Accounting Standards Regulation Financial †Myassignmenthelp.Com

Question: Discuss About The Accounting Standards Regulation Financial? Answer: Introducation The AASB 136 on impairment of assets seeks that the asset of any organization shall not be recorded in the financial statement at the value which is more than the carrying value. As per Para 10 of the standard, the assets whether it is tangible or intangible and the goodwill must be tested for impairment at least once in a year. Further, Para 12 of the standard states the external as well as internal source of information that can indicate the fact that whether the asset shall be tested for impairment or not (Aasb.gov.au 2017). Requirement of evidence with regard to testing of impairment If the internal sources of information are taken into consideration for determining the test of impairment, asset will be taken into consideration as the major indicator for AASB 136. Looking into the financial performance of Myer Holdings Ltd, it is recognized that the operating revenues of the company is in decreasing trend. The Operations revenue of the company was highest during 2009 and amounted to $ 32,65,000,000 and after that it started declining and reached $ 27,26,005,000 during 2012. Further, looking at the balance sheet of the company, it is identified that the non-current intangible assets of the company was highest during 2009 and amounted to $ 909,000,000. However, during 2010 there was significant decrease in the value of intangible and it reached to $ 571,486,000 and the trend was decreasing. Moreover, the net profit margin of the company of the company was also in decreasing trend (Investor.myer.com.au 2017). On the contrary, if the external information sources are considered, it is identified that Myer is planning to restructure their store in Frankston to compete with Amazon. It was found that Myer was heading towards significant changes with regard to economic and technological environment from Amazons entry. As Amazon sells their entire product through online, enabling the customers to shop from any corner of the world, the physical stores of Myer were losing considerable part of their customers. These all facts pushed Myer to change their strategies and look of their stores as well as the uniform of the store staffs (Investor.myer.com.au 2017). Determination of process for asset impairment Once the evidence is established with regard to the impairment the asset is tested for impairment. The asset is impaired when the carrying value of the asset is more than its recoverable amount. The recoverable amount is the higher among the value in use and fair value of the asset reduced by disposal cost. The impairment loss is identified as the expense under the profit and loss account (Christensen et al. 2015). Further, if the asset is a revalued asset, the amount of impairment loss is recorded as against the earlier identified revaluation gain of the asset. Further, if indication is there that a particular asset may get impaired, the recoverable amount or the cash generating unit (CGU) of the asset is determined. On the other hand, if it is not possible to forecast the recoverable amount of individual asset, the recoverable amount for the CGU under which the asset is included shall be determined. Recoverable value for individual asset is not possible if The value in use of the asset cannot be forecasted to close of the FVLCS Assets do not create any cash inflow that widely is independent from other assets. If Myer Holdings Ltd is considered, the goodwill generated from business acquisition cannot be recognized with separate CGU. Therefore, the goodwill will be allocated for the entire business (Miller and Power 2013). The company uses the cash flow forecasting for 5 years and for more than 5 years terminal growth rate is used. For the impairment calculation following assumption are taken into consideration Rate of terminal growth to be assumed as 2.5% Rate of operating gross margin to be assumed as 39.5% The pre-tax rate of discount to be assumed as 14.4% The management of Myer Holdings Ltd compare the carrying value of the asset or the carrying value of the CGU with the budgeted one. If it is found that there is any indication of impairment, the recoverable amount and value in use for the particular asset is measured immediately (Linnenluecke et al. 2015). Further, Myer examines each of their stores separately for the purpose of impairment test. Further, the fair value for the asset will be calculated as the amount that can be achieved through the sale of the asset in the arms length price among the willing and knowledgeable parties and from that the disposal cost of the asset shall be reduced. The value of the asset shall be taken from the balance sheet and after that the estimated sale value shall be calculated. Required information for determination of impairment Para 30, under the AASB 136, states that the value in use of asset is crucial for determining the assets liquidity status. For estimation, the recoverable amount of any asset is higher among fair value less disposable cost and value in use. Further, the impairment loss for the past period shall be adjusted in the subsequent period, if there is any alteration with regard to the asset. Further, the requirement of information is required as follows Information shall be obtained for the rate of average growth for the cash flow Various economic data are required for making the assumptions Information related to the market under which the company is operating is required Information is required for the justification of the budget (Oulasvirta 2014) Information is required for determining the industry growth rate Further, the company uses the discounted cash flow approach for forecasting the cash flow for 5 years and for more than 5 years terminal growth rate is used. The value in use is the present value of future cash flows projected to be gained from the CGU or the asset. Finally, the recoverable amount is the higher value among the fair value and value in use. Managements flexibility in impairment determination ASIC does not require that the management shall be experts with regard to the accounting knowledge. However, they can always seek assistance from the knowledgeable person. The management shall look into the matter deeply where the forecasting does not match with the actual figures. Further, the information shall be reviewed and presented clearly so that it can be used by the users (Wang 2014). The main concern with the identification of correlation among the opportunistic motivations and asset impairment is the management for their own benefit may not recognize the impairment and show the assets in the financial statement at higher values. It is also a matter of concern to analyze that to what extent the impairment of asset is consistent with the releveant requirement of the regulation. Therefore, the main focus is whether the financial statement is prepared in compliance with the AASB 136 or not and whether the company is recognizing the impairment of assets as per AASB 136 (Bond, Govendir and Wells 2017). The managements flexibility is the managements ability with regard to making the assumptions and estimations. As per Para 30 of AASB 136 the calculation of value in use requires the calculation of future cash flows. Further, Para 24 of AASB 136 states the way through which the recoverable amount of the intangible assets are measured by the management. While the future cash flows are measured, the management is flexible enough for establishing the proper assumptions (Gackstatter and Mller 2016). Further, the projected cash flows for the future is calculated based on the assessment made by the management taking into consideration the expected economic condition for the future. Therefore, it can be said that the management is flexible enough for the determination of impairment test. Reference Aasb.gov.au. 2017. Australian Accounting Standards Board (AASB) - Home. [online] Available at: https://www.aasb.gov.au/ [Accessed 26 Aug. 2017]. Bond, D., Govendir, B. and Wells, P. (2017). An evaluation of asset impairment decisions by Australian firms and whether this was impacted by AASB 136. Australia: Accounting Discipline Group, University of Technology Sydney. Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?.European Accounting Review,24(1), pp.31-61. Gackstatter, T. and Mller, K., 2016. Triggering Events in Asset Impairment Accounting-a Case Study in the Automotive Industry. Investor.myer.com.au. 2017. Myer Investor Relations. [online] Available at: https://investor.myer.com.au/Investor-Centre/ [Accessed 26 Aug. 2017]. Linnenluecke, M.K., Birt, J., Lyon, J. and Sidhu, B.K., 2015. Planetary boundaries: implications for asset impairment. Accounting Finance,55(4), pp.911-929. Miller, P. and Power, M., 2013. Accounting, organizing, and economizing: Connecting accounting research and organization theory.Academy of Management Annals,7(1), pp.557-605. Oulasvirta, L., 2014. The reluctance of a developed country to choose International Public Sector Accounting Standards of the IFAC. A critical case study.Critical Perspectives on Accounting,25(3), pp.272-285. Wang, C., 2014. Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer.Journal of Accounting Research,52(4), pp.955-992.