Accounting Theory and Issues in AGL Energy's Sustainability Report

This report provides an executive summary and detailed analysis of AGL Energy's sustainability reporting, examining five key areas: reliability of financial management, taxation transparency, strong and ethical governance, environmental issues, and social issues. The report delves into each area, referencing AGL Energy's 2018 Sustainability Report, and discusses the application of accounting theories, particularly agency theory, to explain the company's initiatives. It explores the relationship between managers and stakeholders, and how the company addresses issues such as profitability, energy sales, and tax compliance. Furthermore, the report offers recommendations based on the analysis, aiming to provide insights into financial reporting and corporate social responsibility within the organization, ultimately helping the management handle these issues effectively. The report concludes by emphasizing the importance of ethical governance, renewable energy, and low-carbon energy transitions for AGL Energy.

Running head: ACCOUNTING THEORY AND ISSUES
Accounting Theory and Issues
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING THEORY AND ISSUES
Executive Summary
The first part of this report discusses about five the five major material areas of the sustainability
reporting of AGL Energy; they are Reliability of Financial Management, Taxation Transparency,
Strong and Ethical Governance, Environmental Issues and Social Issues. This report also
undertakes the analysis of proper theories for explaining the initiatives of the company regarding
these issues. This report also shed light on agency theory regarding the sustainability issues and
initiatives of the company. Lastly, it provides certain recommendation.

2ACCOUNTING THEORY AND ISSUES
Table of Contents
1. Introduction..................................................................................................................................3
2. Discussion on Issues....................................................................................................................3
2.1 Reliability of Financial Management....................................................................................3
2.2 Taxation Transparency..........................................................................................................4
2.3 Strong and Ethical Governance.............................................................................................5
2.4 Environmental Issues.............................................................................................................5
2.5 Social Issues...........................................................................................................................6
3. Conclusion and Recommendations..............................................................................................7
References........................................................................................................................................8

3ACCOUNTING THEORY AND ISSUES
1. Introduction
In today’s business world, there is a major increase in the complexities in the business
operations and other aspects of the company. In the presence of these complexities, companies
all over the world have been facing major issues that are hampering the smooth operations of
their businesses. It is needed for these companies to take into consideration these major issues so
that they can be resolved in a better manner for the overall benefit of their businesses and the key
stakeholders (Crowther and Seifi, 2018). It needs to be mentioned that these issues are crucial for
the organizations and the impacts of these issues can be evaluated with the help of certain
theories like the agency theory and others (Jiraporn, et al., 2014). The main aim of this report is
the analysis of certain issues in one of the Australian companies and AGL Energy is selected for
this purpose. This report aims at the analysis and evaluation of five different issues in the
financial reporting and corporate social responsibility reporting of the company. In addition,
these issues are analyzed in lights of the appropriate accounting theories so that they can be
evaluated in a better manner. After that, certain recommendations are provided regarding these
issues so that the management of the company can handle these issues in effective manner. This
report plays a crucial role in providing the scope of gaining understanding about different
financial and corporate social responsibility related issues within the organizations so that they
can be handled in better manner.
2. Discussion on Issues
This part involves in the analysis of the five key issues in the business operations of AGL
Energy. It can be seen from the 2018 Sustainability Report of AGL Energy that the company has
disclosed information and discussion on several issues which are important for the operation of
the company. The selected area with issues as per the 2018 Sustainability Report of AGL Energy
are Reliability of Financial Management, Taxation Transparency, Strong and Ethical
Governance, Environmental Issues and Social Issues (2018sustainabilityreport.agl.com.au,
2019). The following discussion sheds light on these five types of issues in AGL Energy.
2.1Reliability of Financial Management
It can be seen from the 2018 Sustainability Report of AGL Energy that the management
of the company has considered the reliability of financial management as a crucial issue for their
business operations. The company has considered four major aspects under this issue; they are
Profitability, Energy Sales, Wholesale gas portfolio and cost efficiency. As per the management
of AGL Energy, financial management is a material issue for the business of AGL Energy
because this aspect matters most for the management and the
stakeholders(2018sustainabilityreport.agl.com.au, 2019). The management of AGL Energy has
disclosed the necessary information on their effective management of the four aspects of
financial management. For example, the company has provided their financial management
target for the year 2018 along with their performance for the same year in order to determine the
status that whether they have been able in achieving the target or not (simplywall.st, 2019). At
the same time, with the aim to tackle these issues in appropriate manner, they have disclosed
their financial management related target for the year 2019 in the same section of the
sustainability report so that the stakeholders can know about their initiatives (Michelon, Pilonato
and Ricceri, 2015).

