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Unit 2 Contemporary Issue In Accounting Level 3

2040Downloads1 I Published: 13 Apr ,2020

Introduction

Financial reporting provides information to users for assessing financial performance of business and as such, effective decisions can be taken with much ease. Present report deals with Newcrest Mining Ltd which is engaged in gold exploration and mining headquartered in Australia and report discusses with reference to annual report of 2017 whether financial reporting objectives and other aspects are complied with AASB or not. Thus, users may take enhanced decisions. The stakeholders are benefited by such information and they are able to take better decisions with much ease.

1. Objectives of General purpose financial reporting

The financial reporting provides useful information to users who have stake in the business. They are able to take effective and enhanced decisions by assessing financial reports imparted by the firm in the best possible manner. Furthermore, this report provides clarity to users of accounting information to invest in the company or not. In relation to this, Newcrest Mining Ltd which is engaged in mining sector. It is basically engaged in gold exploration and mining organisation. It is required that objective of general purpose financial reporting should be fulfilled by it in order to impart necessary information to recipients in effectual manner. Newcrest Mining Ltd has effectively met financial reporting objectives. AASB (Australian Accounting Standards Board) has provided concept of SAC (Statement of Accounting Concepts) which imparts guidelines with regards to listing accounting information (Objective of General Purpose Financial Reporting. 2015).

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The objectives are to disclose financials of company such as assets and liabilities at the end of reporting period, generating positive cash flows information, revenue earned and expenses incurred at the end of period and thus, users may be able to allocate scarce resources. Sales revenue of 2017 financial year is disclosed which is 3477 million. Total assets and total liabilities are 11583 and 4049 are provided as well (Halligan, 2017). Moreover, there are positive cash flows such as 439 in 2017. On the other hand, compliance is also made for occupational health and safety legislation as it is the priority of organisation to provide safety to workers. Thus, objectives are met by firm.

2. Target audience of financial reports able to use accounting information

The target audience of the company are various users of financial information. They are investors, creditors, customers, government, taxation authorities, employees and many other stakeholders as well. They require financial statements of the company such as balance sheet, income statement and cash flow statement. Furthermore, statement of changes of equity is also essential part of financials of organisation. The stakeholders are able to take enhanced decision by assessing accounting information in the best possible manner. It can be stated that Newcrest Mining Ltd also provides relevant information to such target users (Kachelmeier, Schmidt and Valentin, 2017).

Creditors are provided with the liquidity position of the organisation, while investors are accompanied with revenue and net income of the firm. Government and taxation authorities are provided by net profit made by firm by which they are able to calculate and assess tax liability of the organisation quite effectually. Customers are provided with information of soundness of business whether profits are generated by it or not. Thus, it can be said that Newcrest Mining Ltd is providing information to all the parties to analyse organisation’s performance and further take well-mannered decisions with much ease. Moreover, management and employees are also stakeholders of company. Employees are able to take decision by assessing whether career growth would be accomplished in the organisation or not. Thus, profitability aspect is judged by them. Moreover, firm is engaged in mining and exploration and as such, employees also analyses whether safety is provided or not Management analyses where decisions are to be taken to ensure efficiency of various units to increase performance. Thus, company has provided all relevant information to target audience.

3. Recognition criteria for elements of financial statements

The elements of financial statement are assets, liabilities, equity, revenues and expenditures. It can be said that recognition of assets are that future economic benefits may be derived out of the use of such assets (Kent and Zunker, 2017). AASB has provided guidelines in SAC 4, further cost may be ascertained, and value may be derived of assets. It can be recognised that total assets have been increased up to 11583 in 2017 year while it was 11191 in previous year. Thus, economic benefit would be realised in the future. Furthermore, liabilities are reduced which shows that Newcrest Mining Ltd is able to pay liabilities with much ease.

Equity is the interest of owners and as such, assets should be maximised and liabilities to minimised. Thus, there is increase in equity as it was 7120 in previous year and 7534 in 2017. On the other hand, operating expenses have been realised and it can be analysed that they are increased from previous year. Furthermore, sales revenue is also increased which shows future benefits may be extracted by the company. Thus, recognition criteria are met for elements of financial statements.

4. Fundamental qualitative characteristics of financial reporting

The fundamental qualitative characteristics are relevance and faithful representation. Relevance means that financial information may be compared with past year and difference can be analysed by the users. In relation to this, revenue of current year can be used for making predictions for the future and past years’ performance may be compared as well. Newcrest Mining Ltd revenue was 3295 in 2016 and it increased to 3477 which can be analysed by users that performance is maximised and as such, more revenue will be achieved in the future. Materiality concept means that company may ignore material items which will not impact financial reports and users will not be misled (Russell, 2017).

Another aspect of relevance is measurement uncertainty which implies that if asset or liability cannot be measured with certainty, then it should be estimated but it should be properly estimated and disclosed. Faithful representation means that not only legal aspect should be disclosed but also economic information should also be disclosed and that too free from errors. Thus, company has exhibited these characteristics of financial reporting.

5. Enhancing qualitative characteristics of financial reporting

The enhancing characteristics are comparability, verifiability, timeliness and understandability. Comparability means that information may be compared of one entity by another in similar organisation by the users. For instance, if investors want to invest in organisation, then he can seek dividend payout ratio of Newcrest Mining Ltd with other company and as such, comparison can be made and thereby decisions are taken. Verifiability means that financial information can be verified by users such as if inventory is to be valued by taking costs and methods; same amount should be ascertained of what is listed in financials.

Timeliness means that updated information should be provided by company as older information is less useful for taking decisions (Muñoz, Bolívar and Hernández, 2017). Thus, firm provides information at the end of reporting period to stakeholders. Understandability means that information should be concise and easily understandable by the users. Thus, these enhancing qualitative characteristics of financial reporting have been exhibited by organisation in effectual manner.

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Conclusion

Hereby it can be concluded that accounting concepts and rules are quite relevant to firm for exhibiting fair financials in the best possible manner. Financial reporting should be prepared by complying with standards and guidelines provided by professional accounting bodies in order to have fair view of financial information to users. Thus, true financial report provides clarity to business and as such, trust of users also enhances in a better way.

References

  • Alcaide Muñoz, L., Rodríguez Bolívar, M. P. and López Hernández, A. M., 2017. Transparency in governments: a meta-analytic review of incentives for digital versus hard-copy public financial disclosures.The American Review of Public Administration.47(5). pp.550-573.
  • Halligan, J., 2017. Reform design and performance in Australia and New Zealand. InTranscending New Public Management(pp. 55-76). Routledge.
  • Kachelmeier, S. J., Schmidt, J. J. and Valentine, K., 2017. The disclaimer effect of disclosing critical audit matters in the auditor’s report.
  • Kent, P. and Zunker, T., 2017. A stakeholder analysis of employee disclosures in annual reports.Accounting & Finance.57(2). pp.533-563.
  • Russell, M., 2017. Management incentives to recognise intangible assets.Accounting & Finance.57(S1). pp.211-234.
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