HA2032 Corporate & Financial Reporting: An Analysis of ASX Companies

This report provides a comprehensive financial analysis of four ASX-listed companies in the Australian energy sector: Caltex Limited, Origin Energy, Woodside Petroleum, and Whitehaven Coal. It examines their financial performance, solvency, and equity structures, focusing on changes in equity items over the past four financial years (2013-2017). The report also discusses the importance of corporate regulation in financial reporting and the role of the Australian Accounting Standards Board (AASB) in setting accounting standards and contributing to global standards development. A comparative analysis of the companies' capital structures is included to assess their financial risk, highlighting Whitehaven Coal's strong solvency position and Origin Energy's relatively weaker position. This document is available on Desklib, a platform offering study tools and solved assignments for students.

Running Head: Financial Reporting
Corporate and Financial Reporting

Financial Reporting 1
Executive Summary:
This report is prepared to analyse the financial performance of four ASX listed companies
belonging to Australian energy industry. The companies that are selected for the purpose of
this report are: Caltex Limited, Origin Energy, Woodside Petroleum and Whitehaven Coal.
All these corporations are performing in the financially sound manner and hence contributing
positively to the energy sector of the Australian economy. However, in terms of solvency
position, Whitehaven Coal is performing best because of its low reliance on the external
sources of finances for its business. But, origin industry has the weakest solvency position
among all its 3 competitors. In this report, the equity item of each company has been
identified from their respective annual reports and the changes in each of the equity over the
last four financial years from 2013 to 2014 has been analysed. Further, this report also
highlights the importance of regulation of financial reporting function. Moreover, the role of
Australian Accounting Standard Board in the accounting standard setting process has been
discussed in this report and it has been found that AASB actively participates in the global
accounting standards development process.

Financial Reporting 2
Table of Contents
Executive Summary:.............................................................................................................................1
Introduction:..........................................................................................................................................3
Part i: Corporate regulation...................................................................................................................3
Part ii: Accounting Standard Setting......................................................................................................5
Part iii: Owner’s Equity.........................................................................................................................6
Caltex Limited...................................................................................................................................6
Origin Energy....................................................................................................................................8
Woodside Petroleum..........................................................................................................................9
Whitehaven Coal.............................................................................................................................10
Part iv: Comparative Analysis.............................................................................................................10
Conclusion:..........................................................................................................................................13
References:..........................................................................................................................................14

Financial Reporting 3
Introduction:
Financial reporting has gained wide significant importance in the recent times. The entities
have to report on their financial performance on the regular basis to their stakeholders. The
information contained in the financial reports of the company enables the stakeholders of the
company to take informed decisions. To undertake the financial reporting function, the
accounting regulators across the world issue various standards on different financial reporting
matters to guide the entities about the treatment of specific event or transaction in the
financial statements. The guidance is given in the form of international national financial
reporting standards. One of the major objectives of issuance of such accounting standards is
to promote the uniformity in the accounting practices across the world. This report covers the
equity analysis of four companies from the top 100 Australian securities exchange (ASX)
listed companies. The companies are: Caltex Limited, Origin Energy, Woodside Petroleum
and Whitehaven Coal. All these companies operate within the energy industry of Australia.
The changes in the equity portion of all the four corporations over last 4 financial years is
analysed in this report. Further, a comparative study of capital structure of all the 4
companies is undertaken to assess the degree of financial risk faced by these companies.
Part i: Corporate regulation
Financial accounting and reporting is the function of preparation and presentation of financial
statements. Financial statements are prepared with the objective of determining the financial
performance of the business in the given period of time. The financial statements such as
income statement, balance sheet and cash flow statements help the stakeholders of the
company to make informed decisions with respect to the business of the entity. Provision of

Financial Reporting 4
accurate, relevant, reliable financial information to the interested parties is quite necessary for
the companies and the function of financial accounting and reporting must be regulated
properly by the official bodies. The managers of the company must not be allowed to disclose
the financial information on their discretionary basis rather there must be some standards
which are to be followed by all the entities for like business nature or other features so as to
promote the uniformity of the accounting function among along those entities.
If managers of the companies are given the authority to voluntarily disclose the financial
information as per their own discretion, the basic purpose of financial reporting will not be
served. Only such financial information which reflects the financial strengths and
opportunities available with the company will be incorporated in the reports so as to deceive
the stakeholders of the company such as providers of finance (investors, banks or financial
institutions), government, employees of the company and so on. The management of the
company would not disclose the material financial information that casts significant financial
risk or threats to the company so as to prevent the stakeholders of the company know about
the financial weaknesses of the company.
If accounting and financial function is adequately regulated, it will necessitate it for the
companies to disclose all the relevant financial information transparently which could
influence the readers decision so that they can undertake sound decision making. The
accounting profession has a distinctive feature of protection of public interest which could
only be achieved when the accounting function is highly regulated. In the absence of
appropriately regulated financial accounting and reporting function, the companies could not
be prevented from committing serious accounting scandals or frauds, the occurrence of which
causes huge loses to the stakeholders and economy as a whole in which such companies
operate their businesses.

