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Describe about the Compliance with the Objectives of Conceptual Framework.

Compliance with the Objectives of Conceptual Framework

In today’s business world, companies are considering Conceptual Framework for Financial Reporting as an important element for the preparation of general-purpose financial statements. In addition, the principles and standards of conceptual framework help the business organizations in solving different kinds of organizational accounting issues like true and fair presentation of financial statements, compliance issues and others (Weil, Schipper and Francis 2013). In the year 1989, International Accounting Standard Board (IASB) developed the concept of conceptual framework for the business organizations for the ease of financial reporting. According to IASB, all the business organizations must comply with the principle of conceptual framework. For this report, Domino’s Pizza Enterprise Limited is taken into consideration. Domino’s Pizza Enterprise Limited is a major pizza chain in Australia, established in the year 1983 (dominos.com.au 2017). The company is headquarters at Hamilton, Australia. Domino’s Pizza Enterprise Limited is listed in Australia Stock Exchange (ASX) among top hundred companies with the code name of ‘DMP’ (m.asx.com.au 2017). This report takes an honest attempt to examine the compliance of Domino’s Pizza Enterprise Limited with the principles and standards of conceptual framework for financial reporting.            

It is the responsibility of the companies to comply with the principles and standards of conceptual framework for financial reporting. This is also applicable for Domino’s Pizza Enterprise Limited. From the annual report of Domino’s Pizza Enterprise, it can be observed that the company complies with the principles of Australian Accounting Standards Board (AASB) at the time to develop their financial statements. In addition, Domino’s Pizza Enterprise also complies with the principle of Companies Act 2001 (dominosinvestors.com.au 2017). Apart from this, the company adopts the principles of International Financial Reporting Standard (IFRS) for their financial statements along with notes for the financial statements (dominosinvestors.com.au 2017). 

In this context, it needs to be mentioned that there are three major objectives of conceptual framework and the companies are required to comply with these objectives. The following discussion shows the compliance of Domino’s Pizza Enterprise with the major objectives of conceptual framework:

First Objective: According to this objective, companies are bound to provide their potential investors and creditors with useful and relevant financial information so that it can be helpful in financial decision-making process (aasb.gov.au 2017). Domino’s Pizza Enterprise develops their financial statements by complying with this objective. Domino’s Pizza Enterprise provides their investors and creditors with useful financial information through various financial statements like statement of profit and loss, statement of financial position, statement of change inequity, statement of cash flows and many end notes. 

Adherence with the Recognition Criteria of Conceptual Framework

It can be seen that the inventors and creditors can easily access the useful financial information of Domino’s Pizza Enterprise for their financial decisions.

Second Objective: According to this objective, inventors and creditors need to be able to use the acquired information to assess the future cash flow of the company. It implies that the inventors and creditors should be able to assess the time, amount and uncertainties of future cash flows from the information of the company (aasb.gov.au 2017). In this aspect, it needs to be mentioned that Domino’s Pizza Enterprise provides their users with statement of cash flows that contains all the required information for the assessment of future cash flow position of the company. 

From the above figure, it can be observed that Domino’s Pizza Enterprise publishes all cash flow related information in their statement of cash flow.

Third Objective: According to this objective, the companies are required to provide the inventors and creditors with the information about their resources (aasb.gov.au 2017). Economic resources refer to the assets, liabilities and equity of the companies. In case of Domino’s Pizza Enterprise, it can be observed that the company provides information about their economic resources in consolidated statement of financial position. 

The above figure shows that the company has provided information related to fixed assets, current assets, current liabilities, non-current liabilities, equity and others. Thus, based on the above discussion, it can be observed that Domino’s Pizza Enterprise has developed their financial statements by complying with the objectives of conceptual framework.

In the conceptual framework of AASB, there are certain recognition criteria for assets, liabilities, equity, revenue and expenses that the companies are required to comply. The following discussion shows the compliance of Domino’s Pizza Enterprise with the recognition criteria of conceptual framework.  

As per the principle of AASB, assets are recognized at balance sheet when it is probable that their future benefits will flow to or from the company and their values can be measured. Property, plant and machinery of the company can be recognized in the statement of financial position of the company. They are measured at cost by deducting depreciation and impairment (dominosinvestors.com.au 2017). 

In case of the leases, their classification is done under financial leases when the risk and reward of ownership is transferred to the company and they are recognized in the balance sheet (dominosinvestors.com.au 2017). 

For the intangible assets, they are measured separately at their cost value by deducting accumulated amortization and impairment losses. They can be recognized in the financial position statement (dominosinvestors.com.au 2017). 

In case of the inventories, Domino’s Pizza Enterprise measures them at the lower cost based on net realizable value. They can be recognized in the statement of financial position of the company (dominosinvestors.com.au 2017). 

For the trade receivables, the company classifies them under loans and receivables and they can be recognized in the statement of financial position of the company. They are measured under amortized costs (dominosinvestors.com.au 2017). 

