Accounting Research

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Does the current accounting framework meet the needs of the users of financial reports as prescribed in the objective of the Conceptual Framework of Accounting?

How the conceptual framework revision to include Prudence is likely to address the disparity in Corporate Reporting is a requirement in your analysis.



The prime consideration of every company is that the financial statements presented and prepared on the basis of accounting policies can represent a true and fair view of its financial position. This can be possible when proper disclosures are made to the users of financial statements. Moreover, after taking into consideration the complexity and size of transactions in the financial world, it is immensely crucial that these are effectively disclosed. Furthermore, it is vital that both financial and non-financial data forms part of the financial statements because both these aspects collectively shape the company’s destiny (IASB, 2010). Besides, other considerations like materiality, prudence, substance over form, etc are also necessary. However, any information that is not relevant in nature need not be disclosed, as they do not play a key role in the decision-making of users.

Compliance With AASB Standard And Conceptual Framework Requirements

In relation to the Australian Corporate Sector (ACS), any information that forms part of the annual report must be capable in fulfilling the qualitative attributes like relevance, faithful representation, and materiality. This is because the conceptual framework of company necessitates such fulfillment. For the purpose of this study, the two companies selected are Dicksmith Holdings Ltd and BHP Billiton Ltd respectively.

If an item has the potential to affect the decision-making process of users, it is said to be material. Therefore, after scrutinizing the annual reports of the two companies, it can be witnessed that both have efficiently adhered to the materiality aspects such as the Australian Securities Exchange (ASX) Corporate Governance Principles and Recommendations in their annual reports. Furthermore, in relation to faithful representation, a true and fair view must be presented through the annual reports of companies (Deegan, 2011).

(BHP Billiton, 2015)

Similarly, in the case of Dicksmith and BHP Billiton, it can be observed from their annual reports that every director offers a written declaration based on Section 295A of the Corporations Act 2001, to the Board that every data forming part of the annual report represent a true and fair view of their financial position. In addition, based on section 7.4 of the statement of responsibilities of the director, it can be seen that the directors necessitate the provision of true and fair view of financial statements (BHP Billiton, 2015). Similarly, since both companies are vulnerable, they have integrated many material risks in their reports. Dicksmith Ltd has disclosed material risks like consumer spending, rates of exchange, etc, whereas BHP Billiton has disclosed competition policies, leasing arrangements, etc.

(Dicksmith Holding Annual report, 2015)

 In relation to the relevance qualitative characteristic, both companies have offered significant information that not only possesses predictive value but also possess the potential to influence the decision-making of users. For example, BHP Billiton offers relevant details regarding its emission of greenhouse gas in the annual report. Similarly, Dicksmith offers relevant information to security holders to help them decide whether to re-elect a director. Moreover, other characteristics like understandability, timeliness, etc, also accommodate in the annual reports of both companies, thereby forming part of the conceptual framework for financial reporting.

In addition to the above, the annual report of BHP Billiton also adheres to the IAS 16 or AASB 116 requirements that primarily deal with measurement, recognition, and disclosure principles related to PPE (Plant, Property, and Equipment). Moreover, recognition of an asset can be facilitated when its future financial efficacies flow from its productive utilization. These advantages can be measured in several ways that can ultimately result in the recognition of an asset as a whole. Other measurement methods include historical cost, present value, etc (Albrecht et. al, 2011). Whilst current assets are measured at minimal of cost or total realizable value, fixed assets are measured at historical cost less depreciation.

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(BHP Billiton, 2015)

In the company’s balance sheet, its fixed assets are tested for impairment every year, and disclosure of net carrying amounts has been made. Nevertheless, BHP’s fixed costs are disclosed at cost fewer impairment provisions. This is because it assures that the carrying amounts do not overcome forecasts of recoverable values. Furthermore, according to the annual report of BHP, its impairment expense is primarily Goodwill- US$0.5billion, Nickel west- US$0.4 billion, Petroleum- US$2.3 billion, and much more (US$0.8 billion). These impairment procedures of the company comprise of the mathematical appropriateness of models of cash flow, assessment of sensitivities, etc. This is the reason why fixed assets valuation of the company concords with the requirements of AASB standards.

