Financial Accounting

Part 1


The main purpose this assignment is to identify the qualitative characteristics in the concern of financial accounting which are helpful in the decision making by utilize of the financial information.


In this assignment, the concept of characteristics of the financial information is discussed for the purpose of taking decision in the accounting. Additionally, it is also discussed that how the accounting information are made by the qualitative characteristics of the financial accounting.

Part I


The reporting information should be compared with other relevant information because the reporting information can be more valid when it is compared with the other relevant information in a reporting system of financial accounting. An individual takes decision on the basis of provided information which includes several alternatives and options to make effective it. The financial information included the comparability as a qualitative characteristic that is helpful to provide the similarities and dissimilarities between two or more information. In the other words, it can be say that the comparability do not includes the characteristic of single item because it needs more than one item for doing any comparison (Aasb, 2015). The basic qualitative characteristic of the comparability is to provide the satisfaction for making the decision successful. The accounting information applies the policies and standards for making the effective comparison and represent relevant economic phenomenon. The alternative accounting process should not allow to the same economic phenomenon because it can reduce the comparability. The comparability is helpful to make the quality of the information and also helpful to easily analysis the data. The relevancy and reliably of the financial information at a single time is not enough but in some specific or in some specific reports the comparison of the features are also necessary. The comparability is helpful to present the accuracy in the forecasting and analysis of the financial statement. The basic purpose of the financial reporting is to provide the comparison the features of the specific entity at the same time or place. The concept of the comparability is defines that the parties should inform about the policies that are made for the financial reports as a general purpose (Zhang and Andrew, 2014). Additionally, the user should also be informed for any change in the policy or its effects on the financial report for making successful decision.


The relevancy in the financial information is very important for the users because it is helpful to take corrective decisions. The information can be relevancy if it provides the help to the user in the prediction of the future trends of the business. The user should take the advantage of the relevant information that in the decision making are provided from the other sources but this information should be relevant. The relevancy of the information that is provided by the other sources should be checked for the effective decisions. On the other hand, it is possible that the financial information can have difference in the decision making due to having the predictive value and confirmatory value in the financial information. The predictive value of the financial information is established if the user applies the financial information as an input for determining the future outcome. The user does not need any general requirement to forecasting the predictive value for the financial information because it is predicted by the user by making own prediction. While, if the financial information provides the feedback on the basis of previous evaluations than it will have confirmatory value. It is understandable that if the financial information has predictive value than it will also have the confirmatory value also. So, it is said that both predictive value and confirmatory value are related to each other i.e. the forecasting of the revenue of upcoming years can be define by the use of current year information which are related with the revenue and helpful to compare the prediction with the current year’s revenue. The outcome of the previous prediction provides the help to the user for improving and rectifying the future process to get success (Zhang and Andrew, 2014). The compared financial information can be relevant because it has magnitude in aspects of its nature. Both the nature and magnitude are the important element of the financial information in order to relevancy.

Materiality test

The information is material of making the financial report and its omission and misstatement could impact on the economic decisions which are taken by the user in the context financial information. Materiality includes the feature of the relevancy for making an effective financial report. The financial report must contain the complete material for making information effective by the use of true and fair entity (Martini and Choo, 2012). The materiality test describes that which information is relevant or reliable for the financial report. The assessment must be done by the user for the materiality in context to the similar and individual items of the financial information. Materiality is also highly linked with the accounting principles like relevancy, reliability and completeness. Materiality needs the completeness in the reporting system to present true and fair information.


The understandability plays a significant role by the use of clear presentation, classification and characterization of the information in the financial reporting. There is a possibility that sometimes the users do not understands some of the phenomenon due to complexity (Aasb, 2015). If this kind of information is removed from the reports it can be easy to understand but the report will be incomplete. In addition to this, if the user has ability of the depth understanding of the financial report than it can be easy to understand the complex information by the user.


The reliability is an essential part of the financial report that can be discovered by the reliable financial information. If the provided information is materially accurate and truly represented then this kind of information is reliable for the financial report. The reliability of the financial information can be enhanced by the use of several accounting principles like neutrality, faithfully presentation, prudence, completeness etc. Additionally, the significant of misstatements or omissions in the financial report can reduce the reliability of financial information. The reliability in the financial information will always show the true transactions without any error for taking relevant decision by the user for the financial report. If the user provides the irrelevant and useless information then it will be the unreliable in the nature (Martini and Choo, 2012). There is the need of the reliability that it should be provides the identification criteria and minimum recognition for the clear financial report. All the important and significant information should be demonstrated honestly for the reliability by the user to solve the problem of uncertainty occurred around it.


