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Client communication assignment-writing business letters. must do it with accounting knowledge and advice 3 issues that raised in the assignment Essay Example

Based on the Australian accounting standards, the Flam Director is not correct in her thinking and the finance director should change the method of sales recording. Even though that is so, the firm reports its transactions based on the general accepted accounting principles. This is because it reports its transactions based on going the non-ending concern of the business. In addition, the firm records its sale transactions whenever they occur. This is very important because it means that the firm is not only complying with the standards by the Australian Accounting Board but also the international principles of accounting. According to AASB section 134, Record keeping is very important because it provides evidential support to the bank in case any issue arises at the later stages of the accounting period. However, this only presents the financial position of the firm.

Even though the above reasons comply with the Australian standards, there important reasons why the firm needs to revise its methods for keeping records. The first reason is that the firm presents dissimilar records using the same records. This is against the standards of the Australian accounting board because it requires that firms should class its transactions and record transactions of dissimilar records separately. Section 134 of the AASB requires that if a firm changes the basis for its classification, it must also reclassify the proportional amounts. In such cases, the firm is required to disclose the reasons for the reclassification, the amounts, and the form that the reclassification takes. In case the Flam Director considers the process of financial reporting an impossibility, it should disclose with quality reasons to the finance director to keep the two at harmony. It is important for the firm to operate always with respect to the provisions of the Australian Accounting Board.

Before reaching at the fair value of the item, the firm should consider a market factor and use the pricing strategy that other firms in the same field would use in pricing the same asset. The pricing should consider the market conditions such as the forces of demand and supply for the asset and its usability. In this case, the firm could be a monopolist in the production of the machine that reduces the use of human labor and it can thus discriminate in terms of prices. However, the pricing should maximize the applicability in the noticeable inputs and minimalize the unobservable pertinent inputs. This measuring of the fair value must embrace both recurring and non-recurring declarations. The firm can value the asset at the fair value based on the proposed amount by the factory manager because the machine is very useful in terms of production it effectively dries the fresh produce and reduces the time used in production (Chartered Accountants, 2013, section 13). As a result, the other firms who have learnt the importance of the asset are demanding the machinery.

In the presentation of this asset in the financial statements, information related to the asset’s fair value must be presented in the appendices section this is according to the requirements of section 13 of AASB on valuation of fair value. The section assesses the techniques and procedures used in the valuation process and the various inputs that necessitated such valuation. The other information to be provided is the impact of the same in the profitability of the organization within that accounting period. This should be in three appendices. The first appendix should define market conditions such as prices and cash flows. The second appendix provides the procedure for the application and the final appendix should be on the transitional provisions.

The company should treat the error made in the previous year as an expense in this year to meet the amount that the figures did not reflect in the previous year. Thus, the doubtful debts account will be credited while the cash account is credited with the same amount to ensure that they are reflected in the financial statements. This is according to section 108 paragraph 7-9. This means that the sales of the company will be threatened for the current year but this is the most advisable thing the company could do in trying to mitigate future impacts that may arise in case it fails to correct the error soon enough.

The management has no decision over this error and thus, the Australian Accounting Board requires that its correction should be based on retrospective restatement. However, the ability to correct this error at the current period should be determined by gauging its cumulative effect to the profitability of the firm. In case of a cumulative effect, the firm should predict an early date for the correction of the error after predicting its profitability. Based on the provisions on the AASB section 108 paragraphs 41-49, various disclosures on the error should be made including the nature and period of the error, the amount used in the correction of the error, and the procedures used in correcting the error. If the error could have been of a percentage higher than 5%, management’s view would be required because correction of such error could lead to dilution of per share earnings. This error, being a minor one should just be corrected at the current period.

References

CHARTERED ACCOUNTANTS (2013). Analysis of AASB standards. [online] Available at: http://www.charteredaccountants.com.au/Industry-Topics/Reporting/Australian-accounting-standards/Analysis-of-AASB-standards [Accessed 15 May. 2014]

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