Question:
Discuss About The System Azure Healthcare Limited Is Analysed?
Accounting policies are rules, principles, and procedures which are selected and followed by management of a company while preparing and presenting financial statements. It deals with depreciation methods, inventory pricing, and goodwill, consolidation of accounts, research and development costs.
Azure healthcare limited is a global clinical management and healthcare communication solution providers. They are clinical management solution providers. The financial report and accounting system of Azure healthcare limited is analysed. According to Australian Accounting standard management it is important to necessary to make judgements and assumptions about assets and liabilities that are based on historical evidence. For a company it is important to determine estimation of lives of intangible assets. The company has reported principles of consolidation in their finance report. Business combination results in occurs when the company gains control over two or more businesses. This results in merging of assets and liabilities. Other key policies such as income tax, financial assets and liabilities, employee benefits have been discussed.
Accounting flexibility can be understood as ability of the accounting system to adapt to changes in the company according to its needs, management and operations. For a company it is important to have an accounting strategy. Disclosure can be understood as releasing all information that is relevant and pertaining to company which has influence on decision of investors. For a company to be Australian Security Exchange (ASX) listed, it needs to follow certain rules with respect to disclosure. Red flag indicates that there is a potential problem with financial statement. Red flag is a subjective concept. Techniques to identify red flags are discussed. Financial reports of Azure healthcare limited comply with ASX standards.
Azure healthcare limited is a global clinical management and healthcare communication solution providers. They are clinical management solution providers (Azure Healthcare Limited, 2017). They use reliable software solutions which meet the global standards. The company has a main subsidiary Austco Communication Systems Pty Ltd. It manufactures clinical workflow solutions for hospitals and nurse call system. Tacera is an internet based system for nurse call solution for hospitals and other healthcare facilities. CellGuard is another product for custodial market. It provides audio communication system which is inclusive of officer duress, discrete monitoring, background music distribution, cell intercom and public address announcements. MediCom is product for aged population. It enables nurses to promptly respond to call of the patient all the time (Reuters, 2017). Azure healthcare limited has invested substantially in research and development. They have realised the importance of research and development in order to provide best service to clients (Sultan, 2014).
The financial statement of Azura healthcare limited includes economic entities as well as controlled entities. Different components of the financial reports are highlighted below.
Critical accounting judgements: according to Australian Accounting standard management it is important to necessary to make judgements and assumptions about assets and liabilities that are based on historical evidence. Other factors that influence these assumptions are taken into account. Actual results may vary from these assumptions and judgements. Judgements made in accordance with Australian Accounting standard significantly influence financial statement. The company tested the investment in subsidiaries as well as intangible assets. It was found that there was no impairment in goodwill, intangible assets and investment in subsidiaries (australia.gov.au, 2017).
The allowance of doubtful debts implies the estimation of economic entity by management. At 30 June 2016, it was $195,000. The company pays income tax as per the rules and regulation to the jurisdiction in which it operates. For provision of impairment, it is important to assess degree of estimation and judgements. This is assessed by considering ageing of inventories, previous sales experience and factors that influence inventory obsolescence.
For a company it is important to determine estimation of lives of intangible assets. To determine this estimation, the company takes into account historical experience with the asset, engineering estimates, statistical methods, judgemental estimates (Fazal, 2012).The depreciation charge will increase in situation where useful lives are less than the estimate or are sold and discarded.
Principles of consolidation: there are four principles of consolidation like First, elimination of investment account, Second, capital reserve and goodwill of control, Third, minority interest, and Fourth, pre-acquisition and post-acquisition profit. In controlled entity of Azure Healthcare Limited, the company has power to make decisions related to operating and conomics policies of the entity (Kumar, 2016).This helps Azure Healthcare limited achieve its goals. Their financial statement contains the list of controlled entities. The transactions and inter-company balances between entities have been eliminated on consolidation. This included unrealised gains and losses. Accounting policies of subsidiaries have undergone change in order to ensure consistency.
Using the acquisition method of accounting, subsidiaries which are acquired by the company are accounted. The change in ownership is accounted as equity transaction. When the company loses ownership of the subsidiary, it derecognises the entity (Hoyle, 2015).
