Assignment Description

The basic requirement of the Corporations Act is that the statement of financial position (Balance sheet) and notes should comply with the accounting standards and present a true and fair view of the financial position of the entity at the end of the reporting period (Corporations Act 2001).

Australian Accounting Standard board (AASB) in October 2006 issued AASB 101 Presentation of Financial statements which provides authoritative guidance on the format of the statement of financial position.

Para 71 AASB 101 states,

This Standard does not prescribe the order or format in which items are to be presented. Paragraph 68 simply provides a list of items that are sufficiently different in nature or function to warrant separate presentation on the face of the balance sheet AASB101 pp39).

Furthermore, para 51 of AASB101 postulates that

An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications on the face of its balance sheet in accordance with paragraphs 57-67 except when a presentation based on liquidity provides information that is reliable and is more relevant. When that exception applies, all assets and liabilities shall be presented broadly in order of liquidity AASB 101 pp32).

Henderson et al (2017) argue that until 1997 Scheduled 5 of the Corporations Regulations specified in some detail of items to be disclosed in the balance sheet. It specified a standard format, with net assets being equal to total equity. Furthermore, now superseded scheduled 5 format is an example of a fixed format. It is also argued that fixed format assist financial information users to easily locate the required information, and enhances the understandability and comparability of information on financial position between entities operating in same industry. A contrary view is that a flexible format allows the selection of specific entity information rather than the presentation of information that is generally appropriate to all entities (Henderson et al 2017).

Required:

You are required to critically examine above and provide your opinions and suggestions on the format of statement of financial position stating whether a fixed format statement of financial position is preferable to a flexible format statement of financial position.

In your report:

1. Explain the purpose of preparing a statement of financial position.
2. Explain what is meant by a fixed format for a statement of financial position. Is this format consistent with the requirements of AASB 101?
3. Select the most recent annual report of a top 100 ASX listed company and assess what presentation format the company uses to prepare its statement of financial position.

In your opinion, is a fixed format statement of financial position preferable to a flexible format statement of financial position?