Critical Analysis of Annual Report

[Students Name]

[Institutes Name]
Executive Summary:

The Adelaide Brighton LTD is of the business in the production and distribution of construction

material. The company is complying with all the Corporations Act 2001, AASB, and APES to

comply with the basis for preparation of financial statements, for recognizing transactions under

the accounting standards by AASB, and IFRS (conceptual framework). The true and fair view is

given by the independent auditor. The critical analysis of the company and Alumina LTD

financial statements and share market analysis shows that Adelaide Brighton LTD is going better

in its performance.
Critical Analysis of Annual Report

To: Australian ASX Top 100 listed Corporation

Subject: Critical Analysis of the Effectiveness of the Corporation to meet the obligations of the

conceptual framework of accounting.

Date: 27 August 2018.

1) Introduction of the Company:

The Adelaide Brighton is one of the leading suppliers of integrated construction material

and lime producer. The company supply a wide range of products to the building,

construction, infrastructure and mineral processing markets present throughout Australia.

This is a company with about 1500 employees and its operations are in all states and

territories of Australia. The major activities of the company include production,

distribution, importation, marketing of products like cement, clinker, industrial lime,

premixed concrete, construction aggregates and products of concrete. The company has

significant investments in joint ventures and associates in production and distribution of

construction materials. The company is meeting the sustainability targets by

implementing certain strategies to achieve a balance program of initiatives (Grenfell,

2018).

2) Accounting Standards/Conceptual Framework of the Company:

Australian Accounting Standard Board (AASB): This is a board that will develop and

maintains financial reporting standards applicable to the private sectors like Adelaide Brighton

Limited in the Australian Economy. The Company is complying with the certain accounting

standards AASB 15 Revenues from Contracts with Customers for the recognition of revenue.
The Company is complying with the new updated AASB 16 Leases and replacing the current

standards on lease accounting, AASB 117 to provide credible financial information to the users

(Macve, 2014).

The basis for preparation of the general purpose financial statements is in accordance with the

Australian Accounting Standards and interpretations issued are by the Australian Accounting

Standards Board and the Corporations Act 2001. The certain guidelines followed are to re-state

the comparative information to enhance comparability. The financial statements are being

prepared under the historical cost convention except to the circumstances where fair value

method is used and it is mentioned in the note related to accounting policies adopted.

Accounting Professional and Ethical Standards (APES): The Company is complying with the

requirements of the APES board (often known as APESB) that had to develop and issue

professional and ethical standards which are in the public interest. The Company is employing

the auditor on the assignments in addition to their statuary audit duties. The Company is

disclosing in its annual report the amount paid or payable to the PricewaterhouseCoopers for

providing audit and non-audit services during the year (Martinov-Bennie & Mladenovic, 2015).

The Board of Directors are wholly satisfied that Auditor’s independence is not compromised in

providing non-audit services under is the main requirement of the Corporations Act 2001 due to

following reasons:

a) All non-audit services have already been reviewed by the Audit, Risk and Compliance

Committee to ensure that objectivity and impartiality of the auditor are not compromised.
 b) All the non-audit services are not undermining the auditor independence general

principles that are described under the APES 110 Code of Ethics for Professional

Accountants.

True and Fair: The Company financial statements are audited and they are giving a true and

fair view of the Company financial position and performance in the Auditor’s independence

declaration as required under the section 307C of the Corporations Act 2001 and it is set out in

the Annual Report.

The Independent Auditors Report to the members of Adelaide Brighton LTD is disclosed in the

company annual report. In which the auditors are of the opinion that the financial report of ABC

and its controlled entities is in accordance with the Corporations Act 2001. The report includes

giving a true and fair view of the Group’s financial position as at 31 December 2017, and of its

financial performance for the year ended. The auditors are of the view that financial statements

are being prepared to comply with the Australian Accounting Standards and the Corporations

Regulations 2001 (Shafer, Simmons, & Yip, 2016).

Conceptual Framework: The consolidated financial statements of the ABC group is complying

with the conceptual framework outlined by the International Financial Reporting Standards

(IFRS), which are issued by IASB. This had helped Company in developing accounting policies

where no IFRS standard can be applied to the particular transaction, and disclosure of it had

helped stakeholders to better understand and interpret (Tóth & Darabos, 2016).

