Issues in Financial Reporting - Essay Example

Issues in Financial Reporting Required1: Advise the Management Committee of RVCCC whether RVCCC would be considered a reporting entity in accordance with SAC 1 'Definition of the Reporting Entity'. In doing so, you should discuss who the main users of the financial reports are and whether or not the users would be dependent on RVCCC's general purpose financial reports to provide information for their decision-making purposes. (Ensure that you provide reasons to support your answers in each case and state clearly any assumptions you have made in preparing your answers.) The Management Committee of RVCCC is considered a reporting entity in accordance with the SAC 1 'Definition of the Reporting Entity'. In accordance to the general purpose of financial reporting, financial reports are used to provide the users with information about the reporting entity. The report that will be submitted by the Management Committee of RVCC will serve as a tool for the users for their evaluation since they are supported, given grants, and funded by some other entities (like that of Commonwealth Government and Queensland State Government). The financial reports well serve also transparencies for everybody to inform where all the money goes. If RVCCC will be able to submit the financial reports to their users, it will give the users ideas if the funds allocation or resources allocation they gave are efficient. In other words, this will gain the trust as well for RVCCC from their supporters and funding entity (Review of Business, 2005). The reports will also monitor the cash flows and will also serve as bases to their expenses. It is also well stated in the Definition of Reporting Entity (2001), that all they are entities like them are required to submit financial reports especially to public sectors that helps them, like that of the commonwealth Government and Queensland State Government. In the public sector the accent in the accountability has seen widespread of the fund concept of reporting, which implies a concern with reporting the results of individual funds (Definition of Reporting Entity, 2001). This means that the reports that they will submit to the users will serve as their bases on how the funds, they have given to RVCCC, is being used. Required 2: For each of the following independent cases, discuss whether you believe the items mentioned would meet the definition and recognition criteria for the various elements as mentioned in the 'Framework for the Preparation and Presentation of Financial Statements (ie the AASB Framework). (Ensure that you provide reasons to support your answers in each case and state clearly any assumptions you have made in preparing your answers.): (a) Tate Retailers Ltd operates a chain of retail stores that specialize in the sale of rugby league products. Due to an economy-wide downturn, the company has decided to reduce staffing levels by offering voluntary redundancy packages to 200 of its employees. After agreement was reached with the unions, letters were sent to all employees shortly before the end of the reporting period inviting applications for the package. A response was required within 30 days, which was after the end of the reporting period. The company's board of directors estimates that the redundancies will cost the company $2 million. The financial controller of the company, Bob Johnson, is considering whether to record a provision for redundancies to account for the future redundancy payments to staff. Would this account satisfy the liability definition criteria in the AASB Framework Would this transaction meet the recognition criteria for liabilities according to the AASB Framework (Normally you would not consider the recognition criteria if the definition for liabilities was not met. However, for the purposes of this assignment you should address the recognition criteria regardless of whether or not you determine that the definition criteria have been satisfied.) - This account shall satisfy the liability definition criteria in the ASBB Framework. Their employees will need the information and will use this for bases if the store is still stable and still gain profits. This will also enable them to know if the store is still capable of giving them benefits like that of retirement benefits and employment benefits. The report that he will make (if he considers to make one) will be composed of balance sheet, statement of account, statement of cash flows, and statement of changes of equity. This will then be information that he can use for the future in regulation of activities of the store (Framework for the Preparation and the Presentation of Financial Statements, 2004) In other words, they can be able to know if the said packages are reliable in the long run. The monitoring by having the financial reports can give them ideas if this is sustainable to the store or not so with the employees concerned. (b) Onestar Airlines, a recently established airline, has a frequent flyer program to compete more effectively with established airlines. To differentiate its program from those of its competitors, Onestar adopted a plan based on the number of flights rather than kilometers flown. The program offers a free return flight for every six paid return flights taken during a three-year period. During 2006, Onestar recorded 24,000 flights and revenue of $4,800,000. The company is considering whether or not it should recognize a provision for future free flights to be awarded to passengers under its frequent flyer program. Would this account satisfy the liability definition criteria in the AASB Framework Would this transaction meet the recognition criteria for liabilities according to the AASB Framework (Normally you would not consider the recognition criteria if the definition for liabilities was not met. However, for the purposes of this assignment you should address the recognition criteria regardless of whether or not you determine that the definition criteria have been satisfied.) - The airline should consider the long run result of the promo they want to establish. They should reflect not only on the balance of cost and benefits of the customers but with the balance of costs and benefits for the airline company as well. Another thing they should consider according to FPPFS (2004) is the timeliness of the said promo. They should take note (through their financial reports) of the peak seasons of the customers. The reports of the frequency of their customers will give them information if the said promo is reliable for long period of time. They will be liable to record frequent customers per flight for their bases (Chairman of the U.S. Securities and Exchange Commission, 1998). (c) The North Queensland Cowboys Rugby League Club has just signed up a very promising recruit from the Canterbury Bulldogs Rugby League Club by offering him a three year players' contract. As an additional incentive, it also offers him a substantial sign-on fee. The terms of the contract also stipulate that he will be required to pay the Club a large financial penalty if he wishes to leave the Club before the end of his contract. Does the player or the associated economic benefits that he may generate, meet the definition criteria for assets according to the AASB Framework Would this transaction meet the recognition criteria for assets according to the AASB Framework (Normally you would not consider the recognition criteria if the definition for assets was not met. However, for the purposes of this assignment you should address the recognition criteria regardless of whether or not you determine that the definition criteria have been satisfied.) - The said contract is for me fair. This will ensure the company for the loyalty of North Queensland Cowboys Rugby League Club to them and in this contract; it will also assure Canterbury Bulldogs Rugby League Club that they will give the benefits that they have offered consistently from the start up to the end. Both of the parties will be benefited fairly and consistently. For the period that the contract is still ongoing, the reliability of flow of benefits is constant. This is checked by the close contract that they have signed. If ever North Queensland Cowboys Rugby League Club changes their minds the Canterbury Bulldogs Rugby League Club will not worry since there have been a big amount that the North Queensland Cowboys Rugby League Club that will be given to them as payment for not completing the contract. Works cited: PSASB of AARF and ASRB, 2001. Definition of Reporting Entity (PDF file.). http://www.aasb.com.au/public_docs/concept_statements/SAC1_8-90_2001V.pdf AASB, 2004. Framework for the Preparation and Presentation of Financial Statements (PDF file).http://www.aasb.com.au/workprog/pending_standards/Pending_Framework_06-04.pdf Review of Business, 2005. Special issue: global regulatory and financial reporting reform and the convergence of accounting and auditing standards: the time has come (Article excerpt). Chairman of the U.S. Securities and Exchange Commission, 1998. Financial Reporting. Business Guide. Read More