ACCT19062 - Term 3, 2014 Assessment 2 Components of the report Guidelines Executive summary Introduce the purpose of this report here State the methods/steps (how you proceeded) Indicate key findings No need for separate introduction after exc summary Response to req 1 Give a title. Refer to relevant accounting standards:IFRS/AASB 13 Response to req 2 Give a title. Visit web sites of AASB, FASB and IASB Search journal articles Response to req 3 Give a title. Refer to AASB 13 and the relevant accounting standards (eg., a/standards for intangibles, financial instruments, and Property, plant & equipment) Search journal articles Response to req 4 Give a title. See what were the fair value practices in the collapse companies like Enron, HIH, etc. Search journal articles Demonstrate your critical thinking Response to req 5 Give a title. Download an annual report (financial statements) from ASX 300 (Annual report as on 31 Dec 2013 or as on any date in 2014) Examine fair value reporting practices Prepare in index of FV measurement & disclosure practices See general accounting principles and those for intangibles, financial instruments, and Property, plant & equipment Provide your opinion as to FV practices Conclusions and suggestions Provide what was the purpose, what did you find in details and what you would like to recommend or suggest

1. This is prepared by Sazzad Hossain, MBA, CSCA™
sazzadais@gmail.com

2. 1
Table of Contents
Executive Summary...................................................................................................................2
Answer to Requirement 1 ..........................................................................................................3
Answer to Requirement 2 ..........................................................................................................4
Answer to Requirement 3 ..........................................................................................................5
Answer to Requirement 4 ..........................................................................................................7
Answer to Requirement 5 ..........................................................................................................9
Conclusion and Suggestions ....................................................................................................12
References:...............................................................................................................................13
Appendix A..............................................................................................................................14

3. 2
Executive Summary
The financial reports are the mirror of the organisation. It reflects the true condition of the
organisation. To fulfil that vary purpose, accounting standards have been evolved and
Australian Accounting Standards Board does that job very well. It adopts the International
Financial Reporting Standards and then customises them to the Australian contexts. In this
report mainly the practice of fair value reporting has been discussed from different perspectives
and finally the analysis of Altium Limited’s Annual Report 2014 has given the opportunity to
match the theory into practice.

4. 3
Answer to Requirement 1
Purpose of issuing Australian equivalent IFRS 13: Fitting to local requirements
The Australian Accounting Board has issued AASB 13: Fair Value Measure as the equivalent
IFRS 13 to keep consistencies with the International Accounting Standards and practices.
Along with that, to customise the reporting standard as to represent fairly and faithfully, AASB
13 has been issued. The IFRS 13 has been mainly issued reminding the reporting necessities
of for profit organisations, but it hardly specifies clearly for the not for profit organisation
requirements (IFRS, 2013). Incorporating some additional requirements, adding additional
regulations, reducing mandatory requirements by the IFRSs and addressing specific
requirements by the Corporations Act 2001. This basically fits in with Australian reporting
necessaries. The basic purpose is that along with the not for profit organisations, which in
regular reporting standards have to depart from the IFRS, and for profit organisations,
incorporate local demands and practices in the Australian accounting standards as if following
the AASB, companies can claim that they have complied with the IFRS. Aus4.1 to Aus4.6
gives evidences of this fact (AASB, 2014; paras Aus4.1 -Aus4.6).

5. 4
Answer to Requirement 2
Codified universal and universal high quality standard on fair value presentation
The Financial Accounting Standard Board (FASB) and the International Financial Reporting
Standards Foundation (IFRS), formerly known as International Accounting Standard Board
(IASB), has taken the joint initiative to converge the major dissimilarities between them
(Whittington, 2008). The FASB and the IFRS both emphasises on the fair value presentation
as this gives truthful presentation of the financial statements. The fair value measurement,
disclosures and other issues have been debated over to make a proper harmony between them.
The both boards have the courageous role to set out a unified code for presentation purpose
(Landsman, 2007). The FASB and the IASB have consented on the on the definition of the
term “fair value”. The convergent effort to converge the both accounting standards as to report
the fair value has been updated so much. The convergent standard focuses on the application
of the standard rather than just describing what is fair value and it measurement and reporting
(Barlev & Haddad, 2007; Tyson, 2011). As a result, high quality accounting standard has been
created on the issue of the fair value measurement.
The both boards sit and discuss of the disparities and then they set out the rules and make
uniform reporting standards.

