Woodside Petroleum's Financial Analysis: Impairment and ASIC Role

This report provides a comprehensive financial analysis of Woodside Petroleum Limited, focusing on impairment testing practices in light of Australian Securities & Investments Commission (ASIC) scrutiny. It examines ASIC's role in ensuring financial integrity, particularly concerning asset valuation, revenue recognition, and tax accounting. The analysis details Woodside Petroleum's approach to impairment testing, referencing their 2016 and 2017 annual reports, and finds no impairment of assets during those years. The report further discusses the qualitative characteristics of financial information, specifically relevance and faithful representation, and assesses Woodside Petroleum's compliance with general-purpose financial reporting objectives. The report concludes by recommending that Woodside Petroleum enhance the transparency of its impairment calculations by providing more detailed breakdowns to demonstrate the alignment of carrying values with recoverable amounts.

Running head: ACCOUNTING FINANCIAL ANALYSIS
Accounting Financial Analysis
Name of the Student
Name of the University
Author’s Note

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Abstract
Impairment testing is a major aspect for Woodside Petroleum Limited and the company follows
all the required standards and principles of their impairment testing. In addition, ASIC has
discovered many issues related to the impairment accounting, revenue recognition, tax
accounting and others in the business entities. There is not an impairment of assets in Woodside
Petroleum Limited for the year 2016 and 2017.

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Table of Contents
Introduction......................................................................................................................................3
Role of ASIC...................................................................................................................................3
Impairment Test...............................................................................................................................4
Qualitative Characteristics...............................................................................................................5
Objectives of General Purpose Financial Reporting.......................................................................5
Conclusion and Recommendation...................................................................................................6
References........................................................................................................................................7

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Introduction
The main aim of his report is to analyze and evaluate major aspects related to the
impairment testing of one of the Australian Securities Exchange (ASX) listed companies. For
this report, Woodside Petroleum Limited is taken into consideration (woodside.com.au 2018).
The first part of this report focuses on the role of Australian Securities & Exchange Commission
(ASIC). The second part of the report aims in the explanation of impairment testing in the
selected company. The last two parts of the report focuses on the qualitative characteristics and
objective of general purpose financial reporting respectively.
Role of ASIC
ASIC is an independent commonwealth governing body of Australia with the vision to
fund the economy for economic growth. ASIC has three major roles for ensuring the financial
wellbeing of Australia. The first role of ASIC is to promote the trust and confidence of investors
and consumers (asic.gov.au 2018). The second role is to ensure fair and efficient market. The
third role is to provide efficient registration services. In addition, in case of the financial
reporting surveillance program, the main aim of ASIC is to bring improvement in the quality of
financial reporting (asic.gov.au 2018).
ASIC’s findings from the review of financial reports includes issues related to asset
valuation and impairment testing, revenue recognition, tax accounting and estimation and
judgment of accounting policies (asic.gov.au 2018). The main issue related to the asset valuation
and impairment is that the companies are identifying cash generating units at high level in spite
of the presence of large independence cash inflow. Moreover, as per the findings, companies are
using discounted cash flow method for the estimation of fair value (asic.gov.au 2018). In
addition, some of the business entities are not disclosing information related to sensitivity
analysis, key accounting assumptions and techniques for fair value method (asic.gov.au 2018). In
case of revenue recognition, two major issues are recognition of commission on property
development contracts and time to bring the revenue to account. In case of taxation, the main
issue is related to the tax accounting techniques and sufficiency of future taxable income for the
recovery of deferred tax assets. Lastly, as per the findings from ASIC, business entities are

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required to bring improvement in the quality and completeness of the disclosures of estimation
uncertainties (asic.gov.au 2018). These are the major findings.
Impairment Test
In the accounting operations of Woodside Petroleum Limited, the accounting for
impairment is considered as one of the major aspects. From the 2017 Annual Report of
Woodside Petroleum Limited, it can be observed that the Oil and Gas Property of the company is
subject to impairment and impairment testing and the company follows certain procedures for
the testing of impairment along with the impairment calculation. These aspects are discussed
below:
Woodside Petroleum Limited assesses the carrying amounts of oil and gas properties on
half-yearly basis for the determination of the impairment or impairment reversal indication for
the ashes that were impaired previously (woodsideannouncements.app.woodside 2018). For this
purpose, three major indicators of impairment and impairment reversal are the change in the
future selling price, change in future cost and change in reserve. The company uses possible
future price commodities at the time of the assessment of potential indicators of impairment and
impairment reversal. Thus, the recoverable amount is estimated based on these indicators. In
Woodside Petroleum Limited, the assessment of oil and gas properties is done for impairment
indicators and their impairment is done based on cash generating unit (CGU) (Amiraslani,
Iatridis and Pope 2013).
For the calculation of impairment in Woodside Petroleum Limited, the company
determines the recoverable amount of an asset or CGU based on higher of its value and fair value
after deducting the costs of disposal (Nobes 2013). Estimation of future cash flow is used for the
determination of value in use after considering the risks of the assets. After that, they are
discounted by using the appropriate discount rate. Most impotently, it needs to be mentioned that
Woodside Petroleum Limited writes down an asset or CGU and recognizes the impairment loss
in the income statement in case the carrying amount of the assets or CGU exceed their
recoverable amount (woodsideannouncements.app.woodside 2018).
From the 2017 Annual Report of Woodside Petroleum Limited, it can be observed that
the company has $19,398 million and $19,376 million as net carrying value of the oil and gas

