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Discuss about the Advance Accounting Analysis.

The current report is based on the assessment of the accounting information in order to determine the needs of the users of monetary reports as laid down under the conceptual framework of accounting. The report simultaneously also determines importance of revision of conceptual framework in order to include prudence to address the disparity under the corporate reporting requirements. The companies selected to support the analysis are Carbon Energy Ltd and AGL Energy Ltd. The importance to conceptual framework is analysed with reference to the above stated companies in light of the reporting requirement imposed on the directors and other responsible persons assigned with governance of the organisations. The report discusses the necessity of prudence in addressing the disparity at the time of corporate reporting.

Key Differences:

  1. Carbon energy is engaged in providing energy globally with unconventional syngas extraction. AGL Energy on the other hand, is engaged in the generation and retailing of electricity for both residential and commercial use.
  2. Carbon energy conducts its operations through underground coal gasification pilot plant. AGL Ltd conducts its operations by using thermal power wind and hydroelectricity.
  3. Carbon energy is primarily engaged in the production of products such as syngas and ammonia whereas AGL Ltd is engaged in the production of natural gas, wind power, coal seam gas, hydroelectricity etc.


  1. Both AGL Ltd and Carbon energy operates under the energy sector for extracting and utilizing coal gas
  2. Another similarities between AGL Ltd and Carbon Ltd is that they are engaged in electricity retailing services such as generation and distribution of energy  

A form of differential financial reporting has been historically incorporated in the Australian accounting standard and its core forms the concept of reporting entity. A reporting entity is required to prepare the general purpose of financial report which in compliance with the AAS standards (Deegan 2013). The preparers of the financial statements and their advisors and auditors must continually assess whether their present financial reporting framework is suitable and must take required steps in order to ensure smooth transition of the organisations functions. General purpose of financial reporting are those that intends to meet the requirements of the users that are not in position of the organisation to direct monetary reports in order to satisfy their information needs. Conversely, if the users have the capability of directing the information needed by them then they would ask for financial reports that contain information, which is referred as SPFR.

The most important users of the general purpose of the fiscal reporting are the current and possible investors, lenders and other creditors having access to such information makes the decision about trade, business, holding equity or debt instrument or any other types of credit decisions (Macve 2015). The major users require the information concerning the resources of the organisation as well not only to evaluate the organisations prospect for future cash flow but also to measure the effectiveness and management discharge of responsibilities to utilise the organisations resources. On the reporting date of Carbon energy ltd the assets and liabilities of the entire controlled unit has been incorporated in the consolidated financial statement along with the results for fiscal year ended. The performance of the organisations shares is considered the best pointer of the value creation for shareholders during the organisations stage of development. Carbon energy complies with the present accounting framework by meeting the requirements of users of the monetary reports as the company provides its shareholders with the information regarding the distribution of shares (Adibah et al. 2013). Carbon energy complies with the voting rights, which is attached in the ordinary shares and are governed by the constitution. The director’s interest and shares is disclosed in the director’s report.

Financial performance of Carbon limited is reflected during the period, which helps in representing the change in the financial wealth and claims other than those that is attained directly from the investors and creditors (Weil, Schipper and Francis 2013). This helps in useful assessment of the organisations past and future ability to generate the net amount of cash inflow. With the objective of determining impairment for Carbon Ltd the assets are grouped at the lowest level for which they are distinctively recognise the cash inflow that are greatly independent of the cash inflows from other assets or the group of assets. Such kinds of information helps in indicating the degree to which the common financial events have altered the capability of the organisations to produce potential cash inflows.

General Purpose Financial Reports Versus SPFR

Information concerning the reporting entity cash flow throughout the episode also helps the users of financial report in determining the ability to generate the future net cash inflows. Financial assets of Carbon Energy Ltd is derecognised where the contractual rights relating to the receipts of the cash flow gets expired or the assets are transferred to another party (Zhang and Andrew 2014). The values in cash flows are approximated for each potential project depended upon the technology along with the ongoing contractual arrangements entered into under the negotiating date. Thus, this kinds of information reflects the cash obtaining and spending information along with the repayment debt and cash dividends to shareholders.

Significant and trustworthy depiction is considered as basic qualitative features of useful fiscal information. For AGL ltd underlying profit is reflected in compliance with the Australian securities and investment commission regulatory guide for disclosing the financial information to its users (Henderson et al. 2015). The results of AGL divisions are reported in accordance with the management reporting structure during the reporting date. To effectively manage the risk, AGL has effectively placed the governance framework, which helps in establishing the policies for its users where energy-hedging activities are conducted.

