Current Issues in Australian Accounting in AGL Energy Limited
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Running head: CURRENT ISSUES IN AUSTRALIAN ACCOUNTING Current issues in Australian accounting in AGL Energy Limited Name of the University: Name of the Student: Authors Note:
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1CURRENT ISSUES IN AUSTRALIAN ACCOUNTING Executive Summary In analyzing such concerns faced by AGL Energy Limited, the report will also analyze the disclosure made by the organization through following AASB standards along with evaluating certain implementation of the flexibility within the accounting framework. It was gathered from the report that the major issues faced within the financial report of AGL Energy Limited indicatedvitalsustainabilityconcernsinthecompany’sperformancewhichneedsmore disclosures. The company is dealing with political pressure on the accounting standard-setting environment. In addition, through following prudence the management of AGL Energy Limited is recommended to apply the judgment wisely for the reason that the numerical figures are reflected within the financial statement that is based on certain estimations.
2CURRENT ISSUES IN AUSTRALIAN ACCOUNTING Table of Contents 1. Introduction......................................................................................................................3 2. Accounting Issues Faced by AGL Energy Limited.........................................................3 3. Findings and Recommendations......................................................................................9 4. Conclusion.....................................................................................................................10 References..........................................................................................................................11
3CURRENT ISSUES IN AUSTRALIAN ACCOUNTING 1. Introduction The accounting quality of an ASX listed company is is evaluated by means of analyzing the accountingpolicies as well as processes. Moreover, the analyses of the accounting quality of the financial report of the selected company are carried out by revealing the best adopted policies and procedures by the selected organization (Abdel-Maksoud, Cheffi and Ghoudi 2016). The objective of the report is to analyses the accounting concerns faced by AGL Energy Limited along with evaluating the current models and theories that is applicable in the current situation faced by the company. In analyzing such concerns faced by the company, the report will also analyze the disclosure made by the organization through following AASB standards along with evaluatingcertainimplementationoftheflexibilitywithintheaccountingframework (Agl.com.au. 2019). AGL Energy Limited is an Australian public listed company that is also associated with developing along with retailing electricity along with gas for commercial and residential purposes. 2. Accounting Issues Faced by AGL Energy Limited Accounting issues faced by AGL Energy Limited is analyzed through analyzing certain accounting theories applicable with the situation of the company such as normative and positive accounting theories (Alsharari, Dixon and Youssef 2015). This is for the reason that the accounting policies followed in the company has a vital role in attaining corporate goals and objectives through promoting he company’s long term development and growth. The financial reports of the company are prepared based on the accounting policies that offer disclosure regarding the financial condition of a company to its stakeholders. For this reason, it is deemed essentialfor AGL Energy Limited to offer vital information to all its end users and by means of
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4CURRENT ISSUES IN AUSTRALIAN ACCOUNTING implementing revealing accounting strategy (Appelbaum, Kogan, Vasarhelyi and Yan 2017). Such accounting strategy is evaluated through analyzing the accounting policies flexibility along with comparing with the competitors policies. The major issues faced within the annual report of AGL Energy Limitedindicated vital sustainability concernsin the company’s performance which needs more disclosures. The company is dealing with political pressure on the accounting standard-setting environment (Arora and Soral 2017). Moreover, theaccounting policy implemented by AGL Energy Limited for property, plant and equipment treatment is observed to be remain in compliance with AASB 116. Cost accounting model within AASB 116 indicates that an item related with property, plant andequipment is considered as assets carrying amounts and sales proceeds differencethat is conducted at its cost less than any accumulated depreciation along with impairment losses. Certain other factors of such standard related with depreciation, assets disposal along with impairmentrecognition is also in accordancewith the company’s accounting policies (Barker and Schulte 2017). As, AGL Energy Limited is the retailer along with generator of renewable energy sources such as electricity and landfill gas, for this reason the expense of the company is focused on development along with explorationof new assets of gas and oil.Accounting for such assets is not explainedwithin AASB 116 (Brookfield 2018). Exploration along with evaluation expenses of the company is recognized within an evaluation and exploration asset for the year in which the expense takes place and is measured to be cost. When a gas and oil field isgovernment approved for development, accumulated exploration along with evaluation expenditure ismeasured within oil and gas assets(Macve 2015).For the reason that the tangible assets are of increased significance to AGL Energy Limited it is recognized within the books of accounts. As the
