ausdrill (asl) - digging deeper (part 1) · web viewnow, i don’t think i can give you specific...

ACCT11059 Accounting, Learning & Online Communication ASS#1 Steps 3 - 6 Chris Apps S0182008

ASS#1 Steps 3 - 6Step 3 (Draft)

Ausdrill (ASL) - Digging Deeper (Part 1)It was great to get an Australian company, as I hoped I may understand a lot more of the policies and regulations, and well, it's Australian. However, I wouldn't have been disappointed with a company from another country, if anything, it may have been more beneficial for me to learn how a business operates outside of Australia.

AUSDRILL Website

AUSDRILL Promotional Video

In their annual report, Ausdrill state their vision, well what I believe is their vision, even though it isn't explicitly stated:

"Who we are. Diversified mining company with over 5,000 people working in 10 countries working on the world's largest mining projects.""What we do. Provide mining and drilling services, mobile equipment and supplies so our customers can get more from the ground.""How we do it. Customers for life, family sticks together, chase the opportunity, find a way."

The statements, 'what we do', and 'how we do it', made me think of a great clip with Simon Sinek about 'Start with why' , and also what I believe makes their vision incomplete. It made me think, ok so why do you do this? What drives this company to strive for success? Perhaps it comes back to the how. Maybe they do it for lifetime relationships with it's customers, employees and their families. In my previous blog I showed some examples of how they achieve this loyalty and community feel. I haven't been able to find this stated somewhere so far, but I believe it to be strong due to their success and ongoing commitments.

Ausdrill had a simple beginning in 1987, with one single drill, with Ron Sayers, who retired in July 2018. Since then, it has grown into an international group spanning 10 countries with over 5,000 employees. They provide services for the full mining life cycle, enabling them to service customers for the duration of their projects, which ties back to their how, 'customers for life'.

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As I read through all the expansions, new projects and continual growth, they seem like a pretty solid company, however like a lot of others, they have had their bad times.

We can see a couple of major drops in share prices, so what happened?

Ausdrill were hit hard in the gold recession in 2000/1, the same year as the 9/11 terrorist attacks. However, their 2000 annual report also stats that their financial performance is unacceptable and their challenge was to reshape the company to correct this trend.

In Investor Update November 2008, they depicted this drop as a 'near death experience'.

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In 2008, the world was flat, and there was a significant drop in share prices despite continual company growth. ASL weren't the only ones hit, big mining companies like BHP and Rio Tinto experienced the same drops due to a slump in the economy after reaching record highs as detailed in an article from Ausgeo News. In their FY18 annual report they posted.

Is there always a slump after a major peak? Does this tie into global supply and demand? When you see most share price trends, it goes up, then down a little, up again, then down a little, but usually trending up overall. I hadn't really thought too much about this until now. I guess that when you find a gold mine, you mine the hell out of it because we need gold right? Everyone is like, hey we have heaps more gold, lets buy! So everyone is buying and the economy is strong, then suddenly we run out in that mine, the buying stops and the shares drop? That might be a horrible example because I still don't quite understand it. But I digress…

As the economy slowed down into 2015, Australia was on the brink of a recession like other countries such as Canada, Brazil, the US and NZ. According to Australian Mining, it was the mining sector that prevented Australia from going down further. It was also stated that is was time for the non-mining sector to pull their finger out and help, well not exactly worded like that...I find it really interesting to see all the elements of the economy move and affect each other, like cause and effect. To me this means that advice given as an accountant can cause a company to make a major decision. The effect of this decision can ripple around the globe affecting other parts of the economy which is really interesting, not these these events were due to the advice of an accountant. Although I'm sure accountants, economists and other experts played a major role in pulling these companies back up into the black.

Ausdrill appear to be very dynamic, flexible and not afraid of change. They buy, sell and invest intelligently, to ensure the growth of the company and security of it's employees. For example, they sold Diamond Communications in 2018 for a net profit of $1.7mil, as it didn't align with it's business model. Another way I think of this, is if I was a breeder of horses, and have been for many generation. Suddenly I notice there are some fantastic cows for sale at a good price. Sure I could look after these cows and make a profit out of them, but is it what I'm really good at?? But was that really the reason they sold it, or was it not performing, or did they regret the initial purchase? It appears not. On page 15 of their FY18 annual report, they stated it was a divestment of a non-core business in line with their strategy of rationalising the group to focus on mining.

