ACC00713 Report Assignment Sample
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Abstract
The aim of this study is to analyse the regulatory requirement in context to develop the financial statement in business. In respect to properly record the accounting transaction, the standard of AASB15 proved to be effective as this standard include major five steps to recognise the revenue of firm. It includes the contract with customer, analyse the work reasonability and allocate the price to responsibility. This allows to recognising the revenue for the firm. However, this standard supports the firm like Funtastic Limited in term to gain right investors, local employees and customers. This is because proper disclosing of revenue generation assists the firm to capture positive goodwill and obtain the retention of large stakeholder base.
Introduction
The aim of this report is to discuss the regulatory requirements and standard setting of financial reporting in context to Funtastic Limited. It is an Australia based firm which offers sporting, confectionery and lifestyle products under its own agency brands in Australia. However, the firm has headquartered in Mount Waverley, Australia. In respect to this firm, it will be discussed that how Funtastic applied AASB15 standard (Guthrie and Pang, 2013). However, there are different areas such as revenue requirement, measurement of revenue and AASB conceptual framework will be addressed. Thus, this study provides detail understanding about the Australia AASB15 section and its application in the firm.
Discussion
Part A
Requirement of revenue recognition according to AASB15
The section AASB15 aim is to define standard for disclosing revenue of firm. Under this standard, the organisation must disclosure sufficient facts to unable users of financial statements to understand the nature, amount, timing and uncertainty of revenue along with cash flows arising from contracts with customers. This area assists different stakeholders such as customer, client, suppliers and general public regards to make an investment decision. The reason behind to develop this section is that the increasing number of frauds in disclosure of accounts result in misleading of people (Holland, 2016). Likewise, investors do not able to identify the firm current position so this affects their investment decision. This section removes such obstacles by present fair reporting requirement and delivers right result. However, this section demand from the companies to disclose the information about the methods, inputs and assumptions in the form of estimate the amount of variable consideration (rebates, performances bonuses and refunds etc) transaction price such as estimate the likelihood of significant revenue reversals when the uncertainty is associated with some of variables. It means that disclosure of uncertainties allows the firm to convey the audiences about the areas from which the cash can be inflow or not. This practice helps the audiences to judge the firm actual income in current business environment (Paul Munter PhD, 2016). This revenue disclosure practice also help firm in term to retain its suppliers, distributors and employees towards longer duration as with the positive goodwill of firm attract the people (Dunbar and Laing, 2017). The workforces always want to attach with that firm which contain high reputation in market. So the application of AASB15 contributes right result to organisation.
Measurement of revenue according to AASB15
In context to address the requirements of revenue recognition, Funtastic limited incorporated or applied the AASB 15 section in the form of applied to all contract with customers, except for contracts covered by other standards such as lease, insurances and financial instrument. This standard is introduced with the aim to overcome the problem of previous revenue standards and deliver more accurate commercial financial reporting. Furthermore, firm used this section by including various steps such as Funtastic firstly identify the contract with customer, analyse the performances obligations on contract along with determine the transaction price (Ciesielski and Weirich , 2015). Moreover, allocate the transaction price to the performances obligation and recognise the revenue when performances obligations are satisfied (Kober et al., 2013). Thus, this format is applied by the firm in their business.
At the same time, firm under section AASB15 evaluate the probability of receiving the consideration in exchange of goods and services by taking into account of customer ability and intension to pay. After that only, firm record the cash inflows in their accounts. The transaction price is allocated as per the performance obligation so that right revenue generation can be recorded (Dunbar and Laing, 2017). In accordance’s to the section, firm also address the area of disclosure requirements. In this, firm perform reporting through mention general purpose of financial statement along with some figures related to cost and revenue generation. The disclosure also involves the facts related to nature, amount, timing and uncertainty of revenue and cash flows from different contracts. These areas proved to be effective for presenting the figure of revenue to investors and different people.
