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Accounting Analysis of Alltex Industries Ltd :
Accounting analysis helps to evaluate the degree to which a
firms accounting
captures its underlying business reality. This analysis is also
useful to assess the
degree of distortion in the firms accounting numbers by
evaluating the
appropriateness of the firms accounting policies and estimates
and undo any
distortions to improve the reliability of accounting numbers.
Accounting analysis
consists of six steps, which are described bellow :
Step-1: Identify Key Accounting Policies
This step includes identifying and evaluating the policies and
estimates the firms uses
to measure its critical factors and risk. Every company has some
policies to conduct
the accounting treatment of the transactions. Alltex Industries
Ltd follows the
following rules and regulations. The basis for preparation of
financial statements is in
the Historical Cost Conventions. The basis of presentation and
disclosures of
information are based on the relevant and applicable
requirements of the :
Companies Act 1994; Securities and Exchange Rules 1987; Listing
Regulations of DSE and CSE and Bangladesh Accounting
Standards adopted by the ICAB based on International
Financial
Reporting Standards.
The financial statements are presented in Bangladeshi
currency(Taka), which has been rounded off to the nearest Taka
except where
indicated otherwise.
Step-2 Assess Accounting Flexibility:
Identifying the key accounting policies is one of the most
important factors for
accounting analysis. Accounting flexibly varies from firm to
firm and from industry
to industry. Managers of Alltex Industries Ltd has little
flexibility in choosing
accounting policies and estimates regarding their key success
factor. If mangers have
little flexibility in choosing accounting policies and estimates
regarding their key
success factors, accounting data are likely to be less
informative for understanding
the firms economics. Most of the firm has flexibility in making
estimates on
depreciation, amortization and choosing inventory accounting
method ( LIFO or
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FIFO). Like other firms, Alltex Industries Ltd has flexibility
in making estimates
about depreciation, amortization, and inventory accounting. All
the policies has an
important impacts in the financial reporting.
Step-3: Evaluate Accounting Strategy
Alltex Industries Ltd accounting policies are as like as to the
norms in theindustry.
The companys management doesnt make earning management and
thesame time they have no strong incentive to do that.
The company has no changed any of its policies or estimates
withoutjustification.
To the answer of the question about accounting policies, the
company hasnot changed any important accounting policies.
The companys accounting policies were realistic in past and all
the policieswere stable.
Step-4: Evaluate the Quality of Disclosure
To an analyst it may be more or less complex to understand the
business reality of a
firm because of level of disclosure. At the same time, there is
a minimum required
level of accounting disclosure set by the regulatory authority.
In this aspect manager
has many things to consider. Disclosure quality is an important
attribute for the
quality of reporting. Our concerned company provides enough foot
notes to
understand the economic transactions and its consequences. The
companys foot
notes gives us an over view of their key accounting policies.
From the reporting of
financial statements we can have a good understanding of their
current performance.
The concerned company has made a very good investors
relationship program. It
publishes annual report in due time and calls AGM regularly.
Step-5: Identify the Potential Red Flags
In addition to the above analysis, a common approach to
accounting quality analysis
is to look for red flags pointing to questionable accounting
quality. After making
meticulous observation about certain items, we have found the
following results.
The company has not changed any accounting policies to
manipulate the
performance level as well as the company has not made any
unexplained transactions
to boost up profit such as sale of fixed assets or factoring of
existing bad debts.
