Assessment of Australian Agricultural Company †MyAssignmenthelp.com

Question: Discuss about the Assessment of Australian Agricultural Company. Answer: Introduction Australian Agricultural Company Ltd is engaged in the production and selling of beef in Australia. The company is engaged in ownership, operation, and development of the pastoral properties that includes the production of beef, backgrounding and cattle processing and production of various other beef. This company has strong aim to be a global icon in the premium product of beef (AAC, 2016). AACo is striving to attain a formidable position in the market and hence, is executing strategy for the enhancement of the operational efficiency. Assessment of accounting policies and estimates It can be seen from the financials of the company that assumptions, estimates, and judgments are regularly evaluated with respect to contingent liabilities, revenue, assets, and liabilities. The company bases its estimates and judgments on experiences and other factors that are believed to be reasonable based on the scenario, and the result of which forms the basis of the carrying amounts of liabilities and assets that are not apparent from the sources. In relation to significantaccounting policies of the company, it can be viewed that its property, plant, and equipment (PPE) are recorded at historical cost minus accumulated impairment losses and depreciation (AAC, 2016). Such expenses comprise of the cost of replacing parts that are effectively eligible for capitalization during the occurrence of the expense of replacing the parts. Besides, the assets of the company are depreciated on a straight-line basis over the estimated useful life of the asset. Further, the company assesses su ch lives continuously (Lusardi Mitchell, 2013). Furthermore, in relation to trade and other payables, the same are carried at amortized cost and owing to their short-term nature, the same is not discounted. Nevertheless, within thirty days of recognition, the unsecured trade payables are paid off while others are paid within ninety days. The nextaccounting policy is associated with borrowings wherein the company identifies its borrowings on the date of the trade when the company becomes a party to the contractual instrument provisions. Moreover, during discharge of such obligations, the same borrowings are derecognized. On a whole, the borrowings are recognized at fair value fewer transaction expenses that are attributable to the issue of various instruments and are measured at amortized cost (Davies Green, 2013). Lastly, in relation to consumables and other inventories, the company values the same at lower of cost and total realizable value. Further, the cost is ascertained based on an average cost basis and consists of purchase cost including transportation costs. In the ordinary course of business, the net realizable value forms the basis for the computation of estimated selling price less estimated completion price and estimated costs required to make the sale. Overall, the company also offers important details regarding judgments on lease assets and liabilities in its notes to financial statements (Ball et. al, 2012). The companys estimates of suchaccounting policies depend on various past factors and other concerns that are not visible in the other segments of the annual report. However, estimates that can result in a material risk of adjustment in the carrying amounts of the liabilities and assets of the company form part of the financial statements. In relation to the above policies and estimates, it can be seen that TPI Enterprises Ltd also takes into account the same in order to continue its affairs. For instance, in relation to PPE, the company measures its items of PPE at cost minus accumulated impairment losses and depreciation. Further, its PPE are depreciated on a straight-line basis over their estimated useful lives. Therefore, it can be said that the competitors of the company use such policies and estimates and there is surely some flexibility in the estimates and policies as it allows it to sustain in the market especially with such huge competition (AAC, 2016). Overall, theaccounting policy and strategy adopted by the company is sufficient and effective enough to allow it enhance its affairs in the proper direction. However, it can be witnessed from the financial statements of Australian Agricultural Company that financial instruments were not properly disclosed in the annual report based on AASB 9 standards. This po tential red flag can make the company lag behind. Furthermore, based on the AASB recommendations, it can also be viewed that the company has not reported on the major responsibilities of its key managerial personnel who plays a key role in governing the entire procedure of business. Apart from such issue, the annual report does not accommodate any other red flag. Assessment of the quality of accounting Accounting has become clearly political in nature with the due passage of time and several pressures play a key role in influencing the accounting environment. Furthermore, the amounts provided by an accountant have a direct effect on the financial aspect of the company. Hence, the accounting rules have in turn a direct effect on the behavior of humans. The