From the above discussion it can be concluded that the financial information needs significant consideration of the qualitative characteristics. It includes the several characteristics such as comparability, reliability, relevance, understandability, etc. for the truthiness in the financial report. Moreover, it is found that the qualitative characteristics is helpful for making the financial information useful for taking the effective economic decisions by the users.


Aasb, (2015) [online] Available at:  (Accessed: 27 September 2017).

Martini, B. and Choo, K.K.R. (2012) [online] Available at: (Accessed: 27 September 2017)

Zhang, Y and Andrew, J. (2014) [online] Available at: (Accessed: 27 September 2017)

Part 2


This paper outlines and discusses the concept of fair value accounting in order to understand the AASB standards in depth. Further, this study also helped in identifying some limitations of fair value accounting in AASB 13. These limitations in accounting helped the user in determining the useful information which is necessary for making or providing the decisions.


In this section of paper, concept of fair value accounting is discussed according to the issued AASB 13 (Australian Accounting Standard Broad). In concern to this, the study will also help in developing knowledge for fair value accounting system and transaction which are undertaken as per the standards. Moreover, some limitations of fair value accounting system are also studied in order to identify the factors or areas where this system is lacking or developing difficulty. However, this study will helps in identifying that how limitations in fair value accounting would create influence over the user decision making in relation to financial statement.

Part II

Concept of fair value accounting

Fair value accounting is defined as a market based measurement system which helps in measuring the assets and liabilities value of the company which is disclosed under the financial statement. In financial statement, the fair value measurement is done in particular asset and liability. In AASB 13, the fair value accounting system is defined as a price which is received from sell of an asset or transfer of liability in proper way. In addition, Cascini and DelFavero (2011) stated that fair value transactions are required to enter in proper way in the financial transaction in order to avoid the errors. The concept of fair value has emerged from existing limitations faced by the company due to cost accounting and other methods. In simple words, the fair value accounting indicates superior conceptual framework over the historical cost values which is used by company for measuring the business performance.

The fair value measurement needs to exchange the assets and liabilities in orderly form between the market participants or under the current market environment. In accounting, the concept of fair value measurement is explained as a rational or estimated value of the goods and services in the market (AASB, 2015). But at the same time, fair value accounting system uses the current market values in order to recognize the certain value of assets and liabilities. Fair value accounting is an alternative approach to measure or capture the value of assets and liabilities in the current market. As well as, this concept of fair value is contributing more as it helps company to produce and develop fair transaction.

In addition, this fair value accounting system is widely used by the companies in order to measure the actual and right value of their assets and liabilities so that they can disclose right and useful information to the investor on time. The fair value of the assets and liabilities are determined at each financial year as company expects that values and prices of the assets and liabilities might increase. With the help of this accounting process, the values of the assets and liabilities are measured and evaluated so that company can compensate its loss by selling its assets and writing off its liabilities on time. Thus, the concept of fair value accounting system indicates that it is effective process for measuring the values for the business.

Limitations of fair value accounting

There are major limitation of fair value accounting that are associated to the issues which company faces in terms of cost and prices of goods or services or assets or liabilities. While studying research study of Biondi (2011), it is identified that entities plays an significant role in determining the cost and values of the assets & liabilities  as entities have high level of assets and liabilities which tends to incur the costs and prices. The determination and recognition of fair value accounting provides a biased result and also uses the different components for measurement basis.

Mostly, this accounting method is used by small and medium enterprises firm for valuing and costing their assets and liabilities. But then also, there is less chance that it will provide the right and reliable information to the company which user can use as useful information in making decisions related to financial statement. In contrast to fair value, historical cost always provides the reliable results to its users for making the financial decisions (AASB, 2015). With the help of fair value accounting, the value of same assets and liabilities is different which develops a problem for the company as this difference arises due to adopted valuation method used by accountant.

This method of accounting may lead to dissatisfaction result for investors as they found and analyzed that investors would face the loss due to loss in the net income of the company. At the same time, there are high chances that value which is determined from fair value accounting system may misguide and mislead the management and investors in making their decision as well as in understanding the market. This chance of failure and dissatisfaction observed in the investor is due to the accounting method which accountant adopted for analyzing and evaluating the value of assets and liabilities.

