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Corporate Accounting And Financial Development

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1. Does the group have any foreign currency transactions? Any foreign subsidiary companies How have they been accounted for in the financial statements?

2. Any other relevant matter that you may wish the board of directors to make note of in respect of some transaction or event, balance of account or disclosure that will assist them in understanding the financial statements of the group?


1. Foreign currency transactions

As per the analysis of the annual report of Commonwealth Bank, it can be stated that the company is evolved with foreign currency transactions. Presently, income under head other comprehensive income has been accounted by the company as Foreign currency translation net of tax i.e.  $ 383 million. The foreign operations of Group include transactions relating to subsidiaries, branches, joint venture and associate. The currency which is being reported varies in accordance with the main economy which has been exposed. Commonwealth Bank complies with the accounting methods provided in International Financial Reporting and Australian Accounting Standard. AASB 9 has been compiled by the company for recording and accounting of financial statements.

Commonwealth Bank translates foreign currency transactions into functional currency by applying exchange rate available on the day when the transaction is done. Monetary assets and liabilities linked to the foreign currency transaction are translated into rate available at the reporting date (Akisik, 2013). Exchange difference arising from the translation of monetary item into spot rate from the rate at which they were recorded on transaction day are accounted in the Income statement (Annual report of Commonwealth Bank, 2016).

Foreign subsidiary companies

ASB Funding Ltd. is a foreign subsidiary (a New Zealand subsidiary) of the company. The company is evolved in banking operations. Another foreign subsidiary of the company is PT Bank Commonwealth incorporated in Indonesia. The extent of ownership in this company is 80%. Provisions of AASB 101 Presentation of Financial Statements and AASB10 Consolidation are being compiled for the purpose of accounting of consolidation transaction.  Commonwealth Bank follows the policy of accounting subsidiaries at a cost reduced by impairment. The principals relating to taxation specified in AASB 112 “Income Taxes” has been compiled by the company for measuring and presenting deferred tax asset arising from subsidiaries. The foreign subsidiaries are presented below with extent of beneficial interest:

Figure 1: Foreign Subsidiaries of Commonwealth Bank

(Source: Annual report of Commonwealth Bank. 2016)

2. Other matters to be included to provide assistance in understanding financial statements:

As per the analysis of the annual report of Commonwealth Bank, the company should provide detail and appropriate disclosure of accounting procedure adopted by it. The same will provide justification of the transactions operated and will increase the trust of stakeholders (Parker, 2013). In the present case, as management has determined that no control is accessed on AHL Holdings Pty Limited, hence the same has been accounted for joint venture using equity method. It can be concluded as per the analysis that prudent policies have been followed by the company, as the necessary information is presented in an appropriate manner in case of any change in the subsidiary.

Furthermore, the directors should also provide information relating to future projects in detail manner so that the prospective benefits can be estimated by the investors (Yu and Wahid, 2014.). However, introduction regarding future projects has been made available i.e. blue sky projects (block chain and quantum computing), but no data regarding its benefits is made available by the management. The same is necessary for evaluating the future potential of the company as it has the same importance as present achievements.

Commonwealth Bank will be able to provide appropriate and better presentation by adding above specified information in financial statements. The same will provide assistance to the users in understanding financial statements.



Books and Journals

Akisik, O., 2013. Accounting regulation, financial development, and economic growth. Emerging Markets Finance and Trade. 49(1). Pp.33-67.

Parker, R.H., 2013. Accounting in Australia (RLE Accounting): Historical Essays (Vol. 58). Routledge.

Yu, G. and Wahid, A.S., 2014. Accounting standards and international portfolio holdings. The Accounting Review. 89(5). Pp.1895-1930.


Annual report of Commonwealth Bank. 2016. [PDF]. Available through < >. [Accessed on 20th January 2016].

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