Good Essay On China Unicom
International Accounting Concepts Application by AT&T VS China Unicom
IFRS refers to a set of international accounting standards that state how particular events and transactions should be treated and reported in an organization’s financial statements. The International Accounting Board issues the guidelines, and their main goal is to make a comparison of financial statements in international operations much easier. That was necessary because countries have had their accounting rules and policies as GAAP differed between countries. Thus, IFRS has been a means of synchronizing accounting standards across the globe.
The standards are being applied in over 120 countries as well as reporting jurisdictions that allow their use in preparation of publicly owned organization’s financial statement. There has also been increasing merger between IFRS and the other standards such as GAAP and countries such as US are more likely to allow companies to adopt IFRS fully or require them to switch fully to the standards. In that respect, his report presents an analysis of the IFRS standards with reference to various accounting concepts. The standards are analyzed with reference to two international companies with one being based in US; AT &T while the other is a Chinese based company; China Unicom. The analysis seeks to demonstrate the standards’ application in the two countries.
There had been increasing effort for US companies to adopt IRFRS with the movement beginning in 2002 when the FASB and IASB issued the Norwalk Agreement. The benefits of IFRS to a company include ease of financial statements’ comparison with those of other companies that apply the same standards. The standards may also facilitate access to global capital and cross-border investments.
The Company operates in telecommunications industry and was incorporated in China, and its principal activity is investment holding. Its subsidiaries provide fixed line and cellular voice and related services, business data services, internet, and broadband. (Chinaunicom, 2013)
The business is in the telecommunication industry and provides high-speed Internet, advanced mobile services, as well as next-generation TV services with its operations based In US, but having a wider reach in international markets, . (AT & T, 2013)
Auditing requirements: Disclosure
Auditing requirements stipulates what a company should adopt in its financial reporting for the purpose of auditing its financial statements and operations. Such requirements cover various aspects including Disclosures. In that respect, IFRS 7 requires a company to make certain disclosures to instruments categories that are based on 39 categories of measures. Thus, the standards require that companies must classify and group its instruments as appropriate according to the nature of information that is presented to them. (IFRS, 2015d)
The requirement has two main categories including the information on the significance of a company’s financial instruments as well as information on the extent and nature of risks that arise from the instruments. Such information includes disclosures on assets that are measured at their fair value with an indication of those that are held for trading purpose and those that are designated at the initial recognition. It also includes the receivables, loans as well as the investments held to maturity and assets held for sale. Others are liabilities at their amortized value. (IFRS, 2015d)
The company discloses fair value of its liabilities for assets retirement obligation in periods that they occur. The business also discloses the period to period changes in its liabilities hence creating a fair view of its obligations and fair value. (AT&T, 2013)
The company follows the IFRS guidelines on disclosure of various items and aspects. A good example is the disclosure of the equity in its subsidiaries and other joint investments in its financial statements and reports. (Chinaunicom, 2013)
Reporting requirements stipulates how companies should report various aspects of their financial position and operations in the various financial statements including income statement and balance sheet. They are stipulated in IAS 27 that has an objective of prescribing disclosures and accounting standards for joint ventures, subsidiaries investments, as well as associates in a company’s financial statements. The standards are applicable to subsidiaries, associates, and joint ventures when a company elects to or is required by the local regulations to provide separate statements for the operations. The requirement stipulates that companies providing separate financial statements should account for the joint ventures, subsidiaries as well as associates investments in accordance with IFRS9 or at cost. The requirement is to be applied to all categories of investments. (IFRS, 2015a)
The requirement also has a prescription of the minimum content that interim financial statements should contain and the principles of measurement as well as recognition in the condensed or complete interim statements. The requirement is useful as it provides for timely and reliable financial reporting. That enhances the ability of creditors, investors and other stakeholders to understand an entity’s ability to generate cash flows and earnings given their liquidity and financial position. (IFRS, 2015b)
