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Corporate Accounting Sample Assignment

Executive Summary

The aim of the report is to study the various aspect of financial reporting and accounting standards set up. The report tells us about the importance and role of financial reporting and its governance by the accounting standard body. The importance of the accounting standard body and its principles guidelines is deliberated in the project. The need of an accounting standard body for the oversight of transactions and principles of financial reporting. The importance and roles of the AASB in setting up the global accounting standard body us also discussed. Finally, at the last part of the project four companies is selected of banking industry where the components of shareholders’ equity was discussed. The company’s debt and equity analysis is performed to check the percentage of debt in comparison to equity.

Introduction

The financial reporting and presentation of financial statement according to the accounting standard bodies and its role and importance. The accounting standard bodies plays an important role in the layout of financial reports and financial statements. The accounting transactions and the adjustments for the same are well-accounted and transparent information provided when the financial information is given an oversight by the regulatory bodies (Feng, McVay and Skaife 2014).

The role of the Australian Accounting Standards Board in the setup of global accounting standard body has helped the company set uniformity in the accounting principles of financial reports. The International Financial Reporting Standard (I.F.R.S) are the standard issued by the International Accounting Standard Bodies (Baskerville 2015).

The four companies selected for fundamental analysis shows the different composition of equity and the components of equity. Shareholders equity for the four companies and the trend analysis for the same is performed. The comparative debt and equity analysis was performed in order to get a financial overview of the company.

Discussion

Corporate Regulation

Financial reporting and accounting should be regulated and governed by a uniform accounting standard body. The following response was on the basis and need of transparent representation and the investment decision information it provides. The main objective of the financial statement is to provide information about a firm’s financial position, financial performance and cash flows to current and potential investors and creditors for decision-making. The importance and objective of the financial information provided is justified when the accounting standards is well governed by Standard Setting Bodies. The standard setting boards are Financial Accounting Standard Board (FASB) where the source of accounting standard and regulation is through U.S. Generally Accepted Accounting Principles (U.S.GAAP). The Indian Standard Accounting Board is also one of the accounting standard setting bodies where I.F.R.S approach is preferred (Leuz and Wysocki 2016).

Regulatory standards though narrow down choices available to the management to ensure consistency while at the same time allowing flexibility to the companies for correctly reflecting the source and economics of transactions done. If the financial accounting and reporting were regulated through one of the standard setting bodies then it would help in better security analysis and valuations, which generally requires a forecast of future cash flows and assessment of risk. The same procedure is followed and because the financial information provided to the company is represented in a true and fair view. Regulations of Financial Reports and transactions would give a manager a better view of recording transactions (Nobes 2014). Accrual basis or cash basis of accounting the two common base for recording accounting equations. Accrual basis of accounting is subjective or judgemental which is more reflective of the performance of the company where revenue and expense is earned or incurred. However, Cash basis is not aggressive accounting as accrual basis here revenue and expense are recognised when the same is realised and incurred. Managers can play around with such accounting equations when it want to boost revenue for the company. A coherent or essential financial reporting framework is one that fits logically together and should have three qualities like transparency, comprehensiveness and consistency. However, there may be hindrances for the development of such framework if the accounting transactions is not followed and guided through an accounting standard body. Valuation of assets whether historical or fair market value, recording transactions accrual or cash basis are some of the main common problems faced by companies. In order to avoid conflict of interest and represent a true and fair view of the financial report it is always advisable to represent financial reports via the guiding principles of the accounting standard body (Georgescu and Laux 2015).

Accounting Standard Setting

The accounting standard body (IASB) International Accounting standard board itself sets up the guiding principles and accounting standards for the Indian Financial Regulatory System (IFRS). Australia and New Zealand have adopted IFRS equivalently since 1st January 2005. The guidelines and principles of the Australian accounting standard body is converging to the IASB, which follows IFRS the universally accepted set of accounting reports. The conceptual framework for the IASB is to provide transparent and comprehensive information to the stakeholders of the company. The fundamental characteristic of the IASB is to provide relevant information, which is useful for decision-making, and used for predicting values and confirmatory values. The reports must be understandable, it should be verifiable and presented in a timeliness manner so that the informations are useful for the stakeholders of the company. The IASB delivers high quality for developing global accounting standards, which says that information present must be transparent and comparable for the investors of the company. The IASB has cooperated with the AASB, the Australian Government Agency for ensuring that the convergence is reported in the accounting standard bodies (Camfferman and Zeff 2015).

The preparation for IFRS adoption began in the year 1996, which were carried down until the year 2002 where the accounting standard bodies have significantly narrowed down differences between the IFRS and AGAAP (Christensen et al. 2015). The accounting standard bodies have significantly reduced the differences in several areas. IFRS was more detailed and comprehensive, giving recognition and guidance of financial instrument and there methods of recognition and other employment benefits involved. The AGAAP was more comprehensive in the field of recognising and accounting for insurance, intangible assets and other activities. The key policy decision in the accounting standard bodies was including all options provided by the IFRS, which were like maintaining the corridor approach for the actuarial gain or loss incurred or gained under the post-employment benefits. The IFRS foundation is one which oversights different boards and committees like the IASB and IFRS (Louwers et al. 2015).

