From the top two hundred companies listed on the Australian Securities Exchange (ASX) download the 2017-2018 annual report and perform the followings:
For additional guidance for marks allocations refer to the below marking rubric / guide.
Students need to make sure that performing the assignment using the same company is not permitted. You need to discuss the selection of your company with your lecturer before start working on your assignment. (Financial institutions such as Banks are not permitted to be selected for the assignment as they fall under other reporting and compliance framework requirements)
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Assessment of the case study will be based on the criteria listed below and your submission should include the following:
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With the ramified economic changes, there are several accounting concepts and standards have been amended with a view to up harmonization in the reporting framework of organizations. However, the recent financial years have marked years of change for every listed organisation globally. Based on (IFRS), every country is required to translate their national accounting standards based on the guidelines of IFRSs. For Australia the older AASBs have been overwritten by the national accounting body by newer AASBs based on IFRS. One such change is brought in the accounting standard applicable on Leases. The earlier AASB 17 applicable on lease arrangements entered into by listed entities is replaced by newer AASB 16, Leases. The new accounting standard has brought significant change in the manner of lease accounting. These changes have been effected to make the financial statements more transparent and raise the understanding of the users.
The impact of the changes and the disclosure requirements on one of the Australian listed company White Haven Coal is analysed in the current report. Along with, the several accounting concepts used by the company in preparation of their financial statements are also listed.
The different accounting concepts as applied by White Haven Coal in preparation of financial statements are as follows:
White Haven Coal has effectively applied this accounting concept. Because of application of this concept, the AASB 16 has two accounts to be recognised in balance sheet in a lease agreement. Against every lease liability, a corresponding right-of-use asset exists.
White Haven Coal has prepared its financial statements on the basis of historical cost only. The only exception where fair value accounting is used includes the derivative financial instruments.
White Haven Coal is recognising accrued income in the statement of financial performance only because of the application of the accrual concept. This helps in maintain the true and fair view of the recorded financial details in the books of accounts of company.
White Haven Coal has charged depreciation on each component of their Property, Plant and Equipment in accordance with their economic and useful life. Had this concept was not applied by the entity, the entire expense on purchase of property, plant and equipment would have been charged as revenue expenditure, rather than capital expenditure.
The accounting period of White Haven Coal is of 12 months. The period commences from 1st July every year and ends the coming 30th June (White Haven Coal, 2019).
AASB 16, Leases has taken up the places of earlier prevalent standard for leases, i.e. AASB 117. With the introduction of the new standards, several changes have translated the manner of preparation of financial statements. White Haven Coal has retrospectively applied the AASB 16. Resultant, the company had to restate the financial statements for the comparative financial years. The changes incorporated by this standard can be observed in the case of White Haven Coal as follows (White Haven Coal, 2019).
|Change brought by AASB 16||How White Haven Coal effected the change in the Financial statement (Position|
|The leases are no more distinguished as operating lease or finance lease. For every recognised lease exceeding a term of 12 months, a lease liability is required to be created in the balance sheet. Corresponding to the lease liability, a right-of-use asset is also reflected in the financial statements. The value recognised for both is equivalent to the present value relating to the “non-cancellable lease payments” (Joubert, Garvie, and Parle, 2017).||As retrospective approach is followed, the company had restated the balance sheet figures for both financial year 2017 and 2018. The amount of lease liability recognised for financial year 2018 had been $205,874,000 included in the Loans and borrowings, while a right-of-use asset as included in the property, plant and equipment is created for $195,868,000. For financial year 2017, these figures amount to $236,766,000 and $228,283,000 respectively(White Haven Coal, 2019)..|
|Corresponding to the recognition of new asset and liabilities, the change is also reflected in the figure of deferred tax assets.||For financial year 2018 and 2017, the company created additional deferred tax assets of $3,002,000 and $2,545,000 respectively (White Haven Coal, 2019).|
For the year in which AASB 16 is initially recognised, a difference is observed in the amount of lease liability and right-of-use asset. This is because of difference in the discount rate used to compute the present value in both the cases (Xu, Davidson, and Cheong, 2017).
