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Woodside Petroleum Limited

Abstract:

Woodside petroleum limited is an Australian petroleum organization. It is a production and exploration company. It is the largest operator in Australia that provides oil and gas to overall the world. It is an independent company that provides the source of earning to thousands people of Australia. The present study shed light on the concept of materiality states of the country. The concept differentiates in the individual and aggregate sense. The present research analysis that the company needs to adopt and apply the new and digital strategies that leads to the company on the nationwide level. The examples have been given to show the items, and situations that have material effect, have significant impact on the financial position of the company. The problems are identified of the materiality in the research that includes many factors. The materiality of an item based on the judgment of the influence of the situation. Moreover, it depends upon the users of the financial knowledge and their decisions. The current study focuses on all the issues and problems of the company.

Introduction:

Woodside is an oil and gas company, which is situated in Australia and has a global presence. The company is the Australian most experienced LNG operator. It is the largest of the Australia in terms of an independent oil and gas company. Company is the developer, an explorer, supplier and producer as well.  Their mission is to become the global leader in the field of gas and oil business. The company has been operating in the Landmark Australian project, and in the North West Shelf, and it is considered one of the premier LNG facilities. The company, in 2012 has initiated the Pluto LNG Plant their o shore operating facilities. (Woodside.com.au, 2015, p. 3) Headquarter of the Woodside is in Perth Western Australia.  The company has interest in the region of Canada, and Timor-Leste and has a dedicated office in the region of Singapore to provide support its head quarter. It is also listed in the Australian Securities Exchange. The name of the company is derived from the small town of Woodside, Victoria and it was incorporated on the date 26, July in the year 1954.  CEO of the company is the peter Coleman and the company-generated revenue $4.496 billion in the year 2015. (Woodside.com.au, 2016)

Essay Body:

As per my understanding, the concept of materiality states that the accounting standard of the disclosure of a specified item as per the matching principle can be ignored if the information if disclosed or not disclosed, does not have any significant impact on the financial position of the reported company, and therefore, does not mislead the investors in any way. (Deegan, 2013)This is however, not relevant for an organization with lower margins, as the small amounts of any insignificant item may have a significant impact on the overall financial position of the company, and can mislead the investors if not disclosed, and hence is “material” for that specific company. (BHATTACHARYYA, 2012)

The concept of materiality distinguishes that some of the matters in aggregate or individual sense are significant & important for the fair representation and reporting of the financial statements, whereas there are also some matters that are insignificant. (Parminder Johal, 2014) A company needs to plan effectively the level of materiality of all items in aggregate and in individual terms and provide reasonable assurance regarding the non-material items as well. (Puncel, 2008)

As per the AASB 1031, the concept of Materiality requires organizations to disclose all material information in the financial statements. The materiality considerations affect the situations in which the question of the recording of a particular item in its individual account or its separate disclosure in the financial reports is important. (Aasb.gov.au, 2010) The AASB 1031 defines the materiality as the consideration of the information to be included in the financial statements, and the way it is presented. (Scott Henderson, 2015)This is important, because the inclusion of the information that is not material and the exclusion of the information that is material will significantly impair the usefulness of the information provided in the financial statements for the investors and other users. (Dagwell, Wines, & Lambert, 2011)

The company Woodside Petroleum has used the term material in many heads with the concept of the significant effect that specific head has or has not. Like in the 1st Quarter of 2014, Woodside mentioned the success in the bidding on the four blocks in the Myanmar Government Offshore Bid Round 2013 has a “material” position in the underexplored Rakhine Basin that is situated off North West Myanmar. (Woodside.com.au, 2015, p. 24)

Similarly, Woodside has stated in its Annual report that the Apache acquisition with the effective date 1 July 2014 is subject to approvals, and taking consent from participants of the joint ventures, and hence the transaction has no “material” impact on the 2014 financial accounts. (Woodside.com.au, 2015, p. 25) Another example is of the mention of the Wheatstone LNG project, which the company has referred to as an excellent asset with material near-term cash flow and production. (Woodside.com.au, 2015, p. 25) Moreover, the company mentioned in the Director independence head about the test of the “materiality” of the relationships and businesses based on the nature of the business and relationship and on the situation and the activities of the director. It further explains that the concept of the “Materiality” is considered from the perspective of the company and its Group members, and from the perspective of the individual and organization with which the director is affiliated and from the perspective of the director himself. Similarly, the materiality threshold for the testing of the customer or supplier is also stated. The materiality of the customer and the supplier is stated as the being the contributor of more than 2% of the Woodside consolidated gross revenue in the case of the customer, and when the Woodside is accounted for more than 2% for the supplier Gross revenue in the case of the supplier. (Woodside.com.au, 2015, p. 28)