On to some numbers and confusing tables…

To be Continued...

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Ausdrill - Digging Deeper (Part 2)As I journey into the deeper parts of the annual report, I’m present with a number of consolidated statements, Profit and loss, comprehensive income, financial position, changes in equity, cash flows, and notes relating to the consolidated financial statements.

What is a ‘consolidated statement’? To me is sounds like a summary, a grouping of many different parts to show a big picture. After doing a bit of searching on the internet for a definition, I seem to be right, but just lacking proper terminology. It basically shows all of the different financial elements of the entire group (including companies it controls or subsidiaries) as a ‘single economic entity’. I thought that was a great way to describe it. One big economic entity that is affected by and affects other economic entities, and the economy as a whole.

So these statements show various things, profit and loss, which is pretty straight forward. I can see $890mil of revenue from continuing operations, approx. 16% more than FY17. This should be no surprise from the 5 new projects started and others that are either continuing or expanding. There is a ‘2’ next to major revenue, and ‘4a’ next to other income ($22.3mil) so I might skip down to the notes which tell me ‘2’ is ‘revenue’, just to be clear...... 4 is ‘other income’, however the ‘a’ is a break down of all the segments of the company like Drilling Services, Contract Mining Services Africa..etc.

Major costs for this ‘entity’ were materials and labour costs, $367mil and $285mil respectively. Ausdrill stated that it’s people are it’s most valued resource and it aims to provide competitive remuneration in the market to be competitive. I am finding it difficult to compare labour costs between mining companies in their annual reports because they aren’t grouped the same, so they may be showing slightly different things. I was hoping to see if I could compare labour costs to see if Ausdrill were in fact competitive.

Comprehensive income seems to be focusing on just the income, with the net profit shown at the top of the table for each year. Below that it shows other income sources, some that may be reclassified to profit and loss and some that will not be. There are a few things in this section that don’t make sense to me yet. ‘Exchange (losses)/gains on translation of foreign operations’. There was a loss of $1.37mil, so does this mean money lost/gained on the exchange rate? So revenue made in another country would be be in their currency, and if it were transferred back to Australia you would either lose or gain. Just like when you go on holidays to another country, it can be favourable or unfavourable depending on the exchange rate. The african currency is ‘Rand’, and currently 1 Rand is $0.097AUD, meaning if you sold services in Africa for the same cost as it is in Australia, you would lose a lot of money. Obviously the service rates would be altered in Africa vs what they are in Australia, but it seems there was still a fair chunk lost in FY18, whereas they made $882k in FY17. I think I could go down a rabbit hole trying to make sense of this so I will continue through the consolidated finances.

Financial position looks like a balance sheet to me, listing assets (current & non-current), Liabilities (current & non-current), and equity.

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The company continues to benefit from a strong balance sheet which enables it to invest in opportunities as they arise

From what I have seen so far, a strong balance sheet seems to be a combination of a number of things, including; consistent growth, improved asset value, improved equity value, reduced expenses and new projects. Bellingham Wallace Accountancy describe a strong balance sheet as 'possessing most of the following attributes: intelligent working capital, positive cash flow, a balanced capital structure, and income generating assets'

Prior to starting this program, I did a week worth of learning on Coursera for accounting just for a little taste. From memory I believe anything that is ‘current’ is something that relates to the current FY, and non-current is long term, > 1 year. Plant and equipment for example will have a life expectancy. The annual report for Ausdrill mentions that the useful life of it’s equipment can be between 7 and 10 years. So it wasn’t a surprise to see it on the non-current assets list. Tax is listed on both current asset and current liabilities. One is deferred tax and the other is current tax liabilities. Does deferred tax come from losses during the year that they will claim in the next FY? I also thought that maybe it could be outstanding depreciation to be claimed, but there is a separate area for depreciation. After liabilities there is ‘net assets’. At first I thought net assets was excluding equity, as it has its own category after net assets. But then I remembered the equation from Ch 1, Equity = Assets - Liabilities, so net assets is the same as equity. I don’t understand how the sub-elements of equity relate back to net assets, for example, contributed equity of $624.5mil, total assets are $1.37bil, current assets are $581.3mil. Since Total equity = Net assets, then the $624.5mil must be coming from certain assets? I’ll need to do a bit more research into what all these terms means, but otherwise the balance sheet makes sense overall.

