ACCOUNTING THEORIES AND ISSUES1
Accounting Theories and Issues - COCA-COLA AMATIL LTD:
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ACCOUNTING THEORIES AND ISSUES1
Table of Contents
Introduction
Background
Implementation of accounting standards along with GPFR
AASB 101
AASB 102
AASB 118
AASB 137
AASB 16/AASB 117
AASB 133
Conclusion
References
Introduction
All organizations that trade public and nonprofit institutions like governments and charities are usually expected to present their financial statements that exhibit their resources and how the resources have been held and distributed (Martínez‐Ferrero, Garcia‐Sanchez & Cuadrado‐Ballesteros, 2015). For the private organization, the financial statements focus the company's resources and the obligation towards the resources. In sum, financial statements give summaries about monetary information about enterprises. Balance sheets, statement of retained earnings, statements of changes in financial position and income statements are important for managers, employees, investors, government regulatory agencies, and creditors.
Usually, there are cases where firms' managers, the owner or even directors decide to use fraudulent in financial reporting, misappropriation of assets and there were issues with disclosure (LeuzWysocki, 2016). The management acts in fraudulent as it provided financial statements that were misstated. This gave wrong information to the public and therefore it investors were misled, and the share price was fraud-maintained. The managers in the company misappropriated funds as they used it for reasons other than the interest of the company. Finally, the company acted unethically during disclosure. During the recording of transactions, there were intentional errors that were made intentionally against the provision of GAAP.
According to LeuzWysocki (2016), there are some cases where the public corporations collapse as a result of mismanagement of finances. In these instances, the shareholders that invested in the companies lose their money. If investors have firsthand information about all accounting processes in a firm, they are highly likely to withdraw their investments or avoid further investments to escape unprecedented losses. However, when there is not a way for investors to know how their investments are being used, then they face huge risks if firms collapse unexpectedly.
According to Martínez‐Ferrero, Garcia‐Sanchez & Cuadrado‐Ballesteros(2015), the improper use of the financial statements and a lack of auditing of the financial statements lead to negativity as all stakeholders within an organization get misinformed about the financial position of a given organization. Examples of situation financial statements have been misused include the use of fraud and misappropriation of funds. Both of these cases lead to a violation of both legal and ethical positions of an organization. As a result, governments established standards and regulations for accounting where all organizations are required to abide by as they lead to transparency in accounting practices (. These bodies include GAAP, IFRS, and AASB. This paper will focus on the accounting theories and issues on Coca-Coca Amatil LTD.
Background
According to Wilson & Wilson (2017), Coca-Cola Amatil Ltd (CCA) is a manufacturer, distributor, and seller of ready to drink beverages in the Asia-Pacific region. CCA's segments include Corporate Food & Services, Alcohol, coffee beverages and non-alcoholic beverages. The Coca-Cola products by this company operate in six countries which include Samoa, Fiji, Papua New Guinea, Indonesia, New Zealand and Australia. The business companies with which this corporation operates include Australian Beverages among others. Coca-Cola Amatil constitutes 29% shareholding of the large Coca-Cola Company (Wilson & Wilson (2017). However, CCA is listed on the Australian Securities Exchange.
Coca-Cola Amatil originated from Australia in 1904 as British Tobacco (Australia) (Metzger, 2014). The first forays of soft drinks from the company were manufactured in 1964, and they were purchased by Coca-Cola bottler (Metzger, 2014). From then, the company started shifting its focus to the manufacture of soft drinks and snack food. It was when Coca-Cola becomes the company's major shareholder than the company changed its name from British Tobacco to Coca-Cola Amatil. The expansion to the other five countries was majorly attained through acquisition. According to Wilson & Wilson (2017), Currently, CCA is the largest bottler and distributor of alcoholic and nonalcoholic drinks in Asia-Pacific. Further, it is the largest bottlers of the Coca-Cola Company.
Implementation of accounting standards along with GPFR
According to Kang & Gray (2013), the Australian General Purpose Financial Reporting (GPFRs) provides a means which can be used to communicate information about reporting entities to users. It helps in control of resources, efficient allocation of scarce resources and ensures that governing bodies are accountable. CCA LTD operates as per the provision of AASB and IFRS. As such, the company is in a position to draw the financial statements like a statement of changes in equity, balance sheets, and income statements.