Similarly, in relation to Dicksmith Ltd, its assumed liabilities and procured assets are identified at their original value (fair), but other deferred liabilities and assets in association with the arrangements of employee benefits are recognized and measured based on AASB 119 (employee benefits) and AASB 112 (Income Taxes). Furthermore, its assets held for sale are measured as per AASB 5 (Non-current assets held for sale and discontinued operations), equity instruments inclusive of share-based payments are recognized and measured based on AASB 2 (share-based payment). In addition, the contingent considerations of the company that is evaluated as a liability or an asset are re-measured as per the AASB 139 requirements (Measurement and Recognition of Financial Instruments).

(Dicksmith Holding Annual report, 2015)

The Concept Of Prudence To Address Reporting Disparity

The prudence concept has been recently revised in the conceptual framework for financial reporting in the year 2015. It had been terminated in 2010 by the IASB, but its recent revision sheds light on its utmost relevance. The prudence concept of corporate reporting requires the alertness on the part of the management while procuring various plans and policies in a way that both expenses and liabilities are not underemphasized, and both income and assets are not exaggerated (Graham & Smart, 2012).

With the assistance of this characteristic, errors or biases from financial statements can be terminated, thereby enhancing the value of other characteristics like relevance, materiality, reliability, etc. Furthermore, this concept does not necessitate a division of revenue amount of companies or disregard a portion of their physical assets (Northington, 2011). Instead, it necessitates implementation of prior caution in the case of uncertainties. Moreover, in relation to BHP Billiton, the prevalence of such concept can be easily witnessed, as the impairment events resulting in the write down of an asset’s carrying value is prudent in nature, because it can overcome the allotment of a non-current asset’s expense over its useful life (Horngren, 2013). Similarly, in the case of Dicksmith Ltd, the assets that are held for sale are not identified at their original (fair) values, and instead, these are a measurement in accordance with AASB 5 standards. In simple words, this certifies that the assets that are held for sale in the case of Dicksmith are written down to their original recoverable figures, but are failed to be written up respectively. This refers to the prudence concept of a conceptual framework for corporate reporting.

Furthermore, the identification of profit also concords with this concept when it relates to the provision of services for a long tenure, and therefore, highlighting uncertainties about future outcomes. Moreover, such inclusion of prudence also results in the maximization of other characteristics like relevance, reliability, materiality, etc (Williams, 2012). Therefore, on a whole, the concept of prudence plays a key role in attaining neutrality and assists investors in sorting out problems associated with business expenses and other future complications before shedding light on the appearance of any revenue amounts (Gibson, 2012). Hence, this concept plays a major role in addressing disparities in corporate reporting.

Comparison And Contrast Betwixt The Annual Reports Of Both Companies

 It can be witnessed from the annual reports of both the companies that in relation to consumer electronic business, Dicksmith Holdings Ltd is the leader, whereas BHP Billiton procures most of its revenue from activities associated with iron ore, copper, and coal. Furthermore, in terms of comparison, both the companies have adhered to the Australian Stock Exchange (ASX) Corporate Governance Principles and Recommendations. In addition, both companies have complied with the AASB standards and conceptual framework requirements for financial reporting (Parrino et. al, 2012).

Furthermore, on one side, BHP Billiton Ltd complies with the business conduct and overcomes interest in relation to corporate governance to adhere to several statutory rules and regulations. In addition, BHP Billiton pursues more flexibility and efficacy in relation to energy exposure that makes it profitable as a long-term venture. Similarly, on the other side, Dicksmith Holdings Ltd the corporate governance principles ensures integrity, morality, and transparency that makes it more effective in comparison to other companies. In relation to disclosure, Dicksmith offers its shareholders with more timely and efficient information that grants them power to pursue their rights appropriately (Davies & Crawford, 2012).

