Financial Accounting Assignment: Financial Report Analysis of Woolworths
Task: You are required to choose an ASX listed firm and write a financial accounting assignment report analysing its 2019 financial statements. The analysis must focus on discussing the firm’s reporting, measurement and disclosure practices on revenue. In the discussion, detail the accounting policy that the firm follows in reporting, measuring and disclosing its revenue. The discussion must be supported by the requirements prescribed by AASB 15 and relevant academic and professional disclosure.
Justify why the firm adopted the policy in its 2019 financial reports rather than other policies permitted under AASB 15. To achieve this, you must present an alternative economic outcome in terms of accounting profit and net assets, if the firm chooses a policy permitted under AASB 15 but different to the one that was used in its 2019 financial reports. Students are also required to research on the economic, institutional, historical and cultural backgrounds of the firm to make sense its accounting choice in relation to revenue.
The company selected for review is Woolworths Limited and the annual report for the year ending 30 June 2019 has been referred to for the analysis. This assignment runs through the provisions relating to AASB 15 and how the company has been able to adopt the requirements and suitably adjust its accounting and reporting. The assignment aims to focus on the reporting of the company followed by the practice of measurement and disclosure. Further, the accounting policy is detailed followed by the reporting pattern and disclosing the revenue. Revenue is the most significant feature in any company and hence revenue reporting has to be done following the set guidelines and the required standards. The financial analysis is mostly carried out by considering the revenue as a base. As businesses go through a lot of changes and have to function in competitive environment, accounting also transforms by the formulation of newer standards and the implementation of the same by the respective companies. This assignment is a walkthrough that discusses the finer aspects of AASB 15 and research on the economic, institutional, as well as the cultural background of the firm.
AASB 15 is a new standard rolled out in replacement of the existing standards AASB 118 on Revenue and AASB 111 on Construction Contracts. AASB 15 sets out the principles for the identification and revenue recognition in relation to the goods, service, and construction contracts. The performance obligations concerning the contracts have to be identified in a discrete form that is in relation to the transaction and the associated price allocation in relation to those obligations (Vernimmen 2017). The Standard has laid down the criteria for the recognition, measurement, and disclosure of revenue. AASB 15 is applicable on all contracts with customers except for the ones that are covered through other standards like leases, insurance, and other financial tools. AASB 15 specifies when and how the revenue should be recorded that needs entities to provide the user of financial statements with detailed information and important disclosures. Practically, an entity must ascertain the profitability of receipt of consideration in exchange for the goods and services provided that even take into account the ability of the customers and the intention to make payment. The transaction price must be allocated to the obligation of the performance that depends on the segment of the stand-alone prices. Stand-alone price can be defined as the price where an entity will sell the goods promised or service in a separate form to the customer (Harumova 2016). The best benefit of AASB 15 derives from the fact that it replaces the existing guidance of accounting and provides a model of revenue that is comprehensive aimed at boosting the revenue recognition across entities, industries, and the capital market (Hitchner 2016).
Reporting, measurement and disclosure practices on revenue
According to AASB 15, the revenue should be recognized only when the performance obligation is satisfied and the control of the goods and services is passed on and transferred typically in a sale contract (Deegan 2016).
Accounting policy followed for the same.
The Group has adopted this standard in the reporting periods after the 25th of June, 2018. It is stated in the Annual Report that none of this adoption of new standards has had a material effect on any of the amounts recognized in the current or prior periods. It is also not likely to have a significant influence in the future periods (Woolworths 2019).
The major areas of operation are Australia and New Zealand. The revenue from these two areas is consolidated for the presentation to its stakeholders. The company has various segments under which the assets and the resources are allocated. Each segment offers different products and services that are managed and accounted for separately. The Group thus reviews and identifies the business units of the various material items. The reporting segments are identified based on the regular reviews carried out by the CEO of the company to ensure the most efficient allocation of the company’s resources. The accounting policy remains constant across the various segments and the systems and software are updated to incorporate the required changes to be in line with the standard (KMPG 2017).
Interpretation and representation
The annual report details the significant accounting policies adopted by the group.
The revenue of the group has been segregated into the sale of goods in-store and online. The revenue is also generated from hospitality and leisure services. The group recognizes the revenue when the control and title of goods have been transferred to the customer and the service has been completed at the amounts fixed by the Group (Choudhary, Koester and Shevlin 2016). The revenue relates to such amounts that the Group is entitled to receive upon the delivery of goods or completion of providing services (Woolworths 2019). It can thus be seen how this accounting standard lays down the criteria for the recognition, measurement, and disclosure of revenue.
The revenue to be reported on the financial statements has been calculated in accordance with the principles and standards laid down in AASB 15 and hence the calculations are carried out accordingly. This implies that the calculations have been done in accordance with the principles and emphasize the policy of compliance.
