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The purpose of this paper is contribute to analysis the conceptual framework of IASB with evaluate the case of China Light and Power Company Limited (CLP) whether conform to the conceptual framework which comprise of the elements that offer the organization information to stakeholder and users, such as relevance, faithful representation, comparability as well as understandability. We are necessary to further elaborate each elements and analyze the CLP case study in below context.
BACKGROUND OF INTERNATIONAL ACCOUNTING STANDARD BOARD
First of all, International Accounting Standard Board (hereinafter called IASB) which is a global independent non-profit standard-setting association. Furthermore, International Financial Reporting Standards (IFRSs) through the International Accounting Standards Board (IASB) to establish a high quality accounting standards, fundamental conceptual to objectives and identify its concept, which also provide an easier understanding financial statements as well as reporting to a stakeholder's evaluation. In addition, an accountants and auditors can also adopt this international accounting standard for various practical tasks. Theoretically, the conceptual framework is definitely able to provide a reliable reference document in order to develop of accounting standards when the country lack of constitution. Besides, this framework also represented as a basis guideline, norm as well as a statement of principles. However, the framework is not an accounting standard. Regarding the Preparation and Presentation of Financial Statements which was issued by IASC in 1989, IASB was adopted this framework in 2001 as well. Most importantly, according to the different circumstances, the effects of financial transactions and characteristics, which to describe the elements of financial statements.
2.1 THEORETICAL OF FIVE ELEMENTS OF FINANCIAL STATEMENT
As financial statement defined that there are five elements such assets, liabilities, equity, revenues and expenses. Hereinafter is to elaborate the theoretical of assets and liabilities. First of all, the definition about assets, as the framework determined that an assets is the entity as a past incident or transaction and likelihood future economic benefit which controlled by the organization (IASB Framework). Simultaneously, a future benefit will be created when an assets capacity has a directly or indirectly cash inflow or cash equivalents to an organization. Moreover, assets might be classified into respectively current and non-current circumstance. Furthermore, refer to IASB determination that liabilities as a present obligation of the organization arising from past events, the settlement of which is expected to result in an outflow from the organization of resources embodying economic benefits. In addition, equity is defined as all the organization's assets subtract all its liabilities. Significantly, it is no doubts that revenue acts as the regards of the organization increases in future economic benefits which related to increase the assets or decreases the liabilities in accounting period for reliability measurement. Lastly, the element of expenses is serves as the decreases in economic benefits about an organization which related to depletion in an assets or liabilities in accounting period.
To conclude, there is the aims to state the five elements such as assets, liabilities, equity, revenue and expenses, whilst organization preparing the income statement and statement of financial position. And we can defined that these elements are able to provide the relevance, faithful representation, comparability as well as understandability information to the stakeholder, and familiarize an organization whether maximize the likelihood of a potential economic benefit in the future which associated with the item will flow to or from the organization.
CASE STUDY OF ANALYSIS THE 2011 ANNUAL REPORT OF CLP HOLDINGS LIMITED
In this study, we have to further analyze the four of qualitative characteristics information such as relevance, faithfully representation, comparability and understandability with the case of CLP, that are most valuable to the existing and potential investors for their decisions marking which relies on the financial reports.
3.1 ORGANIZATION HISTORY
CLP was established on Jan, 1901 in Hong Kong and its core business is a service of supply electricity to Hong Kong citizens. Nowadays, CLP is a market leadership in electricity industry with diversify various business such as power generation, gas storage, retail services and so on, and implementing a planning about corporate social responsibility by corporate governance to enhances credibility and improves shareholder's and other stakeholders benefits. Thus, we can review its annual report to familiarize the business circumstance and managerial management about CLP.
