Individual Assignment Application of Professional Judgment On - - PDF document
ACCG224: Financial Accounting and Reporting Session 1, 2019 Individual Assignment Application of Professional Judgment On Impairment Testing Part I - Research-Based Report (15%) Due: Monday 29 April, 5pm Word limit: 1,200 words Part II
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Due: Monday 29 April, 5pm Word limit: 1,200 words
Due: Monday 6 May, 5pm Time limit: 4 minutes
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“In a perfect world, investors, board members, and executives would have full confidence in companies’ financial
future cash flows and to judge whether the resulting estimate of value was fairly represented in the current stock price. And they could make wise decisions about whether to invest in or acquire a company, thus promoting the efficient allocation of capital. Unfortunately, that’s not what happens in the real world, for several reasons. First, corporate financial statements necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith…..” (Sherman and Young, 2106, p.1).
The above clearly shows how crucial it is for accountants to apply their professional judgments in arriving at the most reasonable/appropriate accounting choices which can be quite a challenging
be vigilant while dealing with financial and non-financial information. As a student intern and future accountant, you have recently joined the accounting department of an ASX listed company. Your supervisor, the accountant, has sent you an email containing a Media Release (MR) from the Australian Securities & Investment Commission (ASIC) relating to 2018 financial reports. As a future accountant, and to demonstrate your understanding of professional judgments applied to undertake impairment testing and asset valuations, you have been asked to look into the company’s annual report, undertake required research and present on the company’s position relating to impairment testing as well as prepare a report for presentation to other finance team members and the audit committee. A link to the MR is provided below:
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-159mr-major-changes- affecting-reported-net-assets-and-profit-and-other-focuses-for-30-june-2018-reporting Please copy and paste the above link in the browser for it to work. Relevant extracts from the link FOCUSES FOR 30 JUNE 2018 FINANCIAL REPORTS
Accounting estimates
The recoverability of the carrying amounts of assets such as goodwill, other intangibles and property, plant and equipment continues to be an important area of focus. It is important for directors and auditors to ensure:
market conditions, and funding costs. Where prior period cash flow projections have not been met, careful consideration should be given to whether current assumptions are reasonable and supportable;
not reliable. Fair value less costs to sell should not be viewed as a means to use unreliable estimates that could not be used under a value in use model; c. value in use calculations:
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account offsetting impacts on discount rates, and
receivables and tax balances; e. different discount rates are used for cash generating units (CGUs) where the risks are different and the CGUs are located in different countries, and that similar discount rates are used where the risks are similar; f. CGUs are not identified at too high a level, including where cash inflows for individual assets are not largely independent;
are monitored for internal management purposes;
i. appropriate use of fair values for testing exploration and evaluation assets during the exploration and evaluation phase; and j. royalty relief or earnings multiple models are not used unless they are sufficiently reliable and market based assumptions are available that are specific to the company’s assets and circumstances.
Key disclosures
Disclosures regarding sources of estimation uncertainty and significant judgments in applying accounting policies are important to allow users of the financial report to assess the reported financial position and performance of an entity. Directors and auditors should ensure disclosures are made and are specific to the assets, liabilities, income and expenses
Disclosure of key assumptions and a sensitivity analysis are important. These enable users of the financial report to make their own assessments about the carrying values of the entity’s assets and risk of impairment given the estimation uncertainty associated with many asset valuations. Preparers should be particularly mindful to make these disclosures as this information may be revealed under key audit matter disclosures in the new enhanced audit reports for listed entities.
The above extracts of the 2018 ASIC media release are calling for attention to be placed on the company’s practice of using professional judgments in arriving at the most reasonable estimates and then disclosing the sources or basis of their judgments leading to the accounting information in the financial reports. Specifically, the ASIC report has pointed at the process of ‘Impairment testing and Asset Valuation’ because in carrying out the impairment testing, professional judgments are required to estimate the cash flows, the discount rates, the CGUs, the allocation of corporate assets and costs to CGUs and the appropriate use of fair values. Further, the report also highlights on the need for businesses to provide sufficient disclosures around the judgments applied. The highlights of the ASIC report are strongly indicating that companies need to be vigilant in carrying
their decision making process.