The ability to maintain and illustrations helps in establishing strong governance structure for its users. This helps in encouraging a cultural transparency and accountability for its users of financial reports. AGL has well placed official board and subcommittee and management structure to provide routine updates to its users on all material governance associated matters (McNeil, Frey and Embrechts 2015). The financial reports of AGL are prepared in compliance with the “Corporation Act 2001” and accounting standard AASB 1039 concise monetary reports. The concise monetary reports serve as an extract from the entire monetary report. The concise financial reports and precise disclosure are pertinent for its functions and efficient for the present reporting phase For the purpose of reviewing and carrying the values of AGL assets through impairment testing, the company attributes the proceeds transferred from Energy market and group operations.

The directors are accountable for the supervision of the organisation monetary reporting procedure. According to the corporation act requirements, AGL provides its shareholders with the access to its annual reports (Beattie 2014). The qualitative features of monetary reporting helps in recognising the financial information that is most likely to be useful for the users in undertaking, decisions concerning the reporting entity information. The usefulness of the financial information for AGL is improved if it is comparable and reasonable.

Prudence in secretarial and fiscal reporting consists of long-standing history. There is a substantial amount of argument over the international financial reporting standards in the form of important international standards whether they must take account of prudence by stating its significance in their conceptual framework. The discussion has arisen because of the discontentment with the IFRS function in the lead up to fall out of the financial crisis. The question arises whether the insufficient prudence in the IFRS has assisted in the creation of more enthusiasm of expansion unjustified bonuses and unrealised profits. Prudence has been taken into the considerations in the IASB framework in the conversation of the qualitative characteristics relating to dependability. According to Sharma and Panigrahi (2013) prudence in the conceptual framework of accounting can be defined as the something which needs to be embedded in the standard. The definition of prudence in the IFRS framework has referred to prudence in the implementation of standards requirement in the circumstances of efficiency. The current question, which is being faced, is the amount necessary in setting up the needs initially. Several secretarial directives have stated that prudence is kind of elementary theory, which will create an impact on the setting of the requirements.

Analysis of Carbon Energy Ltd and AGL Energy Ltd

There is anticipation among several users that accountants along with their accounts should act like a resistant on the anticipated over exuberance of management at the time of reporting an organisations results. This comes with the anticipation that reported, audited numbers are difficult, and the management at the time of making estimations uses cautions (Smith 2014). The public does not only hold such kinds of views but it is also held by few specialized shareholders especially in regard to the proceeds as the foundations of paying dividends and bonuses.

Unquestionably, it represents circumstances where income and assets have been overstated and not where they have been overstated with accountants and accounting standards have reviewed a large number of their criticism. There is uneven risk that prudence standard setting and implementation helps in redressing (Wang 2014). One of the example is where additional prudent book-keeping by banks may have reserved the extra bonuses and dividends and might have offered greeter financial stability to the entire system of economy. The benefit of the implementing prudence in conceptual framework of accounting standard is more widely agreed upon. 

As prudence is actually illustrated in the accounting standards, it appears correct that its function is considered under the frameworks that are used to set those standards (Cheng et al. 2014). ACCA have agreed that uncertain circumstances need to be reflected at the time of measurement. In reasonable standards, having its basis on models and potential cash flows the uncertainties should be completely recognised. For example, the risk of liquidity and the elements of discount rates need to be identified. According to several studies evidences has been drawn that the current framework of IFRS framework should include the constituents of prudence in identifying the assets and liabilities. This represents that it must be very translucent than potentially un-quantified prudence at the time of measurement (Christiaens et al. 2015). The accounting standards helps in making clear which items should be identified and applied. It must also state when the accounting policies must provide the description by elaborating the applied standards.

For carbon energy, short-term incentives are provided to the permanent executives on the attainment of key targets along with the individual contribution, which is believed by the board that it will help in sustaining and improving the performance of the company. The metrics and weightings are reviewed on yearly basis  in order to ensure that the business needs of carbon energy is met along with the short term incentive plan consisting of general market practices (Zeff 2013). Carbon Energy limited financial statements have been prepared in accordance with the financial statement based on the historical cost. The non-current assets and financial instrument of the carbon energy are  measured on the re-valued amounts.  The financial report that has been prepared by carbon energy is based on the going concern basis by assuming the continuity of the ordinary business activities along with the realisation of assets and settlement of liabilities.

