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| ACCG224: Financial Accounting and Reporting Session 1, 2019 |
Individual Assignment
Application of Professional Judgment
On
Impairment Testing
Part I – Research-Based Report (15%)
Due: Monday 29 April, 5pm
Word limit: 1,200 words
Part II – Video Oral Presentation (5%)
Due: Monday 6 May, 5pm
Time limit: 4 minutes
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Part I – Research based report (15%)
“In a perfect world, investors, board members, and executives would have full confidence in companies’ financial
statements. They could rely on the numbers to make intelligent estimates of the magnitude, timing, and uncertainty of
future cash flows and to judge whether the resulting estimate of value was fairly represented in the current stock price.
And they could make wise decisions about whether to invest in or acquire a company, thus promoting the efficient
allocation of capital.
Unfortunately, that’s not what happens in the real world, for several reasons. First, corporate financial statements
necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith…..”
(Sherman and Young, 2106, p.1).
The above clearly shows how crucial it is for accountants to apply their professional judgments in
arriving at the most reasonable/appropriate accounting choices which can be quite a challenging
process. There is not necessarily one correct answer in most cases, and therefore accountants need to
be vigilant while dealing with financial and non-financial information.
As a student intern and future accountant, you have recently joined the accounting department of an
ASX listed company. Your supervisor, the accountant, has sent you an email containing a Media
Release (MR) from the Australian Securities & Investment Commission (ASIC) relating to 2018
financial reports. As a future accountant, and to demonstrate your understanding of professional
judgments applied to undertake impairment testing and asset valuations, you have been asked to look
into the company’s annual report, undertake required research and present on the company’s position
relating to impairment testing as well as prepare a report for presentation to other finance team
members and the audit committee.
A link to the MR is provided below:
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-159mr-major-changesaffecting-reported-net-assets-and-profit-and-other-focuses-for-30-june-2018-reporting
Please copy and paste the above link in the browser for it to work.
Relevant extracts from the link
FOCUSES FOR 30 JUNE 2018 FINANCIAL REPORTS
Accounting estimates
2. Impairment testing and asset values
The recoverability of the carrying amounts of assets such as goodwill, other intangibles and property, plant and
equipment continues to be an important area of focus.
It is important for directors and auditors to ensure:
a. cash flows and assumptions are reasonable having regard to matters such as historical cash flows, economic and
market conditions, and funding costs. Where prior period cash flow projections have not been met, careful consideration
should be given to whether current assumptions are reasonable and supportable;
b. discounted cash flows are not used to determine fair value less costs of disposal where forecasts and assumptions are
not reliable. Fair value less costs to sell should not be viewed as a means to use unreliable estimates that could not be
used under a value in use model;
c. value in use calculations:
o use sufficiently reliable cash flow estimates
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o do not use increasing cash flows after five years that exceed long term average growth rates, and without taking into
account offsetting impacts on discount rates, and
o do not include cash flows from restructures and improving or enhancing asset performance
d. cash flows used are matched to carrying values of all assets that generate those cash flows, including inventories,
receivables and tax balances;
e. different discount rates are used for cash generating units (CGUs) where the risks are different and the CGUs are
located in different countries, and that similar discount rates are used where the risks are similar;
f. CGUs are not identified at too high a level, including where cash inflows for individual assets are not largely
independent;
g. CGUs for testing goodwill are not grouped at a higher level than the operating segments or the level at which results
are monitored for internal management purposes;
h. corporate costs and assets are allocated to CGUs on an appropriate basis where it is reasonable to allocate them;
i. appropriate use of fair values for testing exploration and evaluation assets during the exploration and evaluation phase;
and
j. royalty relief or earnings multiple models are not used unless they are sufficiently reliable and market based
assumptions are available that are specific to the company’s assets and circumstances.
Key disclosures
7. Estimates and accounting policy judgments
Disclosures regarding sources of estimation uncertainty and significant judgments in applying accounting policies are
important to allow users of the financial report to assess the reported financial position and performance of an entity.
Directors and auditors should ensure disclosures are made and are specific to the assets, liabilities, income and expenses
of the entity.
Disclosure of key assumptions and a sensitivity analysis are important. These enable users of the financial report to make
their own assessments about the carrying values of the entity’s assets and risk of impairment given the estimation
uncertainty associated with many asset valuations.
