BAO2202: Financial Accounting- Disclosure Of Leasing - Assessment Answer

Financial Accounting Assignment

Assignment Task

Review the most recent financial statements of two Australian firms from different industries. Analyse, compare and discuss both companies’ disclosure of leasingto explore both firms’ compliances with relevant Australian Financial Reporting Standardand support your arguments using relevant research literature (You are not required to provide financial figures).

Review the most recent financial statements of two Australian companies from different industries. Analyse, compare and discuss both firms’ disclosure of liabilities including provisions and contingent liabilities(excluding lease liabilities)to explore both firms’ compliances with relevant Australian Financial Reporting Standardand support your arguments using relevant research literature(You are not required to provide financial figures).

Review the most recent financial statements of two Australian companies from different industries. Analyse, compare and discuss both firms’ disclosure of intangible assetsto explore both firms’ compliances with relevant Australian Financial Reporting Standardand support your arguments using relevant research literature (You are not required to provide financial figures).

Review the most recent financial statements of two Australian companies from different industries. Analyse, compare and discuss both firms’ disclosure of revenueto explore both firms’ compliances with relevant Australian Financial Reporting Standardand support your arguments using relevant research literature(You are not required to provide financial figures).

Abstract

The essay presented below summarizes the compliance of Qantas and Woolworth, both ASX listed companies with the Accounting standards and other applicable rules issued in this regard. An effort was made to analyse the differences and similarities followed by recommendation on suggested improvements.

Qantas belongs to the Australian Aviation Industry. The company compliance with the applicable Australian Financial Reporting Standardfor disclosure of revenue is accordingly different from the disclosure by Woolworth belonging to the retail industry.

Both companies have disclosed appropriately suited to their industry types, the categorization of their revenue received during 2015 and have duly disclosed the accounting policies, assumptions and principles that were used for recognizing revenue and where required.

Significant difference in revenue disclosure is attributed to the difference in the industry segment of the two companies is the disclosure of revenue in the income statement. Woolworth bifurcates revenue in the statement as operating revenue and other revenue. Operating revenue is further classified into sale of goods and other operating revenue. While the income statement of Qantas shows it as passenger revenue, freight revenue and other revenue.

Introduction

In tune with AASB 118 on Revenue Recognition, both companies have duly disclosed the accounting policies, assumptions and principles that were used for recognizing revenue and where required; specifically, with reference to Qantas; the methods that were applied for determining the stage of completion of the airline – passenger related transaction for the rendering of the transportation services by the airline have also been duly disclosed.

Both companies have disclosed appropriately suited to their industry types, the categorization of their revenue received during 2015 (being the most current financial year for both the companies under review). Where required; specifically, with reference to Woolworth, revenue has been further segregated in the notes to the financial statements and balance sheet in the annual report into revenue earned from the sale of goods; rendering of services; revenue earned from interest; royalties; dividends; as well as revenue from exchanges of goods or services within each category.

Discussion

A perusal of the annual reports of both the companies indicated that while Woolworth has already started working towards the compliance on the new AASB 115 relating to disclosure of revenue on contracts (to be effective from 1 January 2017), Qantas has still to carry out the exercise.The Group has made a preliminary assessment of the impact of the AASB on the performance, position and other disclosures. Though International Accounting Standards Board (IASB) is currently in the process of identifying challenges due to the applicability of the new standard, the company has already worked towards the compliance.

Qantas revenue is disclosed and recognized when carriage is provided and extends to passenger revenue and loyalty programs. Qantas follows principles that are consistent with the AASB as well as industry compliant in respect of the revenue specific traits in the industry like treatment of unredeemed tickets, treatment of revenue linked discounts and commissions and taxes and airport passenger charges including fuel surcharges(Kpmg.com, 2016)

Where the revenue relates to a prior or future period, the fact has been suitably disclosed in the accounts section. For example, Qantas has recognized such revenue as revenue in advance or prior period revenue in the balance sheet. Note D of the annual accounts 2015 for Qantas elaborates in detail, the principles used for revenue recognition in tune with the AASB framework. It covers dividend revenue. aircraft financing revenue, other revenues earned like membership fees, terminal fees, property revenue, tours and travel and gains on disposal of assets. All these are recognized at fair value and recognized on meeting the specified conditions like when the obligations are met and risks and rewards of ownership of the revenue earning asset have been duly transferred.(Aasb.gov.au, 2016)Revenue from Commissions, Contract work, Frequent flier marketing revenue, redemption revenue and passenger and freight revenue are all recognized in compliance with AASB 118 on Revenue Recognition, AASB 111 on Revenue from Construction contracts and AASB interpretation number 13 on customer loyalty programs. To be noted that Qantas is duly assessing the potential impact on the financial statements for periods commencing 1 January 2018 of the amendments to be mandated as per AASB 15(Qantas.com.au, 2016)

Similarly Note 5 of the Annual report of Woolworth lists the revenue recognition criteria for the company on sale of goods as outlined above at fair value when significant risks and rewards of ownership have been transferred to the customer and when it is probable that revenue would be received and the revenue amount can be reliably measured. Revenue is disclosed net of returns and discounts as stated.

Another significant difference in revenue disclosure is attributed to the difference in the industry segment of the two companies is the disclosure of revenue in the income statement. Woolworth bifurcates revenue in the statement as operating revenue and other revenue. Operating revenue is further classified into sale of goods and other operating revenue.(Woolworthslimited.com.au, 2016)While the income statement of Qantas shows it as passenger revenue, freight revenue and other revenue.

Conclusion/Recommendation

On the point of consideration of improvements to both the company’s disclosure so as to aid the decision usefulness and transparency of the accounting information, both the companies may further improve the disclosure by clearly disclosing the treatment of franked dividend revenue on a net or gross basis (basically the company interpretation for the treatment where there is any such income)

In respect of assets which are sold in the ordinary course of its business as property, plant and equipment and were held to rent out to others, the assets should be transferred to inventories and the sale proceeds ought to be recognised as revenue; both the companies out to treat such assets and disclose the fact clearly.

Rebates ought to be deducted from revenue; both the companies out to treat and disclose the fact clearly.

AASB 116 provides for disclosure of gain or loss on disposal of property and clarifies the gain to be treated as revenue. Both the companies ought to specifically disclose this fact under the notes to revenue to enhance the usefulness of the report

A prudent judgement ought to be made regarding the treatment of such items as revenue or gains with reference to AASB 116.

Entities that would be affected by the implementation of AASB ED 198 dealing with Revenue for contracts with customersare those with warranty provisions, licensing arrangements, those applying ‘percentage of completion’ method to contracts and those selling goods and services on credit . The timing and amount of revenue recognised may change as the customer’s credit risk would also be incorporate while recognizing revenue under the new AASB. The change will extend beyond financial reporting to budgeting and negotiations as well, so both the companies are advised to familiarise themselves with the effects and impact.(Charteredaccountants.com.au, 2016)