5CURRENT ISSUES IN AUSTRALIAN ACCOUNTING organization is dealing with selling and development of renewable energy sources, it needs several approvals along with government licenses for legally conducting explorations along with developments of alternative energy sources such as oil and gas fields. For this reason, the licenses are booked by the organization as intangible assets that will continue to offer economic advantages in future (Nyide and Lekhanya2016). AGL Energy Limited has portrayed within wind farm developments as they are tangible assets of great values to the company. In the current years, a vast along with reliable consumer base is the largest asset that can be boasted by any business and along with that a sound consumer relationship can also affect revenue. Moreover, as AGL Energy Ltd haspaid in order to acquire suchcontracts theyare recorded as intangible assets within the financial statements in the company’s annual report (Tagesson and Öhman 2015). The company measures intangible assets acquitted in a separate manner as expenses where in cost is considered asa fair value at acquisition date.Besides that, the intensive assets are recorded at cost less than any accumulated amortization along with impairment losses. Intangible assets with several livesare considered for amortization over its usefulexpected life and analyzed for impairment whenever it is indicated that the asset can be impaired(Schaltegger and Burritt 2017). Three types of intangible assets are recognized by AGL Energy Limited that includes licenses, goodwill and consumer relationships along with contracts. Licenses-Licensesare conducted at cost lessthan accurate impairment losses. It is also anticipatedthat licenses attainnumerous useful livesfor the reason that these can be periodically reviewed long with renewable cost is insignificant.Test for licenses are also carried out by the company for impairmenton a yearlybasis (Agl.com.au. 2019).
6CURRENT ISSUES IN AUSTRALIAN ACCOUNTING Goodwill-This isconsidered to be an asset by AGL EnergyLimitedat a datewhen control is attained. It is also measuredto be an increasein sum ofpaid purchase consideration,minorityinterest amountalong with fair value of theorganizations previouslyattained equity share over acquired net assets along with assumed liabilities. Amortization of goodwill is not conducted howeverit is tested for impairment on a yearly basis (Agl.com.au. 2019). Consumer relationships and contracts-This is acquired by businesses are considered at cost less than amortization accumulated along with the impairment losses. These assets are amortized on a straight line basisfor over yearsduring which financial advantages are anticipated to be earned (Agl.com.au. 2019). Intangible Assets-The amount that is paid for the intangible assets those are identifiable and unidentifiable are first capitalized and then amortized relied on the straight line over its anticipated lifespan but not exceeding the time span of twenty years. As per IFRS 3, goodwill is not amortized and is tested yearly for impairment. Taxation:For the resource income and rent tax, the tax-effect accounting is observed to be applicable. Considering same, AGL Energy Limited’s organization structure has not accounted for income tax on the income that is undistributed related with its other subsidiaries on the rationale that certain income will remain invested within such subsidiaries. Inventories:AGL Energy Limited follows valuing inventories policy at decreased cost along with net realizable value encompassing the work-in-progress. As per IFRS 3, the inventories are valued on the net selling price on acquisition less a considerable profit allowance.
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7CURRENT ISSUES IN AUSTRALIAN ACCOUNTING Accounting in relation to the intangible assets is covered within AASB 138 intangible assetsand the company’s intangible assets policies are observed to comply with the accounting standard provisions (Agl.com.au. 2019). Through analyzing AGL Energy Limited’sfixed assets along with its valuations for years, it isgathered thatfrom all plant, property and equipment classes, just the plant and equipment relatedto some information technologyassets along with landfill gas extraction site within the merchant energy has experienced impairment losses. Along with plant and equipment evaluation along with exploration assets have beenimpaired in the recent year (Agl.com.au. 2019). Moreover, none of the company’s intangible assets have been impaired till now. The independent auditor’s report of AGL EnergyLimited has significantlyevaluated all financial documents of company and has alsoconductedvitalanalysiswithin the report (Agl.com.au. 2019). The annual report of the organization offers an unmodified viewpoint regarding the key audit matters. These are the matters those are important for the accounting period. Moreover, the concise financial report of thecompany does not includeall disclosures concerning the Australian Accounting Standards. For instance, around $1,032 millionsales revenuerelated with gas and electricityover the period of year 2017 reporting date and reading date remained unbilled (Agl.com.au. 2019). For this reason, the key control management has been undertaken for analyzing the pricingalong with certain other estimations for the sale. After analysis of plant, property and equipment of AGL Energy Limited it was also gathered that the tangible assets such as goodwill were undertaken in order to analysesthe same assets recoverable amount alongwith judging the amount existing within the financial statements of the company. The assets impairment that included majorly natural gas assets was appreciated at $795 million before tax and $640 million after taxwas then re-valued (Agl.com.au. 2019).
