Accounting Theory & Issues: Azure Healthcare Limited Policies Review

This report provides a comprehensive evaluation of Azure Healthcare Limited's accounting policies. It begins with an introduction to accounting policies and their importance, followed by an analysis of Azure Healthcare Limited's financial reports. The report identifies and discusses key accounting policies, including critical accounting judgements, principles of consolidation, business combinations, income tax, financial assets and liabilities, property, plant, and equipment, leases, intangibles, employee benefits, and earnings per share. The report then assesses accounting flexibility, evaluates the company's accounting strategy, and examines the quality of disclosure. It identifies potential red flags and concludes by determining compliance with the conceptual framework. The analysis covers various aspects such as depreciation methods, inventory pricing, goodwill, consolidation of accounts, and research and development costs, providing a detailed overview of the company's financial reporting practices and their implications.

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Azure Health Care Limited: Evaluation of Accounting Policies

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Table of Contents
Introduction................................................................................................................................3
Azure health care limited: evaluation of accounting policies....................................................4
Section 1: Identify Key Accounting Policies.........................................................................4
Section 2: Assess Accounting Flexibility...............................................................................9
Section 3: Evaluate Accounting Strategy.............................................................................11
Section 4: Evaluate the Quality of Disclosure......................................................................12
Section 5: Identify Potential Red Flags................................................................................13
Section 6: Compliant with the Conceptual Framework.......................................................14
Conclusion................................................................................................................................15
Reference..................................................................................................................................16

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Introduction
Accounting policies are rules, principles, and procedures which are selected and followed by
management of a company while preparing and presenting financial statements. It deals with
depreciation methods, inventory pricing, and goodwill, consolidation of accounts, research
and development costs.
Azure healthcare limited is a global clinical management and healthcare communication
solution providers. They are clinical management solution providers. The financial report and
accounting system of Azure healthcare limited is analysed. According to Australian
Accounting standard management it is important to necessary to make judgements and
assumptions about assets and liabilities that are based on historical evidence. For a company
it is important to determine estimation of lives of intangible assets. The company has reported
principles of consolidation in their financial report. Business combination results in occurs
when the company gains control over two or more businesses. This results in merging of
assets and liabilities. Other key policies such as income tax, financial assets and liabilities,
employee benefits have been discussed.
Accounting flexibility can be understood as ability of the accounting system to adapt to
changes in the company according to its needs, management and operations. For a company it
is important to have an accounting strategy. Disclosure can be understood as releasing all
information that is relevant and pertaining to company which has influence on decision of
investors. For a company to be Australian Security Exchange (ASX) listed, it needs to follow
certain rules with respect to disclosure. Red flag indicates that there is a potential problem
with financial statement. Red flag is a subjective concept. Techniques to identify red flags are
discussed. Financial reports of Azure healthcare limited comply with ASX standards.

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Azure health care limited: evaluation of accounting policies
Azure healthcare limited is a global clinical management and healthcare communication
solution providers. They are clinical management solution providers (Azure Healthcare
Limited, 2017). They use reliable software solutions which meet the global standards. The
company has a main subsidiary Austco Communication Systems Pty Ltd. It manufactures
clinical workflow solutions for hospitals and nurse call system. Tacera is an internet based
system for nurse call solution for hospitals and other healthcare facilities. CellGuard is
another product for custodial market. It provides audio communication system which is
inclusive of officer duress, discrete monitoring, background music distribution, cell intercom
and public address announcements. MediCom is product for aged population. It enables
nurses to promptly respond to call of the patient all the time (Reuters, 2017). Azure
healthcare limited has invested substantially in research and development. They have realised
the importance of research and development in order to provide best service to clients
(Sultan, 2014).
The financial statement of Azura healthcare limited includes economic entities as well as
controlled entities. Different components of the financial reports are highlighted below.
Section 1: Identify Key Accounting Policies
Critical accounting judgements: according to Australian Accounting standard management
it is important to necessary to make judgements and assumptions about assets and liabilities
that are based on historical evidence. Other factors that influence these assumptions are taken
into account. Actual results may vary from these assumptions and judgements. Judgements
made in accordance with Australian Accounting standard significantly influence financial
statement. The company tested the investment in subsidiaries as well as intangible assets. It
was found that there was no impairment in goodwill, intangible assets and investment in
subsidiaries (australia.gov.au, 2017).

