Business Corporations Standards Board

Question: Discuss about the Business Corporations for Standards Board. Answer: Introduction Business corporations around the world emphasises on incorporating a sound conceptual framework for ensuring the development of high-quality financial reports to effectively meet the needs of all users. Australian Accounting Standards Board (AASB) is an Australian Government Agency that mainly holds the responsibility of establishing financial reporting standards to be followed by all the corporations in the country. ASSB develops and establishes all the accounting standards as per the principles of conceptual framework (About the AASB, 2016). In this context, the present report aims to analyse the level of annual reports compliance of two Australian companies that are TPG Telstra with conceptual frameworks and AASB reporting standards. The effect of prudence principle on the presentation of annual report is also demonstrated in detail in the present report. Compliance of TPG and Telstra annual reports with conceptual framework and AASB standards requirements TPG is a market leader in the telecommunication industry of Australia that is actively involved in providing its customers communication services that are reliable, fast and cost effective. The company provides Fibre Optic, telephony services, Internet Protocol Television and other diverse range of communication services to residential users, small and medium enterprises (SMEs), government, large corporate enterprises and wholesale customers (About TPG, 2016). The company annual report depicted that it follows the conceptual framework and Australian accounting standards board while preparing financial statements. Accounting Conceptual Framework encloses a set of theoretical principles that are generally accepted as guidelines in preparation of financial statements. The conceptual framework reviews the annual report of the companies in terms of understanding, relevance, reliability and comparability (Australian Reporting Essentials, 2016). AASB governs and reviews the Australian corpo rations reporting standards with the application of principles of conceptual framework. Understanding means that the financial information disclosed is simple and relevant to be presented in front of the users. It should not be unnecessarily lengthy or complex that decrease its understanding. The annual report of the company prepared by the directors is prepared in accordance with the applicable laws and regulations. The financial statements are developed in a clear manner by the application of accounting records to reflect the transactions of the company with reasonable accuracy (Burton and Jermakowicz, 2015). The financial statements prepared of the company are also in accordance with the relevance principle of the conceptual framework and AASB standard requirements. The relevance principle indicates that it facilities users to evaluate past, present and future financial events. The companys annual report has disclosed relevant information regarding Net Profit after Tax (NPAT), Earnings per share (EPS) and Dividend per Share (DPS). The operating and financial review section of the annual report presented concise and materialistic information regarding corporate business, cash flow, its acquisition of the inept Group (. The annual report also reflected that financial information published is reliable that is free from any type of material error. The annual report has incorporated the use of accurate and specific financial figures to reflect its profitability and growth. The annual report also complies largely with comparability standards so that the financial statements are easily comparab le for users for the investment purposes. The financial information is being thoroughly analysed and examined with the comparison of the previous years (TPG Annual Report, 2015). TPG however does not comply with the Corporations Act 2001 of Australia in preparing its financial reports by not disclosing precise information on environment stewardship. The annual report has also demonstrated all the information necessary for maintaining the investor confidence in the Australian economy. On the contrary, Telstra annual report also reflects compliance with conceptual framework and ASSB standards requirements. The company is also a leader in telecommunications and media industry of Australia that provides mobile phones, home phones and broadband internet devices to the countrys economy. The principles of understanding, relevance, reliability and comparability of conceptual framework are effectively followed by the company. However, its annual report is clear and presents materialistic information to the users. The report has incorporated all the information regarding the companys sustainability that is not presented in the Telstra annual report. Also, the financial information is not divided into clear sections in TPG annual report that makes it relatively difficult to be understood in comparison to Telstra annual report (Telstra Annual Report, 2016). Reason of non-compliance of TPG with some of the principles of Conceptual Framework and AASB standard requirements TPG does not comply with the AASB standard requirements of disclosing all the materialistic information regarding environment sustainability. The act has implemented obligations on corporations to disclose their environmental performance in the annual reports. It mandates environment reporting for the companies to know the effects of their business operations on environment sustainability. This may due to the reason as the government is finding this section as vague and uncertain and therefore has not mandated the Australian corporations to disclose their environmental performance (Taberner, et al, 2016). This proposal of the countrys government is under criticism due to the fact that shareholders and community holds the responsibility of knowing the environmental effects of the corporation for ensuring their well-being. The government, in this context, is suggested by the criticisers of replacing the section of the Corporations Act 2001 with the mandatory reporting regime that addre sses environment responsibility of the corporations. The mandatory reporting regime should clarify the necessary environment responsibilities of the Australian corporations for protecting the interests of all its stakeholders. The reporting regime should mandate the business corporations to fulfil their obligations towards community benefits by applying the principles of good corporate governance. Thus, in the absence of mandatory requirements for environmental reporting, TPG does not comply with conceptual framework and AASB standard requirement of disclosing all the relevant information regarding the