Furthermore, the other limitation of fair value accounting is that there are chances of having manipulation of evaluated data which is measured. This indicates the state of risk to the users of financial data who makes decisions according to provided information to them.  While studying, it is observed that there are some elements which create limitations in the fair value accounting system such as investor’s behavior, biasness, irrationality and so on. There are lots of investments which are made by the users or investors which have no market price which is based on the historical data accounting system.

The estimated value of assets and liabilities are also limitations of fair value accounting system as this estimation value may differ or depends on the people who appreciated at the time of lose confidentially and efficiently. There are lots of problem related to understandability. This problem arises because if user are not easily familiar with the fair value accounting i.e., how it is measured or the reason behind adopting this concept due to which the report no values to them (AASB, 2015). In this concern, users are required to educate and familiarize themselves regarding the fair value accounting system so that user can better understand the use of it and develop understanding of financial reports.

On the other hand, fair value accounting is critized to a large extent and this is limitation of fair value accounting system. This fair value is critized for its managerial discretion and not having a defined and proper valuation method. This somewhere allows the users to use their judgments for determining the value or factors which are adopted in valuation method and this will make is more subjective. In concern to this, the users may over-valuation or under-valuation of assets and that result into the misleading of financial report.


The above study concludes that fair value accounting system is a measurement standard which is used by the companies for evaluating their assets and liabilities values. This fair value accounting is not relevant and less effective for the company and there are some limitations found related to providing of useful information to user for making financial decisions efficiently. At last, it can be summarized that fair value accounting is less efficient method for measuring the actual value of assets as value of assets and liabilities are determined on the basis of certain risk.


AASB (2015) Accounting Standard AASB 13 [Online] Available at: (Accessed: 27th September, 2017).

Biondi, Y. (2011) The Pure Logic of Accounting: A Critique of the Fair Value Revolution. Accounting, Economics, and Law. 1(1). pp. 1-49.  [Online] Available at: (Accessed: 27th September, 2017).

Cascini, K. T. and DelFavero, A. (2011) An evaluation of the implementation of fair value accounting: Impact on financial reporting. Journal of Business & Economics Research9(1), 1. [Online] Available at: (Accessed: 23th September, 2017).

Part 3


This study paper outlines the measurement and recognition requirement of relevant intangible assets that is used or followed as effective accounting standards. Moreover, this study also discusses the intangible assets of BHB Billiton Company in order to examine the selected accounting standard is disclosed according to AASB.


This study will discuss measurement and recognition requirement of relevant accounting standards i.e., related to intangible assets. In addition, this study will highlight the financial report or statement of Australian listed company i.e., BHB Billiton. BHB Billiton is trading entity and Australian multinational mining, metal and petroleum public listed company (BHB Billiton, 2016). This would help in measuring and recognizing the requirements by analyzing the disclosure of intangible assets provided by the company in the financial report. However, AASB standards like intangible assets are examined for eliminating the errors and fraud in relation to any investment made by investors or shareholders in the company.

Part III


An entity should need the following criteria if it requires an item to be identified as an intangible asset: the criteria of recognition and the definition of the intangible asset. An intangible asset has very less chances of any changes, replacement, and addition due to any its nature (AASB, 2018). The nature of an intangible asset is physically absent but it provides the expected future benefits to the organization and the price of the asset can be increases by the duration and its cost can be measured.

Separate acquisition

An intangible asset has separate price for sale and purchase the asset according to the expectations and probability of the future benefits. The value of the intangible asset plays an important role in the acquisition of the business and it contains the uncertainty of the value. The intangible asset has uncertainty in order to the timing due to economic value can increase or decrease in long time (Wang, 2014). It can provide the future benefits to the organization by the effect of inflow of the future economy. The cost of the intangible asset can also be measured reliably when there is a need of purchase of other important asses by the BHP Billiton Company. The intangible asset includes some costs that are not refundable and cost of the preparing asset such as import duties, taxes on purchasing etc.

Acquisition as part of a business combination

According to the AASB 3 Business Combinations, if the business combination includes any intangible asset then it shows the cost as its fair value at acquisition date. The fair value of the assets shows the participation in the market according to the expectation at the data of acquisition by the use of probability on the basis of the future economy for the flow of the entity.

Acquisition by way of a government grant

There is a possibility in some cases that an intangible asset incurs without providing any charge in the way of government grant. It can be possible when the government transfers the intangible assets to the entity such as import licenses or the use of other resources that are restricted by the user (AASB, 2018). According to the AASB 120 Accounting for Government Grants and Disclosure of Government Assistance, there is a change of the selection and identification of the intangible asset and identified at fair value. In addition to this, if the entity not identifies the assets as a fair value then this kind of entity will identify at nominal amount. It also includes the expenditure which is associated directly for the preparation of the assets for effective use.

