This report aims to define and interpreted the AASB accounting standards that makes the financial reporting more effective and relevant to the business. These new accounting standards are helpful to meet the requirement of International Financial Reporting Standards (IFRS).
The new accounting standard AASB 101 provides the guidelines for effective presentation of financial reporting whereas AASB 15 refers the revenue from contracts from customers. It basically aims at the principle that an entity must apply to report the useful information for financial statements.
Moreover, this report consist the application and impacts of these reports are analyzed in context of company Kangaroo Island.
The main purpose of this report is to develop the insight in concern of the regulatory requirements as well as standard setting related to the financial reporting in the context of Australia.
At the same time, it is also essential to evaluate and provide the appropriate comment on the basis of the information provided in the annual report of the selected Australian Company which is listed under the Australian Stock Exchange. For accomplishing the reported study, the selected company is Kangaroo Island Plantation Timbers Ltd.
on which this whole the report is being prepared. Under this, this report contains an in-depth discussion about the AASB standards. In this manner, different terms are examined in this study (Jones et al., 2019).
Background of the Company
Kangaroo Island is identified as the only listed Timberland Company in Australia. In this way, its main operation is to maintain the owned portfolio related to the hardwood as well as softwood forestry plantations on the location of Kangaroo Island, South Australia (Kangaroo Island Plantation Timbers Ltd, 2019).
Under Kangaroo Island Plantation Timbers Ltd, most of the shares are held by private investors as well as fund managers who find the exposure in the relation of the timber investments as well as long term stable income streams by dividends.
While concerns the financial reporting, it is determined that the financial regulatory framework of Australia is the key element of financial accounting in concern of the recommendations of the Financial System Inquiry (Joubert et al., 2017). Usually, Australia’s financial regulatory framework contains three agencies along with the specific functional responsibilities that are:
- The Australian Prudential Regulatory Authority (APRA) that fulfill the responsibility in concern of prudential supervision
- The Australian Securities and Investment Commission (ASIC) That has the responsibility in respect of market integrity as well as consumer protection in whole the financial system
- The Reserve Bank of Australia (RBA) that contains the responsibility in respect of momentary policy, complete financial system stability as well as regulation of payment system
In addition to this, it is also determined that Australian Accounting Standard Board (AASB), an independent Australian Government Agency is one of the Australian authority, who set the Australian Accounting Standards and these standards are the determined as the legislative requirements in the context of the organization in Australia (Davern et al., 19).
These standards are mainly applied to all the financial report in respect of other general purpose and these reports are based on the public as well as private sector reporting entities.
At the same time, it is also reflected that these Australian Accounting Standards are helpful to meet the few essential requirements of the International Financial Reporting Standards (IFRS) and that is why it is the International Financial Reporting Standards (IFRS)’s responsibility to set much of standards (Peach and West, 2017).
In respect of the recognition and measurements related to the revenue under the business practices, it is determined that most of the companies are performing in a well manner in concern of recognition the revenue from the contracts along with the customers within the completely new framework associated with AASB 15 (Dakis, 2016).
In addition, the effective date for the new law was 1st January 2018 so it is essential for the current businesses that their business processes and their contracts must be prepared for these emerging changes.
In this manner, there are some new standards are also defined as the summary of AAB 15. In his, a 5 stage model is also explained by AASB 15 in concern of the entities who are operating their business in order to achieve the AASB 15 requirements (Standard, 2015). In respect to these requirements, the explanation of these steps is defined below:
Step1. Identify the contract with the customers
Under this, it is important for the organization to identify the contract that is being prepared with the customers so that important terms can be mentioned in that contract in order to prevent future errors.
Step2. Identify the performance obligations in the contract
It is also an important step for the businesses as well as its customers as by identifying the performance-related obligations while concerning about the price under the contract, business set the price on the basis of the responsibility so that an estimation of the revenue can be determined (Davern et al., 2019).
Step3. Determine the transaction price
Under this step, the transaction price is determined in respect to analyzing the revenue generated by the firms from their sales.
Step4. Allocate the transaction price to the performance obligations
This is also an important step that is considered under the requirement of the revenue according to the AASB 15. As per this step, the transition price is allocated to the other party under the contract with respect to the performance obligation that has been identified earlier (Dakis, 2016).
With the help of this, the performance-related obligation can be resolved in an effective manner and more revenue can be earned.
Step5. Recognize revenue when (or as) the performance obligations are satisfied
After following the above step, this step can be implemented under the organization. In this way, an organization can take a step to recognize the revenue after satisfying all the performance obligations because if the performance obligations are not satisfied then these create the problem for the customers who are related with the contract. In a similar manner, it also creates the issues in recognizing the revenue under the contract for the company owner.
