Analysis of General Purpose Financial Report

Origin energy was established in 2000. It was after a demerger from Boral limited, in which energy aspect of the business was removed from the building and construction business.  The company has over the year acquired other companies to increase its revenues and marketshare in Australia  (A review of the conceptual framework for financial reporting, 2013).  In 2002, the company acquired PowerCor, Citipower and Victorian electricity. Many other companies have been acquired by Origin energy  in a bid to be a market leader that it is today.  In this paper we shall analyse the financial statements of this company and establish if they are prepared in accordance to the conceptual framework and other accounting standards.

Remuneration Report

As the statement of Operating and Financial Review (OFR) show, EBITDA for the year 2016 was $231 million.  The company has not issued any dividends in 2016 and 2017, however the company issued a dividend per share of 25 cents in 2015. Based on this figures, we can say that the company has not been doing well in terms of creating wealth for the shareholders.

Remuneration of shareholders are in line with shareholders returns. This is what companies are implementing so that they do not pay director a lot of money while the most important person in the company (the shareholder is not being rewarded as he ought or the performance of the company does not allow the company’s directors to be paid as high as they are being paid.

The remuneration of the director is an operating expense of the company.According to IASB it shows that in order to determine the result for the year – the total sales of goods or services made by the company, net of costs. This first line of the results table will reflect the gross profit obtained by the company at the end of the year. In economic terms, this gross profit is the one that will enable the entity to meet its operating costs, including: 1) ordinary administrative, marketing and financial expenses; 2) the remuneration of administrators, directors and trustees; 3) other fees and remuneration for services; 4) salaries, wages and the respective social contributions; 5) royalties and fees for technical and other similar services; 6) advertising and advertising expenses; 7) taxes, fees and contributions; 8) interest paid or accrued by classifying them as suppliers, banks or financial institutions, subsidiaries, controlling or affiliated companies and, finally, depreciation and provisions(A review of the conceptual framework for financial reporting, 2013).  . Origin energy Ltd has done exactly this in preparing its financial statements.

Conceptual Framework

If the director’s fee Origin energy is an operating expense as clearly stated in IASB I find no reason to “limit” it, and less, “condition it” to profits  (A review of the conceptual framework for financial reporting, 2013). Therefore, the remuneration of the directors of this company are in line with the standards set in the world and also the other companies such as use this methods and standards to remunerate their directors. The paradoxical (or perverse of our system) is that if the director provides the company with other professional services that are outside the managerial function (eg advertising, development, research, technical advisory services, etc.) , The price for these services will not find any limit or condition; Except, of course, that the service is contracted under market conditions and is normal for the activity of the managed company.

The board of Origin energy has adopted the use of IFRS(international Financial Reporting Standards) when preparing and reporting its financial status. The objectives of the general purpose financial information is to meet the needs of the various stakeholders and users such as investors, creditors , investors , tax authorities e.t.c. The financial statements helps users predict value and other predicting outcomes. Faithfful representation requires the company to disclose all necessary information and represent what it purports. The financial statements have also been prepared in a way to enhance comparability with industry and other similar companies.

Now let us suppose for a moment that the remuneration of our director was reasonable (Ezzamel, 2005).  Or agreed to market values ?? will inevitably present the limit of set in the company’s constitution  if at the close of the balance the shareholders notice that the profits of the fiscal year were not as bulky as they expected, and the worst thing is that the same problem will be presented to us at the end of the year, the shareholders warn that the profits were as bulky as they expected but They decide to send them in full to reservations (IASB proposals for first-time application of international financial reporting standards, 2002). That is, while the loyal and diligent director advises to follow a conservative dividend policy, which is accepted by the shareholders, he will be entitled to a remuneration that cannot exceed 5% of the profits of the fiscal year. consequently, while shareholders benefit from diligent management, they may see their compensation decimated if 5% of the year’s profits do not reasonably compensate for the position and the responsibilities assumed (Bebchuk and Fried, 2006).

Income Statement

If we accept that the director’s fee is one of the many operating expenses that the company must bear: what is the meaning of limiting it to the declared profits and dividends, Is it not the payment of royalties or other fees for services Contracted with third parties or even with related parties (directors, trustees or shareholders)  one of the many common ways to distribute the operating profit of the year. If this is so: why discriminate against the director who performs permanent functions (Executive remuneration and employee performance-related pay, 2013). Therefore, the directors of Origin energy ltd have been paid in accordance to the set accounting standards and based on the company’s performance which is what accounting framework prescribes (Katsikas, Rossi and Orelli, 2017).

