Rules and Regulations of Conceptual Framework

Introduction

In the twenty-first century, business organizations all over the world face different kinds if complex issues and Accounting Issues are considered as one of the major problems among all of them. It is the obligation on the business organizations to prepare and present their financial statements accordance with the required accounting rules and regulations. Non-compliance with these rules and regulations poses accounting and financial reporting related threats for the companies. The same problems can be seen for the Australian companies. In order to avoid these assorting issues, both International Accounting Standard Board (IASB) and Australian Accounting Standard Board (AASB) has developed conceptual framework for financial reporting (aasb.gov.au 2018). It is highly required for the business entities of Australia to follow the rules and regulations of conceptual framework. This report takes an honest attempt to analyse the extent of satisfying the rules and regulations of conceptual framework of AASB and IASB. For the purpose of this report, Fairfax Media Limited is taken into consideration as the company is listed among the top 100 companies in Australian Stock Exchange (ASX) (fairfaxmedia.com.au 2018).        

Conceptual Framework Objectives

The above discussion states that the business entities of Australia are required to comply with the rules and regulations of accounting conceptual framework. In this context, it need to be mentioned that there are three major objectives of the conceptual framework of IASB and Fairfax Media Limited is required to prepare their financial reports after considering these objectives.

The first objective of conceptual framework is to express the true financial position of the business entities with the help of financial reporting. The financial position of the companies can be recognized from the statement of financial position or balance sheet (aasb.gov.au 2018). The latest annual report of Fairfax Media Limited includes the statement of financial position that reflects the current financial position or standing of the company. Moreover, the company provides various notes to the financial items in this statement for greater understandably.

The second objective of conceptual framework is to convey the financial performance of the business entities by providing relevant financial information (aasb.gov.au 2018). The users of financial  information can know the performance of the companies by observing the income statement along with the notes related to them. In the latest annual report of Fairfax Media Limited, the presence of consolidated income statement can be seen that convey the financial performance of the company. It can be seen in bellow:

The third objective of conceptual framework is to show changes in financial position of the business entities. In this objective, the main financial statements are statement of change in equity and statement of cash flows (aasb.gov.au 2018). The latest annual report of Fairfax Media Limited shows the presence of the statements of change in equity and cash flows along with their notes. It can be found in below:

Thus, from the above discussion, it can be seen that Fairfax Media Limited always considers the objectives of conceptual framework for the purpose of financial reporting. In addition, the company prepares and presents their financial statements as per the requirements of Corporation Act 2001, Australian Accounting Standard and the alternative pronouncements of AASB. Apart from this, Fairfax Media Limited also complies with the standards and regulations of International Financial Reporting Standards (IFRS) and IASB. In the presence of all of these compliances, it has become surer that the company follows the objectives of conceptual framework (fairfaxmedia.com.au 2018).

Recognition Criteria

The above discussion shows the major objectives of conceptual framework. Apart from these objectives, Fairfax Media Limited must flow the provided criteria for the recognition of major financial elements; they are assets, liabilities, equity, revenue and expenses. According to the conceptual framework of IASB and AASB, Fairfax Media Limited needs to consider three dimensions while recognizing the major elements. First, Fairfax Media Limited needs to consider all relevant information about the assets and liabilities along with income, expenses and change in equity at the time of recognition (aasb.gov.au 2018). Second, the management of Fairfax Media Limited also needs to consider the aspects of faithful representation of assets and liabilities and other aspects (aasb.gov.au 2018). Third, the company also needs to consider important financial information for cost and benefits. In order to consider all these aspects, Fairfax Media Limited should follow the standards of AASB for the recognition of these crucial financial elements (aasb.gov.au 2018).

Asset: Fairfax Media Limited follows fair value accounting for the recognition of their asset as it provides relevance to the financial information. For the recognition of property, plant and equipment (PPE), the company considers cost value less accumulated depreciation and accumulated impairment loss. Depreciation is charged on straight-line basis. Thus, the company follows AASB 116 Property, Plant and Equipment under section 334 of the Corporations Act 2001 (aasb.gov.au 2018).

In case of intangible assets, Goodwill is recognized in cost of the acquisitions value on the fair value. Radio license is not subject to impairment. Software, database and websites are subject to impairment. The company complies with the principles of AASB 138 Intangible Assets and IAS 38 Intangible Assets (aasb.gov.au 2018).

In Fairfax Media Limited, fair value accounting is used for the recognition of trade receivables as per AASB 9 Financial Instruments; lower cost and net realizable value is used for the recognition of inventories as per AASB 102 Inventories (aasb.gov.au 2018).

Liability: For the recognition of the trade creditors, Fairfax Media Limited considers the cost value based on the fair value accounting as per the standards of AASB 9 Financial Instruments (aasb.gov.au 2018). In case of the recognition of interest bearing liabilities, the company considers amortized costs based on fair value recognition.