Changes in equity breaks down equity section further following on from the financial position (as well as showing changes in equity from the 2 previous FY’s. I was hoping this would help me make sense of the entire balance sheet, but it is full of more terms that don’t make sense to me. I’m just glad that I understand of these tables at this point. After just looking and absorbing this section a bit more, I can see that retained earnings in FY17 were $121.4mil. Then the net profit (comprehensive income) is added from FY18, $61mil, minus dividends paid to shareholders, $19.8mil, we are then left with the $162mil shown as retained earnings on the balance sheet for FY18. Things are making a bit more sense but I still don’t get how it all ties together yet, which I hope is normal.

Cash flows looks like a breakdown of cash flowing in and cash flowing out from various sources, like customer receipts, payments to suppliers, interest received and paid, taxes and fees..etc. There are operating activities, investing activities and financing activities, with totals at the bottom comparing the beginning of the year with the end. And there is the effects of exchange rates again, being in favour of Ausdrill but $1.2mil. I find this a real insightful table which could possibly make sense of other areas. They sold Diamond Communications for a net profit of $1.7mil, however proceeds from sale of business is $4.6mil. I haven’t seen any other information regarding selling other businesses yet, I could have missed it. If not, does the $4.6mil mean the agreed sale value was $4.6mil, and $2.9mil was lost to other areas/fees/taxes? I can see how you could really understand what the company has done for the year if you could understand 100% of the annual report.

I found the notes to consolidated financial statements very overwhelming, and some of which made some sense and provided some clarity, but I think it would take me a week to fully read and understand it

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all. I can see how important it is to have this section supplement to the consolidated financial statements to answer a lot of the questions that are raised and for complete transparency to their shareholders.

Intersegment Revenue between companies within a group is a concept I have not heard of before. I see this as one area doing well, passing profits into another company for purchasing supplies or paying for labour. Being in the health and fitness industry, I have heard of certain locations of Fitness First weren’t profitable. There was a very large gym in Brisbane city that apparently was being funded by other successful locations. This to me seems like intersegment revenue between Fitness First segments. Although Fitness First itself is the ‘segment’ of the Fitness and Lifestyles Group, with majority ownership from Quadrant Private Equity, so I may be incorrect in saying intersegment revenue is between the Fitness First Locations.

Ausdrill nurtures new opportunities with less established customers through innovative approaches.

Does this mean they help these customers grow by providing affordable solutions because they are innovative? Do they offer a different approach to what the customer expects, which then benefits both parties? Do they seek out less established customers as they will get a better deal because they will want to work with such a large company to become more established?

I find myself getting distracted by looking into other company’s and comparing their structures and noticing how different the available information is between publicly listed companies vs private. I have also noticed the lack of diversity among the leadership teams. Ausdrill themselves only have 1 female among a management team of 12, and no females in the operational divisions. I don’t know if I am surprised or not by this. In one regard I am, because there is such a push for diversity, and in some countries it is a legal requirement to have a certain % of females in leadership of a company. Then in the other I’m not so surprised that there isn’t a large female presence in an industry that is typically dominated by males. Ausdrill have a diversity policy, outlining their commitment to a diverse workforce and recognise the benefits of being diverse. I don’t know if they have an agenda to improve the diversity of the leadership team however. They state that if two candidates are of equal standing, they will then take diversity into account. I read this as, if one person is of a particular age, sex, race..etc, they will choose the candidate based on what they are lacking in their current workforce. So although they aren’t directly targeting females for leadership positions, they have a policy in place to accept them if they prove to be the right person for the right job.

Another thing I wasn’t aware of is the Directors Declaration on page 120 of their FY18 annual report, which is a requirement of section 295A of the Corporations Act 2001. Their declaration is to say they are compliant with the International Financial Reporting Standards. There is also an independent auditors report, in accordance with the Australian Auditing Standards, to back this up. This concept of making a declaration is fairly standard and can give the shareholders some confidence that the report is accurate. Then with the auditors report backing this up on the very next page, it can bring further confidence.I found reading through Ausdrills annual report very insightful and eye opening into the world of accounting. This is a very high level of accounting compared to small businesses, so it was like diving in the deep end. I’m a bit torn as to whether I think this was the best way to do it or whether it would have been better to start with a smaller company with less moving parts. You wouldn’t have access to so much information for a small private business so you would need case studies. Who is going to write case studies for 300+ students because you can’t have the same one and have the same kind of

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collaboration on blogs and facebook. We can’t copy each other’s work because we have different companies. And in the end, we don’t need to understand the report, we just need to identify key concepts, ask and/or answer questions and write down our thoughts.

