Analysis of Current Accounting Issues in AGL Energy Limited (ACC706)

This report analyzes the accounting issues faced by AGL Energy Limited, an ASX-listed company, focusing on its financial reporting practices and compliance with AASB standards. The report examines key accounting issues, including sustainability concerns, political pressure on accounting standard-setting, and the application of prudence in financial reporting. It delves into the company's accounting policies for property, plant, and equipment, exploration assets, and intangible assets, highlighting areas of compliance and potential areas for improvement. The report also addresses issues such as revenue recognition, accounting fraud, and the impact of asset impairments. Recommendations are provided to improve the company's financial reporting. The report also includes an executive summary, table of contents, and references.

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:

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
indicated vital sustainability concerns in the company’s performance which needs more
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.

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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

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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
evaluating certain implementation of the flexibility within the accounting framework
(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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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 Limited indicated vital
sustainability concerns in 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, the accounting 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
and equipment is considered as assets carrying amounts and sales proceeds difference that 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
impairment recognition is also in accordance with 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 exploration of new assets of gas and oil. Accounting for such assets is
not explained within 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 is government approved
for development, accumulated exploration along with evaluation expenditure is measured 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

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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 has paid in order to acquire such contracts they are 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 as a 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 lives are considered for amortization over its useful expected 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- Licenses are conducted at cost less than accurate impairment losses. It is also
anticipated that licenses attain numerous useful lives for 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 impairment on a yearly basis (Agl.com.au. 2019).

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 Goodwill- This is considered to be an asset by AGL Energy Limited at a date when
control is attained. It is also measured to be an increase in sum of paid purchase
consideration, minority interest amount along with fair value of the organizations
previously attained equity share over acquired net assets along with assumed liabilities.
Amortization of goodwill is not conducted however it 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 basis for over years during 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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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’s fixed assets along with its valuations for
years, it is gathered that from all plant, property and equipment classes, just the plant and
equipment related to some information technology assets 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 Energy Limited has significantly evaluated all
financial documents of company and has also conducted vital analysis within 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 the company does not include all disclosures
concerning the Australian Accounting Standards. For instance, around $1,032 million sales
revenue related with gas and electricity over 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 analyses the same assets recoverable
amount along with 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 tax was then re-valued (Agl.com.au. 2019).

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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 its services and products devoid of
appropriate billing for over a certain timeframe that 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 concerning liquidity and reputation of company (Langfield-
Smith et al. 2017). This also indicates absence of liquidity within the organization.

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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
the organization with the conceptual accounting framework also affected as most of 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-judged financial reporting in its annual report and will also facilitate the

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.

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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-
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12CURRENT ISSUES IN AUSTRALIAN ACCOUNTING
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