Busn7005 | Accounting | The Assessment Answer

Objective 1:

It is provided under the conceptual framework as recommended by AASB that reporting entities should make disclosure of all the information’s that are relevant to investors and resource contributor (Hellman et al. 2016). This particular aspect has improved the transparency of reporting organization in terms of profit, expenses, revenue disclosure.

Figure 1: Consolidated statement of profit and loss of AGL energy limited

(Source: Agl.com.au. 2018)

Compliance with such framework is well evident from the annual report of AGL energy limited. It is so because organization has made disclosure of all the financial elements such as revenue, expenses and income generated in its statement of profit and loss (Feng et al. 2014). Total amount of profits attributable to AGL energy limited and non controlling interest is adequately disclosed with relevant figures which are relevant for investors and shareholders.

Objective 2:

Shareholders are able to derive information about the financial performance of reporting entities if they are adequately represent the facts and figures related to financial information. It is for this reasons, organization or reporting entities have the mandate of disclosing all the matters relating to financial assets, liabilities. All the pertinent information relating to the resources and assets of organization are depicted in its statement of financial position. Such statement is beneficial to investors as it provide crucial information about reporting entities total assets and liabilities and thereby provides the actual picture of its financial performance (Ball et al. 2015).

Figure 2: Statement of changes in financial position of AGL energy limited for financial year 2017.

(Source: Agl.com.au. 2018)

Objective 3:

Any alteration in the financial performance of reporting organization should be reflected in the annual report according to the guiding principles of framework set by AASB (Conway and Byrne 2018). It has been ascertained from the analysis of annual report of AGL energy limited that the total amount of cash generated by organization and any changes in equity level is reported in the statement of changes in equity and statement of cash flow respectively.

Figure 3: Consolidated statement of cash flow of AGL energy limited for financial year 2017

(Source: Agl.com.au. 2018)

The total amount of cash generated by reporting entities from financial, operating and investing activities are properly depicted in the statement of cash flow. Such disclosure helps in evaluating the total amount of cash and cash equivalent at the end of particular reporting period.

Figure 4: Consolidated statement of changes in equity of AGL energy limited

(Source: Agl.com.au. 2018)

The above table depicts changes in equity value for the financial year 2017 that exhibits the total comprehensive income, loss if any, share based payments, payment of dividends and issue of ordinary shares. Such information disclosure is essential as it helps in evaluating the changes in different components of equity along with retained earnings (Zhang and Andrew 2014).

Recognition criteria:

Recognition is the process by which items of income statement and balance sheet satisfied the criteria of measuring the cost of item or value with reliability. In addition to this, it is also required that such items have probable future economic benefit with flow into and from the entity (Otley 2016). There are several criteria of recognition relating to assets, expenses and revenue generated.  Some of the items for which recognition criteria have been set are listed below:

Assets-

From the analysis of annual report of AGL energy limited, it can be seen that organization complies with the accounting standard applicable to value the property, plant and equipments. Measurement of property, plant and equipment is done at cost by deducting the accumulated impairment loss and deprecation.

Figure 5: Recognition of property, plant and equipment

(Source: Agl.com.au. 2018)

Computation of net carrying amount of plant and equipment disclosed above incorporates the expenditure that is recognized in relation to equipment and plant in the construction course. Recognition of assets is done in the statement of financial position for which the value and cost of assets can be measured reliably. From this it can be said that AGL energy limited is complying with the recognition of plant, property and equipment.

Liabilities- Measurement and classification of financial liabilities are done according to AASB 9. Some of the categories for measurement pursuant to the accounting standards used by organization involve fair value computation through inclusive income and profit and loss. (Spencer and Webb 2015). The hedging accounting policies and financial impact of expected credit loss model aligns with the requirement of AASB 9.

Recognition criteria of liabilities:

(Source: Agl.com.au. 2018)

Recognition criteria of liabilities:

(Source: Agl.com.au. 2018)

Expenses- The joint operations of AGL have direct rights to liabilities, assets, revenue and expenses which have been recognized in accordance with the respective applicable AASB standard. A decrease in total expenses of amount $ 16 million is restated in the consolidated statement of profit and loss.