Financial Reporting 5
Regulation of accounting function and financial reporting system will promote high level of
trust and confidence among the general public in the accounting framework. Apart from this,
it will also allow the users of its financial information to understand its true financial position
in the market by making proper comparison of the financial performance of different entities
of similar business nature (Australian Government. n.d.).
Part ii: Accounting Standard Setting
Australian Accounting Standard Board (AASB) is the official body which is formulated for
the development and maintenance of financial reporting standards to be applied by the
Australian entities. Also, AASB contributes in the development of international financial
reporting standards by participating in the accounting standard setting function of
International Accounting Standard Board (IASB) and facilitates the Australian community’s
participation in the global accounting standard process. The functions of AASB are set out in
the Australian Securities and Investments Commission Act 2001. The board has the vision to
be recognised as the global excellence centre by delivering a positive contribution towards
the development of high quality global standards in relation to various aspects of financial
accounting and reporting (Australian Government. n.d.).
The AASB is one of the most active participants in the events and activities which are aimed
at development of single set of financial reporting standards (accounting standards) that could
be used world-wide. AASB has formulated strong strategies for its participation in the global
accounting standard setting process. As a part of those strategies, recently AASB has set out a
strategic plan in the name of AASB Strategic Plan 2013 to 2017 (AASB., 2014). Moreover,
AASB is one among the 12 member bodies of the IASB’s Accounting Standards Advisory
Forum and also it is the member of Asian-Oceanian Standard-Setters Group

Financial Reporting 6
The Board members of AASB identifies the technical issues that seek due considerations.
The identified issues are then referred to IASB for the further consideration. The AASB,
IASB and other authorised bodies than considers the development of requisite accounting
standard for which technical concern is raised. AASB collects the inputs from domestic
organisations in relation to the technical matters to understand the practical aspects of those
matters and after obtaining inputs, it makes final submissions on the documentation issued by
IASB in order to make contribution the development of high quality IFRS. Once the
accounting standards are implemented, AASB then closely monitor the functioning of such
standards and if any changes are required in their practical implementation, then it proposes
such changes to the IASB.
The IASB is currently in no authority for imposition of IFRS on the corporations and the
reactions on the IFRS are different its different member countries. Some of the countries have
ignored the adoption of IFRS while some other countries have accepted it by abolishing their
domestic Generally Accepted Accounting Principles (GAAPs). The reason as to why the
adoption of IASB has not made it mandatory to adopt the IFRS for its member countries is
due to the significant differences in the provisions of their Domestic Accounting Standard
and requirements of IFRS. The smaller companies of different member countries of IASB are
inclined more towards the continuation of their traditional practices.
Part iii: Owner’s Equity
Caltex Limited
Caltex Limited 2017 2016 2015 2014
Issued capital 379 525 543 543

Financial Reporting 7
Treasury stock -1 0 -1 -1
Reserves -40 -8 -9 -3
Retained earnings 2610 2281 2242 12
Equity 3094 2797 2776 551
Non-controlling
Interest 14 13 12 12
Total Equity 3108 2811 2789 565
Issued capital is the amount of share capital that has been issued to the shareholders of the
company. In 2016, the company had announced buy-back of its shares for the purpose of its
capital management due to which there is a reduction in the amount of issued capital of the
company in 2017 for an amount of $ 146439. There is a reduction of $18 million in the issued
share capital of the company (Caltex Australia. 2018).
Treasury stock is the stock that has been reacquired by the company through the buy-back
approach. Since, in the present case of Caltex the company the treasury stock is shown as the
contra equity account and hence it is shown as negative figure. Since 2016, the company has
bought back certain number of shares and hence the treasury stock has become almost
negligible in 2016 (Caltex Australia. 2016).
Retained earnings are the part of company’s earnings of the year which are ploughed back in
the business for the subsequent uses. In the case of Caltex, retained earnings had consistently
declined over the past 4 years due to dividend payment and implementation of share buy-
back strategies. Also, there are some movements in the funds of reserves also which has
caused changes in the quantum of retained earnings maintained each year.