The directors evaluate the estimations and judgements, which is incorporated under the financial reports depending upon the historical information and current data, which they believe to be reasonable under such circumstances. The estimations for carbon energy ltd is based on reasonable future events which may create a monetary impact on the financial conditions of the entity. Commenting upon the prudence in conceptual framework of accounting the revenue of Carbon energy is measured in terms of the fair value of the considerations received. In accordance with the requirement of the section 370 C of the corporation act 2001 there was no such contravention in the audit requirements of the carbon energy (Brown, Preiato and Tarca 2014).

Importance of Prudence for Disparity during Corporate Reporting

The company prudently reports according to the AASB guidelines and not such contravention is reported associated with the audit. The directors of the Carbon energy are accountable for preparing the monetary reports, which prudently provides the accurate and fair view in compliance with the Australian accounting standards, and the corporations act 2001. The Directors of the carbon energy ltd holds the responsibility of internal control since the directors determine the necessity of enabling the preparation of financial report. The financial reports provide true and fair view and it is free from material misstatement. The accounting standard of AASB 101 for carbon energy ltd has been duly complied with the international financial reporting standards.           

On the hand, AGL energy limited concise monetary statement has been prepared in compliance with the corporation act 2001 and Accounting standard AAS succinct monetary statements (Oulasvirta 2014). The succinct fiscal reports represent an extract from the entire monetary statements. AGL energy has implemented the necessary amendments to the standards and interpretation that is important in its functions and efficient for the present period of reporting. The directors of corporation’s act 2001 are accountable in preparing the concise financial report according to the AASB concise financial reports.

In terms of the measurement, the retention of historical cost for several items helps in imparting a sufficient amount of prudence in the income recognition and values of assets for Carbon energy ltd and AGL energy ltd. Other measurement forms the basis of the fair value implementation of the assessment techniques, which gives recognitions to the effects of the uncertainties (Albu, Albu and Alexander 2014). It is understood from the study that standards provides guidance but their implementation generally includes a greater degree of judgements for a wide range of outcomes. As evident from the above stated discussion, the conceptual helps in addressing the disparity and management must err on the side of carefulness and prudence.               

  1. Prudence must be discussed in the new framework at the time of producing the exposure draft.
  2. Measurement basis such as fair value needs truthful implementation in the evaluation techniques by giving appropriate credit to the impacts of uncertainties.
  3. It is recommended that disclosure requirements must attain the common needs of the individual users by focussing on the information such as measurement uncertainty, choices of accounting policies, liquidations and solvency policies.


There are opinions for implementing and against implementing prudence in accounting, standards and these principles, centrally emphasis on the tensions arising amid the user’s anticipation that fiscal information should be dependable in recording the performance and meeting their needs in an unbiased manner. The above stated discussion must be reconsidered as debatably the principles role of prudence in setting standard that lies in the robust identification of assets and liabilities.


Adibah Wan Ismail, W., Anuar Kamarudin, K., van Zijl, T. and Dunstan, K., 2013. Earnings quality and the adoption of IFRS-based accounting standards: Evidence from an emerging market. Asian Review of Accounting, 21(1), pp.53-73.

Albu, C.N., Albu, N. and Alexander, D., 2014. When global accounting standards meet the local context—Insights from an emerging economy. Critical Perspectives on Accounting, 25(6), pp.489-510.

Beattie, V., 2014. Accounting narratives and the narrative turn in accounting research: Issues, theory, methodology, methods and a research framework. The British Accounting Review, 46(2), pp.111-134.

Brown, P., Preiato, J. and Tarca, A., 2014. Measuring country differences in enforcement of accounting standards: An audit and enforcement proxy. Journal of Business Finance & Accounting, 41(1-2), pp.1-52.

Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119.

Christiaens, J., Vanhee, C., Manes-Rossi, F., Aversano, N. and Van Cauwenberge, P., 2015. The effect of IPSAS on reforming governmental financial reporting: an international comparison. International Review of Administrative Sciences, 81(1), pp.158-177.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user perspective. Wiley Global Education.

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

McNeil, A.J., Frey, R. and Embrechts, P., 2015. Quantitative risk management: Concepts, techniques and tools. Princeton university press.

Oulasvirta, L., 2014. The reluctance of a developed country to choose International Public Sector Accounting Standards of the IFAC. A critical case study. Critical Perspectives on Accounting, 25(3), pp.272-285.

Sharma, A. and Panigrahi, P.K., 2013. A review of financial accounting fraud detection based on data mining techniques. arXiv preprint arXiv:1309.3944.

Smith, M., 2014. Research methods in accounting. Sage.

Wang, C., 2014. Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), pp.955-992.

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

Zeff, S.A., 2013. The objectives of financial reporting: a historical survey and analysis. Accounting and Business Research, 43(4), pp.262-327.

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.

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