Preparers should be particularly mindful to make these disclosures as this information may be revealed under key audit
matter disclosures in the new enhanced audit reports for listed entities.
The above extracts of the 2018 ASIC media release are calling for attention to be placed on the
company’s practice of using professional judgments in arriving at the most reasonable estimates and
then disclosing the sources or basis of their judgments leading to the accounting information in the
financial reports.
Specifically, the ASIC report has pointed at the process of ‘Impairment testing and Asset Valuation’
because in carrying out the impairment testing, professional judgments are required to estimate the
cash flows, the discount rates, the CGUs, the allocation of corporate assets and costs to CGUs and
the appropriate use of fair values. Further, the report also highlights on the need for businesses to
provide sufficient disclosures around the judgments applied.
The highlights of the ASIC report are strongly indicating that companies need to be vigilant in carrying
out the impairment testing and asset valuation and then provide sufficient disclosures so that the users
of accounting information can carry out their own assessments about the impairments of the assets in
their decision making process.
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Required:
To complete this assignment, you will need to select a suitable company yourself that meets the
following criteria:
| |
The company must be a constituent of the S&P/ASX 300 index (www.asx300list.com); The company must publish audited annual financial reports in English, fully complying with IFRS or AASB standards and The company must have a 30 June year end. |
| |
Your report must address each of the following:
a) The role of professional judgment in accounting and two implications on the users of accounting
information if the professional judgment has not been made in the most reasonable/appropriate
manner. (5 marks)
b) Provide a detailed explanation of the impairment write-down(s) made by your company for the
year ended 30 June 2018. Your explanation should include a discussion
– of the asset/s that were impaired;
– the type of estimations required to write the impairment;
– the amount of the impairment write-down and
– relevant disclosures in the 30 June 2018 financial report in relation to impairment testing
(10 marks)
c) Based on your findings in part b, critically discuss whether the professional judgments applied in
the impairment write-down of the assets to estimate the cash flows, the discount rates, the
CGUs, the allocation of corporate assets & costs to CGUs and the appropriate use of fair values
have been reasonable/appropriate. Recommend actions (if any) for improvement in the
application of professional judgments relating to these estimations.
Please refer to the ASIC media release and other relevant information sources to answer the
above question. (15 marks)
d) Based on your findings in part c, critically analyse to what extent the professional judgments
applied on impairment write-downs satisfy the fundamental characteristics of useful financial
information and the objective of financial reporting. (10 marks)
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Assessment of report
The research based report represents 15% of your total mark for ACCG224 and is compulsory. Your
assignment will be marked out of 60 as shown in the Report Marking Rubric on page 9 of this document and
will then be converted to a mark out of 15 percent.
Report submission instructions
| Where to submit | The written report must be submitted in electronic form using Turnitin (through iLearn via the ‘Assessment Tasks’ folder). Detailed submission instructions are provided on iLearn. Please ensure that you are familiar with these instructions and submit before the deadline in case of technical issues. A hardcopy submission is not required. |
| When to submit | The deadline for submission is 5pm Monday 29 April. No extensions will be granted. There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24 hour period or part thereof that the submission is late (for example, 25 hours late in submission – 20% penalty). This penalty does not apply for cases in which an application for disruption of studies is made and approved. |
| How to submit | The report can be submitted either in a PDF or word format. The filename of your report must be as follows: ACCG224_XXXXXXXX (where the crosses represent your eight digit SID) |
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Report Format
Before you start writing your report, it is recommended that you undertake the following (both of these can
be accessed through the ‘Assessment Task’ folder on iLearn):
