HI5020 - Financial Reporting: Innate Immuno Therapeutics Analysis

This report provides an analysis of the accounting concepts and financial reporting of Innate Immuno Therapeutics, an Australian biopharmaceutical company. It examines the company's financial statements, focusing on equity, tax expenses, and deferred tax assets/liabilities. The report details changes in equity items, including shareholders' equity, paid-up capital, and reserves, comparing figures from 2016 and 2017. It addresses the company's tax situation, noting the absence of income tax expenses due to losses incurred and explores the reasons behind deferred tax assets/liabilities, emphasizing the importance of future taxable profits. Furthermore, it clarifies the relationship between income tax expense and income tax payable, highlighting permanent differences and adjustments. The analysis concludes with insights into the treatment of tax in the company's financial statements, emphasizing the evaluation of deferred tax assets and liabilities based on future taxable income and regulatory requirements.

HI5020- Corporate Accounting
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Table of Contents
Introduction......................................................................................................................................3
(i)......................................................................................................................................................4
(ii)....................................................................................................................................................5
(iii)...................................................................................................................................................6
(iv)....................................................................................................................................................7
(V)....................................................................................................................................................8
(vi)....................................................................................................................................................9
(vii)................................................................................................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
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Introduction
This report describes the analysis of accounting concepts along with the financial reporting and
information of company accounts. The financial statements of the company will evaluate the
clear picture of all figures and accounting terms during the current year and previous year. The
detailed analysis there is a need to consider and understand the facts and figures of the
accounting and financial statement of Innate Immuno Therapeutics. This is the
biopharmaceutical company established in Sydney, Australia. One of its branches is also situated
in New Zealand. In 2009, a company formed drugs for the infectious diseases like cancers but in
2017, the drug created by the company is MIS416 which is used to manage several scleroses.
This is designed by Virionyx Corporation. In 2009 the name of the company was changed from
Virions to Innate Immuno therapeutics which shows the repositioning of the company and focus
on the formation of proprietary drugs called MIS416. The company is listed on the Australian
Stock Exchange including stock price, company news, stock chart, key statistics and profile of
the company.
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(i)
From your firm’s financial statement, list each item of equity and write your understanding
of each item. Discuss any changes in each item of equity for your firm over the past year
articulating the reasons for the change.
In terms of accounting, equity means the difference between the value of the assets and liabilities
of the company. It is understood by given equation:
Equity= assets- liabilities
Equity means rights of the shareholders and owners of the stock, funds, and capital of the
company. Equity is divided into shareholders among preferred and common stock. Equity may
be negative if the value of liabilities is more than assets. The negative shareholder's equity is
called as a negative deficit.
Shareholders’ Equity: On 31st March 2017, the ordinary shares of the company are
$225,625,991 as compared to the March 2016 is $196,442,177. All ordinary shares have rank
equally in voting, liquidation, and dividends. During the year company issued new shares of
$29,183,814. From the last year, there is a huge change in the shares issued.
Paid up capital: On 31st March 2017, paid-up capital of the company is $123,018,641 as
compare to the last year $114,230,766
Reserves: The Company also maintained reserves on the year-end of $389,354 as compared to
the previous year ($524,767). The company also maintained share option reserves which are
used to record the fair value of options at the reporting date. The option's value is transferred
between equity components. The foreign currency translation reserves are used to translation of
functional currency to the presentational currency (Innate Immuno therapeutics ltd, 2017)
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(ii)
What is your firm’s tax expense in its latest financial statements?