8CURRENT ISSUES IN AUSTRALIAN ACCOUNTING Another accounting issue that is observed to be faced by AGL Energy Limited is fraud that is associated with e-mail scam of the organization. In such scam, e-mails on the behalf of AGL Company’s name are sent to the company’s consumers asking them to click on some link and providing with financial as well as personal information of consumers. The e-mail included malicious software that analyzed consumers content and makes wrong use of consumer’s confidential details. Such fraud resulted in generating adverse impact of the organization on its consumers. In addition, such fraud impacted the reputation as well as goodwill of AGL Energy Limited and for this reason the personnel from the company put their best effort in safeguarding their consumers from such accounting fraud (Agl.com.au. 2019). After analyzing the annual report of AGL Energy Limited it has been gathered that the company developed its financial reports complying with “Accounting Standard AASB 1039” those are presented within the financial statements. All the amounts are represented in Australian Dollars but few disclosures omitsthose results in lack of suitable accounting framework available with the organization. Moreover, it was also revealed that AGL Energy Limited has sold few of itsservices and products devoid of appropriate billing for over a certain timeframethat led to wrong assumptions of revenue earning. Moreover, another accounting issue is related with interest disposal in which the company’s 100% disposal from “Macarthur Wind Farm Pty Ltd and MWF Finance Pty Ltd” an improper effect within the market concerningliquidity and reputation of company (Langfield- Smith et al. 2017). This also indicates absenceof liquidity within the organization.
9CURRENT ISSUES IN AUSTRALIAN ACCOUNTING 3. Findings and Recommendations The AGL Energy Limited is positioned as an ASX Listed company and it complies with the Corporations Act 2001 along with AASB accounting standards for preparing its financial reports. The company has valued all its fixed assets of property, plant and equipment (PPE) at their cost by means of decreasing the net depreciation amount along with impairment losses (Cazier et al. 2015). Such cost encompass all expenditures is directly attributable to development and acquisition of asset. Any subsequent expenses are added to assets carrying amount in case there is a chance that future economic benefits will go to the organization along with the expenses of the items can be measured in a suitable manner. The repairs and maintainice are charged to the company’s profit and loss account (Duska, Duska and Kury 2018). The loss or gain is observed on the property, plant and equipment sale is recognized as differenceswithin sale proceeds along with assets carrying amounts that are explained within profit and loss account. Depreciation is provided on the property, plant and equipment of AGL Energy Limited on a straight line method and cost of each asset decreased from its residual value is written off its anticipated useful life (Easton and Sommers 2018). From analyzing its financial statements it has been gathered that AGL Limited is dealing issues regarding its cash flows. The compliance of theorganizationwiththeconceptualaccountingframeworkalsoaffectedasmostof its derivatives are observed to be ineffective hedges as per the definition offered by the AASB 139 standard. Based on the findings, the company is recommended to include prudence in its accounting conceptual framework for the reason that it can facilitate in ensuring careful, wise, cautious,well-judgedfinancialreportinginitsannualreportandwillalsofacilitatethe
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10CURRENT ISSUES IN AUSTRALIAN ACCOUNTING management to be careful in attaining figures that are presented in the annual reports (Henderson et al. 2015). In addition, through following prudence the management of AGL Energy Limited is recommended to apply the judgment wisely for the reason that the numerical figures are reflected within the financial statement that is based on certain estimations. Prudence can be very effective in making cautious judgment of losses caused by any event of uncertainty taking place in the companyalong with avoiding overstatement of company’s performance as per IASB standard (Kamaruddin et al. 2017). 4. Conclusion The objective of the report was to analyze the accounting concerns faced by AGL Energy Limited along with evaluating the current models and theories that is applicable in the current situation faced by the company. It was gathered from the report that the major issues faced within the financial report of AGL Energy Limited indicated red flags in the company’s performancewhich needs more disclosures. The company is dealing with political pressure on the accounting standard-setting environment.Based on the findings, the company is recommended to include prudence in its accounting conceptual framework for the reason that it can facilitate in ensuring careful, wise, cautious, well-judged financial reporting in its annual report and will also facilitate the management to be careful in attaining figures that are presented in the annual reports.