In respect to recognizing the requirements of the revenue, Kangaroo Island Plantation Timbers Ltd implemented the AASB 15 section under the form of implemented on all the contracts along with its customers, apart from the contracts that are covered through different standards like insurance, financial statement and the leasing terms (Limijaya, 2017).
In addition, this standard is determined for the purpose to resolve the problems related to the previous revenue standards as well as they provide the more accurate and efficient reports of the commercial financing.
Moreover, many organizations adopt this section by involving different steps like Kangaroo Island Plantation Timbers Ltd determine the contract in concern of the customers, and analyze the different performance obligations under the contract.
In a similar manner, it is also found that the determination of the transaction prices is also done in concern of the contract. At the same time, Kangaroo Island Plantation Timbers Ltd also allocates the amount to its customers as the transaction prices in concern of the performance obligations.
The company also performs the last step of the process in which the company needs to recognize the revenue after satisfying the performance obligations. Thus, by applying this five steps process under the business, the company can effectively implement the AASB 15 standards as per the provided guidelines.
In a similar manner, the company can evaluate the profitability in concern of receiving the consideration in against of the products and services through concentrating on the customer’s ability as well as intention to pay (Davern et al., 2019). After accomplishing this, the company can only record its cash inflows in its accounting books.
In addition, the transaction prices are distributed according to the performance obligations under the contract and it is because the correct revenue generation can be booked under the accounts of the company.
In context to section AASB 15, it is also the company’s responsibility to address the area in concern of the disclosure requirements. So that company can do it’s reporting as per the mentioned general objective related to the finical statements including some figures associated with the costs and the revenue generation (Jones et al., 2019).
At the same time, it is also analyzed that the disclosure also considers the actual facts in concern of nature, amount uncertainty of revenue, timing and the cash flow from the different contracts under the company.
The Australian Accounting standards board (AASB) is an Australian body that establishes and maintains the financial reporting standards pertinent to all private and public sectors organization in Australian economy. In regards to accounting standards, The AASB exercises the conceptual framework to build and assess them (Huang, A. and Vlady, 2012).
It involves the eight phases of financial reporting aiming at stewardship, primary users, financial stability, and the reporting entity.
AASB 101 refers the presentation of financial statements that provides the guidelines of structure in which financial statements need to be structured and minimum requirement for their content. In addition, it presents the general objective of financial statements of the company Kangaroo Island to ensure the comparability with financial statements of previous periods and with other entities.
At the same time, the main purpose of this accounting standard is to give the clear information about the financial position and performance and cash flows of the company that is helpful for the investors in decision making process (Chua et al., 2012).
Apart from that other relevant AASBs are AASB 107 statement for cash flows and AASB 108 stands for accounting policies, change in accounting estimates and errors.
AASB 15 Revenue from contracts with customers basically facilitates the few changes in financial reporting in order to estimate the company’s revenue.
The main principle of this standard that company must be able to estimate the amount of transfer of goods and services to the customer in exchange of which company expects to be entitled (Nobes, 2012) It is helpful managing the company’s cash flow records by purchasing and selling the raw material.
The above mentioned AASB standards are helpful for effective communication, legal presentations and integrated evaluation. These standards consists some changes in reporting of financial statements that makes it more effective and relevant in current scenarios.
At the same time, the use of these standards facilitates the more effective communication, logical presentations and integrated evaluations of financial evaluation (Kober et al., 2013). AASB 101 helps the company to present the financial records in systematic, effective and systematic manner that enable the company to review and compare its performance and growth from previous financial years.
It also highlights the major key areas while comparing from other entities and assessing the overall performance in industry.
Apart from that the implication of AASB 15 impact the various areas of company’s business such as systems and processes, internal controls, business operations and contacts, tax treatment, HR and remunerations structure and investor relations.
At the same time, it is useful for the company in order to deal with the customer contracts and developing the business mode further including bundle of goods and services, contingent pricing, control processes, consisting budgeting systems, IT systems and data, controls, key performance indicators (Bond wet al., 2016).
Furthermore, it provides the opportunity for the business to negotiate its contract with customers for better accounting outcomes and to secure the competitive advantage. Lastly, it enables the company to indentify the customer contract and separate performance obligations, determine the price in the contract and indentify the revenue from the transactions generated from each transaction.
After discussing all the important facts above, it can be concluded that as per the Australian conceptual framework, AASB 15 standards have been defined for the firms who are generating revenue. With the help of these Australian Accounting Standard Board’s (AASB) standards, firms are capable to recognize the revenue from the contracts with the customers.
After having the changes due to the new accounting standards, the financial reporting regime has been changed in terms of revenue.
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