International Financial Statement Analysis

Question: Discuss about the International Financial Statement Analysis. Answer: Introduction: The AASB 15 is the accounting standard framed by Australian accounting board which provides the revised framework for revenue recognition and measurement. The standard has provide five step process where each step of supported by comprehensive set of rules and principle which involves extensive use of the management judgement. The standard was issued on 28 may 2014 and will serve as the single point of reference for revenue recognition from all type of contract. The Standard was bought into effect on 1st January 2017 and has replaced many of the standards related to revenue recognition including AASB 118 related to the revenue and AASB 111 for construction of real state which provide the accounting guidelines for revenue recognition of construction industry in Australia (Holland, 2016). The centre rule of the IFRS 15 is that the income acknowledgement ought to mirror the example by which the product are exchanged with the client and the measure of thought the element is relied upon t o be qualified for exchanging those merchandise and administration. Accounting for revenue under new AASB 15 As the new AASB accounting for revenue can be applied using five stage models where the company needs to exercise judgment at the time of considering the term of the contract and all the fact and circumstance related to the contract. These regulations are to be applied consistently to the contract which is having similar circumstances and characteristics. The following are the five steps which are to be followed as per the standard- Step 1- identify the contract The first step in the contract is to identify the contract with the customer which may be written, verbal or implied by the customer business practice and should be enforceable having commercial substance (Dakis, 2016). The model applies to each of the contract where the entity will collect the consideration to which they are entitled and will consider the ability and intention of the customer to pay the consideration when due. The entity has the choice of combining two or more contract which is agreed upon same time and with the same customer. It also provides the detail requirement for the contract modification on the basis of facts and circumstance and can be accounted as the separate contract of modification of the existing one. Step 2- identify the separate performance obligation After identifying the contract the entity needs to evaluate the term of the contract for the purpose of indentifying the promised good and service and needs to be accounted as the separate performance obligation. The Telstra needs to ensure that weather the good and service is distinct of are in bundle. It is distinct when the customer can be benefited from the good and service with other readily service and is separately identified. The Telstra has the choice that they can provide series of distinct goods and service which are same and also follows the same pattern at the time of transferring it to the customer. Step 3- determining the transaction price- It is the amount of consideration which the entity is expecting and include estimate of any variable consideration using probability- weighted expected value or the most likely amount for the purpose of calculating consideration (Dakis, 2016). The entity also needs to consider time value of money if the financial component is significant to the contract and needs to consider the fair value of any non-cash transaction. It also includes the effect of any consideration payable to the customer such as vouchers and coupons and is generally not adjustable to the credit risk. Step 4- allocating the transactional price to separate performance obligation- The next step is to allocate the transactional price to each separate performance obligation on the stand alone selling price with the limited exception. The standard permits the entity to allocate the variable amount of consideration with the subsequent change in the variable consideration to more than one obligation if they meet the criteria which is already set. For the purpose of calculating stand alone price the entity needs observe the information which is available and need to use the estimated is the information is not clearly available. Step 5 recognize the revenue when the entity satisfies the performance obligation- The final step is when the entity satisfies the performance obligation and transfer the promised goods and service to the target customer within the allocated time. The performance obligation is said to be satisfied unless the customer simultaneously receives the benefit provided by the entity as per the set standard (AASB, 2014). The obligation is set to be met when the entity performance creates the assets which is controlled by the customer and has the enforceable right to payment for the performance completed till date. The revenue is said to be recognized in line of the pattern of the transfer and is allocated to the performance obligation satisfied at the point of time when the control of the good is transferred to the target customer. The reason for issuing AASB 115 The existing standard AASB 108 which deals which deals with the construction contract requires entities to disclose the impact of the standard which is was not effective on all the type of financial statement. The AASB 15 will lead to change in your IT system, customer contract, budget and accounting manual. As per the AASB 111 the cost to obtain and fulfilment of the contract were met when the certain condition were met. It was in practise with the construction contract in the past but is applicable to all the type of contract with the customer and also the entities needs to determine the accounting period (Carey, et. al., 2014). Also the standard provides the choice of the transaction of either full retrospective approach stating revenue related to the contract in pace at the transaction date. The partial restatement approach is related to restating contract in place at the beginning of the current reporting period and recognizing changes in the current year. The impact of the AASB 15 on the operations and financial statement The new AASB 15 will create the impact on the Telstra when the company deliver goods and service over time and there is more than one element at the time of delivering goods and service. The new standard specifies that the Telstra needs to include the clear payment term and legally enforceable right in the term of the contract to safeguard the interest of the parties. Also the company needs to identify classify and measure the various relevant performance obligation and must evaluate the sale on the basis of customer perception instead of that of seller. The new standard regarding to the accounting of various element of consideration and has the requirement of accounting of the credit risk as per the part of the revenue determination (AASB, 2014). The new standard provides permission of incurring cost in obtaining the customer contract to be capitalized. The standard will help in avoiding bundling of contract with separate unrelated customer and provide the guidelines of treating con tract modification. The flexibility available to the management related to revenue recognition as per new standard The changes in the AASB 115 will help the management of Telstra in creating the bundle of goods that can be separately recognized and also the rebate and discount related to the contract price must be allocated in a completely different way (AASB, 2014). Also under the current standard revenue may be recognized earlier if the consideration varies for any reason and the company has the choice to recognize the minimum amount if there is not any risk associated with the reversal. Also the entities have the choice to shift the point during which revenue must be recognized which may be during or at the end of the contract. References Holland, D. (2016). Simplifying income recognition for not-for-profit entities. Governance Directions, 68(11), 666. Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., (2015). International financial statement analysis. John Wiley Sons. Carey, P., Potter, B., Tanewski, G. (2014). AASB Research Report No. Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley Sons. Ehiedu, V. C. (2014). The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), 81-90.