Super Retail Group Financial Report Analysis

This Report was commissioned on the request of the Board in relation to ACACIAS press release 12-MURMUR ACACIAS areas of focus for 30 June 2012 financial report. A review of the relevant divine revelations made In Super retail Group Lads 2012 Annual Report is assessed against relevant polices that relate to element 8, estimates and invoice policy fancys on a lower floor ACACIAS press release.Executive Summary release 12-MURMUR SAISS areas of focus for 30 June 2012 financial report. A review of the relevant disclosures made in Super Retail Group Lads 2012 Annual Report is assessed against relevant policies that relate to element 8, estimates and reputation statement policy Judgments under Saiss press release. The outline of SAAB standards 108 Presentation of Financial Position, CASABAS Impairment of Assets, SAABS 38 Intangible Assets and SAABS 37 Provisions, Contingent Liableness and Contingent Assets are disclosed.Super Retail Group (SIR) Lads accounting practice is determined i n regards to the standards examined. From this analysis, differences can be determined in the ways SIR applies the relevant standards and the requirements of the standards in relation to estimates and Judgments. From this analysis, it is determined that SIR has failed to disclose any Judgments and certain estimates and assumptions that may affect world-shaking amounts seen In the financial statement and the entities positions. Recomm send awayations of elaboration the presentation of the disclosures and the ways in which it should be structured are outlined.ASIA has identify the wish for disclosures inside this area for implementrs to assess the reported financial position, as entities did non farm material disclosures of sources of estimation uncertainty and significant Judgment in applying accounting policies. An analysis of the relevant counting standard, ISOBAR in particular paragraph 17-124, revelation of Accounting Policies and paragraph 125-133, Sources of Estimation Uncertainty, CASABAS Impairment of Assets, CASABAS Intangible Assets and CASABAS Provisions, understand Grogs current accounting practices reflected in the 2012 Annual Report.A moreover discussion into the differences amid the accounting standards use and its requirements and the masking of them are examined. Through this, recommendations are then outlined into refining the gap between Grogs current accounting practices and the requirements of the standards. Relevant Accounting Standard The relevant accounting standard related to disclosures of sources of estimation uncertainty and Judgments can be found within ISOBAR Presentation of Financial Statements.Other key standards that are relevant to Grogs disclosure of assumptions, estimates and Judgments are SAABS 36 Impairment of Assets, SAABS 38 Intangible Assets and CASABAS Provisions, Contingent Liabilities and Contingent Assets. 2. 1 ISOBAR This standard outlines the presentation of financial statements for general purpose finan cial statements, in order to ensure that there is comparability between the entities coverage completions as well as between other industries reports. The standard discusses the minimum requirement for reporting content and guidelines for the structure in which it is to be set at. split up 117-124 distinguishes the disclosure of accounting policies in relation to Judgment. Managements Judgment made in applying accounting policies that may apply effected significant amounts found in financial statements and the financial position. Seen in paragraph 125-133 Sources Of Estimation Uncertainty, it is vital that entities disclose the key assumptions made grading forthcoming prospects and other uncertain estimates that are used in identifying carrying amounts of assets and liabilities.Along side this, the nature and carrying amount must be disclosed at the reporting date. 2. 2 SAABS 36 Under SAABS 36 it is essential for assets to be tested for impairment when the carrying amount exceed s its recoverable amount. In undertaking these annual proceedings, a number of related Judgment and estimated assumptions need to be encountered. There is a need for Judgment when determining change-generating assets (Paras. 68). Paragraph 30-57 outlines the associated requirements for calculating value-in-use.Paragraph 30. A specific entirelyy identifies the need for an estimate of emerging cash flows that the entity expects to generate from the asset. These cash flow projections are outlined in paragraph 33. A, where it is based on reasonable and supportable assumptions made by precautions estimates, re- stated advertise in paragraph 34, where this assumption is based on the difference between past cash flow predictions and actual cash flow amounts. These projections need to be consistent with previous projections.Paragraph 38 continues to detail the significance for management to use the appropriate assumption that would best fleet managements estimates of economic conditions that will continue throughout the assets useful life. When calculating the value-in-use, there is a need to determine a discount rate and under paragraph 55 the rate is a pre-tax rate. Paragraph 126-137 states that entities should be encouraged to disclose the assumptions and various estimates taken in order to determine the CHUG recoverable amount during the period.Paragraph 134 requires that a disclosure of the groups key assumptions, verbal description of managements approach to identifying these assumptions, the period future cash flow as well as the discount rate applied. . 