Contemporary Issues in Accounting : Brighton Produces

Contemporary Issues in Accounting : Brighton Produces


Question:

Contemporary Issues in Accounting : Brighton Produces

Answer:

Introduction

The purpose of this report is to compare two companies listed in ASX to see whether it complies with the requirements of the users of financial reports as prescribed in the objective of the Conceptual Framework of Accounting. The report further shows how the conceptual framework includes Prudence is likely to show the disparity in Corporate Reporting. The report further had shown the conceptual framework with reference to the annual reports chosen for Adelaide Brighton and Alumina Limited. The report has also included reporting requirements imposed on accountants and those charged with governance of corporations. The various scope of the study includes extracts from the annual reports of for Adelaide Brighton and Alumina Limited and its compliance with AASB standard requirements. The report provides valid reasons for the compliance of the reporting standards as per AASB guidelines. This has been done through the various extracts of the notes to the financial statements or in the Director’s Report.
Adelaide Brighton is leading Australian based cement, lime and dry blended products. Adelaide Brighton is mainly involved with the manufacturing process and supply of the products needed to construct and build the infrastructure and use the same for the mineral processing throughout the market. The company is listed under the ASX stock exchange under S&P/ASX 100 and has a 1400 employees based in all the territories and states of Australia. The company is also committed to encourage and foster diversity, which is best suited to the attributes of the shareholders (Adbri.com.au. 2016).
Alumina Limited headquartered in Southbank, Melbourne is an Australian public listed company and is considered as under the top 100 companies listed on the ASX. It is known for owning two bauxite mines and three refineries from the Western Australia. The business operations mainly deal with mining of bauxite, the extraction of aluminum oxide and the smelting of the same. It is having operations also at Brazil, Texas, Jamaica, Suriname, Spain, Guinea, and is known to own Alcoa Steamship (Aluminalimited.com. 2016).

Analysis of the two companies

Criteria 1

Disclosure of Remuneration

Adelaide Brighton
It has been noted that the executive remuneration include 25% of any awarded STI which is directly transferred to company’s  shares, with half deferred in two years and the remaining half for a total of three years. The CEO remuneration apportionment is based on the long-term incentive and a part of the short-term incentives. In the year 2015 the remuneration distribution as per equity share for the long-term incentives is seen to be 33.5% and the in the year 2016 the 33.5 % are linked to equity share and 8.5% are linked to short-term incentives CEO. The rest of the incentives received by the executive are linked to cash. This is applicable also in case of Key Management personnel. The diagrammatic representation in the annual report has shown that the share of the cash and the equity remuneration is showing an increasing trend (Adbri.com.au. 2016). This has been shown in the appendix 1 of report.
As per the financial performance disclosed in the Remuneration summary report the of Adelaide Brighton disclosed by the directors, the strong financial performance is linked to the remuneration of the company. It is clearly mentioned in the directors report of the company that the NPAT value rose by $35.2 million or 20.4% in the year 2014.The Remuneration summary report further suggested that the revenue increased by $ 75.3 million, which is an increase of 75.3 million than the previous year. The EBIT also rose by 51.1 million, which is an increase of 20.6%. The Cash proceeds received from the sale of land amount to $47.9 million in 2015 generated NPAT of $34.9 million. This has been shown in the appendix 2 of report. 
Alumina Limited
The executive remuneration of the members is directly linked to both profit and shares. It has been seen that the measurement of the performance determining the compensation received by the CEO and Mr. Wood is seen as mix of the equity shares and cash. The difference with Adelaide Brighton in terms of the reporting of the executive compensation is seen in terms of percentage distribution of the apportionment of the incentives. In case of Alumina Limited the 19% of the Long term incentives are linked to equity shares and another 19% is linked to Short term incentives. The rest 9% of the remuneration is linked with cash payment. This has been shown in the appendix 3 of report.

Compliance of remuneration disclosure with AASB guideline

As the per the AASB 1046 guidelines the companies should specially disclose the remuneration of each individual director. It has been observed that at least five executives must be shown in terms of the economic entity while the preparation of the financial report (Aasb.gov.au. 2016). It has been further observed in the AASB guideline that director and executive are to be treated as mutually exclusive persons (Aasb.gov.au. 2016). In case of Alumina Limited, this has been separate and the shows and the same has been depicted in the appendix no. 4. Although it has to be noted that Alumina Limited have not disclosed at least five executives. In case of the Adelaide Brighton the company has rightfully maintained the compliance to disclose at least, five executives linked with the economic entity. The same has been shown in appendix 5 of the report.


