ACC00713 Report 2019 S1
Due date: 5pm Friday 24 May 2019
Weight: 20 marks
Word limit: 2000 words
This task requires you to prepare a report to explain the regulatory requirements and standard
setting of financial reporting in the Australian context. You also need to evaluate and comment
on information provided in the annual report of an Australian company listed on the Australian
Stock Exchange (ASX). Your comments or evaluation should comply with the requirements of
relevant Australian Accounting Standards (AASBs).
The new revenue standard – AASB 15 Revenue from Contracts with Customers – applies to
entities and businesses for the accounting periods beginning on or after 1 January 2018. The
new accounting standard changes the financial reporting regime in terms of revenue. This will
not only influence customer contracts and business model, but also have wide-ranging
implications in business and control process.
You should address the following questions in your report.
Part A (8 marks)
1) Discuss and comment on the requirements of revenue recognition according to AASB 15.
2) Discuss and evaluate the measurement of revenue according to AASB 15.
Part B (9 marks)
From the perspective of the investors, discuss the potential impact of the adoption of AASB 15
on 2019 annual report of the chosen company. Your investigation should focus on the influence
on financial information regarding financial position, financial performance and financial ratios
(including at least one of financial ratios, such as profitability ratio) of the chosen company.
Your report should include some examples or evidence from the chosen company to support
Part C (3 marks)
Effective communication, logic presentation and appropriate reference of this report.
You should provide relevant paragraphs of AASBs or others (e.g. sections from 2017/2018
annual report) to support your evaluation. You can access AASBs from the website:
In particular, your report should refer to the following AASBs in your report:
• AASB Conceptual Framework: Framework for the Presentation and Preparation of
• AASB 15 Revenue from Contracts with Customers
• AASB 101 Presentation of Financial Statements
• AASB 118 Revenue
The quality of this report will be assessed based on the following criteria:
• Identify the regulatory framework of financial reporting in Australia.
• Explain the recognition and measurement of revenue in business practice.
• Evaluate the implementation of recognition and measurement of revenue in financial
reporting by the chosen company.
• Use paragraphs from the annual report of a chosen company, Australian Conceptual
Framework, AASB 101 Presentation of Financial Statements, AASB 15 Revenue from
contracts with customers, or other relevant AASBs as guidelines to support your
discussion if it is necessary.
• Demonstrate effective communication, logical presentation and integrated evaluation.
• The references used in the report should follow Harvard Referencing Style.
• Please submit your report online through the link of Report and Submission provided
on the MySCU Blackboard site.
• This is an individual assignment.
• Word limit should not be less than 10% (1,800 words) or exceeds 10% (2,200 words) of
word limit (excluding summary, reference list and appendix). A loss of 10% of the total
available marks will apply if you did not follow this instruction.
• You must use the electronic Assignment Cover Sheet provided, fill in details and then
make this sheet the first page of your assignment. Do not send it as a separate
• The file name should include (in order) initial, your surname and your student number.
For example: ‘BParker1235456′.
• Your assignment must be submitted as a Word document. If you wish to submit in any
other file format, please discuss this with your lecturer before the assignment
• Each student should choose a company that is listed on the Australian Stock Exchange
(ASX). Find its annual reports for 2017/2018 financial year. Remember to use a
complete annual report, not a concise financial report or a half-year financial report.
• You must reserve your company by adding a post on ‘Discussion Board’ under ‘Reserve
your company here’. Write the name and the code of the chosen company in the
subject line of your post. If you add the company name in the message and NOT in the
subject line, then the reservation is void because it will not be readily visible to others.
• To ensure your choice of a company does not duplicate one already chosen by another
student, they will be allocated on a first come, first served basis.
Company Financial Reporting
Company Financial Reporting
In January 2018, the Australian Accounting Standards Board introduced a new standard AASB 15 revenue from contracts with customers. The accounting standard was introduced to regulate the recognition, measurement, presentation, and disclosures on revenues from contracts with customers. The aim of this essay is to examine the rationale and application of AASB 15 in the regular revenue activities of firms within Australia. First, the paper examines the requirements for the recognition of revenues from contracts with customers. Second, the essay evaluates the measurement of revenues under AASB 15. Finally, the paper explores how the adoption of AASB 15 impacted on the financial position, financial performance, and profitability of Refresh Group Limited.
Requirements for Recognition under AASB 15
AASB 15 requires the financial reports of the company to disclose information relating to revenues from contracts with customers. The standard prescribes that the financial information needs to relate to the nature timing and uncertainty of revenues from contracts with customers. Also, these relate to other cash flows about contracts with other customers and under the scope of AASB 15. Consequently, all firm and companies registered in Australia need to adopt the use of AASB in the presentation of financial information relating to contracts with customers. However, the standard does not apply to leases, financial instruments, and non-monetary exchange between entities in the same line of business.
