Arab Open University B291 Financial Reporting and Analysis Assignment

This assignment analyzes financial reporting concepts using Omantel's 2017 Annual Report. It begins by defining stakeholders, differentiating between investors and communities, and explaining their interests. A PEST analysis of Omantel is presented, covering political, economic, social, and technological factors. The assignment explores IAS 16 Property, Plant, and Equipment, detailing the cost and revaluation models, along with Omantel's depreciation method. It identifies accounting assumptions and estimates used by Omantel, followed by a comparison of capital and revenue expenditures. The going concern assumption is explained, and inventory valuation methods (FIFO and WAC) are discussed. The concept of allowances for irrecoverable receivables is examined, along with Omantel's revenue recognition practices. Finally, the assignment analyzes Omantel's 2017 financial performance, highlighting changes in assets, liabilities, equity, revenue, and profit, concluding with a negative assessment of the company's financial performance in 2017.

Running head: FINANCIAL REPORTING ON THE INTERNET
Financial Reporting on the Internet
Name of the Student
Name of the University
Author’s Note

1FINANCIAL REPORTING ON THE INTERNET
Table of Contents
Requirement 1.......................................................................................................2
Requirement 2.......................................................................................................3
Requirement 3.......................................................................................................4
Requirement 4.......................................................................................................5
Requirement 5.......................................................................................................5
Requirement 6.......................................................................................................6
Requirement 7.......................................................................................................7
Requirement 8.......................................................................................................7
Requirement 9.......................................................................................................8
Requirement 10.....................................................................................................8
References...........................................................................................................10

2FINANCIAL REPORTING ON THE INTERNET
Requirement 1
A stakeholder can be considered as a person or organization having
interest or stake in an organization. The presence of many stakeholders can be
seen; and two of them are discussed below:
Investors – Investors are considered as one of the major stakeholder group in
the companies and they include both the shareholders and the debt holders. The
major stake of the investors in the companies is financial return. The main job
of these investors is to invest capital in the businesses with the aim to earn
certain rate of return on the invested capital (Ferretti 2016). The main concern
of these investors is the concept of shareholder value. It can be seen from the
2017 Annual Report of Oman Telecommunication Company (Omantel) as the
company also has shareholders and investors who have invested in their
business. Omantel has ensured the adoption of effective channels and methods
of communication with them; such as publication of quarterly report, annual
report, presentation of the company’s financial performance and others
(omantel.om 2019).
Communities: Communities are considered as another major group of
stakeholders for the companies; there are certain organizational factors that
affect these stakeholder group such as creation of job, economic development,
safety and health. For this reason, the main stakes of this stakeholder group are
healthy, safety and economic development (Tarhini et al. 2015). When a big

3FINANCIAL REPORTING ON THE INTERNET
corporation exists or enters into the market, it creates impact of income,
employment and spending power. It can be seen from the 2017 Annual Report
of Omantel that the company has taken many corporate social responsibility
related steps to ensure the well-being of the whole community. Some of their
initiatives are to provide funding in the hospitals, to provide support to the
summer camps and many others (omantel.om 2019).
Requirement 2
The following discussion shows the PEST analysis of Omantel based on
the information in the 2017 Annual Report:
Political – Certain political factors have major impact on the business of
Omantel. As per the 2017 Annual Report, the business of the company has
suffered due to the low government spending in the year 2017. Due to this, the
presence of major pressure can be seen on the demand of telecom services. In
addition, the government of Oman has increased the royalty charges to 12%
from 7% along with the increase in income tax. This aspect has significant
impact on the profitability of Omantel in 2017 (omantel.om 2019).
Economic – Like political factors, economic factors also has significant impact
on the business operations of Omantel. As per the 2017 Annual Report of
Omantel, the economic growth of Oman stayed under pressure in 2017 due to
the presence of oil price fall, feebler consumption and low government

