ACCG8123: Accounting Standards and Practice Session - Accounting Assignment Help

Assignment Task :

“In a perfect world, investors, board members, and executives would have full confidence in companies’ financial statements. They could rely on the numbers to make intelligent estimates of the magnitude, timing, and uncertainty of future cash flows and to judge whether the resulting estimate of value was fairly represented in the current share price. And they could make wise decisions about whether to invest in or acquire a company, thus promoting the efficient allocation of capital. 

Unfortunately, that’s not what happens in the real world, for several reasons. First, corporate financial statements necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith.....” (Sherman and Young, 20166, p.1). 

The above clearly shows how crucial it is for accountants to apply their professional judgment in arriving at the most reasonable / appropriate accounting choices / estimates which can be a challenging process. There is not necessarily one correct answer in most cases and therefore accountants need to be vigilant while dealing with such situations. 

As a new accountant, you have recently joined the accounting department of an ASX listed company. Your supervisor, the senior accountant, has sent you an email containing a Media Release (MR) from the Australian Securities & Investment Commission (ASIC) relating to 2019 financial reports where the major concern is relating to Impairment testing and asset values. To demonstrate your understanding of the application of professional judgment applied to undertake impairment testing and asset valuations: 

• you have been asked to look into the company’s annual report; 
• undertake required research and 
• prepare a report for presentation to other finance team members and the audit committee. 

Estimates and accounting policy judgements 
Disclosures regarding sources of estimation uncertainty and significant judgements in applying accounting policies are important to allow users of the financial report to assess the reported financial position and performance of an entity. Directors and auditors should ensure disclosures are made and are specific to the assets, liabilities, income and expenses of the entity. 
Disclosure of key assumptions and a sensitivity analysis are important. These enable users of the financial report to make their own assessments about the carrying values of the entity’s assets and risk of impairment given the estimation uncertainty associated with many asset valuations. 
The above extracts of the 2019 ASIC media release are calling for attention to be placed on the company’s practice of using professional judgments in arriving at the most reasonable estimates and then disclosing the sources or basis of their judgments leading to the accounting information in the financial reports. 
Specifically, the ASIC report has pointed at the process of ‘Impairment testing and Asset Valuation’ because in carrying out the impairment testing, professional judgments are required to estimate the cash flows, the discount rates, the CGUs, the allocation of corporate assets and costs to CGUs and the appropriate use of fair values. Further, the report also highlights the need for businesses to provide sufficient disclosures around the judgments applied. 
The highlights of the ASIC report is strongly indicating that companies need to be vigilant in carrying out the impairment testing and asset valuation and then provide sufficient disclosures so that the users of accounting information can carry out their own assessments about the impairments of the assets in their decision making process. 

Required: 
To complete this assignment, you will need to select a suitable company yourself that meets the following criteria. The company must: 
• be a constituent of the S&P/ASX 300 index (www.asx300list.com); 
• publish audited annual financial reports in English, fully complying with IFRS or AASB standards; 
• must have a 30 June year end and 
• have a significant impairment presented in the annual report 
Your report must address each of the following: 
a) The role of professional judgment in accounting and two implications on the users of accounting information if the professional judgment has not been made in the most reasonable/appropriate manner.  
b) Provide a detailed explanation of the impairment write-down(s) made by your company for the 
year ended 30 June 2019. Your explanation should include a discussion of 
the asset/s that were impaired; - the type of estimations required to write / calculate the impairment; - the amount of the impairment write-down and - relevant disclosures in the 30 June 2019 financial report in relation to impairment testing 
c) Based on your findings in part b, critically discuss whether the professional judgments used to 
estimate cash flows, discount rates, CGUs, allocation of corporate assets and costs to CGUs and appropriate fair values in the impairment write-down process have been reasonable / appropriate. Recommend actions (if any) for improvement in the application of professional judgments relating to these estimations. 
Please refer to the ASIC media release and other relevant information sources to answer the above question. 
 

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