AASB 15 only applies to contracts with customers where the customers are involved directly in the contract of goods and services. In the consideration, there is the need for a consideration which is the source of revenue for the business entity issuing the contract with the customer. AASB 15 applies to both initial and separate measure of contracts with customers, and that is why incremental costs are recognised within specific contracts with customers (AASB 15, 2018, par 2). Contracts relating to non-profit organisations are not dealt with in the scope of AASB since the transaction prices are low, for example, the short term licenses.
During recognition of revenues from contracts with customers, the entity has to identify that the contracts are approved, rights of the parties to the contract are known, and the entity is familiar with the contract terms. Moreover, AASB 15 stipulates that the contract needs to be of a commercial substance such that the entity expects to generate future cash flows and economic benefits. The contract will also be recognised if the entity determines that it is probable that it will generate a consideration in exchange for goods and services within the contract (AASB 15, 2018, par 9)
Nevertheless, if contracts are negotiated as a package, the entity can combine two or more contracts relating to one customer. However, the amount agreed from the performance of the contract depends on the performance of one of the contracts even if there is a single performance for each contract. Also, if a contract is modified, the business entity is required to account for the modification separately. Performance obligations in contracts relate to goods or services or a series of distinct goods or services with the same pattern of transfer. Revenues are to be recognised when the entity satisfies performance obligations, which involve the transfer of the promised goods or services to the customer; when the customer acquires control of the asset (AASB, 2018, par 30). Moreover, revenues will only be recognised if the performance obligations are satisfied (AASB 15, 2018, par 31).
Measurement of Revenues under AASB 15
According to AASB 15, revenues from contracts with customers are only measured after the performance obligations by the entity (AASB 15, 2018, par 39). Performance obligations ensure that the goods and services are in the control of the customer, and the entity has transferred all powers relating to those goods. The revenues are recognised in the form of the transaction price, which is measured after the completion of the contract between the customer and the business entity. Measurement of transaction price occurs by evaluating the terms of the contracts with customers to determine the amount of the consideration in each contract.
In the determination of the transaction price, the entity should consider the effects of variable consideration and constrain estimates of variable consideration. The entity should also evaluate the effects of the existing significant financial components in the contract, non-cash consideration, and consideration payable to a customer (AASB 15, 2018, par 47-70).
Variable consideration is the variable amount of a contract the entity entitles to a transfer of promised goods and services to a customer. Variable consideration arises from discounts, rebates, refunds, credits, price concessions, bonuses, penalties as well as price incentives. All variable considerations within the contract have to be stated within the contract. Non-cash considerations in contracts are estimated at fair value, and consideration is measured on the stand-alone selling price in a specific contract. Also, the existence of a significant financial component envisages that the entity will recognize revenue relating to the price paid by the customer for the promised goods or services (AASB 15, 2018, par 60).
The entity needs to determine the stand-alone contract price of particular goods or services since the transaction prices are allocated based on the stand-alone selling prices. The transaction prices are allocated in proportion with the stand-alone selling prices of the promised goods and services. Also, the allocation of transaction price considers the allocation of discounts and allocation of variable consideration in a contract to a customer of promised goods and services (AASB 15, 2018, par 73-84). Allocation of discount is done to one or more but not all performance obligations based on distinct goods or services, stand-alone basis of a bundle of or some of the distinct goods and services as well as selling at a discount attributable to each bundle of goods or services and discount should relate to the performance obligations of a contract (AASB 15, 2018, par 76). Discounts are allocated using the residual approach to determine the stand-alone selling prices of goods and services to the transaction price.
The entity needs to allocate changes in transaction price as per the performance obligations of the contract with customers. All subsequent changes are allocated based on contract commencement. Moreover, all the amounts that are allocated on changes in the transaction price need to be recognized as revenue in the particular period the transaction price changes. Nevertheless, an entity is required to recognize the incremental costs of obtaining a contract as well as the costs to fulfil the contract. However, these costs are measured only when the entity incurs them since it expects to recover the costs from the performance obligations of the contract.
Impact of AASB 15 on the 2019 Annual Report of Refresh Group Ltd
Refresh group ltd is accompanied that deals in the home and office delivery of bottled water. The company is the second largest firm in the Australian market for the supply of bottled water. Due to this, the company operates with contracts with customers leading to the useful application of AASB 15. Therefore, these reports consider how the company will implement the AASB 15 and the impacts of adopting AASB 15 in the presentation of its financial information relating to revenues with customers.
