Financial Reporting Disclosures in the Australian Corporate Sector
FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN CORPORATE SECTOR 2
Research Based Case Study and Report: Financial Reporting Disclosures in the Australian
Corporate Sector
Table of Content
- Introduction………………………………………………………………………3
- Objective of General Purpose Financial Reporting……………………………….3
- Fundamental Qualitative Characteristics………………………………………….4
- Wesfarmers Latest Annual Report in Light of the Disclosure Requirements for
PPE………………………………………………………………………………4 - The Extent at which Wesfarmers Satisfies the Fundamental Qualitative
Characteristics……………………………………………………………………5 - References……………………………………………………………………….8
FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN CORPORATE SECTOR 3
Introduction
Companies engage in business operations with the aim of doing business, generate profits
and create shareholders value. Financial reporting is used by management to communicate
information to the different stakeholders of the company and the general public. Such
information is important for potential investors, creditors, lenders for making important decisions
about providing scarce resources to the company.
Wesfarmers Limited is one of the largest corporations in Australia. The company’s
headquarters is in Perth, Western Australia. Wesfarmers Limited engages in businesses in
departmental stores, a supermarket, coal production and export, chemicals, energy and the
provision of home improvement and office supplies and also safety products (Wesfarmers – About
Wesfarmers, n.d.). The company is one of the largest private employers and creates satisfactory
returns to its shareholders.
Objective of general purpose financial reporting
The primary goal of general purpose financial reporting is to give vital information to
users about reporting entity that are useful for making and assess decision regarding the
distribution of scarce resources. These users include potential investors, the lenders and other
creditors. Financial reporting also provides a means by which the management exhibits their
accountability to the different stakeholders. The prerequisite of information with accountability
goals is an imperative goal of the general purpose financial reporting, especially in public sector
entity. However, it is important to note that, accountability by reporting entities using general
purpose reporting is part of the broader objective. That is providing useful information investors,
lenders and creditors for making a decision about the allocation of scarce resources.
FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN CORPORATE SECTOR 4
Qualitative characteristics of useful financial information
Financial information must possess both fundamental and enhancing qualitative
characteristics for the financial statements to be useful to the stakeholders.
Fundamental Qualitative characteristics
Relevance: Financial information must be relevant and capable of influencing the
decision of the users. Therefore, it is important that the metrics used in presenting financial
information should provide all the necessary information needed by the users to enable them
make the right decisions (Yao et al., 2015).
Faithfull Representation: The financial information provided must be complete, free from
error and that it is not biased in any way. Therefore, it is important that the financial information
provided depict the truth about the happenings in the company.
The enhancing qualitative characteristic includes comparability, timeliness, verifiability,
and understandability.
Wesfarmers Latest Annual Report in Light of the Disclosure Requirements for PPE
The main purpose of IAS 16 is to lay down the accounting standards for property, plant,
and Equipment (PPE). So as to make sure that the users of financial information can understand
information regarding the company investment in its Property, plant, and equipment. It also
encompasses any changes in the investment as mentioned earlier. Wesfarmers Limited present
their property plant and equipment information in a consolidated balance sheet included in the
annual report.
FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN CORPORATE SECTOR 5
According to the 2015 annual report, the Wesfarmers property is worth $2,495 million.
Plant and equipment are valued at $ 7730 Million. The company also disclosed the capital
expenditure that amounted to $2,243. On the notes to the financial statement, the company’s gain
on disposal of property, plant and equipment amounted to $54 million. The depreciation
amounted to $934million. The expenses accrued because of impairment of plant, equipment and
other assets amounted to $19 million.
From the Wesfarmers annual report, it is evident that the company has complied with the
IAS 16 principles. The values of assets are recognized when they are acquired. The notes section
gives detailed information about the assets acquired by the company. Therefore, Wesfarmers
property, plant, and equipment (PPE) are calculated at its cost. The company uses the
“Component” approach to recognition and measurement. The company identifies parts of an
asset that may be reinstated or separated from the main asset. Therefore, the company accounts
for different parts of its equipment differently.
Wesfarmers uses the revaluation model when determining the carrying value after the
initial recognition. The company accounts for an Item of PP&E using its fair value less the
accumulated depreciation and accumulated impaired losses (Yao et al., 2015). Wesfarmers
always revalue its assets annually to ensure that the carrying value to the next financial year is
not materially dissimilar from the final fair value present.
The extent at which Wesfarmers satisfies the fundamental qualitative
characteristics
FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN CORPORATE SECTOR 6
The main fundamental qualitative characteristics of financial information are relevance
and faithful representation. Wesfarmers presents its financial information in the form of the
annual report every year.
Wesfarmers Limited ensures that the information in the annual report can make a
difference in the decision made by the users. The company provides its financial information in
the form of four important documents. That is Result Shareholders quick guides, full year
announcement, result presentation and supplementary information (Wesfarmers, 2015).
The company ensures that the information published in the annual report is relevant to all
the users of financial information. The company provides the key financial metrics relevant for
the users when making decisions regarding their investment. To ensure relevance, the company
also makes sure that the financial information provided has both predictive and confirmatory
value.
Faithfull representation is also an element that is considered by Wesfarmers when
providing financial information. The company ensures that their financial information is reliable
and that it faithfully represents the economic phenomena fully. The company financial
information is complete encompassing all the required financial statement and other key
financial ratios as stipulated by the accounting standards (Wesfarmers, 2015). The information is
neutral as it represents the true and fair view of the company. The preparations of financial
statements are done by qualified and experienced financial managers to ensure that the published
financial information is free from any error whatsoever.
As such, Wesfarmers financial information can provide financial information about the
reporting entity that is important for potential investors, suppliers and other creditors to enable
FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN CORPORATE SECTOR 7
them make decisions about endowing the company with resources. This implies that the
company can meet the objective of general purpose financial reporting of providing important
information required for to decide whether or not to provide scarce resources to the company.
FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN CORPORATE SECTOR 8
References
2015 Full Year Briefing presentation. (2015, January). R
Wesfarmers – About Wesfarmers. (n.d.).
Yao, D. F. T., Percy, M., & Hu, F. (2015). Fair value accounting for non-current assets and audit
fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), 31-45.
Yao, D. F. T., Percy, M., & Hu, F. (2015). Journal of Contemporary Accounting &
Economics. Journal of Contemporary Accounting & Economics, 11, 31-45.
