ASSIGNMENT: The overarching objective of GPFR i

ASSIGNMENT:

The overarching objective of GPFR is
decision usefulness, supported by relevance, reliability and
comparability. The desire to achieve
comparability and (by implication) consistency over time is the reason to have
reporting standards (Schipper 2003). There
has however, been widespread and longstanding criticism that accounting rules
fail to disclose information, or present it in ways that users are unable to
incorporate in their decision-making processes (Mackintosh, 2006; Pozen, 2007). Too often accountants and researchers operate
within the parameters set by the standard setters, rather than questioning and
challenging them.

This
criticism became more pronounced in the wake of the Global Financial Crisis
(GFC) when a number of reports, including those from the Financial Stability
Forum (2008), the Turner Review (2009), and the Congressional Oversight Panel
(2009) warned that accounting rules facilitated various forms of off-balance
sheet financing (OBF). These reports linked the GFC to OBF as regulators and
other equity market stakeholders were misled regarding the level of risk faced
by reporting entities.

Leases
are a significant financial commitment to an entity, but the fact that they are
currently not reflected on balance sheets can present a misleading picture
about leverage and the assets that the lessee uses in its operations. AASB117 has been heavily criticised for its
inconsistent treatment regarding leases.
The current distinction between finance and operating leases provides
incentives to structure some transactions as operating leases, which has led to
a significant increase in off-balance sheet financing.

The AASB and IASB issued an exposure draft on
leases in May 2013 (ED242 and ED/2013/6 respectively). The exposure draft proposes that all leases,
except for short term leases, be included on the balance sheet.

Critically evaluate and discuss whether the
exposure draft is an improvement on AASB117 in terms of decision
usefulness. Your response should include a review of the current literature
relating to leases and off-balance sheet financing. You should refer to Statements of Accounting
Concepts, the Framework, other relevant accounting standard(s), IFRIC and UIG.

In
addition to your literature review, you are required to determine the nature
and extent of the current accounting treatments and disclosure of leases within
financial statements for two companies:Monadelphous Group
Ltd and UGL Ltd from Industrial sector listed on the Australian Stock Exchangefor the financial years ended
2010, 2011 and 2012 (i.e. 3 years) and show how these leases will be reported
under the requirements of the exposure draft.
You need to consider:
o how the companies classify leases
o how they account for the leases
o how leases are disclosed
o using relevant ratios, indicate
the impact this has on the financial reports.

You need to develop
an argument using the literature and then use the data from the company’s
annual reports to support your argument.
It is also your job to identify the ratios and the variables of interest
and how they would be reported under the exposure draft, etc.

Presentation

The research and technical component of the assignment is to be
typed.

§ Your group
report should be approximately 1500
words, plus any attachments/appendices.
§ In
addition, an executive summary of no more than one page should be submitted.

The assignment is to be appropriately referenced using the Harvard
method.