statement depicted by the Australian Agricultural Company clearly shows that the annual report of a company can easily misguide the decisions of investors and can influence many others too (AAC, 2016). Thus, it is the prior duty of the interested parties to trace the safety of the financial score of the company. Hence, this shows that the process is clearly political in nature. Furthermore, it can also be observed that the setting of accounting standard can be a product accommodated with actions that are clearly politically based. This is because of the fact that social decisions rely on such standards and these can exert pressure on the restrictions and as a result, must be accepted by the influenced parties. Besides, attaining acceptance is clearly a complicated process that requires marketing skills in the area of politics. Nonetheless, the disclosure restriction can be considered as the outcome of political pressure that prevails betwixt the setters of standards and the managers. Furthermore, a status quo is always present that focuses on the standards of the past tenure. Moreover, the management plays a role in taking rational decisions after the standard-setters frame a new regulation proposal. However, after a huge denial, the proposal is directly rejected because the standard setters lose their control over the matter and thereafter, a new proposal is framed that is enhanced over the status quo (AAC, 2016). Overall, the major concern that can be seen from the case of this company is that political accountability does not produce a standard-setter that can assist in the maximization of regulations of welfare. Thus, in relation to this, it can be seen that accounting choices can easily assist an entity in gaining exposure, thereby playing a role in assisting the stakeholders and related parties to ob tain an enhanced view of the entity. Furthermore, adoption of proper and efficient policies can also assist in better decision-making. Overall, disclosures are the need of the hour that can enable the parties to ascertain the actions and strategies of a company so that an enhanced perception can be gained regarding the matter. Investigative report Major accounting policies selection Australian Agriculture Co. manages the risks associated with the financial exposure in accordance with their financial risk management policy. The board has authorized the audit and risk management committee to identify and control the risks associated with the finance. Different methods are used by Australian Agriculture Co. to manage different types of risks exposure (AAC, 2016). The various risks which arise from the financial instruments used by Australian Agriculture Co. are liquidity risks, interest rate risks, credit risks, foreign currency risks and commodity risks. Liquidity Risks The financial liabilities and the ability of the company to pay its dues timely i.e. as and when it falls due leads to the liquidity risks. The liquidity crunch can be mitigated if the company keeps a close watch on the expected monthly cash inflows and outflows. Australian Agriculture Co. main objective is to keep a balance between the continuous funding and the flexibility which the company enjoys through convertible notes, bank loans, and financial leases. Due to both the operating and financing activities, Australian Agriculture Co. faces an exposure to the counterparty credit risk. The changes in the counterparty credit risks materially do not impact the effectiveness of derivatives in hedge relationships. Interest Rate Risks The Treasury policy of Australian Agriculture Co. maintains half of its borrowings at fixed interest rates. These interests are amortized over the period of the borrowed funds. The company uses a combination of both the variable and fixed rate debt. At specified intervals, the company also enters into interest rate swaps that are the difference between the fixed interest rate and the variable interest rates. The company keeps on analysis its exposure to interest rates by continuously reviewing the combination of fixed and variable interest rates, renewals of its existing financial positions and alternative financing. Australian Agricultural Co entered into interest rate swaps for $200 million in 2014. As per the expiry date of the bank facility, the swap was expiring on 30th of June 2018. The accounting standards requirement was also met by the company with respect to the hedge accounting as the interest rate swaps were designated as effective (AAC, 2016). After the interest rate swaps also 70% of the borrowings of the company was carrying a fixed rate of interest. Credit Risks Financial assets of the company comprise of trade, cash, derivate instruments and other receivables of the company. The credit risks arising from the financial assets of the company. Australian Agriculture Co. does not hold any credit derivatives which can offset its exposure to credit. Australian Agriculture Co. faces its major credit risk in Australia and that too in the meat processing industry (Williams, 2012). The company has a limited number of customers who are quality customers and maintains a strong relationship with them. The company frequently maintains a check on the receivable balances as a result of which the company has not faced