Business combinations: it occurs when the company gains control over two or more businesses. This results in merging of assets and liabilities. Businesses combinations are accounted by acquisition accounting method (Accounting tools, 2016). GAAP principles are followed in case of business combinations. It is accounted from the date the parent entity acquired control over business (acquisition date). Business combination and acquisition may lead to goodwill from bargain purchase. The technique used for measuring goodwill will impact on measurement of non-controlling interest which has to be recognised by the company.
Cost of the investment in financial statements will include acquisition date fair value of the consideration of transferred business. Consideration will include liabilities incurred by the acquirer to the former owners of the business, sum of the assets transferred by the acquirer, and the equity interests issued by the acquirer. The measurement of consideration transferred includes all liabilities and assets which result from contingent consideration. any transaction which results from contingent consideration is categorised as equity instrument or financial liability.
Income tax: income tax is the tax calculated on the income of company which is paid to the jurisdiction. Income tax is calculated on the basis of income tax rate of that jurisdiction. Current tax is calculated on the basis of amount of tax payable by the company in accordance with taxable loss or profit for that year. To calculate current tax, tax laws and tax rate are required. Current tax is considered as a liability to an extent where it is unpaid (Accounting Explained, 2013).
If the amount reported on income tax return for a particular year is different from the year that entry appeared on financial statement, then it results in deferred income tax. It is accounted using balance sheet liability method. It is applicable in all assets and liabilities where their taxable differences (temporary). This tax liability is applicable on investments in subsidiaries where there is temporary difference. Current tax and deferred tax are identified as income or expense in income statement (Tearney, 2015).
Azure healthcare limited and its subsidiaries have an income tax consolidated group. Each subsidiary has its own current and deferred tax liability. The current tax is assumed by the parent company. In the tax consolidated group, each subsidiary contributes to income tax in proportion to their contribution to the overall profit.
Financial assets and liabilities: investments of the company are recognised and derecognised on the date where sale or purchase of an item is contracted. Terms of the contract requires delivery within given time frame established on the basis of market under consideration. Apart from initial recognition, subsidiary investments are evaluated as cost in financial statement.
Financial assets are categorised as financial assets ‘held-to-maturity investments’, ‘at fair value through loss or profit’, ‘loans’ etc. the nature and objective of the financial assets is important for determining the categories. Similarly, financial liabilities can be classified as ‘at fair value through profit or loss’, borrowing, etc.
Effective interest rate method is used to calculate amortised cost of financial liability and asset. This rate is the rate of discounted future cash payments or receipts. The basis for financial income on effective interest rate is income. Other assets of the company are evaluated for impairment periodically and recorded in the balance sheet. The criteria for considering a financial asset as impaired is that objective evidence has occurred more than once after initial recognition (Nickolas, 2015).
A company or an economic entity derecognises a financial asset when the cash flow expires or there is a transfer of financial asset. This is also applicable in case of financial liability.
Property, plant and equipment: all the property, equipment and plants are depreciated. The fixed assets are depreciated on diminishing value or straight line basis over their useful lives to the company. Depreciation starts from the time the asset is acquired. Leasehold Improvements are depreciated either over unexpired period or estimated useful lives of improvements. At each balance date, the residual value and useful lives of the assets are evaluated and adjusted. In the current year, there is no change in material. In case of an asset, if the carrying amount is greater than recoverable amount then it is written immediately to its recoverable amount. Profit and loss are evaluated by comparing proceeds and the carrying amount. The profit and loss are recorded in income statement.
Leases: financed leases can be understood as leases of fixed assets that are transferred to the company. Except legal ownership, all benefits and risks associated with the fixed assets are transferred to the company. To depreciate leased assets, straight line or diminishing value over estimated useful lives is employed. Leased payments are divided between lease interest expense and reduced lease liability. Lease payments are charged as expenses in the lease period (the benefits and risks remain with the lesser) (Azure Healthcare, 2017).
Intangibles: goodwill on consolidation as well as goodwill is recorded as the amount by which purchasing price for business exceeds the fair value attached to overall assets at acquisition date. Goodwill as well as the goodwill on consolidation that are purchased are evaluated annually for impairment. Evaluation may occur more frequently if required or if there is an indication of impairment (AASB 136 Impairment of Assets) (Azure Healthcare, 2017).