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Required: To complete this assignment, you will need to select a suitable company yourself that meets the following criteria: The company must be a constituent of the S&P/ASX 300 index (www.asx300list.com); The company must publish audited annual financial reports in English, fully complying with IFRS or AASB standards and The company must have a 30 June year end. Your report must address each of the following: a) The role of professional judgment in accounting and two implications on the users of accounting information if the professional judgment has not been made in the most reasonable/appropriate
b) Provide a detailed explanation of the impairment write-down(s) made by your company for the year ended 30 June 2018. Your explanation should include a discussion
(10 marks) c) Based on your findings in part b, critically discuss whether the professional judgments applied in the impairment write-down of the assets to estimate the cash flows, the discount rates, the CGUs, the allocation of corporate assets & costs to CGUs and the appropriate use of fair values have been reasonable/appropriate. Recommend actions (if any) for improvement in the application of professional judgments relating to these estimations. Please refer to the ASIC media release and other relevant information sources to answer the above question. (15 marks) d) Based on your findings in part c, critically analyse to what extent the professional judgments applied on impairment write-downs satisfy the fundamental characteristics of useful financial information and the objective of financial reporting. (10 marks)
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Assessment of report
The research based report represents 15% of your total mark for ACCG224 and is compulsory. Your assignment will be marked out of 60 as shown in the Report Marking Rubric on page 9 of this document and will then be converted to a mark out of 15 percent.
Report submission instructions
Where to submit The written report must be submitted in electronic form using Turnitin (through iLearn via the ‘Assessment Tasks’ folder). Detailed submission instructions are provided on iLearn. Please ensure that you are familiar with these instructions and submit before the deadline in case of technical issues. A hardcopy submission is not required. When to submit The deadline for submission is 5pm Monday 29 April. No extensions will be granted. There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24 hour period or part thereof that the submission is late (for example, 25 hours late in submission – 20% penalty). This penalty does not apply for cases in which an application for disruption of studies is made and approved. How to submit The report can be submitted either in a PDF or word format. The filename of your report must be as follows: ACCG224_XXXXXXXX (where the crosses represent your eight digit SID)
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Report Format
Before you start writing your report, it is recommended that you undertake the following (both of these can be accessed through the ‘Assessment Task’ folder on iLearn):
Structure The report must contain the following (in this order): Report cover page (You can design your own cover page) Table of contents Executive summary Introduction Body Conclusion Reference list Appendix You should include relevant parts of the annual reports that you have used and referred to in your report. Do NOT attach entire annual reports. You can include the relevant parts of annual reports as screenshots rather than copying and pasting content, since it can impact the TurnitIn similarity percentage Length Total word count limit = 1,200 words. Your word count must be included on your cover page. Included in word count Excluded from word count Introduction Body Conclusion Report cover page Table of contents Executive summary Reference list Appendix Penalties for exceeding the word limit are as follows: Word count Penalty 1,201 – 1,319 words 1,320 – 1,439 words 1,440 or more words No penalty 10% of total marks 20% of total marks Style The report must be presented as follows: Font: Times New Roman 12 point Spacing: 1.5 times line spacing Margins: not less than 2.5 cm Footer Each page must have a footer containing the following: ACCG224 S1 2019 Your SID Page number Referencing In text referencing is required for all sources used and a complete list of references must be provided using the Harvard Referencing System. A copy of the Harvard Referencing System is available under the ‘Assessment Task’ folder
Please note that as this is a research assignment it is not appropriate to reference to textbooks or lecture slides. Plagiarism All assignments will be manually and electronically checked for plagiarism and it is extremely important that you are familiar with the policy on Academic Honesty.
S1 2019 ACCG224 Page 7 A link to the policy is available in the ‘Assessment Task’ folder on iLearn.
The accountant was impressed by your report and has asked you to prepare a video presentation to be played to the Audit Committee at the next meeting on 15 May 2019. Your video presentation should: a) Explain the role of professional judgment in the application and interpretation of accounting standards. b) Discuss whether the professional judgments applied in the impairment write-down of the assets to estimate the cash flows, the discount rates, the CGUs, the allocation of corporate assets & costs to CGUs and the appropriate use of fair values have been reasonable/appropriate. c) Based on the findings from the 2018 report, identify and explain the areas that you believe the Audit Committee must consider when reviewing the 30 June 2018 impairment testing information. d) Recommend actions (if any) for improvement in the application of professional judgments relating to these estimations. Assessment of video
The research based report represents 5% of your total mark for ACCG224 and is compulsory. Your assignment will be marked out of 40 as shown in the Presentation Marking Rubric on page 10 of this document and will then be converted to a mark out of 5.