Financial Reporting Framework of Refresh Group Limited
Refresh Group Limited has adopted the AASB Conceptual Framework in the presentation of the financial statements of the company. The company presents general purpose financial reports which are required to provide information to the users of financial information (AASB Conceptual Framework, 2004, par 1). The reports also ensure qualitative characteristics as there is faithful representation and comparability in the financial statements as notes are attached to every entry and a two year comparison, respectively. The company also complies with AASB 101 presentation and compliance with accounting standards in the presentation of financial information (AASB 101, 2015, par 15).
Figure 1: Extract of the 2018 Annual Report showing how Refresh Group adopted the AASB Conceptual Framework (2018 Annual Report, 2018, pg.13)
Revenues are recognised as per the requirements of AASB 15 such that when it is probable that economic benefits will flow to the group, and the revenue will be reliably measured. Also, the revenues are recognised when the significant risks and rewards of ownership are transferred to the customers (2018 Annual Report, 2018, pg.22). The revenues were recognised as per the requirements of AASB 118 revenues, for example, the revenues from external customers and other incomes as shown in the extract below of the 2018 Annual Report.
Figure 2: Extract of the 2018 Annual Report showing how revenues were recognised (2018 Annual Report, 2018, pg.28).
Implementation of AASB 15 by Refresh Group Ltd
Refresh Group limited will adopt the AASB 15 in the recognition and measurement of revenues with customers since the standard became effective on 1st July 2018. The implementation process of the new standard will involve the following procedures for the presentation of the 2019 Annual Report according to note 2 of the 2018 Annual Report (2018, pg.17).
Step 1: Identification of contracts with customers
AASB 15 only applies to contracts relating to customers, which therefore stipulates that Refresh Group will have to identify all contracts with customers (AASB 15, 2018, par 6). The contract should involve two parties and should create enforceable rights and obligations. In this case, Refresh Group needs to consider its contracts for the supply of bottle water.
Step 2: Identification of the performance obligation
Performance obligations relate to nature and timing for the recognition of revenues from the contracts. These are to be determined during the commencement of the contract unless there are any contract modifications. Performance obligations involve a good or service that is distinct and a series of distinct goods and services that are the same.
Step 3: Determining the transaction price
The transaction is the consideration amount the entity is entitled to as revenues from a contract with a customer. The transaction prices are determined after the performance obligations of the contract are satisfied (AASB 15, 2018, par 46).
Step 4: Allocation of the transaction price
The entity will determine how it would allocate the transaction price of all the contracts with customers. The allocation may depend on the stand-alone selling prices of the goods and services (AASB 15, 2018, par 76). The stand-alone prices involve the prices an entity charges when selling separately to customers.
Step 5: Recognition of revenue
Refresh group will only recognise the revenues from contracts with customers when the performance obligations have been satisfied (AASB 15, 2018, par 31).
Impact of the Adoption of AASB 15
The adoption of the accounting standard will improve revenue recognition in the firm as all separate contracts with customers will be identified and reported in the financial reports of the firm. The financial position of the company will be affected significantly due to the recognition of deferred revenues from contracts with customers. In some cases, some contracts may not be performed, but they will be recognised on the satisfaction of the performance obligations. Also, the new revenue standard will allow for increased disclosures in the requirements in the financial reports of the company.
Moreover, the implementation of the AASB 15 is likely to affect the profitability of the group in terms of gross profit margin. The gross profit margin will decrease significantly as revenues whose performance obligations have not been satisfied will not be recognised in the company.
The paper talks about the recognition and measurement of revenues under the new accounting standard, AASB 15 revenues from contracts with customers. Revenues are recognised and measured when the performance obligations have been satisfied. Revenues from contracts with customers are determined at transaction prices. The report also shows how Refresh Group Ltd will implement AASB 15 and how its profitability and financial position will be affected. Moreover, Refresh group complies with the AASB conceptual framework, AASB 101 and AASB 118 the presentation of the financial information.
2018 Annual Report, 2019. Refresh Group Ltd 2018 Annual Report. Available from: https://www.refreshgroup.com.au/2018/09/30/annual-report-2018/
AASB 15, 2018. Revenues from Contracts with Customers. Available from: https://www.aasb.gov.au/admin/file/content105/c9/AASB15_12-14_COMPoct15_01-18.pdf
AASB 101, 2015. Presentation and Compliance with Accounting Standards. Available from: https://jade.io/summary/mnc/2018/AULegSR/F2015L01626
AASB 118, 2011. Revenues. Available from: http://www.aasb.gov.au/admin/file/content105/c9/AASB118_07-04_COMPoct10_01-11.pdf
AASB Conceptual Framework, 2014. Framework: Framework for the Presentation and Preparation of Financial Statements. Available from: https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-04_COMPjun14_07-14.pdf