3 SAABS 38 SAABS 38 details the accounting procedures applied for intangible assets that are not specified otherwise in other standards. This standard deals with a number of assumptions and estimates that are required when applying it.Paragraph 22 examines the need for entities to assess the prospect of anticipated future economic benefits using reasonable and supportive assumptions that will exist over the useful life of the asset. Paragraphs 33-41 identify the requirements regarding acquisitions as part of a business combination, these intangible assets must be recognized separately from well be puddledwill. Paragraph 41 examines the principle of entities being allowed to use techniques that guide a bun in the oven been real for estimating fair values. The standard requires certain disclosures outlined in paragraphs 118-128.These disclosures provided basis for understand of assumptions and estimates involved in determining Finite or indefinite useful lives, amortization rates and the reasons for identifying an intangible asset having indefinite useful life Amortization methods used for definite lives The gross carrying amount for any accumulated amortization rapprochement of the carrying amount at start and end of period Information grading any restrictions on the face of intangible assets or any assured as security for liabilities 2. CASABAS SAAB 137 outlines the accounting pro cedures for provisions, contingent liabilities and contingent assets. Under paragraph 36 the best estimate required to settle the present obligation at the end of the financial period is the amount recognized as a provision. This estimate discussed in paragraph 38 is determined by the Judgment of management and takes into account risk and uncertainties, the discounting of present value (discounting at a pre-tax rate) and future events that may affect present obligations.Further Judgment needed by management is necessary when relations with risks and uncertainties in order to avoid overstating or understating accounting elements. When disclosing the application of this standard paragraph 84-92, in relation to Judgments and assumptions, an entity shall detail the major assumptions made relating to future events further addressed in paragraph 48 that is the description of future events that may affect the amount of the provisions likeliness to occur. In summary an entity shall disclos e the reconciliation of the movements of each class of provision and detailed cultivation regarding the nature f the obligation.Under note 3 found in SIR Ltd 2012 Annual Report, three significant factors have been disclosed that may result in an alteration of future material adjustments due to estimates and assumptions (Refer to Appendix 1) I. Estimated impairment of gracility I. Estimated value of intangible assets relating to acquisitions iii. Estimated make good provisions The associated SAAB standard, antecedently discussed are SAABS 36 Impairment of Assets in relation to point I, SAABS 38 Intangible Assets corresponding to ii, and iii, is the reflection of CASABAS Provisions, Contingent Liabilities and Contingent Assets.Specific paragraphs have been discussed earlier in order to understand the Grogs accounting practices. 3. 1 Critical Accounting Estimates and Assumptions SIR Ltd applies SAABS 36, CASABAS and SAABS 38 regarding estimates and Judgment disclosures under ISOBAR paragraph 125-133 as discussed previously. Estimated impairment of goodwill deals with the application of SAABS 36 disclosed under note 1. 0. In applying SAABS 36. 68, SIR has classified the recoverable amounts for CHUG, which are determined based on the calculated value-in-use.The assumptions require the application of paragraph 134, outlining the assumptions under note 14. (Refer to Appendix 2). The growth rate and discount rate for each subsidiary and the period of which these assumptions are based on, that is a five-year period approved by the Board has been outlined. The assumptions disclosed regarding value-in-use is that budgeted gross margins are determined by past and expected future performance. There is consistency between the use of weighted average growth rates and forecasts included in industry reports.Disclosures of managements explanation as to why certain subsidiaries were not calculated using value-in-use is present. SIR Ltd has identified the intangible assets tha t undertook assumptions and estimates as tick names and supplier agreements, as well as put options. The use of paragraph 41 has been performed by SIR Ltd in valuing smear names using the relief from royalty method and multi-period excess earnings method in valuing supplier agreements. In determining these calculations, assumptions are made by management.The value of put options has undertaken estimations. These three intangible assets were acquired as a business combination. SIR disclosures of the assumptions and estimates reflecting the application of SAABS 38. 