Historical cost – Assets are recorded at the amount of cash or cash equivalents to acquire them. Liabilities are recorded at the amount of proceeds received in exchange for the obligation.•Price-level-adjusted historical cost - Historical cost values adjusted for changes in the value of the dollar.•Current or market value Input market value measured by estimating ‘replacement cost’ to purchase it again or ‘reproduction cost’ to make it again. Output market value (Fair value): The market price that would be received to sell an asset or paid to transfer a liability. •Value in use (or present value) – Discount future net cash inflows expected to be generated by the asset, or discount future net cash outflows expected to settle the obligations.•Liquidation value - Value that the company’s assets would bring upon being sold and that liabilities would be paid off for, if the whole company went out of business.33
Fantastic Holdings Limited engages in the retail, manufacture and import of household furniture in Australia.The following are extracts from Fantastic Holding Ltd’s 2015 Summary of Significant Accounting Policies.Student Task: Measurement and Trade-offs of Qualitative Characteristics of Information34
Student Task: Measurement and Trade-offs of Qualitative Characteristics of Information (continued)Required (a): Identify what measurement Fantastic Holdings Ltd used for the following items in the 2015 Financial Report:i.Property, plant, and equipmentii.Short-term employee benefit obligationsiii.Long-term employee benefit obligationsiv.Borrowingsv.Softwarevi.Inventory35
(b) Based on part (a), it is evident that entities use a mixed measurement approach in financial reporting (i.e., different measurement bases for different assets and liabilities). Discuss how the mixed measurement approach influence the qualitative characteristics of information per the Conceptual Framework.Student Task: Measurement and Trade-offs of Qualitative Characteristics of Information (continued)36
What is Corporate Governance? Why is it Important?Companies control most of the resources Business activities have significant financial, social, environmental impactsCorporate governance: System (process and procedures) to direct and control business and managerial decisions and behaviorAchieve objectives (e.g., maximize shareholder return and competitive advantage) + Reduce agency conflicts (e.g., ensure that managers do not engage in fraudulent reporting)+Increase stakeholder confidence)Monitoring and performance evaluation Sets objectives and strategies Specifies rights and responsibilities of various parties (board, shareholders etc)Procedures for decision making+ Minimize negative social and environmental impacts (prevent market failure) + Facilitate sustainability / long term growth37
ASX Corporate Governance PrinciplesPrinciple 1 – Lay solid foundations for management and oversightEstablish respective roles and responsibilities of board & management.