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Background to the assignment:
In this course, we cover the accounting associated with groups of controlled entities that together form one economic entity and for which consolidated financial statements are prepared. Many of these economic entities have very diverse operations and activities that can be conducted across a variety of industries and/or a variety of geographic locations. These industries and locations can involve considerable differences in opportunities and risks which together impact on the overall performance and financial position of the economic entity. As consolidated financial statements present financial information in a highly aggregated and summarised way, the specific opportunities and risks associated with the economic entity's different activities and operations are very difficult for readers of the financial statements to understand unless separate disclosures are provided. The provision of these additional disclosures is governed by AASB 8, Operating Segments, which requires an entity to first identify material operating segments that make up the activities of the entity and to then provide detailed disclosures about those operating segments in a note to the financial statements. A copy of AASB 8 can be found in your Accounting Handbook 2017 or at the Australian Accounting Standards Board's website
In this assignment, you are required to teach yourself the requirements of AASB 8 and explore their application in the context of the entity Australia Post (AP). AP describes itself in its 2016 Annual Report (p. 1) as a 'self-funded government business enterprise [that] has the Australian Government as its sole shareholder. The corporation does not receive any taxpayer funding and pays dividends to the Australian Government'. AP's financial statements can be accessed at auspost.com.au
- In preparation for the assignment, you will need to study the requirements of AASB 8 Operating Segments. You will find it very helpful to extensively research the issues raised in the assignment including media stories, academic literature, and government requirements. Such research will be explicitly rewarded when assessing your assignment. In completing your assignment you must, where relevant, support your comments with references to specific paragraphs of AASB 8 Operating Segments and any other relevant pronouncement. Assume that you have been seconded to assist a public sector committee that is reviewing the financial performance and financial position of AP. The committee's members consist of senior public sector bureaucrats and members of the Commonwealth parliament. As part of your work, the members of the committee have asked you to review the operating segment disclosures in AP's annual reports from 2011 to 2013. The committee is seeking your advice on how each of AP's operating segments has contributed over this time period to the financial performance and financial position of AP. Your report can take any appropriate professional format but it should address the following matters:
Evaluate how each of AP's operating segments has contributed to the overall financial performance and financial position of AP over the 2011 to 2013 period. Discuss how the performance of AP's segments relates to the operating strategies adopted by AP. As part of your evaluation, you should identify the strongest and weakest performing operating segments. (Note: All supporting calculations should be placed in an appendix to your report. These calculations will not count towards the word limit for this assignment – must have supporting calculations)
The relevance of financial reporting has been recognized in terms of improved stakeholder awareness and audit insight. As per Mironiuc and CarpIonela-CorinaChersan (2015), the application of standardized financial norms enhances representation and reliability in accounting. This is needed in view of the complexity of the financial statements, which propose a need for improved comprehension of the information through separate disclosures (AASB, 2015). Through the present review, this standardization is studied in the context of Australian-AASB 8 Operating Segments that accesses how different segment of financial reporting performs (He et al. 2016). The study further assesses the relevance of the reporting in terms of improved financial performance in the context of Australia Post (AP).
Requirements of AASB 8 Operating Segments
These are a set of financial principles shared by the International Accounting Standards Board (IASB) and amended by the Australian Accounting Standards Board (AASB) that enables a business entity to document the financial report as per a few requirements (AASB, 2015). These function through a chief operating decision-making process, providing information with respect to the products, the production process and distribution process (AASB, 2015). It also provides insights with respect to the type of customers and the distribution process, as well as the nature of the regulatory environment (He et al. 2016).
The Australian Post is a government-owned organization that provides postal service to retail stores across and beyond the country. It has been noted that there is a substantial improvement in the financial performance that was not evident following the adoption of AASB operating segments in Australian firms (He et al. 2016). For AP, several operating segments have been added over the years, such as AASB 13 Fair Value Measurement, Consolidated Financial Statements, Disclosure of Interests in Other Entities, Recoverable Amount Disclosures for Non-Financial Assets and Employee Benefits, amongst others (Australian post, 2014). However, no material impact has been found with these variables on the financial performance of AP (Australian post, 2014). There is also an inclusion of some changes in the existing AASB norms, where AASB 9 will simplify requirements than the previous AASB 139 (Australian post, 2014). AASB 2012-3 will also be incorporated that will provide changes in terms of the inconsistency with respect to AASB 132.