HA2032 Financial Accounting For The Santos Limited

HA2032 Financial Accounting For The Santos Limited

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HA2032 Financial Accounting For The Santos Limited

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HA2032 Financial Accounting For The Santos Limited

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Course Code: HA2032
University: Holmes Institute

MyAssignmentHelp.com is not sponsored or endorsed by this college or university

Country: Australia

Question:
Provide a comparative analysis of the debt and equity position of the four firms that you have selected. 
Answer:
Introduction
This report is based on the concept of financial accounting disclosure and reporting. The report is divided into three sections with respective sub-sections. Section One addresses corporate regulation by choosing the most appropriate accounting reporting and disclosure method between voluntary and regulated. Section two address the relationship and cooperation between the IASB and the AASB and why IASB cannot compel member states to adopt its accounting standards without amendments fully. Section three discusses a comparative analysis of Owner’s equity of four ASX companies namely Beach Energy Limited, Caltex Australia, Santos Limited and Woodside Petroleum. The section is divided into two sub-sections: a) analysis of changes in owner’s equity between 2014 and 2017 for each of the company; and b) Comparative analysis of the debt to equity ratio of the four companies.
Corporate and Financial Accounting
Section One: Corporate Regulation
Regulated versus Voluntary financial accounting disclosure and reporting
The new trend in the accounting practices require companies to focus their disclosure and reporting on factors such as corporate governance, social and environmental. Different stakeholders have interest in understanding the key core business and operation activities of a company. In other word, stakeholders are interested in the material definitions of an organization’s activities through financial statements and annual reports (Dagwell, et al., 2015, p. 69). While some stakeholders support regulated financial accounting reporting and disclosure others are for a voluntary financial reporting and disclosure option. Therefore, there is a question on which is the best financial disclosure and reporting option for corporate managers (Henderson, et al., 2015, p. 312).
Different merits and values are considered when choosing the better approach out of the two. Likewise, different stakeholders have different reasons to support either of the approaches. Corporations support the voluntary approach because it’s easier manipulate the reports in their favour (Godfrey & Chalmers, 2007, p. 112). Generalist view states that managers can easily hide behind voluntary disclosure and reporting of their entities to present only positive information also known as selective presentation of information. On the other hand, external stakeholders such as the trade unions, NGOs, employees, suppliers and the government support regulated financial disclosure and reporting. Managers are under obligation to disclosure all information pertaining to an entity’s operations. Through regulated disclosure, external stakeholders are assured that a true and fair value of a company would be presented (Nobes, 2014, p. 99).
Based on the available literature and different opinions, regulated disclosure and reporting should be supported. The decision is based on several factors. First, the approach support innovation and a change in the organizational culture to incorporate interest of all the stakeholders. Second, regulated disclosure ensures completeness which is not available under voluntary disclosure and reporting. Third, regulated disclosure and reporting allow performance comparability. Fourth, the approach does not support non-disclosure and reporting of negative performance. Fifth, the approach complies with accounting and financial standards hence enjoys legal certainty. On the other hand, voluntary financial accounting disclosure and reporting is characterised by conflict of interest, and non-competitiveness and inefficiency (Dagwell, et al., 2015, p. 201).  
Therefore, in promoting sustainability and transparency in the financial accounting disclosure and reporting, regulated approach should be full adopted. However, the debate on the topic is not going away any sooner. Merging of the two approaches is considered to be most appropriate.
Section Two: Accounting Standard Setting
Contribution of AASB to IASB
The IFRS standards were first adopted in Australia in 2005. Companies that trade their securities publically are required to operate in line with IFRS standards which have been incorporated into the AASB. Therefore, it is important to establish the relationship between IFRS and AASB accounting standards. While AASB is an accounting agency formed by the Australian agency, the IASB is a component of IFRS which sought to establish a universal accounting system to guide the transactions between corporations situated in different countries (Picker, et al., 2009, p. 56).
First, the Australian government, through the AASB offers monetary support annually to finance the activities of IASB. Second, IASB was formed to ensure that there are universally accepted accounting standards that promote comparability and transparency. To achieve this objective IASB cooperates with nationally based accounting standards such as AASB for converging accounting standards. Third, the International Public Sector Accounting Standards Board (IPSASB) facilitates the exchange of information between accounting agencies like AASB and IASB. Both IASB and AASB consider the information provided by IPSASB to develop generally accepted accounting standards (Picker, et al., 2009, p. 79).
Non-Compulsory adoption of IASB by members
The adoption of IFRS is not compulsory to the member states of IASB. It should be understood that different countries have different laws and regulations that guide their operations. Therefore a country can only adopt accounting standards that are in line with economic, political and cultural rules and regulations. Members of IASB are at liberty to amend IASB standards to meet their national specificities (Picker, et al., 2009, p. 213).
For example, the AASB adopted the IASB standards after amending several provisions to accommodate Australian laws and regulations. For instance, AASB amended terminologies relating to the treatment of public and Private Corporations in line with the Australian regulations. Currently, the Australian version of IFRS is known as AIFRS. It is proper to say that IASB member states use IFRS for guidance when developing accounting standards that can fully meet their specific financial accounting requirements (Dagwell, et al., 2015, p. 263).  
Another factor that hinders full adoption and convergence of the IASB standards are the nature of taxes in a country. IASB allowed its member states to amend IFRS to form tax-driven accounting standards that meet their specific needs. Therefore, members cannot be forced to fully adopt the IASB standards, without amendments, when they would not meet their specific needs (Godfrey & Chalmers, 2007, p. 251).
Section Three: Owners’ Equity