1. Watch the e-lecture on business report writing
2. Take a look at the sample Business Research Report provided on iLearn.
| Structure | The report must contain the following (in this order): Report cover page (You can design your own cover page) Table of contents Executive summary Introduction Body Conclusion Reference list Appendix You should include relevant parts of the annual reports that you have used and referred to in your report. Do NOT attach entire annual reports. You can include the relevant parts of annual reports as screenshots rather than copying and pasting content, since it can impact the TurnitIn similarity percentage |
| Length | Total word count limit = 1,200 words. Your word count must be included on your cover page. Included in word count Excluded from word count Introduction Body Conclusion Report cover page Table of contents Executive summary Reference list AppendixPenalties for exceeding the word limit are as follows: Word count Penalty 1,201 – 1,319 words 1,320 – 1,439 words 1,440 or more words No penalty 10% of total marks 20% of total marks |
| Style | The report must be presented as follows: Font: Times New Roman 12 point Spacing: 1.5 times line spacing Margins: not less than 2.5 cm |
| Footer | Each page must have a footer containing the following: ACCG224 S1 2019 Your SID Page number |
| Referencing | In text referencing is required for all sources used and a complete list of references must be provided using the Harvard Referencing System. A copy of the Harvard Referencing System is available under the ‘Assessment Task’ folder on iLearn. Please note that as this is a research assignment it is not appropriate to reference to textbooks or lecture slides. |
| Plagiarism | All assignments will be manually and electronically checked for plagiarism and it is extremely important that you are familiar with the policy on Academic Honesty. |
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| A link to the policy is available in the ‘Assessment Task’ folder on iLearn. |
Part II – Video Oral Presentation (5%)
The accountant was impressed by your report and has asked you to prepare a video presentation to
be played to the Audit Committee at the next meeting on 15 May 2019.
Your video presentation should:
a) Explain the role of professional judgment in the application and interpretation of accounting
standards.
b) Discuss whether the professional judgments applied in the impairment write-down of the assets
to estimate the cash flows, the discount rates, the CGUs, the allocation of corporate assets &
costs to CGUs and the appropriate use of fair values have been reasonable/appropriate.
c) Based on the findings from the 2018 report, identify and explain the areas that you believe the
Audit Committee must consider when reviewing the 30 June 2018 impairment testing
information.
d) Recommend actions (if any) for improvement in the application of professional judgments
relating to these estimations.
Assessment of video
The research based report represents 5% of your total mark for ACCG224 and is compulsory. Your
assignment will be marked out of 40 as shown in the Presentation Marking Rubric on page 10 of this
document and will then be converted to a mark out of 5.
Video format
Before you start recording your video it is recommended that you view the two YouTube videos by Vlog
Brothers and Idea Channel. Both of these can be accessed through the ‘Assessment Task’ folder on iLearn.
| Length | Time limit = 4 minutes Penalties for exceeding the time limit are as follows: Time Penalty Up to 4:29 4:30-5:29 5:30 or more No penalty 10% of total marks 20% of total marks |
| Slides | The use of slides (eg Powerpoint/Prezi) is not mandatory as you will not be marked on your slides, but on your communication skills. If you do wish to use slides please use a screen capture rather than a projected image. |
| Physical presence |
Students must actually appear in their video – you must be visible as well as able to be heard. |
| Audibility | It is your responsibility to ensure that we can hear your presentation clearly. If we can’t hear it then we can’t mark it! If you are recording using screen capture technology consider using speaker and headphones. |
| Technology | You can record your video using one of the following: |
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| Your mobile device or tablet – it editing is required iMovie can be used. Screen capture technology such as Windows 10 Screen Recorder, Cyberlink or others These are suggestions only and you are free to use another method. |
Video submission instructions
| Where to submit | The video must be submitted in electronic form using the Oral Presentation Submission Guide link (through iLearn via the ‘Assessment Tasks’ folder). Detailed submission instructions are provided on iLearn. Please ensure that you are familiar with these instructions and submit before the deadline in case of technical issues. A hardcopy submission is not required. |
| When to submit | The deadline for submission is 5pm Monday 6 May. Late submissions will be penalised. This penalty does not apply for cases in which an application for special consideration is made and approved. |
| How to submit | All videos must be submitted in an mp4 or wmv format Please make the video visible when you upload the video on ilearn. |
