The Disclosure Measures of AGL Energy Limited and Origins Energy - Case Study Example

Financial Disclosure reports Lecture: Student Name: Student ID: Unit: Date: Executive summary Australian Accounting Standards board (AASB) accentuates pragmatic disclosures the Australian companies are expected to prepare the books of account inclusively of their subsidiaries and disclose all the material facts in the report. The AASB 3 and AASB 10 expects the companies consolidated financial statements to reveal the trend of the company’s and its transaction in each financial year[Arv11]. The report will heightens on intensifying on the obliged to keep their books of accounts in compliance with the Australian Accounting Standards Board AASB 3, the AASB 10 requirements. The Accounting Standards AASB 3 and AASB 10 also accredits the accounting measures that ensure that the accounting policies are represented and applied consistently. The guidance instituted by the reporting standards implies that companies should attributively follow the requirements of accounting policies. The disclosure measures AGL Energy Limited and Origin’s Energy is of well described below in detail. Introduction AGL Energy Limited and Origin’s Energy Markets business are found under the ASX group Australian companies. The companies are Australian leading energy traders operating under Australian Stock Exchange[Bal121]. The AGL Energy Limited and the Origin’s Energy companies are the parent companies with subsidiaries that are operating under their policies. According to the requirement of the Australian Accounting Standards board (AASB), the two companies are expected to prepare the books of account inclusively of their subsidiaries and disclose all the material facts in the report. The two companies’ consolidated financial statements show the trend of the companies’ transaction in each financial year. The disclosure measures of AGL Energy Limited and Origin’s Energy. Goodwill Goodwill refers business combination predetermine economic benefits that is either acquired or developed by the business. Goodwill acquired is through an act acquisition from an external entity with a future anticipation of better business performance. These future economic benefits are achieved from by the business and its subsidiaries assets. The amount payable by acquiree incorporates the fair value of the assets the net equity of business obligations (Origin Energy Ltd Annual Report, 2014). The direct costs of acquiring Goodwill are recognized immediately as an expense to the business while it is represented as the intangible assets in the statement of financial position. The changes in the anticipated value of contingent consideration arising as a result business combinations were accounted for as the adjustment to the cost resulting in changes of the carrying value of goodwill[Arv11]. Origin Energy Ltd reflected the amount of goodwill and other intangible assets in the cash generating units (CGUs) rather than the consolidated business carrying amount (Origin Energy Ltd Annual Report, 2014). This facilitates the disclosure principle of Australian Accounting Standards Board where the amount goodwill traced from the reporting entity financial reports as Cash Generating Unit[Ben11]. Origin’s Energy Markets business also observes the requirement of the standard by realising the amount of intangible assets inclusive of goodwill has Cash Gearing Units where their amortization and impairment are reflected in the consolidated statements as shown below; Origin Energy Ltd Consolidated statement 2014. Impairment of Goodwill Goodwill is recognized as intangible asset whose resulting impairment in carrying cost being charged to the consolidated statement of comprehensive income[Arv11]. The carrying amounts of Origin Energy Ltd assets, other than derivatives, inventories, environmental scheme as well as the deferred tax assets are comprehensively reviewed during each time of goreporting date to determine if there is any indication of impairment. The presents of the indication exists, the asset’s other assets is adversely recoverable amount is estimated, as discussed below for all assets except exploration and evaluation assets which is discussed in note 1(H). An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable amount. Impairment losses are recognized in the income statement. In the case of the two companies(Origin Energy Ltd Annual Report, 2014), goodwill is reflected cash generating units (CGUs) where the correct value of impairment can be tested and identified from the intangible assets[Bal121]. The amount exceeding the carrying amount assets recoverable amount is considered a loss of impairment and it is credited in the account of Cash Generating Units. In assessing the impairment, both AGL Energy limited and Origin Energy Ltd observes the disclosure policies of Australian Accounting Standard Board (3 and 10) in disclosing the amortization and impairment of goodwill. This is shown in the financial statement below; Non-controlling interests Non-Controlling Interest treatment in the consolidated accounting statements is defined by the Australian Accounting Standards. Non-controlling Interest is identified in the current accounting comprehensive income statement, the share capital and general reserves at the period of acquisition date of the subsidiaries by the parent company[Law13]. Accounting for acquisitions of non-controlling interests The acquisitions of company’s non-controlling interests is effectively accounted for as equity holders transactions as per their capacity as equity holders and therefore the goodwill will not be effectively recognized[Ben11]. The Origin’s adjustments to non-controlling interests are conventionally proportional to the amount of the net assets of the controlled entity. Australian Accounting Standards Board (AASB10) provides that for companies with subsidiaries the basis of charging the financial transaction to recognize non-controlling interest in the acquiree who has present ownership interest and entitles its shareholders a proportionate share of the entity’s net assets. AGL Energy limited reports on non-controlling interest and the equity subsidiaries profit and loss statement and the balance sheet statement (Origin’s Energy Markets Ltd, 2014). The financial statement representation of Non-controlling Interest is shown below. Revaluation of assets Revaluation of the business assets is the state of giving the fair value of the business assets in the financial statements[Bal121]. Assets can be revalued upwards or downwards. Upward revaluation refers to refers to increasing the worth of the assets by crediting revaluation account and debiting the assets account (Origin’s Energy Ltd Annual Report, 2014). Downward revaluation result to reduction of the assets net value due to wear and tear and other factors. According to the AGL Energy Limited report of 2014, the company and its and its subsidiaries assets were revalued downwards that it had to increase in differed tax liability by $ 631,000 million for 2013 and at 2014 the exploration and evaluation of the company’s assets Analysis of AGL and Origin’s Energy Ltd 2014 annual reports AGL Energy Limited and Origin’s Energy Markets business both 2013 and 2014 reports disclose similarity in their disclosures. Both AGL Energy Limited and Origin’s Energy markets discloses the goodwill as the Cash generating Units where the amount was used to test the impairment. According to the Origin’s Energy Ltd reports, accounting for both inter-group and equity transaction are well disclosed (AGL Energy Ltd Annual Report, 2014). The loss on disposal of assets and amortization of goodwill is accounted for in both the companies’ and the subsidiaries consolidated accounting statements. Origin’s Energy Ltd reports is basing on estimates of the unbilled revenue that relates to unread Gas and electricity meters which is inconsiderable by the AASB disclosure principles and policies[Arv11]. Conclusion AGL Energy Limited and Origin’s Energy Markets business and their subsidiaries observe the financial reporting disclosures predetermined by the Australian Accounting Standard Board. The company discloses the non-controlling interest differed tax income and expenses, created goodwill, exploration and evaluation assets amount, and companies ‘financial transactions. Origin Energy Ltd is limited to disclosing both Subsidiaries and companies’ assets. The companies’ fair value of the net assets is not shown but the impairment and amortization of exploration and evaluation assets. This discrepancy of the accounting disclosures should be effected to promote the requirements if the Australian Accounting Standard Board 3 and 10 in enhancing company’s financial reporting framework. References Arv11: , (Arvidsson, 2011), Bal121: , (Ball, 2012), Ben11: , (Bens, 2011), Law13: , (Lawrence, 2013), Read More