Criteria 2

Prudence with the AASB guidelines and benefits

Adelaide Brighton
As per the notes to the consolidated financial statements shown in the annual report of Adelaide Brighton Limited, the revenue from the contracts will be covered under “AASB 15 Revenue From Contracts with Customers”. The prudence is seen in terms of disclosure of replacing the present AASB 118, associated with “contracts for goods and services” and AASB 111 associated with “contracts for construction”n with AASB 15 standards. The main advantage of this will overcome the risk concerned with notion of control to recognize during transfer of goods and services to the customers. This disclosure has been shown in appendix 6 of the report. The company has rightfully complied with the AASB guidelines and assured that the standard will be commenced after 1st January 2018. The company has further disclosed the present standard to cover the leases as per the AASB 117 will be replaced by AASB 16 leases. The main befit of this will be seen in form of introduction of an accounting model with a single lessee for the recognition assets and liabilities for all leases with a tenure exceeding 12 months. This is not applicable if the underlying asset is of low value (Charteredaccountants.com.au. 2016). The company has rightfully complied with the AASB guidelines and assured that the standard will be commenced on after 1st January 2019. This disclosure has been shown in appendix 7 of the report. The annual report of the company has also quoted the various types of the fair value measurements related to the assets and liabilities which should be further estimated for recognition and measurement for the purpose carrying amounts of financial instruments which has been disclosed in the balance sheet of the company. 
Alumina Limited
As per the annual report, the financial statements have been prepared in accordance with the requirements of the “Corporations Act 2001”, issued by AASB. The disclosure given under the Retirement benefit obligations has been valued un de the guideline given under AASB 119 Employee benefits. The prudence has also been seen in terms of disclosing AASB 9 financial instruments. The main difference is seen in terms  of application date of  AASB 15 standards for revenue recognition date. In the former case the rule was applicable from or on 1st January 2018 while in case of Alumina Limited it is 1st January 2017. The The company has rightfully complied with the AASB guidelines and assured that AASB 16 leases will be effective from on after 1st January 2019. The main benefit will be seen in terms of lessees who will be able to recognize the lease liability directly reflecting the future payment and implementation of “right-of-use asset”, applicable for all lease contracts. The advantage will be further seen in terms of the disclosure of information related to the lease contracts related to the interest expenses and on how the lease liability can be presented in terms of operating cash flow. It will also enable separation of the liabilities with the financing activities, especially for the leases with low value (Charteredaccountants.com.au. 2016). This disclosure has been shown in appendix 8 of the report.

Criteria 3

Disparity with tax

Adelaide Brighton

As per the annual report of the company it has been clearly shown that the in depicting earnings before interest and tax was $ 298.6 and NPAT was $207.9 million. However, a detailed analysis of the report depicted that although the earnings before interest tax are observed to be same but the NPAT was $207.8. Hence, it can be considered as a case of the overstatement of financial report of the company. This has been clearly shown in the appendix 9 of the report.
Alumina Limited
The taxes and the deferred payment has been rightly tallied from the annual report and this showed an amount of 306.3 million dollars. It has been further shown that the company has rightly disclosed the net profit after tax with an amount of 88.3 million without any discrepancy in the reporting (Aluminalimited.com. 2016).
Criteria 4

Disclosure of leasing

Adelaide Brighton
The annual report of the company has clearly stated that lease rights have a finite useful life and the estimation of the useful varies from 2 to 20 years. It has been further stated that the amortization process of the company is computed based on straight-line approach. The current financial lease in the tear 2015 of the company was observed to be 1 million and the non -current leases such as bank loans and other financial leases was observed to be 328.8 and 0.7 million. The total lease amounted to 329.5 million dollars. The lease commitments made by the company was observed to be 1.7 million. The lease commitments made by the company was to be 22.4 million dollars This has been clearly shown in the appendix 10 of the report (Annualreports.com. 2016).
Alumina Limited
It can be clearly seen that the company is not prudent enough in disclosing the individual lease amounts. The direct comparison also shows that the company is not involved in amortization process based on straight-line approach as the former. The financial review of the company has depicted that the company had a capital lease amounting to $3.6 million in the year 2015 (Aluminalimited.com. 2016). The diagrammatic representation of the same has been shown in the appendix 11.

Conclusion and Recommendations

In The criteria related to the disclosure of remuneration Adelaide Brighton is prudent enough to show the cash and the equity share distribution of the remuneration received by the company. Alumina limited should show the composition of apportion of the cash and the equity share distribution in a better way. It has been further observed that Alumina Limited has not disclosed the at least five executives. In terms of the Prudence with the AASB guidelines Adelaide Brighton should adopt the “AASB 15 Revenue from Contracts with Customers” before 1st January 2018 in order to get the designated benefits. The criteria related to the disparity with tax Adelaide Brighton should be prudent enough in terms of the disclosure of the taxes, so that there is no overstatement of financial report of the company. In terms of the disclosure of leases and intangible assets, Adelaide Brighton has been observed to show more compliance with the AASB accounting framework.

Reference List

Aasb.gov.au. (2016). [online] Available at: http://www.aasb.gov.au/admin/file/content102/c3/AASB1046_01-04.pdf [Accessed 4 Dec. 2016].
Aasb.gov.au. (2016). [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/AASB118_07-04_COMPoct10_01-11.pdf [Accessed 4 Dec. 2016].
Adbri.com.au. (2016). [online] Available at: http://adbri.com.au/-/adbri/lib/pdfs-archived/2012/april/annrep/ABL2011AnnualReportManagingDirectorreport.pdf [Accessed 4 Dec. 2016].
Adbri.com.au. (2016). Adelaide Brighton produces clinker, cement, concrete and lime.. [online] Available at: http://adbri.com.au/aboutus [Accessed 3 Dec. 2016].
Aluminalimited.com. (2016). [online] Available at: http://www.aluminalimited.com/uploads/ALU7898-Annual-Report-Master_Web.pdf [Accessed 4 Dec. 2016].
Aluminalimited.com. (2016). [online] Available at: http://www.aluminalimited.com/database-files/view-file/?id=5938 [Accessed 4 Dec. 2016].
Aluminalimited.com. (2016). Alumina Limited. [online] Available at: http://www.aluminalimited.com/about-us/ [Accessed 3 Dec. 2016].
Annualreports.com. (2016). [online] Available at: http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_ABC_2015.pdf [Accessed 4 Dec. 2016].
Charteredaccountants.com.au. (2016). FAQs AASB 118 . [online] Available at: http://www.charteredaccountants.com.au/Industry-Topics/Reporting/Publications-and-tools/FAQs-Reporting/FAQs-on-Analysis-of-AASB-standards/AASB118 [Accessed 4 Dec. 2016].
Charteredaccountants.com.au. (2016). Revenue recognition . [online] Available at: http://www.charteredaccountants.com.au/Industry-Topics/Reporting/Current-issues/Convergence/News-and-updates/Revenue-recognition [Accessed 4 Dec. 2016].

Comments