Furthermore, the disclosure of accounting is also undertaken by mentioning the discount, rebates and schemes to individuals so that they can interpret right set of revenue recognition (Yeaton, 2015). Therefore, this section helps the Funtastic limited to accurately present of revenue recognition and this allows to achieving the trust and faith of larger group. Alongside, it support towards enhancement of firm growth over the longer period of time (Steenkamp and Steenkamp, 2016). Furthermore, the AASB 15 section is implemented by the firm by including only those transactions which is achieved with the exchange of goods and services or not consider the uncertainty transactions. However, the amount of revenue from rendering of service recognised as revenue in the reporting period. At the same time, the method used to identify the stage of completion of service. In context to service transaction, it include amount of cost incurred and recognised profit at end of year, amount of advances received and amount of retentions etc. these disclosures present the revenue recognition of firm to an stakeholders. This allows to gaining the recognition in society.
Part B
This part addresses the potential impact of adaptation of section AASB15 over different aspect of business. AASB15 section consider as revenue recognition from contracts with customers. There are series of acts which this section consists and these acts proved to be positive as well as negative for the firm. Likewise, the new revenue standard creates issue for firm to properly record the transactions (Dakis, 2016). For example, a company is renting out building and also provide the cleaning and maintenances services to the tenant. So the rental would be accounted for under leases standard while cleaning and maintenances services would be captured by the new revenue standard. In regards to perform the AASB15, there is need to firstly apply guidance in other standards to work out then separate the part as per the scope and lastly the revenue standard will be performed (Streaser et al., 2014). Thus, the complications in this section are the major one which affects the firm in the form of take high time of accounting department.
However, in concern to Funtastic limited, it is found that investors gain huge profit with the adaptation of AASB15 in a way to obtain wide information about the firm revenue generation and sources through which cash inflows. These areas assist the investors to identify the firm ethicality and as per that it takes investment decision (Wagenhofer, 2014). Alongside, investors also able to analyse the areas within which firm fail to generate revenue. These way investors somehow gain benefits. But at the same time, investors also get loss when firm sometime present false information just to attract investors. Likewise, in particular year, firm does not achieve that much profit even if they present high profit then this practice affect the firm goodwill as investors tend to loss the faith of firm. In context to Funtastic, AASB15 act provide positive influences over investors as they are satisfied with the firm proper disclosure of revenues recognition sources such as lease, product & services offering and different areas. These areas guide the investors to judge the actual position of firm in current scenario (Biondi et al., 2014). In perspective of investors, it can be stated that there is positive influences of the disclosure of revenues sources over the investor of Funtastic in term to gain sufficient knowledge about the firm and its activities.
AASB 15 is an effective accounting standard that provides principles related to reporting of useful financial information to its stakeholders such as timing, nature, uncertainty and amount of revenue as well as cash-flows that are collected from customer contract. It is identified that the annual report of Deloitte Company is based on the AASB 15 and now the financial performance of the company has been raised with an incremental manner. If Funtastic Limited will include the AASB 15 in the financial report of 2019 then it will show the changes made to accounting policies as well as these changes will also include several reasons of these changes or different judgments associated with these changes (Beatty and Liao, 2014). In addition, it will also disclose the overall revenue and profitability of the company that will directly influence on the customers that the company is taking affordable price for the product and service that are provided by the company. As per the annual report 2017, it is identified that the company will adopt the AASB 15 accounting standard effectively for annual reporting period starting on or after 1 January 2018. It will provide batter financial information to the stakeholders because the current profitability of Funtastic Limited is showing 24.33% profit margin. The customer can see this profit margin and the positive image of the company will be developing among the customer because the company is not bearing a loss situation so that it can increase the price of its products.
In addition to this, it is also identified in the profitability ratio of Funtastic Limited that operating margin of the company was negative with -19.38%. Due to this, it can be estimated by the inventors and other people that Funtastic Limited will increase the operating margin in the current year after applying the AASB 15 accounting standard. In addition, it is seen in the current annual report that the PE ratio of the company is 0.69 that is also showing that the price to earnings is only 0.69%, in this condition the investor expects that the company should provide higher earning for growth of the business. As per this PE ratio, it is clearly articulated that AASB 15 will support to the company by providing company specific information in the annual report (Bevis, 2013).
