Reference no: EM132360028 , Length: word count:1000

Accounting Analysis Assignment -

This is information of the company - COMPANY NAME: CSL Limited and ASX Code: CSL.

Perform macroeconomic analysis, industry analysis, business strategy analysis and accounting analysis based on the chosen company, and produce a professional report as though you were a prospective management consultant. The analysis should be informed by various sources of publically available information such as the official website of the company and industry reports, and should be supported by ABS data or other statistical information.

Accounting Analysis: Use the six-step accounting analysis framework to assess the degree to which the firm's accounting reflects the underlying business reality. Identify any accounting distortions if there is any and evaluate their impact on profits and the sustainability of profits.

Overall Report Quality: The report should be readily comprehensible, condensed and within the word limit. Information should be collected from various reliable sources to inform analysis and references are properly cited. Tables and graphs should be used to effectively present information.

If the company operates in several economic regions, industries or has several business segments, only include material business operations in the analysis. It is material if it generates or will generate more than 10% of the company's total sales revenue.

Accounting analysis -

1. Key accounting policies [3-5]

e.g accounts receivables (provisions for doubtful debts) assets (depreciation)

2. Assess accounting flexibility

for the accounting policies you identify in step 1, find the relevant AASB and identify the flexibility within the regulation that is available to your company to choose from (e.g depreciation: straight, accelearated, unit of use)

Figure: the policies, the respective AASB, the choices available to your company

3. Evaluate the accounting strategy

Identify the choices your company made for each of the accounting policies. E.g the company choice straight line depreciation for the 5 years.

Figure: comparison of your company choices (e.g depreciation for the 5 years 2014 to 2018 to the closest competitor.

4. Evaluate the quality of disclosure

Compare the company's disclosure in relation to the relevant AASA

5. Identify potential red flags

Accounting policy changes - look out for accounting policy changes across the 5 years time frame.

Figures: Comparison between company A and Company B for the provision debts for the years 2014 to 2015.

Figure: Comparison between company A and Company B of the depreciation for the years 2014-2018.

Figure: variance of cash flow from operation in relation to profits.

6. Undo accounting distortion

Assuming you find nothing: Discuss the Audit reports for the five years: e.g for the last 5 years Company A and Company B was audited by PWC. For each of the five years comment on what the auditor

ACCOUNTING

Earning management

Raising capital

New management

Management rewards

Pick the most significant for the step accounting analysis

Step 1 - Identify the Key Accounting Policies - this information is typically in "Note 1"

Step 2 - Access the Accounting Flexibility

• refer to the relevant Accounting Standard for the specific Accounting Policy

Step3 - Evaluate the accounting strategy

• Compare to industry norms
• Do management have incentives to manipulate>
• Any changes in policies/ estimates?
• What is the history of accounting adjustments?
• Are any transaction structured only for an accounting outcome?

Step 4 - Evaluate the Quality of Disclosure

• Is there adequate disclosure?
• Does Note 1 adequately explain the key accounting policies and assumptions?
• Does the firm explain its current performance?
• If accounting rules are restrictive, are there other disclosures made by the firm?
• What is the quality of the segment disclosure?
• How forthcoming are management about bad news?
• How good is the firm's investor relations program?

Step 5 - (get more marks)

• Identify Potential Red Flags / Distortions
• Qualified audit reports
• Unexplained changes in accounting
• Unexplained transaction that increase profit
• Unusual increases in accounts receivable and /or inventories vs sales
• Gap between profit and cash from operations over time
• Gap between profit and taxable income over time
• Related party transactions
• Unexpected large write-offs