Comparison of Financial Reporting and Transaction Recording in Optus and Wesfarmers

Comparison of Financial Reporting and Transaction Recording in Optus and Wesfarmers

Business reports serve as pragmatic learning exercises in which students use the ideas they have studied in real-world contexts. Students must choose a subject or use a topic given by the lecturer, gather information (primary and/or secondary) or analyze the material supplied by the lecturer, and compile a report detailing a business issue or occurrence.

Elucidate the characteristics of the enterprise, documentation of transactions, compilation of financial statements, forms of financial reports, and the extent of disclosure.

What are the differences in the nature of two firms regarding transaction recording, financial report creation, and formats?

1. Utilize the terminology of financial accounting and financial reporting.
2. Elucidate the purpose, content, structure, and practical uses of the Profit and Loss Statement, the Balance Sheet, and the Statement of Cash Flows, as well as the interrelationship among these financial statements.
3. Examine and clarify financial statements
4. Elucidate the function of management accounting and use cost management methodologies and instruments.
5. Implement the accounting cycle and the operational framework of accounting information systems, together with its ethical considerations.
6. Implement the accounting cycle and the operational framework of accounting information systems together with its ethical considerations.
7. Implement the Principle of Double Entry System effectively.

Optus – service enterprise
This paper will examine two types of businesses: retail and service, and will identify two organizations from each area. The two firms will be evaluated based on their financial statement presentation, transaction recording methods, financial statement components, and the disclosures related to their financial statements. The differences and commonalities between the two businesses will be examined in relation to the specified areas. This paper will focus on Optus, which is in the service sector, and Wesfarmers, which is part of the retail sector. These two firms have been chosen to fulfill the criteria of selecting two companies from both the retail and service sectors. The report will concentrate on the type of company, transaction records, disclosure requirements, and the presentation of financial reports (Lafond, McAleer, and Wentzel 2016).

Optus offers a range of communication services, including distance services, international and local telephony, business network solutions, satellite services, digital media services, mobile services, and long-distance services. In recent years, the company's market position has been relatively stable, maintaining its status as the second-largest provider of telecommunications services.  The bulk of their market share, which is derived from mobile services, has remained unchanged throughout the last years. They made a substantial advance into new areas by introducing streaming entertainment, which included the acquisition of British Premier League Football. Their market debut faced swift criticism from football enthusiasts, who pointed out that supporters would be required to pay for dual subscriptions: one for the Optus UK league and another for Foxtel for further football competitions.  While other telecommunications industries are consistently enhancing their services, it remains uncertain when and how Optus will implement the necessary adjustments and engage in innovation processes (Birt et al. 2015).

The corporation conducts its purchases, sales, and loan repayments concurrently with the execution of transactions, whereas credit sales are recorded upon receipt of full payment. The trade and other receivables are initially recognized at fair value, except for those classified as equity instruments, which are subsequently valued at amortized cost using the effective interest method, with the impairment allowance subtracted from this amount. Furthermore, the provision for inventory is made just when it is determined that the firm would be unable to recover the amounts. The inventories are recorded at the lower of net realizable value or cost, with cost determined using the weighted average technique. The plant, property, and equipment are recorded at cost, less accrued impairment losses and accumulated depreciation (Optus.com.au 2017). The provision is recognized due to the existence of both constructive and legal obligations arising from previous events, with an anticipated outflow of resources necessary to fulfill the duty. Moreover, accurate assessments of the obligation's magnitude may be conducted for its acknowledgment. Nonetheless, no provisions are acknowledged for future operational losses, and the provision for liquidated damages concerning the information technology contract is recorded based on management's best estimations of the expected obligation.

Transaction documentation
Optus, being involved in the service-oriented sector, primarily concentrates on inventories, which include work-in-process raw materials and completed items. The work-in-process encompasses the expenses associated with raw materials, labor, and other expenditures necessary for product preparation for delivery. As Optus operates within the service business, it employs a significant amount of human resources to provide services to clients. It also include the expenses associated with completed services, which include the costs necessary to prepare the product for use. The figures for each category are separately detailed in the company's financial report.

They generate five kinds of statements inside the financial reports: the consolidated cash flow statement, consolidated other comprehensive income statement, consolidated statement of changes in equity, income statement, and consolidated financial position statement. The several forms are shown below:

The income statement indicates that operating expenditures are subtracted from operational revenue to calculate gross profit. Subsequently, additional operational expenditures such as amortization, depreciation, and extraordinary items are subtracted to get the earnings before interest and tax (EBIT). Subsequently, using EBIT, adjustments for investment income, interest, and finance charges are made to get the Profit Before Tax (PBT). Finally, tax charges are subtracted from the PBT to determine the net profit attributable to the company's shareholders.

The statement of financial position indicates that the corporation categorizes its obligations into non-current and current liabilities, while its assets are classified as non-current and current assets. Furthermore, total liabilities are deducted from total assets to get the net assets number. Finally, the value of total equities is combined with the value of net assets to correspond with the total assets amount.

It is acknowledged that the allowance for inventory is granted only when it is determined that the firm would be unable to recover the amounts. The inventories are recorded at the lower of net realizable value or cost, with cost determined using the weighted average technique. Additionally, the plant, property, and equipment are recorded at their cost value, less accrued impairment losses and accumulated depreciation. The provision is recognized due to the existence of both constructive and legal obligations arising from previous events, with an anticipated outflow of resources necessary to fulfill the duty. Moreover, accurate assessments of the obligation's magnitude may be conducted for its acknowledgment. Nonetheless, no provisions are acknowledged for future operational losses, and the provision for liquidated damages concerning the information technology contract is recorded based on management's best estimations of the expected obligation.