The image below shows the Net income of Origin Energy for the year 2016,2015 and 2014 respectively. All the reprting has been done in accordance to the International Financial Reporting Standards(IFRS). The company has not understated any of its expenses, for example the salaries reported are a true reflection of what the company actually paid. The revenues are also a fair reflection of the company’s line of income. The taxes part has however not been included showing the company’s obligations to the government but all the other details in the have been posted in accordance to International Accounting Standards.

The inventory of the company are valued at net realizable value or lower cost as per the AASB guidelines. However, the directors report has not made it clear on how the measurement of cost is done and also the provision for losses. Oil and gas companies such as Origin energy must have the ability and Capacity to deal with any changes in any situations trhat may occur for example the decreasing oil prices that was experienced in 2014. Decrease in prices of oil decreases inflation, which forces the company to stop drilling.  Origin energy is also affected by such situations.

In order to clarify the concepts of present obligation, legal obligation, implied obligation, contingent assets and contingent liabilities, we can simply refer to IAS 37 in determining Provisions, of contingent assets and contingent liabilities (Lont, 2010).

The company has total assets which is capitalized at the fair value of assets leased and presents the value of minimum lease. The company has put out financial figures that pertains to long term and short term assets of the company. The estimated useful life of an asset is the time when the asset is useful. Assets of a company are used in everyday life when in every other year the company keeps on increasing its assets. Factors that affect assets are time, depreciation and useful life.

Inventory Analysis

In some rare cases it is not clear whether or not an obligation exists at the present time. An event occurring in the past has given rise to a present obligation if in Origin Energy , taking into account all available evidence, there is a greater probability that the obligation has been incurred, at the balance sheet date, otherwise (Knell, 2006).
We can express the above concept in a simpler way: “When the probability that the obligation has been incurred is more than 50%”.

It is one that derives from a contract, from the legislation or from another legal cause. The company has various legal obligations especially considering it is an Energy company.It is one that is derived from the actions of the company itself, in which: Due to an established pattern of behavior in the past, to business policies that are in the public domain, or to a statement made in a sufficiently specific way, the entity has revealed to third parties that it is willing to accept certain types of responsibilities (Lont, 2010).

It may arise for one of two reasons It is unlikely that the company will have to satisfy it, releasing resources that incorporate economic benefits and the amount of the obligation cannot be assessed with sufficient reliability.

Contingent liabilities probability of existence of the current obligation> 50%. If the estimate is reliable, Provision will be made If the estimate is unreliable,Will be reported in the report probability of existence of the current obligation <50%.  As a conclusion of the above, in order to determine whether a possible provision should be recognized as an item on the liability side of the balance sheet, we can carry out an “accounting check”, through the two questions and their answers (Mallin, 2016).

For transfer pricing activities, the company has recorded non. It does not record or disclose the information related to their policies of transfer pricing.

Conclusion

The conclusion of the report is that half a dozen large companies in the oil industry including Origin Energy, acting in the form of an oligopoly favored indirectly by the government, obtain great benefits at the cost of raising prices (Rayman, 2013). Thus,damaging the general interest and making our economy less competitive and expensive.. The government could intervene to change or regulate this situation, but it does not do so.

References

A review of the conceptual framework for financial reporting. (2013). London: IFRS Foundation.

Bebchuk, L. and Fried, J. (2006). Pay without performance. Cambridge, Mass.: Harvard University Press.

Executive remuneration and employee performance-related pay. (2013). Oxford: Oxford University Press.

Ezzamel, M. (2005). Governance, directors and boards. Cheltenham (UK): E. Elgar.

IASB proposals for first-time application of international financial reporting standards. (2002). London: Accounting Standards Board.

IASB proposals to amend certain international accounting standards. (2002). [London]: Accounting Standards Board.

Katsikas, E., Rossi, F. and Orelli, R. (2017). Towards integrated reporting. Cham: Springer.

Knell, A. (2006). Corporate Governance. Burlington: Elsevier.

Lont, D. (2010). Issues in financial accounting and reporting. Bradford: Emerald Group Pub.

Mallin, C. (2016). Corporate governance. Oxford: Oxford University Press.

Monks, R. and Minow, N. (2011). Corporate governance. Chichester, West Sussex, U.K.: John Wiley & Sons.

Parker, R. (n.d.). Accounting in Australia.

Rayman, R. (2013). Accounting Standards. Hoboken: Taylor and Francis.

Smith, B. and Koken, E. (2005). Tax & remuneration planning. Pyrmont, N.S.W.: Thomson ATP.