Preuse of the annual report of Incitec Pivot Limited

Discuss about the External Reporting Issues for Incitec Pivot Limited.

The report focuses on the subject of accounting and the issues that the accountant faces while reporting the account details of a company. This report aims to identify and analyze the critical accounting issues faced by Incitec Pivot Limited. During this report, the discussion and critical analysis are made on the 2015-2016 annual reports of the company. There are mainly four parts included in the report. At the end of the report, conclusion is derived by considering the overall findings of the study.

Identifying the rules and regulations that govern the annual report of Incitec Pivot Limited

As per the 2015-2016 annual report of Incitec Pivot Limited, the company has followed the rules and regulations provided by the Australian Accounting Standard Board. At the same time, the Chief Financial Officer has also disclosed that the company has maintained the rules provided in the Corporation Act 2001, while preparing this annual report. As per the Corporation Act 2001, Sect314, the annual report of the company must include the directors’ report and auditor’s report in its annual report. The company has maintained this rule and at the same time, the company has also maintained the principles under Australian Securities Exchange Corporate Governance. In order to prepare the financial statements, the company that is Incitec Pivot Limited has maintained the AASB 101.

Concept of materiality and its place in conceptual framework

Materiality is an important concept of accounting that suggests the companies to disclose all the necessary information and disregard all the trivial information in the annual report. In the other words, materiality is an accounting tool that signifies the accounting transactions in the financial statements of the companies. The company Incitec Pivot Limited has also followed the principle of materiality, which can be identified in the 2015-2016 annual report of the company.

Analyzing the materiality policy at Incitec Pivot Limited

In the annual report of Incitec Pivot Limited, all the important matters like, sustainability information, materiality review, information about the stakeholders and the financial performance of the company has been disclosed. As per the 2015-2016 annual report, the company has prepared the financial statements that are free from financial misstatement in order to achieve the trusts of the external stakeholders. The material information of the company helps the external report users to understand the current state and future prospect of the company.

Analyzing the possibility of misstatement to maintain the materiality policy

Concept of materiality and its place in conceptual framework

The 2015-2016 annual report of Incitec Pivot Limited it has been identified that the company has disclosed all the essential information of the business. It is expected that the information provided by the company is authentic and there is no misstatement of the financial information. However, there can be misstatements of the financial information of the company. This is because sometimes little information is there which is confidential and in order to maintain the confidentiality, the company does the misstatement. However, as per the auditor’s report stated in the annual report of Incitec Pivot Limited, the financial report of the company is free from material misstatements. Therefore, it can be stated that the annual report of the company did not include any misstatement of financial information.

Balance between ethical standards and materiality obligation

Maintaining the ethical standards and materiality obligation together while preparing the financial report is not easy. The accounting standards suggest the companies to maintain the materiality obligation, however, sometimes to save the future business performance it becomes very difficult for the accountant to disclose the information truly. Due to this, the companies sometimes disclose some information, which are false. However, maintaining high ethical standard along with the materiality obligation is not impossible. The companies can maintain that by following the standards properly and preparing appropriate plan for the financial year.

The annual report of Incitec Pivot Limited provides the best interests of the users and preparers. In the annual report of the company each information about the business activity of the company is given. At the same time, the company has provided some of the future steps that the company has planned to take in the coming financial year. The policies taken by the company and the principles maintained are disclosed within the annual report. Therefore, it can be said the users can use this annual report to gather the necessary information about the company.

The financial report of the company that is Incitec Pivot Limited follows the materiality standards stated under the accounting standards and principles. The maintenance of materiality helps to disclose all the information in detail. Due to this, the external users of the report can identify the performance and operational details of the company. The external users can know the extent to which the company has operated its business ethically and legally. The application of the materiality standards helps the organization to gain the trusts of the external users of the report. Therefore, materiality helps to enhance the usefulness of the financial report of the company.

Analyzing the materiality policy at Incitec Pivot Limited

Apart from that, the application of materiality also affects the General Purposes of Financial Reports or GPFR. The GPFR of a company is to meet all the information needs of the external users. Therefore, if the company applies the materiality standards, then it can enhance the value of its GPFR, otherwise, the GPFR of the company will be useless for the external users of the financial reports.

In a company, there may be some information that cannot be disclosed in the financial reports because of the confidentiality of the business operation. However, in order to meet the principle of materiality the accountants of the company are bound to disclose the information. Many times, the accountants cannot disclose all the true information of the company in the financial report because of the order given by the higher authority.

Sometimes, it also happens that the accountants disclose the false information in the financial report. These types of steps push the accountants towards unethical behavior. On the other side, as per the accounting standards, the maintenance of materiality standards or principle is mandatory for the accountants[12]. Therefore, it becomes very difficult for the accountants to manage both sides. If the accountants follow the order of the higher authority, then sometimes they need to take unethical steps but if they follow the accounting standards, then sometimes the interests of the company remain unfulfilled. Due to this, the accountants feel nervous at the time of application and connecting the materiality and ethical behavior.

In order to make the decision-making process of the accountants easier, the management of the company can motivate the accountants and the other employees to follow the rules and regulations provided by AASB and IFRS and can influence them to work ethically. The management can motivate the accountants and other employees by the following ways:

• The management can arrange for a meeting and can discuss on the importance of the rules and the ways through which the accountants can follow the rules and regulations of AASB and IFRS regarding materiality by managing the confidential matter of the company.
• The management can increase the remuneration of the accountants, so that they become agreed to take the higher responsibility for preparing the financial reports of the company. Higher remuneration will motivate the accountant to take critical decision.

If the company take the above motivation strategies then it will be possible to manage the materiality along with the confidentiality of the company. The accountants and other employees of the company will be more interested to work at the workplace and as a result the financial performance of the company will be improved.

Conclusion

In this report, it has been identified that the company that is Incitec Pivot Limited has disclosed the necessary information in the 2015-2016 annual report. The auditor’s report that is stated in the annual report of the company has clearly mentioned that the company has fulfilled all the accounting standards. The report has also identified that the annual report of Incitec Pivot Limited has served the best interests of the external users and so the value of GPFR of the company has enhanced.  At the same time, the report has also disclosed that the accountants of the companies feel nervous while rearing the financial reports because it becomes very difficult for them to maintain the materiality and ethical behavior together.

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