Accounting Assignment Focusing on Australian Accounting Standards

Question

Task: This task requires you to prepare a report to explain the regulatory requirements and standard setting of financial reporting in the Australian context. You also need to evaluate and comment on information provided in the annual report of an Australian company listed on the Australian Stock Exchange (ASX). Your comments or evaluation should comply with the requirements of relevant Australian Accounting Standards (AASBs).

Discussions: The new revenue standard – AASB 15 Revenue from Contracts with Customers – applies to entities and businesses for the accounting periods beginning on or after 1 January 2018. The new accounting standard changes the financial reporting regime in terms of revenue. This will not only influence customer contracts and business model, but also have wide-ranging implications in business and control process.

You should address the following questions in your report.

Part A
1) Discuss and comment on the requirements of revenue recognition according to AASB 15.

2) Discuss and evaluate the measurement of revenue according to AASB 15.

Part B
From the perspective of the investors, discuss the potential impact of the adoption of AASB 1on 2019 annual report of the chosen company. Your investigation should focus on the influence on financial information regarding financial position, financial performance and financial ratios (including at least one of financial ratios, such as profitability ratio) of the chosen company. Your report should include some examples or evidence from the chosen company to support your discussion.

Part C
Effective communication, logic presentation and appropriate reference of this report.

You should provide relevant paragraphs of AASBs or others (e.g. sections from 2017/2018 annual report) to support your evaluation. You can access AASBs from the website: https://www.aasb.gov.au/Pronouncements/Current-standards.aspx

In particular, your report should refer to the following AASBs in your report:

• AASB Conceptual Framework: Framework for the Presentation and Preparation of Financial Statements 
• AASB 15 Revenue from Contracts with Customers
• AASB 101 Presentation of Financial Statements 
• AASB 118 Revenue

Answer

Introduction
Primary role and responsibility of updating and preparing accounting standards in Australia lies with Accounting Standard Board of Australia. This accounting authority is responsible to make sure that the business organizations are using updated accounting standards to insure true representation of f performance and position of business organization through books of accounts. The main focus of this Accounting assignment would be on discussing different accounting standards following in any accounting organization. Main focus of this report would be on AASB 15, AASB 101, AASB 118 and AASB conceptual framework. It is important for all business organizations to follow these accounting standards in order to comply with regulatory requirements as well as presenting financial statements in effective manner (Palepu, Healy and Peek, 2013). Reporting requirements with relation to these accounting standards will be evaluated from the perspective of CSL Limited. CSL Limited is a biotechnology company that is operating in different parts of the world but it was first established in Australia.

Part A- AASB 15 Revenue from contracts with customers
New Framework has been developed by Australian accounting standard board for revenue recognition from contract with customers. Every business organization that is operating in Australia is required to follow this regulation from 1st January 2018. Before introduction of this accounting standard there were different other accounting standards that work governing different type of revenue to be recognised by different organizations. It is expected that introduction of one accounting standard for revenue recognition from contracts with customers will decrease the level of complexity.

A. What are the requirements of revenue recognition according to AASB 15 in this accounting assignment?
One of the primary requirements of this accounting standard is it that it is required to be followed by all the business organization in Australia from 1st January 2018. This accounting standard deal with any kind of customer contract including contract for bundled goods and services. Any business organization that has entered into contract with customer for providing goods and services is required to follow this accounting standard (Davern et.al, 2019). According to this is standard management of the organization is required to follow five-step for recognition and measurement of revenue from customer.

B. Measurement of revenue according to AASB 15
According to the rules and regulations provided in this accounting standard business organizations are required to follow 5 step for recording and measurement of revenue collected from customers. Following are the five steps that will help in measurement of revenue from customers-

Step 1- Identifying the contract with customer- First and foremost business organization is required to analyse whether they are in contract with customer for providing goods and services or not. This accounting standard will be applicable on recognition of revenue that is arising out of contract between business organization and its customer. Therefore there is a possibility that one time sale of product or service might not be covered with the help of this accounting standard.

Step 2- identification of performance application- In this type of business organization is required to analyse explicit and implicit promise for terms and condition in contract that will result in delivery of goods and services to customer. Identification of performance obligations is one of the primary factor Indus accounting standard (Petschler, 2018). for example if a business organization has entered into contract with customer for providing the service of repair and maintenance throughout the financial year then repair and maintenance at specific point of time will be considered as a performance application.

