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