Research and development costs are considered as expenditure in the period of occurrence. Development expenses are considered as expenditure when there are no internally produced intangible assets. There are certain criteria for identifying intangible arising from development expenses. They are:
Employee benefits: in the balance sheet, provision is made for company’s liability for benefits of employees. Employee benefits arise from the services of employees. The employee benefits are settled in one year’s period. Benefits include salaries and wages, sick leaves, paid leaves, annual leaves. They have to be settled within one year. Other benefits which are can be paid later than one year are evaluated on the basis of future cash outflow. Contribution of the employee are made by the company to well defined superannuation funds. They are considered as expenditure when incurred (Azure Healthcare, 2017).
Earnings per share: they are of two types: basic earnings per share and diluted earnings per share. Basic earnings per share is estimated by dividing profit attributable to all the shareholders of Azure Healthcare Limited by the weighted average number of ordinary shares outstanding during the financial year. It is exclusive of costs of servicing equity. Diluted earnings per share modify the numbers used in determining the basic earnings per share. It takes into consideration the effect of income tax and other financial costs linked with dilutive potential ordinary shares (Azure Healthcare, 2017).
Accounting flexibility can be understood as ability of the accounting system to adapt to changes in the company according to its needs, management and operations. It also implies that information system employed by a company should have capacity to grow and change along with the company. Change in the accounting system is important because companies undergo change periodically (Olad, Z. S. and Amiri, 2016).Accounting system should be flexible enough to adapt to the change. Accounting system should grow and expand in order to keep records and track financial growth of company accurately. It is also referred to as financial flexibility. it is determined by company’s capability to deal with unexpected expenditure and investments. It is assessed by examining how well company uses leverage and cash holdings (Denis and McKeon, 2016).
Companies which are highly flexible in financial terms or are superior financially are able to deal with economic situations such as recession. They are also able to take advantage of investments which are unexpected or unplanned. On the other hand, companies with very stringent accounting and financial policies are unable to respond properly to unexpected situations. Such companies are not able to survive in economic downturns. Their rigid policies lead to their downfall (Koch et al, 2012)
There are several universally accepted components of financial flexibility (they may vary according to different analysts and investors).
Debt ratio, that is, ratio of total liabilities of the company to total assets and debt to equity, that is ratio of total liabilities to owner’s equity are most common methods to measure leverage. The value of these ratios determines the risks associated with financial hardship. High ratios lower financial flexibility, hence, lowering company’s ability to borrow.
Financial or accounting flexibility is important for company. Flexible budget is important for analysing deviation between actual and expected output. It helps to compare actual costs with budgeted costs at actual volume. It helps in comparison between actual cost and expected cost for business activity. Flexible budget is important to fulfil the goals of cost control. It determines the points where actual performance deviated from planned performance. Azure healthcare limited has flexible accounting policies. The accounting policies will help the company strive difficult financial situations. The company can also take advantage of investments. It can also take over other businesses and form mergers. The flexibility of the accounting system has helped Azure healthcare limited to grow and strive.
For all companies, accounting is a crucial business function. It involves collecting, recording and analysing financial information. This information plays an important role in decision making. Financial information is a great source for detailed information regarding business and its operation. Companies use historical and past financial data for planning new strategies. It helps in growth of business. accounting growth strategies include accelerating income, expanding through profits, building strategic business relationships, streamlining current production operations and diversifying business operations (Bonin, 2013). The decisions made on the basis of previous historical information helps in prediction of success of future business venture. This information can be used to improve certain functions of the company. Azure healthcare limited makes critical accounting judgements and assumptions on the basis of historical information. Their allowance of doubtful debts was $111,000 on 30 June 2012. It increased to $195,000 in 2016 (Azure Healthcare, 2017).
A large number of companies and business depend on banks and investors for financing. These loans lead to negative cash flow (the cash moves out of the business, resulting in losses). Business owners should review financial accounting data periodically and develop strategies which ensure profit and growth of business. Azure healthcare limited is dependent on intangible assets and business combinations for financing.
The business leaders take responsibility for profit and loss incurred by the company during operations. They require information regarding financial performance for further decisions. This information helps them to re-evaluate and re-organise their decisions.
Azure healthcare limited has invested in mergers (business combinations). They use their financial information and data when taking decisions regarding mergers or acquiring subsidiaries. They also take into account the company’s objectives and goals while taking such decisions. Azure healthcare limited have a well-established risk management system and control mechanism. They implement decisions systematically and implement board approved budget and plan. The company’s board ensure effective risk management (Azure Healthcare, 2017).
