Contemporary Issues in Accounting: AGL Energy Analysis

This report critically analyzes the financial reporting of AGL Energy Limited, evaluating its adherence to the conceptual framework of accounting. The report assesses whether AGL meets the objectives of general purpose financial reporting, providing relevant information for investors and resource contributors. It examines the recognition criteria for various financial statement elements, including assets, liabilities, expenses, and revenue, based on the AASB standards. Furthermore, the report explores both the fundamental and enhancing qualitative characteristics of financial reporting, such as relevance, faithfulness, timeliness, and understandability. The analysis utilizes AGL's annual report, providing evidence of compliance with accounting standards and offering recommendations for improved transparency and adherence to the conceptual framework.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary issues in accounting
Name of the Student:
Name of the University:
Author’s Note:

1CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................2
Objectives of conceptual framework:..............................................................................................2
Recognition criteria:........................................................................................................................8
Fundamental qualitative characteristics of financial reporting:.....................................................13
Enhancing qualitative characteristics of financial reporting:........................................................13
Conclusion:....................................................................................................................................14
References list:...............................................................................................................................15

2CONTEMPORARY ISSUES IN ACCOUNTING
Introduction:
The report is prepared to demonstrate the understanding of the accounting standards by
evaluating the fact that the objectives of general purpose financial reporting is met by the
reporting entity. The selected company for which the critical analysis is conducted to evaluate
the effectiveness of corporation is AGL Energy Limited. AGL is the leading energy company of
Australia that is involved in offering gas, electricity, renewable and solar energy to business and
residential household (Agl.com.au. 2018). The aim of organization is to build customer advocacy
and prosper in carbon constraint world with the transformation in industry. Moreover, the
recognition criteria evaluating the financial statement elements have been done along with
exhibiting the fundamental and enhancing qualitative characteristics of financial reporting.
Discussion:
Objectives of conceptual framework:
A required framework has been announced by the Australian Accounting standard board
which makes organization to comply with the framework. An organization fulfilling the general
purpose financial reporting objectives intends to provide financial information to the potential
and existing investors in decision making. Such financial reporting is directed to users providing
resources to reporting entity. However, it may not provide all the information that would serve
the need of users about reporting entity value. The financial performance of AGL is consistent
with the strong profitability of operations of AGL. Financial report of AGL has been prepared
according to the AASB standards along with any other authoritative interpretations and

3CONTEMPORARY ISSUES IN ACCOUNTING
pronouncements acceptable to ASX (Henderson et al. 2015). The matter disclosed in the annual
report provides user with true and fair view and company presents an audited financial
statements to the users.
Objective 1:
It is provided under the conceptual framework as recommended by AASB that reporting
entities should make disclosure of all the information’s that are relevant to investors and resource
contributor (Hellman et al. 2016). This particular aspect has improved the transparency of
reporting organization in terms of profit, expenses, revenue disclosure.

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Figure 1: Consolidated statement of profit and loss of AGL energy limited
(Source: Agl.com.au. 2018)
Compliance with such framework is well evident from the annual report of AGL energy
limited. It is so because organization has made disclosure of all the financial elements such as
revenue, expenses and income generated in its statement of profit and loss (Feng et al. 2014).
Total amount of profits attributable to AGL energy limited and non controlling interest is
adequately disclosed with relevant figures which are relevant for investors and shareholders.
Objective 2:
Shareholders are able to derive information about the financial performance of reporting
entities if they are adequately represent the facts and figures related to financial information. It is
for this reasons, organization or reporting entities have the mandate of disclosing all the matters
relating to financial assets, liabilities. All the pertinent information relating to the resources and
assets of organization are depicted in its statement of financial position. Such statement is
beneficial to investors as it provide crucial information about reporting entities total assets and
liabilities and thereby provides the actual picture of its financial performance (Ball et al. 2015).

5CONTEMPORARY ISSUES IN ACCOUNTING
Figure 2: Statement of changes in financial position of AGL energy limited for financial
year 2017.
(Source: Agl.com.au. 2018)
Objective 3:

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Any alteration in the financial performance of reporting organization should be reflected
in the annual report according to the guiding principles of framework set by AASB (Conway and
Byrne 2018). It has been ascertained from the analysis of annual report of AGL energy limited
that the total amount of cash generated by organization and any changes in equity level is
reported in the statement of changes in equity and statement of cash flow respectively.
Figure 3: Consolidated statement of cash flow of AGL energy limited for financial year
2017
(Source: Agl.com.au. 2018)

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The total amount of cash generated by reporting entities from financial, operating and
investing activities are properly depicted in the statement of cash flow. Such disclosure helps in
evaluating the total amount of cash and cash equivalent at the end of particular reporting period.
Figure 4: Consolidated statement of changes in equity of AGL energy limited
(Source: Agl.com.au. 2018)
The above table depicts changes in equity value for the financial year 2017 that exhibits
the total comprehensive income, loss if any, share based payments, payment of dividends and
issue of ordinary shares. Such information disclosure is essential as it helps in evaluating the

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changes in different components of equity along with retained earnings (Zhang and Andrew
2014).
Recognition criteria:
Recognition is the process by which items of income statement and balance sheet
satisfied the criteria of measuring the cost of item or value with reliability. In addition to this, it
is also required that such items have probable future economic benefit with flow into and from
the entity (Otley 2016). There are several criteria of recognition relating to assets, expenses and
revenue generated. Some of the items for which recognition criteria have been set are listed
below:
Assets-
From the analysis of annual report of AGL energy limited, it can be seen that
organization complies with the accounting standard applicable to value the property, plant and
equipments. Measurement of property, plant and equipment is done at cost by deducting the
accumulated impairment loss and deprecation.