How many accountants would they have under the CFO? How long does it take them to generate the annual report? Do they maintain their accounts so well throughout the year that end of FY means just populating tables or is end of FY a nightmare? There are so many things I want to know about in the life of an accountant at varying levels. This also opened my eyes a bit to the stock market and how I now could look at a companies history, annual reports and the climate of the economy to make a more informed decision (not necessarily a good one) about buying stocks.

StudiosityPowered by Studiosity

Blog CommentsFresh Start AccountingAccountonmeKayla Cantoni Accounting with Georgiadannywayne21Em’s ACCT11059 JourneyAccounting 101Being Held to Account My Accounting Reality I’m Accounting on you

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Best of the BlogsIt's not easy to choose a small number of standout blogs from such a huge number of people. Especially when there are different levels of technical/computer skills out there. Some people may have really interesting things to say but can't quite get it out in an online communcation forum.So some of the criteria I was using when making these decisions were:

● Did I find their content interesting● Did I learn something● Was the content in line with what I believe the assessments require● How much blogging experience do they have● How well do they respond to comments and engage with others

So, in alphabetical order :)

Being Held to AccountPaul delivers such engaging content from having awesome experience with his running blog. He also throws in other interesting blogs in between the ones required for the assessments. Paul also has great titles for his blogs and employs a lot of humor. You feel like your going on a journey with him. But it's not just me who thinks this, he has 34 followers and follows a number of other blogs. He also beats me to a lot of new blogs, commenting before me.

I’m Accounting on youAlthough Lisa doesn't have the following that Paul does, she doesn't have the blogging experience,

nevertheless, her posts have a great flow to them. She mentioned she has a dry sense of humor and I think she conveys that really well in her posts. I'm similar, but I don't get that out too well in my blog.

You really get an insight into the mind of Lisa in her posts, it's not fake.

My Accounting RealityCassie has a great looking blogsite with a soft pink that is easy on the eyes when reading late a night! Her introduction to her company was what I enjoyed the most though. It was well researched and very interesting. She doesn't have a huge number of blogs like a lot of other people but I believe they contain good quality KCQ's in line with what is required. She has a good number of followers coming in at 15, so she has built a good following with her content!

.......There can only be oneA lot of people are doing such a great job and have various levels of experience and other committments taking up their time so it's hard to really choose one (and there are probably a lot out there I didn't get to reading), but it must be done, and it is...

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Although she doesn't seem to be following me (not that it's a criteria to b eligible, but she may not see this), and cheated by putting photo's of her dog on her posts......I feel like her KCQ's opened up my mind to different ways of thinking more than others. I believe she met more of my criteria than anyone else and to me it seems like she has shown good improvement since her first draft. It's great for all your posts to be great, but it's even better to show improvement, adapting to feedback received. Her posts are also to the point and don't have huuuuuge paragraphs that are difficult to read. When you're reading a lot of blogs, it's nice to have information to the point and broken up nicely and with a good flow.

Great job Cassie, keep it up!

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Step 4

You can view the spreadsheet HERE

Step 5 (Draft)

Chapter 2: Understanding the Game

I have been looking forward to step 5 and delving back into the study guide. I didn’t want to rush into it, I wanted to be in the right frame of mind. I feel like I didn’t quite get it when I completed the Intro and Chap 1. Then, I think I went a bit overboard with ‘quantity’ rather than ‘quality’ in the annual report. Since I am a little ahead of the timeline at the moment, I would like to take my time, maybe even the entire weekend.

“You have to learn the rules of the game. And then you have to play better than anyone else.” - Albert Einstein.

We live in a world or rules, policies and codes of practice. Some black and white, some open to interpretation. To me, this quote most definitely applies to accounting. It means there are things that need to be done, strictly and to the letter. However, there is also the creative side of accounting, where we can play around with things. Now, I don’t think I can give you specific examples because I just don’t know enough, but I know there are subjects like ‘Creative Accounting’, so I’m confident you can be creative.