Disclosure can be understood as releasing all information that is relevant and pertaining to company which has influence on decision of investors. For a company to be Australian Security Exchange (ASX) listed, it needs to follow certain rules with respect to disclosure. Australian Security Exchange expects companies to have periodic as well as continuous disclosure. Disclosure is considered important for integrity of market. It is important for two ASX priorities: efficient and fair market and informed and confident investors (Basu and Forbes, 2014).
Azure healthcare limited has complied with Australian Security Exchange (ASX) in preparing continuous and periodic financial reports. This company prepares financial reports annually. The financial reports are available on their website and can be accessed by anyone. They are readily available for both investors and general public. The disclosure of company seems adequate. Their financial reports consist of information about director, role of management, board members, board formal induction program, role of company secretary, risk management, remuneration policy, diversity policy etc. their financial report discusses different aspects of financial policies. The report lacks footnotes. Footnotes are important for explaining certain points to the investors. The financial report has clearly stated the objectives of the company, its relation with shareholders and market. The company follows’ continuous disclosure policy which is crucial for commitment with shareholders. Their financial report also consists of ethics and code of conduct followed by employees. Company’s officers and employees are bound by securities trading contract (Azure Healthcare, 2017).
Generally accepted accounting principles (GAAP) has laid out set of accounting procedures, principles and standards which should be followed by a company while preparing financial report. It is combination of universally accepted methods of reporting accounting and financial data and authoritative standards set by board members. It is important for improving quality of information provided by company (Shroff, 2017).
Red flag indicates that there is a potential problem with financial statement. Red flag is a subjective concept. Red flag for one investor may be desirable for another. Red flags help in identifying problems. They should be carefully picked up by the investor. Companies should also identify red flags and rectify problems. There are several ways to identify red flags in financial reports.
Heightened inventory is an indicator of red flag. If inventory is shows profit, but there is no change within the company, then it indicates that there is a problem. This problem can be identified by carefully examining the balance sheet. Large number of account receivables is good indicators of growth (Heshin-Bekenstein, M. and Hashkes, 2015). It is profitable only when the amount is actually collected. When receivables increase, it is important to adjust collection process accordingly. Company should also become stricter with credit policy. Another important red flag is selling of unused or underutilised assets to pay debts or for short term finances. This is a problem situation for company. To ensure accuracy of losses, disposals, inventory should be carefully examined. Poor cash flow pattern is also a red flag. When cash flows out of business, investors begin to worry and may choose to withdraw. Another red flag is non-operating income. Income statement of the company should be consistent.
In Australia, a business or a company can choose either of the two basic frameworks required to prepare financial reports. There is an accounting framework and a legal framework. For big businesses, there are greater complying issues. ASX-listed companies prepare annual financial reports which can be audited easily and are available for everyone. Companies listed in Australian Security Exchange are required to report continuous and periodic financial reports. Azure healthcare limited has a continuous disclosure policy which is available on request. ASX has laid down set of guidelines which are to be strictly followed by companies. they have set of principles of listing rules and applications of listing rules. There are specific guidelines for continuous disclosure and periodic disclosure (Exchange, 2014).
Conclusion
Azure healthcare limited is a global clinical management and healthcare communication solution providers. The financial statement of Azura healthcare limited includes economic entities as well as controlled entities. Some of the key accounting policies are discussed. Frists, Critical Judgements made in accordance with Australian Accounting standard significantly influence financial statement. In controlled entity of Azure Healthcare Limited, the company has power to make decisions related to operating and financial policies of the entity. This helps Azure Healthcare limited achieve its goals. Business combination and acquisition may lead to goodwill from bargain purchase. The technique used for measuring goodwill will impact on measurement of non-controlling interest which has to be recognised by the company. Income tax is the tax calculated on the income of company which is paid to the jurisdiction. Income tax is calculated on the basis of income tax rate of that jurisdiction. Financial assets are categorised as financial assets ‘held-to-maturity investments’, ‘at fair value through loss or profit’, ‘loans’ etc. the nature and objective of the financial assets is important for determining the categories. Similarly, financial liabilities can be classified as ‘at fair value through profit or loss’, borrowing, etc. other key accounting policies are highlighted. Azure healthcare limited is financially flexible. Accounting flexibility is important for a company to deal with adverse economic conditions. Azure healthcare limited has complied with Australian Security Exchange (ASX) in preparing continuous and periodic financial reports. Red flags help in identifying problems. They should be carefully picked up by the investor. Azure healthcare limited has complied with ASX standards of reporting.
Reference
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