ATG- AfterTouch Group: The Software And Services Provided For Digital Payments

1). Select a listed company from the current ASX List provided. This must be approved by the Lecturer.

2). Understand the nature of the entity and its industry, including the following items:

a. Business operations

b. Investments and investment activities

c. Financing and financing activities

d. Financial reporting practices

3). Perform analytical procedures of the Statement of Financial Position and of Financial Performance over the last three years using appropriate ratios and metrics. Select four key ratios and provide a brief explanation in the report. This can be presented in a table format.

4). Discuss with your group members which account balances are considered “material”. Explain how you calculated materiality for planning purposes and provide appropriate justification for your decision-making. (Note - Use a table format to structure your answers to questions 5, 6 and 7.)

5). Select up to ten different material account balances, at least five assets and five liabilities.

6). For each material account balance selected, list the relevant financial report assertions and explain why the selected assertions are applicable to each account

1. Nature of Afterpay touch group limited and industry 

This company is working in the field of software and services. It is a technology driven payments company, it is provides financial services in the country with specialty in finance. ATG serves with innovative digital payments to the organisations operating in telecommunication, health and convenience retail sector in Australia and overseas (ATG, 2018).

a. Business operations

Aftertouch group is providing exclusive payment services and offering platform for payments of the goods such as apparel, watches, personal care products, food, beverage or any other kind of goods or services for which payments are to be made (ATG, 2018).   This company is serving large number of customers in Australia. The mission of the company is to make purchasing feel great for a global customer base. ATG is also driving innovation in the retail sector by allowing leading retailers with the services of ‘buy now, receive now, pay later that eliminates the need of end-customers to opt for a traditional loan or payments of any kind of upfront fees and interest to the company. The company is serving to more than 1.8 million customers and more than 14000 retailers for daily payments (Afterpay touch Group, 2018).

b. Investments and investment activities

Company has investment in the expansion activities and is entering in to New Zealand market as international expansion strategy. The company is also investments in the technology so that it will be able to provide smooth transfer of the funds. It is also ensuring high level of security for the various payments made by the customers to the retailers it is serving various sectors such as health care and telecommunication businesses (Afterpaytouch, 2017). The investments are also in Available for sale financial assets that include equity investments. After the initial measurement of the investment it is identified that the financial assets are recognized at fair value with unrealized gains or losses are identified in other comprehensive income. The investing activities also include investments in associate –Afterpay. There are some investments that are sold includes plant and equipments and intangibles (Afterpaytouch, 2017).  

c. Financing and financing activities    

Financing and financing activities are related with the management of finance in case of needs for the company with the help of external sources it may includes issue of shares, debentures or external borrowing.  It is identified that the other financial asset which is cash held for the repayment of the borrowings is increased which was nil in last year. ATG is also able to generate proceeds for exercise of share options. The equity shares issued during the year were worth $3000000 and it has also utilized external financing form financial institutions to complete the financial needs (Afterpaytouch, 2017). The managing of the finance and the costs related to the arrangement and repayment is considered as financing activities. Financing activities also includes the interest and bank fees, capital raising expenses and repayments of the internal and external borrowings.

Investments and investment activities

d. Financial reporting practices

It is necessary for the companies to maintain and follow the IFRS and AAS for true and fair picture of the accounting statements so that the external stakeholders will be having trust and confidence towards the company. The report is based on the historic cost and it is presented in Australian dollars. ATG also complies with IFRS and shows comparative information for the current and past year. ATG is also following new AS and interpretations relating to method of depreciation and amortization, relating to materiality and financial reporting requirements for Australian group with a foreign parent company (Afterpaytouch, 2017). This change does not affects financial reporting as it will be effective after 30 June 2017.    

2. Analytical procedures of statement of financial position and financial performance

It is necessary to identify the financial performance of the organization which leads to measurement of the performance of the organisation in context to the competitors, industry and comparison of past performance for the internal evaluation (DRURY, 2013). The most popular measure for the measurement of the financial position are financial statements such as income statement, balance sheet and cash flow analysis based on this information ratios are calculated which provides the actual financial position of the company (Afterpaytouch, 2017).  There are four main types of ratios that are used to identify various aspects of the companies. These ratios also support the auditors to evaluate the performance of the company (William Jr, et al., 2016). These measures are useful for the external stakeholders who are not able to understand and study the financial statements of the company and compare the various companies working in the same sector and under specific industry (DRURY, 2013).    

While analyzing the financial performance of the ATG with the help of ratio analysis the current ratio identifies that there are huge fluctuations in the liquidity position of the company. Current ratio identifies the condition of the company to mitigate daily operations this ratio is also considered as working capital ratio. It is considered that the company having the current ratio of 2 is having good availability of the cash to meet and carry daily operations (Weygandt, et al., 2015). The current ratio in year 2015 was just 0.16 shows critical condition for meeting current operations. In context to this the position of the company changed and this ration jumped to 29.64 times which shows huge surplus of funds with the company. It is again declined but still better than the required liquidity ratio 4.71.