Step 3- Transaction price payable by the customer- As per the third step stated in this accounting assignment, business organization is required to analyse the price that is required to be charged from customer for providing product and services to such customers. Generally if business organization and customer went into contract then contract price is mentioned in terms and conditions of the contract. Therefore business organization should identify the transaction prize from the terms and conditions of the contract. There is a probability that the transaction price is a fixed price irrespective of the fact that business organization is providing product and services over a long period of time. For example if your business organization is a providing service of maintenance of plant and machinery required by the client then contract price for the year will be fixed (Alotibi, 2018).

Step 4- Allocate the transaction price to the performance application

As it is already discussed that to transaction price in case of contract between customer and business organization is generally whereas the performance of applications arises over a period of time. Therefore the recognition purposes it is important to locate transaction price in accordance with the performance obligations.

Step 5- Recognition of revenue when performance obligations are satisfied

Management of the organization will record the revenue when the performance obligations are satisfied by business organization towards customers. For example if management has provided contract of four card services in a particular year at a fixed price then there will be 4 performance applications in this scenario. Proportional revenue will be recognised when each of the car service is executed (Gordon, Henry and Hsu, 2018). According to the disclosure requirements provided in this accounting standard, every business organization is required to disclose objective, nature, amount timing and uncertainty of revenue from the contract entered into with customer.

Part B- AASB 15 in CSL Limited
All the revisions made by Australian accounting standard board during the financial year 2017-18 recognised effectively by management of CSL Limited. It is very common for CSL limited to enter into contract with customers for providing biotech product and services to customers. Majority of customers of this organization are corporate entities, therefore generally majority of products and services are provided on the basis of contract between customer and CSL Limited. During the financial year 2018 management of the company has disclosed requirements in relation to AASB 15 in Note 24 to financial statements (CSL Limited, 2018). All the new and revised accounting standards developed by AASB that will be applicable on CSL Limited during 2017-18 are mentioned in this note to financial accounts.

With respect to revenue from contracts with customers, management has disclosed that this accounting standard has been used for guidance in relation to accounting treatment of business transactions arising out of contract with customers. This accounting standard of accounting assignment has been used by CSL Limited for evaluating that when and how much revenue should be recognised (Gordon, Henry and Hsu, 2018). In addition to that they have disclosed that is accounting standard is also applied by business organization for the interim financial statements prepared by business organization and brand of 31st December 2018. All the contract with customers entered into by CSL Limited after 1st January 2018 has been recognised on the basis of this accounting standard (CSL Limited, 2018).

According to the opinion presented by management of the organization, change in revenue recognition accounting standard will not have a significant impact on the manner in which revenue is recorded by the organization. It is expected that the similar level of accuracy will be maintained with changes in revenue recognition contract. Management of the company has disclosed that despite the changes in revenue recognition accounting standard there will be no material change in revenue recording practices as compared to past practices (Johansson and Sadr Aazam Noori, 2018).

Influence on financial position performance and ratio
It is important for a business organization to analyse impact of change in accounting standards on overall financial profitability and position of the organization. This can be done conducting trend analysis of past performance of the company and comparing it with financial real in which change in accounting standard has taken place. Therefore it can be said that performance of a financial year 2018 will be compared with 2017 and 2016 for such valuation.

Total revenue- In the year 2015, 2016 and 2017 total revenue generated by the organization has been $7108 million, $7958 million and $8601 million respectively (CSL Limited, 2018). Therefore it can be said that overall revenue of the organization has been increasing in all the financial year under consideration and simulator and can be identified in case of 2018 when changes are made in AASB 15. Overall revenue at the end of 2015 is $10266 million which is in accordance with the growth rate of revenue in past financial years. Therefore it can be said that there have been no material changes in revenue recognition practices of the organization due to change in AASB 15.

Net profitability – In this accounting assignment, net profit earned by the organization in past 4 financial years can be analysed with the help of net profit ratio. Overall net profit of this organization in the year 2015, 2016 and 2017 has been 25.26%, 21.02% and 22.22% respectively (CSL Limited, 2018). It can be analysed do that overall net profit generated by the organization has been decreasing before introduction of changes in AASB 15. On the other hand overall revenue of the organization has improved from 20.22 in 2017 to 22.79 in 2018 (CSL Limited, 2018). Profitability has improved in 2018 but it cannot be said that this is due to the introduction of changes in AASB 15 as there are various other factors that can affect net profitability.