Another example of the concept of materiality is evident in the statement of the Annual statement of Woodside where it states to have provided all the necessary information that is available to the company and is material in nature regarding the director who is standing for the election or reelection in the explanatory notes of the notice of the meeting. (Woodside.com.au, 2015, p. 28) The Company has reported in its annual report about the releasing of the financial information that was not previously released and has material impact, is made available on the website of the company. (Woodside.com.au, 2015, p. 29) Furthermore, the corporate materiality thresholds for the assessed risks are escalated to the senior levels of the management. (Woodside.com.au, 2015, p. 30) In the Notes to and forming part of the financial statements mentions in the summary of the significant accounting policies used, the changes accommodated as per the AASB 1031 2013 Materiality regulation and the AASB 2013-9 part b, Amendments to the Australia accounting standards-Materiality (Woodside.com.au, 2015, p. 42). The Notes to the financial statement shows that the company revenue has material exposure to the risk arising from the fluctuations in the commodity prices. (Woodside.com.au, 2015, p. 70)

These examples show the items, and situations that have material effect, means have significant impact on the financial position of the company.

The problems in the identification of the materiality include various factors. As per the IASB, the materiality of an item or situation is determined based on the judgment of the influence of the situation and item disclosure on the user of the financial statement. Moreover, it also depends upon the users of the financial information and their decisions nature. The companies should assume that the users of the information have adequate knowledge of the business and financial reporting system, but cannot assume them experts in this field. The management is of course is not expected to fulfill all the information requirement of the wide range of its primary users of financial information, however, the management is expected to cater with and provide all the information that can have material effect on the decisions of a wide range of the primary users of its financial information.

An example can be of the disclosure of a small business division or of small venture which is not significant at the current time abut have vast implications in the future as the management is considering to expand in this area. (Aasb.gov.au, 2016) This is evident from the bidding on the four blocks in the Myanmar Government Offshore Bid Round 2013 that Woodside reported as having a “material” position in the underexplored Rakhine Basin that is situated off North West Myanmar. (Woodside.com.au, 2015, p. 24) Moreover, the detailed information and disclosure about the immaterial transactions makes the material information very difficult to find. (Aasb.gov.au, 2016, p. 16) This is the case in the annual report of the Woodside, where the company mentioned about the effect of the transactions of the acquisition of the Apache LNG project which is listed to be effective on 1st July 2014 does not have any material effect on the 2014 financial statement of the company   (Woodside.com.au, 2015, p. 25). The IFRs does not prohibit the companies not to state the immaterial information in the financial statements, but asks to keep guard against the obscurity of the financial information because of the immaterial information. (Aasb.gov.au, 2016, p. 16) The information about the immaterial effect of the acquisition provided by the Woodside is not obscuring the material information, and is even clarifying the reason for not recording of the transaction effects on the 2014 financial statements. (Woodside.com.au, 2015, p. 25) This also provides as an example for the immateriality clause as per the IFRS that states that the management would often want to provide the investors and users with the information about the immateriality of a transaction, which may have been considered by tem as being material. (Aasb.gov.au, 2016, p. 17)

This is also evident from the Chairmen’s report in which the chairmen has stated that the fall in the oil prices, if remained like this, will reduce the company’s cash flows, and the company is subject to material changes in the environment. However, the company is committed to provide the 80% payout ratio, if no other major “material” changes are occurred in the environment. (Woodside.com.au, 2015, p. 6) Another major factor for the assessment of materiality of a situation or transaction is the qualitative and quantitative assessment. The quantitative threshold presented as a portion of the profit or net assets can be used as a measure for materiality. (Aasb.gov.au, 2016, p. 14) Like presented by the Woodside of the materiality of the supplier, it stated the threshold of materiality as 2% of revenue of the supplier is If accounted by the Woodside. Similarly, the threshold for the customer materiality accounts for more than 2% of the customer is if it is accounted for the consolidated gross revenue of the company.

The materiality concept that is used in general concept for the obligated disclosure of the requirements as per a specified process. It is similar in concept with the materiality requirement of the financial reporting. Above-mentioned factors usually referred to the materiality of the bidding process, or the materiality of an acquisition, or the materiality of the independence, or activities of a director. Now, the materiality concept in terms of the financial reporting and the issues related to it as per the AASB and IAS will be discussed. The AASB and IAS require the similar general concept of the materiality to be applied in the materiality of the financial reporting. (Aasb.gov.au, 2016, p. 9) For the financial reporting of the company, the company needs to assess the materiality of the heads on individual and aggregate basis. The materiality is assessed of the information if reported individually and if reported on aggregate basis, and depending on the results the financial information is reported based on the materiality of the item. The materiality is also concerned with the assessment in terms of the way the information is to be presented in the financial statements. The information if presented in a way that it obscures the information will be considered as a prohibition of the information disclosure and will have effect on the decisions of the users of the information. The similar requirement is needed in the presentation of the financial information in the notes to the financial statement of the company. this if also not presented in a way that it is difficult for the investor to understand it and thus have material effect on the decisions of the investors is considered as a hurdle in the disclosure of the information of the company. (Aasb.gov.au, 2016, p. 16)

