The Conceptual Framework for Financial Reporting describes the objective of, and the concepts for, general purpose financial report. The International Accounting Standards Board (IASB)’s existing Conceptual Framework was developed by its predecessor body, the International Accounting Standards Committee, in 1989 (AASB, 2015). Although the existing Conceptual Framework has helped the IASB when developing International Financial Reporting Standards (IFRS):
• Some important areas are not covered;
• The guidance in some areas in unclear; and
• Some aspects of the existing Conceptual Framework are out of date.
Consequently, in 2004 the IASB and the FASB initiated a joint project to revise their Conceptual Framework. The project was suspended in 2010 and restarted in 2012 (AASB, 2015). The objective of the project is to improve financial reporting by providing a more complete, clear and updated set of concepts. One of the areas to be addressed is the financial performance (including the use of other comprehensive income) (AASB, 2015). IASB’s view is that income and expenses included in the statement of profit or loss are the primary source of information about an entity’s financial performance for the period, there is a rebuttable presumption that all income and all expenses will be included in that statement. However, they could be reported outside the statement of profit or loss and included in other comprehensive income (OCI) only if:
1. The income or expenses relate to assets or liabilities measured at current values; and
2. Excluding those items from the statement of profit or loss would enhance the relevant of the information in the statement of profit or loss for the period.
PART I (500 words)
Using the 2017 consolidated financial statements of the following companies:
1. Macmahon Holdings Ltd (http://www.macmahon.com.au/);
2. Mercantile Investment Company Ltd (http://www.mercantileinvestment.com.au); and
3. Maca Ltd (http://www.maca.net.au)
Comment on:
1. The companies’ reporting of comprehensive income;
2. The similarity and difference between the companies in relation to the disclosure of comprehensive income; and
3. Whether the disclosure of comprehensive income provides for better clarity of financial information.
PART II (1500 words)
After reading the attached documents, newspaper articles and research papers, answer the following questions:
1. Do you believe that “valuable information is often hidden by ‘boilerplate’ disclosures and that financial information is often poorly presented” as noted by IASB?
2. Do you believe that the current IFRS framework provides sufficient definition and clarity in relation to operating profit and earnings before interest and tax (EBIT)?
3. What is IASB’s current definition of profit or loss and other comprehensive income (OCI) and whether the definition, if one existed, meet the needs of stakeholders?
Note: there exists different views on these accounting issues. You will need to conduct your research using the above articles as starting point, and then supplement them with your own research.
Referencing and style:
• The required referencing style is Harvard. Essays not using the required referencing style or not showing in-text and end of text references will be returned unmarked.