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ACCT5015 Contemporary Issues in Accounting Editing Services
This report includes the existing compliances of the conceptual framework of accounting and accounting standards of Australian Accounting Standard Board (AASB) of the Australian companies. This report will include examples of two Australian Companies namely AGL Energy and Telstra Telecommunications. Both the companies are listed on the Australian Securities Exchange (ASX).
Conceptual Framework of Accounting
A conceptual framework refers to a set of particular rules and standards, which are framed to provide consistency and common standard for comparison of the financial interpretations of the two Organizations. Here are various boards that have developed the accounting standards to provide stability in the financial and accounting working of the organization.
Financial Accounting Standards Board is the first board established in US then International Financial Reporting Standards (IFRS) were established at a global level to provide a common platform for all the Organization for Accounting Standard (Thornton & B. 2015)
Australian Accounting Standerd Bord(AASB)
The AASB board is the official board responsible for development, issue, and maintenance of the accounting standards to be used by the Australian Corporations in their accounting reporting. These are the general standards which guide the corporations and provide a common method in which the Accounting and financial reporting must be done (Wines & Scarborough, 2015)
The Most common standards are as follows-
Users of the financial reports & Importance of relevant Accounting framework-
The financial reports are required to prepare every year by the Organization. These financial reports include all the vital monetary details of the organization. These reports are the ned products of various users. The primary users of these financial information are Shareholder’s / owners, Creditors, Debtors, Banks and Financial Institutions etc. who utilizes these information in making various important financial decision making such as buying/ selling of shares, borrowing or proving loans, investments etc. (Zhuang, 2016).
Due to endless use of the financial reporting of an Organization, the company needs to follow certain set accounting standards to provide the necessary information to the users and utmost care must be taken to provide information free from encumbrances and must be unbiased (Mardini et. al., 2015).
Annual Reports of the Companies-
AGL is an Australian listed organization. The main products of the Organization are energy products and services. The main work is to generate and supply electricity for all types of uses. It makes use of thermal power, natural gas, wind, coal, hydro-electricity etc. The new plans of the Organization is to reduce the dependency on the gas emission process and focus on the secure and affordable renewable energy resources such as Solar, wind etc. It fulfils the need of electricity in the most part of the Australia (Hinman, P. 2015).
The Annual reports of AGL includes all the relevant disclosure which are required the requisite Accounting standards. The financial statements of the organization have been prepared according to the Corporation Act, 2001 and Accounting Standard AASB 1039- Concise financial Reports (AGL Energy, 2015). But there are few areas which are not in accordance with the AASB Accounting standards those are mentioned below-
All the matters in the concise financial report are not in accordance with the AASB standards as it does not have all the necessary disclosures required by the AASB standards. It does not have effect of the subsequent events occurred after the audited financial report (AGL Energy, 2015).
Revenue of around $ 1,032 million which represents the value of gas and electricity supplied to consumers were unbilled. Revenue recognition standard says that revenue must be recorded in the books of accounts when it is earned and not when cash is received therefore the above revenue was earned in that particular period but the bill was not made at that point of time and hence documentation was not proper and it is a flaw in the accounting standards (AGL Energy, 2015).
The Gas and electricity which were distributed to the consumers accounts for unbilled distribution costs of around $ 453 million. Here, also the necessary documents were not maintained by the Organization, which questions the authenticity of the figures shown in the financial statements (AGL Energy, 2015).
The Amount of Property, plant and equipment totalling $6,482 million and amount of goodwill around $2,791 are quite significant and the recoverable amount of these assets requires significant judgements (AGL Energy, 2015).
The organization decided that exploration and production of the natural gas would no longer be the core activity of the Organization, this strategic decision has a large impact over the working and accounting, as this affected the revenue recognition, and impairment of value natural gas assets (AGL Energy, 2015).
The financial instrument of the organization includes Derivative financial instruments to hedge the company’s exposure to variability in interest rates, foreign exchange movements and energy. These financial instruments are difficult in valuation and accounting (AGL Energy, 2015).
The deferred tax of around $861 million has been recorded in the financial statement of the Organization, the tax loss accounts of the subsidiary of the AGL Loy Yang, the recoverability of the loss is dependent on the generation of the future taxable profits to utilize this loss. The management judgement and evaluation related to forecast of taxable profits is subject to issue (AGL Energy, 2015).
After complete analysis of the Annual report of 2016 of the company, it is analysed that Company lacks in few areas of Accounting principles and accounting standards such as it failed in proper disclosure of the material financial transactions. Therefore there is need to improve in certain areas (AGL Energy, 2015).
Telstra is one of the listed corporations in the Australia. It is listed on ASX. It is one of the largest telecommunications and media organization in Australia. The main products and services of the Organization are mobile network, mobiles, internet access, paid television and other entertainment products. The company main focus is on providing the best technology services internationally. The main strategy is to provide sound connectivity to consumers and businesses, other technology services to the business customers (Telstra, 2015).