Compilation of financial statements
Founded in 1914, Wesfarmers originated as the Western Australian Farmers Cooperative and has evolved into one of the biggest publicly listed entities in Australia. Their headquarters is located in Western Australia, and their diverse business portfolio includes convenience shops, hotels, liquor sales, and office supplies, among others. They also provide services pertaining to chemicals, coal, energy, fertilizers, safety, and industrial items. Their primary mission is to provide exceptional services that meet consumer preferences and generate value for shareholders by offering excellent services throughout Australia. Moreover, they are dedicated to mitigating the environmental problems arising from their operations and ensuring a healthy environment for the local population (Wesfarmers.com.au 2017).

An examination of the company's financial statement reveals that revenue is recognized based on the fair values of total consideration that is either payable or previously received. The impairment expenditures are recorded as the difference between the carrying value of the assets and the recoverable amount. Moreover, financial expenses are recognized only upon incurrence, and the amounts of payables and provisions are discounted to their current value. Furthermore, the borrowing costs are acknowledged according to the weighted average interest rate. The carrying amount of plant, property, and equipment is recorded at cost less accrued impairment losses and accumulated depreciation. The provision is recognized due to the existence of both constructive and legal obligations arising from previous events, with an anticipated outflow of resources required to fulfill the duty. Moreover, accurate assessments of the obligation's magnitude might facilitate its acknowledgment.

Wesfarmers, being involved in the retail sector, primarily concentrates on inventories, which include work-in-process raw materials and completed items. The work-in-process encompasses the expenses associated with raw materials, labor, and other expenditures necessary for product preparation for delivery. It also include the expenses associated with completed services, which comprise the costs necessary to prepare the product for use. The figures for each category are separately detailed in the company's financial report. The quantities for each head are clearly delineated in the financial statement (Palepu, Healy and Peek 2013).

Structure of financial report
 They create five kinds of statements inside the financial reports: the consolidated cash flow statement, consolidated other comprehensive income statement, consolidated statement of changes in equity, income statement, and consolidated statement of financial position. The several forms are shown below:

The income statement indicates that total costs are subtracted from revenue to calculate gross profit. Subsequently, additional operational expenditures such as amortization, depreciation, and extraordinary items are subtracted to get the earnings before interest and tax (EBIT). Subsequently, financing expenses are deducted from EBIT to get the Profit Before Tax (PBT). Finally, tax charges are subtracted from the PBT to get the net profit attributable to the company's shareholders (Jones and Caruana 2014).

The statement of financial position indicates that the corporation categorizes its obligations into non-current and current liabilities, while its assets are classified as non-current and current assets. Furthermore, total liabilities are deducted from total assets to get the net assets number. Finally, the value of total equities is included into the value of net assets to align with the total assets amount (Christensen, Cottrell, and Baker 2013).

The notes to Wesfarmers' financial statement indicate that impairment expenditures reflect the excess of the carrying value of assets above their recoverable amount. Additionally, financial expenses are recognized only upon incurrence, and the amounts of payables and contingencies are discounted to their current value. Furthermore, the borrowing costs are acknowledged according to the weighted average interest rate. The carrying amount of plant, property, and equipment is recorded at cost minus accrued impairment losses and accumulated depreciation (Hartley 2014).

It is acknowledged that Optus operates inside the service industry, whereas Wesfarmers is involved in the retail sector.  Both corporations account for impairment expenditures to the extent that the carrying value of the assets exceeds their recoverable amount. Moreover, financial expenses are recognized only upon incurrence, and the amounts of payables and contingencies are discounted to their present value (Bull 2014).

Summary

In conclusion, Optus offers a range of communication services, including distance services, international and local telephony, business network services, satellite services, digital media services, mobile services, and long-distance services. Wesfarmers offers a diverse array of businesses, including convenience shops, hotels, liquor sales, and office supplies, among others. They also provide services pertaining to chemicals, coal, energy, fertilizers, safety, and industrial items. Their primary mission is to provide exceptional services that meet consumer preferences and generate value for shareholders by offering excellent services throughout Australia. The only discrepancy in their financial report presentation is to the creation of the income statement, where revenues are recognized differently.

Reference

Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J. and Janson, P., 2014. Accounting: Business Reporting for Decision Making 5e.

Bull, R.J., 2014. Accounting in business. Butterworth-Heinemann.

Christensen, T., Cottrell, D. and Baker, R., 2013. Advanced Financial Accounting (No. 2013). McGraw-Hill.

Hartley, W.C., 2014. An introduction to business accounting for managers. Elsevier.

Jones, R. and Caruana, J., 2014. A perspective on the proposal for European public sector accounting standards, in the context of accruals in UK government accounting. Accounting, Economics and Law, 4(3), pp.265-282.

Lafond, C.A., McAleer, A.C. and Wentzel, K., 2016. Enhancing the Link between Technology and Accounting in Introductory Courses: Evidence From Students. Journal of the Academy of Business Education, 17.

Optus.com.au., 2017. Optus - Annual reports - Investors. [online] Available at: https://www.optus.com.au/aboutus/investors/financial-information/reports [Accessed 30 May 2017].

Palepu, K.G., Healy, P.M. and Peek, E., 2013. Business analysis and valuation: IFRS edition. Cengage Learning.

Wesfarmers.com.au., 2017. Wesfarmers Group: Quality Brands and Trusted Retailing. [online] Available at: https://wesfarmers.com.au/ [Accessed 30 May 2017].