Accounting Analysis of Clinuvel Pharmaceuticals’ Operations

This article provides an accounting analysis of Clinuvel Pharmaceuticals’ operations, including key accounting policies such as research and development, intangible assets, and depreciation of plant, property, and equipment. It also assesses accounting flexibility, potential red flags, and accounting disclosure procedures. The subject, course code, course name, and college/university are not mentioned.

ACCOUNTING ANALYSIS OF CLINUVEL PHARMACEUTICALS’ OPERATIONS

Table of Contents
1.0 IDENTIFICATIONS OF KEY ACCOUNTING POLICIES....................................................3
1.1 Research and development.....................................................................................................3
1.2 Intangible Assets....................................................................................................................3
1.3 Depreciation of plant, property, and equipment....................................................................3
2.0 Assess accounting flexibility.....................................................................................................4
2.1 Capitalisation of Research and Development costing............................................................4
2.2 Valuation and estimations of the useful life of intangible assets...........................................4
2.3 The depreciation method of property, plant and equipment adopted....................................4
3.0 Potential Red Flag......................................................................................................................5
3.1 Changes in methods of depreciation for property, plant and equipment...............................5
4.0 Evaluation of accounting disclosure procedures.......................................................................5
5.0 Undo Accounting Distortion......................................................................................................5
6.0 Conclusion.................................................................................................................................5
References........................................................................................................................................6
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1.0 IDENTIFICATIONS OF KEY ACCOUNTING POLICIES
1.1 Research and development
Research and development and commercialization spending accounted for 45% of the total
expenditure of the cluster for the fiscal year 2017/2018, compared to 40% for the financial year
2016/2017. This costs that are comprised of study costs for the clinic, drug formation research
and manufacture and distribution fee, regulatory and research fee, and development and
commercialization overheads. (Clinuvel Pharmaceuticals’ ,2018)
The increase in these expenditures reflects the further investments throughout the years in the
commercial roll out in a bid to secure revenues the, was prepared on the NDA regulations that
meet the FDA’s expectations. Innovation has been distinct as the outlined of new or better-
quality changes in goods and services, procedures and means that organizations use to improve
on products and new marketing methods (OECD/Eurostat 2005).
1.2 Intangible Assets
Clinuvel Pharmaceuticals’ operations deals with creating medicinal products and therefore the
intangible assets compose of various portions of Clinuvel Pharmaceuticals’ operations.
Intangible assets such as trademarks, patents, and licenses have a fixed beneficial life and are
recorded at a costless amassed amortization and impairments losses, the amortization is done on
a straight-line basis over a shorter valuable life that is reviewed annual reporting periods. The
subject of amortization and capitalization of expenses on intangible assets is abundant and lively,
thus by developing amortization plans that will progress rather than harm earnings are a huge
task, the focus on fiscal report examination – the examination of statement of financial position
and statement of income mark matters – and merging that examination with other non-
accounting data to predict incomes progress. Benefit from and amortization is an issue in
accounting, and not an issue of analysis. (Lev, Radhakrishnan, and Zhang, 2009).
1.3 Depreciation of plant, property, and equipment
The assets of Clinuvel Pharmaceuticals’ are specified at a cost less accrued depreciation and
diminishing, the cost includes spending that is straight credited to the acquired item. The
depreciation is calculated on value diminishing to write off the net cost of each asset over the
expected useful life to be able to estimate its residual value. The management reviews the
method of depreciation and end of each annual reporting time and can be adjusted if appropriate.
The present rules for the measurement of PPE are providing under IAS 16 (IASC, 2003). The
rules permit two models of accounting for the determining the value of property, plant, and
equipment that is succeeding to original acknowledgment. Reappraisals should be completed
frequently enough so that the carrying amount does not significantly contrast from fair value at
the statement of financial position date. Thus, in a case of impairment loss arising it ought to be
known every time the sum of an asset to be recovered is fewer than the amount carried. (Clinuvel
Pharmaceuticals’ ,2018)
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2.0 Assess accounting flexibility
2.1 Capitalisation of Research and Development costing
According to Atkinson and Mckay (2007) economies that have a consistently higher level of the
invention have a tendency to have high levels of growth. The venture in research and
development is not synonymous with innovation. There are several organizations that make
known to new commodities without research and development though it is likely to find the
connection between the funds invested in R&D and the produce innovations, thus looking at
Clinuvel Pharmaceuticals’s that accounts for 45% of total expenses which shows the investment
made by the firm in improving the product.
Comparing to previous year 40% this shows that the company increased the R&D cost to cater
for the innovations and improvement to providing quality pharmaceutical products. This is a
positive evidence that underlines the importance of R&D in improving sales and contributing to
the overall profitability of the company. (Clinuvel Pharmaceuticals’ ,2018)
From the objective of the Clinuvel Pharmaceuticals’ is ongoing investment in R&D continued.
The expenditure towards drug formulation, manufacturing and in distribution programs increased
significantly by 102% this is a result of combining the activities to improve the growth in sales
