FINANCIAL REPORTING

Australian Framework for the Preparation and Presentation of Financial Statements

Introduction1

Discussion1

Task A - AASB Framework2

Different Measurement Basis for Financial Reporting2

Realisable Value3

Current Cost4

Present Value4

Historical Cost5

Task B - Annual Report Review of Australian Firms5

ADX Energy Ltd6

Agenix Limited8

Task C - Relationship between Accounting Information and Market Reaction9

Conclusion10

References12

Australian Framework for the Preparation and Presentation of Financial Statements

Introduction

The paper divides relevant information on the subject matter into three tasks. In the task A, the paper aims at evaluating the Australian framework for the preparation and presentation of financial statements. The paper critically evaluates and assesses different measurement basis for communicating accounting and financial information under AASB framework. The Task B provides review of annual statements of two selected Australian firms, which are listed on the ASX.

The paper identifies and discusses varied measurement basis used by these firms. Moreover, the paper provides possible implications for using these measurement bases. Under the task C, the paper explores relationship between market reaction and accounting information with regard to the issues of measurement. The paper supports critical evaluation with the prior literature. Finally, the paper draws conclusion on the overall understanding and critical analysis findings.

Discussion

Over the past ten years, a number of international reporting standards have been published by renowned institutions to provide companies with professional guidance on the possible impact of varied measurement bases on their company value and resulting investor response. In Australia, all the companies listed on ASX are required to comply with the statutory requirements of AASB and ASX, in order to make their business flexible enough to become adaptive to changing market conditions and to counter off the possible impact of market fluctuations on their company performance (AASB, 2007, p. 18).

Task A - AASB Framework

AASB is a framework for financial reporting, which is equivalent to IASB's Framework for the Preparation and Presentation of Financial Statements. It is applicable to annual reports beginning on or after January 1, 2005 (AASB, 2004, p. 6). The framework provides assistance on the objectives and underlying assumptions of financial reporting. It sets basis for qualitative attributes and elements of financial reporting. Moreover, the framework provides guidance on the recognition criterion for various elements of financial statements.

In accord with AASB, there are certain qualitative characteristics that enhance the usefulness of financial information quoted in the financial reports for the key users. According to Locke and Marks (2008, p. 37), these principle characteristics include relevance, comparability, understand-ability and reliability. Hence, AASB framework states that a firm must be careful in selecting appropriate measurement basis, which otherwise may lead to measurement issues.

Different Measurement Basis for Financial Reporting

The AASB framework provides reliable measurements to recognize different elements of financial statements. For example, the framework requires an asset to possess cost or other reliable value in order to meet the criteria of recognition. The framework defines the term 'reliability' in correspondence with SAC 3's accounting concept statement of "Qualitative Characteristics of Financial Information" (AASB, 2004, p. 20). The current AASB framework sets accounting model as the appropriate measurement basis for asset recognition, in the financial ...