The Financial reporting of the Organization are in compliance with the relevant conceptual accounting framework and Accounting standards, but following are the areas which are not in accordance with the AASB Accounting standards-
Due to change in the nature of the working of the organization, there must be impairment in the Goodwill and Intangible assets of the organization, but the organization has over-valued the goodwill and other intangible assets which ultimately overvalued the Assets of the Organization (Telstra, 2015).
The significant part of the Organization is heavily depended on the IT systems, all the billing and revenue parts are by the automated processes and controls, therefore the accounting standard of revenue recognition is quite difficult to implement due to complex nature (Telstra, 2015).
Due to multiple projects and products such as large Network Application Services Contracts etc. the billing systems ad revenue recognition is quite complex into the industry therefore proper application of accounting standard of Revenue Recognition is too proper in the Organization (Telstra, 2015).
Such a big Organization has large force of employees, therefore the calculation of the defined benefit schemes of the employees is quite complex and any small change can cause material change in the Financial statements of the Origination, therefore the accounting standard of the Employee entitlement and post entitlement is quite complex (Sguera, et. al., 2011).
With the detailed analysis of the annual report of the Organization, there are few encumbrances in the annual report of the Organization like impairment of the Goodwill, lack of disclosure of the audit of the complex IT segment etc (Sguera, et. al., 2011).
Comparison of the Annual Reports of both the Organization-
The AGL financial reports lack the accountancy principle of proper documentation and evidence, which is one of the most important accountancy principles? Without proper evidence, the financial reports are prone to biased and untrue information whereas the Telstra communications has properly maintained the documents and evidence of material business transactions (Sguera, et. al., 2011).
The electricity hedging contract of the AGL energy is likely to cancelled but still the organization has fully assesses the fair value of the contract for rest of the term, but the necessary disclosure regarding the contract has not be done whereas such disclosures are there in the Telstra telecommunications.
Due to large work force in the Telstra communications, the employee benefit scheme has been not carefully analysed in the financial statements, and there is over valuation of the employee benefits therefore there is lack of proper judgement of the accounting standard of employee benefit (Curwen & Whalley, 2010).
The following recommendations can be provided to both the companies-
There should be internal auditors appointed who keeps check over the documentation at certain regular intervals so that sale of products and services without bill can be well checked at the point of sale. Revenue recognition principle can be well implemented. The Organization has not maintained proper evidence and documentation of the billing of the revenue, which is one of the most important principle of the Accountancy that is to keep evidence and documentation for supporting the material transactions of the business. Therefore it is recommended to the organization to maintain all the necessary documentation (AGL Energy, 2015).
The organization has also not maintained the documentation of the Distribution cost; therefore, it is highly required to maintain necessary evidence such as billing of the Organization. To provide full disclosure regarding the contracts such as electricity hedging contract which are cancelled by the Counterparties?. Lack of proper provision for Bad debts (Sguera, et. al., 2011).
Telstra Tele communications
The IT system of the Organization is quite complex and therefore there is a need to install of internal auditor management to conduct complex IT audit processes of the Organization. The billing system of the organization structure is quite complex because of the numerous products and services, therefore the accuracy and the completeness of the revenue earned in a particular period is quite difficult to judge and the accounting standard of revenue recognition is quite complex to follow, therefore has to be proper surveillance in the recording of the billing of the sales of products and services (Shields & Harvey, 2010).
The intangible assets especially Goodwill has to be carefully ascertained or otherwise it misleads the financial statements of the organization. In this case the impairment of the goodwill occurs due to change in the nature of the core activities of the Organization, therefore proper disclosure regarding impairment of the goodwill must be mentioned in the financial reports (Shields & Harvey, 2010). Lack of Proper provisions for contingency and other liabilities, these are essential for keeping the organization on a safer side (Telstra, 2015).
With the thorough analyse of the financial reports of the both the Corporations listed on the Australian Securities Exchange, it can be concluded that both the Organization are following the conceptual framework in their financial reporting and following the accounting standards and principles but still there are certain areas in which they lack behind. The AGL Energy has failed to comply few of the accounting policies such as keeping evidence and proper documentation for the revenue and costing, proper ascertainment of the goodwill, wrong valuation of the derivative financial instrument etc. In Telstra telecommunications, there is complexity in the billing of the sales of the products and services because of the launching of the varied new products and services, impairment of goodwill etc. these are the few areas where the accounting standards lacks among both the companies. Application of certified principles and accounting standards provide greater transparency and unbiased information. Thus, it can concluded that Accounting standards plays critical role in providing the financial information to the users, therefore the applicability of the accounting framework must be carefully analysed.
AGL Energy, 2015, “Annual Report”
Curwen, P. & Whalley, J. 2010, "Mobile operators in the new millennium - retrospect and prospect", info, vol. 12, no. 3, pp. 30-45.
Hinman, P. 2015, "Protestors tell AGL to stop fracking", Green Left Weekly,, no. 1068, pp. 4.
Mardini, G.H., Crawford, L. & Power, D.M. 2015, "Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8: Evidence from Jordan", Journal of Applied Accounting Research,vol. 16, no. 1, pp. 2-27.