Finance reporting
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Finance reporting
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
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.
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.
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
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 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.
References
2015 Full Year Briefing presentation. (2015, January). Retrieved August 23, 2015, from http://www.wesfarmers.com.au/component/docman/doc_download/1453-appendix-4e-preliminary-final-report-and-2015-full-year-results.html
Wesfarmers – About Wesfarmers. (n.d.). Retrieved August 23, 2015, from http://www.wesfarmers.com.au/about-us/about-wesfarmers.html
Wesfarmers – Results, presentations and reports. (n.d.). Retrieved August 23, 2015, from http://www.wesfarmers.com.au/investors/reports-results-presentations.html#results-presentations
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.
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