The standard present the accounting in concern to incremental cost of obtaining a contract with customers and it also include the cost which incurred to fulfill the contract with customer If in case the cost are not as per the scope of another standard (Freeman et al., 2014). The standard of AASB15 can apply only those contracts which are related to customers and contractors and it does not include those cost or revenue which come under another scope such as rental of building along with the maintenances and cleaning charges are not includes into the lease contract accounting as the maintenances and cleaning transaction include only in the other expenses account. Similarly, the firm can record the revenue which only generated with sources of selling with exchange of goods and services.
However, the Funtastic Limited can bring improvement in business operation with the help of AASB15 through include right disclosure of revenue sources which allows the firm to judge what are the impairment assets that does not contribute the profit to firm. This helps them to retrench it and increase the flow of cash into the business. Moreover, the standard can also support the firm through identify the contracts with customer and analyze the expenses and revenue from the contract. This helps the business to investigate how much contract generate right cash inflows and outflows.
Conclusion
From the above discussion, it is concluded that AASB15 standard proved to be effective for Funtastic in term to attract large number of investors and different stakeholders. Moreover, this standard also helps the firm to recognise how much revenue they are actually earning. This helps them to take relevant decision about organisation. However, AASB15 revenue standard provide more relevancy to organisation in term to recognise the revenue through based on contracts with customer. There are firm which significantly struggling when they prepare their financial statements using different accounting standards. So this standard supports the firm to successfully perform the financial statement.
References
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Bevis, H.W., 2013. Corporate Financial Reporting in a Competitive Economy (RLE Accounting). UK: Routledge.
Biondi, Y., Tsujiyama, E., Glover, J., Jenkins, N.T., Jorgensen, B., Lacey, J. and Macve, R., 2014. ‘Old hens make the best soup’: accounting for the earning process and the IASB/FASB attempts to reform revenue recognition accounting standards. Accounting in Europe, 11(1), pp.13-33.
Ciesielski, J.T. and Weirich, T.R., 2015. Revenue Recognition: How It Will Impact Three Key Sectors. Journal of Corporate Accounting & Finance, 26(3), pp.31-39.
Dakis, G.S., 2016. Upcoming changes to contributions and leasing standards. Governance Directions, 68(2), p.99
Dunbar, K. and Laing, G.K., 2017. Deconstructing the Accounting Standard AASB 13 Fair Value: Exit vs Entry Price for Assets. Journal of New Business Ideas & Trends, 15(2).
Freeman, R.J., Shoulders, C.D., Allison, G.S., Smith Jr, G.R. and Becker, C.J., 2014. Governmental and nonprofit accounting: Theory and practice. JPAEJOURNAL OF PUBLIC AFFAIRS EDUCATION VOLUME 20 NUMBER 3, p.441.
Holland, D., 2016. Simplifying income recognition for not-for-profit entities. Governance Directions, 68(11), p.666.
Kober, R., Lee, J. and Ng, J., 2013. GAAP, GFS and AASB 1049: perceptions of public sector stakeholders. Accounting & Finance, 53(2), pp.471-496.
Paul Munter PhD, C.P.A., 2016. The new revenue recognition standard: Implications for healthcare companies. Management Accounting Quarterly, 17(2), p.30.
Steenkamp, N. and Steenkamp, S., 2016. AASB 138: catalyst for managerial decisions reducing R&D spending?. Journal of Financial Reporting and Accounting, 14(1), pp.116-130.
Streaser, S., Sun, K.J., Zaldivar, I.P. and Zhang, R., 2014. Summary of the new FASB and IASB revenue recognition standards. Review of Business, 35(1), p.7.
Wagenhofer, A., 2014. The role of revenue recognition in performance reporting. Accounting and Business Research, 44(4), pp.349-379.
Yeaton, K., 2015. A new world of revenue recognition: revenue from contracts with customers. The CPA Journal, 85(7), p.50.
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