Framework for the Preparation and Presentation of Financial Statements identifies enhancing qualitative characteristics as comparability, verifiability, timeliness and understandability.
Discuss how these enhancing qualitative characteristics improve the quality of information for users’ decision making.
2.The Statement of Accounting Concepts 1 (SAC 1) provides details about the identification of dependent users by identifying factors that make an entity a reporting entity.
Critically discuss the primary factors considered relevant in determining whether an entity is a reporting entity (please provide at least three references of research papers published in research journals).
3.The AASB Framework identifies Historical Cost as a measurement base to measure assets and liabilities.
Critically discuss the limitations of Historical Cost as a measurement base in generating decision-useful information for the users of financial statements using the research literature (please provide at least three references of research papers published in research journals).
4.Compare AASB 15 “Revenue from Contracts with Customers” with the superseded accounting standard AASB 18 “Revenue” regarding measurement and recognition of revenue.
The present report is developed to examine the measurement and recognition issues that are present in the financial accounting. The analysis of such issues is highly important for developing an in-depth understanding of these problems as these influence the decision-making process of users of general purpose financial reports. The accountants, in this context, have major responsibility of providing significant information to the users of financial statements for facilitating them to take investment decisions. The report as such has particularly evaluated the enhancing qualitative characteristics of financial reporting stated by the conceptual accounting framework. The factors determined by the statement of accounting concepts for making an entity as a reported entity is also discussed in the report. Also, it has presented the limitations associated with historical method of costing to be used for measuring the financial value of assets and liabilities. Lastly, it has carried out a comparative analysis between AASB 15 and AASB 18 for reporting revenue by the business entities.
1:Enhancing Qualitative Characteristics Improving the Quality of Information Provided by Conceptual Accounting Framework
The conceptual accounting framework has identified and stated the fundamental and enhancing qualitative characteristics of financial reporting. The qualitative characteristics for financial information has been developed for providing guidance to the financial users regarding the type of information that is most relevant to be disclosed to present and future investors. The conceptual framework has stated relevance and faithful presentation to be the fundamental principle of conceptual accounting framework. The framework has also stated enhancing qualitative characteristics of financial reporting that are comparability, understandability, timeliness and verifiability. The financial information disclosed as per the framework qualitive characteristic must be comparable for facilitating the users to take accurate decisions by selecting the best possible alternative. The information about a reporting entity can be stated to be comparable if it can be compared with other similar information provided by other entities. The reporting entities need to present the financial information of two consecutive years in their financial reports so that it is easily comparable. It enables the user to identify and understand the similarities and differences among the financial items. The financial information must be prepared with the use of consistent set of accounting methods so that it can be compared easily from one year to another (Conceptual Framework for Financial Reporting, 2015).
The financial information need to be verifiable in the sense that it can be verified using direct or indirect method. Direct verification mans that the financial information can be verified by observation while indirect verification means that it can be verified using accounting policies and methods used to obtain the value of such financial items. As such, it is essential for the business entities to report the financial information in a numerical form and should explain the underlying assumptions and policies used for calculating the value depicted. The verification of financial information ensures that it has presented the economic phenomena it aims to represent. The timeliness characteristics of financial reporting states that the financial information provided must be latest and should not be older to facilitate the decision-making process of users. As such, the reporting entities need to develop and disclose the financial reports on an annual basis so that the end-users received current financial information and can take accurate investment decisions.