11CURRENT ISSUES IN AUSTRALIAN ACCOUNTING References Abdel-Maksoud, A., Cheffi, W. and Ghoudi, K., 2016.The mediating effect of shop-floor involvement on relations between advanced management accounting practices and operational non-financial performance indicators.The British Accounting Review,48(2), pp.169-184. Agl.com.au. (2019). [online] Available at: https://www.agl.com.au/about-agl/media-centre/asx- and-media-releases/2016/august/2016-annual-report [Accessed 20 Jan. 2019]. Agl.com.au. (2019). [online] Available at: https://www.agl.com.au/about-agl/media-centre/asx- and-media-releases/2015/august/agl-annual-report-2015 [Accessed 20 Jan. 2019]. Agl.com.au., 2019. [online] Available at: https://www.agl.com.au/about-agl/media-centre/asx- and-media-releases/2017/august/agl-2017-annual-report [Accessed 15 Jan. 2019]. Alsharari, N.M., Dixon, R. and Youssef, M.A.E.A., 2015. Management accounting change: critical review and a new contextual framework.Journal of Accounting & Organizational Change,11(4), pp.476-502. Appelbaum, D., Kogan, A., Vasarhelyi, M. and Yan, Z., 2017. Impact of business analytics and enterprise systems on managerial accounting.International Journal of Accounting Information Systems,25, pp.29-44. Arora, V. and Soral, G., 2017. Conceptual Issues in Lean Accounting: A Review.IUP Journal of Accounting Research & Audit Practices,16(3). Barker, R. and Schulte, S., 2017. Representing the market perspective: Fair value measurement for non-financial assets.Accounting, Organizations and Society,56, pp.55-67.
12CURRENT ISSUES IN AUSTRALIAN ACCOUNTING Brookfield, D., 2018. Risk and organizational effectiveness: The role of accounting systems as a managerial process.Journal of Organizational Effectiveness: People and Performance,5(2), pp.110-123. Cazier, R., Rego, S., Tian, X. and Wilson, R., 2015. The impact of increased disclosure requirements and the standardization of accounting practices on earnings management through the reserve for income taxes.Review of Accounting Studies,20(1), pp.436-469. Duska, R.F., Duska, B.S. and Kury, K.W., 2018.Accounting ethics. Wiley-Blackwell. Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e. Henderson,S.,Peirson,G.,Herbohn,K.andHowieson,B.,2015.Issuesinfinancial accounting.Pearson Higher Education AU. Kamaruddin, M.I.H., Hanefah, M.M., Moussa, A., Tian, J., Xin, M., Laguna, O.A.F., Gutiérrez, K.S.B. and Haro-Zea, K.L., 2017.Journal of Modern Accounting and Auditing.Journal of Modern Accounting and Auditing,13(11), pp.457-470. Langfield-Smith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H., 2017.Management accounting: Information for creating and managing value. McGraw-Hill Education Australia. Macve, R., 2015.A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge. Nyide, C.J. and Lekhanya, L.M., 2016. Environmental management accounting practices: major control issues.
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13CURRENT ISSUES IN AUSTRALIAN ACCOUNTING Schaltegger, S. and Burritt, R., 2017.Contemporary environmental accounting: issues, concepts and practice. Routledge. Schaltegger, S., Etxeberria, I.Á. and Ortas, E., 2017. Innovating corporate accounting and reporting for sustainability–attributes and challenges.Sustainable Development,25(2), pp.113- 122. Tagesson, T. and Öhman, P., 2015. To be or not to be–auditors’ ability to signal going concern problems.Journal of accounting & organizational change,11(2), pp.175-192.