Changes in each item of equity 

Four public listed companies in the Australian energy industry have been chosen for discussion. The companies are Beach Energy Limited, Caltex Australia, Santos Limited and Woodside Petroleum. Respective annuals reports were obtained from the companies’ websites. This section discusses the changes in the equity items for respective companies.
Beach Energy Limited
The company’s owners’ equity between 2014 and 2017 fiscal years have been summarised as shown below.
According to the analysis, Beach Energy Company had the highest equity in 2014 and the lowest equity level in 2016. Generally, equity reduced between 2014 and 2016 before increasing in 2017 (Deegan, 2013, p. 123). The changes between 2014 and 2016 were attributed to the increase in accumulated losses.
Contributed Equity: The number of shared issued and paid increased during the period from $ 1239.9 million in 2014 to $1558.50 million in 2017.
Reserves: The number of reserves increased from $ 58.3 million in 2014 to $ 283.3 million in 2016 before decreasing to $ 232.2 million in 2017.
Retained earnings/ accumulated losses: The Company had reserves amounting to $572.6 million. In the subsequent years, Beach Energy Limited incurred accumulated losses which caused a significant reduction in its total equity (Maynard, 2017, p. 77).

Caltex Australia 

The company’s owners’ equity between 2014 and 2017 fiscal years have been summarised as shown below.
Caltex Australia’s equity increased during the period from $2532.6 million in 2014 to $3107.9 million in 2017. The changes were attributed to;

Issued Capital: The number of issued and paid shares stood at $543.4 million in 2014 and 2015 before reducing to $525 million in 2016 and 2017.
Treasury stock: The Treasury stock was recorded at negative values during the entire period which negatively impacted the company’s equity.

Reserves: Reserves recorded negative values from $-3.498 million in 2014 to $-39.511 million in 2017. The item had a negative impact on the equity.

Retained Earnings: Retained earnings was increased on an annual basis between 2014 and 2016 before a reduction in 2017. Retained earnings were $1981.3 million in 2014, $2241.8 million in 2015, $2280.7 in 2016 and $2610. 1 million in 2017.
Non-Controlling interest: The item increased during the entire period from $11.9 million in 2014 to $13.5 million in 2017 (Kimmel, et al., 2010, p. 98).

Santos Limited

The company’s owners’ equity between 2014 and 2017 fiscal years have been summarised as shown below.
Santos Limited’s equity stood at $9413 million in 2014, $10, 202 million in 2015, $ 7,080 million in 2016 and $ 7151 million in 2017. The changes were as a result of;

Increase and decrease in the amount realised from issued and paid shares as summarised in the table.
An increased and decrease in the company’s reserves. Reserves increased from $ 346 million in 2014 to $985 million in 2015 before decreasing to $-510 million in 2016 and $51 million in 2017.

Accumulated losses had a significant impact on total equity. Accumulated losses amounted to $ 2166 million in 2014, $ -975 million in 2015, $ -1293 million in 2016 and $-1934 million in 2017.

Non-controlling interests were only registered in 2014 at $-4 million.

Woodside Petroleum

The company’s owners’ equity between 2014 and 2017 fiscal years have been summarised as shown below.
Woodside Petroleum had total equity amounting to $16,659 million in 2014, $15,025 million in 2015, $ 15662 million in 2016, and $15880 million in 2017. The changes were caused by;

Increased in the number of issued and fully paid company shares.
The negative impact of the shares reserved for employee share plans.
Increase in the other reserves between 2014 and 2017 financial years.
Reduction in the amount of retained earnings between 2014 and 2016 and a further increase in 2017.
And, an increase in non-controlling interest during the entire period.

