Whitehaven Coal: Advanced Financial Accounting Report Analysis

This report provides an in-depth analysis of advanced financial accounting, focusing on the application of key accounting concepts within Whitehaven Coal's 2018 annual report. It details the business entity, money measurement, going concern, cost, accounting year, consistency, materiality, and full disclosure concepts. The report then explores the changes introduced by AASB 16 Leases, comparing it to AASB 117 and highlighting the impact on financial statements. Furthermore, the report examines Whitehaven Coal's lease disclosures, including operating and finance lease commitments, as presented in their annual report. It covers the specific items leased, lease terms, and financial implications, providing a comprehensive overview of Whitehaven Coal's accounting practices related to leases and the adoption of new accounting standards.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction................................................................................................................................2
1. Concepts of Accounting.........................................................................................................2
2. Lease AASB 16......................................................................................................................4
3. Lease Disclosures by Whitehaven Coal.................................................................................6
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
Business organizations can record the financial transactions with the help of
accounting while accounting also plays a crucial part in conveying a business’s financial
position. The application of accounting principles is of significant importance in accounting
processes; and the main components of the accounting principles are the accounting concepts
and conventions. It can be ensured that the financial accounts of the corporations are
informative as well as reliable when the use appropriate and relevant accounting concepts in
developing the financial accounts and reports. The first objective of the report is to provide
the description of the used accounting concepts in Whitehaven Coal’s 2018 annual report. In
the recent years, business organizations have witnessed massive changes in the way of
accounting for lease because of the initiative to introduce AASB 16 Leases where the
accounting authorities have included certain changes in order to make lease accounting more
transparent. More specifically, the previous lease standard that is AASB 117 Leases is not
going to be relevant because of the introduction of AASB 16 Leases. Therefore, the second
objective of this report is to shed lights on the new changes that the accounting authorities
have brought in AASB 16 Leases. The third objective of this report is to discuss about the
lease accounting of Whitehaven Coal.
1. Concepts of Accounting
Whitehaven Coal has applied certain accounting concepts in their annual report for
the year 2018 and these are discussed below:
Concept of Business Entity – The annual report and the financial as well as non-financial
information provided in it about Whitehaven Coal is at the name of the company that is
Whitehaven Coal (whitehavencoal.com.au, 2019). The demonstrates the inclusion of business

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entity concept in the annual report of Whitehaven Coal that states the business owners need
to treat the business transactions separately (Birt et al., 2019).
Concept of Money Measurement – The annual report for the year 2018 of Whitehaven Coal
includes the values or amounts of all the financial transactions which can be seen in the
financial statements like income statement, balance sheet and others (whitehavencoal.com.au,
2019). This supports the money measurement concept of accounting which states that the
financial statements only keep thee business transactions that can be articulated through
monetary values (Needles, Powers & Crosson, 2013).
Concept of Going Concern – The consolidated statement of financial position of
Whitehaven Coal includes information on total assets and total liabilities; and it is visible that
total current assets and total assets are more than total current liabilities and total liabilities
(whitehavencoal.com.au, 2019). The key motive of Whitehaven Coal to disclose this
information is the application of the concept of going concern discusses about a firm’s ability
to continue as a going concern for unexpected future (Read & Yezegel, 2018).
Concept of Cost – In Whitehaven Coal, there are certain fixed assets like property, plant and
equipment whose measurement has been done at cost basis while considering depreciation
and impairment losses (whitehavencoal.com.au, 2019). This is the proof of the application of
cost concept in Whitehaven Coal’s annual report that says original cost needs to be
considered for recording the fixed assets (Inman, 2014).
Concept of Accounting Year – Whitehaven Coal’s annual report for 2018 covers the period
commencing from 01/07/2017 to 30/06/2018 (whitehavencoal.com.au, 2019). This supports
the application of the accounting year concept which states a specific time needs to be chosen
by the corporations for completing a business cycle (Gupta, 2016).

