Business English and Research Skills II Võ Thái Sơn - BAFM 0111HN –034

Accounting Information Disclosures

MODULE ASSIGNMENT

Student Name: VO THAI SON

Student Number: BAFM 0111HN-034

Module Tutor: LUONG ANH HOA

Module Title / Assignment Number:

Business English and Research Skills II

Submission Date: September 10th, 2012

Extension Date (including authorising signature):

Tutor’s signature Date

Second Marker (if appropriate) Date

Provisional Mark

Subject to approval
by HKICHE

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Business English and Research Skills II Võ Thái Sơn - BAFM 0111HN –034

Accounting Information Disclosures

Business English and Research Skills II

Lecturer: LUONG ANH HOA

Academy of Finance

Contents

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Acknowledgements.............................................................................................................................................4
Abstract...............................................................................................................................................................5
1. Introduction.............................................................................................................................................5
2. Chapters......................................................................................................................................................6
3. Conclusion.................................................................................................................................................10
REFERENCE LIST.................................................................................................................................................10

Acknowledgements

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In order to complete the current course and be able to write a good thesis, I have asked for advice
from lecturers in the accountancy faculty of the Academy of Finance and then, received their
enthusiastic guidance as well as helpful comments.
First of all, I would like to give thanks to the Academy of Finance lecturers, especially the teachers
who directly taught me during the period of study at the school.
Specifically, I would like to send my deep gratitude to Master Luong Anh Hoa who has spent a lot of
time and the diligence to guide and assist me complete the this thesis.
Furthermore, I would like to sincerely thank the Board of the Academy of Finance and the teachers in
International training project that has provided us great conditions to study and successfully complete
the course.
Because this is the first time I write a thesis, there are many parts that I could not understand how to
present and write correctly. Although I have tried to complete the thesis with all of enthusiasm and
full effort, some of shortcomings is inevitable and may occur in my thesis and. So, I hope it will not
be a serious mistakes and I will receive the valuable feedbacks from teachers.

Abstract
1. Introduction
a. Background and Context

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Accounting is the business function of recording and reporting financial information to internal and
external users. The most common form of accounting information released by companies is financial
statements. Financial statements include the income statement, balance sheet and statement of cash
flows.
b. Scope and Objectives
Accounting information disclosure is to inform both current and potential investors of the strategy
and the accounting methods used to develop periodic financial statements of the company. These
financial statements include, but are not limited to, balance sheet, cash flow statement, income
statement and statement of owner's equity of the shareholders. "Rule reveals full enough requirements
that any events that may affect the financial statements should be disclosed.
c. Overview of Dissertation
As has been seen quite often in the recent years, the importance of full disclosure and accurate
accounting information can be very large and long-term effects to the individual, the family, the
competitors, creditors, investors, market, and other groups associated with the large corporate
enterprise. The group is known in the accounting world as the stakeholders in the company. Financial
statements are used for both internal users and external users. Internal users use financial statements
to plan for the future.

2. Chapters
These financial statements are not only provides information about profit & loss and the cash flow,
but also inform about specific accounting policies that company use to evaluate its financial
performance. They are known as the accounting disclosures. For each class of asset, several

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accounting disclosures are required and comply with AASB (Australian accounting standard board).
This released the AASB framework for financial statement called the “Framework for the Preparation
and Presentation of Financial Statements”. Due to the fact that this standard does not deal with the
statement of cash flow, this essay aim to examine an overview of accounting disclosures and the
required information disclosures for items in the financial position (balance sheet) and income
statement.
Before going to detail about the requirement of accounting disclosure that compliance with AASB, it
is important to understand what are information disclosures and its purpose.
Accounting disclosure is the term includes in the notes and schedules that are clarified or explained
further items in the financial statements. Additional disclosure requirements are included in other
financial reporting standards which deal with specific accounting subjects. Where an individual
financial reporting standard addresses a specific topic, that standard is to be referred to the additional
disclosure requirements relevant to the topic concerned. Accounting information disclosures is
prepared to inform both current and potential investors of the accounting strategies and methods used
when developing financial statements. The full disclosure principle requires that any event that would
have an impact on the financial statements should be disclosed. This disclosed information allows
internal users to review and determine how well the company is operating in its business
environment; whereas external users of financial statements, such as banks or investors, use this
information to determine if they are willing to invest in the company. When reading through the
financial section of the annual report, an investor may want to look at the notes section to get better
understand the accounting disclosure statements while working through the numbers, tables, and
graphs that may be presented. Accounting disclosure statements will clarify the methods that were
used by corporate accountants to come to the figures presented. Furthermore, accounting disclosures
give external users of the company's financial statements information on how the company applied
GAAP. Accounting disclosure can take many forms, however, it is most often found in the notes to
financial statements. Many accounting disclosures can be found in the notes section of the
corporate annual report.
Having discussed the definition as well as the aim of accounting information disclosures, this essay
now will examine what accounting information disclosures are required in the financial statements.

