ACCOUNTING THEORY SAMPLE

Posted on February 14, 2022 by Cheapest Assignment

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The Global Business Environment - Evolution and Dynamics

Executive Summary

The following is regarding the accounting theory and the issues related to it. In order to discuss the accounting theory in a more understandable form, organizations that belong to the food and restaurants and is listed on the Australian Stock Exchange, the famous Woolworths Retail and Grocery supplier Company. The main focus of the discussion in this particular report has been certain accounting theory aspects like compliance in accordance with a conceptual framework, disclosure quality, accounting flexibility, etc. The report has also talked about the red flags that can potentially exist in the accounting statements of the considered organization. The following report is expected to help the firm understanding the accounting of the issues related to their operations as well as to resolve them. 

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Introduction

The term ‘Accounting Theory’ can be stated as a set of various methodologies as well as guidelines that are used to know about the different principles and applications that are associated with financial accounting. Everything that is related to accounting starting from its inception and the evolution over time has been included in this report along with the changes that have been made in theories of accounting over a specific time span. This is generally a tool, which helps the government bodies to monitor the financial transactions as well as reporting of financial data via annual financial statements. Due to this reason, the policies and principles related to accounting have been included in the government’s regulatory framework. The following report discusses the accounting theories that are implemented by Woolworths’s Retail and Grocery suppliers and the issues that are faced by it currently. This company has been included in the Australian Stock Exchange. The different aspects of theories of accounting like the degree of flexibility, potential red flags as per the compliance with accounting theory’s conceptual framework, disclosure quality are of prime importance in the report (Rueda, Garrett & Lambin, 2017).

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Section 1: Key Accounting Policies

Some of the most important and significant Accounting policies that have been incorporated by Woolworths are mentioned as following:

  1. Statement of Compliance – The financial statements for general purpose are formed by Woolworths Retail and Grocery suppliers as per the regulations and guidelines stated in the Corporations Act of 2001. The accounting standards that are used by Woolworths consist of certain guidelines that ensure that the notes, as well as financial statements of any particular company, are in compliance with the International Financial Reporting Standards or IFRS.
  2. The basis of Preparation – The Financial data shown by Woolworths fast food is based on the historical concepts of cost accounting that are measured at the fair value’s revalued amount that is calculated at the end of every accounting duration. The determination of fair value that is being used in making the financial statements is done by considering the fact that the net realizable amount for overall financial transactions is AASB 102. This can also be done by considering the value to be AASB 136 (Sgarbossa & Russo, 2017).
  3. The basis of going concern – The idea is going to be influenced by the premises related to the monetary explanations arrangement and will be known to be the concern idea. The conclusions are made after considering the factor that there is no existence of the material vulnerability in merged elements that can potentially act as an impediment in the capacity of business for proceeding in the form of a going concern (Lehtinen, 2017).
  4. Basis of Consolidation – The overall costs and salaries that will originate from the business auxiliaries and have been either discarded or gained in any specific year are counted within the misfortune, benefit’s proclamation as well as certain other exhaustive pays that have been merged together since the time when that particular firm has been the command and control authority of the business to the time till which the firm stops the backup control.
  5. Business Combinations – Woolworths has been able to effectively manage the tax liabilities that are deferred along with those assets that are considered to be under the benefits of employees and recognized as well as measured according to the standards that have been mentioned in Employee benefits AASB 119 as well as Income Tax AASB 112 respectively. The shared payments’ basis of all the acquirers that are associated with replacement via some consolidated liability and entity or even the instruments based on the equity in usually the shared-based payment of AASB 2. However, the assets that a kept classified and are held for sale according to the AASB 5 standards are the noncurrent assets that are being held for sale and have been discounted are considered as per the given standards. 
  6. Investments in accomplices – Assets, and results of the associated liabilities that accomplices are further incorporated in the cash that is related to the degree of profit with the use of esteem procedures for accounting purposes. This is done when the hypotheses are considered accessible to be purchased that is done as per AASB 5 where the Noncurrent assets are made accessible so that they can be acquired and discounts can be made. According to the indications that have been made by Esteem System, the accomplice’s interests are passed to the report of an assembled resource at a specified amount that is later adjusted for securing the changes in the offer to consolidated component related to the accomplice. Similarly, during the time the energy of consolidated component is outperformed by the hardships of some accomplice, the consolidated component gets suspended to avoid any mishap at later stages. Some major setbacks have been observed to an extent where the substance that has been blended have gained support or the legal duties and even influenced some areas with respect to meander jointly.
  7. Current as well as deferred tax for a specific period – The meaning of current and deferred taxes can be stated as those taxes that are recognized in expenses and earnings form that ultimately needs to be converted in terms of profit and loss that can be either directly in equity or in some other comprehensive manner In the specified scenario, the tax recognition can be performed exclusively the losses as well as profits. In some other option, these taxes arise in the form of initial accounting for the purpose of getting a business combination done. The business combination consists of factors like the effects of tax in the services related to Accounting.  
  8. Inventories – The statements that are related to inventories are considered at a much lower value when compared to the net realizable value. Most of the methods used for inventory valuation at Woolworths are the ‘First In First Out’ methods. However, in a majority of cases, the costs that are considered in the variable and fixed overhead expenses are associated with the inventories that are most compatible with respect to the inventory class. The calculation of net realizable by estimation of the difference between the selling price and the complete cost that has been invested to complete any sale.
  9. Investments made in Joint Ventures – The assets, results, assets and some other liabilities of attempts made in the joint form are intertwined as per the mentioned value of combined cash along with the clarifications associated with the usage of esteem procedures in the operations of accounting. This is to be done except for the time when theory, is considered accessible that can be acquired, where the cases would be considered with respect to the AASB 5. The Noncurrent assets are considered as accessible materials to procure along with some discounts. According to the esteem system, any zeal for any particular joint meander is primarily considered as the specified clarification related to the financial condition at a certain value that is merged along with the calculation that is to be seen as the offer of consolidated component for the mishap and advantage as well as some other broad pay related to the meander in a joint manner (Giovannetti & Marvasi, 2016).

Section 2: Accounting Flexibility

Many accounting experts consider accounting flexibility as a very important aspect when it comes to accounting policies implementation. This also depends on the specified extent where the managers are provided with the power to choose their own policies as well as estimate according to their will and convenience. For Woolworths Retail and Grocery supplier, three major entities are considered for handling the governance in the corporate sector that is called as company secretary, management and the board of directors. The Woolworths Board of directors holds the power for forming the policies related to accounting.

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The company secretary plays the role of providing the necessary advises management and advice to board members related to accounting policies and better governance. This person is accountable to the company’s board of directors. In the same manner, the management’s duty is to ensure that all the strategies that have been developed and planned by the directors’ board are implemented very efficiently as well as to report the senior authorities regarding the progress and results of implementing the strategies. The main power of making and implementing the strategies is held by the board of directors. However, a minimum amount of power is transferred to the management and managers. Hence, the accounting flexibility is lesser for Woolworths that restricts the scope of forming any distortion in accounting (Tidy, Wang & Hall, 2016).

Section 3: Accounting Strategy

This particular section of the complete study is all about the unique accounting strategies that have been used by Woolworths for its branches all over the world as consolidated entities. The major role of any consolidated entity is to ensure that all the individual entities and aspects are managed properly for being a going concern. This particular thing needs to be apart from the returns’ maximization for stakeholders as well as equities and debts optimization. The consolidated feature of Woolworths remains unchanged as the accounting policies are in accordance to the profit as well as customer satisfaction. Woolworths’s capital structure comprises of net debts that includes cash, cash equivalents, borrowing collection, equity held by equity holders as well as the parents, reserves, issues capital and earnings that have been retained. The non-controlling interests that are disclosed are attached to the annual reports or financial statements.