4ACCOUNTING THEORY AND ISSUES
The fundamental involvement of the agency theory can be seen with the relationship
between of the managers and the stakeholders. According to the main argument of the agency
theory, the interest of the managers is not necessarily in line with the interest of the stakeholders
(Raelin&Bondy, 2013). The main interest of the managers as an agent is the maximization of
their efficiency of their wealth. Agency problem occurs when the decisions made by the mangers
are non-consistent with the objectives of the shareholders that is wealth maximization (Bosse and
Phillips, 2016).
These initiatives or the motive of the management of AGL Energy can be explained with
the light of an accounting theory that is agency theory. This theory states that the interest of the
managers is not necessarily in line with the interest of the stakeholders and management is
needed to consider making business decisions that are in line with the requirements of the
shareholders (Brown and Forster, 2013). According to the agency theory, the main motive of the
management of AGL Energy should be to provide the information related to financial
management to the stakeholders like their investors, shareholders and other users of the financial
statements so that they can know the company’s undertaken steps or measures for effective
financial management. The management of AGL Energy can gain the trust of these stakeholder
groups through providing this information to them and this will lead to the resolution of the
problem between the management of the company and the shareholders.
2.2 Taxation Transparency
According to the 2018 Sustainability Report of AGL Energy, another crucial material
issue to the company is Taxation and transparency. Regarding this issue, the company has
mentioned their main responsibility that is to adhere to all taxation related obligations and to
maintain transparency in disclosing the details of the taxes that the company pays along with the
taxation rules and policies that they have implemented. The company has considered this as a
crucial material issue for them since this is of great importance to them and their
stakeholders(2018sustainabilityreport.agl.com.au, 2019). The management of AGL Energy has
mentioned in this report that they have strong commitment to meet all the obligations related to
tax compliance and to provide the stakeholders with the information about the taxation policies
and tax payment. It needs to be mentioned that the company has undertaken certain initiatives for
effectively handle this issue; they are the satisfaction of all tax obligations, proper identification
of tax risks along with effectively manage and communicate them with the key stakeholders and
senior management, maintain a co-operative as well as transparent relationship with the taxation
authority and ensuring the proper management of tax risks (michaelwest.com.au, 2019).
Agency theory is concerned with the relationship between of the managers and the
stakeholders within the organizations for the betterment of both the parties. The main argument
of the theory indicates towards the aspect that the interest of the managers is not necessarily in
line with the interest of the stakeholders (Raelin&Bondy, 2013). The main interest of the
managers as an agent is to maximize their efficiency of their wealth. Agency problem occurs
when the decisions made by the mangers are non-consistent with the objectives of the
shareholders that is wealth maximization (Bosse and Phillips, 2016).
The intention and motive of the management of AGL Energy behind maintaining taxation
and transparency can be explained in light of the agency theory since this theory considers the
agency problem. This particular theory states that problems occur within business organizations
when the interest of the shareholders are not satisfied by the management of the company