I will attempt to give an example: Compare two tax agents, one working for a large organisation with strict policies on how they provide their service, the other is a sole trader, running their own business, population = 1. We can call them ‘Yellow Cabs’ and ‘Uber’ respectively, because I know Uber drivers are more flexible with payment terms and repeat service. So, you take your receipts to Yellow cabs and they take your income statements, your deductions, process them accordingly, and into the right categories. If something seems like a stretch, then it isn’t included. Same scenario, but now we’re off to Uber and they do the same thing, however they look at the items that seem like a ‘stretch’ and find a way to incorporate those deductions, they may even question you about your business to see what else you could claim that you didn’t think of. I’ll give you a real life example: I saw a tax agent while I was in the military, I just went along with my group statement hoping for some money back rather than paying tax! I was bombarded with a heap of questions, one of which was “do you carry your kit [military pack/clothes] with you in the car when you go to and from base?”. To which I responded “Sure….I think so”. It then became possible to claim fuel, or something to do with the car, I can’t remember now.

My point is that in that scenario, Uber is going to get more action because they know the rules AND they are playing better than everyone else. I’ve heard stories of tax agents telling clients that they need to spend X amount of money (buying a new car was one story I heard) to bring their taxable income down, which in turn will end up saving them money. Great quote Albert.

The first paragraph talks about people/companies that have an interest in the economic and business realities of a firm. It doesn’t mention the term, but to me this sounds like ‘stakeholders’, anyone who will

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be affected by the success or failure of a company. Suppliers who are yet to be paid for goods, or depend on the continual business from a company. Banks who have loaned money to a company. Customers who are waiting on a service or product to be delivered. I also found it interesting that it also starts talking about the rules which govern the information that a company shares (see what I did there). I am not an expert by any means but to me it appears that publicly listed companies must abide by stricter rules regarding information sharing versus private companies. To check the validity of my statement, I looked up some of the biggest Australian private companies and although they have an annual report available (in different formats), it is more of a flyer (Visy Industries, Hancock Prospecting and 7-Eleven Stores), compare these to your publicly listed annual reports for step 3!

To play the game, to understand a firm's economic and business realities through their financial statements, we need to understand the rules of the game.

Firstly, Martin poses the question of, is accounting a game? Well, what is a game? Oxford Dictionary says it’s ‘An activity that one engages in for amusement or fun’. Games also have players (stakeholders) and rules (Generally Accepted Accounting Principles (GAAP)) that govern how that game is played, like accounting. Accounting can be fun, and it is also competitive like a game. Anything can be fun if you make it fun, and we could also ask another question, is anything not a game? Well that’s a silly question, of course there are a lot of things in life that are definitely NOT fun, but accounting can be for sure.

Are we talking about the rules that govern what information a company must share? Or does this mean the rules that govern how a company develops and builds their financial statements, or both, or something else? Do these rules relate to the mission statement of the Australian Accounting Standards Board (AASB)? Which is, “To develop and maintain high-quality financial reporting standards for all sectors of the Australian economy and to contribute to the development of global financial reporting standards”. According to AASB, they make the rules, and Australian Securities and Investments Commission (ASIC) enforce them under the corporations act 2001. Of course it’s more complicated than that, but I’ll leave it there for now, mostly because I don’t understand any more than that right now.

The circumstances of the company dictate how much they need to disclose to interested parties outside of the firm. Is the company public or private? Does it generate revenue over a certain threshold? Does it require a loan from a bank? Does it generate income from the public (shares)? A small private business generating $200,000 a year in revenue will have a much different requirement compared to a multi-billion dollar company trading in shares with the public. So the rules apply differently in different circumstances, in terms of disclosing information that affects all parties with vested interest in a company’s economic and business realities.

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A major limitation of this business model is that it does not consider the impact on other parties of what a firm does.

Martin is talking about the business model of double-entry accounting summarised by the fundamental accounting equation. Why does ‘Assets = Equity + Liabilities’, not consider the impact on other parties? They aren’t investing in the company like shareholders are. If an employee buys shares, then does this change their status, and now the model is going to consider the impact on them? If a firm MUST give information by law, then it will only give what it needs to give, and that is information to the banks and shareholders. Does a firm need to disclose who they purchase their different supplies from? A supplier of tomatoes might want to know if a firm is buying them from other competitors, but the company isn’t obligated to share that. They may need to make a declaration that they aren’t using slave labour if they are manufacturing in another country.

