Financial Report Analysis

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Table of Contents

Executive Summary2
1. Summary of IPL’s activities and strategies3
2. Key accounting policies and Accounting Standards3
2.1 Revenue Recognition – AASB 1183
2.2 Foreign Currency Translation – AASB 121 3
2.3 Income Taxes – AASB 1124
2.4 Consolidation – AASB 1274
2.5 Impairment of Assets – AASB 1364
3. Management’s flexibility in selecting key accounting policies4
3.1 Interest Bearing Liabilities4
3.2 Derivative Financial instruments5
3.3 Interest Bearing Liabilities5
3.4 Intangible Assets - Goodwill5
4. Accounting strategy employed by management and incentivesl5
4.1Evaluation of accounting strategy employed by management5
4.2Evaluation of incentives strategy employed by management6
5. The quality of the disclosure made in the accounts6
6. Potential questionable numbers7
6.1 Deferred Tax Assets & Liabilities7
6.2 Cash and cash equivalents7
7. Undoing distortions in the numbers7
8. Summary of financial press discussion of IPL’s performance and accounting numbers8
Bibliography9
Appendices10

Executive Summary

Incitec Pivot Limited (IPL), is leading global chemical manufacturer supplying agricultural fertilisers and industrial chemicals to the Australian and overseas markets. The objective of this report was to analyse and understand how the accounting policies and strategies implemented by IPL impacted their financial performance. The analysis is based on IPL’s annual report which outlines the selected accounting policies, business strategy and performance.

Firstly, the report summarises IPL’s activities and strategies during the financial years ending 30th September 2009 and 2010. Secondly, the report identifies the key accounting policies and assesses management’s flexibility in selecting them. Also, the report evaluates the quality of disclosure in IPL’s annual report, identifies potential questionable numbers and attempts to undo any possible distortions in the numbers. Finally, the report examines the financial press discussion of IPL’s performance and accounting numbers.

The absence of any impairment [write-down] of intangible assets [13 per cent of Goodman's total asset base, and included in the covenant gearing calculation] was a surprise," Deutsche Bank said.

Read more: http://www.smh.com.au/business/writedown-is-not-a-dirty-word--just-look-at-goodman-group-20090227-8kb1.html#ixzz1YvZOrW5P

1. Summary of IPL’s activities and strategies
Incitec Pivot Limited is a leading global chemicals company which has nitrogen-based manufacturing as its core activity. (Incitec Pivot Limited, 2009) The company is involved in the manufacture, trading and distribution of fertilisers, industrial explosives and chemicals. It was formed as a result of the merger between Incitec Fertilizers and Pivot in 2003 and 2006 and expanded by purchasing Southern Cross Fertilizers. IPL owns a portfolio of recognised and trusted brands and is the number one supplier for fertilizers and the number three supplier of explosives in Australia as well as being the prime supplier of explosive products and services in North America. (Incitec Pivot Limited, 2009) The company operates in Canada, USA, Mexico and Australia and has 4500 employees worldwide. The company has grown due to international demand for the four F`s: food, feed, fibre and fuel. IPL supplies 50% of Australia’s agricultural nutrient needs and also assisted Australian farmers to develop sustainable farming. The volatility of the market during the global financial crisis had an adverse impact on IPL. NPAT (excluding individually material items) decreased by 46% from $647.5m in 2008 to $347.8m in 2009. IPL’s Velocity efficiency program enabled it to make a significant return to the market in 2010 with a NPAT of $442.8m (excluding individually material items), which was an increase of $95m. (IPL, Annual report, 2010). 2. Key accounting policies and Accounting...
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