companys performance (Taberner, et al, 2016). Revision of Conceptual Framework to include prudence for addressing the disparity in corporate Reporting The element of prudence was removed from the reliability principles of conceptual framework in the year 2010. Reliability is a fundamental qualitative characteristic of conceptual framework that emphasises on faithful representation of the information that is complete, neutral and free from any type of error. The concept of prudence was incorporated in reliability principle before the time period of 2010. Prudence can be stated as inclusion of degree of caution in the exercise of judgements where there is existence of any uncertainty (Deegan, 2014). Prudence emphasises on use of reasonable and professional opinions for resolving matters relating to the occurrence of any uncertain condition. International Accounting Standards Board (IASB) has revised the conceptual framework for inclusion of prudence to enhance consistency and clarity in the corporate reporting (Bringing Clarity to the Conceptual Framework, 2016). IASB has incorporated the adoption of prudence principle in the concept ual framework that governs the preparation of annual report by Australian corporations. The concept of prudence was ignored by the IASB in conceptual framework as a means of reflecting unrealistic estimated in the annual reports prepared. The addition of prudence principle would rather help the Australian corporations to undertake a degree of caution in managing uncertainty existing in the business procedures (Kieso et al, 2010). The disparity in corporate reporting found out in the case of TPG of not disclosing the information regarding its environment responsibility can be properly addressed with the inclusion of prudence in conceptual framework. The government of Australia is facing ambiguousness regarding the implementation of a legal section under the Corporations Act 2001 for mandating companies to report their environmental performance (Dagwell et al, 2011). The ambiguousness can be resolved with the including prudence in reliability principle of conceptual framework. The uncertainty faced by the government regarding the adoption of compulsory standards for governing environmental sustainability can be resolved through application of prudence principle. The concept of prudence would help in overcoming the inconsistencies that exists in corporations report regarding disclosing of environment sustainability (PKF International Ltd, 2015). As discussed above, Telstra in its annual report has reflected the information regarding its environmental performance and the initiatives taken by it to achieve sustainability. However, TPG has not enclosed the information about its initiatives and responsibility taken in the regard of achieving environmental sustainability. The absence of prudence in the reliability principle of conceptual framework can be regarded as the major reason behind the disparity in the corporate reporting of TPG. Australian government can overcome the confusion regarding the adoption of mandatory standards for reporting the firms CSR initiatives by seeking the help of professional judgements for implementing the same. Recommendations On the basis of the overall discussion, it can be recommended to TPG to incorporate changes in its annual report disclosing format. As analysed from the annual report prepared by Telstra Corporation, all the necessary sections are incorporated in the report for making it understandable by the end-users. The inclusion of various headings and sub-sections in the annual report enhances its credibility and makes it easy for the investors to analyse the companys performance for investing purpose. Telstra has also outlined a specific section in its annual report for distracting its various measures adopted for protecting the environment and community from adverse effects of its operational activities. The same is lacking in the annual report of TPG as it has not enclosed the companys performance regarding achieving environment sustainability. As per the accounting standard requirements of AASB, the corporations in Australia has to prepare their annual report by adopting the rules and regulations of Corporations Act 2001. The Act has also directed the companies to report their environment sustainability measures but the adoption of a mandatory reporting regime is the issue of debate for the government of the country. The inclusion of prudence principle in the corporations reporting framework can help the government of the country for reducing the uncertainty existing with the implementation of a mandatory standard for reporting their environmental performance (Krivogorsky, 2011). On the basis of comparison of annual reporting framework of TPG and Telstra, it is recommend to TPG to incorporate a detailed section for reporting its environmental performance for achieving sustainability. Both the companies operate in the telecommunication sector of Australia; Telstra has achieved a good market position in the specific sector o f the country through attaining goodwill among its stakeholders. Telstra has achieved good brand position among its stakeholders through the inclusion of responsible practices for protecting the environment and community as reflected from its annual report. On the other hand, TPG still lacks behind from Telstra in terms of brand image due to non-disclosure of its environmental performance in its annual report. Conclusion It can be summarised from the overall discussion held in the report that TPG and Telstra both have attained strong position in the telecommunication sector of Australia. Both the companies comply with conceptual framework and AASB standards as reflected from their annual report. However, TPG still needs to revise its annual reporting format to incorporate the obligations of Corporations Act 2001 for reflecting its initiatives taken for protecting environment. TPG can strengthen its brand image through properly disclosing the materialistic information about its environment sustainability measures. The inclusion of prudence principle in the conceptual framework can help in overcoming the identified annual reporting disparity of TPG. References About the AASB. 2016. [Online]. Available at: https://www.aasb.gov.au/About-the-AASB.aspx [Accessed on: 15 September 2016]. About TPG. 2016. [Online]. Available at: https://www.tpg.com.au/about/profile.php [Accessed on: 15 September 2016]. Australian Reporting Essentials. 2016. [Online]. Available at: https://www.charteredaccountants.com.au/Industry-Topics/Reporting/Current-issues/Conceptual-framework.aspx [Accessed on: 15 September 2016]. Bringing Clarity To The Conceptual Framework. 2016. [Online]. 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