Acc303 Contemporary Issues In Accounting- Assessment Answers
lease Given that it is reasonable to assume that the expected life of the premises will vastly exceed three years and that the landlord (lessor) is responsible for the maintenance, on the basis of the information given, the risks and rewards of ownership have not passed. As such IAS 17 prescribes that the lessee charges the rentals payable to the income statement. No asset or liability is recognised, although the notes to the financial statements will disclose the existence of the future rental payments.
However, instead of considering IAS 17 let us consider how the Framework could approach the issue. To recognise a liability per the Framework requires that there is a past event that gives rise to a present obligation. It can be argued that the signing of the lease is a sufficient past event as to create a present obligation to pay the rentals for the whole period of the lease. On the same basis, while substantially all the risks and rewards of ownership have not passed, the lessee does control the use of the building for three years and has the benefits that brings. Accordingly, when considering the Framework.
Answer:
AGL energy limited is one of the leading energy companies that provides gas, electric, renewable energy and solar energy sources to commercial and residential usage purpose. It is involved in generation and retailing of energy to businesses and home. Organization has its operation across areas in Victoria, New south Wales, Queensland and South Australia and has 3.6 million customer base. AGL has the possibility of entering in to residential market of Western Australia in the current year (Agl.com.au 2017). The report is prepared to demonstrate that whether company meet the corporate reporting framework objectives. It deals with presentation of the fact whether organization meets the recognition criteria of reporting liabilities, assets, expenses, revenue and equity. Later part of report is about evaluation of qualitative characteristics of financial reporting for depicting whether information presented is timely, verifiable and understandable.
Adherence to conceptual reporting framework objectives:
Report of AGL is prepared by adhering to requirement and frameworks of corporate reporting framework and Australian standard and other interpretation and authoritative pronouncements that is applicable to Australian accounting standard. Financial statements concise have been prepared according accounting standard AASB 1039 and Corporation act, 2001. Required amendments to standards has been applied by AGL that are effective for current period and relevant to their operations. Attached notes presented in the financial statements comply with and adhere to accounting standard AASB 1039 Concise financial report. Amendments applicable as per the standard helps in better presentation, measurement and de recognition of reporting entity. One of the crucial unbiased of such amendment is to presenting and incorporating stewardship f management (Bebbington and Larrinaga 2014).
AGL energy limited prepare its segment information in their annual report in accordance and compliance with the Australian accounting standard that is AASB 8 operating segments. It has the similar basis as that of internal structure. The majority of margin and revenue from activities of organization is reported by energy market operating segments. On other hand, majority of expenses is reported by operations segments of group. Implementation of framework of conceptual framework has been done in measurement and financial statements recognition. Basis of report has been formed the audited statements and directors of organization is responsible for preparation of the financial statements according to the reporting requirement and framework standard (Li 2013).
Recognition criteria for reporting various items such as revenue, equity, assets, expenses and liabilities:
Various financial instruments to manage the oil price and energy risks is required to be reported at fair value. Changes in fair value of such financial instruments has been analyzed and recognized by considering the Australian accounting standard. The applicable accounting standard to present various items listed in the financial statements complies with the “Australian Accounting standard AASB 139 financial instruments. Any changes in fair value of assets and liabilities that are carried at fair value itself are recognized in the statement of loss and profit. Recognition of equity as a part of making adjustment of hedging is done in conducive to “Australian Accounting Standard AASB 139 Financial Instruments” (Leitner and Wall 2015). The adjustment to hedging of reserve is recognized as equity by depicting changes in derivatives fair value for effective hedges between reporting periods.
Derivatives are regarded as effective hedges as per AASB 139 where changes if derivatives fair value and changes fair value items that are being hedges would considerably offset each other. Any changes in derivatives fair value for ineffective hedges and other liabilities and assets are recognized in statement of loss and profit (Griffith et al. 2015). The hedging activities that are undertaken by AGL and the results provides the proper outcome for foreign exchange reserves and interest rate. However, the complex structure for managing the price risk associated with operations of energy does not have proper result. Change in financial instruments fair value presented in profit and loss statement for the year ending 30th June, 2017 incurred a loss of $ 263 million.
Statutory profit for movement in non-cash fair value is adjusted by the board. The measure of underlying performance is depicted by excluding certain items of expense and income from the segment results. These items comprised of significant items and involve any changes in financial instruments fair value. Relevant accounting standard to which the financial report of organization adheres to requires recording if financial instruments at fair value. As per AASB 119 Employee Benefits in the financial year 2013, the adoption of accounting standard for benefits of employees was restated by organization. A number of expense items are managed and reported for optimizing service levels and maximizing efficiency. The management of such items is the responsibility of various corporate functions and due to this they are not allocated other operating segments.
