ACCA Global - Prudence and IFRS

Question: Discuss about the ACCA Global, Prudence and IFRS. Answer: Introduction NONI B LIMITED is an Australian based company. This company is been rewarded as the best loved company by the ladies in the country. It is a fashion retailer company. The company was listed on the Australian Stock exchange in the year 2000. The ownership of the company have passed from multiple hands and in the year 2014 the company was sold to Alceon Bidco. After this change, the management of the company acquired certain other brands which include Queens Park and Events etc. The management of the company believes that every day is special and thus we should look fabulous to cherish the same. The management in order to attract customers have focused more on style, fit and superior service and as result the same has been quiet successfully over the period of last so many years. ( Noni B) On the other hand, the LOVISA HOLDINGS LIMITED was established in the year 2010. The company has been developed as the leading company in the country that deals in fashion jewellery. The company has its retail outlets whose numbers crossed the mark of 240 not only in Australia but in New Zealand, Singapore, and Malaysia, South Africa and United Kingdom and other franchised stores in the Middle East. The company has developed a model through which the latest trend that identified quite easily and the targeted customers are been provided with a broad and quality range of the products. The company has itself developed a business model that has been used to designs, develops, sources and merchandises 100% of its Lovisa branded products. The company after been started in the year 2010 has opened its first international store in New Zealand in June 2010. The growth and vision of the company is very much evident with the fact that the management of the company within a period of one year fr om the date they went operational has opened 51 stores all across the globe. (Lovisa) Conceptual Framework Looking at the financial report of both the companies, the directors report and the auditor report that has been provided, the management of both the companies has clearly meet out the reporting requirements imposed on accountants and those charged with governance of corporations. As per companies law, the management of every company or the persons charged with governance , in the directors report is required to state that they have complied with the accounting standards and with all the required provisions which are applicable on the company and based on the same the auditor in his audit report highlight this point. In case of both the companies, the director and the audit report contains both these points clearly and is very much evident The Lovisa Holding Company is an Australian domiciled company which has been set up with an intention of making profit through the help of carrying out retail sale of fashion jewellary and accessories. The consolidated financial statement of the company includes the information for the holding as well for the subsidiaries companies. The notes to the financial statements demarks that the financial statements of the company are prepared in accordance with the Australian Accounting standards provided by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial statements of the company at the same time comply with the International Financial Reporting Standards as issued by the International Accounting Standards Board. The management for the purpose of preparation has used the Australian and the IFRS interpretations that have been issued by the International Accounting Standards Board. The management of the company has adopted all the new accounting s tandards and any change in the interpretations that has been introduced during the period while preparing the financial statements of the company. The consolidated financial statements and supporting notes form a general purpose financial report. It: Has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards (AASBs) including Australian Accounting Interpretations, adopted by the Australian Accounting Standards Board (AASB) and International Financial reporting Standards (IFRS) and Interpretations as issued by the International Accounting Standards Board; Has been prepared on a historical cost basis except for derivative financial instruments which are measured at fair value. Non-current assets are stated at the lower of carrying amount and fair value less costs to sell. Snap Shot from Annual report In the Audit independence note, the auditor of the company has clearly demarked that there has been no contravention of the provision of the corporation act in relation to the audit. There has been no evidence in the annual report which states that the management of the company hasnt complied with the accounting standards. On the other hand, in case of Noni B limited, the financial statements of the company are again prepared in accordance with the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The directors of the company are responsible to ensure that the financial statement of the company gives a true and fair view in accordance with the applicable Australian Accounting Standards and the Corporations Act 2001. The directors in Note 1 to the financial report have clearly highlighted the facts and have complied with the provisions of AASB 101, Presentation of Financial Statements. These general purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and International Financial Reporting Standards as issued by the International Accounting Standards Board. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. There has been no evidence in the annual report which states that the management of the company hasnt complied with the accounting standards and the applied IFRS provisions or has contradicted with any of the interpretation that has been provided in by the board. The concept of prudence is likely to address the disparity in the corporate reporting. As per the prudence concept the expenditure and the liabilities are likely to be recognized in the books at times when the same has actually been occurred whereas in case of assets and income the same is likely to be recognized at times when the same has been realized. In the current scenario, the accountants and the accounting standards are facing the most criticism is in areas where the profit and the asset of the company are overstated. This risk has been addressed by including prudence in the accounting standards. The prudence concept now although been embedded in the accounting standards itself but still the same is required to be exercised separately by the preparers. Currently the prudence is very well discussed at the framework level at times of setting up the accounting standards. In the corporate governance statement, the management of both the companies has highlighted the importance of prudence and ensured that the financial statements of the company are prepared considering the prudence concept. The directors in the report has provided that the revenue and assets are recognized in the books only when they are certain whereas the expenses and the related liabilities are required to be recognized at time when the numbers are probable. Differences in disclosures NONI B LIMITED LOVISA HOLDINGS LIMITED companies are complying with the AASB standards and the Australian Corporations Act 2001, and the UK Companies Act 2006. There might be instances in the annual report of the two companies which shows that the disclosures made in the annual report for the same item may be different in both the companies considering the difference in the nature of the business. This difference in the disclosure requirement is also been highlighted in the below report out. NONI B LIMITED is an Australian based company. This company is been rewarded as the best loved and known ladies fashion retailer company in the country. The company is functioning only in Australia and is dealing only in the fashion retail. Thus there is no scope of going in for the segment reporting as there is only one operating segment in functioning. On the other hand, the LOVISA HOLDINGS LIMITED was established in the year 2010. The company has been developed as the leading company in the country that deals in fashion jewellery. The company has its retail outlets whose numbers crossed the mark of 240 not only in Australia but in New Zealand, Singapore, and Malaysia, South Africa and United Kingdom and other franchised stores in the Middle East. Thus I that case, the company have two reportable segments which include one as Australia and New Zealand and another one is rest of the world. As per the reportable segments, the management can have a better perception about the revenue and income that has been coming from the different segments. Both the companies are accounting in for Goodwill and are going through the impairment testing over the period so that if required the same can be charged off in the profit and loss account. In the case of Lovisa Holding limited, the company still has goodwill left for setting amortized and thus we have a separate schedule in the financial report where the same has been disclosed. On the other hand, in case of Noni B, the goodwill amount has already been impaired thus there has been no schedule in the report to project the movement. Lovisa Holding limited has been functioning in different locations, thus the company is required to take retail outlets on lease and thus accordingly some lease improvements are required. Thus in the books the management of the company is required to make some specific disclosure for the same with proper addition, depreciation and disposal. No such disclosure has been made in the books for Noni B Limited. Conclusion Both the companies are domiciled in Australia. They have clearly made all the disclosures that are required to be made in the books in line the applicable accounting standards and IFRS considering the nature of business that have been carried out by them. References Noni B, About the company, Viewed on 15th April 2017, Retrieved from https://www.nonib.com.au/ Lovisa, About the company, Viewed on 15th April 2017, Retrieved from https://www.lovisa.com.au/ Noni B, Annual report of the company, 2016, Viewed on 15th April 2017, Retrieved from https://d2wi7oxueeetcg.cloudfront.net/ts1490728469/attachments/Page/18/annual-report-2016.pdf Lovisa, Annual report of the company, 2015, Viewed on 15th April 2017, Retrieved from https://www.lovisa.com.au/media/wysiwyg/pdf/2015_ANNUAL_REPORT.pdf ACCA Global, Prudence and IFRS, Viewed on 15th April 2017, Retrieved from https://www.accaglobal.com/content/dam/acca/global/PDF-technical/financial-reporting/tech-tp-prudence.pdf