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| Not attempted | Fail | Pass | Credit | Distinction | High Distinction | |
| The role of professional judgment in accounting and two implications on the users of accounting information if the professional judgment has not been made in the most reasonable/appropriate manner. |
Not attempted or entirely or significantly plagiarized from other sources. |
Writing is unclear. Leaves out several relevant aspects of the role of professional judgment and the implications. |
Writing is not very clear. Describes the role of professional judgment and the implications although significantly more detail may be needed. |
Writes clearly. Correctly describes the role of professional judgment and the implication. Details are mostly correct, although more detail may be needed. |
Writes clearly. Correctly describes the of role of professional judgment and the implications with adequate detail. |
Writes clearly. Correctly describes the of professional judgment and the implications with plentiful detail. |
| 5 marks | 0 marks | 2 marks | 3 marks | 3 marks | 4 marks | 5 marks |
| Explanation of impairment write-down made by your choice of company |
Not attempted or entirely or significantly plagiarized from other sources. |
Writing is unclear. Explanation incomplete or faulty in one or more aspects. |
Writing is not very clear. Explanation including assets written down, amount, types of estimation and analysis of disclosures but with omissions and/or incorrect explanation. |
Writes clearly. Mostly complete explanation including assets written down, amount, reason and analysis of disclosures. |
Writes clearly. Explanation including assets written down, amount, types of estimation and analysis of disclosures with minor omissions. |
Writes clearly. Complete explanation including assets written down, amount, types of estimation and analysis of disclosures |
| 10 marks | 0 marks | 4 marks | 5 marks | 7 marks | 8 marks | 10 marks |
| Critical discussion on whether the professional judgments applied in the impairment write-down of the assets are reasonable/appropriate. Recommend actions (if any) for improvement in the application of professional judgments in impairment testing. |
Not attempted or entirely or significantly plagiarized from other sources. |
Chosen company is not suitable/Does not include relevant details, uses faulty analysis. Recommendations do not relate to impairment testing. |
Includes the majority of relevant details, although some analysis may be faulty. Recommendations relating to only some areas of impairment testing |
Includes most relevant details. Analysis mostly accurate but more needed. Recommendations relating to most areas of impairment testing. |
Includes nearly all relevant details. Analysis mostly accurate with adequate detail. Recommendations refer to nearly all areas of impairment testing. |
Includes relevant and possibly unusual details. Analysis accurate and insightful. Recommendations refer to all areas of the impairment testing with great details. |
| 15 marks | 0 marks | 6 marks | 8 marks | 10 marks | 12 marks | 15 marks |
| Critical analysis as to what extent the professional judgments applied on impairment write -downs satisfy the fundamental characteristics of useful financial information and the objective of financial reporting. 10 marks |
Not attempted or entirely or significantly plagiarized from other sources. 0 marks |
Chosen company is not suitable/Did not relate possible application of professional judgment to any aspect of fundamental characteristics of useful financial information and the objective of financial reporting. 4 marks |
Relate only some possible applications of professional judgment to some aspects of fundamental characteristics of useful financial information and the objective of financial reporting. 5 marks |
Relate most of the possible applications of professional judgment to most of the aspects fundamental characteristics of useful financial information and the objective of financial reporting. 7 marks |
Refer to nearly all possible applications of professional judgment to nearly all aspects of fundamental characteristics of useful financial information and the objective of financial reporting. 8 marks |
Refer to all possible applications of professional judgment to almost all aspects of the fundamental characteristics of useful financial information and the objective of financial reporting. 10 marks |
| Document formatting and structure (including length, organisation of sections and paragraphs) |
Not attempted or entirely or significantly plagiarized from other sources. |
Fails to follow assignment requirement. Too short or too long/Strongly affect reader due to formatting errors and confusing organisation. |
Occasionally meets the assignment requirement. Distract reader due to formatting errors. Organisation causes some confusion. |
Occasionally meets the assignment requirement. Occasionally include formatting errors. Organisation of sections and paragraphs generally clear. |
Mostly meets the assignment requirement. Rarely include formatting errors. Clear organisation of sections and paragraphs. |
Meets all the assignment requirements. Use professional, correct formatting. Clear organisation of sections and paragraphs with excellent flow. |
| 10 marks | 0 marks | 4 marks | 5 marks | 7 marks | 8 marks | 10 marks |