What strategies or processes do companies use when changing the way they share their financial information? When they switch from management to financial accounting, is it just a different window on the dashboard of their cloud accounting software? Maybe it is unselecting certain filters when generating a report. I hope to find out more in the coming chapters.

I’m not sure I quite understand the framework in Australia yet with all these regulatory bodies. It seems that we have the general international rules (GAAP), which are then put into context for Australia by the (AASB), which is a slight derivative of the International Financial Reporting Standards (IFRS). Then all this is enforced by ASIC and the Australian Securities Exchange (ASX) in Australia? I’m sure this will be made clear in future chapters.

So, any company can generate and issue a general-purpose financial statement, only some are legally required to. And since generating one of these reports means they must comply with a specific set of rules, it would require more resources to produce this. What is a reporting entity? In the link provided in chapter 2, it is defined as ‘an entity in respect of which it is reasonable to expect the existence of users who rely on the entity’s general purpose financial report for information that will be useful to them for making and evaluation decisions about the allocation of resources’, which comes from AASB 3 ‘Business Combinations’ Appendix A. It can also be a single entity or a group. What does this mean? If we go back to how banks require financial information for a loan, then this means to me ‘allocation of resources’. The bank needs to decide if and how it will allocate its resources (cash) based on financial information. Also, shareholders will need to know this information as well before deciding to allocate resources. If the company is not public, then it would only need to produce this statement for a bank if they require capital?

You can’t have a rule for everything

And if you did, where would you put them? I guess it would be an ever growing list of rules as new situations became known that didn’t currently have a rule. That rule may then be useful to a new company in another country, but then it’s not quite right, so you would need to duplicate it and alter it to suit that company in that country. What a nightmare! What do the rules look like then if they aren’t black and white? Martin also reinforces the importance of developing your own ideas and understanding of not just accounting, but everything we seek to learn and understand, reminding us to break the mould!The specific time period principle states that financial statements always pertain to a specific time, and have a start and end date. So we have a general rule here, but it isn’t black and white, it doesn’t say

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when that start date has to start. We’ve seen on our annual reports that some annual reports are June 30, some are March. This to me is an example of what Martin is talking about, and how we can’t have a rule for everything. I don’t know (yet) why companies would have different reporting dates, but they obviously need that flexibility, and grey area to operate in.

Accrual accounting is interesting and makes sense to me based on how the company I work for operates. They sell fitness, business and massage courses, which sometimes get paid up front, but most often it will get paid off over time. If they sign up a student on a 12 month course for $16,000 that gets paid off over the 12 months, then based on accrual accounting, they would recognise that total sum. They would also base their sales performance for the year based on monies paid and monies owing. So for say, the FY17 they stated that the business made $2.8mil in sales, a lot of that is still owing, and hasn’t actually been paid, yet.

The examples that Martin provides with the electricity company and Young’s coach service show that business have different ways of of handling the way sales are made, pre-paid (like a mobile phone), at the time of service, or post-paid, like credit. Is it better to have a pre-paid service vs post-paid? Is it easier to forecast and show performance for money you have already received or are yet to receive. If you report every 3 months on sales performance with a post-paid service (30 day invoice for example), then you have provided resources to complete a job or send a product, but have not yet received money for it. Would you include that money in the current period or the next since you haven’t actually received it? Does it make a difference if a contract is involved, versus hoping someone calls up to pay via credit card for example. If credit card details are on file and the client has signed to authorise the company to direct debit, then perhaps you could include it in the current period since. Without a standing agreement, and the possibility that the client will pay late or not at all, could you still include that money in the current period, or would companies leave it until they actually receive it. If they wait, then I would imagine it would be acceptable for labour costs to exceed sales, with a 30 day lag, which would still balance out because you would include sales from the previous period in the current period once they were received.

How can you make a business decision if you can’t take regular snapshots of the firms performance? You can’t be a dynamic company that responds to changes in the market if you have to wait until the end of the year or later.