Adherence to qualitative enhancing characteristics of financial reporting:
A powerful proposal to a reliable, affordable and orderly depiction of financial data is recognized by AGL energy following a proposal for the same. This is done by considering the financial cost of such proposal and according to the energy system. The performance is business of AGL is assessed by using non-financial IFRS measures and deciding on allocation of resources. One of the added measure of security of financial performance of organization as depicted by financial data in annual report is viewed and regarded as considerable change in financial instrument fair value. Another qualitative characteristic if the presented of data in the financial report has been witnessed in the periods that are based on some ineffective hedges apart for liabilities and assets and alterations in derivatives fair value within the reporting period. All such recognitions of fair value is to be made in the statement of loss and profits. In the current scenario, many experts have favored the results of effective hedging that is mentioned and is based on view of company in compliance with the definition of AASB 139 (Chen et al. 2013).
The aspect of statutory profit can be considered by outcome of immersion as the statutory profits would be adjusted by boards for movement of fair value of non-cash items. It has been recognized that immersion outcomes are determined by boards under short-term incentives and long-term incentives. It has been done by management in order to ensure that executives involves are not able to take any undue advantage of the matters that are not beyond their control (Frias et al. 2013).
The above chart depicts the segment information in relation to revenue for two different periods that helps in easy understanding and verifiability of information presented. Resultant value presented in the current year that is 2017 are easily comparable with the previous year that is 2016 and therefore, it can be said that there has been proper and duly presentation of basic comparability aspect. Implementation of this particular qualitative aspect has been done in various areas of financial report such as finance cost, interest benefits, underlying profits, earnings before interest and taxes (Noon et al. 2013). The operations of company has been reviewed in similar fashion so that it will assist in making comparison of yearly data and information.
Financial data of current period are easily comparable with the data for previous year and thereby providing basis for easy verification and understanding. Generation mix has been clearly segmented in recognition with long-term incentives, short term incentives and extreme relations. Donut chart has assisted in demonstration of same information. The previous five years financial data forms the basis of immigration outcome and performance of executives (Francis et al. 2013). Such information comprised of elements such as underlying EPS, statutory EPS, closing share price and statutory loss and profits.
The total return generated to shareholders and annual growth of company has been presented by graphical representation.
The qualitative enhancing characteristics of shareholder return has been clearly depicted by graph. It is so because shareholder return is presented versus ASX 100 index for a time period of five years. Information relating to various items have been fairly presented that enables investors or creditors to verify, understand and compare those (Cheng et al. 2013).
Conclusion:
The report discussed above has been useful in demonstrating the adherence of preparation of financial statements in accordance with conceptual framework and Australian accounting standard. Current financial report for year 2017 has been prepared as per the standards and requirement of Australian Accounting standard board. Recognition criteria of various items such as liabilities, assets, revenue, equities and expenses has been done according to “Australian Accounting Standard AASB 139 Financial Instruments: Recognition and Measurement”.
This standard helps in depicting whether all such items have been reported at fair value in the financial report of AGL. From the analysis of various aspects of financial statements, it can be inferred that organization adheres to all the standard of corporate reporting framework. However, it is required by organization to make improvement in some structure of presentation of information. They should implement required changes as per provided by standard. AGL energy has been successful in presenting information for making easy comparison.
References list:
Bebbington, J. and Larrinaga, C., 2014. Accounting and sustainable development: An exploration. Accounting, Organizations and Society, 39(6), pp.395-413.
Chen, L.H., Folsom, D.M., Paek, W. and Sami, H., 2013. Accounting conservatism, earnings persistence, and pricing multiples on earnings. Accounting Horizons, 28(2), pp.233-260.
Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Francis, B., Hasan, I. and Wu, Q., 2013. The benefits of conservative accounting to shareholders: Evidence from the financial crisis. Accounting Horizons, 27(2), pp.319-346.
Frias?Aceituno, J.V., Rodriguez?Ariza, L. and Garcia?Sanchez, I.M., 2013. The role of the board in the dissemination of integrated corporate social reporting. Corporate Social Responsibility and Environmental Management, 20(4), pp.219-233.
Griffith, E.E., Hammersley, J.S. and Kadous, K., 2015. Audits of complex estimates as verification of management numbers: How institutional pressures shape practice. Contemporary Accounting Research, 32(3), pp.833-863.
Leitner, S. and Wall, F., 2015. Simulation-based research in management accounting and control: an illustrative overview. Journal of Management Control, 26(2-3), pp.105-129.
Li, J., 2013. Accounting conservatism and debt contracts: Efficient liquidation and covenant renegotiation. Contemporary Accounting Research, 30(3), pp.1082-1098.
Miller, P. and Power, M., 2013. Accounting, organizing, and economizing: Connecting accounting research and organization theory. Academy of Management Annals, 7(1), pp.557-605.
Noon, M., Blyton, P. and Morrell, K., 2013. The realities of work: Experiencing work and employment in contemporary society. Palgrave Macmillan.
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