Furthermore, the Audit and Finance Committee’s operations assure adequacy, completeness, and timeliness that accommodate financial reporting to stakeholders like ASIC, shareholders, etc. Moreover, the disclosure policy of Dicksmith is also liable to disclose every relevant detail to the ASX but it is generally not available, and this can have a material influence on the company’s share value. Besides, this policy necessitates the Managing Director and CEO of the company to adhere to several disclosure requirements. The main function of a company secretary is to serve as a prime connection betwixt the company and the ASX. Such company secretary is also called the disclosure officer of the company (Choi & Meek, 2012). In relation to Dicksmith, the public at its website ( under the corporate governance section can access this policy. Moreover, before any disclosure requirements, any types of announcements are first made available on the company’s website under ASX Announcements section.

Similarly, in relation to BHP Billiton, a Disclosure Committee plays a key role in assisting the CEO in relation to continuous disclosure requirements, dealings in securities, etc, that incorporates review of data that can necessitate overlooking the processes of disclosure and disclosure to stock exchanges (ASX), so that every data is complete, appropriate, and timely disclosed. Moreover, for the purposes of IFRS, the disclosure of demerged assets is provided in the annual report, as it is regarded material in nature (Kaplan, 2011). In addition, the company also discloses commercially sensitive data because it can result in goodwill deterioration.

(BHP Billiton, 2015)

The company also discloses about its hydraulic fracturing that is regarded compulsory by various statutory bodies. This also includes disclosures on matters related to the use of chemical, water, etc. BHP also reacts to climate change by effectively disclosing on matters to the investors, government, and public, associated with its accountability performance in opposition to Greenhouse Gas emissions (BHP Billiton, 2015). Furthermore, in the case of conflict of interest between the directors, the non-disputed directors are bound to disclosure to the users of such prevalent conflicts. In order to approve the principles of materiality for preparing disclosure documents, finalizing the document, reviewing the document, and reporting to the Board, BHP has appointed a Document Review Committee. Besides, a copy of market disclosure is made accessible to the public at the company’s website ( in order to facilitate high-quality information, thereby assisting in proper decision-making. IFRS, AASB, and the UK requirements bound the company to disclose on matters related to Key Managerial Personnel and directors as a whole. Moreover, material information related to ordinary shareholdings, remuneration policies, and other transactions are required to be disclosed (Brigham & Ehrhardt, 2011). In addition, the disclosure regarding the independence of Board members also plays a key role in restricting the third parties to exert pressure on the company.


From the previously mentioned analysis of annual reports of both the companies, it can be observed that disclosures are very significant in influencing the decision-making processes of the users. Moreover, businesses have evolved over time and they have become exposed to various kinds of risks, and that can only be mitigated by disclosing material information to the users. Furthermore, since irrelevant information does not play a key role in this area, companies can mainly concentrate on disclosing details that are material in nature. On a whole, after assessing the annual reports of Dicksmith Holdings Ltd and BHP Billiton Ltd, the relevance of the principle of disclosure concept can be effectively understood.


After scrutinizing the annual reports of both the companies, it can be concluded that the disclosure concept plays a vital role in affecting users’ decisions. Furthermore, adherence to various qualitative characteristics like reliability, relevance, materiality, etc, must be duly considered so that judgment can be made easily. Besides, the concept of prudence is also crucial in addressing disparities in corporate reporting, and hence must not be ignored. In simple words, the conceptual framework for financial reporting is important because it assists in a smooth and balanced performance of the company (Brealey et. al, 2011). On a whole, both the conceptual framework and disclosure principle plays a key role in developing the company’s reputation, hence must not be disregarded. Nevertheless, the above-mentioned report clearly highlights that both Dicksmith and BHP Billiton have complied with both the requirements.


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Northington, S 2011, Finance, New York, NY: Ferguson’s.

Parrino, R., Kidwell, D. & Bates, T 2012, Fundamentals of corporate finance, Hoboken, NJ: Wiley

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