Financial Reporting Analysis Of AusCann Group Holdings Ltd.

You have been randomly assigned an Australian publicly listed company (refer to the separate excel spreadsheet provided to identify your company). Using the financial reports for your company, you are required to prepare an essay that addresses the 7 requirements listed below.

1. Introduction (Company’s main operation/ what the assignment is about/ Topics covered)
2. (a) Select a non-current asset from the financial statements of your company. Provide details of this item (including identify the valuation method used for this item). 
(b) With reference to qualitative characteristics, provide an argument for using an alternative valuation method for this non-current asset. 
3. (a) Provide details of the intangible assets reported by your company.
(b) Evaluate how the company fulfilled its disclosure requirements in relation to intangible assets.
4. (a) Provide details of the provisions and contingencies recorded or disclosed by your company. 
(b) With reference to one specific contingency recorded or disclosed by the company, provide an argument for and against the inclusion of the contingency in the financial report. 
5. (a) Provide details of leased items that are recorded or disclosed by your company. 
(b) Discuss the classification and presentation requirements relevant to leased items, and in doing so provide an explanation for how the leased items of your company have been presented on the financial statements. 
6. (a) Provide details of the revenue disclosed in the annual report of the company.
(b) Justify the revenue recognition criteria for a specific (major) revenue of the company.

1. Financial Reporting is regarded as the process to arrange, record, analyze and interpret the business entity’s financial information so that the potential investors and other users can judge the financial position of those companies (Nobes, 2014). This essay aims at analyzing different aspects of the financial reporting of Auscann Group Holding Limited (AusCan Group). AusCann Group makes partnership with the leading companies in Australia for building an operating spanning the entire medicine cannabis value chain that helps in enabling premium quality, economical as well as clinically validated cannabinoid medicines for the patients in Australia. In addition, the operation of AusCann Group can be seen in providing education to the Australian medical practitioners for informing about the benefits of cannabis (auscann.com.au, 2018). Different parts of the essay analyze different financial reporting aspects of AusCann Group like non-current assets, intangible assets, contingent liabilities and others.
2. (a)It can be observed from the 2017 Annual report of AusCann Group that Property, Plant and Equipment is a crucial non-current asset of the company. According to the 2017 Annual report of AusCann Group, $580,867 and $383 is the total non-current asset of the company for the year 2017 and 2016 respectively (asx.com.au, 2018). In this context, it needs to be mentioned that it is a new company. For this reason, the amount of property, plant and equipment of AusCann Group for the year 2017 and 2016 are $242 and $363; but there is an investment in AusCann Group in property, plant and equipment of $103,509 in the year 2017. It can also be seen that the company states their plant and equipment at historical cost less impairment and accumulated depreciation. After that, the company applies depreciation on property and equipment in straight line basis (asx.com.au, 2018).

(b) The presence of qualitative characteristics in the financial reporting helps in ensuring the fact that the financial information of the companies is presented faithfully to the potential investors and other users. Apart from stating the property, plant and equipment in historical cost, AusCann Group has the option to state them under Fair Value Measurement (Schwarzbichler, Steiner & Turnheim, 2018). The adoption of fair value measurement puts the obligation on AusCann Group for capturing the change in the value of this non-current asset over time. In addition, it will be a major requirement for AusCann Group to involve in the process of revaluation of this non-current asset for capturing the changes (Hodder, Hopkins & Schipper, 2014).

3. (a)It is mentioned in the 2017 Annual Report of AusCann Group that the listing status of the company puts the obligation on the company not to recognize the intangible assets; for this reason, the excess of deemed consideration payment over the net acquired net intangible asset  has been expended in the profit or loss (asx.com.au, 2018). As per the Consolidated Statement of profit or loss, the amount of impairment of intangible assets in 2017 and 2016 are Nil and -$56,221. In addition, the amortization of intangible assets in 2017 is -$1,118,630 (asx.com.au, 2018). AusCann Group considers product rights and brand names as the intangible assets; and they are reported at cost less accumulated impairment losses.

(b) It can be observed that AusCann Group has complied with the guiding principles of AASB 138 Intangible Assets in order to fulfill the disclosure requirements of intangible assets. By complying with the disclosure requirements of AASB 138, the company has provided the details about the recognition and measurement process of their business intangible assets (Ji & Lu, 2014). At the same time, the company has provided the information related to the impairment of these intangible assets. It needs to be mentioned that AusCann Group also provides the information related to the amortization and impairment of intangible assets of their business. In the presence of all these compliances, it can be said that AusCann Group has fully complied with the principles and standards of AusCann Group for intangible assets (Yao, Percy & Hu, 2015).

4. (a)It can be seen from the 2017 Annual Report of AusCann Group that amount of provision for employee benefits in the year 2017 is $4225 and there is not any provision in the year 2016. The amount of reported provision related to deferred tax assets for the year 2017 and 2016 are $14213 and $3467 respectively (asx.com.au, 2018).

The 2017 Annual Report of AusCann Group shows the presence of a contingency situation around the entrance of AusCann Group in a non-binding head of agreement with privately-owned California-based company, Caziwell Inc. / Aunt Zelda’s Group for getting the access to company’s product range and brand  in the market of Australia and New Zealand (asx.com.au, 2018).