Financial Reporting 8
Non-controlling interest holders are those parties which do not have the power to vote in the
decisions of the company because they hold less than 50% of the total shareholding. There
has been a slight increase in the non-controlling shareholders in 2017 as compared to last 3
years.
Origin Energy
Amount in Australian Dollars Thousands
Origin Energy 2017 2016 2015 2014
Share Capital 7150 7150 4599 4520
Reserves 439 857 576 170
Retained earnings 3807 6032 7548 8754
Parent Company Interest 11396 14039 12723 13444
Non-controlling interests – Contact Energy 0 0 1244 1483
Non-controlling interests – others 22 21 192 202
Total Equity 11418 14060 14159 15129
There has been an increase in the share capital of Origin Energy due in 2016 as compared to
2015 because of issue of shares under a right issue program and under a dividend
reinvestment plan. Also there was a dividend reinvestment plan introduced in 2014 (Origin
Industry, 2015).
The reduction in the reserves amount in 2017 after 2016 is due to the reporting of foreign
currency translation differences in respect of foreign operations of amount $ 200 million.
Also, there was loss on the hedging transactions undertaken by the company for $ 202.
Further, there was a valuation decline in the assets held for sale for $ 41. The increase in the

Financial Reporting 9
reserves in 2016 as compared to 2015 is because of profit from hedging transactions and
foreign currency translation transactions.
The reason for the decline in the retained earnings balances is due to the dividend payment
made by the company in all the 4 years (Origin Industry, 2015).
Woodside Petroleum
Amount in Australian Dollars Thousands
Woodside Petroleum 2017 2016 2015 2014
Issued and fully paid shares 6919 6919 6547 6547
Shares reserved for employee share plans -35 -30 -27 -38
Other reserves 997 979 963 920
Retained earnings 7169 6971 6743 8447
Parent Company Interest 15050 14839 14226 15876
Non-controlling interest 830 823 799 783
Total Equity 15880 15662 15025 16659
The share capital in 2016 is increased from 2015 because of implementation of Dividend
Reinvestment plans (Woodside Petroleum, 2016).
Employee share purchase plan is the plan under which employees of the company purchases
shares of the company at the discounted price. In 2017, here was an increase of $42$ million
because of purchase of share purchase plan but at the same time these plans were redeemed at
$ 40$.
The difference in the retained earnings balance is due to profits earned and dividend paid in
all the years.

Financial Reporting 10
The other reserves changes are due to the hedging transactions and adjustments for the
foreign currency translation reserves.
Whitehaven Coal
Amount in Australian Dollars Thousands 1000
Whitehaven Coal 2017 2016 2015 2014
Issued capital 3137 3145 3146 3146
Share based payments reserve 8 18 37 35
Hedge reserve 1 -1 -1 0
Retained earnings 146 -275 -317 12
Parent Company Interest 3292 2888 2864 3193
Non-controlling interest 0 1 1 13
Total Equity 3292 2889 2865 3207
The hedging reserve is maintained by the company to undertake the share or options hedging.
Due profit in hedging transactions in 2017, the hedging loss of 2016 has been recovered and
there is also a surplus profit.
The non-controlling shareholders have almost become nil over the last years.
Share based payment reserve has been reduced due to introduction of share-based plans. In
2017 and 2016, some plans have been exercised and some have been lapsed out of total plan
amounting $ 4760 due to which the balance has reduced (Whitehaven, 2018).
Part iv: Comparative Analysis
Comparativ Caltex Proport Origin Propor Woodside Proporti Whitehav Propor

Financial Reporting 11
e Analysis Limited ion Energy tion Petroleum on en Coal tion
Equity 3108 48.91% 11418 45.31% 15880 62.52% 3292 82.99%
Debt 3247 51.09% 13781 54.69% 9521 37.48% 675 17.01%
Capital
Structure 6356 100.00% 25199
100.00
% 25401 100.00% 3967
100.00
%
The proportion of debt and equity in the capital structure is used to determine the financial
leverage of the company as those companies which has higher proportion of debt than the
equity proportion have to face high financial risk (solvency risk) in relation to those
companies which have lower debt proportion as compared to equity proportion in the overall
capital structure. The proportion of debt in the capital structure signifies that quantum of debt
financing used by the company to finance its assets and other operations. Debt financing is
the external source of funds which requires payment of principle as well as interest at the
fixed intervals. The failure to repay any debt obligation adequately and on timely basis casts
material insolvency risk on the company (Tracy, 2012).
In the present report, the capital structure of Whitehaven Coal Limited is most strong because
its debt proportion constitutes merely 17.01% of the total capital structure. It can be observed
from the annual reports of Whitehaven Coal for the financial year 2017 that the company is
highly relying on the equity financing and other internal sources of finance for its business
operations and asset acquisition. Hence, Whitehaven faces no financial risk.
The second strongest capital structure is held by Woodside Petroleum Limited because it
finances its operations and assets from debt sources of 37.48% of total capital structure and
62.52% of its capital structure from the equity sources. Hence it does not have to face