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Woolworths operates in almost every part of the world in the form of subsidiaries that exist in an established manner in the markets. These are in the name of Woolworth’s consolidated entities. Every particular subsidiary of Woolworths is not subjected to some kind of external imposition related to the requirements of any capital. The most important technique that is used by this company is an operation of cash flow to maintain the asset expansion of the firm from the perspective of being a consolidated entity. This thing is also used for making the repayment and dividends of the matured debts as well as routine tax outflow (Le Velly & Dufeu, 2016).

Section 4: Quality of Disclosure

The disclosure quality is another very important feature of the annual financial statements that are prepared by considering some of the target audience. The primary audience usually comprises of creditors and investors that make use of the data and information mentioned in any financial statement with the objective of making useful investments. The provision of correct information in the financial statements is very important as there are investors that belong to different backgrounds, who intend to make some good investments. The management discussion, financial statements, director’s report and financial statement’s descriptive notes are the minimum acceptable data related to investments. 

Disclosures comprise of three levels known as complete, sufficient and fine disclosures. With the increase in the disclosure level, financial disclosure’s quality also gets enhanced. For Woolworths Retail and Grocery suppliers, disclosure level is adequate or sufficient as the necessary amount of information is been provided by the company including descriptive notes of financial statements along with the opinions of auditors related to the correct data. The creditors and investors of this company do not consider the financial data to be sufficient for understanding the business as the additional information have been erased that was related to management discussions as well as the non-financial aspects of accounting information (El Baz et al. 2016).

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Section 5: Potential Red Flags

The careful analysis of information provided by the company in its financial statement gives a fair idea regarding the organization’s financial health. Certain indicators exist in the accounting systems of a company that can be termed as potential red flags which are used to describe the objects that can potentially be a matter of concern for a company. The analysis of these red flags is extremely necessary for the elimination of any potential threat to an organization.

Some of the potential red flags that might exist in the accounting statements of Woolworths Retail and Grocery suppliers are mentioned below.

  • Looking at the previous as well as present year’s inventory figures, it is very evident that the inventory amount has increased in a year. However, the company has not mentioned it in its bottom line. An inventory of USD 55 MM has been reported for 1st Jan 2017 against about USD 48 MM on 1st Jan 2016. The risk of losing the inventory increases with the increase in time for which it is kept with the company itself. The increase in inventory without any improvement in the bottom line means that the firm needs to put in more effort to sell its products efficiently (MolinaBesch & Pålsson, 2016).
  • Receivables of USD 170 MM against USD 152 MM have been reported on 1st Jan 2017 and 1st Jan 2016. In general, having a lot of accounting receivables is a good symptom for a company as it looks like a company asset. However, this might also act as a potential threat to the firm if the amount keeps increasing. This is the fact that the increase in time delay for recovery of amount increases the chances of jeopardizing them. If only the accounting receivables figures are observed for the previous couple of years, the amount has become almost double. Hence, it is important for a company to make their policy of collection very strict by taking some strong decisions and actions.
  • Despite showing profitable figures on papers and web information, there is a chance that the company might get poor as the cash flow stops if it gets stuck at one point. The uncollected receivables, struggle in paying loans and exaggerated revenues are some of the possible reasons behind being stuck in business flow. Woolworths has very high receivable figures that are the main reason for creating some circumstances for the ill flow of cash in the business. This kind of situation demands the customers to enhance the payment cycle.
  • Other expenses made by an organization are considered a very important component for their respective income statements. The regular or low quantity of these components is not a reason for concern. However, a more careful observation must be made regarding the figure as there might be a scope of this could be an ideal financial irregularity source. Woolworths has included the Other Expenses in its yearly financial statement that was missing in the same of a previous year. One time occurrence or reclassification of expenses can be a reason. 

