Intermediate Accounting: ACC Intermediate Report Paper

ACC intermediate Assign Report
Intermediate Accounting
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Institution
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Executive Summary
Reporting entities in Australia need to prepare financial reports in accordance with the conceptual framework, where there are fundamental and qualitative characteristics. Qantas is a national carrier in Australia, and recorded, the property, plant and equipment in accordance with AASB 116, adapted from the international financial reporting standards IAS 16. The financial report was prepared to represent relevance and faithful representation. Additionally, the calculation of the carrying, amount, impairment losses and depreciation was recorded to increase full disclosure. There is a need to take into account impairment testing for assets that are similar to avoid distorting the fair value of the property, plant and equipment assets.
Introduction
The conceptual framework focuses on the purpose of financial reporting, and then the qualitative characteristics, which make financial information useful. In Australia, AASB 116 is similar to IAS 16, and provides guidelines to record the property, plant and equipment (PPE). Reporting entities use AASB 116 when recording the property, plant, and equipment assets in financial records. The standards focus on requirements to record revaluations, impairments, depreciation charges and determining the carry cost of the assets. This report highlights the general purpose and qualitative characteristics of the Conceptual Frame work as well Qantas disclosures on PPE as per AASB 116.
A] Objective of general purpose financial reporting and Qualitative characteristics
The objective of the OB1-OB21 of the Conceptual Framework for Financial Reporting is to form the basis of financial reporting, and other work objectives flow from this (IASB, 2010, pp. 9- 13). Additionally, the objective of the Conceptual Reporting is to facilitate financial reporting, where users, then use the financial information to investors and creditors as they make decisions. Stakeholders need to understand the financial situation of a reporting entity, making decisions based on financial reports that present a true and fair view. The financial reports allow the reporting entity to provide information that is useful to stakeholders who need to measure the value of the reporting entity.
The fundamental qualitative characteristics of useful financial information are relevance, and faithful representations. Reporting entities apply the qualitative characteristics to ensure there is comparability, verifiability, timeliness and understandability (IASB, 2010, pp- 21). Relevance in financial reporting is associated with having confirmatory and predictive value that users can make decisions based on that information. Financial information is material if its omission or misstatement would influence decisions, while faithful representation is information that is complete, neutral and has no errors (IASB, 2010).
B] Disclosures on PPE as per AASB 116 of Qantas Airways Limited
The main issues Accounting Standard AASB 116 are the determination of the carrying amount, depreciation charges of the carrying amounts as well as the impairment losses (AASB, 2016, p. 73). Fewer errors in financial reporting indicate that the CFO in an organization recognizes accounting talent (Loyeung, & Matolcsy, 2015, pp 9-10). Companies are to follow AASB 116 when recording the plant, property and equipment unless the IFRS requires otherwise. Additionally, entities need to identify the gross carrying amount and the accumulated depreciation at the beginning and end of the reporting period. The property, plant and equipment (PPE) are the non current/ fixed assets that are not used up in the short-term or become part of what is sold.
Qantas Airways is the biggest airline in Australia, and in the financial year 2016 the Net PPE was $ 11,670 million compared with $ 10,715 in 2015, indicating an increase in value of 955 million (WSJ, 2016). Similarly, the accumulated depreciation increased from $ 11,749 to $ 12,787 million in the financial year 2016 (WSJ, 2016). The PPE included buildings, land & improvements, machinery & equipment as well as other property, plant& equipment. The net PPE was the carrying cost less the accumulated depreciation. Depreciation amount reduces when there is on-cash fleet impairment, and this is taken into consideration when calculating the value of the net PPE. However, in the financial year 2016, it is expected that the amortization and depreciation expense will increase compared to the previous year. Qantas uses the straight line method of depreciation for aircraft, with useful life of up to 20 years. However, since there are technological advancements over time, the longer the plane are depreciated the more likely that there will be write downs.
AASB 116 highlights that reporting entities are to recognize items of the property, plant and equipment, when there is probability that the economic benefits will accrue in the future, and the cost of such items are measured reliably (AASB, 2016, p. 6). There is a need to break down the reporting of different stand-by equipment, since some are recognized as part of the inventory. The aspect of recognition also considers the cost of construction for the property, plant and the equipment as well as subsequent costs to add or replace parts or servicing.