An interim financial report is a report that contains a set of financial statements for an interim period that is shorter than a year. The standards seek to enhance the timeliness and consider the cost implications for avoiding repetition of information that is provided previously on a company’s financial statements. That is done by the requirements’ allowing provision of less information during the interim dates in comparison with its annual financial statements. (IFRS, 2015b)
Although the Company adopts some IFRS standards, its financial statements and accounting is mainly based on GAAP. Thus, the standards require reporting that is based on management’s estimates and assumptions on aspects that affect the financial statement’s amounts. However, the actual results could be different from the estimates hence a need for reclassification for them to conform to the period’s presentation in line with IFRS guidelines. In addition, investments in subsidiaries and joint investments are included in the company’s financial statements. (AT&T, 2013)
The IFRS standards guide the company's financial reporting. Such include its reporting of subsidiaries investments in its accounting and statements under the equity method. The company also discloses other items such as gains and losses on benefits obligations and pensions among others. In addition to the company’s disclosure in line with IFRS, it also follows the HKAS and the applicable guidelines on the Hong Kong listed securities. Further, the financial statements are prepared under the historical cost concept. (Chinaunicom, 2013)
Accounting standards: Revenue recognition
Accounting standards stipulates how various aspects of a company’s accounting should be treated. In that respect, aspects such as revenue recognition are crucial in ensuring that the information provided on financial statements presents a fair view of an organization’s position and performance. Thus, IFRS has standards on revenue recognition among other aspects. (IFRS, 2015c)
The company recognizes its revenue when services are provided to its clients. That includes the revenue from services charged on arrears or advance. That is in line with the requirement for revenue recognition when it is earned rather than when it is received. (AT&T, 2013)
The company’s revenue is taken as the fair value of the considerations that have been received or the receivables. Thus, revenue is recognized when services are offered in line with IFRS guideline. (Chinaunicom, 2013)
Pricing issues: Inventories
Pricing is a key accounting issue given that the prices at which items are reported at in the statements have an effect on their value hence the position of a company’s position and performance. In that view, IFRS has guidelines on the prices that are to be used in reporting various items such as inventories. The guideline on inventories provides that inventories must be reported at their cost price and should be treated as assets that are carried forward to the time when their related revenues are recognized. The standard stipulates that the determination of the cost price in subsequent recognition of inventories as expenses including the write-downs to the net realizable values. The standard also guides on the cost pricing formulas and states that inventories should be measured at their lower cost as well as net realizable value. The net realizable value for an item is described as its estimated selling price in ordinary business less the necessary costs related to the sale. The guide also states that inventories cost should be accounted for on FIFO basis thus use at the price of the last inventories in costing the stock at hand. (IFRS, 2015c)
The company accounts for its inventories at market value or the lower cost basis. In that respect, the Company prices its inventories based on their estimated sale price. That differs with IFRS requirement for cost price accounting. (AT&T, 2013)
The company’s inventories that mainly comprise of accessories and handsets are recorded at their net realizable value. In that respect, they are recorded at a cost-based on FIFO basis and inclusion of additional costs for the items in their sale. Thus, the company applies an estimated sale price that covers purchase price and expenses. That is a deviation from IFRS guideline for use of Cost price in accounting for inventories. (Chinaunicom, 2013)
The two companies that have been analyzed falls under the same industry with operations in telecommunications industry. In view of the analysis, it is clear that companies across the globe are increasingly adopting the use of IFRS standards as a means of enhancing investments and financial position’s comparisons. However, companies are still subject to their local regulations regarding their financial reporting hence the cause of some variations in the reporting. That has been demonstrated by the two companies application of IFRS guidelines with some deviations that are in line with other standards such as GAAP and the Chinese regulations.
AT&T. 2013 Annual Report. 2013. Web. 10 Feb.
China Unicom. 2013 Annual Report. 2013. Web. 10 Feb.
IFRS. Technical Summary: Separate Financial Statements. 2015a. Web. 10
Feb. 2015. <ttp://www.ifrs.org/IFRSs/Documents/Technical-summaries-2014/IAS%2027.pdf>
IFRS. Technical Summary: Interim Reporting. 2015b. Web. 10 Feb.
IFRS. Technical Summary: Inventories. 2015c. Web. 10
Feb. 2015. <ttp://www.ifrs.org/IFRSs/Documents/Technical-summaries-2014/IAS%202.pdf>
IFRS. Technical Summary: IFRS 7 Disclosures. 2015d. Web. 10
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