AASB 101
According to AASB (2014), AASB provides that annual reports be made from factual figures. The AASB 101 made the financial statement presentation under section 334 of the 2001 corporation act on September 24th, 2007 (Hodgson & Russell, 2014). The standard provides for compatibility between the present financial statements with the previous financial statements. The businesses under the Coca-Cola Amatil in the six different countries follow the provisions of the AASB 101 standards. Thus, they prepare all their financial reports based on the historical costs conventions. However, there are exceptions to the application of historical costs, and these are the financial assets that are based on the fair values that are derived from the profit and loss account. For instance, the income statements below show the historical revenue for the company from 2013 to 2016 financial years.
According to (ccamatil.com), Coca-Cola Amatil earned the revenue from trading with Woolworths LTD, Wesfarmers LTD, and Mecash LTD. It recognized and measured revenue at fair value received from allowances, applicable value added tasks and discounts. It followed the allowed criteria where the sale of the product is recognized first, the rental income, services, and finally finance income.
The financial reports for the Coca-Cola Amatil for the given years have been provided in sections. According to Hodgson & Russell (2014), the scope for the financial reporting is as provided by AASB 101 which is relevant to the evaluation of the performances and resource allocation measurement within the company. Fixed assets in the financial reports have been presented on their fair value while claim on liabilities has been presented on the present values. Further, the financial reports have been accurately prepared and reported with the use of Australian dollars. Evidently, the company has abided by the provisions of the AASB provisions as all the material evidence have been displayed with great disclosure.
Below is image showing the segment report for the company
AASB 102
Coca-Cola Amatil complies with the provisions of inventories provided by AASB 102 standards. According to According to AASB (2015), the main objective of this provision is to oversee how inventories are prescribed. The main issue when accounting for inventories is the recognition of costs as assets. The costs are carried forward up to a point where the recognition of related revenues occurs. The company realizes the value of inventories by comparing the level of inventory at hand to sales forecast.
The figure below shows inventories of Coca-Cola Amatil and its subsidiaries
From the image, are stated at lower costs and at a net value that is realizable. They include overhead, variable and fixed costs. The FIFO average or standard method was used in the determination of inventories as it is most appropriate in this case. Gains from equity transfer or losses on qualifying cash flows are all included in the cost of inventories (Campbell, Feagin, DownesUtke, 2017).
AASB 118
During preparation of financial statements, it is very crucial for accounts to know when they are to recognize revenue. AASB 118 states that the main issue that concerns accounting for revenue is the determination of when recognition of revenue is to be made. Also, the provisions by AASB 118 are the same as the provisions by IAS 18. Both provisions consider the risks involved in the transfer of ownership within the organization (cite). This is important in ensuring that costs and expenses are determined accurately. Coca-Cola Amatil recognizes the same in the determination of revenue, and therefore the annual reports are accurately done. Income is earned when there is a decrease in liabilities and an increase in equity. Coca-Cola Amatil makes an effort to recognize all of the organization's revenue as long as it takes place with the company's scope. Revenue recognition for Coca-Cola Amatil has been consistently applied throughout the reporting period. It has been recognized in a way that there is a high probability for the benefits to flow to the company.
The image below shows the annual revenue for Coca-Cola Amatil from the sale of goods and services
A large percentage of the revenue has been achieved from the sale of goods and services from the company. Other forms of income have been attained from interests and dividends among other sources. Important to note is that CCA takes into account the net sales and net gains at fair value.
AASB 137
The standard is in line with the provisions of IAS 37; it is an improved version of IAS 37. The standard provides for contingent assets and liabilities as per the 2001 corporation act in July 20014 (AASB, 2015). According to the standard, companies are supposed to take up appropriate recognition criteria and measurement of contingent assets and liabilities (Adhariani, Sciulli & Clift, 2017). Further, companies are required to provide sufficient information in notes so that all users of the financial statements can easily understand the amount, timing, and nature of the assets and liabilities.
The following image shows the details of employed capital by Coca-Cola Amatil.
Assets and liabilities constitute the capital employed. In the financial report, they include the operating and investing amount. From the image, the labor decreased by $22.3, property and plant equipment increase by $43.7, current and deferred tax liabilities increased by $53.4 million while non-debt derivative assets increased by $49.6million.
Also, the provision provides for adjustments of doubtful debts (liabilities whose timing and the amount is not defined).The following image shows a report for trade and other receivables.
The image accounts for doubtful receivables. The accountants recorded the same for the amounts where there is some evidence that they may never be recovered fully or partly.
