This report is aiming to disclose how the Annual report of Woolworths for 2012 apply the accounting standard related to estimation uncertainty and accounting policy judgments. Furthermore, the potential gap between Woolworths’ current practice and the accounting standard requirements will also be discussed.
Paragraphs 122- 124 of AASB101 has explained the requirements of significant accounting policy judgments and paragraphs 125-133 has detailed what need to be done for estimation uncertainty.
According to these standards, Woolworths disclosed how the company determined the carrying amounts of assets and liabilities and explained the company’s policies to response ...view middle of the document...
Finally, the report will make a recommendation for the potential ASIC reviewers.
The requirements of AASB101:
According to paragraphs 122-124 of AASB101, all the judgments that have highly important impacts on the recognition of amounts in the financial statement must be exposed to the public. For example, the judgment about how to classify whether financial assets are held to maturity or held for sale (AASB101, para 123) is a significant one need to be disclosed in the notes. AASB 127 and AASB 140 Investment Property also recommend some rules for reporting entities to follow.
As for sources of estimation uncertainty, AASB101 uses paragraphs 125-133 to emphasise that. If there is a probability that adjustments will be made to the carrying amounts within the next financial year, the entity shall provide information about the result of the carrying amount at the end of the reporting period is based on which assumptions and also, the entity may prepare a financial risk management plan to solve the problems caused by uncertainty. Apart from AASB101, if other Australian Accounting Standard such as AASB7 or AASB116 requires the entity to disclose some other assumptions, an entity shall also obey these requirements.
The current accounting practice of Woolworths:
Overall, the 2012 Annual Report of Woolworths has applied most of accounting policies that are required by AASB101. In this report, some examples of the accounting practice that Woolworths did in the annual report, which are according to AASB101’s requirements about important judgments and estimation uncertainty will be discussed below:
A. Disclosure of useful lives of PPE:
The carrying amount of property, plant and equipment is a typical source of estimation uncertainty. PPE need to be depreciated as time goes by. In note 1(G) of Woolworths report, the expected useful lives of PPE was provided. It indicated that the useful lives of buildings are 25-40 years and for plant and equipment only 3-10 years. The company uses a straight-line method to depreciate the PPE (Woolworths Limited –Annual Report 2012, p.110).
B. Disclosure of methods of impairment:
Apart from depreciation, impairment is another part may lead to uncertainty. Woolworths stated that an impairment loss will be admitted immediately when the carrying amount of an asset is higher than its’ recoverable amount. According to the annual report, tests for impairment of all tangible assets, goodwill and intangible assets will hold annually. The entity evaluated the recoverable amount at the cash generating unit (“CGU”) level, and then determined the amount after analysing the latest financial budget (Woolworths Limited –Annual Report 2012, p.136). The significant assumptions and what are the assumptions based on can also be found in p. 136 of the 2012 annual report.
C. Disclosure of measurement of foreign currency:
If a company has some international business line, the exchange rate of foreign currency...