Under AASB, liabilities are recognized when it is probable that future cash outflow will be there as a result of the settlement of any present obligation. Borrowing is the part of company’s liability. They can be recognized in the statement of financial position and they are measured based on fair value (dominosinvestors.com.au 2017). 

In case of trade and other receivables, the company use to measure them based on fair value method and they can be recognized in the statement of financial position of the company (dominosinvestors.com.au 2017). 

In case of equity, in Domino’s Pizza Enterprise, issues capital is considered as equity. They are fully pair and they do not have any par value. Equity can be recognized in the company’s balance sheet (dominosinvestors.com.au 2017). 

Under AASB, revenue is recognized in the income statement of the companies in case they increase the future benefit of the company. In case of Domino’s Pizza Enterprise, they recognizes revenue based on fair value of the consideration and they can be recognized in income statement of the company (dominosinvestors.com.au 2017). 

Under AASB, expenses are also recognized in the income statement in case the future decrease in value for the company. Domino’s Pizza Enterprise recognizes their expense at the time of their occurrence and they are recognized in the income statement (dominosinvestors.com.au 2017). 

There are two fundamental qualitative characteristics that Domino’s Pizza Enterprise is needed to comply with. They are discussed below:

Relevance: It implies that the provided financial information should be capable to help the users in decision-making process (aasb.gov.au 2017). In their financial statements, Domino’s Pizza Enterprise provides information about all relevant financial factors. The company’s compliance with AASB, IASB and Corporations Act 2001 makes the financial reports relevant to their users.

Faithful Representation: All the economic phenomena in the financial statements must be presented faithfully to the users (aasb.gov.au 2017). Domino’s Pizza Enterprise provides all necessary information about their financial substances along with the AASB standards to recognize and measure them.

Compliance of Domino’s Pizza Enterprise with the enhancing qualitative characteristics of conceptual framework is shown below:

Comparability: It implies that the users need to be able to compare the financial information of a particular company across different financial periods (fasb.org 2017). The annual reports of Domino’s Pizza Enterprise show that the company provides financial information of current year as well as previous years for easy comparison. In addition, all financial information of Domino’s Pizza Enterprise of all years is available in their annual reports.  

Verifiability: It assures the users that the financial information represents the economic phenomena along with their purposes (fasb.org 2017). For this purpose, Domino’s Pizza Enterprise uses to provide notes of their financial statements with clarification and justifications so that the users are able to verify them.

Timeliness: Financial information is required to be available for the users at the time of decisions making (Nobes 2014). The timely release of the financial statements by Domino’s Pizza Enterprise helps the users in this purpose.

Understandability: There needs to be classification and clear representation of financial substances for making them understandable (Barth et al. 2012). Domino’s Pizza Enterprise provides endnotes for financial statements and presents their information in simple tabular form by sating the AASB regulations. All these aspects make their financial statements easy understandable.   

Conclusion

As per the above discussion, for the purpose of financial reporting, Domino’s Pizza Enterprise complies with all the requirements of conceptual framework for financial reporting. The company follows the principles of AASB, IASB and Corporations Act 2001 for their general purpose financial reporting. In addition, Domino’s Pizza Enterprise complies with the conceptual framework objectives along with the recognition criteria for assets, liabilities, equity, revenue and expenses. Lastly, the company also adheres with the fundamental as well as enhancing qualitative characteristics of conceptual framework. 

References

Aasb.gov.au. (2017). Conceptual Framework for Financial Reporting. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 7 Dec. 2017].

Aasb.gov.au. (2017). Framework for the Preparation and Presentation of Financial Statements. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-04_COMPjun14_07-14.pdf [Accessed 10 Dec. 2017].

Australian Securities Exchange - www.asx.com.au. (2017). Company details - DMP - ASX - Australian Securities Exchange. [online] Available at: https://m.asx.com.au/m/company-info.xhtml?issuerCode=DMP [Accessed 14 Dec. 2017].

Barth, M.E., Landsman, W.R., Lang, M. and Williams, C., 2012. Are IFRS-based and US GAAP-based accounting amounts comparable?. Journal of Accounting and Economics, 54(1), pp.68-93.

Dominos.com.au. (2017). Domino's Corporate - Domino's Pizza. [online] Available at: https://www.dominos.com.au/inside-dominos/corporate [Accessed 14 Dec. 2017].

Dominosinvestors.com.au. (2017). Annual Report 2017. [online] Available at: https://dominosinvestors.com.au/files/DPE_AR17_Fins_WEB.pdf [Accessed 14 Dec. 2017].

Fasb.org. (2017). Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information. [online] Available at: https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220340119&acceptedDisclaimer=true [Accessed 7 Dec. 2017].

Fasb.org. (2017). Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information. [online] Available at: https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220340119&acceptedDisclaimer=true [Accessed 10 Dec. 2017].

Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

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