For the goods that are sold in-store, the control is assumed to be transferred at the point of purchase which is set up at every store. Thus, the sales figures are calculated from the system and the software installed in every store. In the case of online sales, the point of sale takes place when the goods are delivered and the payments are collected from the customers. Thus, the guidelines are set for every sale transaction that takes place (Woolworths 2019).
In cases where the payment is received in advance before the delivery of goods, the revenue recognition is deferred and the accounting is carried out only when the actual delivery of the goods takes place or the rendering of services. The consolidated financial statements are prepared after taking into account all these adjustments which includes deferred incomes and liabilities also. The Group has also designed a Loyalty Program which grants material rights to its customers for a discount on future purchases. Thus, these amounts are accounted by the Group under deferred contract liabilities until the actual redemption of the points or discounts takes place (Woolworths 2019).
During the current period, the group has followed the adoption of AASB 15 by using the modified retrospective approach which requires the cumulating of the catch-up adjustments in the retained earnings (Woolworths 2019). Thus, the adoption of this method ensures that there is no restatement required in the comparative figures. A detailed assessment of the Standard has been carried out by the Group to study the impact of AASB 15 and the results were shared with the respective personnel. The discussions revealed the fact that the timing and amounts of revenue recognized under AASB 15 were consistent with the previous accounting standard and it was more feasible as a majority of the transactions for the sale of goods both online and in-store were accounted for only when the transfer takes place. The performance obligation is said to be satisfied when the point of sale or delivery of goods occurs. The required adjustments in the retained earnings were carried out.
Deviations from AASB 15
Upon the analysis, there have been no major deviations from AASB 15. The Group has taken the relevant steps to have the internal controls in place and ensure the fair accounting and disclosure of the revenue related to the specific period. As seen from the discussion the group has made proper disclosures and ensured all compliance is done accordingly. Thus, there are no such items that lead to a material impact on the financial statements. Therefore, it is clear that the company has adhered to the guidelines and ensured deviation from AASB 15.
The Group makes the relevant judgments and estimates about accounting for revenue. It is assumed that upon the delivery of goods or completion of the provision of services there will be no returns and the client or customer will clear all the dues within the stipulated time frame. The assumptions are also made in relation to the year-end accounting and disclosures and events occurring after the balance sheet date (Woolworths 2019). This is further reviewed by the relevant committees and the auditor to test the reasonableness of the same. It has been found that there are no such items that cause a material difference in the financial statements. As per AASB 15, the company should disclose relevant information to help the users of the financial statements to know the nature, time and uncertainty of the revenue and cash flow that arises from the contract with the customer (Herz 2016).
The accounting standards applied by the group have been laid down in the Annual Report and this is an indication regarding the clarity of presentation. Further, it denotes the group has ensured proper compliance and hence able to provide correct material information. The significant accounting policies designed and implemented by the Group have also been disclosed in the Annual Report. The Notes to financial statements give further description of the measurement and disclosure practices adopted by the company. Therefore, on the communication part, the group has made relevant disclosure and this is helpful for the stakeholders to understand the steps undertaken by the company.
The implementation of the new accounting standard is done in such a way that the transition is smooth and the company does not have to carry out many modifications. Thus the recognition, measurement, and disclosure are done by the company which is in line with the requirements of the standard. Further, the accounting standards applied by the group have been provided in the annual report. Moreover, the accounting policies designed and applied has been clearly stated in the annual report thereby signifying proper compliance. For the successful implementation, the organization mustn't adhere to the apparent differences between the current accounting standards and AASB 15. The overall impact of AASB 15 can only be known when a contract is evaluated through the utilization of the new guidance. Early evaluation and planning will help in the implementation of the steps and risks are managed appropriately. The application of AASB 15 will bring a varying level of influence across organizations and industries. The standard is expected to provide benefits in terms of judgment and disclosure needs and will need major changes in the financial reporting and process while other organizations might benefit from the simple implementation. However, the overall implementation will lead to an enhanced level of disclosure that might be sensitive and complex in preparation while comparing to the current needs.
Choudhary, P., Koester, A. and Shevlin, T., 2016.Measuring Income Tax Accrual Quality, 21(1), pp. 89–139.doi: 10.1007/s11142-015-9336-9.
Deegan, C. M 2016. Financial accounting.8e edn. North Ryde, N.S.W.: McGraw-Hill Education.
Harumova, A 2016. The economic function of deferred taxes. Newcastle upon Tyne: Cambridge Scholars Publishing
Herz, R. H 2016. More accounting changes : financial reporting through the age of crisis and globalization. First edn. Bingley, UK: Emerald Group Publishing Limited.
Hitchner, J. R 2016. Financial valuation. Somerset: John Wiley & Sons
KMPG 2017, New revenue standard – Introducing AASB 15 [online] Available at
Vernimmen, P 2017. Corporate finance : theory and practice. Fifth edn. Hoboken: Wiley.
Woolworths 2019, Woolworths 2019 annual report [online] Available at