The materiality thresholds, and concepts applied in the annual report of the company that is Woodside Petroleum Limited and its relation to the usefulness of this information for the decision-making by the investors and users of this financial information will be discussed in detail now. Like in the 1st Quarter of 2014, Woodside mentioned the success in the bidding on the four blocks in the Myanmar Government Offshore Bid Round 2013 has a “material” position in the underexplored Rakhine Basin that is situated off North West Myanmar. (Woodside.com.au, 2015, p. 24) This materiality assessment of the biding success of the four blocks by the company provides the investors with the useful information about the good cash flows that can be expected I the near future from this investment in the exploration sites of the Rakhine which were previously unexplored. This also provides the information to the investors that this is now an asset for the company and provides the company with the competitive edge. The investors of the company may use this information to retain the stock of the company and the potential investors of the company may use this information to buy the company stock in light of the expected cash flows. Similarly, the chairmen has stated that the fall in the oil prices, if remained like this, will reduce the company’s cash flows, and the company is subject to material changes in the environment. However, the company is committed to provide the 80% payout ratio, if no other major “material” changes are occurred in the environment. (Woodside.com.au, 2015, p. 6) This information can also aid as being the attraction for the potential investors of the company to invest in the company for gaining the dividend of the company. On the other hand, this may also act as being a concern for the investors as it shows that the oil prices have a material effect on the company financial position and the further fluctuations may affect the dividend payout ratio, even with the company’s commitment. Another example of the concept of materiality is evident in the statement of the Annual statement of Woodside where it states to have provided all the necessary information that is available to the company and is material in nature regarding the director who is standing for the election or reelection in the explanatory notes of the notice of the meeting. (Woodside.com.au, 2015, p. 28) This example provides insightful information about the election process of the board of directors adopted by the company and explains about the healthy system followed by the company. This will aid in the decision of the potential investors of the company to buy the company stock and become one of the shareholder of the company, as the company is very concerned about the choosing of the right person of the representative of the shareholders that is the directors. The Company has reported in its annual report about the releasing of the financial information that was not previously released and has material impact, is made available on the website of the company. (Woodside.com.au, 2015, p. 29) This example of the materiality release will affect the decisions of the investors depending on the nature of the information that has been released on the website, which have material effect on the company’s financial position but it were not released in the past. This information also raises concerns about the company that the past decisions of the investors were based on the in complete information as all the material information was not published by the company. Another example is of the mention of the Wheatstone LNG project, which the company has referred to as an excellent asset with material near-term cash flow and production. (Woodside.com.au, 2015, p. 25) this information will provide the investors about the expected future cash flows of the company and will cause the investors to decide to retain the company shares, and for potential investors of the company to buy the company stock attracted by the future cash flows of the company.

Conclusion:

The materiality concept as per the AASB and IAS explains the concept as an item or situation, which has an influence on the decision of the user of the financial information of the company, and thus is considered material information and hence is needed to be disclosed. The company Woodside has stated in various points in its annual report about the materiality of the processes, of the situations, transactions and various factors like suppliers, customers, directors’ activities, and oil prices, economic factors, changes in the commodities prices, and the non-interest entities, acquisitions, and successful bids. The company has explained and stated the thresholds of the materiality of the various items and situations. The company, in its annual report has also mentioned the accounting policies for the materiality of the financial information and the changes in the standards, which have been adopted in terms of the materiality of the financial information.

Bibliography:

Aasb.gov.au. (2010, February). Compiled AASB Standard AASB 1031 . Retrieved May 4, 2016, from Aasb.gov.au: http://www.aasb.gov.au/admin/file/content105/c9/AASB1031_07-04_COMPdec09_01-11.pdf

Aasb.gov.au. (2016). IFRS Practice Statement: Application of Materiality to Financial. Retrieved May 5, 2016, from Aasb.gov.au: http://www.aasb.gov.au/ADMIN/file/content105/c9/ACCED271_10-15.pdf

BHATTACHARYYA, A. K. (2012). FINANCIAL ACCOUNTING FOR BUSINESS MANAGERS. PHI Learning Pvt. Ltd.

Dagwell, R., Wines, G., & Lambert, C. (2011). Corporate Accounting in Australia. Pearson Higher Education AU.

Deegan, C. (2013). Financial Accounting Theory. McGraw-Hill Education Australia.

Parminder Johal, B. V. (2014). Unlocking Financial Accounting. Routledge.

Puncel, L. (2008). Audit Procedures. CCH.

Scott Henderson, G. P. (2015). Issues in Financial Accounting. Pearson Higher Education AU.

Woodside.com.au. (2015). FINANCIAL AND PRODUCTION RESULTS. Retrieved May 5, 2016, from Woodside.com.au: http://www.woodside.com.au/Investors-Media/Pages/financial-results.aspx#.Vyr8PtJcRHw

Woodside.com.au. (2016, May). Profile. Retrieved May 4, 2016, from Woodside.com.au: http://www.woodside.com.au/About-Us/Profile/Pages/home.aspx#.Vy1xodJ97cs

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