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The allowance of doubtful debts implies the estimation of economic entity by management.
At 30 June 2016, it was $195,000. The company pays income tax as per the rules and
regulation to the jurisdiction in which it operates. For provision of impairment, it is
important to assess degree of estimation and judgements. This is assessed by considering
ageing of inventories, previous sales experience and factors that influence inventory
obsolescence.
For a company it is important to determine estimation of lives of intangible assets. To
determine this estimation, the company takes into account historical experience with the
asset, engineering estimates, statistical methods, judgemental estimates (Fazal, 2012).The
depreciation charge will increase in situation where useful lives are less than the estimate or
are sold and discarded.
Principles of consolidation: there are four principles of consolidation like First, elimination
of investment account, Second, capital reserve and goodwill of control, Third, minority
interest, and Fourth, pre-acquisition and post-acquisition profit. In controlled entity of Azure
Healthcare Limited, the company has power to make decisions related to operating and
financial policies of the entity (Kumar, 2016).This helps Azure Healthcare limited achieve its
goals. Their financial statement contains the list of controlled entities. The transactions and
inter-company balances between entities have been eliminated on consolidation. This
included unrealised gains and losses. Accounting policies of subsidiaries have undergone
change in order to ensure consistency.
Using the acquisition method of accounting, subsidiaries which are acquired by the company
are accounted. The change in ownership is accounted as equity transaction. When the
company loses ownership of the subsidiary, it derecognises the entity (Hoyle, 2015).
Business combinations: it occurs when the company gains control over two or more
businesses. This results in merging of assets and liabilities. Businesses combinations are

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accounted by acquisition accounting method (Accounting tools, 2016). GAAP principles are
followed in case of business combinations. It is accounted from the date the parent entity
acquired control over business (acquisition date). Business combination and acquisition may
lead to goodwill from bargain purchase. The technique used for measuring goodwill will
impact on measurement of non-controlling interest which has to be recognised by the
company.
Cost of the investment in financial statements will include acquisition date fair value of the
consideration of transferred business. Consideration will include liabilities incurred by the
acquirer to the former owners of the business, sum of the assets transferred by the acquirer,
and the equity interests issued by the acquirer. The measurement of consideration transferred
includes all liabilities and assets which result from contingent consideration. any transaction
which results from contingent consideration is categorised as equity instrument or financial
liability.
Income tax: income tax is the tax calculated on the income of company which is paid to the
jurisdiction. Income tax is calculated on the basis of income tax rate of that jurisdiction.
Current tax is calculated on the basis of amount of tax payable by the company in accordance
with taxable loss or profit for that year. To calculate current tax, tax laws and tax rate are
required. Current tax is considered as a liability to an extent where it is unpaid (Accounting
Explained, 2013).
If the amount reported on income tax return for a particular year is different from the year
that entry appeared on financial statement, then it results in deferred income tax. It is
accounted using balance sheet liability method. It is applicable in all assets and liabilities
where their taxable differences (temporary). This tax liability is applicable on investments in
subsidiaries where there is temporary difference. Current tax and deferred tax are identified
as income or expense in income statement (Tearney, 2015).