Equity: Fairfax Media Limited classifies their ordinary shares as equity. The attribution of incremental costs is directly done to the issue of shares and they are recognized as equity as per AASB 1004 Contributions (aasb.gov.au 2018).

Revenue: There are different kinds of sources of revenue in Fairfax Media Limited. The recognition of revenue from advertising, circulation and others are recognized on the date of publication. Revenue from commission is recognized on accrual basis. Revenues from the advertisements are recognized at the time of the placement of advertisements. For this reason, the company complies with the principles of AASB 118 Revenue (aasb.gov.au 2018).

Fundamental Qualitative Characteristics

The financial information of the companies must contain the fundamental qualitative characteristics so that they become more purposeful to the users. The following discussion shows the fundamental qualitative characteristics of financial information of Fairfax Media Limited.

Relevance: Relevant financial information is capable enough for making difference in the financial decision-making process (aasb.gov.au 2018). For this reason, it is required for the financial information to have both predictive and confirmatory value. It can be seen that Fairfax Media Limited provides all the necessary and relevant financial information about their different economic resources in their financial statements (fairfaxmedia.com.au 2018).

Faithful Representation: As per this characteristic, it is the responsibility of the business entities to represent all the financial information faithfully. For this reason, the information needs to be complete, neutral and free from errors (aasb.gov.au 2018). From the financial statements of Fairfax Media Limited, it can be observed that the users of financial information can determine the availability of information from different financial statements. In addition, as per the audit opinion, the company has developed their financial statements by complying with the required accounting standards and regulations (fairfaxmedia.com.au 2018).    

Enhancing Qualitative Characteristics

The following discussion shows the fundamental qualitative characteristics of financial information of Fairfax Media Limited.

Comparability: The comparability characteristic of financial information makes the users identify and understand the similarities and differences in the financial information (aasb.gov.au 2018). It needs to be mentioned that the users can compare the financial information with the other business entities, or the same entity for different financial period (fairfaxmedia.com.au 2018).  

Verifiability:  The process of verifiability is majorly helpful for the promotion of faithful representations (aasb.gov.au 2018). In case of Fairfax Media Limited, it can be observed that the users are able to apply knowledge and independent observation for the purpose of decision-making process (fairfaxmedia.com.au 2018).

Timeliness: Timeliness characteristic provides the users with correct information on timely basis (aasb.gov.au 2018). Fairfax Media Limited always provides current financial information on perfect time as old financial information has less usefulness (fairfaxmedia.com.au 2018).  

Understandable: Financial information become information when they are classified, characterised and presented correctly (aasb.gov.au 2018). Fairfax Media Limited provides different types of notes of the financial statements so that provided financial information can be easily observed and understood (fairfaxmedia.com.au 2018).   

Conclusion

As per the above discussion, there are three major characteristics of conceptual framework and Fairfax Media Limited develops their financial statements by complying with these objectives. In case of the recognition criteria, the company effectively follows the measurement criteria provided by AASB conceptual framework for the recognition of their major financial elements. Moreover, in the attempt to make the financial information more useful and purposeful, Fairfax Media Limited complies with the fundamental as well as qualitative characteristics of financial information.

References

Aasb.gov.au. (2018). Conceptual Framework for Financial Reporting. [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 10 Apr. 2018].

Aasb.gov.au. (2018). Conceptual Framework for Financial Reporting. [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 10 Apr. 2018].

Aasb.gov.au. (2018). Contributions. [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/AASB1004_12-07_COMPjan15_07-15.pdf [Accessed 10 Apr. 2018].

Aasb.gov.au. (2018). Financial Instruments. [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/AASB9_12-14.pdf [Accessed 10 Apr. 2018].

Aasb.gov.au. (2018). Intangible Assets. [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf [Accessed 10 Apr. 2018].

Aasb.gov.au. (2018). Inventories. [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf [Accessed 10 Apr. 2018].

Aasb.gov.au. (2018). Property, Plant and Equipment. [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun14_07-14.pdf [Accessed 10 Apr. 2018].

Aasb.gov.au. (2018). Revenue. [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/AASB118_07-04_COMPmay09_01-10.pdf [Accessed 10 Apr. 2018].

Fairfaxmedia.com.au. (2018). Corporate Profile – Fairfax Media Limited . [online] Available at: http://www.fairfaxmedia.com.au/Company/Corporate-Profile/corporate-profile [Accessed 10 Apr. 2018].

Fairfaxmedia.com.au. (2018). FAIRFAX MEDIA ANNUAL REPORT 2017. [online] Available at: http://www.fairfaxmedia.com.au/ArticleDocuments/193/2017%20Fairfax%20Annual%20Report_Book.pdf.aspx?Embed=Y [Accessed 10 Apr. 2018].