80.2K

Verified Solution

Link Copied!

Company: The A2 Milk Company Limited (A2M)

As a new accounting graduate, you have recently joined the accounting department of an ASX listed company. The Chief Financial Officer (CFO) approaches you with your first task. The Board of Directors have been concerned about the comments made by the ASIC Commissioner in the ASIC media release for 30 June 2021 financial reports (see link below):

21-129MR ASIC highlights focus areas for 30 June 2021 financial reports under COVID19 conditions | ASIC - Australian Securities and Investments Commission

ASIC Commissioner, Cathie Armour, has said, As COVID-19 conditions continue to evolve, the quality of financial reports and related disclosures remain more important than ever for keeping investors informed. The circumstances of companies and the environment in which they operate can change significantly from one reporting period to the next. This could significantly affect assessments of asset values and financial position. Disclosing key assumptions, risks, the drivers of results, management strategies and prospects will be important for investors and other users of financial reports (Australian Securities and Investments Commission (ASIC) 2021, p.1).

Based on that, the Board of Directors of your company discussed the importance of ensuring that the companys financial reports meet the objective of general-purpose financial reporting and qualitative characteristics of useful financial information. Board members are concerned about the information provided in the financial statements regarding Property, Plant and Equipment (PPE) given that it is a major component of the companys financial position and performance and may have significant impacts on the financial ratios and returns. They are keen to verify whether the disclosures for PPE meet the objective of general-purpose financial reporting and qualitative characteristics of useful financial information as this could affect the decisions made by the users about investing in the company. They are especially concerned about the assumptions and estimations made for the PPE in light of COVID-19 impacts over the last 18 months.

Therefore, the Board decided to have a review of the relevant disclosures in the companys annual report for the year ending 30 June 2020 pertaining to PPE and whether these disclosures were aligned with the Conceptual Framework's objective and qualitative characteristics of financial reporting. The purpose of reviewing last years annual report is to ensure that all relevant information is disclosed this year.

Required:

Based on the Board's decision, the CFO asks you to draft a business research report addressed to the Board of Directors on the following:

a. Critically analyse to what extent the 30 June 2020 annual report of your company meets the disclosure requirements for PPE as per AASB 116. (15 marks)

b. Based on your findings in part a, critically analyse to what extent the disclosures on PPE satisfy the fundamental and one of the enhancing qualitative characteristics of useful financial information. (10 marks)

Answer & Explanation Solved by verified expert

See Answer