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Azure healthcare limited and its subsidiaries have an income tax consolidated group. Each
subsidiary has its own current and deferred tax liability. The current tax is assumed by the
parent company. In the tax consolidated group, each subsidiary contributes to income tax in
proportion to their contribution to the overall profit.
Financial assets and liabilities: investments of the company are recognised and
derecognised on the date where sale or purchase of an item is contracted. Terms of the
contract requires delivery within given time frame established on the basis of market under
consideration. Apart from initial recognition, subsidiary investments are evaluated as cost in
financial statement.
Financial assets are categorised as financial assets ‘held-to-maturity investments’, ‘at fair
value through loss or profit’, ‘loans’ etc. the nature and objective of the financial assets is
important for determining the categories. Similarly, financial liabilities can be classified as ‘at
fair value through profit or loss’, borrowing, etc.
Effective interest rate method is used to calculate amortised cost of financial liability and
asset. This rate is the rate of discounted future cash payments or receipts. The basis for
financial income on effective interest rate is income. Other assets of the company are
evaluated for impairment periodically and recorded in the balance sheet. The criteria for
considering a financial asset as impaired is that objective evidence has occurred more than
once after initial recognition (Nickolas, 2015).
A company or an economic entity derecognises a financial asset when the cash flow expires
or there is a transfer of financial asset. This is also applicable in case of financial liability.
Property, plant and equipment: all the property, equipment and plants are depreciated. The
fixed assets are depreciated on diminishing value or straight line basis over their useful lives
to the company. Depreciation starts from the time the asset is acquired. Leasehold
Improvements are depreciated either over unexpired period or estimated useful lives of

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improvements. At each balance date, the residual value and useful lives of the assets are
evaluated and adjusted. In the current year, there is no change in material. In case of an asset,
if the carrying amount is greater than recoverable amount then it is written immediately to its
recoverable amount. Profit and loss are evaluated by comparing proceeds and the carrying
amount. The profit and loss are recorded in income statement.
Leases: financed leases can be understood as leases of fixed assets that are transferred to the
company. Except legal ownership, all benefits and risks associated with the fixed assets are
transferred to the company. To depreciate leased assets, straight line or diminishing value
over estimated useful lives is employed. Leased payments are divided between lease interest
expense and reduced lease liability. Lease payments are charged as expenses in the lease
period (the benefits and risks remain with the lesser) (Azure Healthcare, 2017).
Intangibles: goodwill on consolidation as well as goodwill is recorded as the amount by
which purchasing price for business exceeds the fair value attached to overall assets at
acquisition date. Goodwill as well as the goodwill on consolidation that are purchased are
evaluated annually for impairment. Evaluation may occur more frequently if required or if
there is an indication of impairment (AASB 136 Impairment of Assets) (Azure Healthcare,
2017).
Research and development costs are considered as expenditure in the period of occurrence.
Development expenses are considered as expenditure when there are no internally produced
intangible assets. There are certain criteria for identifying intangible arising from
development expenses. They are:
 Technical feasibility of intangible asset
 Intention for completing intangible asset
 Use or sell intangible asset.
 Assessing future benefits of intangible assets.

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 availability of adequate financial, technical, and other resources to complete the
development
 Reliable method of measuring expenditure associated with intangible asset during
development.
Employee benefits: in the balance sheet, provision is made for company’s liability for
benefits of employees. Employee benefits arise from the services of employees. The
employee benefits are settled in one year’s period. Benefits include salaries and wages, sick
leaves, paid leaves, annual leaves. They have to be settled within one year. Other benefits
which are can be paid later than one year are evaluated on the basis of future cash outflow.
Contribution of the employee are made by the company to well defined superannuation
funds. They are considered as expenditure when incurred (Azure Healthcare, 2017).
Earnings per share: they are of two types: basic earnings per share and diluted earnings per
share. Basic earnings per share is estimated by dividing profit attributable to all the
shareholders of Azure Healthcare Limited by the weighted average number of ordinary shares
outstanding during the financial year. It is exclusive of costs of servicing equity. Diluted
earnings per share modify the numbers used in determining the basic earnings per share. It
takes into consideration the effect of income tax and other financial costs linked with dilutive
potential ordinary shares (Azure Healthcare, 2017).
Section 2: Assess Accounting Flexibility
Accounting flexibility can be understood as ability of the accounting system to adapt to
changes in the company according to its needs, management and operations. It also implies
that information system employed by a company should have capacity to grow and change
along with the company. Change in the accounting system is important because companies
undergo change periodically (Olad, Z. S. and Amiri, 2016).Accounting system should be
flexible enough to adapt to the change. Accounting system should grow and expand in order

