The financial Statements of the company are a key element for determining the financial position of any business entity. The underlying aim of the financial statements is to share and communicate the financial information of the company to its internal and external users. The analysis of financial statements provides an in-depth understanding to users of the allocation and use of funds by the company. However, there are two widely used accounting principles namely Generally Accepted Accounting Practices (GAAP) and International Financial Reporting Standards (IFRS) for financial reporting.
Therefore, accounting policies of companies vary according to the adopted accounting framework. For this paper, the preliminary financial report of JB Hifi Limited, which is an Australian based company, was selected. The current report discusses the importance of the statement of accounting policies for interpreting financial information presented in the financial statements of JB Hifi Limited. In addition, this paper analyses the benefits that the users of financial statements obtain from the financial reports of the company
Significance of Accounting Policies
The top managers of JB Hifi Limited approved the accounting policies to maintain consistency in reporting (Preliminary Final Report, 2014). From the preliminary financial report of JB Hifi Limited, it is evident that the accounting policies of the company were developed under the IFRS accounting framework in order to standardize the disclosure of the financial information presented in the audited statements. The disclosure policies were well stated in the footnotes of the company’s financial statements that should assist in the interpretation of the company’s financial condition. JB Hifi Limited used Consolidated Entity and its Subsidiaries reporting method that allowed the business to prepare consolidated financial statements as a group (Preliminary Final Report, 2014).
The financial statements of JB Hifi Limited allow users to determine which framework was used for accounting reporting (Preliminary Final Report, 2014). It is evident from the relevant section in the preliminary report that the company used IFRS for the preparation of its financial statements under the Australian Securities and Investments Commission (ASIC). It is also evident that the company used the rounding off method for presenting its financial figures. It clearly stated that the company’s financial statements presented consolidated information of the company and its subsidiaries.
In addition, it was clearly stated that the group adopted new and revised standards that were regulated by the Australian Accounting Standards Board (AASB) to ensure effective reporting. It provided detailed information about the procedures and policies of the company to report its assets, liabilities, and equity. Moreover, it included information about the standards that were not used by the company for its financial reporting as they became effective from January 2014 (Hoggett, Edwards, Medlin, & Tilling, 2012).
For financial reporting, it is essential that companies disclose their accounting estimates and judgments that they have made on the basis of their experiences (Hoggett, Edwards, Medlin, & Tilling, 2012). For example, details of policies related to impairment, depreciation, employee benefits, and inventories should be provided in the annual report. The main objective of these disclosures is to provide important information to users about the estimations and assumptions that JB Hifi Limited made for reporting previous year’s financial performance. The selected company also informed users about the company’s expectations regarding its future performance and its ability to reduce material risks and carry forward its assets and liabilities (Preliminary Final Report, 2014).
From the analysis of the footnotes and additional information supplementing the financial statements in the annual report of the company, it could be identified that the company provided detailed information regarding conditions prevailing in its internal and external environment to ensure transparency in its reporting (Preliminary Final Report, 2014). Such disclosures could be beneficial for users to identify and understand the accounting treatment of the company’s assets, liabilities and equities (Sinha, 2009).
In addition, JB Hifi Limited provided information about the change in taxation policies and other legislative considerations that the company made for reporting its financial figures (Preliminary Final Report, 2014). The footnotes provided at the end of the financial statements could allow users easily to relate changes in the reported financials of the company in the previous years (Fridson & Alvarez, 2011).
I believe that the information provided in the financial statements of the selected company is beneficial for the users of the report as it helps in understanding the basis for financial reporting including policies, accounting treatments and guidelines (Robinson, Henry, & Pirie, 2012). The additional notes allow users to determine changes that affect the overall profitability, performance, and business position.
On the basis of the above analysis, it could be concluded that the Preliminary Financial Report of JB Hifi Limited (2014) is an effective source for stakeholders to determine the company’s financial performance and also, gain knowledge of the prevailing conditions that could affect its business in the next accounting periods. In addition, it shared information about the policies of the company for making its financials comparable and relevant. The information is beneficial for users because it was clear, detailed, coherent, and precise.
List of References
Fridson, M & Alvarez, F 2011, Financial Statement Analysis: A Practitioner’s Guide, John Wiley and Sons, New York.
Hoggett, J, Edwards, L, Medlin, J & Tilling, M 2012, Accounting, 8th edn, John Wiley and Sons, New Jersey.
Preliminary Final Report 2014, JB Hifi Limited, Melbourne.
Robinson, TR, Henry, E & Pirie, WL 2012, International Financial Statement Analysis, 2nd edn, John Wiley and Sons, New York.
Sinha, A 2009, Financial Statement Analysis, PHI learning, London.