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properties in the year 201 and 2016 respectively. At the same time, the recoverable amounts of
these assets in 2017 and 2016 are $33,292 million and $32,164 million respectively. By applying
the above-discussed formula of impairment calculation, it can be observed that the company does
not have the carrying value of oil and gas properties more than their recoverable amount. For this
reason, Woodside Petroleum Limited does not have any impairment and write down of assets in
the financial year 2016 and 2017 (woodsideannouncements.app.woodside 2018).
Qualitative Characteristics
Relevance and Faithful Representation are the fundamental qualitative characteristics of
financial information (aasb.gov.au 2018). As per the 2017 Annual Report of Woodside
Petroleum Limited, the company discloses all the information about the assets subject to
impairment that is oil and gas properties. Although the company does not have any impairment
loss in 2016 and 2017, they have the obligation to show the amount of impairment losses in the
income statement. In addition, the company provides the necessary description about the
impaired assets and CGU of the business (Nobes 2014). It implies that Woodside Petroleum
Limited uses to faithfully represent all the relevant information about impairment that satisfies
the fundamental qualitative characteristics of financial information. In addition, Woodside
Petroleum Limited releases all this information through their financial statements in the annual
report at a particular time of the year and this aspect satisfies the enhancing qualitative
characteristic of financial information that is timeliness.
Objectives of General Purpose Financial Reporting
As per AASB conceptual framework, the main objective of general purpose financial
reporting is to provide financial information about the business entities to different users like
investors, lenders and other creditors (aasb.gov.au 2018). This information helps the users in
determining the financial position and financial performance of the business entities. From the
above discussion, it can be seen that Woodside Petroleum Limited has faithfully represented all
the relevant information about the impairment of their oil and gas properties. It implies that the
different users can obtain all the relevant information about asset impairment from the financial
statements of Woodside Petroleum Limited (Henderson et al. 2015). It will help them in
determining the financial position of Woodside Petroleum Limited by determining the asset

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position in the entity. Thus, based on the above discussion, it can be said that the impairment
related disclosure of Woodside Petroleum Limited fully complies with the objectives of general
purpose financial reporting.
Conclusion and Recommendation
From the above discussion, it can be observed that the main role of ASIC is to ensure the
financial wellbeing of Australian by ensuring the trust and confidence of the Australians. In
addition, ASIC has discovered many issues related to the impairment accounting, revenue
recognition, tax accounting and others in the business entities. The above discussion also states
that Woodside Petroleum Limited carries on their impairment related accounting treatment in a
systematic manner by disclosing all the relevant information about oil and gas asset impairment
in a faithful manner. It can be found from the above discussion that the company does not have
any asset impairment in 2016 and 2017. It is recommended to Woodside Petroleum Limited that
they should show the detailed calculation showing the fact that the carrying value of oil and gas
properties is not more than the recoverable value of the assets. It will make their impairment
calculation more effective and transparent.

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References
Aasb.gov.au. (2018). Conceptual Framework for Financial Reporting. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 22 Apr.
2018].
Aasb.gov.au. (2018). Impairment of Assets. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB136_07-04_COMPjun09_01-10.pdf
[Accessed 22 Apr. 2018].
Amiraslani, H., Iatridis, G.E. and Pope, P.F., 2013. Accounting for asset impairment: a test for
IFRS compliance across Europe. London, UK: Centre for Financial Analysis and Reporting
Research, Cass Business School. Standards, Regulations, and Financial Reporting, pp.199-223.
Asic.gov.au. (2018). 16-205MR ASIC review of 31 December 2015 financial reports | ASIC -
Australian Securities and Investments Commission . [online] Available at:
http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-205mr-asic-
review-of-31-december-2015-financial-reports/ [Accessed 22 Apr. 2018].
Asic.gov.au. (2018). ASICs Financial Reporting Surveillance Program | ASIC - Australian
Securities and Investments Commission . [online] Available at: http://asic.gov.au/regulatory-
resources/financial-reporting-and-audit/directors-and-financial-reporting/asics-financial-
reporting-surveillance-program/ [Accessed 22 Apr. 2018].
Asic.gov.au. (2018). Our role | ASIC - Australian Securities and Investments Commission .
[online] Available at: http://asic.gov.au/about-asic/what-we-do/our-role/ [Accessed 22 Apr.
2018].
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Nobes, C., 2013. The continued survival of international differences under IFRS. Accounting and
Business Research, 43(2), pp.83-111.
Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.

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Woodsideannouncements.app.woodside. (2018). Annual Report 2017. [online] Available at:
https://woodsideannouncements.app.woodside/14.02.2018+Annual+Report+2017.pdf [Accessed
22 Apr. 2018].
Woodside.com.au. (2018). About Us | Woodside Energy. [online] Available at:
http://www.woodside.com.au/About-Us/Pages/about-us.aspx [Accessed 22 Apr. 2018].