volumes. (Clinuvel Pharmaceuticals’, 2018).
2.2 Valuation and estimations of the useful life of intangible assets
Possessions whether they are physical, or intangible is a way of making of services and goods,
therefore are a vital element of economic examination as suggested the appropriate
characteristics to be assessed through the increase in the economic performance of the company
that employs the assets. (Cohen, 2009). The worth of the intangible assets will increase in value
due to the enhanced performance. According to Basu and Waymire (2008) the contemplation of
financial measurement of intangible assets is the main blockade to accounting valuation, thus
accounting valuation is only proficient of recognising resources and benefits which is measured
in monetary terms for value financial reporting.
2.3 The depreciation method of property, plant and equipment adopted
The firm’s management has a decision to make on the mode of depreciation to use. In financial
year 2017 and year 2018, the firm depreciated some of its assets using diminishing value method
where the computers and software at 40% and the other assets at 7.5% to 33% , rather than the
depreciated replacement cost method , that is the present charge of reproducing or any spare of
an asset minus deductions for any physical weakening and any other form of undesirability and
optimization ( RICS, 2005). The diminishing method of valuation allows for more value of
expenditure to be charged at the start of the life of the asset and low residual values towards the
end of the life of the asset. However, the straight-line method of depreciation should be adopted
as its more transparent and relatively easy to apply and calculate (IVGN 8, 2005).
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3.0 Potential Red Flag
3.1 Changes in methods of depreciation for property, plant and equipment
The firm choose to change to use the diminishing value method, however this method does not
provide a constant residual amount reduced over a given useful life of the asset. According to
Elliot (2011) despite the theoretical attractiveness of other methods, the straight-line method
remains to be the most straight forward to compute and any imperfections in the charge for
depreciation are more likely to be significant and more so the method confirms to the adopted
users.
4.0 Evaluation of accounting disclosure procedures
Clinuvel Pharmaceuticals’ has provided information as required by IASB for the board and its
users. The accounting policies has been used in the annual reports of the firm, the firm further
provided all the information as required and complied with the reporting standards as required.
CPL disclosed all the financial information including the director's report and remuneration
report the reports were based on performance, the remuneration policy complies with the
Companies Act and ASX Listing Rules and supports the objectives of the firm. (Clinuvel
Pharmaceuticals’ ,2018)
The Remuneration of the company’s key personnel in the management is aligned with the
interests of the firm and the shareholders which is within the appropriate control. The incentive
and remuneration framework in place have ensured that the executives are focused on enhancing
the short-term operational performance and strategic growth that is the long-term objective.
(Clinuvel Pharmaceuticals’ ,2018)
The report has been organized based on the Australian accounting standards and has been
prepared on the accrual basis which is based on the historical costs and does not consider
changing the value of money with an exception of where stated. The accounting policies chosen
to ensure the fiscal data satisfies the concepts of importance and consistency. (Clinuvel
Pharmaceuticals’ ,2018)
5.0 Undo Accounting Distortion
According to Mamo and Aliaz (2014) financial information manipulation is a distorted way to
present financial performance, creating a false impression of an organization of financial
strength.
The financial misreporting by prominent firms distorts peer firms’ capital investment decisions
this distortion are not confined to capital investments; they also extend to choices peer firms
make with respect to R&D, advertising and pricing policies – decisions with immediate bottom-
line impact to the organisation. (Beatty, Liao, and Wu 2013).
6.0 Conclusion
Clinuvel Pharmaceuticals’ has had a successful history over the past years of operations, the
success of the firm has been improving and increasing over the years. the firms increase R&D
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cost show that the firm is consistently researching and willing to improve on the quality of
pharmaceuticals products, and this has also improved the revenue stream of the firm. Further
comparisons reveal that the company has been having consistent revenue streams over the past
decade.
References
Atkinson, Robert D. and Andrew S. McKay. (2007). Digital Prosperity: Understanding the
Economic Benefits of the Information Technology Revolution. Washington DC: The ITI
Foundation. Available at: http://www.itif.org/files/digital_prosperity.pdf.
Basu, S., & Waymire, G. (2008). Has the importance of intangibles really grown? And if so
Beatty, A., S. Liao, and J. J. Wu. 2013. The spillover effect of fraudulent financial reportingpeer
firms’ investments. Journal of Accounting and Economics 55: 183-205.
Cohen, M. (2009). The valuation of intangible assets and hedonic pricing models" Paper
delivered at 36th Australian Conference of Economists, 24-26 September 2009,
Hobart.
CSL Limited (2018), Annual Report, Melbourne, viewed 6 December 2018,
<http://www.csl.com.au/investors/financial-reports.htm>
Elliot, B. and Elliot, J. (2011). Financial accounting and reporting. 14th ed. England: Pearson
education Ltd.
International Accounting Standards Committee (IASC) (2003). International Accounting
Standard No. 16. Property, plant, and equipment. IASC.
Lev, B., S. Radhakrishnan, and W. Zhang. (2009). Organization capital. Abacus, forthcoming
Mamo, J. and Aliaz, A. (2014). Accounting manipulation and its effects in the financial
statements of Albanian entities. Interdisciplinary Journal of Research and Development,
1(2): 55-60.
OECD/Eurostat. (2005). Oslo Manual – Proposed Guidelines for Collecting and Interpreting
Technological Innovation Data. 3rd Edition. Paris: Organisation for Economic
Cooperation and Development.
RICS, (2005). RICS Appraisal and Valuation Standards. (The Red Book). The Royal Institution
of Chartered Surveyors. London. UK.
VGN (2005). The Cost Approach for Financial Reporting – (DRC) International Valuation
Guidance Note No. 8. (revised 2005)
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