Question

Case:Underpaid Workers

DuringJanuary 2020, the Fair Work Commission1commenced an investigation into Defiant Ltdfor underpayment of wages. The Fair Work Commission is expected to deliver its decision in October 2020. However, Defiant Ltd’s lawyers advised that it was likely that theCompany would be required to compensate past and present employees for underpayment of wages.

Defiant Ltd’s financial accountant estimated thattheamount involved was in the range of $8,000,000 to $9,000,000. Of this amount, $1,000,000 relates to past employees. Thefinancial accountant thought there might be some difficulty locating some former employees, and did some modelling to calculatethe expected value of the cost of paying former employees to be $700,000.The Chief Executive Officer (CEO) thought the matter should be disclosed in thenotes to the financial statements for theyear ended 30 June 2020. However, the Chief Financial Officer(CFO) wasnot convincedand has asked you to do some preliminarywork on the accountingproblem.

a)What is the main accounting policy issue(s)that need to beresolved in relation to the alleged underpayment of wages?(approximately 15 –50 words)

b)i) Which Accounting Standard is most relevant to the issue?(2words, answer in the formatAASB XXX)

ii) Identifyoneprinciple from that Standard that isrelevant to the accounting policy issue that you identified in part a)by providinga reference for that principle (e.g., AASB XXX, para.zz, or para. z1 and z2)ANDexplain why you chose that principle. (approximately20 –60 words)

iii) ii) Identify another principle that is relevant to the accounting policy issue that you identified in part a) by providing a reference for that principle.(e.g., Conceptual Framework, para. X.XX or AASB XXX, para.X1 and X2)(up to10words)

c)Describean accounting policy to account for the alleged underpayment of wages in the financialstatements for the year ended 30 June 2020.Do not justify your policy. Just describe it.(approximately20-90 words)

Answer 1

answer a) accounting policy need to be resolved in relation to the alleged under payment of wages is AASB108 accounting policies, changes in accounting estimates and errors.

answer b) accounting atandard 119 employees benefits  is most relevant to the issue.

answer c) disclose the prior period errors as per (AABS 108) -

   1) the nature of prior period error,

   2) the amount of correction for each line item affected and, if applicable, for basic and diluted earnings per share and

3) the amount of correction at the begining of the earliest period presented.