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

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 the industry. The companys management doesnt make earning management and the same time they have no strong incentive to do that. The company has no changed any of its policies or estimates without justification. To the answer of the question about accounting policies, the company has not changed any important accounting policies. The companys accounting policies were realistic in past and all the pol icies were 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.

From the reported papers, we have no confusion about the figure of sales and accounts receivables and level of inventories. For several of years, the company has no records of writing off large assets. The company also doesnt maintain the time segment reporting.

Step-6: Undo Accounting Distortions

The elements of financial statements have been measured at historical cost convention, in a going concern concept and on accrual basis. It is normal to have some fluctuation regarding the decisions about the accruals. The accounting policy of Alltex Industries Ltd is designed in such a way that it is not possible to undo all distortions and footnotes that are given may provide significant condition.