Owner’s Equity

The four public listed company selected for the financial analysis is ANZ Bank, Commonwealth Bank, National Australia Bank and Westpac Bank. The financial analysis is performed on the above companies. Statement of Equity shareholders and a comparison of debt and equity analysis is performed.

The different items of equity and the trend over the four-year period is discussed below:

  • Ordinary Share Capital: Ordinary share capital represent the ownership capital paid by the equity share capital of the company. They generally have rank after the preference shareholder of the company in terms of returns and distribution of profits. Equity or ordinary share capital of the firms have voting rights while the preference share don’t. The equity shareholders of the company bears the highest amount of risk in the company (Gitman, Juchau and Flanagan 2015).
  • Preference Share Capital: The preference shareholders have the same characteristic as that of equity shareholders except the preference shareholders have the right to profit before the equity shareholders of the company. The preference shareholders don not have any voting rights in the company (Seligson 2018).
  • Reserves: Reserves are an important part of the shareholders equity. The reserves is determined after deducting all the assets and liabilities of the company. It is the net assets of the company. The reserves is derived internally by the company, which is used by the company as internal sources of fund for operations (Dichev et al. 2016).
  • Retained Earnings: Retained Earning or ploughed back profit refers to the amount deducted from the profits of the company as a internal reserves for the company as an source of fund for the company. The ploughed back profit forms the part of the equity share capital, which is a type of reserves represented as a component of equity share capital (Penrose 2017).

Analysis of the Equity

ANZ Bank: The Company had sawn a considerable increase in the Share capital of the company in the four-year analysis. The company has tried to increase the financing for the company through equity sources. However, the reserves and retained earnings of the company has shown a massive improvement which shows that the operations and revenue generation by the company has increased significantly. Increase of retained earnings and reserves also improves the liquidity and solvency position of the company. The main factors contributing to the increase in shareholder’s equity are through retained earnings and share capital which is financialy a positive sign for the company (Kiên and Tuan 2016).

ANZ Bank

Particulars

2014

2015

2016

2017

Shareholder's Equity

Ordinary Share Capital

24,280

28,611

28,765

29,088

Preference Share Capital

871

-

-

-

Reserves

-6

939

1,078

37

Retained Earnings

17,557

20,138

27,975

29,834

Share Capital and reserves attributable to the shareholders of the company

42,702

49,688

57,818

58,959

Add: Non-Controlling Interest

-

-

109

116

Total Shareholders’ Equity

42,702

49,688

57,927

59,075

Table 1: Shareholders’ Equity of ANZ Bank

(Source: ANZ Annual Report 2017)

Trend Analysis of ANZ Bank

Figure 1: Trend Analysis of ANZ Bank

(Source: ANZ Annual Report 2017)

Commonwealth Bank: The equity share capital of the company has shown a considerable increase which shows that the company has increase the equity source of financing in the company. However, the reserves of the company has decreased and remained volatile in the four-year trend period. The retained earnings of the company has shown a static growth on year-to-year basis from the year 2014 to 2017.

Common Wealth Bank

Particulars

2014

2015

2016

2017

Shareholder's Equity

Ordinary Share Capital

27,323

27,894

34,125

35,262

Other Equity Instruments

1,895

1,895

406

-

Reserves

3,011

3,195

3,115

2,556

Retained Earnings

16,206

20,138

20,430

22,312

Share Capital and reserves attributable to the shareholders of the company

48,435

53,122

58,076

60,130

Add: Non-Controlling Interest

-

-

-

-

Total Shareholders’ Equity

48,435

53,122

58,076

60,130

Table 2: Shareholders’ Equity of Common Wealth Bank.

Source: (Annual Report Common Wealth Bank 2017)

Trend Analysis of Commonwealth Bank

Figure 2: Trend Analysis of Commonwealth Bank

Source: (Annual Report Common Wealth Bank 2017)

National Australia Bank: The Shareholders Equity of the company has remained static in the four-year analysis the companies rising equity share capital and falling reserves and retained earnings of the company has made the company financial risk high. The liquidity position and internal reserves of the company has degraded the worst since 2014.

National Australia Bank

Particulars

2014

2015

2016

2017

Shareholder's Equity

Ordinary Share Capital

27,856

34,407

32,524

32,866

Reserves

811

340

309

190

Retained Earnings

19,530

20,470

15,719

15,545

Share Capital and reserves attributable to the shareholders of the company

48,197

55,217

48,552

48,601

Add: Non-Controlling Interest

-

-

-

-

Total Shareholders’ Equity

48,197

55,217

48,552

48,601

Table 3: Shareholder’s Equity

(Source: Annual Report 2017)

Trend Analysis of National Australia Bank

Figure 3: Trend Analysis of National Australia Bank

(Source: Annual Report 2017)

Westpac Banking Corporation: The Company has increased its shareholders equity of the company through issuance of equity shares of the company. However, at the same time the trend in buyback or treasury share has increased consistently for the company. While the reserves of the company has significantly decreased and the profit retention of the company has increased through the way of retained earnings of the company (Jackson 2016).

