Analysis of Abilene Oil and Gas Ltd's Financial Reporting Practices

This report provides a comprehensive analysis of Abilene Oil and Gas Ltd's financial reporting practices, focusing on its compliance with the conceptual framework of accounting and IFRS. The report evaluates the company's adherence to measurement requirements, fundamental and enhancing qualitative characteristics, and the decision-usefulness of its financial statements for investors. It examines how the company measures revenue, presents non-current assets, and ensures faithful presentation of information. The analysis includes an assessment of comparability, verifiability, timeliness, and understandability of financial information. Furthermore, the report discusses the importance of basic accounting knowledge for end-users and concludes by highlighting the company's effective compliance with the qualitative characteristics of financial reporting, emphasizing the influence of financial information on user decision-making.

Contemporary Issues in Accounting
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Introduction
The present report is developed for conducting an analysis of the conceptual framework
of accounting and meeting of its different criteria by a selected company. The company selected
for the purpose is Abilene Oil and Gas Ltd, a company operating within the energy sector listed
in the ASX and is involved in exploration, development and production of oil. In this context,
this report presents an evaluation of the annual report of the company to ascertain whether it
follows measurement, fundamental and enhancing qualitative characteristics. In addition to this,
it also evaluates the decision-usefulness of the report for the investors.
Analysis of compliance with the measurement requirement of conceptual framework
As per the notes to accounts to financial statement of Abilene oil and gas limited it can be
said that company has prepared its financial statements through using Australian Accounting
Standards and has also make use of interpretations issued by AASB. Financial statements of
Abilene oil and gas limited has been prepared using the historical cost convention except
revaluation of available for sale financial assets, financial assets and liabilities at fair value and
certain other items (Annual Report, 2017). Revenue has been measured using the accounting
standard AASB 15: Revenue from contracts with customers. This is the new accounting standard
that has replaced the old accounting standard and company has successfully applies this
accounting standard to measure the value of revenue. As per AASB revenue must be measured at
fair value of consideration received or receivable for all the contracts satisfied and same
measurement has been applied by Abilene oil and gas limited (IFRS Conceptual Framework
Project Summary, 2018). It can be confirmed by below image:
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Figure 1: Measurement of Revenue
The major item of non-current assets ‘Investments accounted for using the equity
method’ has been initially measured at fair value and after it recognised at equity value at the
balance sheet date. This method is provided in AASB 139 that says value of such investment
should be recognized at fair value initially and equity cost method during its subsequent
recognition. So overall it can be said that company has complied with all the measurement
criteria that has been mentioned in conceptual framework (IFRS, 2018).
Compliance with the Fundamental Qualitative Characteristics
The conceptual framework of accounting has stated that business entities adopting IFRS
(International Financial Reporting Standards) need to develop their financial reports as per
relevance and faithful presentation of information. The relevance characteristics of financial
information states that business entities need to disclose the information in a way so that it is
capable of making a difference in the decision-making process of end-users. For this, it is
essential that financial information disclosed should have both predictive and confirmatory
value. Predictive value means that the financial information disclosed can be used as an input by
the users for predicting future outcomes. On the other hand, confirmatory value indicates that the
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financial information should be able to provide feedback about previous evaluations (IFRS
Conceptual Framework Project Summary, 2018).
The financial report of the company has published the information that ahs both
confirmatory and predictive value. For example, revenue information for the current year can be
used for predicting the future revenue and can also be compared with the revenue realized in the
past year as depicted in its profit or loss statement (Annual Report, 2017):
The second fundamental characteristic of financial information is faithful presentation as
per which the financial information disclosed to the end-users must be complete, neutral and free
from error. The company in order to ensure that the financial information disclosed is faithfully
presented has included an external audit report to assure the material correctness of the financial
reports as depicted below:
(Source: Abilene Oil and Gas Ltd Annual Report 2017)
3. Compliance with Enhancing Qualitative Characteristics
The enhancing qualitative characteristics of financial information are comparability,
verifiability, timeliness and understandability. The comparability means that the financial
information disclosed must be able to represent a percent change in the financial results achieved
in the current year as compared with the past year. As such, Abilene Oil and Gas Ltd have
presented the financial information in a comparable manner by displaying the financial results of
two consecutive years as provided in annual report.
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Verifiability infers that financial information can be directly or indirectly verified. Direct
verification means that it can be verified by practical observation whereas indirect verification
means that it can be assessed by the application of relevant accounting policies and methods. As
such, the company has presented the financial information in quantitative terms so that it can be
re-checked easily and the accounting policies adopted for the calculation of the financial figure
of key financial items are disclosed in the notes to accounting policies (IFRS, 2018). Timeliness
means that the financial information disclosed to the end-users should be latest so that it can be
relied upon. The company as such publishes its financial reports on an annual basis so that the
information is capable of influencing their decisions (Annual Report, 2017). The
understandability characteristic means that the information can be understood properly and for
this the company has disclosed the relevant accounting methods and procedures adopted for
development of financial reports in the notes section as depicted below:
(Source: Abilene Oil and Gas Ltd Annual Report 2017)
4. Use of financial information by the users of the financial reports for decision making
Financial statements prepared by Abilene oil and gas limited provided sufficient financial
information that helps the users of financial report to make the useful decision. For example,
comprehensive income statement provides information about the profitability performance of the
company through disclosing information such as net profit during the period, earnings per share
etc. Also information is provided in income statement is for last three years that helps to compare
the current performance with previous performance that is very useful to make investment
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decision for investors. There was enough information for lender in balance sheet statement such
balances of debt capital and equity capital that helps to identify the debt equity ratio which is
very essential for lenders (Annual Report, 2017).
5. Need of Basic Accounting Knowledge for End-Users
The conceptual framework has stated the end-users need to have basic knowledge of
accounting for developing an adequate understanding of the financial statements. However, the
external users of financial information such as suppliers, customers, community, government and
investors need to have varying level of knowledge depending on the purpose of the financial
information that they need for decision-making. For example, investors need to possess a
detailed understanding of the financial information to take accurate investment decisions but
customers need to have basic knowledge of accounting for assessing whether the company is
profitable or not (Romney, 2012).
6. General Objective of Financial Reporting
It can be stated from the analysis of annual report of Abilene Oil and Gas Ltd that it has
met the general objective of financial reporting that the financial information must be capable of
influencing the decision-making of users.
Conclusion
It has been evaluated from the overall analysis that the company has complied effectively
within the qualitative characteristics of financial reporting stated in the conceptual framework of
accounting developed by the IASB.
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References
Annual Report. 2017. Abilene oil and gas limited. [Online]. Available at:
https://hotcopper.com.au/documentdownload?
id=uOMxKKzFkiWRTLKhOROKAxjvSTYO5Aa1yBeZofV1ke92GA%3D%3D [Accessed on:
12 December 2018].
IFRS Conceptual Framework Project Summary. 2018. Conceptual Framework for Financial
Reporting. [Online]. Available at:
https://www.ifrs.org/-/media/project/conceptual-framework/fact-sheet-project-summary-and-
feedback-statement/conceptual-framework-project-summary.pdf [Accessed on: 12 December
2018].
IFRS. 2018. Conceptual Framework for Financial Reporting. [Online]. Available at:
http://www.ctcp.gov.co/_files/documents/1522788753-5849.pdf [Accessed on: 12 December
2018].
Romney, M. 2012. Accounting Information Systems Australasian Edition. Pearson Higher
Education AU.
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