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Figure 5: Recognition of property, plant and equipment
(Source: Agl.com.au. 2018)
Computation of net carrying amount of plant and equipment disclosed above incorporates
the expenditure that is recognized in relation to equipment and plant in the construction course.
Recognition of assets is done in the statement of financial position for which the value and cost
of assets can be measured reliably. From this it can be said that AGL energy limited is
complying with the recognition of plant, property and equipment.

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Liabilities- Measurement and classification of financial liabilities are done according to
AASB 9. Some of the categories for measurement pursuant to the accounting standards used by
organization involve fair value computation through inclusive income and profit and loss.
(Spencer and Webb 2015). The hedging accounting policies and financial impact of expected
credit loss model aligns with the requirement of AASB 9.
Recognition criteria of liabilities:
(Source: Agl.com.au. 2018)

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Recognition criteria of liabilities:
(Source: Agl.com.au. 2018)

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Expenses- The joint operations of AGL have direct rights to liabilities, assets, revenue
and expenses which have been recognized in accordance with the respective applicable AASB
standard. A decrease in total expenses of amount $ 16 million is restated in the consolidated
statement of profit and loss.
Recognition of expenses:
(Source: Agl.com.au. 2018)
Revenue- Recognition and measurement of revenue is done at fair value for the amount
that has been received or is receivable to the extent that there is probability of flow of economic
benefits and reliable measurement of revenue. Recognition of revenue from electricity and gas
service are done after it has been delivered to customers (Gomariz and Ballesta 2014). In
addition to this, the percentage of completion method forms the basis of revenue from services
provision. Recognition of dividend is done when organization established the right to receive
payments.

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Fundamental qualitative characteristics of financial reporting:
The qualitative characteristics of financial reporting at fundamental level depicts that
financial information should have predictive value that would make difference to decision
making. The two fundamental qualitative characteristics are faithfulness and relevance. It can be
seen from the annual report of AGL energy limited for financial year 2018 that investors are
provided with relevant information that would assist them in undertaking financial decisions. All
the financial information pertaining to assets, liabilities, equities, revenue, liabilities and
expenses have been represented faithfully so that they are neutral, complete and free from errors
(McCusker and Gunaydin 2015). However, it is inevitable to produce financial information that
is completely free from errors but the description of economic phenomenon is impacted by such
omissions or errors.
Enhancing qualitative characteristics of financial reporting:
The factor of timeliness, comparable, understandability and verifiable presentation of
financial information helps in enhancing fundamental characteristics. It can be seen that the users
of financial report of AGL energy limited would be able to compare the financial information
presented over a period of time. The transaction or events presented in the report is represented
faithfully as adequate information and reasons have been presented. Furthermore, users are able
to derive relevant information that is consistent with the existing framework and they are
presented in a concise and clear way, characterized and classified properly. The notes to financial
statements provides user with the clear accounting assumptions and estimates which gives the
assurance of the fact that information has been verified.

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Conclusion:
From the analysis of annual report of AGL energy limited for the financial year 2018, it
can be inferred that the objectives of conceptual framework have been duly met in presenting the
financial statements and its preparation. AGL has further complied with several recognition
criteria presented under the AASB relating to assets, liabilities, revenue, expenses and assets. In
addition to this, it can also be said that the fundamental and enhancing qualitative characteristics
have meet met when preparing the financial report. However, there are accounting standards to
which organization should comply with for improving their transparency related to information
disclosure. Therefore, AGL energy limited is recommended to adhere to the regulations and
principles of conceptual framework and AASB. This would help organization in avoiding some
significant problems relating to accounting and financing activities.

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References list:
Agl.com.au. 2018. [online] Available at:
https://www.agl.com.au/-/media/aglmedia/documents/about-agl/investors/annual-reports/
180809-2018annualreport1829055.pdf?
la=en&hash=E788FF0DAEEC20BB5C21C9C232396170880D78AE [Accessed 14 Aug. 2018].
Ball, R., Li, X. and Shivakumar, L., 2015. Contractibility and transparency of financial statement
information prepared under IFRS: Evidence from debt contracts around IFRS adoption. Journal
of Accounting Research, 53(5), pp.915-963.
Conway, E. and Byrne, D. eds., 2018. Contemporary Issues in Accounting: The Current
Developments in Accounting Beyond the Numbers. Springer.
Feng, M., Li, C., McVay, S.E. and Skaife, H., 2014. Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory management. The
Accounting Review, 90(2), pp.529-557.
Gomariz, M.F.C. and Ballesta, J.P.S., 2014. Financial reporting quality, debt maturity and
investment efficiency. Journal of Banking & Finance, 40, pp.494-506.
Hellman, N., Andersson, P. and Fröberg, E., 2016. The impact of IFRS goodwill reporting on
financial analysts' equity valuation judgements: some experimental evidence. Accounting &
Finance, 56(1), pp.113-157.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.

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McCusker, K. and Gunaydin, S., 2015. Research using qualitative, quantitative or mixed
methods and choice based on the research. Perfusion, 30(7), pp.537-542.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
Spencer, A.W. and Webb, T.Z., 2015. Leases: A review of contemporary academic literature
relating to lessees. Accounting Horizons, 29(4), pp.997-1023.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical
perspectives on accounting, 25(1), pp.17-26.