6. 5
Answer to Requirement 3
Fair value concept at application
The AASB 13 Fair Value Measurement entails that adopting it would subsequently impact all
types of physical non-current assets to be revalued at the fair value approach following their
initial recognition. They are to be reported on the retrospective way. The AASB 13 has defined
and set out the scope of the fair value measurement. Accordingly the standard applies
immediately to AASB 116 Property, Plant and Equipment. The measurement of the property,
plant and equipment are to be done under the valuation methods of fair value unless and until
it is required to be measured and reported by another standard. Under the AASB 13, assets are
to be both measured under cost model or revaluation model and as such reported in the financial
statements (AASB 16, 2014). The TI954 - Revaluation of Non-Current Physical Assets
(Instruction of Treasurer) has set out that land and buildings are to be measured at their fair
value following the revaluation method after their initial recognition. The basis for such
revaluation is that, when property, plant and equipment can be measured reliably and cost
effectively, they would be measured under fair value approach.
The AASB 7 Financial Instruments: Disclosures dictates that each class of financial assets
would be disclosed at their fair values as well as financial liabilities. These financial assets are
financial liabilities are to be presented in a group format and would be presented by offsetting
to net worth (AASB 7, para 26). Other related information as per as the materiality is concerned
is to be disclosed in the financial statements.
The AASB 138 Intangible Assets states that the assets are to be measured either at cost model
or at revaluation following the fair value measurement policies (AASB 138, para 72). The
assets are to be measured by their classes. They are to be reported by their group nature and
disclosed materially any such changes in their values and rest of the economic expected life to

7. 6
be carried at. The impairments of the assets are necessary when active market of the value of
them carrying at have been subsequently fallen down so far. To reflect the scenario impairment
losses are recognised (IASB 138, paras 81-82).
The AASB 140 Investment Property has been taken as to be applied one of its valuation as the
method of fair value. Para 30 dictates that the measurement after the initial recognition point
would be held at the fair value. All the assets are to be measured under the fair value method
once it has taken the fair value model (para 33). As per the para 34, when operating leases are
classified as assets, they are to be measured at fair value. The profit and losses from the fair
value measurement would be recognised in the financial statements (para 35). The basis for the
valuation, valuation method details, profit and losses arising from the fair value recognitions –
all are to be disclosed (para 75).
The AASB 141: Agriculture suggests that the biological assets or products are to be recognises
and measured when their fair value can be measured reliably (para 10). However, when the fair
value cannot be obtained and measured reliably, it is to be recognised at the cost to the creation
of such asset (para 12). The gains or losses are to be recognised in the financial statements
(paras 26 – 29). In terms of disclosure, the assets are to be classified and grouped to represent
fairly.

8. 7
Answer to Requirement 4
Fair value reporting – lag behind in future terms
The fair value practices to measure, report and recognise the assets and liabilities in the
financial statements have been very recent concepts. In the past, the fair value practices would
be seen only in few classes of assets and liabilities like inventories, accounts payables, accounts
receivables and other cash and cash equivalents classes of assets and such type of liabilities
settlement. The scope of the practice was very limited in the past. However, the benefits it has
in financial reporting and faithful presentation, has made it more widespread over the past few
years. The definition of the fair value goes as that the price of settlement as of within two or
more willing parties at the arm’s length transaction. To date we see that many AASB’s are
following the fair value approach, namely: AASB 2 Share-based Payment, AASB 3 Business
Combinations, AASB 16 Property, Plant and Equipment; AASB 137 Provisions, Contingent
Liabilities and Contingent Assets; AASB 138 Impairment of Assets; AASB 139 Financial
Instruments; AASB 140 Investment Properties; AASB 141 Agriculture.
The concept of relevance is highly appropriate in the case of fair value measurement and
presentation of the data in the financial statements of the organisation. The critics say that, in
the favour of the fair value technique, the fair value gives the most recent and on the go market
value and readily available information to the users of the financial statements. The users of
the financial statements can have a good idea about what the actual worth is their organisation
to date (Fortin, 2005). However, this notion has been very much criticised. For the sake of
future, the fair value measurement and reporting on that basis has not been considered as
reliable. The major reason for that notion is that, the fair value measurement is based on the
current market value all the time. But the market is always on move. It goes up and it goes
down. Too much volatility is there. Moreover, biasness is also there. Another major reason and