(b)  The above discussion includes the presence of a contingent liability in AusCann Group under which AusCann Group has the obligation to pay 5% of their sales revenue from the products of Aunt Zelda to Aunt Zelda. This situation will become a contingent liability for AusCann Group when they will fail in providing this 5% fees.

It is the obligation on AusCann Group to provide the 5% fees and it indicates that it is an obligation on the company for paying this. Thus, instead of contingent liabilities, AusCann Group should consider this as liability (Hutchens & Rego, 2013).

5. (a)It can be seen from the 2017 Annual Report of AusCann Group that the company has not recorded or disclosed any leases of their business in the financial statements (asx.com.au, 2018).

Intangible Assets

(b) As per the 2017 Annual Report of AusCann Group, the company is going to comply with the revised standards of AASB 16 Leases for the classification and presentation of the leases. Under this regulation, it is needed for the lessees for the recognition of lease assets and liabilities for all the leases with the time of more than 12 months unless they are low in value (Joubert, Garvie & Parle, 2017). In addition, the lessees are required to measure right-of-use assets same as other financial assets and the lease liabilities as the other liabilities. For this reason, they are needed to report these lease assets and liabilities in the balance sheet of the companies. According to this revised regulation, it is needed for the business organizations to use present value basis for the initial measurement of the lease assets and liabilities. Apart from this, the enhanced lease disclosure under this standard will to the effective disclosure of the lessor’s risk exposure. Apart from this, it is needed for the consolidated business entity for the recognition of the right-of-use assets and liability for any kind of leases (Xu, Davidson & Cheong, 2017).

6. (a)It can be seen from the 2017 Annual Report of AusCann Group that the company has reported two sources of revenue; they are interest revenue and other income. The amount of interest revenue for the year 2017 and 2016 in AusCann Group are $98584 and $57257 respectively (asx.com.au, 2018). After that, the amount of other income for the year 2017 is $260396. There was not any revenue from other income in the year 2016. Apart from this, the company has also reported about the carry-forward revenue tax losses of worth $891355 and $280807 for the year 2017 and 2016 respectively (asx.com.au, 2018).

(b) It can be seen from the above discussion related to the analysis of 2017 Annual Report of AusCann Group that the company has reported two types of sources of revenue in this business and one of them is Interest Revenue of Revenue from Interest (Weil, Schipper & Francis, 2013). It needs to be mentioned that the management of AusCann Group has used certain technique for the measurement of the revenue from this source. According to the 2017 Annual Report of AusCann Group, the company has recognized their revenue on an accrual basis. In this context, it needs to be mentioned that the business organizations use to report the revenue in the income statement when they are earned under the accrual basis of accounting. In addition, under the accrual basis of accounting, the business organizations are needed to match their business expenses with the related revenue at the time of their occurrence or when cash is paid to them (Demski, 2013).  

7. It can be seen from the above discussion that AusCann Group conducts their accounting and financial reporting related activities by complying with the required rules, regulations and standards. The above discussion indicates towards the fact that AusCann Group uses historical cost basis for the measurement and recognition of property, plant and equipment; and the company can use far value measurement as an alternative measurement basis for the reporting of property, plant and equipment. In case of the valuation of intangible assets, AusCann Group complies with the regulations and guiding principles of AASB 138 Intangibles. The company has provision related to the employee benefits and contingent liability where they have to pay 5% of sales to Aunt Zelda Group for using their branded products. It can also be seem from the above discussion that AusCann Group has not reported any lease assets and liabilities for the financial year 2016 and 2017; and the company will have to comply with the regulations of AASB 16 Leasefor the financial treatments of their leases. It can also be seen that AusCann Group uses accrual basis of accounting for the recognition of revenue from interests.

References

AusCann Group Holdings Ltd. (2018). Financial Report for the Year Ended 30 June 2017. Retrieved 15 September 2018, from https:// www.asx.com.au/asxpdf/20170929/pdf/43ms3qz1kzclzd.pdf

AusCann. (2018). What we do. Retrieved 15 September 2018, from https://www.auscann.com.au/about-us/what-we-do.html

Demski, J. (2013). Managerial uses of accounting information. Springer Science & Business Media. 

Hodder, L., Hopkins, P., & Schipper, K. (2014). Fair value measurement in financial reporting. Foundations and Trends® in Accounting, 8(3-4), 143-270.

Hutchens, M., & Rego, S. (2013). Tax risk and the cost of equity capital. Available at SSRN.

Ji, X. D., & Lu, W. (2014). The value relevance and reliability of intangible assets: Evidence from Australia before and after adopting IFRS. Asian Review of Accounting, 22(3), 182-216.

Joubert, M., Garvie, L., & Parle, G. (2017). Implications of the New Accounting Standard for Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. Journal of New Business Ideas & Trends, 15(2).

Nobes, C. (2014). International classification of financial reporting. Routledge.

Schwarzbichler, M., Steiner, C., & Turnheim, D. (2018). Fair Value Measurement. In Financial Steering (pp. 431-440). Springer, Cham.

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Xu, W., Davidson, R. A., & Cheong, C. S. (2017). Converting financial statements: operating to capitalised leases. Pacific Accounting Review, 29(1), 34-54.

Yao, D. F. T., Percy, M., & Hu, F. (2015). Fair value accounting for non-current assets and audit fees: Evidence from Australian companies. Journal of Contemporary Accounting & Economics, 11(1), 31-45.