When Martin introduced the going concern assumption and materiality, I saw these are some real ‘grey’ areas, and really open to subjective ideas. I will assume that all businesses want to continue and grow, so of course each year they intend to keep on humming along. Even if they are having a bad year, they will remain positive, make changes by selling assets or streamlining processes, with the intent of continuing on. How bad does it have to get before they say “Ok, this year is the year that is going to kill us”? Is it when the bank says no to increasing their loan? Does it depend on the personality of the leadership of the firm, realistic directors versus optimistic. I imagine there is not black and white rule for when there is no more going concern assumption. Likewise with materiality, someone must decide if someone is significant enough to be included in the financial statement. If there is not black and white rule to stick to, then same information could be treated different between two different firms.

Some people mentioned their annual statement format changed over time

When Martin wrote about the key qualities of relevance (can I do something with this information?) and faithful representation (can I depend on this information?), I thought back to when I first read Ausdrill’s

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financial statement. I was sifting through the numbers and information asking myself, what do I do with this? Is this relevant to the assessment? Of course I’m very new to this so there is a lot I won’t understand, which doesn’t mean it’s irrelevant. I suppose a part of me was skeptical, wondering, can I trust this information? I don’t think I realised it at the time, but I was actively looking for mistakes, or discrepancies, which is funny since I have no experience or credibility in accounting!

Others have mentioned that the format of their annual reports have changed significantly from one year to the next, making compatibility hard. Although, I also learnt from what Martin said, the first footnote explain these changes to policies which is interesting. I feel like my firms reports were quite comparable, as well as having the 2 key qualities of relevance and faithful representation. I believe it also had the 3 qualities that I haven’t mentioned yet: verifiability, timeliness and understandability. I believe this because of the consistency of their information, as well as the independent auditor report. I am tempted to say that it isn’t overly understandable, but I have to remove my lack of knowledge and experience from the equation. If I compare it to say Domino’s, then mine seems far more complex, although compared to BHP Biliton, Ausdrills seems a bit easier to understand. I haven’t seen any reports so far that don’t meet the quality of timeliness.

The financial reports I’ve seen so far from public companies seem to be high quality, so are we more likely to see financial reports lacking in key and other qualities in smaller private companies? Are they likely to bend the rules in order to get a loan from a bank? Will they try and overstate their assets and revenue if they are pitching their business to private investors? I can find a lot of stories of financial fraud, however these are the extremes where employees and managers are syphoning money slowly overtime. Really creative, and illegal, accounting but I can’t quite find answers and evidence to my questions earlier in the paragraph. Something to keep in mind maybe…

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Chapter 3: Introducing Financial Statements

This seems like a chapter I should have read before completing the company spreadsheet.

I like how Martin personifies a financial statement, a living, breathing thing that you can get to know and understand. A complex web of information that allows you to make decisions, each unique in appearance. So the qualities that make up this ‘person’ are, but not limited to, a balance sheet, income statement, statement of changes in equity, and statement of cash flows. The financial statement has a life span and it has its ups and downs just like us. This way of thinking will help me connect with financial statement a lot more I think.

It is very difficult to remember anything unless we are interested in it and it means something to us personally.

This is why I wouldn’t get far on Who Wants to Be a Millionaire...I generally don’t remember anything that I’m not interested in, like history, and most of the knowledge required to win a million dollars. I think this is a really important statement, and the foundation of why Martin has designed the assessment the way it is. We don’t all have photographic memories so we need other tactics to remember certain things.

Being a marketing tool, I think it’s a positive thing as they will pitch it to people who aren’t just accountants. I believe that’s why they have infographics at the start, highlighting key performance indicators to see easily, without sifting through all the numbers. If they weren’t pitching how good they are to potential investors, shareholders, employees or even trying to attract new employees, would these reports become less understandable?

After reading section 3.1, I went back to the balance sheet for Ausdrill on page 50. Now with a better understanding of footnotes, I can go down and see what 8(a) is all about next to contributed equity. Also, it appears that Ausdrill own 100% of it’s subsidiaries. This footnote starts on page 78, a looooong way from the balance sheet. I can see how many paid shares there were, and how much equity was in the company. What is a fully paid ordinary share? Note 8(a)(ii) describes an ordinary share, which I don’t quite understand so I might leave that for now. From a quick calculation, I can see that at the time of the balance sheet in 2017, each share was worth $1.69, and in 2018 it was $1.72. Is it that easy to work out, or are there other things to factor in when determining the value of a share? If I look at the historical share prices I can see it’s pretty close (I couldn’t quite nail the 30/6 when hovering over it.)