any significant bad debt issues. In order to lower its credit risks the company also pays the insurance premium on an annual basis in respect of certain overseas sales (Samaha Dahaway, 2010). Accounting flexibility Assessment It can be witnessed from the annual report of AAC Ltd that its inventory values can easily provide accounting flexibility to the managers so that they can utilize the same for the benefit of the management. The reason behind this can be attributed to the fact that its inventories are measured in terms of net realizable value that can easily provide some flexibility to the managers because it relies on an estimated factor. Therefore, such accounting flexibility is clearly open for distortion by the managers as they can manipulate the income of the company by decreasing its expenses so that the EBITDA is automatically enhanced. As a result, the investors can be easily misguided and the managers can easily obtain benefit from the same. Hence, such flexibility must be lessened to an extent that can minimize the chance of distortion by managers (Needles Powers, 2013). Accounting strategy Assessment The companies Act of 2006 is adhered to by thee Australia Agriculture Company and other General Accepted Accounting policies are followed. The entire industry follows the same accounting policies and hence, the peers and the competitors are following the same action. The historical cost conventions are utilized by the company (Nobes Parker, 2010). Managers should be provided with the correct compensation so that there is no fraud and the decision making is on a continuous basis. As per the annual report, it can neb commented that the policies and the estimate were regularly followed by the company (Harrison Colle, 2010). Disclosure quality Assessment Financial disclosure on income statement, liabilities, and assets are very significant because these offer adequate insights on the accrual system of accounting. Moreover, in relation to the annual report of Australian Agricultural Company Ltd, it can be seen that the company has not only disclosed material information relating to its accounting policies in line but also provided relevant footnotes to support the same. It can be seen that the new amendments have been made in the year 2015 for the proper presentation of financial statements. Disclosures regarding such amendments have been adequately offered so that the company can efficiently portray comprehensive income of the present year (AAC, 2016). The company in its annual report has also disclosed the requirements of the consolidated financial statements through AASB 10 standards. The company has also disclosed important details of its joint arrangements that have been conducted through the utilization of some other vehicles. F urthermore, it has also disclosed interests in other companies wherein the direct company business is not related to its major operation in the reporting period. (Hanlon et. al, 2014) The company in its annual report also portrays the disclosed items such as improvement in the economic and operation-related financial issues. Besides, important disclosures relating to payables, receivables, inventories, and derivatives are also disclosed by the company in its annual report. Further, adequate footnotes have been given in relation to all these disclosures in order to make sure that the provision of such information does not misguide users. In addition, proper footnotes in relation to the recognition system of PPE (Property, Plant, and Equipment) together with their impairment values have also been provided for better understanding. Nonetheless, it can be easily said that the disclosures made by the company is adequate in nature and the footnotes that are associated with the same are sufficient to assist the users in proper decision-making. However, if the company had not been negligent in the provision of information relating to its financial instruments in the annual report, then the disclosures would be more efficient in nature (Ormiston Fraser, 2013). Nevertheless, in relation to segment reporting, the company has not provided relevant details regarding its segments in the financial report. The reason behind this can be attributable to the fact that under the new reporting framework, the same has not been presented because of variation in the structure of financial details offered to the board of directors and the senior management. In contrast to this, the company has reported adequate disclosures of its segments in the Appendix 4E that can be accessed by the users from the respective website of the company (www.asx.com.au). Besides, the only reportable segment to the KMP done by the company is defined in AASB 8, being the sale and production of beef. The company has not disclosed other segments and they are available at the companys website. Overall, the framework of GAAP does not entirely reflect the key measurement of the companys success even though the company has properly facilitated some material disclosures ( Meeks Swann, 2009). Potential Red Flag When it comes to the operations and the functioning it can be said that the company has managed the affair in a proper fashion. But there are some red flags in the annual report. The financial statement of the Australian