AASB 16/AASB 117
According to Xu, Davidson,Davidson, Cheong & Cheong, 2017), the AASB 16 standard requires that operating leases need to be recognized on the balance sheet. The provisions of AASB standards are as per the provisions of IAS 17. The main objective of this standard is to protect lessors and lessees. It requires that appropriate accounting policies and disclosure be applied when leases are dealt with.
The following image shows capital expenditure and commitment for Coca-Cola Amatil.
From the image, it is evident that the company is operating in operating leases that are non-cancellable. These are leases on some items on plants and equipment, motor vehicles and some given properties. According to…the leases in contract length do vary as they depend on the type of lease involved. Upon renewal of a lease, new negotiations are normally done and hence new contract agreements.
Coca-Cola Amatil recognizes the importance of recognizing leases. When the company recognizes leases, investors and other users of the financial statements are better informed and therefore are in better position to understand leases regarding the size, timing, and uncertainties relating to the cash flows.
AASB 133
The standard was established mainly for prescribing how earning per share will be presented and how they will be presented. According to Kent & Routledge (2017), the prescriptions help improve performance comparisons between different accounting period and between different enterprises. When calculating EPS, accountants are required to it in two separate methods; the basic EPS and the diluted EPS.
EPS is the company's profit divided by the total number of outstanding shares. Information about EPS is very crucial for many stakeholders in the Coca-Cola Amatil. EPS indicates the profitability of any given firm. Directors, managers, and owners use compare EPS for the given company with other competing companies to determine the comparative earning power of the companies. A trend of EPS can be derived from the EPS for several years to determine whether the company has improved, stagnated or deteriorated. Such information is useful for investors as it helps them decide on whether to invest in a given company or not. Usually, investors look for companies whose EPS has been steadily increasing over the years. Also, when earnings per share growth, it shows that the company's management is performing well so that there is an increase in the amount of money that their shareholders receive. The company works according to the provisions of AASB 133 when calculating EPS.
The image below shows summary of income statement for CCA with EPS
The EPS before non-trading items was high in 2016 (54.7) and lower in 2015 (51.5). The actual EPS was lower in 2016 (32.2) compared to 2015 (51.5). If the company violated the provisions of AASB standards, it would have a choice to use higher figures that will reflect high EPS in the year 2016 to attract more investors to the company.
Conclusion
Given the discussion above, it right to say that Coca-Cola Amatil complies with the rulings provided for the preparation of financial statements as in the 2001 corporations act, AASB, IFRS and the rulings in the ASX rulings. The reports has taken into consideration of the following AASB provisions AASB 101, AASB 102 , AASB 118 , AASB 137 ,AASB 133, and AASB 16/AASB 117. The report utilized published financial statements from the company to check whether the company complies with the requirements of AASB and IFRS. From the financial statements, there cannot be a denial that the company efficiently and appropriately provides for information about the financial statements. It promotes accuracy and transparency and therefore sends beneficial information to the public. The main issues that were discussed in the report include the EPS, interim reports, revenue recognition, financial statements and contingent assets and liabilities. With these and much more, Coca-Cola Amatil works to ensure that all the users of their financial statement get most accurate and transparent information.
References
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AASB, C. A. S. (2015). Investment Property.
Adhariani, D., Sciulli, N., & Clift, R. (2017).Quantitative Optimisation Model, Results and Discussion. InFinancial Management and Corporate Governance from the Feminist Ethics of Care Perspective(pp. 209-284). Springer International Publishing.
Campbell, J. L., Feagin, J., Downes, J. F., & Utke, S. (2017). Do Investors Adjust for Balance Sheet Risk that Should Be'Off Balance Sheet'? Evidence from Cash Flow Hedges.
Hodgson, A., & Russell, M. (2014).Comprehending comprehensive income.Australian Accounting Review,24(2), 100-110.
Kang, H., & Gray, S. J. (2013). Segment reporting practices in Australia: Has IFRS 8 made a difference?.Australian Accounting Review,23(3), 232-243.
Kent, R., & Routledge, J. (2017). Use of benchmarks in predicting earnings management?.Accounting & Finance,57(1), 239-260.
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Metzger, K. (2014). The Import of Culture?The Coca Cola Company in America and Australia.
Wilson, R. E., & Wilson, R. E. (2017). Coca-Cola Amatil: A Bottler Recharging Growth With Energy Drinks.Kellogg School of Management Cases, 1-15.
Xu, W., Xu, W., Davidson, R. A., Davidson, R. A., Cheong, C. S., & Cheong, C. S. (2017). Converting financial statements: operating to capitalised leases.Pacific Accounting Review,29(1), 34-54.