In addition, the company’s annual report has included that there are more than 16,000 employees on Jan 1, 2017. This can potentially pose a risk of forgery. The comparison between the assets and liabilities also need to be considered in financial statements as it is a very important aspect. Higher assets compared to liabilities are always good for the organization but if this is vice versa, it is not a matter of concern either. However, the regular occurrence of this issue on a company’s balance sheet in a concerning situation as it depicts that the debts that are being taken by that firm are higher than the amount that can actually be paid by the organization. This, however, is not the case with Woolworths and everything seems to be under control.

Section 6: Compliance with a conceptual framework

The Woolworths Retail and Grocery suppliers is a company that is listed on the Australian Stock Exchange and hence, needs to comply with the various principles that are listed under the rules and regulations that are formulated and adopted by the Australian Stock Exchange or the ASX. The ASX rules state that the responsibilities and roles of companies must be disclosed along with the matters that are specifically designed and delegated for the board members and management. All the aspects have been clearly described by Woolworths. Another major rule of background verification has also been mentioned by the company for all the candidates as well as the workers that are in the company.

Compliance is related to the nomination that is present along with the members that are a part of the board of directors. Woolworths has also given the compliance related to board skill matrixes that are a part of the same, which usually exist in the form of knowledge and skills. This is very useful for diversifying the other aspects related to any particular business. Another compliance the company has given that is a major portion of the board members are supposed to work in an independent manner. The Woolworths has also followed the ASX principles while formulating its committee for audit and other similar operations and has assigned the necessary number of members that possess the adequate amount of skills and knowledge (Spink, Moyer & Whelan, 2016).

Conclusion

The above study has explained all the aspects that are related to accounting by considering a multinational company named Woolworths that has spread its branches in almost every country and is performing very well. The different aspects of accounting theory along with the given amount of duration have been explained in this study. The rules and principles that are associated with the Australian Stock Exchange and their compatibility with Woolworths have been mentioned very efficiently in the above report along with the factor manoeuvring the final outcomes. The principles that are in accordance with companies operations have been efficiently adopted by Woolworths for accomplishing their accounting services related operations.

References

El Baz, J., Laguir, I., Marais, M., & Staglianò, R. 2016. Influence of national institutions on the corporate social responsibility practices of Small-and Medium-sized Enterprises in the food-processing industry: Differences between France and Morocco. Journal of Business Ethics, 134(1), 117-133.

Giovannetti, G., & Marvasi, E. 2016. Food exporters in global value chains: Evidence from Italy. Food Policy, 59, 110-125.

Le Velly, R., & Dufeu, I. 2016. Alternative food networks as “market agencements”: Exploring their multiple hybridities. Journal of rural studies, 43, 173-182.

Lehtinen, U. 2017. Sustainable Supply Chain Management in Agrifood Chains: A Competitive Factor for Food Exporters. Sustainability Challenges in the Agrofood Sector, 150, 124-137.

MolinaBesch, K., & Pålsson, H. 2016. A Supply Chain Perspective on Green Packaging DevelopmentTheory Versus Practice. Packaging Technology and Science, 29(1), 45-63.

Rueda, X., Garrett, R. D., & Lambin, E. F. 2017. Corporate investments in supply chain sustainability: Selecting instruments in the agri-food industry. Journal of Cleaner Production, 142, 2480-2492.

Sgarbossa, F., & Russo, I. 2017. A proactive model in the sustainable food supply chain: Insight from a case study. International Journal of Production Economics, 183, 596-606.

Spink, J., Moyer, D. C., & Whelan, P. 2016. The role of the public-private partnership in Food Fraud prevention—includes implementing the strategy. Current Opinion in Food Science, 10, 68-75.

Tidy, M., Wang, X., & Hall, M. 2016. The role of Supplier Relationship Management in reducing Greenhouse Gas emissions from food supply chains: supplier engagement in the UK supermarket sector. Journal of Cleaner Production, 112, 3294-3305.

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