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It looks like it wasn’t that simple for 2017 as it was a little higher than what I calculated

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At first I didn’t get the quote from Barry Humphries, but after the first paragraph I do! So Australia moves a little slow? This isn’t something I really monitor because I don’t follow politics, but when you think about all the great things other countries are doing, I guess you do have to wonder why we aren’t doing them yet. For example, university is free in countries like Germany, and Norway. Sweden are so good at recycling that they import garbage from other countries and make a lot of money from it. At the time in 2017, Finland had produced nearly two thirds of its electricity from renewable or nuclear power sources. Australia don’t rate high on being technologically advanced, how it appears we are catching up and we learn quickly, so that quote might be a bit outdated, or it is referring to something specific. Anyway, this isn’t really relevant, I just thought it was interesting and a way to make sense of the quote from Barry.

So when we first open the annual report for the first time, we can navigate to the balance sheet to see a snapshot of a firm’s financial position at that point in time. We also see the company (Assets and liabilities) and owners (equity) as separate entities. We can look at historical data from the previous year for comparability. For information relevant to changes over the year, or anything significant enough (that would relate to shareholders making a decision), we can navigate down to the footnotes (under changes in equity in my case).

The balance sheet does not show where the income/(loss) is coming from, so in my firm’s case, there is the consolidated statement of profit or loss, followed by the consolidated statement of comprehensive income. On the first, we can see revenue and expenses, with a number of specific items listed, and one labelled as ‘other expenses from ordinary activities’. Martin said that companies do not need to itemise all of their expenses, so why would they? Why would they indeed, I’m sure there are quite a lot of smaller expense items, which increase the length of the report unnecessarily. The main ticket items are listed, things of importance and/or significant value. And just like Martin’s company, Ausdrill list their ‘other’ comprehensive income on the page after the profit and loss.

After these two pages, we move onto the familiar balance sheet showing assets, liabilities and equity, and for me at this point, this page is high in understandability and comparability, not just from 2017 to 2018, but between itself and the previous income statements.

At the bottom of the balance sheet, we see subheadings for Equity, which gets detailed in the next page after the balance sheet called ‘consolidated statement of changes in equity’.

Following this page is a ‘consolidated statement of cash flows’, which shows opening balances, cash flowing in and out, and closing balances for different items like ‘operating activities’ and ‘investing activities’. The section where Martin talks about cash flow kind of answers my question from earlier where I wonder at what point a company must liquidate, and it’s when they run out of cash!

I’ve used the above summary to kind of help myself understand the flow and reasons why these things are included in the annual report, and ‘why’ we need to see them, and ‘why’ the firm must share them. I feel fairly comfortable with the layout and reasons behind everything, it’s more the unique labelling that Ausdrill use for the items that I don’t quite understand like ‘shares issued on conversion of employee share option’. I really like the ‘rules of the game’ (what I know so far), and also the freedom that is allowed within those rules. How many companies have a liability of ‘Employee benefit obligations’, which in this case is Ausdrills dollar for dollar contribution to their employee emergency fund. Each firm has the freedom to develop their financial statements within the framework, ensuring each firm is unique. What would the world look like if there was no framework around generating the financial statement?

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Millions of business all with completely different layouts and ways of representing their economic and business realities.

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Step 6 (Not Complete)

Sonia Lopez

Tiarna-Lee Coogan

Zane McAleer

● Step 6 involves you providing (and receiving) feedback to three other students in our unit on their draft ASS#1 using the feedback template located…???

● Post draft work of ASS#1 on your blog, in order to receive feedback● Provide a link to my blog on ASS#1 in the feedback forum in moodle, and if I wish, I can ask for

feedback on specific areas● Comment in on whether I thought feedback from other students was useful, and why, and also

include info on feedback from FB or Blog comments.

Your ASS#1 should include your KCQs on your firm’s Annual Report, a link to yourfirm’s Annual Report (or include a pdf of your company’s annual report) and theresults of your discussions with other students (Step 3); your company’s spreadsheetwith its last four years of financial statements entered (Step 4); your KCQs for Chapter2 and Chapter 3 (Sections 3.1 and 3.2) (Step 5); and feedback you provided to at leastthree other students, and any feedback others may have given you on your draftASS#1 and your comments on how useful you found this and any other feedback frompeople in our unit in completing your ASS#1 (Step 6).

ausdrill (asl) - digging deeper (part 1) · web viewnow, i don’t think i can give you specific...

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