5301.1 Introduction to Muli Accounting

The object of the financial reports produced using Muli is to provide information about the financial position and performance of an entity that is useful to a wide range of users in making business decisions and to provide the current financial status of the entity to its stakeholders.

The Muli construction accounting software framework is designed to enable you to prepare your accounts in accordance with:

(IFRS) International Financial Reporting Standards for the interpretation and framework for preparation and presentation of financial statements adopted by the International Accounting Standards Board (IASB).

In the absence of a standard or a specific interpretation, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS8.11 requires management to consider definition, recognition criteria and measurement concepts for assets, liabilities, income and expense in the framework.

Looking at the many opening accounts that Muli's customers started with, one major theme emerges. They were prepared for “Tax Reporting”, not to enable stakeholders to obtain a “true & realistic view” of their business. Two major effects of this are "how project profit is recognised" and "the failure to fully recognise employee liabilities, such as Provision for Annual Leave".

If we examine the issue of Provision for Annual Leave, we would recommend that in calculating your payroll you provide for your statutory obligations so that the business can fully meet its obligations when required. The following example illustrates what may otherwise happen:

Say you have a project that runs for 15 months and ends in July. Assuming that the majority of staff only had nominal holidays and if for example you have 50 employees that are owed, say 25 days at $300per day (gross). This equates to a $375,000 real liability.

However the project is complete, so there is no income to cover the expense. In Australia some accountants argue that the provision is not legitimate in tax terms and so they will write it back. This results in a tax expense of around $112,500 and a cash outflow of $487,500 - little wonder some companies during a downturn are unable to meet employee obligations and suddenly FAIL.