Recognition of expenses:

(Source: Agl.com.au. 2018)

Revenue- Recognition and measurement of revenue is done at fair value for the amount that has been received or is receivable to the extent that there is probability of flow of economic benefits and reliable measurement of revenue. Recognition of revenue from electricity and gas service are done after it has been delivered to customers (Gomariz and Ballesta 2014). In addition to this, the percentage of completion method forms the basis of revenue from services provision. Recognition of dividend is done when organization established the right to receive payments.

Fundamental qualitative characteristics of financial reporting:

The qualitative characteristics of financial reporting at fundamental level depicts that financial information should have predictive value that would make difference to decision making. The two fundamental qualitative characteristics are faithfulness and relevance. It can be seen from the annual report of AGL energy limited for financial year 2018 that investors are provided with relevant information that would assist them in undertaking financial decisions. All the financial information pertaining to assets, liabilities, equities, revenue, liabilities and expenses have been represented faithfully so that they are neutral, complete and free from errors (McCusker and Gunaydin 2015). However, it is inevitable to produce financial information that is completely free from errors but the description of economic phenomenon is impacted by such omissions or errors.

Enhancing qualitative characteristics of financial reporting:

The factor of timeliness, comparable, understandability and verifiable presentation of financial information helps in enhancing fundamental characteristics. It can be seen that the users of financial report of AGL energy limited would be able to compare the financial information presented over a period of time. The transaction or events presented in the report is represented faithfully as adequate information and reasons have been presented. Furthermore, users are able to derive relevant information that is consistent with the existing framework and they are presented in a concise and clear way, characterized and classified properly. The notes to financial statements provides user with the clear accounting assumptions and estimates which gives the assurance of the fact that information has been verified. 

Conclusion:

From the analysis of annual report of AGL energy limited for the financial year 2018, it can be inferred that the objectives of conceptual framework have been duly met in presenting the financial statements and its preparation. AGL has further complied with several recognition criteria presented under the AASB relating to assets, liabilities, revenue, expenses and assets. In addition to this, it can also be said that the fundamental and enhancing qualitative characteristics have meet met when preparing the financial report. However, there are accounting standards to which organization should comply with for improving their transparency related to information disclosure. Therefore, AGL energy limited is recommended to adhere to the regulations and principles of conceptual framework and AASB. This would help organization in avoiding some significant problems relating to accounting and financing activities.

References:

Agl.com.au. 2018. [online] Available at: https://www.agl.com.au/-/media/aglmedia/documents/about-agl/investors/annual-reports/180809-2018annualreport1829055.pdf?la=en&hash=E788FF0DAEEC20BB5C21C9C232396170880D78AE [Accessed 14 Aug. 2018].

Ball, R., Li, X. and Shivakumar, L., 2015. Contractibility and transparency of financial statement information prepared under IFRS: Evidence from debt contracts around IFRS adoption. Journal of Accounting Research, 53(5), pp.915-963.

Conway, E. and Byrne, D. eds., 2018. Contemporary Issues in Accounting: The Current Developments in Accounting Beyond the Numbers. Springer.

Feng, M., Li, C., McVay, S.E. and Skaife, H., 2014. Does ineffective internal control over financial reporting affect a firm's operations? Evidence from firms' inventory management. The Accounting Review, 90(2), pp.529-557.

Gomariz, M.F.C. and Ballesta, J.P.S., 2014. Financial reporting quality, debt maturity and investment efficiency. Journal of Banking & Finance, 40, pp.494-506.

Hellman, N., Andersson, P. and Fröberg, E., 2016. The impact of IFRS goodwill reporting on financial analysts' equity valuation judgements: some experimental evidence. Accounting & Finance, 56(1), pp.113-157.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

McCusker, K. and Gunaydin, S., 2015. Research using qualitative, quantitative or mixed methods and choice based on the research. Perfusion, 30(7), pp.537-542.

Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, pp.45-62.

Spencer, A.W. and Webb, T.Z., 2015. Leases: A review of contemporary academic literature relating to lessees. Accounting Horizons, 29(4), pp.997-1023.

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.