5ACCOUNTING THEORY AND ISSUES
(Fernando and Lawrence, 2014). In case of AGL Energy, the management of the company can
solve this agency problem by complying with the rules and regulations of taxation and
transparency which provide them the scope to use the necessary resources to maintain their
business operations successfully. This reasons lead to the effective handling of this issue by the
management of the company. This will lead to the resolution of the agency theory between the
shareholders and the management of AGL Energy.
2.3 Strong and Ethical Governance
To the management of AGL Energy, Strong and ethical governance is considered as one
of the most important as well as material issue in their sustainability performance. The main
approach of the company to address this issue is to act in the most ethical manner in the presence
of a string governance structure that supports a culture of accountability, fairness and
transparency(2018sustainabilityreport.agl.com.au, 2019). In order to ensure the effective
disclosure of information regarding this issue, the company has provided their ethical
governance related target in 2018, their performance in the same year and their target for the next
year. Under this issue, the company has provided greater importance to certain aspects like
effective corporate governance policies that includes the company’s Board and Committee, code
of conduct, instruction and training programs, privacy, effective resolution of the workplace
related issues, strong action against bribery and corruption and risk and compliance management
(agl.com.au, 2019). The company has taken these actions in order to manage this material issue
(Kennedy Nyahunzvi, 2013).
Agency theory is concerned with the relationship between of the managers and the
stakeholders within the organizations since it leads to the resolution of major issue between these
two parties. According to the main argument of this theory, the interest of the managers is not
necessarily comply with the interest of the stakeholders (Raelin&Bondy, 2013). The main
interest of the managers as an agent is to maximize their efficiency of their wealth. Agency
problem occurs when the decisions made by the mangers are non-consistent with the objectives
of the shareholders that is wealth maximization (Bosse and Phillips, 2016).
The adopted initiatives as well as corrective measures of AGL Energy for ethical
governance can be explained with the help of the above theory. According to the concept of this
theory, the aim of both the managements of the companies and the stakeholders is to maximize
their own profit which often lead to the occurrence of conflict between these two parties. The
same aspect can be seen in the case of AGL Energy. As per this theory, the agency problem
between the management of the firm and the shareholders can be resolved in case the
management ensures the implementation of social and ethical governance practice within the
organizations. This provides the company with the required support of the shareholders and the
shareholders get the chance to maximize their wealth.
2.4 Environmental Issues
According to the 2018 Sustainability Report of AGL Energy, the company has
considered two issues as the major material issue under their environmental initiatives; these two
issues are Transition to low carbon energy and Renewable energy. In case of both of these
material issues, the management of AGL Energy has ensured providing the information on their
target for 2018, performance against the target and the target for the year of
2019(2018sustainabilityreport.agl.com.au, 2019). In case of the transition of low carbon energy,
the undertaken steps by the company to address this issue are to provide the market with reliable,