18-128 are found under note 1 . Q. Iv-v (Refer to Appendix 3). strike out names are determined as indefinite, supplier agreements have a useful life of 20 years, and amortization is calculated in regards to the timing of intercommunicate cash flows over the estimated useful life. Reasons for specific brand names being classified as indefinite is outlined under note 14. . The key factors that management has taken in depi cting brands useful life is also estimates in accounting for provisions for make good on the removal of leasehold improvements or recall leasehold premises to the original state. The make good provision is recognized when SIR has a present obligation from the occurrence of past events. Leasehold improvement costs are capitalistic and amortized over the useful life or the shorter of the period of the lease disclosed in note 18. C (Refer to Appendix 5). Note 1 . States that the amounts for provisions have been reliably estimated, and are not recognized for future operating losses (Refer to Appendix 6). Further disclosed under note 1 . Z, is Grogs application of make good costs. They are recognized as a provision at the beginning of the agreement and these estimated true payments are discounted using appropriate market knuckle under at reporting date. (Refer to Appendix 7). 3. 3 Significant Judgment Significant Judgment is essential for SIR to disclose when applying the listed standa rds. There have been no Judgments disclosed under note 3.Accounting Standard Requirements The one significant gap found between ISOBAR and the current practices of SIR Ltd is the failure of disclosing significant Judgment. ISOBAR . 122 details an entity should disclose a summary of the significant accounting policies of management Judgments (apart from those of estimations) dad in applying the entitys accounting policies, which has affected significant amounts recognized in financial statements. SIR Ltd has failed to disclose a summary of Judgments made that may affect significant amounts on financial statements.However SIR has disclosed estimates and assumptions yet certain areas are not successfully outlined. Assumptions are clearly outlined in the notes, however a detailed description and reasoning of managements approach to identifying these is not present. Management estimates relating to put options have not been clearly stated within the notes. The assumptions regarding the v aluation ethos of brand names and supplier agreements have not been outlined (royalty method and multi-period excess earnings). ISOBAR . 125 has not been effectively applied in Grogs disclosure of assumptions.There is no information regarding the assumptions of future events. Assumptions and estimates overall have been disclosed, however briefly without detail, as required by ASIA. In order for SIR Ltd to comply with the standard of disclosures of estimates and judgments by which ASIA requires, certain adjustments for future disclosures are needed. The need for ease of locating information requires the implementation of fined structure essential. Under note 3, Critical accounting estimates and judgments, a clear distinction between estimates and Judgments is integral.A distinct need can be seen within note 3. A. I to refer to note 14 for details and should be outlined in ii and iii. It is herculean to locate the relevant information regarding estimates value of intangible assets re lating to acquisitions and estimated value of makes good provisions, however assumptions are still outlined throughout the notes despite a inadequacy of clarity regarding referral to note 3. Any related estimates and judgments made by management need to be discussed under note 3, regarding the nature of the element relating to estimates or Judgment.The differences mentioned previously need to be refined assumptions relating to the future events, estimates relating to put options and methods used to value brand names and supplier agreements need to be outlined. It is important for SIR to disclose all related information that may assist users in making economic decisions. Therefore it is essential for SIR to outline all assumptions, estimates and Judgments made that affect significant amounts within the financial statement and financial position.