On the basis of management of opinion and financial analysis it can be said that alterations in AASB 15 did not have any significant and material impact on financial recording process of CSL Limited.

Part C- Relevant paragraphs of AASB in CSL Limited
All the information in relation to different accounting standards used by business organization during the financial year 2018 has been described in note 24 to the financial statements. During the financial year under consideration management has only disclosed accounting standards that are amended or changed by Australian accounting standard board during the financial year. Following are the accounting standard that are described in notes to accounts of the company-

AASB 9- According to this accounting standards all the financial instruments are recorded at their fair value at the end of financial year. In addition to that any loss or profit on revaluation is recorded under the head other comprehensive income. Changes made by Australian accounting standard board in this standard will not have significant impact on recording of financial instruments (Hewa, Mala and Chen, 2018).

AASB- 15 all the rules and regulations disclosed by management in relation to recognition of revenue from customer contract has been disclosed in previous sections of this accounting assignment.

AASB 2- AASB has provided certain clarifications for recording certain type of share based payments in financial accounts that has been incorporated by business organization in their accounting practices. Share based payment instrument that are affected by such amendment does not exist in CSL Limited, therefore these amendments will not have a significant impact on accounting process.

In addition to that it is one of the primary responsibility of management to make sure that all the applicable accounting standards are followed effectively in preparation of accounts. Director’s report issued by chairman of the company has ensured that these rules and regulations are properly followed (Li, Siciliano and Venkatachalam, 2019). In addition to that auditor of the company has also disclosed that financial statements are prepared by following all applicable rules and regulations including conceptual framework and accounting standards.

Conclusion
The rules and regulations discussed in this Accounting assignment are very important for internal growth as well as regulatory requirements. Following these accounting standards is also very important from the perspective of investors as financial statements cannot achieve their overall objective if accuracy and relevance is not maintained. Accounting standards helps business organization to ensure that qualitative characteristics of financial information is maintained. An overall evaluation it can be said you that amendments made in AASB 15 will help business organizations to understand revenue recognition concept in effective manner and improve the quality of financial reporting. These amendments are effectively followed by the management of CSL Limited and it is identified that these amendments will not have significant changes in current revenue recognition policies of the company. In addition to that various other accounting standard disclosures provided by CSL Limited in annual report is also discuss. Accounting assignments are being prepared by our accounting assignment help experts from top universities which let us to provide you a reliable assignment help online service.

Reference List
Alotibi, N., 2018. International Financial Reporting Standard (IFRS) 15 Revenue from Contracts with Customer. Accounting assignment. Journal of Internet Banking and Commerce, 23(3), pp.1-9.

CSL Limited. 2018. Annual Report 2018. Retrievable at: https://www.csl.com/investors/financial-results-and-information/annual-reports

Davern, M., Gyles, N., Potter, B. and Yang, V., 2019. Implementing AASB 15 Revenue from Contracts with Customers: The preparer perspective. Accounting Research Journal, (just-accepted), pp.00-00.

Gordon, E.A., Henry, E. and Hsu, H.T., 2018. Revenue Recognition: A Brave New World. Stevens Institute of Technology School of Business Research Paper, pp.18-007.

Hewa, S.I., Mala, R. and Chen, J., 2018. IASB's independence in the due process: an examination of interest groups’ influence on the development of IFRS 9. Accounting & Finance.

Johansson, E. and Sadr Aazam Noori, J., 2018. Implementering av IFRS 15: Ur tre IFRS-redovisande företags perspektiv.

Li, B., Siciliano, G. and Venkatachalam, M., 2019. Economic Consequences of IFRS Adoption: The Role of Changes in Disclosure Quality. Available at SSRN 3366288.

Palepu, K.G., Healy, P.M. and Peek, E., 2013. Business analysis and valuation: IFRS edition. Cengage learning.

Petschler, L., 2018. Advocacy: New regulators at the reins. Accounting assignment. Company Director, 34(1), p.16.

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