9. 8
strong point of arguments, by the critics who are not in the favour of the fair value practice say,
is that when the asset is no more in the market or cannot be replaced but the utility is available
to the organisation, what is to be done then. This situation has not been addressed in the fair
value measurements of the financial statement reporting of the organisation in reporting its
assets and liabilities to the users of the financial statements (Shortridge, et al., 2006). The
indications found in the AASB’s it is obvious that, in the absence of such reliable measurement
situation, cost basis is to be used to report the assets and liabilities of the entity to the users of
the financial statements.
In the future to report reliably a solid basis is needed which is not found in the fair value
practice. The historical cost basis has that criteria to be fulfilled in this respect. As we see that
the measurement is to be free from bias, the historical costing approach gives best in this
measurement scale. But the fair value measurement does not. It is full of biasness. So in terms
of reliability the fair value measurement approach is lagging behind (Bies, 2005). In the Enron,
HIH they misused the fair value as it is arbitrary in nature. That caused the failure of these
many companies.

10. 9
Answer to Requirement 5
Fair Fair value Practice at Altium Limited
To analyse the index of fair value presentation the Altium Limited’s 2014 Annual Report has
been taken. The following is the chart applicable to the index measurement:
Sl No. Description Complied (Y/N)
1 Disclosure Explanation Y
2 Subsidiary measurement Y
3 Revenue Recognition Y
4 Cost estimation Y
5 Multiple Contracts Y
6 Single Long term contract N
7 Receivables Y
8 Payables Y
9 Leases Y
10 Intangible Assets Y
11 Impairment of non-financial assets Y
12 Share-based payments (option) Y
13 Share-based payments (Shares) Y
14 Financial Instruments Y
15 Sensitivity Analysis Y
16 Consolidation Y
To assess the index the following formula is used:

11. 10
Now,
DI = (15/16) = 0.9375
So the disclosure index is 0.9375 for Altium Limited.
The Altium Limited in its Annual Report 2014, they have considered the fair value
measurement approach in their reporting. Along with the historical costing system, they have
used the fair value to measure the intangible assets, short-term assets and liabilities, investment
properties, property, plant and equipment. The company has stated all the policies and
principles, estimates in its notes to the accounts’ significance accounting policies section in
details. The consolidation of the subsidiaries have been made using the fair value measurement.
The leased assets have been considered at the fair value. The intangible assets have been shown
in the fair value less any amendments and losses to the date. Impairment of non-financial assets
have been shown at the fair value to date. The share-based payment in option and shares – both
have been measured and reported at the fair value. The financial instruments have been reported
at the fair value. The annual improvement cycle costs have been reported at their fair values.
The multiple element contracts have been reported by the use of fair value. Current assets and
liabilities have been reported to net using the fair value.

12. 11
The company is a software company. The examination of their notes, policies, measurement
and disclosure have revealed that the company has a good practice of fair value reporting. The
company is also in the top chart in the ASX 300.

13. 12
Conclusion and Suggestions
The fair value represents the to date, that is, true present scenario to the users of the financial
statements. The investors and other stakeholders can make prompt decisions on the fair value
reports. However, in the long-term decision this creates reliability problem. The analysis and
the standards readings, the one suggestion could be made as both the historical and fair value
presentation are needed. If this could be in the place then the reliability facility and the
relevance – both can be obtained simultaneously. Moreover, discounting and to date inflation
adjustments could be another way to get better results for better decision making.

