A Critical Analysis on The Impact of Australian Natural Gas Price Cap Policy on Asset Value and Income

Abstract

This paper provides an in-depth critical analysis on the impact of the Australian government's natural gas price cap policy on the asset values and income of major energy companies like Santos. It begins with detailed background information on Santos, examining its business operations, revenue streams, products and services, competitive landscape, and regulatory environment. A comprehensive financial analysis of key ratios from Santos' annual reports is then presented to evaluate liquidity, profitability, efficiency, and leverage trends. The paper highlights several salient business risks posed to Santos from commodity price volatility, operational risks in exploration and development activities, intense competitive pressures, and stringent regulatory compliance requirements. It then rigorously analyzes the significant effects of government-imposed price caps on gas prices on asset valuation and revenue recognition as two key audit matters, delving into the relevant accounting assertions and suggested audit procedures. The implications for the audit report and opinion are also discussed in-depth with regard to properly assessing risks and obtaining sufficient appropriate audit evidence as per Australian Auditing Standards. Overall, this paper conclusively demonstrates how the introduction of gas price controls can profoundly impact asset carrying values and revenues for major energy companies like Santos, posing critical risks of material misstatement that must be thoroughly evaluated and addressed in independent financial statement audits.