Corporation law: The Company is committed already to provide timely and relevant

information to its shareholders and to the market. They are doing so to meet the obligations of
the Corporations Act 2001, and the Australian Stock Exchange (ASX) continuous disclosure

regime.

In order to maintain the Auditors independence, the Board of Directors had taken advice from

the Audit, Risk and Compliance Committee. This was done to ensure that provision of the non-

audit services by the same Audit firm is compatible with the standards of independence for

auditors that are implied by the Corporations Act 2001.

3) Critical Analysis of the Company’s report:

The Company chosen for critical analysis is Alumina Limited which operates in the same

industry of material, listed on the Australian Stock Exchange and have a business of the

similar nature to the Adelaide Brighton LTD (Dumay, 2016).

Contingent Liabilities: There is no contingent liability for both Companies.

Depreciation and Amortization: For ABC it is about $82.5 million for 2017 and for

Alumina LTD is $274.5 million.

Statements of Cash Flows: The Adelaide Brighton Ltd is showing the net increase in

cash and cash equivalents of $36.1million, which is better due to a net decrease of

$11.8million in the previous year. The main reason is due to more receipts from

customers in the current year, the reduced dividend paid to shareholders, and joint

venture distributions is increased.

The Alumina Limited is showing the net increase in cash and cash equivalent of $31.1

million in 2017, which is better than a net decrease of $3million in the previous year. The

reason is that net cash from operating activities has increased to $259.5 million in 2017

from $120million in 2016. The proceeds from the return of invested capital have
increased from $63.8 million in 2017 and $81.9million in 2016 (Ball, Gerakos,

Linnainmaa, & Nikolaev, 2016).

P&L A/C: The Adelaide Brighton Ltd is showing the profit of $182 million which is

reduced from 2016 to about -2.31%.The revenue for the year 2017 had improved to the

growth of 11.75% from the year 2016. The growth of the cost of goods sold is 15.93% to

support the increase in revenue, which had ultimately reduced the gross profit to -2.76%

from the previous year. Other expenses are approximately the same, no material change

can be seen.

The Alumina Limited is showing a profit of $339.8 million in 2017, which has improved

from a loss of $30.2 million in 2016. The revenue for both the year is same $0.6million,

the change is financial performance is due to cost control on general and administrative

expenses which has reduced from $25.7 million in 2016 to $13.6million in 2017. The

other reason is that revenue is increased with the share of net profit of associates

accounted for using the equity method during the year of $360.4 million in 2017 and

$18.1million in 2016.

Balance Sheet:

The Adelaide Brighton Ltd is showing net assets of $1248.2million in 2017. Which has

increased from net assets of $1220.1million in the year 2016. The reason is that total

liabilities have increased from $606.6million in 2016 to $764.8million in 2017. The total

assets have increased from $1826.7million in 2016 to $2013million in 2017. The increase

in equity is due to increase in retained earnings of $510.6million in 2017 from

$483.3million in 2016.
The Alumina LTD balance sheet is showing net assets of $2234 million in 2017 which

has increased from net assets of $2006.9 in 2016. The reason is that total liabilities has

reduced from $110.9million in 2016 to $108.9million in 2017. The total assets have

increased from $2117.8million in 2016 to $2342.9million in 2017. The equity is raised

due to an increase in retained earnings from $449.3million in 2016 to $586.7million in

2017.

Revaluation of Assets: Both the company are doing a revaluation of its property plant

and equipment under the standards of AASB and adjusting the NBV of the property plant

equipment.

Provisions: The provisions that are recognized may arise as a result of legal or

constructive obligation and meeting the criteria to be estimated reliably, and it is probable

that outflow will occur. The current provisions are of $33.8 million, which includes a

provision on employee benefits, restoration, worker’s compensation, and other

provisions. This has increased from $31.9 in 2016. The non-current provisions are of $45

million for 2017 and include employee benefits and restoration. This has increased from

$39million in 2016.

For Alumina LTD the current provisions for the year 2017 are same as 2016 of

$0.3million.While the non-current provisions had reduced from $0.5million in 2017 to

$0.6million in 2016 (Chan, Chen, Chen, & Yu, 2014).