Financing and financing activities

Efficiency ratio signals towards the returns generated by the assets of the company, it is identified that there is continuous improvement in the efficiency of the company (DRURY, 2013). Assets turnover ratio in year 2017 was 0.16 better than last year 0.064. On the other side the solvency ratio indicates that the position of the company is critical in terms of solvency. It is recommended that the company must focus and improve the solvency position although there is improvement in current year -0.12. It is identified that the long term obligation payment capacity of the company is not good which is needed to be improved (Weygandt, et al., 2015). The profitability position of the company is also not good with operating margin ratio in negative figures indicated the criticalness (DRURY, 2013). The profitability ratio is improved in year 2017 indicating recovery of the company to generate higher profits in the sales.

3. Material account balances and materiality for planning of the accounts

Materiality is the concept related to the importance of entering or omitting a particular transaction in the business. The activities which are having most significant impact on the performance of the organisation are considered material. Similarly the transactions and activities which are having highest financial weight are considered material (William Jr, et al., 2016). Although there are no specific materials misstatements related to the recording and preparation of the financial information. Still some of the material account balances that signals towards the critical condition and needed to be improved (Afterpaytouch, 2017). The revenues of the company are having increasing trend but still ATG is in loss, it is identified that asset impairment and provision for onerous contract and merger related costs leads to critical condition of the company. Finance cost of the company is also on higher side. Cash and other financial assets are having positive balance indicates enough cash to payout interest and installments. There is significant growth in trade receivable that is needed to be improved for improving current financial position. Likewise trade payables are also having huge amount of liability on the company (William Jr, et al., 2016). The reason behind the materiality of the above mentioned accounts are due to the vital importance in analyzing the performance of the company. The company is having increased revenues still it is facing losses is difficult to judge for a common man.    

 4. Selection of ten different material account balances as five assets and five liabilities 

Financial reporting practices

From the financial statement of Afterpay Group Limited the material account balance is detained in order to gain the information about the assets and liabilities of company. The ten different material balance is extracted from the accounting information of Australian is as follows       

(Source: ASX, 2017)

From the financial statement of Afterpay Touch Group Limited for the year 2017, five assets and five liabilities are determined in relation to the material account balance (Bloomberg, 2018).

5. Relevancy of material account balances for financial reporting assertion and applicability of each account 

The financial reporting assertion is very important for the company and its shareholders to follow the standard practices and the rules for the preparation of income statement, profit and loss and balance sheet. In relation to this, the Afterpay Company has followed the standards of financial data presentation in relevant manner. The assertion existence is applicable for all the items and accounting transaction is presentation with the proper evidence. The financial reporting assertion is valuable for the stakeholder as they determine the stock valuation from the assessment of financial performance of business in positive conduct manner. The assertions are the regulations that are developed by the management of organization so that the financial statement of business can be audited by the external parties. For the above chosen material account balance, the following assertions are followed in order to deliver the important information to its stakeholders. The listing of financial reporting assertions is as described as

6. Designing of comprehensive set of worksteps for the material account balance of Afterpay touch Group Limited    

For the identifications of financial information’s corectiveness and accuracy, it is required to follow the steps in the auditing work so that the actual information from the company can be acquired with reference to the selected assertions for the business. The following worksteps for each and every material account is carried out so that the successful audit can be done in objective manner

Conclusion:

On the basis of above analysis of Afetrpay touch group limited, it can be concluded that as per the financial reports of business, the financial position of company is critical but in real manner it is growing. The financial performance is impacted from the merger and acquisitions of company with the software and technology Company. On the other hand, it can also be summarized that the materiality concept is followed by the Afterpay Company in its financial reporting of performance. Moreover, the material accounts are also assessed with relation to the assertions applicability. Along with this, it is also said that the worksteps are also effective to carry out the auditing for the company.  

Analytical procedures of the statement of financial position and financial performance

Auditing is having significant role in the smooth functioning and avoiding issues related to the compliance of the IFRS and AAS. The report will be focused toward development of audit program for Afterpay touch Group limited (ATG); it will discuss the operations, investments and financing activities followed by the company along with the financial reporting practices (ATG, 2018). The report will also focus on analysis of the financial ratios to identify the financial position and the concept of materiality for company. The report will also include financial reporting of the material accounts and developing the audit plan for the material accounts identified so that the there should be enough evidence for Afterpay touch to manage these accounts.

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Afterpaytouch (2017) Annual report for the year ended 30 June 2017. [Online]. Available at: https://www.asx.com.au/asxpdf/20170824/pdf/43lp8kv10bt5ht.pdf (Accessed: 23 May 2018).

ASX, (2017) Afterpay Touch Group Limited. [Online]. Available at: https://www.asx.com.au/asxpdf/20170824/pdf/43lp8kv10bt5ht.pdf (Accessed: May 23, 2018).

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