a. AGL is one of the top performing energy products and services providing companies in the Australian market. The company is comparatively new in the field of Energy. The company was founded in the year 2006. In the current scenario the company has net assets of $1.211 billion and total employee base of the company is 3358 (Agl.com.au, 2018). The company is currently operating at an international level and it has mainly established its business in the developed countries.
If the concentration is made on the expenses of AGL Energy Ltd that are shown in the published annual report, 2016, it can be stated that the company has properly categorized the expenses under three heads based on the functions of the costs. This classification is as followed:
· Production cost – The direct costs of the company, which are considered as the cost of sales of the business (Agl.com.au, 2018).
· Finance cost – Finance cost is the interest amount that the company has paid for the external loans.
· Income tax cost – The amount that has been paid for the tax payment (Agl.com.au, 2018).
b. If the reasons behind the different methods of classification of costs or expenses are reviewed, the following reasons can be identified:
· Classification of cost using different methods helps the company identifying the exact cost that it is bearing for different functions. These methods help the company controlling the cost level in a better way.
· Proper classification of costs helps the management of AGL energy Limited making different business decision related to costs level of the business.
· Classification of cost based on the functions help the company determining the profit or income level at different stages in a systematic manner
If the 2016’s annual report that AGL Energy Limited has published is critically reviewed, it can be identified that the company has failed to follow the guidelines of AASB 108 / IAS 8 regarding accounting policies, changes in accounting estimates and errors in an accurate way (Jones, 2017). As per the guidelines provided under AASB 108 / IAS 8, the companies under the Australian Security Exchange are bound to disclose the changes in accounting, accounting policies and errors in the financial reports to maintain standard level of reliability and relevance (Peach and West, 2017). However, if the annual report of AGL Energy Limited is considered, it can be identified that the company has failed to follow the guidelines provided by AASB 108 / IAS 8 in the three following areas, which can be considered as the three major issues in the annual report or financial report of the business:
· The first issue that has been identified that the company has not properly followed the AASB 108 / IAS 8 in terms of mentioning the accounting policies related to the classification of costs of the business. In the financial report of the company, the profit and loss statement or consolidated income statement does not disclose anything regarding the classification of cost. This is indicating proper relevance standard is not maintained by the company that has been asked under the AASB 108 / IAS 8.
· The company has not disclosed the reasons behind the changes in the accounting standards. The company has mentioned the new accounting standards that the company has adopted in the financial year 2016; however, the company has not mentioned why the changes are made or why the company has brought the new standards in accounting. Hence, proper reliability has not been maintained by the company while reporting the financial activities.
· The company has not mentioned all accounting policies in detail. The 2016’s annual report of the company is showing only few accounting standards that the company has maintained. However, in practical field, there are several accounting standards that AASB has been mentioned to the companies. It means the company has not disclosed all the accounting policies in detail.
Therefore, from the above discussion, it can be stated that there are several faults in the financial report of AGL Energy Limited that the management needs to be improved in the coming financial years’ reporting.
Depreciation is one of most important parts that the management or the companies consider while developing the financial reports. Depreciation is considered to identify the right value of the fixed assets of the company. Considering the annual report of AGL Energy Limited for 2016, it can be stated that the company has followed the written down value method for calculating the depreciation on its fixed assets like, Plant, Property and Equipment. In the year 2016, the cost of plant, property and equipment was $533 million, which was much high and the total depreciation value of the assets was $331 million (Agl.com.au, 2018). At the end of the financial year 2016, the total value of plant, property and equipment was $6482 million. The depreciation has been calculated from 1st July 2015 to 30th June 2016 (Agl.com.au, 2018). There was an impairment loss of $640 million after tax. This is indicating that the financial position of the company has been hampered due to the effects of impairment loss. The higher authority of the company has mentioned that due to the high volatility in the market, the prices of the fixed has been changed dramatically, which has affected the value of the fixed assets.
If the overall discussion and analysis on 2016’s annual report of AGL Energy Limited are considered, it can be identified that though the company is one of the most popular and large companies in the Australian energy sector, the higher authority of the company is not that conscious regarding the financial reporting of the business. The study has identified that the company has not maintained the AASB 108 / IAS 8 properly. As per my knowledge, the companies those are listed under the Australian Security Exchange are bound to follow the rules under AASB and IAS. However, disobeying the AASB rules, the company has proved that the corporate governance policies of the business regarding accounting are not that strong. At the same time, it is also important to be mentioned that the higher authority of the company has overlooked the matter, which is not expected from the management of such big organization.
In this context, it is important to be mentioned that the company has not shown the depreciation calculation in a detailed manner, which is important for judging the accuracy of the calculation. At the same time, in the annual report of the company, I have not identified many information like, valuation of inventory, which is very important for investment decision making. According to me or my knowledge, a company must show the detailed information regarding the valuation of its assets and stocks; however, management of AGL Energy Limited has ignored the matter completely. For me it was quite difficult to understand the calculation and valuations that the company has shown in the financial statements and their notes. Moreover, presentation of the financial statements and notes could be more efficient.
However, it is also true that the management of the company has disclosed much other information that is important to the stakeholders of the firm for different decision making purposes. It is also true that the company or its board of the company has mentioned the AASB standards that the company has followed while developing the financial report. This is a positive side of the financial report of AGL Energy Limited. Moreover, in the auditor’s report that is mentioned in the annual report of the company, it has been mentioned that the company has published true and fair view of its financial position.
Therefore, I can conclude that the financial position or performance that the AGL Energy Limited has disclosed in the 2016’s annual report is true and fair; however, it is also true that the company has not focused much on the accounting policies. Mentioning about the accounting policies is important because that helps the stakeholders understanding whether the reports are accurate or not.
Agl.com.au. (2018). AGL Energy Limited. Available at: https://www.agl.com.au/about-agl/media-centre/asx-and-media-releases/2016/august/2016-annual-report
Jones, D. 2017. Tax and accounting income-Worlds apart?. Taxation in Australia, 52(1), 14.
Peach, K., and West, C. S. 2017. Invitation to comment on ED 277 Disclosure Requirements for Tier 2 Entities.
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