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Financial Statement Analysis And Security Valuation

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Question:

Discuss about the Financial Statement Analysis and Security Valuation.
 
 

Answer:

Introduction

The company Adelaide Brighton Cement has been in a proper financial position and has registered profits. The remarkable achievements of the corporation Adelaide Brighton Cement indicates towards the hard work as well as dedication of the firm regardless of the circumstance that the company had to realise this feat under many tumultuous monetary conditions. Adelaide Brighton Cement also referred to as ABC is essentially a corporation functioning in Australia operates as a producer of cement, diverse dry amalgamated products as well as lime. This company is listed under the Australian Stock exchange (ASX) with the title or label Adelaide Brighton Limited that is ABC. The current study intends to pragmatically analyse the commercial actions of the corporation Adelaide Brighton Cement, part of ASIC as a corporate controller in association to the Financial Reporting Surveillance program, outcomes grounded on particular financial reports as on the period 31st December 2015 (Asic.gov.au 2017).

ASIC is essentially a regulator of Australian corporate, markets as well as financial services. ASIC necessarily regulates compliance with definite financial reporting as well as auditing requirements for business entities that are subject to particularly the Corporations Act 2001 (Asic.gov.au 2017). In essence, ASIC’s active monitoring of the compliance of the entities with different requirements can contribute directly towards market integrity as well as confidence of the investors. Again, this seeks to make it certain that financial reports as well as audit opinions issues are pertinent and dependable, and assist diverse users make superior informed decisions in the marketplace (Vogel 2014).

ASIC also reviews financial pronouncements and looks at different risk based criteria. ASIC inspires people preparing as well as presenting financial reports as well as their auditors to take into consider the requirement to impair goodwill as well as other assets. In addition to this, ASIC also continues to understand different calculations of impairment utilizing unrealistic flows of cash as well as assumptions (Asic.gov.au 2017). This also involves understanding material mismatches between cash flow utilized and the assets that are being examined for the purpose of impairments. Essentially, the fair values that are attributed to financial assets needs to be grounded on suitable models, suppositions as well as inputs (Wahlen et al. 2014). Again, there needs to be emphasis on assets of the company operating in the extractive industry as well as mining support services, along with value of the assets that might be affected by specific digital interruption.

Critical examination of difficulties in addition to key issues in impairment testing

Certain difficulties or intricacies as well as important issues that are contained in the process of impairment testing include understanding of different applicable financial reporting requirements and intricate ways by which this can be applied for relief from different financial reporting requirements. The impairment testing also states the fact that impairment needs to be properly addressed that is prior to the end of the year. Although all the different elements of impairment are significant, there needs to be focus on recognition of cash generating unit as well as disclosure of different outcomes of the impairment testing in the financial statements (Warren et al. 2013). Several business entities often refresh impairment enumerations from previous years whilst this can be regarded as a supportable approach. In this case, there is need to assess different assumptions, inputs as well as calculations during the year 2014 as the entire world economy reflects growth as well as recovery. There is need for the auditors to impair goodwill as well as other assets while preparation of different financial reports. In this case, there is also requirement to find out impairment enumerations utilizing unrealistic flows of cash as well as suppositions in addition to material mismatches between flows of cash and the assets that is being examined for impairment (Puri 2014). By itself, the fair values that can be attributed to different financial assets need to be based on suitable models, suppositions as well as input. As per the annual report of the firm Adelaide Brighton Limited 2015, the company detected an impairment charge of around $2 million. The impairment expends that are essentially recognized on trade debtors is around $1.1 million. Again, an impairment loss is detected for any preliminary or else following write down of specific asset to essentially fair value after deduction of costs of sale (Kaminska and Kolesnikova 2014). As per the annual report of the corporation, goodwill as well as intangible assets that have unlimited economic life are essentially not subject to the process of amortisation and are essentially examined every year for impairment or else  more regularly in case if proceedings or else alterations in circumstances replicate that these might be impaired (Drury 2013).

 

Detailed explanation of the impairment write-down

ASIC specifies the decision of the management of “Evolution Mining Limited” to lessening of the asset value in the pecuniary reports especially for the period ending as on June 2016. In essence, ASIC had previously conducted enquiries with the assessor of the corporation that is in association to the amount that is recoverable of corporation’s gold mine of Pajingo in the pecuniary report of the concern. In particular, the financial report of the company has registered an impairment of approximately $77 million for the mine properties of Pajingo, grounded on diverse binding bids for the specific properties, as well as sale of properties subsequent to balance day. Again, specifically the “Evolution mining” also has specified that the damage that is carried out against the Pajingo mine was essentially based on the context of the procedure of sale of the assets that was an important part of previously declared policy of actively handling the portfolio of the company. On the other hand, the company Adelaide Brighton Cement have also impaired assets and take into account the costs of the same. The assets that have been impaired include the impairment of power station development asset. In addition to this, Adelaide Brighton has also carried out impairment of gas assets of the company, different non-current assets. In addition to this, the company has also taken into account the accumulated depreciation as well as the impairment (Petty et al. 2015). In addition to this, the management of the firm has also taken into account the impairment of the goodwill (Brigham and Ehrhardt 2013).

Essentially “ASB 36” sketches an entire set of demands as well as strategies that needs to be monitored for devising at specific impairment documents of diverse non-pecuniary properties. However, there are definite matters that need to be taken under the care of the assessment committee in relation to the calculation of damage (Weygandt et al. 2015). These issues include assessment of the lifetime or else economic life of specific assets that needs to be impaired. In addition to this, it is also important to understand specific recoverable amount of definite assets of the firm. Furthermore, while reviewing the impairment calculations it is also important to assess different cash generating units or segments of the corporation (Finkler et al. 2016). Furthermore, it is also imperative to assess the risks as well as uncertainty aspects while reviewing the impairment calculations. Moreover, it is also important to understand annual impairment test necessities while reviewing the impairment calculations. Finally, another specific issue that audit committee needs to take into account while assessing impairment calculations include impairment losses.

Conclusion

The current study also analytically evaluates certain complexities as well as crucial issues that were necessarily included in the process of impairment testing for different mining assets, deliver an illustrative explanation of definite impairment write-down. Finally, this study identifies five specific issues that the audit and assessment committee need to take into consideration at the time of reviewing different impairment calculations that can be prepared and arranged by the management of the firm.

 

References

Adbri.com.au. 2017. Adelaide Brighton, Australian construction and lime group of companies.. [online] Available at: https://adbri.com.au [Accessed 2 May 2017].

ASIC Home | ASIC - Australian Securities and Investments Commission. 2017. Asic.gov.au. Retrieved 3 May 2017, from https://asic.gov.au/

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Drury, C.M., 2013. Management and cost accounting. Springer.

Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for public, health, and not-for-profit organizations. CQ Press.

Kaminska, T. and Kolesnikova, O., 2014. Financial Risk Management Accounting. Accounting and Finance, (1), pp.20-25.

Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M., 2015. Financial management: Principles and applications. Pearson Higher Education AU.

Puri, A.K., 2014. Financial Statement Analysis and Security Valuation. Abhigyan, 32(2), pp.74-75.

Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.

Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education.

Warren, C.S., Reeve, J.M. and Duchac, J., 2013. Financial & managerial accounting. Cengage Learning.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting. John Wiley & Sons.

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