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There are certain specific disclosures are set out by AASB framework for the financial position.
However, this essay only discusses about the information disclosure requirement for non-current asset
or PPE (plant, property and equipment), intangible asset and lease arangment due to the word limit.
First of all, we focus on requirement of disclose information regarding asset revaluation of PPE and
the impairment loss if it occurs. The AASB 116 includes a number of disclosure requirements related
to the revaluation of non-current assets such as depreciation method uses, a reconciliation of the
opening and closing carrying amount of PPE. To be clear, we consider the following example.
Bubble Ltd acquires machinery at cost of $200,000 on 1 st October 2011. On 30 September 10 2012,
machinery which has accumulated depreciation is $50,000 and is assessed as a fair value equal to
$170,000. As these figures will appear in the balance sheet of Bubble Ltd, external users might
question on how company get that amounts. Taking this situation, information such as dates of
revaluation, whether an independent value was involved in determining valuations, and the approach
used to determining and measuring the fair value of $170,000 must be disclosed in the notes to the
financial statement. The financial statement shall disclose the information of depreciation method
used. If the company used straight line method, it should include the useful lives of its asset or the
depreciation rates used if company applied reducing balance depreciation method. The gross carrying
amount at the beginning and the end of financial year also needed to be disclosed and show the
increase or decrease resulted from asset revaluation; the depreciation and impairment loss recognized
in profit & loss statement is have to be disclosed as well. There are also a number of disclosed
requirement that a reporting entity is required to make if impairment losses is recognized. The amount
of impairment loss recognized in income statement must be included in the statement of
comprehensive income and recognized directly in equity during the period if that is an impairment
loss on revalued assets. Furthermore, an entity must disclose each material impairment loss
recognized for an individual asset include cash-generating. According to paragraph 130 - AASB 136
Impairment loss, “cash-generating unit is the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other assets or groups of assets”.
Company must provide a description of the cash-generating unit such as whether it is a product line, a
plant or a business operation. In case the aggregation of asset for identifying the cash-generating unit
changed, there must be a reason that explains for changing the way cash-generating is identified. The
AASB 136 contains many disclosure requirements for impairment loss which are explained clearly in

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paragraph 126 to 137. The above information are some of important requirements and usually be
presented in the note to financial statements of almost all company’s annual report.
Secondly, company is not only has the non-current asset, but also include some of intangible assets.
Because these intangible assets appear in the financial statements as well, so, the AASB 138 has
required numerous disclosure requirements for intangible asset. For identifiable intangible asset such
as trade mark, brand name, license and patent; there must be disclosed information of whether the
useful lives of intangible asset are finite or infinite. If an intangible asset is considered having an
indefinite useful life, company must provide reason that supporting the assessment of an indefinite
useful life. In giving a reason, the factor which plays an important role in identifying that intangible
asset has indefinite useful life need to be described and explained in the note. Unlike non-current
asset, intangible asset (other than goodwill) which has a finite or limited useful lives are required to
be amortized over their useful lives, instead of using depreciation. As a result, the AASB 138
required an entity to disclose the method used in determining the amortization amount. Any
amortization of intangible asset is recognized must be included in the comprehensive income
statement. Moreover, a reconciliation of the carrying amount at the beginning and the end of the
financial period must show the changes in carrying amount during the period; retirement and
disposal; the amortization and the net differences from translating of financial statement to currency.
For intangible asset, there is a research and development expenditure. In some case, that expenditure
might not recognized as an expense, however, if it is recognized as an expense, the financial
statement are required to disclose the aggregate amount of expense. For example, “That Moment” Ltd
is considering produce new product called “Sweet Red” for Christmas. The company spent $300 in
researching the market demand for this product and then spent an estimated amount of $500 in
working to develop “Sweet Red”. However, because of some mistakes in the implement process, new
product was not developed. After 2 years, the company continues with its previous development plan
and has successfully designed the “Sweet Red” and this costs “That Moment” Ltd $600. In this case,
an amount of $300 in researching would be considered as expense because it is probability that $300
could generate the future economic benefit. In contrast, an amount spent for development would not
be an expense as its amount was not measured accurately and reliably and not bring economic for the
company. Nevertheless, company has successfully developed the new product in the second time and
the amount of $600 is considered as an expense, because it contributes the future economic benefit