4FINANCIAL REPORTING ON THE INTERNET
spending. These aspects together have affected the demand, revenue and
profitability of Omantel in the year 2017 (omantel.om 2019).
Social – Social environmental factors also has impact on the business
operations of Omantel. For example, rise in population provides the company
with the opportunity to increase their customer base. As per the 2017 Annual
Report of Omantel, the 3G mobile and 4G/LTE network covers 99% and 92%
total population of Oman respectively. This aspect had major positive influence
on the business of Omantel in the year 2017 (omantel.om 2019).
Technological – As per the 2017 Annual Report of Omantel, the telecom
industry of Oman has witnessed high growth due to continuous modernization
and technical transformation. At the same time, Omantel does not get enough
time for recovering the cost of investment due to the fast pace of technological
progression. However, the business operations of Omantel have been majorly
influenced by the technological advancement in this industry (omantel.om
2019).
Requirement 3
The presence of two models can be seen in IAS 16 PPE; they are Cost
model and Revaluation mode.
Cost Model – This model is important as this model puts the obligation on the
companies to depreciate each part of a property, plant and equipment separately
that has a significant cost relation to the total cost (iasplus.com 2019).

5FINANCIAL REPORTING ON THE INTERNET
Revaluation Model – This model is important as it provides the companies
with the most revival value or fair value of a property, plant and equipment
(iasplus.com 2019).
As per the 2017 Annual report, Omantel has used Straight-line method
for depreciating their assets (omantel.om 2019).
Requirement 4
The examples of accounting assumptions and estimated used by Omantel
in 2017 are show below:
 The management of Omantel has used significant judgment of
Assessment of Control that is used in the cases where the entity hold less
than the majority voting rights (omantel.om 2019).
 The management of Omantel uses significant judgment of Business
Combination at the time to allocate the cost of a business combination
for the determination of identifiable assets, liabilities and contingent
liabilities.
 The management of Omantel also uses significant judgment for
Classification of Investment for deciding on the classification of certain
investments (Amiraslani, Iatridis and Pope 2013).
Requirement 5
Capital Expenditure Revenue Expenditure
 Companies incur capital  Companies incur revenue

6FINANCIAL REPORTING ON THE INTERNET
expenditure to acquire capital
assets or to improve the
capacity of an existing one. For
example, Omantel incurred RO
205,146,000 for acquiring
additional property, plant and
equipment in 2017
(omantel.om 2019).
 Companies show these
expenses both in income
statement and balance sheet
(Muda and Naibaho 2018).
 These expenditures provide
benefit for more than one year.
expenditure on regular basis for
day-to-day business activities.
For example, Omantel incurred
RO 218,941,000 for operating
and administrative expenses in
the year 2017.
 These expenditures are only
shown in the income statement.
 Companies get the benefit only
in the current accounting year
(Drury 2013).
Requirement 6
A Going Concern is a business that operates without the threat of
liquidation for the predictable future. This assumption is extremely essential for
understanding the financial statements as companies would not be able in
prepay or accrue expenses in the absence of this assumption (Amin, Krishnan
and Yang 2014). Why would companies prepay or accrue anything in case they
do not assume to keep operating. It can be seen from the 2017 Annual Report
that Omantel has paid RO 202,453,000 as prepayment, advances and other
deposits under other receivables (omantel.om 2019). For this reason, this
assumption is important for understanding the financial statements of Omantel.

7FINANCIAL REPORTING ON THE INTERNET
Requirement 7
According to IAS 2 Inventories, there are two methods for the valuation
of inventories; they are FIFO method (First-in, First-Out method) and Weighted
Average Cost (WAC) method.
FIFO – As per the principles of this method, inventories that are purchased first
are sold first. For this reason, the ending inventory is valued in the most recent
price (iasplus.com 2019).
WAC – As per the principles of this method, the weighted average costs of
similar items are determined at the starts of the period and the cost of goods
purchased or produced during the period (iasplus.com 2019).
As per the 2017 Annual Report, Omantel uses wither FIFO or WAC
method for valuing inventory based on the appropriateness (omantel.om 2019).
Requirement 8
The allowances for irrecoverable receivable can be considered as a
balance sheet contra asset account that decreases the reported amount of
accounts receivable. The utilization of this account leads to a more realistic
image of the accounts receivable amount that is going to concern into cash,
since increased customers may become the defaulter (Lessambo 2018). The
credit balance in this account is a projected amount. As per the 2017 Annual
Report, Omantel guesses an allowance for irrecoverable receivable on the basis