4ADVANCED FINANCIAL ACCOUNTING
Concept of Consistency – Whitehaven Coal has used the same set of accounting standards
and principles from accounting year 2017 to accounting year 2018 for the purpose of
calculating profit and loss (whitehavencoal.com.au, 2019). This indicates towards the
application of the consistency concept by Whitehaven Coal in the annual report of 2018 that
states that the same accounting principles are applied by the corporations from one to next
accounting period for profit and loss calculation (Peterson, Schmardebeck & Wilks, 2015).
Concept of Materiality – Whitehaven Coal’s annual report for 2018 consists of the crucial
information demonstrating the financial performance and position of the corporations that
also helps in the decision-making process of the financial information’s users
(whitehavencoal.com.au, 2019). This shows the application of materiality concept that
eliminates the unimportant financial information through the reporting of significant and
material financial information of the corporation (Kieso, Weygandt & Warfield, 2019).
Concept of Full Disclosure – Both the positive and adverse information has been disclosed
in Whitehaven Coal’s annual report for 2018; such as increase in net profit, increase in
liabilities and others (whitehavencoal.com.au, 2019). This supports the full disclosure
concept that demands the disclosure of both positive and negative information (Nisha, 2016).
2. Lease AASB 16
Since the inception of lease accounting, the main challenge is the determination of the
procedures in which a company can effectively record the underlying leases on the statement
of financial position. The global financial crisis stressed on this matter where huge number of
corporations in the retail industry collapsed. The key worry is that the notes related to the
disclosure of lease commitments failed to provide the complete image of the corporations’
contractual responsibilities. According to a recent study undertaken by the International
Accounting Standards Board (IASB), the annual lease transactions annually all over the

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world are more than US$ 3.3 trillion. The IASB has also estimated that 85% of all the lease
transactions are operating lease transactions which put them off balance sheet in the
companies (pwc.com.au, 2019).
In January 2016, IASB issued the new standards of lease that is AASB 16 Leases and
put the responsibility on the Australian business organizations to adopt this new standard on
or after 1 January 2019. On the basis of the above discussion, the reason of the introduction
of AASB 16 can be gauged which is to ensure the fact that the liabilities of the Australian
corporations fully include their lease liabilities also. Inclusion of all the liabilities of a
business in the statement of financial position is paramount for enabling more perfect as well
as comprehensible financial accounts for the key stakeholders like shareholders and investors.
This provides major assistance to these stakeholders to compare the financial position of the
business organizations that are largely dependent on lease commitments for the purpose of
their business operations. Whitehaven Coal is considered as one of those companies that has
dependency on lease commitments for conducting its business operations. The main items
that the company lease for the purpose of its business operations are mining equipment,
office equipment and office space (deloitte.com, 2019).
It is clear from the above discussion that AASB 16 Lease is replacing the existing
lease standards of AASB 117 Leases. Now, it needs to be mentioned that there are certain
changes brought in AASB 16 that creates dissimilarity between AASB 16 and AASB 117.
The presence of a principal change can be seen in AASB 16 which is the removal of the
distinction that can be seen between finance lease and operating lease while putting the
responsibility on the companies to treat all the transactions related to leases consistently. As a
result of this principal change, AASB 16 will lead to the inclusion of all leases of a company
in the statement of financial position that will contribute towards grossing up the assets and
liabilities. This particular aspect has certain consequences such as increase in the gearing