14. 13
References:
AASB, 2014. AASB 116 Property, Plant and Equipment. s.l.:Australian Accounting
Standards Board (AASB).
AASB, 2014. AASB 13 FAIR VALUE MEASUREMENT. s.l.:Australian Accounting
Standards Board.
AASB, 2014. AASB 138: Intangible Assets. s.l.:Australian Accounting Standards Board
(AASB).
AASB, 2014. AASB 140 Investment Property. s.l.:Australian Accounting Standards Board
(AASB).
AASB, 2014. AASB 140 Investment Property. s.l.:Australian Accounting Standards Board
(AASB).
AASB, 2014. AASB 141: Agriculture. s.l.:Australian Accounting Standards Board (AASB).
AASB, 2014. AASB 7: Financial Instruments: Disclosures. s.l.:Australian Accounting
Standards Board (AASB).
Altium Limited, 2014. Annual Report, s.l.: Altium Limited.
Barlev, B. & Haddad, J. R., 2007. Harmonization, comparability, and fair value accounting.
Journal of Accounting, Auditing & Finance , 22(3), pp. 493-509.
Bies, S. S., 2005. Fair value accounting. Fed. Res. Bull., Volume 91, p. 26.
Fortin, S., 2005. Relevant and reliable. CA Magazine. Toronto, 138(2).
IFRS, 2013. IFRS 13 Fair Value Measurement. s.l.:International Financial Reporting
Standards Foundation.
Landsman, W. R., 2007. Is fair value accounting information relevant and reliable? Evidence
from capital market research. Accounting and Business Research, 37(sup1), pp. 19-30.
Shortridge, R. T., Amanda, S. & Wagoner, E., 2006. Fair Value Accounting. The CPA
Journal, 76(4).
Tyson, T., 2011. The convergence of IFRS and US GAAP. The CPA Journal, 81(6), pp. 26-
31.
Whittington, G., 2008. Harmonisation or discord? The critical role of the IASB conceptual
framework review. ournal of Accounting and Public Policy, 27(6), pp. 495-502.

15. 14
Appendix A
Relevant Notes to the Accounts of Altium Limited 2014 Annual Report

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24. 1
Question
ACCT19062 - Term 3, 2014
Assessment 2: Assignment Template and Guidelines
Student name ………………… ID………………
Components of the report Guidelines
Executive summary Introduce the purpose of this report here
State the methods/steps (how you proceeded)
Indicate key findings
No need for separate introduction after exc summary
Response to req 1 Give a title. Refer to relevant accounting
standards:IFRS/AASB 13
Response to req 2 Give a title. Visit web sites of AASB, FASB and IASB
Search journal articles
Response to req 3 Give a title. Refer to AASB 13 and the relevant
accounting standards (eg., a/standards for
intangibles, financial instruments, and Property, plant
& equipment)
Search journal articles
Response to req 4 Give a title. See what were the fair value practices in
the collapse companies like Enron, HIH, etc.
Search journal articles
Demonstrate your critical thinking
Response to req 5 Give a title. Download an annual report (financial
statements) from ASX 300 (Annual report as on 31
Dec 2013 or as on any date in 2014)
Examine fair value reporting practices
Prepare in index of FV measurement & disclosure
practices
See general accounting principles and those for
intangibles, financial instruments, and Property, plant
& equipment
Provide your opinion as to FV practices
Conclusions and suggestions Provide what was the purpose, what did you find in
details and what you would like to recommend or
suggest

25. 2
References Provide a list of references here
Include references to at least four academic refereed
journal articles
Include references to the accounting standards Do
not include any reference that has not been used in
the text of the report
Follow Harvard referencing guidelines – link is
available on moodle
Appendix Attach relevant pages from financial statements
(notes to the accounts) of the selected company.
Note:
This assignment requires lots of reading and critical thinking. If you wait for the last two
weeks to read and write this assignment, you may not be able to write a quality report.