Video format
Before you start recording your video it is recommended that you view the two YouTube videos by Vlog Brothers and Idea Channel. Both of these can be accessed through the ‘Assessment Task’ folder on iLearn. Length Time limit = 4 minutes Penalties for exceeding the time limit are as follows: Time Penalty Up to 4:29 4:30-5:29 5:30 or more No penalty 10% of total marks 20% of total marks Slides The use of slides (eg Powerpoint/Prezi) is not mandatory as you will not be marked on your slides, but on your communication skills. If you do wish to use slides please use a screen capture rather than a projected image. Physical presence Students must actually appear in their video – you must be visible as well as able to be heard. Audibility It is your responsibility to ensure that we can hear your presentation clearly. If we can’t hear it then we can’t mark it! If you are recording using screen capture technology consider using speaker and headphones. Technology You can record your video using one of the following:
S1 2019 ACCG224 Page 8 Your mobile device or tablet – it editing is required iMovie can be used. Screen capture technology such as Windows 10 Screen Recorder, Cyberlink or others These are suggestions only and you are free to use another method.
Video submission instructions
Where to submit The video must be submitted in electronic form using the Oral Presentation Submission Guide link (through iLearn via the ‘Assessment Tasks’ folder). Detailed submission instructions are provided on iLearn. Please ensure that you are familiar with these instructions and submit before the deadline in case of technical issues. A hardcopy submission is not required. When to submit The deadline for submission is 5pm Monday 6 May. Late submissions will be
consideration is made and approved. How to submit All videos must be submitted in an mp4 or wmv format Please make the video visible when you upload the video on ilearn.
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Not attempted Fail Pass Credit Distinction High Distinction The role of professional judgment in accounting and two implications on the users of accounting information if the professional judgment has not been made in the most reasonable/appropriate manner. Not attempted or entirely or significantly plagiarized from other sources. Writing is unclear. Leaves out several relevant aspects of the role of professional judgment and the implications. Writing is not very clear. Describes the role of professional judgment and the implications although significantly more detail may be needed. Writes clearly. Correctly describes the role of professional judgment and the
correct, although more detail may be needed. Writes clearly. Correctly describes the of role
the implications with adequate detail. Writes clearly. Correctly describes the of professional judgment and the implications with plentiful detail. 5 marks 0 marks 2 marks 3 marks 3 marks 4 marks 5 marks Explanation of impairment write-down made by your choice of company Not attempted or entirely or significantly plagiarized from other sources. Writing is unclear. Explanation incomplete or faulty in one or more aspects. Writing is not very clear. Explanation including assets written down, amount, types of estimation and analysis of disclosures but with omissions and/or incorrect explanation. Writes clearly. Mostly complete explanation including assets written down, amount, reason and analysis of disclosures. Writes clearly. Explanation including assets written down, amount, types
disclosures with minor
Writes clearly. Complete explanation including assets written down, amount, types of estimation and analysis
10 marks 0 marks 4 marks 5 marks 7 marks 8 marks 10 marks Critical discussion on whether the professional judgments applied in the impairment write-down of the assets are reasonable/appropriate. Recommend actions (if any) for improvement in the application of professional judgments in impairment testing. Not attempted or entirely or significantly plagiarized from other sources. Chosen company is not suitable/Does not include relevant details, uses faulty
not relate to impairment testing. Includes the majority of relevant details, although some analysis may be faulty. Recommendations relating to
testing Includes most relevant details. Analysis mostly accurate but more
relating to most areas of impairment testing. Includes nearly all relevant
accurate with adequate
refer to nearly all areas of impairment testing. Includes relevant and possibly unusual details. Analysis accurate and insightful. Recommendations refer to all areas of the impairment testing with great details. 15 marks 0 marks 6 marks 8 marks 10 marks 12 marks 15 marks Critical analysis as to what extent the professional judgments applied on impairment write -downs satisfy the fundamental characteristics of useful financial information and the objective of financial reporting. 10 marks Not attempted or entirely or significantly plagiarized from other sources. 0 marks Chosen company is not suitable/Did not relate possible application of professional judgment to any aspect of fundamental characteristics of useful financial information and the objective of financial
Relate only some possible applications of professional judgment to some aspects of fundamental characteristics of useful financial information and the objective of financial reporting. 5 marks Relate most of the possible applications of professional judgment to most of the aspects fundamental characteristics of useful financial information and the objective of financial reporting. 7 marks Refer to nearly all possible applications of professional judgment to nearly all aspects of fundamental characteristics of useful financial information and the