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ratios; 22% increase in the level of debts of the corporations and 13% increase in the
Earnings before Interest, Tax, Depreciation and amortization (EBITDA) (pwc.com.au, 2019).
It is also required to mention that AASB 16 will has brought certain changes in the
lease accounting approach in the books of the lessee. In the statement of financial position of
the lessees, all leases need to be recognized. More specifically, the lessees need to recognize
two aspects in the statement of financial position; they are right-of-use asset and lease
liability. With the introduction of these crucial aspects, AASB 16 has brought certain changes
in the measurement of the right-of-use asset and lease liability. In case of the initial
measurement of the lease liability, Whitehaven Coal will be needed to take into consideration
the future lease payment’s present value (cpaaustralia.com.au, 2019). This requires the
inclusion of certain aspects in the lease payments; they are non-cancellable as well as fixed
payments for lease substances, due amount in the residual value guarantee, specific categories
of contingent payments and outstanding amounts in the period of contingency. After that, in
case of the initial measurement of the right-of-use assets, Whitehaven Coal will be needed to
consider the lease liabilities that includes prepayment of rents related adjustments, receiving
incentives related to leases and incurred initial direct expenditures (home.kpmg, 2019). As
per the requirement of AASB 106, lessees have two options to present right-of-use assets;
they can separately present the right-of-use assets on the statement of financial position from
other assets or these can be separately disclosed in the notes. The same is also applicable in
case of the lease liabilities. It means AASB 16 has brought significant changes in the
accounting requirements of a lessee. However, there is not any change in the accounting
requirements of a lessor under AASB 16 since the accounting requirements are same as
AASB 117 (davidsons.com.au, 2019).

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3. Lease Disclosures by Whitehaven Coal
Whitehaven Coal has provided certain disclosures on its lease accounting and lease
commitments in different portions of the annual report of 2018. These disclosures provide the
necessary information about the lease commitments to the key stakeholders like investors and
shareholders (whitehavencoal.com.au, 2019). These disclosures are discussed below:
Disclosure related to Operating and Finance Lease – Whitehaven Coal has disclosed the
information related to operating and finance lease under Note 7.3 Commitments in the annual
report of 2018. As per this part, the items that Whitehaven Coal considers under operating
lease are the equipment for mining, office equipment and office space
(whitehavencoal.com.au, 2019). The term for operating lease are one to five years; and
contingent rentals are not included in this. In the statement of comprehensive income, the
recognized operating lease expenses for 2018 and 2017 are $58,611,000 and $48,575,000
respectively (whitehavencoal.com.au, 2019). The future minimum rent payable under non-
cancellable operating leases for 2018 and 2017 are $245,992,000 and $186,018,000
respectively. The future minimum operating lease rental payments for less than one year is
$75,665,000 in 2018 and $55,306,000 in 2017; for between one to five years are
$121,315,000 in 2018 and $130,712,000 in 2017; and for more than one years is $49,012,000
in 2018 and nil in 2017 (whitehavencoal.com.au, 2019).
Whitehaven Coal has also made the disclosure of finance lease commitments. In
Whitehaven Coal, the items considered for finance lease are property, plant and equipment;
and the finance lease term is one to five years (whitehavencoal.com.au, 2019). The finance
lease liabilities secured by the leased assets in 2018 and 2017 are $100,625,000 and
$45,182,000. In addition, the minimum lease payment for finance lease in 2018 and 2017 are
$96,150,000 and $37,261,000 respectively. The total amount of finance lease liabilities in
2018 and 2017 are $86,341,000 and $35,035,000 respectively. The minimum finance lease