The difference in both is adjusted through the retained earnings.
|For financial year 2018 and 2018, the figure of retained earnings is raised by $7,004,000 and $5,938,000 respectively (White Haven Coal, 2019).|
Source: (White Haven Coal, 2019), (Page: 72)
|Change brought by AASB 16||How White Haven Coal effected the change in the statement of financial performance|
In the older standard, the charges against the operating leases used to reflect as component of operating expenses as financial commitments, with no separate bifurcation.
However, with AASB 16, the recognised lease liability is unwound using the method of effective interest. The charge is made as financial expense in the statement of comprehensive income (Brumm, and Liu, 2019).
|Application of this changed method in the lease commitments entered by White Haven led to rise in the financial expenses for financial year 2018 by $11,326,000 respectively (White Haven Coal, 2019).|
|The corresponding recognition of Right-of-use asset is also required to be amortised over the lease life using straight line approach. This is reflected by either charging it as depreciation and amortisation in the statement of comprehensive income, or by allocation of the amortised amount as an inventory cost component using the statement of financial position.||White haven Coal adopted the approach to charge the amortisation in the statement of financial performance as depreciation and amortisation. The amount charged for financial year 2018 had been $62,108,000.|
|Owing to few lines of expenses added and deducted a restatement of the operating expenses and income tax is also required to be done (White Haven Coal, 2019).||White Haven Coal witness overall decline in the operating expenses by an amount $71,911,000 for year 2018. For the same financial year, the amount of income tax also declined by $457,000 because of tax deductible expenses (White Haven Coal, 2019).|
Source: (White Haven Coal, 2019), Page: 73
|Change brought by AASB 16||How White Haven Coal effected the changes in (CFS) cash flow statement)|
Because of removal of distinction between the operating and financing leases, the treatment of lease payments and interest upon the same has been changed.
Under AASB 16, the portion of principal amount paid by an organisation is now considered as an outflow under financing activities, unlike the earlier practice of classification of operating lease expense in operating activities (Giner, Merello, and Pardo, 2019).
|Resultant, the net cash used in the financing activities of White Haven Coal raised by $60,585,000. The cash generated by operating activities however, raised by the same figure (White Haven Coal, 2019).|
|The interest expense on the lease payments is identified as an expense of operating nature, and hence is considered in the operating activities of cash flow (White Haven Coal, 2019).||The amount of interest paid charged as cash used in operating activities amount to $11,326,000.|
Source: (White Haven Coal, 2019).
On application of AASB 16, Leases many disclosures are required to be made by an organisation, including both of qualitative and quantitative nature. The objective is to transparently present the manner of application of the standard and the effect observed. The following checklist discusses the disclosure requirements on a general level, along with their application by White Haven Coal (White Haven Coal, 2019).
White Haven Coal adopted the standard early from 1st July 2018 and disclosed the same in their annual report (White Haven Coal, 2019).
White Haven Coal has restated its financial statements for financial year 2018 and the comparative year 2017. The lease liability and right-of-use assets have been recognised in the balance sheet. The recognition difference in the both has been translated through retained earnings. The impact of the adoption of AASB 16 has also impacted the EBIDTA of the both financial years. The restated EBIDTA for year 2018 had been $1001.2 million.
White Haven Coal has described how the principles of AASB 16 have been adopted in business (White Haven Coal, 2019).
White Haven Coal has used the straight line method to charge depreciation on the differed right-of-use asset. The rates of depreciation charged on these assets are mentioned in the annual report (White Haven Coal, 2019).
White Haven Coal has clearly reflected in their annual report details about the accounting estimates, judgements and assumptions significant to the lease arrangements separately.
After assessing the implication of the AASB accounting standards and annual reporting of company, it could be inferred that White Haven Coal has effectively applied this accounting concept and on the basis of the application of this concept, the AASB 16 has two accounts to be recognised in balance sheet in a lease agreement named against every lease liability and a corresponding right-of-use asset exists. Nonetheless, all the accounting concepts and key disclosure made by company helps in strengthen the true and fair view of the recorded financial transition in the books of accounts. Therefore, implication of the proper AASB in the accounting framework is required to strengthen the transparency in the books of accounts of company.