Financial Reporting 12
financial risk but its capital structure is not as firm as that of Whitehaven (Whitehaven,
2018).
The capital structure of Caltex Australia Limited holds 3rd rank among the four chosen
corporations and it is facing insolvency risk due to the fact that it is holding more debt than
the equity. Hence it has high financial risk. It is riskier than both Whitehaven and Woodside
(Annual Report, 2017).
Origin Energy holds the weakest capital structure among all the four companies selected for
the purpose of this report because it has highest proportion of deb in its total capital structure.
The heavy reliance on the debt-financing imposes high risk of insolvency on the Origin
Energy. Therefore, the financial leverage of Origin Energy is higher than Caltex Australia,
Woodside Petroleum and Whitehaven Coal.

Financial Reporting 13
Conclusion:
It can now be concluded that financial reporting function must be highly regulated and it
must not be left to the discretion of managers to decide as to which information is to be
disclosed and which is not be disclosed. The companies must comply with all the provisions
of relevant act while preparing and presenting the financial reports. Also, the companies must
adopt use of IFRS to improve the quality of the financial information that is to be provided to
their stakeholders. From the above analysis it can also be said that in terms of solvency,
Whitehaven Coal is performing best in the industry and it has strong financial position.

Financial Reporting 14
References:
AASB GOV. 2005. Available at:
https://www.aasb.gov.au/admin/file/content102/c3/Background_to_AASB_adoption_of_IAS
B_standards_by_2005.pdf Accessed on: 28.09.2018
AASB. 2014. Statement of Intent – The Australian Accounting Standards Board. Available
at: https://static.treasury.gov.au/uploads/sites/1/2017/06/AASB_Statement_of_Intent.pdf
Accessed on: 28.09.2018
AICPA. 2018. Available at: https://www.ifrs.com/ifrs_faqs.html#ftnt1 Accessed on:
28.09.2018
Australian Government. (n.d.). The Standard-Setting Process. Available at:
https://www.aasb.gov.au/About-the-AASB/The-standard-setting-process.aspx Accessed on:
28.09.2018
Caltex Australia. 2016. Annual Report: 2015. Available at: https://www.caltex.com.au/our-
company/investor-centre/annual-reports-and-reviews Accessed on: 28.09.2018
Caltex Australia. 2018. Annual Report: 2017. Available at: https://www.caltex.com.au/our-
company/investor-centre/annual-reports-and-reviews Accessed on: 28.09.2018
Origin Energy. 2016. Annual Report: 2015. Available at:
http://www.annualreports.com/HostedData/AnnualReportArchive/O/ASX_ORG_2015.pdf
Origin Energy. 2018. Annual Report: 2017. Available at:
https://www.originenergy.com.au/content/dam/origin/about/investors-media/annual
%20review%202017/AnnualReport_FY2017.pdf Accessed on: 28.09.2018

Financial Reporting 15
Tracy, A. 2012. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to
Analyse Any Business on the Planet. RatioAnalysis.net.
Whitehaven Coal. 2018. Annual Report: 2015. Available at:
http://www.whitehavencoal.com.au/wp-content/uploads/2015/10/Annual-
Report_29Sep2015.pdf Accessed on: 28.09.2018
Whitehaven Coal. 2018. Annual Report: 2017. Available at:
http://www.whitehavencoal.com.au/wp-content/uploads/2017/09/WVN_223766_Annual-
Report-2017_FA4-web.pdf Accessed on: 28.09.2018
Woodside Petroleum. 2016. Annual Report: 2015. Available at:
http://www.woodside.com.au/Investors-Media/announcements/Documents/
17.02.2016%202015%20Annual%20Report.PDF Accessed on: 28.09.2018
Woodside Petroleum. 2018. Annual Report: 2017.
https://woodsideannouncements.app.woodside/14.02.2018+Annual+Report+2017.pdf
Accessed on: 28.09.2018