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payments within one year is $32,888,000 in 2018 and $19,625,000 in 2017 and for between
one to five years is $63,262,000 in 2018 and $17,636,000 in 2017. Under finance leases, the
amount of current borrowings are $29,359,000 in 2018 and $17,682,000 in 2017; and the
amount of non-current borrowings are $59,982,000 in 2018 and $17,353,000 in 2017
(whitehavencoal.com.au, 2019).
Disclosure related to the Adoption of AASB 16 Leases – Whitehaven Coal has disclosed
information regarding the adoption of AASB 16 as well as transition to this new standard
under Note 7.6 New Accounting Standards and Interpretations. Details have been provided
by the company in this section related to the new lease standard. As per Whitehaven Coal,
AASB 16 is the new accounting standard for leases and it makes Whitehaven Coal
responsible for recognizing the assets and liabilities for all the leases with a lease period of
more than one year; exception is applied in case of assets with low value. The new standard
also demonstrates that Whitehaven Coal will be required to undertake the measurement of
right-of-use assets same as other assets and lease liabilities same as other liabilities.
Moreover, the responsibility of recognizing a lease rental payment at the beginning date of
the lease agreement is on the company which must be considered as a lease liability. Present
value basis needs to be considered for the initial measurement of lease liabilities and right-of-
use lease assets.
Non-cancellable lease payments as well as payments for the optional lease payments
need to be taken into consideration for the measurement of lease liability and right-of-use
assets in Whitehaven Coal. Whitehaven Coal has shown its intention to adopt AASB 16 in
early basis with the use of the retrospective method. For the purpose of transition, a complete
analysis of all existing contracts in Whitehaven Coal along with the determination of their
eligibility has been undertaken by Whitehaven Coal for the purpose of the adoption of AASB
16. In addition, the company has assessed the impact of the adoption of AASB 16 on its

9ADVANCED FINANCIAL ACCOUNTING
financial statements (whitehavencoal.com.au, 2019). According to the company, the adoption
of AASB 16 will increase Whitehaven Coal’s liabilities for $200 million approximately; and
there will also be an increase of approximately $190 million in the values of property, plant
and equipment in the balance sheet. Whitehaven Coal has also mentioned that the effects will
be slowed down as well amortized to the comprehensive income statement over the rest of
the lease term (whitehavencoal.com.au, 2019).
Conclusion
In the above analysis, the importance of the use of accounting concepts and different
aspects of the new lease accounting standard have been assessed and evaluated. It can be seen
from the analysis that comprehensiveness and relevancy of accounting information in the
financial statements can be enhanced with the application of appropriate accounting concepts;
and the same can be seen in the annual report of 2018 of Whitehaven Coal. Whitehaven Coal
has prepared its financial accounts and reports through perfect synchronization of the relevant
accounting concepts in different accounting elements. In this manner, the key stakeholders of
the companies like investors, shareholders and others end up gaining the relevant information
while become able in comparing the financial position of the corporations. The report also
shows the main changes that have been brought in AASB 16, the new standard for lease
accounting. The report demonstrates that it is possible to increase the transparency of balance
sheet regarding the position of companies’ liabilities through including the leases in the
statements of financial position in the forms of right-of-use assets and lease liabilities. This is
the main change in AASB 16 as compared to the previous lease standard, AASB 117. The
report also demonstrates fulfilment of the responsibility of Whitehaven Coal in disclosing the
information related to lease. It is visible that information on both finance and operating leases
is disclosed by Whitehaven Coal in appropriate section of the annual report of 2018.

10ADVANCED FINANCIAL ACCOUNTING
Moreover, Whitehaven Coal has assessed the impact of the adoption of AASB 116 on its
financial statements while expressing the impact on monetary basis.

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References
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Business reporting for decision making. John Wiley & Sons.
Changes to Accounting Standards - AASB 16 Leases | Davidsons Accountants and Business
Consultants. (2019). Davidsons Accountants and Business Consultants. Retrieved 26
September 2019, from https://www.davidsons.com.au/news/2019/03/06/changes-to-
accounting-standards-aasb-16-leases/
Cpaaustralia.com.au. (2019). IFRS 16 LEASES. Retrieved 26 September 2019, from
https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-
resources/reporting/factsheet-ifrs16-leases?Division=Victoria&Segment=The+Rest
Gupta, A. (2016). Financial Accounting for Management. Pearson Education India.
Inman, M. L. (2014). Cost Accounting: Stage 2. Butterworth-Heinemann.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting. John Wiley
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Accounting and Finance, 6(4), 255.

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insights-oct18.pdf
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September 2019, from
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ual-Report-2018_LR_FA-3.pdf
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