Accounting Standard & Regulations for ASX Firm - myassignmenthelp

Question: Discuss about theAccounting Standard Regulations for ASX Listed Firms. Answer: Introduction The present report presents the major accounting issues need to be considered by Myer Holdings Ltd, an ASX listed firm in the development of its general purpose financial report. The major area of the concern in this context is to develop a report for the CFO as an accounting graduate of the company for consideration of impairment of assets. The AASB 136 standard represents amendment in the current reporting standard regarding assets impairment that applies to annual reporting periods beginning on or after 1 July 2009 but before 1 January 2010. The reduce disclosure requirements as per the AASB 136 requires business corporations to ensure that its assets are not carried at more than its recoverable amount (Bond, Govendir and Wells, 2016). The report has addressed the processes, information and flexibility required by businesses for determining asset impairments with reference to Myer. Outlining the Evidence Determining the Necessity of Impairment Testing of Assets In Relation to Myer The AASB 136 amendment adopts IAS 36 impairment of assets standard as developed by the IASB. As analyzed from the data flow of the company, the evidence gathered in relation to necessity for asset impairment is as follows: Asset Flow: It can be stated from the data analysis of the company that asset amount in all its stores is either uniform or has demonstrated an increasing trend. It has been observed that none asset presents a declining trend over the last financial year in all its stores and therefore there is no signal of asset impairment. Asset Amount: it has been analyzed from the asset base that its net assets have not undergone major changes and all are contributing equally towards its overall assets indicating no asset impairment. Turnover of Assets: As analyzed from the financial figures of asset turnover ratio of the company, there is no asset impairment as the ratio is relatively same over the past few years (Myer Holdings Limited 2016 Annual Report, 2016). Outlining the processes required to be addressed in determining any asset impairments by Myer The goodwill recognized by the company on acquiring Myer business amounts to $349.5 million have been allocated to each of the cash generating units of the group as depicted from its consolidated financial statements. As per the AASB 136 Impairment of Assets standard, the goodwill and intangible assets with unpredictable useful life of a business entity need to be tested on an annual basis for impairment. The asset impairment for these assets has been tested by the Group through the adoption of use discounted cash flow model. This model is based on using the cash flow estimates of the group for the five year term. The cash flows generated beyond the period of five years are extrapolated through the use of a terminal growth rate. The model is based on utilizing the following assumptions: Discount or pre-tax rate at 14.4% Terminal growth rate at 2.5% Gross operating profit margin at 39.5% The management on the basis of the model has tested the asset impairment if any exists. The management has concluded that increase in the value of future cash flows over the net carrying values of assets of CGUs there is no alteration in the key assumptions adopted. As such, there is no possible reason for carrying value of CGU to exceed from the asset recoverable amount. The review of net carrying value of asset in the group store was carried out for identifying the asset impairment. The recoverable amount of assets in stores was estimated through discounted cash flow model and the major assumptions were found to be in consistency with those mentioned above. Thus, on the basis of sensitivity analysis of the key assumptions, it can be said that there is no asset impairment at Myers stores (Myer Holdings Limited 2016 Annual Report, 2016). Information required in determining asset impairments The IAS 36 accounting standard is developed for carrying out impairment testing of all tangible and intangible assets. As per the standard, all assets need to test that they are within the impairments scope when there is indication of any impairment. The impairment testing of goodwill and intangible assets need to be carried about annually (Hussey, 2010). The major information needed for determination of asset impairments by Myer Holdings can be depicted through the following diagram: The information required by the Group on the basis of above diagram can be described as follows: The asset impairment test is initiated through estimating its recoverable amount or of the CGU whenever there is any indication that a particular asset is impaired The recoverable amount of goodwill and intangible assets with unpredictable useful lives need to be assessed annually without considering the fact there is an indication of impairment or not In the case of identification of an exceed in the carrying amount of asset over the recoverable amount, the particular asset or CGU is impaired The recoverable amount if an asset can be regarded as the value in use of a particular asset. The value in use is the present value of expected future cash flows to be realized from an asset or a CGU (Collings, 2015). In determining the profit or loss of an asset carried out at cost, the impaired loss is estimated to be expenditure. In the event of impaired asset to be a revalued asset, the loss of impairment is recognized against the previous revaluation gains as directed by the IAS 38 Intangible assets (Zhuang, 2016). The Group is required to provide appropriate disclosure regarding the impairment test and losses realized from impairment. The loss arising from asset impairment in the condition of its previous recognition should be reversed if there is change in estimates on the basis of its recoverable amount was determined. However, this condition is not applicable to goodwill (Impairment accounting the basics of IAS 36 Impairment of Assets, 2011). Evaluating the flexibility management available in the determination of asset impairments The Myer Holdings Ltd has adequately followed and adopted AASB 136 standard for determine the asset impairment as annoyed from its annual report. The Group has carried out the asset impairment test through the use of appropriate technique and models. The management annually reviews the carrying value if assets and level of future cash flows for identifying the existence of any impaired asset for each of its CGUs. The management incorporates the use of discounted cash flow model for estimating the asset recoverable amount in the condition of identification of any indication regarding the asset impairment. The management undertakes the sensitivity analysis of the key assumptions used in the model for identifying whether the asset impairment ahs occurred or not. Also, it the asset does not generate cash inflows, its recoverable amount is determined for the CGU to which it belongs by the management. Thus, it can be stated that management of Myer is very flexible in incorporating the requ ired methods and procedures for carrying out asset impairment test (Everingham and Kana, 2008). Conclusion Thus, it can be stated from the overall analysis of asset impairment test of Myer Holdings Ltd that impairment of assets is an not a major issue requiring to be address for the firm in the currents scenario. However, the firm is required to conduct asset impairment test at regular intervals for identifying whether there is an impaired asset. References 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. Collings, S. 2015. Interpretation and Application of UK GAAP: For Accounting Periods Commencing On or After 1 January 2015. John Wiley Sons. Everingham, G. and Kana, S. 2008. Corporate Reporting: 8th Edition. Juta and Company Ltd. Hussey, R. 2010. Fundamentals of International Financial Accounting and Reporting. World Scientific Publishing Company. Impairment accounting the basics of IAS 36 Impairment of Assets. 2011. [Online]. Available at: https://www.ey.com/Publication/vwLUAssets/Impairment_accounting_the_basics_of_IAS_36_Impairment_of_Assets/$FILE/Impairment_accounting_IAS_36.pdf [Accessed on: 26 August, 2017]. Myer Holdings Limited 2016 Annual Report. 2016. [Online]. Available at: https://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/file/Myer_Annual_Report_2016.pdf [Accessed on: 26 August, 2017]. 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.