3.2 THEORETICAL FRAMEWORK
With reference to Brian and Rutherford (2001, pp33-35) revealed, a relevance is provide the related information for the stakeholder to making different decisions. On the other hand, refer to the stakeholder definition which is comprises of suppliers, customers, banker, government, competitors, citizens, employees, shareholder and so on. Therefore, the information should be possess high quality of relevance to help the stakeholder with predicting the future trends of business in financial statements and thereby enable to evaluate past, present and foreseeable circumstance between confirming and correcting any past predictions that they have made (IFRS outlook 2010). We can discuss a few examples to make illustration in further context. Firstly, from the last financial year, CLP was disclosed a decline in earnings per share (EPS) from $2.46 to $2.41. Besides, regarding the CLP profitability, this information is relevant to stakeholders whether acquired confirmation regards of their past predictions and foreseeable future trend in the earnings of the company. Secondly, timeliness is a key to relevance, after the date of financial position report during the time when audit is carried out, then, it becomes clearly which debts were realized (CLP annual report, 2011, p.210)
3.2.2 FAITHFUL REPRESTATION
Faithful representation which is comprise of several elements such as Neutrality, Prudence, free from material error, completeness and true and fair view as well. Moreover, in the financial statement, it is very important to convey the accurately transaction, circumstance and events that occur during a financial period. It is no doubt that an economic phenomenon can be attained by the faithful representation whereas it should be unprejudiced, integrity as well as accuracy. Virtually it is not similar to legal form whereas the economic phenomenon is depicts by faithfully financial information with the foundation material of transaction, event or actual circumstance. Furthermore, there is occur multiple ways despite solely has a single economic phenomenon, however, a multiple economic phenomenon also can be sought out by a single depiction in financial reports. For instance, the independent auditor according the HKSAs report (Hong Kong standards on auditing) was represented the neutrality, prudence and true and fair view (CLP annual report pp.139-146).
As a matter of fact, stakeholder can be acquired the accurate information with the comparability analysis and evaluation about an organization's relative financial position, performance as well as financial position in the financial statement whilst there occurs economic phenomena in growth or decline circumstance of the similar industry entities. As a result, the measurement of the financial performance in similar organization, like as transactions and other events should be coherent for the accounting policy with the entity. Therefore, the information of organization is more valuable for stakeholder referencing. In a momentous therorietical, the information should be based on different circumstances which to be selected or adopted by the stakeholders.
The last qualitative characteristic is understandability. It acts as the quality of information presenting to stakeholders with clearly, correctly and discriminately as well. Therefore, an organization's transaction and events must be portrayal presented in a clearly regards of the financial statements which ensure the complexity to understand status will not occur during stakeholders review. If they unacquainted with the abstruse financial statements and accounting statement which lavish time and possible misleading them. Moreover, we assume the users of financial reports that have a reasonable knowledge of business and economic activities to be read the financial statement generally, such as income statement, consolidated financial statement as well as financial position and so on. Furthermore, when the economic phenomena are tremendously complex, only fewer of stakeholders may understand the financial information depicting those economic phenomena for making their decisions. For instance, there were few pages with the financial statements of CLP (CLP annual report, 2011, pp.136-138) that provided the information how to comprehend the financial statement. The annual report was provided an illustration to user by the concept of "What is the difference between a business combination and an asset acquisition? Why is it important to distinguish them?" In this few pages, CLP report provided the acquisition of a business from accounting perspective and it is the useful information for lack of accounting knowledge investors recognize undoubtedly.
OPINION OF ONE SIGNIFICANT QUALITATIVE CHARACTERISITC
I am deliberating with several elements regards of relevance, faithfully representation, comparability and understandability that those are similarly important elements of qualitative characteristics. However, my opinion to select the qualitative characteristic is a faithfully representation, whereas this characteristic can adequately to track the financial statements to stakeholder for marking different economic decisions, which delegate of an organization that has a high degree of loyalties demonstrated to investors and potential investors of economic phenomena is vital importance in realistically business environment.
As a matter of fact, various users that require different financial information for the purpose of their economic decisions marking. Simultaneously, the users in financial sectors most probably occurs misunderstandings or making incorrect decisions if the relevant financial information is existed inaccurate, false or unfair. Therefore, it is no doubt that the users is essential to familiar a financial statement before make a economic decision.
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CLP Holdings Limited - Annual Report and Accounts, 2011
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Financial Accounting Standards Board, Statement of Financial Accounting Concepts No. Characteristics of Accounting Information (1980)
Hong Kong Standards on Auditing
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International Accounting Standards Board (IASB) (n.d). "Overview". Available from http://www.ifrs.org/Pages/default.aspx [accessed 14.11.2012].
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