6ACCOUNTING THEORY AND ISSUES
affordable and sustainable energy options, not extending the operational life of any existing coal-
field power station, improve the greenhouse gas efficiency, continuation in the investment in
renewable energy, make the innovative as well as cost-effective solutions available for the
market, incorporation of the forecasted future carbon prancing and others (agl.com.au, 2019).
Same like this, the management of AGL Energy has taken certain major initiatives for the
renewable energy such as continuation in investment in the sources of renewable energy and
others (Tschopp and Huefner, 2015).
Agency theory helps in resolving the disputes arise between the management of the
companies and the shareholders. The main argument of the theory indicates towards the aspect
that the interest of the shareholders is not always satisfied by the managements of the companies
(Raelin&Bondy, 2013). The main interest of the managers as an agent is to maximize their
efficiency of their wealth andthe occurrence of agency problem can be seen when the decisions
made by the mangers are non-consistent with the objectives of the shareholders that is wealth
maximization (Bosse and Phillips, 2016).
The initiatives of the management of AGL Energy can be explained with the help of
agency theory. According to the concept of agency theory, it is needed for the companies to take
considerable actions the maximization of the wealth of the shareholders (Chauvey, et al., 2015).
As per the concept of the agency theory, the main motive of the management of AGL Energy to
take the above-mentioned environmental initiative is to do well for the shareholders so that the
agency problems can be resolved in proper manner.
2.5 Social Issues
Under the social issue, the management of AGL Energy has considered their people as
their greatest asset and taken different initiatives to solve the material issues regarding them. The
company has focused on certain crucial material issues related to their people; they are
Workplace culture and talent, Health and safety and Contactor and supplier
management(2018sustainabilityreport.agl.com.au, 2019). Some of the major undertaken
initiatives of the company under workplace couture and talent are embedding the refreshed
culture values of the company into the working environment along with the leadership
techniques, embedding the enterprise-based view on talents, development of a new assessment
tool for checking the health of the company’s culture, transformation of the experience of the
employees through delivering best in-class, integrated and simple technology as well as digital
solution in a more efficient and energetic manner and others. At the same time, the company has
incorporate certain values to deal with this material issue; they are Safety and beyond,
Sustainable thinking, Inclusive of all and Focused on what matters. Apart from the above, the
management of AGL Energy has taken other major initiatives in order to effectively deal with
this crucial issue (Patten and Zhao, 2014).
Agency theory plays a crucial role in the resolution of the problems between the
company’s management and the shareholders. The main interest of the managers as an agent is to
maximize their efficiency of their wealth andthe occurrence of agency problem can be seen when
the decisions made by the mangers are non-consistent with the objectives of the shareholders that
is wealth maximization (Bosse and Phillips, 2016). It states that managements of the companies
always do not comply with the demands of the shareholders.

7ACCOUNTING THEORY AND ISSUES
It needs to be mentioned that these initiatives of the company regarding their people can
be explained in the light of the agency theory. This theory states that a company should work
such a manner so that they can fulfill the demand of their shareholders (Thijssens, Bollen and
Hassink, 2015). It is crucial to mention this aspect that employees are considered as one of the
crucial resources that the organizations need for ensuring their existence and successful
operation. This aspect works as a major motive for the company to take the necessary steps and
initiatives for ensuring the well-being of their employees so that they can fairly use them for their
business purposes. This is considered as crucial aspect for AGL Energy. Shareholders of the
companies demand the well-being of the whole organization that includes the well-being of the
employees. As per agency theory, the management of the company can maximize the wealth of
the shareholders by taking care of their shareholders.
3. Conclusion and Recommendations
The above discussion shows the presence of five material issues in sustainability or
corporate social responsibility related activities of AGL Energy. These five issues can be
considered as crucial aspect for the business operations of AGL Energy as well. The above
discussion shows that the company has taken fair amount of initiatives for these material issues.
Based on the whole discussion, certain recommendations are provided below related to these
issues:
o In order to maintaining the reliability of financial management, it is recommended to the
management of AGL Energy to continue their compliance with the required financial
reporting standards and accenting policies. It is also recommended to the management of
AGL Energy that they must disclose the crucial financial information so that the users
can ascertain the financial performance and position of them.
o In order to maintain the required transparency in the taxation related transactions, the
management of AGL Energy is recommended to continue their adherence to the
respective taxation authority so that taxation can be charged on their income in fair
manner.
o It is recommended to the management of AGL Energy to keep their compliance with
their ethical standards as well as code of conducts in order to ensure the continuation of
their business operations in the most ethical as well as transparent manner.
o In case of the environmental initiatives of AGL Energy, the management is
recommended to take more initiatives to diminish the negative impact of their business
operation from the environment. It is also recommended to AGL Energy that they must
ensure reporting these undertaken initiatives in the sustainability report so that people can
become aware of their environment related initiatives.
o Lastly, in case of the social initiatives regarding people, the management of AGL Energy
is recommended to ensure taking effective initiatives to ensure the health and safety of
their organizational people since it is a crucial aspect to maintain the well-being of the
organizational people.

8ACCOUNTING THEORY AND ISSUES
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