Agricultural company projects that the financial tools are not disclosed in the annual report. The organization should follow the standard of AASB 9 however; there is a deficiency in this regard. Moreover, the AASB recommendations states that the company should report the responsibilities of the key managerial personnel however this part is missing. Conceptual frameworks compliance It can be seen from the annual report of Australian Agricultural Company Ltd that it has properly complied with the requirements of the conceptual framework in order to make sure that its reporting quality is adequately enhanced. For such purpose, the company has adhered to all the required qualitative characteristics of the conceptual framework, which is a positive indicator in terms of corporate financial reporting (Ormiston Fraser, 2013). For example, in relation to materiality concept, it can be seen that the company has complied with the ASX Corporate Governance Principles and Recommendations to make sure that the independence of directors is properly evaluated by the Board and that may possess an ability to influence the decision-making ability of the users. Furthermore, the company has also offered significant information regarding its reportable segments that are material in nature, and that can easily mold the decisions of users. In addition, for compliance with the faithfu l representation concept, it can be seen that the company has disclosed the statement of its directors wherein they exert that the financial statements have been prepared in accordance with the Corporations Act 2001. Moreover, for assurance of such statement, the directors have disclosed that the company has adhered to section 295A of the Corporations Act 2001 to make sure that the financial information forming part of the annual report are faithfully represented and does not accommodate any fraud or errors. Furthermore, in relation to the fulfillment of relevance in the annual report, the company has disclosed material details of the various risks encountered by it so that the stakeholders can easily ascertain the kinds of risks that pose a threat to the affairs of the company. With the provision of such information, the quality of reliability can also be fulfilled because after knowing the kinds of risk that surround the company, they are in an efficient capability to determine wh ether they should invest in the company or not (Ibrahim et. al, 2013). Besides, the company has also disclosed information regarding its other income apart from its major income so that its effectiveness in the market with respect to such segment can be ascertained and thereafter, investment decisions can be easily facilitated on the part of investors. Furthermore, it can also be seen from the annual report of the company that the concept of prudence, which is a revision of the conceptual framework for financial reporting, has also been fulfilled (Hribar et. al, 2014). This can be proved by the fact that the company has attempted to disclose that its impairment losses are assessed and reviewed regularly in order to make sure that the amortization figures are not overstated. Hence, this is the prudence concept that allows a company to make sure that its income and assets are not overstated, and liabilities and expenses are not understated (Brochet et. al, 2013). Therefore, on a whole , it can be easily seen that the qualitative characteristics of corporate reporting have been adequately fulfilled by the company, which further ensures that the financial information in the statements is surely compliant with the requirements of the conceptual framework (Brochet et. al, 2013). Besides, this may assist the company in enhancing its goodwill in the market because adherence to the conceptual framework not only maximizes the quality of reporting but also caters to various needs of the users to allow them in making proper decisions. Conclusion Going by the overall discussion of AACo it can be stated that the company adheres to the framework and the accounting regulations thereby the disclosures are strong in this regard. It needs to be noted that the organization has complied with all the accounting policies that make it effective. Further, the accounting policy is directly in tune to the organizations performance. Further, it is noted that the supply chains are strengthened and the organization has taken strong initiatives for the up gradation of the logistics. Moreover, it has made the proper investment in the field of technology and innovation thereby the efficiency of the company has increased considerably. Some red flag was noted in the course of activity however, it can be said that a big organization may fail to have some operations in place and hence, it cannot be tagged as the downfall. References AAC 2016, Australian Agriculture Company annual report and accounts 2016, viewed 28 September 2017 https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_AAC_2016.pdf Ball, R., Jayaraman, S Shivakumar, L 2012, Audited financial reporting and voluntary disclosure as complements: A test of the confirmation hypothesis, Journal of Accounting and Economics, vol. 53, no. 1, pp. 136-166. Brochet, F, Jagolinzer, A. D, Riedl, E. 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