Corporate Governance in Accounting Discretion †MyAssignmenthelp

Question: Discuss about the Corporate Governance in Accounting Discretion. Answer: Introduction: From the media release of ASIC 17 to 162, it is clearly understood that business enterprises that are listed under Australian Stock Exchange need to prepare financial statement by keeping into account activities that should fulfill the purpose of financial users (Investor.myer.com.au. 2017). In order to be more specific, the financial report needs to be prepared with transparency and in agreement to conceptual framework where the financial statement should be well-understood by the external and internal users. On analysis, it is noted that most of the companies are using improper assumptions at the time of preparing their accounts for different transactions such as recognition of liabilities or revenue. John Price was the commissioner of ASIC and he opined that auditors should be analyzing the accounting strategies in accordance to the financial statements of previous years (Zhuang 2016). As mentioned in AASB 136 (Impairment of Assets), these assets actually seek way to assure the fact that assets shown in the balance sheet should not carry out values that is more than the recoverable value of the assets (Aasb.gov.au. 2017). At the time of impairment of assets, the recoverable value as well as fair value of the assets is deducted from the cost of disposal that needs to be measured. In addition, the impairment loss is the different between the recoverable amount as well as fair value of the asset. As mentioned in AASB 136, business enterprise should carry out the impairment test for once in each year. It was clearly mentioned in the Para 12 to 14 under AASB 136 that some of the indicators are related for impairment of any asset (Rahman 2013). Furthermore, it is the responsibility of the management to test the impairment of asset for given period of time. There are different indications of impairment that are mentioned below: Internal source It is understood that the asset become obsolete or it is damaged physically (Bond, Govendir and Wells 2016). At the time of using asset, the method use is significantly changed (Preiato, Brown and Tarca 2015) External source The external environmental analysis such as technological, legal, market situations for operating in the environment of the business entity that had been significantly changed. The carrying amount of asset exceed with the market capitalization There are significant changes present in the market rate of interest or market return that need proper attention (Khokan Bepari, Rahman and Taher Mollik 2014) Evidence of impairment with regard to Myer Holdings Limited Asset Turnover- In regard to Myer Holdings limited, it is important to take into account the asset turnover where the turnover ranges from 1.40 to 1.80. There is no significant shift present that can enhance the impairment indication (Bond, Govendir and Wells 2016). Asset Flow- In regard to Myer Holdings limited, it is noted that if impairment test is carried out properly, then proper consideration needs to be taken regarding the asset flow of many stores of Myer Holdings limited. It is where the asset flow is recognized but there is no significant change preset over past few years (Kabir and Rahman 2016). From the above two tests, it is noted that these tests fails to recognize asset for impairment. Hence, it is needed to compete with Amazon where Myer Holdings limited planed to change the outlook of the departmental store of Frankton (Preiato, Brown and Tarca 2015). To this, the company plans to change their outlook by changing traditional black and white get up of the store to vibrant yellow color. There will be change of uniforms for the staff members. The storage system will be altered in a way that can give more space for storage. In accordance to AASB 136, the changes will be restructured as per the accounting standards that are treated as the internal source of information for impairment indication of the store front. It is for this reason why the store of Frankton need test for impairment in their accounting operations (Guthrie and Pang 2013). Process of determining impairment At the time of calculating value or amount of impairment assets, it is important to look at any indication of impairment of asset in business in such events (Bond, Govendir and Wells 2016). It is important to measure the carrying value of assets as well as value in use. In addition, the approval of assets by the management of business in relation to asset based on forecasted cash flow statement that is generated by assets. Forecasting cash flow statement is predicted for longer time. It is the responsibility of the management to use terminal rate of growth for calculating cash flow for almost 5 years (Deegan 2013). There are various assumptions that are used at the time of calculating cash flow by asset generation activities and these are as follows: Terminal growth rate is assumed to be at 2.5% Pre-discount rate has been assumed to be at 14.4% Operating margin rate deals with gross profit that is assumed to be at 39.5% It is evaluated by each stores of company that is used for recognizing and establishing impairment requirement. In addition, it is important to forecast cash flow operations that generates from assets and based on budget for cash generating unit. Information related to determination of impairment It is important to determine the impairment value as well as reason that is associated with the fact where impairment is made by using recoverable value and through value in use (Preiato, Brown and Tarca 2015) It is essential for business enterprise to conduct detailed disclosures at the time of recognition of loss in associated with impairment and testing of impairment It is essential for business enterprise to reverse the amount of loss in association with the impairment in the past accounting period that concern or deal with goodwill or any other assets. It can be performed in events when forecasted values of recoverable value of assets are used for impaired changes (Bond, Govendir and Wells 2016) As mentioned in the income statement, impairment is treated as expense after identifying and recognizing loss. As mentioned in the balance sheet, amount is subtracted from asset closing value of assets. Flexibility management for recognizing asset impairments On analysis, it is noted that there is no hard and fast rule that all management of companies need to have specialized expert in accounting based on Australian securities as well as investment commission (Bond, Govendir and Wells 2016). To that, management of companies can always taken help from accounting firms or recruit accounting experts for the work. At the time when forecasted or projected value does not match with required or actual outcome, it is essential for the management to discuss the matter with accounts by engaging in in-depth analysis. Clarity should be present in each of financial statement of any business enterprise so that the users can easily interpret the information in an effective way (Bond, Govendir and Wells 2016). As mentioned in the Australian Accounting Standard Board 136, there are some facts that need proper attention and can be understood from the case study of Myer Holdings Limited (Preiato, Brown and Tarca 2015). To that, it is important for the management to carry out test for impairments at least once in a year. It is important for the company to measure the value in use as well as recoverable value. From the case study on Myer Holdings Limited, it is noted that the company is very adjusting for carrying out the impairment tests (Bepari and Mollik 2015). Reference List Aasb.gov.au. 2017. Australian Accounting Standards Board (AASB) - Home. [online] Available at: https://www.aasb.gov.au/ [Accessed 29 Aug. 2017]. Bepari, M.K. and Mollik, A.T., 2015. Effect of audit quality and accounting and finance backgrounds of audit committee members on firms compliance with IFRS for goodwill impairment testing.Journal of Applied Accounting Research,16(2), pp.196-220. Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.Accounting Finance,56(1), pp.259-288. Brown, P., Preiato, J. and Tarca, A., 2014. Measuring country differences in enforcement of accounting standards: An audit and enforcement proxy.Journal of Business Finance Accounting,41(1-2), pp.1-52. Deegan, C., 2013.Financial accounting theory. McGraw-Hill Education Australia. Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from 20052010.Australian Accounting Review,23(3), pp.216-231. Investor.myer.com.au. 2017. Myer Investor Relations. [online] Available at: https://investor.myer.com.au/Investor-Centre/ [Accessed 29 Aug. 2017]. Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion under IFRS: Goodwill impairment in Australia.Journal of Contemporary Accounting Economics,12(3), pp.290-308. Khokan Bepari, M., F. Rahman, S. and Taher Mollik, A., 2014. Firms' compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics.Journal of Accounting Organizational Change,10(1), pp.116-149. Preiato, J., Brown, P. and Tarca, A., 2015. A comparison of between?country measures of legal setting and enforcement of accounting standards.Journal of Business Finance Accounting,42(1-2), pp.1-50. Rahman, A.R., 2013.The Australian Accounting Standards Review Board (RLE Accounting): The Establishment of Its Participative Review Process. Routledge. Zhuang, Z., 2016. Discussion of An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.Accounting Finance,56(1), pp.289-294.