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for company and the amount of development has been planned reliably as taking the experience from
the last two years. To recognize a research & development as an expense, an entity must disclose the
amount they expense.
Lastly, for some reason, company may acquire to lease an asset such as equipment or machinery in
return for a payment from other entity. The company is known as the lessee and another party is the
lessor. When lessor agreed to convey lessee the right to use an asset, that asset will become the leased
asset and it should appear in the financial position (balance sheet) of the lessee. As being an item in
the balances sheet, the lease is also required for information disclosure by the AASB 117. There are
two types of lease which are finance lease and operating lease. Firstly, we take a look at the
requirement for finance lease. For each class of leased asset, the carrying amount must be at the
reporting date. To be clearer, company A acquires a lease item on 1 July 2010 which cost of $20,000.
Its accumulated depreciation is $4000 and has a useful life of 5 years. The reporting date is 30 June
2012, so company XYZ must shows the carrying amount of that item at 30 June 2012 is $12,000, not
$16,000 or $0. In addition, a general description of lessee’s leasing arrangements need include which
rent payable is determined, the existence and term of renewal purchase option and the restriction
imposed by lease arrangement. AASB also requires the disclosure for reconciliation between the
gross investment in the lease at the balance sheet date, and present value of minimum lease payments
receivable at the equivalent to the fair value of the asset. The key term “minimum lease payment”
means the payments that lessee can be required to make at the start of a lease, an entity shall disclose
the gross investment in the lease and the present value of minimum lease payments receivable at the
balance sheet date, for each of the following period: not later than one year; later than one year and
not later than five years or later than five years. Moreover, the total of future minimum sublease
payment is expected to be received with non-cancellable at the reporting date. The disclosure
requirement for operating lease is same as finance lease. Taking an example of Qantas Airways 2008
annual report, the lease notes provide a detail of future net operating lease amount payable for each of
required period above. Moreover, each class of asset, including which one is finance lease and the net
carrying amount of the lease controlled by the entity are shown very clear and sufficient

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3. Conclusion
In conclusion, financial statements normally provide information about a company's past
performance. However, incomplete transactions, or other conditions may have significant effects on
the company's financial status. A disclosure is additional information attached to an entity's financial
statements, usually an explanation for activities which have significantly influenced the entity's
financial results. The full disclosure principle requires financial statements include disclosure of such
information. It does not only contain the facts but also relate to events, information and others which
useful to external and internal users of the financial statement. The requirement allows company to
explain the method used in determine the figures appear in balance sheet as well as describe the
policies that company uses to record and report its business transactions. For internal users,
information disclosure is very helpful in judging the performance of company and planning better in
future period. Otherwise, for external users such as investors; the information disclosure provides
them more information to know more about the business they have invested in and or going to invest
in. Investors need well-informed information, past events and others to make the correct investment
decision, understand the risk perception of the management and the financial performance of the
business.

REFERENCE LIST
 Australian accounting standard board, Australian government, viewed 5 September 2012,
<http://www.aasb.gov.au/Home.aspx>
 ACT AIFRS Policy Summary, “AASB 116 Property, Plant and Equipment”, AASB 116,
viewed 7 September 2012
 AASB Standard, “AASB 138 Intangible asset”. AASB 138, viewed 7 September 2012
 CPA Australia Ltd, G2007, “AASB 117 accounting for lease”, CPA Australia Ltd, no.1, pp.
1-4
 Phillip, G2010, “Leases”, Leases Team- Financial accounting standard boards, no.1, pp. 1-4,
viewed 8 September 2012

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