| Written expression and referencing | Not attempted or entirely or significantly plagiarized from other sources. Did not use Harvard referencing system correctly. |
Too informal or errors in grammar make meaning unclear. Minimal referencing. Did not use Harvard referencing system correctly. |
Sometimes too informal or errors in grammar make meaning unclear in places. Noticeable errors in referencing. Frequently used Harvard referencing system correctly. |
Generally appropriate tone. Language is generally clear but may be repetitive or simple. Frequently used Harvard referencing system correctly. |
Appropriate tone. Language is clear and shows variety. Used Harvard referencing consistently and accurately with very few minor errors. |
Appropriate tone. Language is clear, varied and easy to read. Used Harvard referencing consistently and accurately in all aspects. |
| 10 marks | 0 marks | 4 marks | 5 marks | 7 marks | 8 marks | 10 marks |
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Part II – Video Oral Presentation Marking Rubric
| Student name | ID | Topic |
| Not attempted | Fail | Pass | Credit | Distinction | High Distinction | |
| Content: Relevance, appropriate detail, clear explanations of issues |
Not attempted or entirely or significantly plagiarized from other sources |
The majority of the areas presented are not relevant and/or clearly explained in appropriate detail. The issues identified are not key to the Audit Committee |
Some of the areas presented are relevant and clearly explained although more detail may be needed. Not all the issues identified are key to the Audit Committee |
Most of the areas presented are relevant and clearly explained with appropriate detail. Most of the issues identified are key to the Audit Committee |
Nearly all of the areas presented are relevant, cover the key dimensions and are clearly explained with appropriate detail. All of the issues identified are key to the Audit Committee |
All of the areas presented are relevant, cover all key dimensions and are clearly explained with appropriate detail. All of the issues identified are key to the Audit Committee. |
| 10 marks | 0 marks | 4 marks | 5 marks | 7 marks | 9 marks | 10 marks |
| Structure: Appropriate opening/introduction (incl. purpose and overview), clear transitions from one section to another, smooth flow of ideas, adequate conclusion |
Not attempted or entirely or significantly plagiarized from other sources |
No or inappropriate opening/introduction, unclear transitions, incongruous flow of ideas and/or inadequate conclusion. |
Presentation featured the majority of the required components, however transitions could have been clearer/flow of ideas smoother and/or conclusion more pronounced. |
Presentation featured most of the required components, transitions were quite clear, the flow of ideas quite smooth with an adequate conclusion. |
Presentation featured nearly all of the required components; transitions were clear, the flow of ideas smooth with an adequate conclusion. |
Presentation featured all of the required components; transitions were clear and well placed, the flow of ideas excellent with a remarkable conclusion. |
| 10 marks | 0 marks | 4 marks | 5 marks | 7 marks | 9 marks | 10 marks |
| Maintaining interest Awareness of audience, effectiveness of techniques, good timing |
Not attempted or entirely or significantly plagiarized from other sources. |
Presentation frequently inappropriate for target audience. Techniques haphazard or poorly executed. Well over/under time. |
Presentation occasionally inappropriate for target audience. Techniques adequate but occasionally sloppy. Timing within acceptable limits. |
Presentation appropriate for target audience. Techniques adequate and mostly interesting. Insignificantly over/under time. |
Presentation considerably stimulates audience interest. Techniques creative and interesting. Good timing. |
Presentation is very well pitched to audience, or modified in view of audience reactions. Innovative but appropriate techniques greatly stimulated audience interest. Exact timing. |
| 10 marks | 0 marks | 4 marks | 5 marks | 7 marks | 9 marks | 10 marks |
| Verbal and non-verbal delivery including pronunciation, volume, eye contact, gesture, video quality stance |
Not attempted or entirely or significantly plagiarized from other sources. |
Delivery strongly detracts from content; e.g. pronunciation unclear, speech inaudible, too many filler words/ slang, distracting gestures, reading from notes with no eye contact. Poor video quality. |
Delivery detracts from content only in places; e.g., pronunciation mostly clear, speech mainly audible; some distracting filler words and gestures, occasional eye contact with audience. Good Video quality. |
Delivery supports content; audible, pronunciation, minimal distracting gestures, regular eye contact with audience. Good Video quality. |
Delivery effectively supports content by allowing audience to focus on message. Nervousness may be evident but mostly under control. Very good Video quality. |
Confident delivery does not just convey the message but significantly enhances it; excellent use of volume, pace, etc. Nervousness may be evident but under control. Excellent Video quality. |
| 10 marks | 0 marks | 4 marks | 5 marks | 7 marks | 9 marks | 10 marks |
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