Exchange of assets
It is required for the company to consider intangible assets for the exchange of the non-monetary assets or their combination with the monetary assets. Fair value method is used to measure the cost of the intangible asset but it is not considered when the commercial substance is not present in the exchange transaction. It is measured on the basis of the carrying amount rather than fair value method.
Measurement after recognition
There are two options in an entity for selecting measurement after recognition including cost model and revaluation model. Revaluation model is adopted in measuring the intangible asset after recognition. The same model is used for measuring all the remaining assets until the activeness of the market for the assets. In addition, the class of intangible assets refers to the group of assets which possess the same nature and usage (AASB, 2018). Some items of intangible assets are valued gain for avoiding revaluation of the assets and reporting of the amounts related to combination of costs and values.

Revaluation model

On the basis of AASB standard, the requirements of the financial report should be disclosed because it is very important for it. These are the important discloser of the financial statement of any organization in the Australia accounting standards like auditors of the entity, auditors review, name of the entity, accounting policy, intangible assets etc. Additionally, BHP Billiton is the Australian organization which follows the practices of Australia accounting standard. Furthermore, BHP Billiton also discloses the goodwill of the company as an intangible asset and also maintains their brand and computer software for make goodwill. These kinds of information are disclosed by the BHP Billiton for their disclosure.

Cost Model

Once initial recognition of the cost model is done then intangible assets cost must be carried at less and that also indicates the accumulated impairment losses to the company.

On the basis of AASB standard, it is significant for company to disclose the requirements in the financial reports efficiently. While analyzing the financial statement of BHB Billiton, it is found that there is significant accounting policies is disclosed by the company but there is small section which explains the one of intangible assets in depth i.e., goodwill (See Figure 1).

Figure 1: Intangible Assets

In the figure 1, the disclosure of intangible assets displaced a proper recognition and measurement of an intangible asset as additional information. In addition to this, company need to disclose the complete some additional required an accounting standards for preparing an attractive and effective financial statement like auditor’s review, name of the company when there is any economy dependency, mention an additional information related intangible assets. Thus, all these required information must be disclosed in the financial report of the company.

In concern to it, BHB Billiton also required to disclose all the significant accounting policies and standards that are to be followed while preparing or developing a financial report. In the financial report (2016) of BHB Billiton involves a recognition and measurement section separately in which it focused on Goodwill and other intangible assets. This separate or additional information provided by the company BHB Billiton stated that company disclosed all relevant information.

From the above stated figure 1, it is easy for analyzing the intangible assets of the company according to the AASB. In disclosure of BHB Billiton, it is found that the cost of goodwill and other intangible asset of the company in 2016 is $ 5086M which is less than the cost of year 2015 i.e., $5536M ((BHB Billiton, 2016). The intangible assets of the company include goodwill as important assets for the company but in year 2016 and 2015, the company maintained stability.

The financial entry of the intangible assets in the financial statement is disclosed as follows:

From the above figure 2, it can be determined that BHB Billiton disclosed the intangible assets in the Balance Sheet of the financial statement.

The BHB Billiton is failing in maintaining its stability as company goodwill is declined by few amount of dollar value. But at the same time, goodwill of the company is recognized immediately with the help of income statement as well as also measured less than the fair value of the net assets acquisition. On the other side, goodwill is amortized and measured at less cost of any impairment losses. However, it can be interpreted that BHB Billiton is performing stable in the current market but need to focus more on the developing the goodwill as company is somewhere failing in maintaining that goodwill (BHB Billiton, 2016).


From the above study, it can be concluded that BHB Billiton Company is using the AASB accounting standard in very efficient manner as it disclosed the intangible assets according to the accounting standards. This study helped in measuring and recognizing the disclosure of intangible assets in proper manner is significant for developing an effective financial statement of the company. The BHB Billiton is an Australian firm which also provided the compliance of intangible assets for measuring and recognizing the disclosure in financial statement. At last, this measurement and recognition helped in analyzing that financial statement of BHB Billiton also involve the separate disclosure of its intangible assets according to accounting standards.


AASB (2018) Accounting Standard AASB 13 [Online] Available at:

(Accessed: 27th September, 2017).

BHB Billiton (2016) Annual Report. [Online] Available at:

(Accessed: 27th September, 2017).

Wang, C. (2014) Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), pp. 955-992.



Leave a Comment