Fair Value: The investments are being measured and re-measured at fair value and any

gain or loss is taken to the other comprehensive income.

 Leases: The Adelaide Brighton Ltd is recognizing lease under AASB 16 Leases with

$75.9 million of the right of use of the asset and the corresponding liability at 31st

December 2017, this had reduced net profit after tax by $1.2 million.

Dividend: The dividends paid to the ABC company shareholders have reduced from

$156million in 2017 to $178.5million in 2016.

The dividend paid to the Alumina LTD shareholders has increased from $135.3 million in

2016 to $210.2 million in 2017.

Inventory:

The Adelaide Brighton Ltd is having a closing inventory of $174.3 million at the year-

end. With the increase in revenue, this too has increased from the previous year to 16.6%.

The Alumina Ltd is maintaining no closing inventory at the year-end 2017.

4) Share Market Analysis of the Company:

The current share price of the Adelaide Brighton Ltd is $6.32 AUD with +0% (This

information has been taken from the wall street journal at 4:10 PM AEST 08/27/18.

The P/E ratio (TTM) is 20.79, the earning per share (EPS) TTM is $ 0.30.The market

capitalization for ABC is $ 4.11 B. The yield calculated for the year is 2.85%. The latest

dividend is $0.009 per share.

The current share price of the Alumina Ltd is $2.91 AUD with + 0.34% (This

information has been taken from the wall street journal at 4:10 PM AEST 08/27/18.

The P/E ratio (TTM) is 18.96. The Earning per share ratio (TTM) is $0.15.The market

capitalization for Alumina LTD is $8.35 and the yield is 8.08%. The latest dividend yield

is $0.117.

5) Recommendation:
 As an Australian investor, I would like to invest $10,000 in the Adelaide Brighton LTD

shares due to higher future prospects and steady growth in the company profits and

healthy financial position. With some recommendations, the company can grow further

such as:

The Adelaide Brighton LTD should better use non-audit services from audit firm other

than audit firm doing company statuary external audit to avoid the familiarity risk

causing independence of the auditors to be maintained.

The company should better manage all its investments in the joint ventures and associates

to maximize the group financial performance and position. The company should also

enter into further investments throughout the world to achieve competitive advantage by

diversity and benefits of synergy.

The company should invest further in its sustainable projects to avoid any harm to the

environmental and community.

The innovative technologies should be used to make the production and distribution of

the construction material faster, and reach efficiency and economy through integrating all

the processes by supply chain management.

6) Conclusion:

The critical analysis of both the company shows that they are complying with the basic

requirements to prepare their general purpose financial statements under the principles of

Corporations Act 2001, Australian Accounting Standard Board, Corporate governance,

and all Professional and ethical standards to protect the interest of the investors. The

financial position and performance are analyzed by financial statements and share market

analysis.
References

Ball, R., Gerakos, J., Linnainmaa, J. T., & Nikolaev, V. (2016). Accruals, cash flows, and

operating profitability in the cross section of stock returns. Journal of Financial

Economics, 28-45.

Chan, L. H., Chen, K. C., Chen, T. Y., & Yu, Y. (2014). Substitution between real and accruals-

based earnings management after voluntary adoption of compensation clawback

provisions. The Accounting Review, 147-174.

Dumay, J. (2016). A critical reflection on the future of intellectual capital: from reporting to

disclosure. . Journal of Intellectual capital, 168-184.

Grenfell, J. K. (2018). Reflections on differences between practising in-house and private

practice. Bulletin (Law Society of South Australia, 20.

Macve, R. (2014). What should be the nature and role of a revised Conceptual Framework for

International Accounting Standards?. . China Journal of Accounting Studies, 77-95.

Martinov-Bennie, N., & Mladenovic, R. (2015). Investigation of the impact of an ethical

framework and an integrated ethics education on accounting students’ ethical sensitivity

and judgment. . Journal of Business Ethics, 189-203.

Shafer, W. E., Simmons, R. S., & Yip, R. W. (2016). Social responsibility, professional

commitment and tax fraud. . Accounting, Auditing & Accountability Journal, 111-134.

Tóth, K., & Darabos, É. (2016). The Growing Importance of International Financial Reporting

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