Comparative analysis of the debt and equity position of the four selected 

The position of debt and equity of the four companies has been based on the 2017 annual reports. The Debt-to-Equity ratio is used for comparative analysis. The findings are as shown in the table below.

Firms

Beach Energy Limited

Caltex Australia

Santos Limited

Woodside Petroleum

Total Debts

491.1

3,247

6,555

9,521

Total Equity

1402

3107.9

7151

15880

Debt/ Equity Ratio

0.35

1.04

0.92

0.60

Debt to Equity ratio examines the amount of debts used by a company to fund its assets compared to owner’s equity (Kimmel, et al., 2010, p. 67). The higher the ratio, the higher the degree on a company’s dependence on debts to finance its assets. Based on the analysis;

Caltex Australia has the highest Debt to Equity ratio of 1.04. The company relies more on debts to finance its assets.
Santos Limited has the second highest Debt to Equity ratio of 0.92.
Woodside Petroleum has the third highest Debt to Equity ratio of 0.60.
Beach Energy Limited has the lowest Debt to Equity ratio of 0.35.

Conclusion
First, the new trend in the accounting practices requires companies to focus their disclosure and reporting on factors such as corporate governance, social and environmental. While some stakeholders support regulated reporting and disclosure others are for a voluntary reporting and disclosure. Studies have shown that in promoting sustainability and transparency in the financial accounting disclosure and reporting, the regulated approach should be fully adopted.
Second, the IASB provides a universal accounting system to guide the transactions between corporations situated in different countries. Australia being a member state provides monetary support annually to finance the activities of IASB. AASB also cooperate with IASB for converging accounting standards. Last ASSB engages in the exchange of information and ideas with IASB via IPSASB to develop generally accepted accounting standards. However, IASB does not compel its members to adopt its standards compulsorily; members are at liberty to amend the international standard in line with their political, economic and social regulations.
Lastly, the report has established that changes in owners’ equity are impacted by the decrease and increase of respective items such as issued capital, Treasury stock, Reserves, Retained earnings, and Non-controlling interest.
References list
Beach Energy, 2015. Annual Report 2015. [Online] Available at: https://www.beachenergy.com.au/irm/content/annual-reports2.aspx?RID=215[Accessed 21 09 2018].
Beach Energy, 2017. Annual Report 2017. [Online] Available at: https://www.beachenergy.com.au/irm/content/annual-reports2.aspx?RID=215[Accessed 21 09 2018].
Caltex Australia, 2015. Annual Report 2015. [Online] Available at: https://www.caltex.com.au/our-company/investor-centre/annual-reports-and-reviews[Accessed 21 09 2018].
Caltex Australia, 2017. Annual Report 2017. [Online] Available at: https://www.caltex.com.au/our-company/investor-centre/annual-reports-and-reviews[Accessed 21 09 2018].
Dagwell, R., Wines, G. & Lambert, C., 2015. Corporate Accounting in Australia. Sydney: Pearson Higher Education AU.
Deegan, C., 2013. Financial accounting theory. 4th Edition ed. North Ryde, N.S.W: McGraw-Hill Education.
Godfrey, J. M. & Chalmers, K., 2007. Globalisation of Accounting Standards. New York: Edward Elgar Publishing.
Henderson, S., Peirson, G., Herbohn, K. & Howieson, B., 2015. Issues in Financial Accounting. Sydney: Pearson Higher Education AU.
Kimmel, P. D., Weygandt, J. J. & Kieso, D. E., 2010. Financial Accounting: Tools for Business Decision Making. New York: John Wiley & Sons.
Maynard, J., 2017. Financial Accounting, Reporting, and Analysis. Chicago: Oxford University Press.
Nobes, C., 2014. International Classification of Financial Reporting. Third Edition ed. New York: Routledge.
Picker, R. et al., 2009. Australian Accounting Standards. Australia: Wiley.
Santos Limited, 2015. Annual Report 2015. [Online] Available at: https://www.annualreports.com/Company/Santos-Ltd[Accessed 21 09 2018].
Santos Limited, 2017. Annual Report 2017. [Online] Available at: https://www.annualreports.com/Company/Santos-Ltd[Accessed 21 09 2018].
Woodside Petroleum, 2015. Annual Report 2015. [Online] Available at: https://www.annualreports.com/Company/Woodside-Petroleum-Limited[Accessed 21 09 2018].
Woodside Petroleum, 2017. Annual Report 2017. [Online] Available at: https://www.annualreports.com/Company/Woodside-Petroleum-Limited[Accessed 21 09 2018].

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