8FINANCIAL REPORTING ON THE INTERNET
of the past collection history along with expected cash flow from debts
(omantel.om 2019).
Requirement 9
As per the 2017 Annual Report, Omantel recognizes their revenue from
fixed lines, GSM and internet services at the time to provide the services and is
net of discounts and rebates allowed. Omantel recognizes the sales from
payphones and prepaid cards on the basis of the actual installation of equipment
(Wagenhofer 2014). Hence, the main rational underlying this method is that the
company only recognize the proceedings as revenue at the time of the transfer
of the ownership related to the products and services to the customers. This
aspect ensures the appropriateness of the process of revenue recognition in the
company (omantel.om 2019).
Requirement 10
As per the 2017 Statement of Financial Position, there is massive
increases in the total assets and liabilities of Omantel along with the increase in
total equity. According to the 2017 Statement of Income of Omantel, both
revenue and operating profit of the company increases. However, the major area
of concern is the decrease in both profit before taxation from continuing
operations and profit for the year (Ongore and Kusa 2013). For this reason,
Earnings per Share of Omantel also decreases in 2017 as compared to 2016.
Hence, it can be seen from the above discussion that the massive increase in the

9FINANCIAL REPORTING ON THE INTERNET
total liabilities of the company outruns the increase in total assets. At the same
time, decrease in net profit is not a good sign for the company (omantel.om
2019). Thus, on the overall basis, Omantel did not have a good financial
performance in the year 2017.

10FINANCIAL REPORTING ON THE INTERNET
References
Amin, K., Krishnan, J. and Yang, J.S., 2014. Going concern opinion and cost of
equity. Auditing: A Journal of Practice & Theory, 33(4), pp.1-39.
Amiraslani, H., Iatridis, G.E. and Pope, P.F., 2013. Accounting for asset
impairment: a test for IFRS compliance across Europe. Centre for Financial
Analysis and Reporting Research (CeFARR).
DRURY, C.M., 2013. Management and cost accounting. Springer.
Ferretti, V., 2016. From stakeholders analysis to cognitive mapping and Multi-
Attribute Value Theory: An integrated approach for policy support. European
Journal of Operational Research, 253(2), pp.524-541.
Iasplus.com. 2019. IAS 16 — Property, Plant and Equipment. [online]
Available at: https://www.iasplus.com/en/standards/ias/ias16 [Accessed 12 Mar.
2019].
Iasplus.com. 2019. IAS 2 — Inventories. [online] Available at:
https://www.iasplus.com/en/standards/ias/ias2 [Accessed 12 Mar. 2019].
Lessambo, F.I., 2018. Account Receivables. In Financial Statements (pp. 53-
67). Palgrave Macmillan, Cham.
Muda, I. and Naibaho, R., 2018, March. Variables influencing allocation of
capital expenditure in Indonesia. In IOP Conference Series: Earth and
Environmental Science (Vol. 126, No. 1, p. 012066). IOP Publishing.

11FINANCIAL REPORTING ON THE INTERNET
Omantel.om. 2019. [online] Available at:
https://www.omantel.om/wcm/connect/41b30b97-63bd-445e-82c3-
c7388f7c2258/Omantel+Annual+Report+2017_Eng_for+web.pdf?
MOD=AJPERES&CONVERT_TO=URL&CACHEID=ROOTWORKSPACE-
41b30b97-63bd-445e-82c3-c7388f7c2258-m9c5bCx [Accessed 12 Mar. 2019].
Ongore, V.O. and Kusa, G.B., 2013. Determinants of financial performance of
commercial banks in Kenya. International journal of economics and financial
issues, 3(1), pp.237-252.
Tarhini, A., Ammar, H., Tarhini, T. and Masa’deh, R.E., 2015. Analysis of the
critical success factors for enterprise resource planning implementation from
stakeholders’ perspective: A systematic review. International Business
Research, 8(4), pp.25-40.
Wagenhofer, A., 2014. The role of revenue recognition in performance
reporting. Accounting and Business Research, 44(4), pp.349-379.