During January 2020, the Fair Work Commission1 commenced an investigation into

Defiant Ltd for underpayment of wages. The Fair Work Commission is expected to

deliver its decision in October 2020. However, Defiant Ltds lawyers advised that it

was likely that the Company would be required to compensate past and present

employees for underpayment of wages.

Defiant Ltds financial accountant estimated that the amount involved was in the

range of $8,000,000 to $9,000,000. Of this amount, $1,000,000 relates to past

employees. The financial accountant thought there might be some difficulty locating

some former employees, and did some modelling to calculate the expected value of

the cost of paying former employees to be $700,000.

The Chief Executive Officer (CEO) thought the matter should be disclosed in the

notes to the financial statements for the year ended 30 June 2020. However, the

Chief Financial Officer (CFO) was not convinced and has asked you to do some

preliminary work on the accounting problem.

REQUIRED

The word lengths are a suggestion only, i.e., they are no strict word limits for

each part.

a) What is the main accounting policy issue(s) that need to be resolved in relation to

the alleged underpayment of wages? (approximately 15 50 words) (20%)

b) i) Which Accounting Standard is most relevant to the issue? (2 words, answer in

the format AASB XXX) (5%)

ii) Identify one principle from that Standard that is relevant to the accounting

policy issue that you identified in part a) by providing a reference for that principle

(e.g., AASB XXX, para. zz, or para. z1 and z2) AND explain why you chose that

principle. (approximately 20 60 words) (20%)

ii) Identify another principle that is relevant to the accounting policy issue that you

identified in part a) by providing a reference for that principle. (e.g., Conceptual

Framework, para. X.XX or AASB XXX, para. X1 and X2)

(up to 10 words) (10%)

c) Describe an accounting policy to account for the alleged underpayment of wages

in the financial statements for the year ended 30 June 2020. Do not justify your

policy. Just describe it. (approximately 20 - 90 words) (45%)