Westpac Banking Corporation

Particulars

2014

2015

2016

2017

Shareholder's Equity

Ordinary Share Capital

26,943

29,280

33,469

34,889

Treasury Shares

-304

-385

-455

-495

Reserves

1,176

1,031

727

794

Retained Earnings

20,641

23,172

24,379

26,100

Share Capital and reserves attributable to the shareholders of the company

48,456

53,098

58,120

61,288

Add: Non-Controlling Interest

881

817

61

54

Total Shareholders’ Equity

49,337

53,915

58,181

61,342

Table 4: Westpac Banking Corporation

(Source: Annual Report, 2017)

Trend Analysis of Westpac Banking Corporation

Figure 4: Trend Analysis of Westpac Banking Corporation

(Source: Annual Report, 2017)

Comparative Analysis of Debt and Equity

Debt and Equity Analysis

Particulars

ANZ Banking Group Ltd

Common Wealth Bank

National Australia Bank

Westpac Banking Corporation

Total Long Term Debt

107,973.00

134,966.00

121,315.00

168,356.00

Shareholders' Equity

59,075.00

60,130.00

48,601.00

61,342.00

Debt/Equity Ratio

1.83

2.24

2.50

2.74

Table 4: Debt and Equity Analysis

Debt and Equity Analysis

Figure 5: Debt/Equity Ratio.

Conclusion

The importance of the accounting standard bodies in regulating the financial reports and statements of the company is discussed in the project. The presence of accounting standard body for oversight of financials of the company ensure compliance with the accounting and financial guidelines laid. The need for the board is to ensure transparency in the financial informations provided. The need for the global accounting standard is to ensure such that investors can compare and cite several sources of the financial information present in the report.

References

Annual Report Common Wealth Bank. (2017). [ebook] Australia: Common Wealth Bank Limited. Available at: https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/annual_report_2017_14_aug_2017.pdf [Accessed 13 Sep. 2018].

Annual Report. (2017). [ebook] Australia: National Australia Bank. Available at: https://capital.nab.com.au/docs/NAB-2017-annual-financial-report.pdf [Accessed 13 Sep. 2018].

Annual Report. (2017). [ebook] Australia: Westpac Banking Corporation. Available at: https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/ASX_FY17_Financial_Results_Bookmarked.pdf [Accessed 13 Sep. 2018].

ANZ Limited. (2017). ANZ Annual Report [Ebook]. Australia. Retrieved from https://shareholder.anz.com/sites/default/files/2017_anz_annual_report.pdf

Baskerville, R.F., 2015. New Zealand Financial Reporting Regulation (Presentation Slides).

Camfferman, K. and Zeff, S.A., 2015. Aiming for global accounting standards: the International Accounting Standards Board, 2001-2011. Oxford University Press, USA.

Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.

Dichev, I., Graham, J., Harvey, C.R. and Rajgopal, S., 2016. The misrepresentation of earnings. Financial Analysts Journal, 72(1), pp.22-35.

Feng, M., Li, C., McVay, S.E. and Skaife, H., 2014. Does ineffective internal control over financial reporting affect a firm's operations? Evidence from firms' inventory management. The Accounting Review, 90(2), pp.529-557.

Georgescu, O.M. and Laux, C., 2015. Financial Reporting, Financial Regulation, and Financial Stability: Evidence from German Bank Failures in 2007-2008.

Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

Jackson, S., 2016. No variance for filed orders: Hayes v Westpac Banking Corporation [2015] QCA 260. Proctor, 36(2), pp.42-43.

Kiên, C.Đ. and Tuan, N.B., 2016. THE EFFECT OF PARTIAL MERGER & ACQUISITION ACTIVITIES ON TARGET FIRM’S PERFORMANCE: A CASE STUDY FROM BANKING AND FINANCE INDUSTRY IN VIETNAM. Tạp chí Kinh tế Đối Ngoại, 83(Số 83), pp.27-34.

Leuz, C. and Wysocki, P.D., 2016. The economics of disclosure and financial reporting regulation: Evidence and suggestions for future research. Journal of Accounting Research, 54(2), pp.525-622.

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.

Nobes, C., 2014. International classification of financial reporting. Routledge.

Penrose, E.T., 2017. Foreign Investment and the Growth of the Firm 1. In International Business (pp. 33-48). Routledge

Seligson, M., 2018. The right of a redeemable preference shareholder to enforce payment of the redemption amount: a nebulous right!. Business Tax and Company Law Quarterly, 9(2), pp.1-8.

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