C] Disclosures on PPE satisfy the fundamental and qualitative characteristics
The cost less depreciation value of the property, plant and equipment represents the recoverable amount. Even as this is reasonable, changes in the fleet size and through disposal of old aircrafts and purchase of new aircrafts will change the depreciable amount. Since the recoverable amount is reasonable, the accounting treatment of the PPE is relevant to stakeholders, and while a fall in depreciation will increase the profit. There is a need to reassess how restructuring will affect the company’s property, plant and equipment assets especially those associated with international travel, and the Restructuring is associated with higher impairment charges and write-down (Kelly, 2014).
The financial information is relevant as it shows the company’s the changes in the property, plant and equipment. Even as the net is lower compared to 2012 and 2013, the trend shows that the there is growth in value of the long-term assets in the years 2014 to 2016. Incidentally, there are no leases associated with the PPE for the years 2015 and 2016. Taking into consideration the disposal and additions of property, plant and equipment assets, the user can predict the changes in long-term asset values. Additionally, Qantas uses the straight line depreciation method allows the users to evaluate the company’s financial position.
The changes in the transactions involving the property plant and equipment reflect the fair value of such transactions. Since Qantas have kept up to date records on non-current assets, there is no need for adjusting entries, and the financial information is free from errors. Recording all the costs that affect the historical cost of the property, plant and equipment then faithfully represents the fair value. The historical accounting approach is also fairly representative compared to asset revaluation, since there is low likelihood of manipulating the earnings value. Even as Qantas uses the historical cost basis for valuing the non-current assets, there is low risk that the popery, plant and equipment assets have accumulated high loses or gains that are unreported.
Even as Qantas measures the PPE using the historical cost less impairment and accumulated depreciation and when in need of revaluation the company uses cost models in the subsequent years. As such, the approach of Qantas supports the qualitative characteristic of verifiability with emphasis on historical costs and this can be verified to represent the fair value of the assets during acquisition. Nonetheless, there is a need to verifiable the historical costs in acquisition of other businesses, and the fair appraisal of value. The case for this is that investors and creditors make decisions based on the fair value representation of the property, plant and equipment.
The PPE were recorded in accordance with AASB 116, and the standard has close similarities with the IFRS, where users of the financial statements can compare financial results with that of other airlines using the IFRS. Additionally, Qantas annual financial reports for the financial years 2015 and 2016 are comparable, and users can compare the disclosures on PPE and complies with the enhancing characteristics of comparability, and there was an increase in property, plant and equipment. Additionally, there was a net gain in disposal of $ 201 million (Qantas, 2016, p. 23). The depreciation of the property, plant and equipment were freehold land, buildings, leasehold improvements, plant and equipment, aircraft and engines, aircraft spare parts and aircraft deposits (Qantas, 2016, p. 67).
D] Conclusion/Recommendations
Qantas Airways limited financial reports in 2016 and previous years comply with the requirements AASB 116. The conceptual framework has identified concepts that support purposeful financial reporting, while acting as a guide to understand how different circumstances are represented. Qantas has recognized and measure the property, plant and equipment, taking into consideration the purpose financial reporting and Qualitative characteristics of the Conceptual framework. When testing for impairment it is necessary to consider the group of assets that are similar, and depending on whether they generate independent cash flows. There is a need to consider how economic interdependencies affect fair value estimation and impairment, while valuing the aircraft assets based on the routes taken.
Reference list
Australian Accounting Standards Board.2016. AASB 116- Property, Plant and Equipment. Available at
t HYPERLINK "/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf" /admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf
[Accessed 29 Sep. 2016].
International Accounting Standards Board-IASB. 2010. The Conceptual Framework for Financial Reporting 2010. IFRS.
Kelly, R. 2014. Qantas Carves Out Long-Haul Unit After Record Loss. [online] WSJ. Available at: /articles/qantas-airways-posts-record-a-2-84-billion-loss-1409180935 [Accessed 29 Sep. 2016].
Loyeung, A., & Matolcsy, Z. 2015. CFO's accounting talent, compensation and turnover. Accounting & Finance, 55(4), 1105-1134.
The Wall Street Journal. 2016. Qantas Airways Ltd. QAN (Australia: Sydney). WSJ. Available at < HYPERLINK "http://quotes.wsj.com/AU/XASX/QAN/financials/annual/balance-sheet" http://quotes.wsj.com/AU/XASX/QAN/financials/annual/balance-sheet> [Accessed 29 Sep. 2016].
Qantas. 2016. Qantas Annual Report 2016. Available at
< HYPERLINK "/infodetail/about/corporateGovernance/2016AnnualReport.pdf" /infodetail/about/cor...