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to keep records and track financial growth of company accurately. It is also referred to as
financial flexibility. it is determined by company’s capability to deal with unexpected
expenditure and investments. It is assessed by examining how well company uses leverage
and cash holdings (Denis and McKeon, 2016).
Companies which are highly flexible in financial terms or are superior financially are able to
deal with economic situations such as recession. They are also able to take advantage of
investments which are unexpected or unplanned. On the other hand, companies with very
stringent accounting and financial policies are unable to respond properly to unexpected
situations. Such companies are not able to survive in economic downturns. Their rigid
policies lead to their downfall (Koch et al, 2012)
There are several universally accepted components of financial flexibility (they may vary
according to different analysts and investors).
 Leverage: it is defined as use of debt in order to increase total profit which is
returned to company’s shareholders. In other words, leverage can be understood as
using borrowed money to increase company’s profit. This is the money which is used
to finance assets.
 Cash Holdings: cash holding imply coins, check, paper money, money in bank,
money orders etc.
Debt ratio, that is, ratio of total liabilities of the company to total assets and debt to equity,
that is ratio of total liabilities to owner’s equity are most common methods to measure
leverage. The value of these ratios determines the risks associated with financial hardship.
High ratios lower financial flexibility, hence, lowering company’s ability to borrow.
Financial or accounting flexibility is important for company. Flexible budget is important for
analysing deviation between actual and expected output. It helps to compare actual costs with
budgeted costs at actual volume. It helps in comparison between actual cost and expected

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cost for business activity. Flexible budget is important to fulfil the goals of cost control. It
determines the points where actual performance deviated from planned performance. Azure
healthcare limited has flexible accounting policies. The accounting policies will help the
company strive difficult financial situations. The company can also take advantage of
investments. It can also take over other businesses and form mergers. The flexibility of the
accounting system has helped Azure healthcare limited to grow and strive.
Section 3: Evaluate Accounting Strategy
For all companies, accounting is a crucial business function. It involves collecting, recording
and analysing financial information. This information plays an important role in decision
making. Financial information is a great source for detailed information regarding business
and its operation. Companies use historical and past financial data for planning new
strategies. It helps in growth of business. accounting growth strategies include accelerating
income, expanding through profits, building strategic business relationships, streamlining
current production operations and diversifying business operations (Bonin, 2013). The
decisions made on the basis of previous historical information helps in prediction of success
of future business venture. This information can be used to improve certain functions of the
company. Azure healthcare limited makes critical accounting judgements and assumptions on
the basis of historical information. Their allowance of doubtful debts was $111,000 on 30
June 2012. It increased to $195,000 in 2016 (Azure Healthcare, 2017).
A large number of companies and business depend on banks and investors for financing.
These loans lead to negative cash flow (the cash moves out of the business, resulting in
losses). Business owners should review financial accounting data periodically and develop
strategies which ensure profit and growth of business. Azure healthcare limited is dependent
on intangible assets and business combinations for financing.

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The business leaders take responsibility for profit and loss incurred by the company during
operations. They require information regarding financial performance for further decisions.
This information helps them to re-evaluate and re-organise their decisions.
Azure healthcare limited has invested in mergers (business combinations). They use their
financial information and data when taking decisions regarding mergers or acquiring
subsidiaries. They also take into account the company’s objectives and goals while taking
such decisions. Azure healthcare limited have a well-established risk management system and
control mechanism. They implement decisions systematically and implement board approved
budget and plan. The company’s board ensure effective risk management (Azure Healthcare,
2017).
Section 4: Evaluate the Quality of Disclosure
Disclosure can be understood as releasing all information that is relevant and pertaining to
company which has influence on decision of investors. For a company to be Australian
Security Exchange (ASX) listed, it needs to follow certain rules with respect to disclosure.
Australian Security Exchange expects companies to have periodic as well as continuous
disclosure. Disclosure is considered important for integrity of market. It is important for two
ASX priorities: efficient and fair market and informed and confident investors (Basu and
Forbes, 2014).
Azure healthcare limited has complied with Australian Security Exchange (ASX) in
preparing continuous and periodic financial reports. This company prepares financial reports
annually. The financial reports are available on their website and can be accessed by anyone.
They are readily available for both investors and general public. The disclosure of company
seems adequate. Their financial reports consist of information about director, role of
management, board members, board formal induction program, role of company secretary,
risk management, remuneration policy, diversity policy etc. their financial report discusses