Executive Summary
This report provides a summary of ERA’s accounting policies. It seeks to identify the first five policies of the organization and the policies on Property, Plant and Equipment (PPE). It identifies the number of PPE policies disclosed and the methods of measurement applied to each class of PPE. It further identifies the differences between changes in accounting policies and changes in accounting estimates. The report also seeks to identify the company’s presentation of statements of financial performance; the profit and whether it complies with AASB 101 standards. Finally, the report will identify whether ERA has provided a disclosure of any impairment on good will or PPE.
ERA 2012 Annual report
ERA’s accounting policies
| Accounting policy | Examples | Requirements |
| 1. Basis of preparation | a. Compliance with IFRS | Financial statements of ERA comply with IFRS standards as issued by IASB |
| b. Historical cost convention | The financial statements of ERA have been prepared according to historical cost convention | |
| c. Critical Accounting Estimates | The presentation of financial statements in accordance with IFRS requires the use of given accounting estimates | |
| 2. Principles of consolidation | a. Subsidiaries | The consolidated financial statements include the assets and liabilities of all subsidiaries of ERA as at 31 December 2011 and the results of all subsidiaries for the year then ended. |
| 3. Revenue recognition | Amounts disclosed as revenues are net of returns, trade allowances, rebates and amounts collected on behalf of third persons | |
| a. Sale of goods | Sales are accounted for when products pass from physical control of the company to an enforceable contract or when the products are in a form that cannot be treated further by the company and the selling prices can be estimated reasonably. | |
| b. Rendering of services | Revenue received from services rendered is recognized when the service is provided. | |
| c. Other revenue or income | Interest income is recognized in proportion basis using the effective interest rate method
Rental income is recognized in a straight line basis Net gains or losses on disposal of assets is recognized when the asset ownership passes to the acquirer Insurance recoveries recognized on confirmation from insurer that the claim has been approved |
|
| 4. Foreign currency translation | a. Functional and presentation currency | Items on the financial statements are measured using the currency of the primary economic environment within which the entity operates. |
| b. Translations and balances | Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the transaction dates | |
| 5. Financial costs | Financial costs (including interest) are included in the statement of comprehensive income in the period during which they are incurred, except where they are included in the cost of noncurrent assets which are currently under development and will take some time before they are completed.
When the asset is ready to use, the borrowing costs as capitalized will be depreciated as part of the carrying amount of the related asset Capitalization rate used is the weighted average borrowing interest rate of the company |
Table 1: Summary of ERA’s significant accounting policies (ERA, 2011)
Property, Plant and equipment (PPE)
The classes of plant property and equipment (PPE) and the measurement methods are shown as follows:
- Buildings: measured at historical cost and depreciated on the basis of production over the life of reserves
- Plant and equipment: measured at historical cost and depreciated on the basis of units of production over the life of reserves
- Office equipment: Computers – measured at historical costs and depreciated on straight line basis over estimated 3 useful lives
- Office equipment: general – measured at historical costs and depreciated on straight line basis over five useful lives
- Furniture and fittings – measured at historical cost and depreciated on straight line basis over ten useful lives
- Motor vehicles: measured at historical cost and depreciated on straight line basis over five useful lives
- Land – measured at historical costs
Historical costs include expenditure that is directly attributable to the items’ acquisition (ERA, 2011).
Differences between changes in accounting estimates and changes in accounting policies
- Change in accounting estimates refers to the change in items in a company’s financial report such as bad debts, inventory obsolescence, fair value of financial assets, useful lives of PPE items etc. (Australian Government, 2005). This is always the case due to the fact that business activities exhibit uncertainties. On the other hand, changes in accounting policies refer to the changes of a company’s accounting policies made in the company.
- Changes in accounting policies is made in cases where the current policies results in providing reliable financial reports while changes in accounting estimates is made in cases where business activities have changed within the organization. For example if ERA changes the policies provided in the table above such changes will affect the reliability of the financial reports while a change in estimates of items in the financial statements such as debt will cause a change in levels of business activities.
ERA provided 2 separate statements to present their financial performance.
- The company’s consolidated statement of comprehensive income indicates that the company made a loss of $153,599. This is in contrast to the profits of $47,004 made in the year 2010. The loss has been incurred despite higher revenue of $667,849 compared to the previous year’s $589,957. This may be attributed to increase in expenses in 2011 such as depreciation and amortization which amounted to $125,925 compared to the previous year’s $60,748 and purchase of materials and consumables which amounted to $244,064 compared to the previous year’s $100,408
- The company’s disclosure of its financial statements has met the requirements of AASB 100 presentation of financial statements. The company presented a statement of financial position to reflect its financial position as at the end of 2011 and distinguished it from other statements as required by the AASB 101 presentation of financial statements. The company also presented a consolidated statement of comprehensive income in as required by AASB 101. ERA also presented its statements in compliance with the accepted standards such as IFRS standards, e.g. by including revenues and deducting expenses in the consolidated statement of comprehensive income. The company has also provided the required disclosure of such items as policies and asset measurements in the notes section as required by AASB 101.
ERA has disclosed impairment of assets by providing an impairment section as a note. This can be illustrated as shown:
| Impairment asset | Details |
| Two cash generating units (note 2d)
· Ranger CGU · Jabiluka CGU
|
Carrying amount of Ranger CGU at the end of the year was $417 million
Carrying amount of Jabiluka CGU at the end of the year was $180 million ERA did a completion testing and found that the recoverable amounts exceeded the carrying values and so there was no impairment. |
| Ranger 3 Deeps exploration program (note 2d) | ERA has disclosed its progress with the Ranger 3 deeps exploration program and has predicted a high probability that it will progress to the production phase, otherwise the Ranger CGU will face impairment. |
| Accounts receivables (note | ERA also disclosed that there was no impairment on accounts receivable. |
References List
Australian Government (2005). AASB 108 – Accounting Policies, Changes in Accounting Estimates and Errors – July 2004. Retrieved from http://www.comlaw.gov.au/Details/F2005B01544.
Bazley, M. E., & Hancock, P. (2009). Contemporary accounting. South Melbourne, Vic: Cengage Learning Australia.
ERA (2011). Annual Report 2011. Energy Resources of Australia Ltd Annual report. Available at http://www.energyres.com.au/documents/ERA_2011_Annual_Report.pdf
International Financial Reporting Standards IFRSs 2009. (2009).
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Siegel, J. G., & Shim, J. K. (2000). Accounting handbook. Hauppauge, N.Y: Barron’s
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