During the year Innate Immuno therapeutics ltd not paid any kind of income tax. Company
incurred loss before taxation is 7,076,319 during the year. The company made provision for
income tax is (1981369). Company paid share-based compensation is of $260,118, other non-
deductible items is $35, unrecognized temporary differences is $1,260,242 and unrecognized tax
losses is $460, 974. So it is analyzed that tax expense is nil. The total loss after tax of the group
for the current year is $7018412 and previous year is $5098578. The group earned a
development and research tax incentive payment of $1824007 from the government of Australia
and in 2016 of $801375. Grant Thornton provides the tax advisory services and accounting
services to the company and paid $19000 in 2017 for such services. In the financial statements,
research and developments tax incentive receivable are shown in current assets value of
$1436046 and of the previous year is $1461940. The value of goods and service tax are not
included in the statement of profit and loss account and cash flows statements. In the financial
position, all items are discussed net of GST with the exception of payable and receivables that
includes GST invoiced (Innate Immuno therapeutics ltd, 2016).
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(iii)
Is this figure the same as the company tax rate times your firm’s accounting income?
Explain why this is, or is not, the case for your firm.
It is analyzed that company has not any tax liability and tax expense during the current year and
previous year. The amount of tax liability is nil in the income statements of profit and loss. The
statuary tax rate of New Zealand is 28%. As per available information of the annual report of the
company, there is no liability for income tax in the current year and last year. So there is no
difference between the tax expense at the accounting income and profit and loss statement of the
company. The taxable income and accounting income of the company is not same then tax
amount is different but in this company, there is no any tax value (Innate Immuno therapeutics
ltd, 2017).
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(iv)
Comment on deferred tax assets/liabilities that are reported on the balance sheet
articulating the possible reasons why they have been recorded.
Income tax expense is divided into the deferred and current tax. The deferred tax is considered
as the difference between carrying amounts of assets and liabilities for the purpose of financial
reporting and taxation. Deferred tax is evaluated at the tax rates that are applied to the
temporary difference when they reverse. A deferred tax asset is considered as probable future
taxable profits will available if unused tax losses and deductible differences are utilized. This is
reviewed at each reporting time period and can be reduced at that level which is not long and
related tax benefit is realized.
In the analysis of deferred tax assets, company management considers that all related tax on
deferred assets will be realized. The realization depends on the generation of future taxable
income and ownership requirements compliances. On the basis of future taxable income for the
period in which temporary differences are available to reduce the uncertainties related to
company equity and income tax payables. The company has to maintain a provision for the full
amount of the deferred tax assets on the basis of net operating loss carried forward.
The company continues its business operations in New Zealand and maintained is a branch for
tax purposes. The statutory tax rate in New Zealand is 28%. There is a difference between the
provision for income tax and amount according to the statutory rate of the earnings before taxes
(Hoyle, et. al., 2015).
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(V)
Is there any current tax asset or income tax payable recorded by your company? Why is
the income tax payable not the same as income tax expense?
The company has mentioned income tax payable and current tax assets for the year in the notes
of accounts. The income tax payable is not similar to the tax expense of reporting time period.
Current tax is the expected tax amount which will be payable on the taxable income for the
current year. The tax rates are applicable which is substantially enacted at the reporting date. The
adjustments are made first of tax payable for last years. The adjustment made in deferred tax
liabilities and assets are related to the temporary difference of taxable income and accounting
income, carried forward tax losses which are unutilized and adjustment made in prior period for
tax benefit and tax expense. The company not paid any income tax during the year due to tax
effects of permanent differences like amortization of intellectual property, compensation based
on shares of $260118, nondeductible items of $35, unrecognized tax loses $460974 and
temporary differences of $1260242. So there is no income tax expense paid by the company.
The net deferred tax assets are nil for the current year and previous year also. The current assets
of the company are divided into provisions for holiday pay the amount is $32687 and last year is
$32661. There is no much difference between them. The amount of provision for site restoration
is $5116 and of last year is $5173. The value of other accruals is $11627 which is very high than
the last year value $8890. The value of development cost and deferred research of 2017 is
$2956817 and of last year is $1810776. The notion currents assets are divided into intellectual
property, the value of such property is $1918229 and of last year is $1882315. The net operating
loss is carried forward to the next year is $2620155. The value of deferred tax assets is $7544631
of the current year and $5940867 of the previous year at the statutory rate of 28% of the New
Zealand (Stiglitz & Rosengard, 2015).