Refer to all possible applications
almost all aspects of the fundamental characteristics of useful financial information and the objective of financial reporting. 10 marks Document formatting and structure (including length, organisation of sections and paragraphs) Not attempted or entirely or significantly plagiarized from other sources. Fails to follow assignment requirement. Too short or too long/Strongly affect reader due to formatting errors and confusing
Occasionally meets the assignment requirement. Distract reader due to formatting errors. Organisation causes some confusion. Occasionally meets the assignment requirement. Occasionally include formatting
and paragraphs generally clear. Mostly meets the assignment
formatting errors. Clear
paragraphs. Meets all the assignment requirements. Use professional, correct
sections and paragraphs with excellent flow. 10 marks 0 marks 4 marks 5 marks 7 marks 8 marks 10 marks Written expression and referencing Not attempted or entirely or significantly plagiarized from other
Harvard referencing system correctly. Too informal or errors in grammar make meaning
Did not use Harvard referencing system correctly. Sometimes too informal or errors in grammar make meaning unclear in places. Noticeable errors in
Harvard referencing system correctly. Generally appropriate tone. Language is generally clear but may be repetitive or simple. Frequently used Harvard referencing system correctly. Appropriate tone. Language is clear and shows variety. Used Harvard referencing consistently and accurately with very few minor errors. Appropriate tone. Language is clear, varied and easy to read. Used Harvard referencing consistently and accurately in all aspects. 10 marks 0 marks 4 marks 5 marks 7 marks 8 marks 10 marks
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Student name ID Topic
Not attempted Fail Pass Credit Distinction High Distinction Content: Relevance, appropriate detail, clear explanations
Not attempted or entirely
plagiarized from other sources The majority of the areas presented are not relevant and/or clearly explained in appropriate
identified are not key to the Audit Committee Some of the areas presented are relevant and clearly explained although more detail may be needed. Not all the issues identified are key to the Audit Committee Most of the areas presented are relevant and clearly explained with appropriate detail. Most of the issues identified are key to the Audit Committee Nearly all of the areas presented are relevant, cover the key dimensions and are clearly explained with appropriate detail. All of the issues identified are key to the Audit Committee All of the areas presented are relevant, cover all key dimensions and are clearly explained with appropriate detail. All of the issues identified are key to the Audit Committee. 10 marks 0 marks 4 marks 5 marks 7 marks 9 marks 10 marks Structure: Appropriate
(incl. purpose and
transitions from one section to another, smooth flow of ideas, adequate conclusion Not attempted or entirely
plagiarized from other sources No or inappropriate
unclear transitions, incongruous flow of ideas and/or inadequate conclusion. Presentation featured the majority of the required components, however transitions could have been clearer/flow of ideas smoother and/or conclusion more pronounced. Presentation featured most of the required components, transitions were quite clear, the flow
with an adequate conclusion. Presentation featured nearly all of the required components; transitions were clear, the flow of ideas smooth with an adequate conclusion. Presentation featured all
components; transitions were clear and well placed, the flow of ideas excellent with a remarkable conclusion. 10 marks 0 marks 4 marks 5 marks 7 marks 9 marks 10 marks Maintaining interest Awareness of audience, effectiveness of techniques, good timing Not attempted or entirely
plagiarized from other sources. Presentation frequently inappropriate for target
haphazard or poorly
Presentation
inappropriate for target
adequate but
Timing within acceptable limits. Presentation appropriate for target audience. Techniques adequate and mostly interesting. Insignificantly over/under time. Presentation considerably stimulates audience interest. Techniques creative and
Presentation is very well pitched to audience, or modified in view of audience reactions. Innovative but appropriate techniques greatly stimulated audience interest. Exact timing. 10 marks 0 marks 4 marks 5 marks 7 marks 9 marks 10 marks Verbal and non-verbal delivery including pronunciation, volume, eye contact, gesture, video quality stance Not attempted or entirely
plagiarized from other sources. Delivery strongly detracts from content; e.g. pronunciation unclear, speech inaudible, too many filler words/ slang, distracting gestures, reading from notes with no eye contact. Poor video quality. Delivery detracts from content only in places; e.g., pronunciation mostly clear, speech mainly audible; some distracting filler words and gestures, occasional eye contact with
quality. Delivery supports content; audible, pronunciation, minimal distracting gestures, regular eye contact with
quality. Delivery effectively supports content by allowing audience to focus on message. Nervousness may be evident but mostly under
quality. Confident delivery does not just convey the message but significantly enhances it; excellent use of volume, pace, etc. Nervousness may be evident but under
quality. 10 marks 0 marks 4 marks 5 marks 7 marks 9 marks 10 marks
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