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Homework answers / question archive / As a new accounting graduate, you have recently joined the accounting department of an ASX listed company
As a new accounting graduate, you have recently joined the accounting department of an
ASX listed company. The Chief Financial Officer (CFO) approaches you with your first
task. The Board of Directors have been concerned about the comments made by the ASIC
Commissioner in the ASIC media release for 30 June 2021 financial reports (see link
below):
21-129MR ASIC highlights focus areas for 30 June 2021 financial reports under COVID19 conditions | ASIC - Australian Securities and Investments Commission
ASIC Commissioner, Cathie Armour, has said, ‘As COVID-19 conditions continue to
evolve, the quality of financial reports and related disclosures remain more important than
ever for keeping investors informed. The circumstances of companies and the
environment in which they operate can change significantly from one reporting period to
the next. This could significantly affect assessments of asset values and financial position.
Disclosing key assumptions, risks, the drivers of results, management strategies and
prospects will be important for investors and other users of financial reports’ (Australian
Securities and Investments Commission (ASIC) 2021, p.1).
Based on that, the Board of Directors of your company discussed the importance of
ensuring that the company’s financial reports meet the objective of general-purpose
financial reporting and qualitative characteristics of useful financial information. Board
members are concerned about the information provided in the financial statements
regarding Property, Plant and Equipment (PPE) given that it is a major component of the
company’s financial position and performance and may have significant impacts on the
financial ratios and returns. They are keen to verify whether the disclosures for PPE meet
the objective of general-purpose financial reporting and qualitative characteristics of
useful financial information as this could affect the decisions made by the users about
investing in the company. They are especially concerned about the assumptions and
estimations made for the PPE in light of COVID-19 impacts over the last 18 months.
Therefore, the Board decided to have a review of the relevant disclosures in the
company’s annual report for the year ending 30 June 2020 pertaining to PPE and whether
these disclosures were aligned with the Conceptual Framework's objective and qualitative
characteristics of financial reporting. The purpose of reviewing last year’s annual report
is to ensure that all relevant information is disclosed this year.
Required:
Based on the Board's decision, the CFO asks you to draft a business research report
addressed to the Board of Directors on the following:
a. Critically analyse to what extent the 30 June 2020 annual report of your company
meets the disclosure requirements for PPE as per AASB 116. (15 marks)
b. Based on your findings in part a, critically analyse to what extent the disclosures on
PPE satisfy the fundamental and one of the enhancing qualitative characteristics
of useful financial information. (10 marks)
c. Based on your findings in part b, critically discuss to what extent the disclosures on
PPE align with the objective of general-purpose financial reporting. (10 marks)
d. Recommend any actions to be taken by your company to improve their disclosures
for 30 June 2021 annual reports based on your analysis in part b and c. (5 marks)