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(vi)
Is the income tax expense shown in the income statement same as the income tax paid
shown in the cash flow statement? If not why is the difference?
The company is not paying any income tax during the year so its shows same in the income
statement and cash flow statement. In both the statements, the tax expense is nil because there is
no tax liability of the company. The statutory tax rate in New Zealand is 28% and same as 2016.
The company made provision for income tax at the statutory rate of the country on 31 March
2017 the provision amount is of ($1981369) as compared to the last year ($1384067). The tax
expense is nil because of some permanent differences in the tax effects. The amortization of
intellectual [property of last year is $141173 and the current year is nil. The compensation on
shares basis in the current year is 260118 and of the previous year is 63859. The amount of
nondeductible items is $35 and of last year is $34. The unrecognized temporary differences are
$1260242 which is increased with the high amount from the previous year of $752702. The
unrecognized tax losses of the current year are $460974 and the amount of last year is $426299.
After the evaluation income tax expense is for the previous year and current year (Saez, &
Zucman, 2016).
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(vii).
What do you find interesting, confusing, surprising or difficult to understand about the
treatment of tax in your firm’s financial statements? What new insights, if any, have you
gained about how companies account for income tax as a result of examining your firm’s
tax expense in its accounts
The study, understanding of tax analysis in the financial statement of Innate Immuno
Therapeutics is interesting. Sometimes it was difficult to evaluate the exact amount of the tax
expense and income tax payable by the company because there was nil liability during the
current year as well as the previous year. The proper evaluation of the deferred tax assets, current
tax assets are discussed with proper references and understanding of the notes of the financial
statements of the company. The examination and evaluation of different tax figures are discussed
by the provision of tax statements of the company. The current tax assets and deferred tax assets
figures are also shown in the provision for income tax statement. The notes of accounts and
profits and loss account provide the clear picture of tax expenses and tax payables (IRS, 2017).
From the evaluation of tax treatment of the company, proper estimation of net deferred assets
and liabilities are estimated. The method of tax calculation and it's all figures which constitute
the tax amount is also considered. The company considered that whether it is probable or not to
realize all amount of deferred tax assets in assessing the reliability. The realization of deferred
tax assets depends on the future taxable income and regulations of the company requirements.
Deferred tax is evaluated at tax rates which are applied to the temporary differences on the basis
of enacted laws on the reporting date.
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Conclusion
It is concluded from the complete analysis of the accounting and financial reporting of the Innate
Immuno therapeutics limited that the company has prepared all relevant accounts. The notes of
accounts of the company are very useful to make a detailed evaluation and better understanding.
It is also analyzed that during the year company has not paid tax amount and uses the provision
for income tax. The cash flow statement and profit and loss account show the same figure of tax
because there was no tax liability. The current tax assets and deferred tax assets were shown in
notes of accounts.
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References
 Innate Immunotherapeutics ltd. (2017). Innate Immunotherapeutics ltd. Available at:
http://www.innateimmuno.com/irm/PDF/1434_0/AnnualReporttoShareholdersYE31Marc
h2017.
 Innate Immunotherapeutics ltd. (2016). Innate Immunotherapeutics ltd. Available at:
http://www.innateimmuno.com/irm/PDF/1287/2016AnnualReport.
 Innate Immunotherapeutics Limited, (2013). Innate Immunotherapeutics Limited.
Available at:
http://www.innateimmunotherapeutics.com/irm/content/annualreport/2013/1.introduction
.pdf
 IRS, (2017). United States income tax treaties A to Z. [Online] www.irs.gov. Available
at: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-
treaties-a-to-z.
 Saez, E., & Zucman, G. (2016). Wealth inequality in the United States since 1913:
Evidence from capitalized income tax data. The Quarterly Journal of Economics, 131(2),
519-578.
 Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the Public Sector: Fourth
International Student Edition. WW Norton & Company.
 Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.
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