Contemporary Issues in Accounting: Adherence to Conceptual Framework and Qualitative Characteristics of Financial Reporting

This report analyzes the effectiveness of corporations in meeting conceptual framework of accounting, with a focus on AGL energy limited. It discusses the recognition criteria for reporting various items such as revenue, equity, assets, expenses and liabilities, and evaluates the qualitative characteristics of financial reporting. The report concludes that AGL adheres to all the standards of corporate reporting framework, but needs to improve some structures of information presentation.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary issues in accounting
Name of the University
Name of the student
Authors note

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Executive summary:
The report is prepared to discuss the effectiveness of corporations in meeting conceptual
framework of accounting. It deals with the analysis of qualitative characteristic of financial
reporting. Organization that has been selected for the analysis purpose is AGL energy limited.
Assessment of the fulfilment of recognition criteria of several elements are discussed in report.
The document that has been used to explain obligations of conceptual reporting framework is the
current annual report of AGL energy limited.

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Table of Contents
Introduction:....................................................................................................................................3
Discussion:.......................................................................................................................................3
Adherence to conceptual reporting framework objectives:.............................................................3
Recognition criteria for reporting various items such as revenue, equity, assets, expenses and
liabilities:.........................................................................................................................................4
Adherence to qualitative enhancing characteristics of financial reporting:.....................................6
Conclusion:....................................................................................................................................10
References list:...............................................................................................................................12

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Introduction:
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.
Discussion:
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

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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

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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.
Change in fair value:
(Source: Agl.com.au 2017)
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

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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.
Profit and loss of AGL limited:
(Source: Agl.com.au 2017)
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

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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).

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Revenue information:
(Source: Agl.com.au 2017)
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

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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.
Total shareholder return:
(Source: Agl.com.au 2017)

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Annual growth of AGL
(Source: Agl.com.au 2017)
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

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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.

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References list:
Agl.com.au. 2017. [online] Available at:
https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Media-Center/ASX-and-Media-
Releases/2017/170825-AGL-207-Annual-Report-ASX.pdf?
la=en&hash=013E1C115D580D678CA009DF3D256C8C511F655C [Accessed 2 Dec. 2017].
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.

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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.