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i. Do your own research and critically discuss whether the financial accounting and reporting should be regulated or manager should be allowed to disclose financial accounting information voluntarily.

ii. Do your own research and critically explain how the Australian Accounting Standards Board take part in the global accounting standard setting process (i.e. in setting IFRS). Why is the IFRS set by the International Accounting Standards Board (IASB) not compulsory for the member countries of IASB?

Select 4 public limited companies listed on the Australian Securities Exchange (ASX) that are in the same industry. Go to the website of your selected companies. Then go to the Investor Relations section of the website. This section may be called, “Investors”, “Shareholder Information” or similar name.

In this section, go to your firms’ annual reports and save to your computer your firms’ latest annual reports consecutively for last four years. Do not use your firms’ interim financial statements or their concise financial statements. Please read the financial statements (balance sheet, income statement, statement of changes in owner’s equity, cash flow statement) very carefully. Also please read the relevant footnotes of your firms’ financial statements carefully and include information from these footnotes in your answer.

You need to do the following tasks:

iii. From your firms’ financial statements, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firms over the past four years articulating the reasons for the change.

iv. Provide a comparative analysis of the debt and equity position of the four firms that you have selected.

The importance of annual reports for stakeholders of public limited companies

The recording and keeping the financial transaction and the information about the financial position is quite crucial for the businesses because of the globalization and the huge competition in the market. The report focuses on the various rules, frameworks, information related to the financial and non financial position, corporate governance, corporate regulations, accounting standards, recording system etc of the business.

1. Annual reports are prepared and maintained by the companies in order to keep the record of all the important aspects of the business and communicate the performance and position with the stakeholders of the business. The financial performance and the activities influence the decision of the shareholders about the company and their investment in the company. 

The annual report and all the financial information contained in the annual report of the company helps to stakeholders such as shareholders, investors, financial institution, suppliers and other stakeholders of the business to make a decision. The internal and external stakeholders of the business evaluates the accounting information and the annual report of the business in order t maintain the future strategies of the business and forecast the financial position of the business to make better decision. The annual report does not only contain the financial statement of the business but it also offers about the operation, activities, new projects etc of the business in order to make it easier for all the stakeholders of the business to identify the position and make better decision.

The information about the financial position and performance could be obtained by the financial manager and the external stakeholders of the business through identifying the profitability, solvency, liquidity etc position of the company. On the other hand, the non financial performance of the business could be evaluated on the basis of the corporate governance, sustainability report, and corporate social responsibility etc headings of the annual report of the company.

Because of the improved area and focus on the financial information of a business, it is important for the managers to regulate it at grand level and must disclose all the related information about the company in the annual report to improve the transparency level and the faith of the stakeholders in the company. In case the managers get permission to disclose the financial information and position on the basis of their thought then it does not offer the desired information to the shareholders of the business and only that information would be disclosed in the annual report of the business which is in the favour of the company. The reports would be manipulated in such a way that the investors got attracted towards the company even though the company is suffering through huge losses.

Accounting standards and their role in ensuring consistency in financial reporting

The financial reports of the company are prepared because of various reasons such as in order to enable the stakeholders of the company to understand the actual financial position of the business, to make it easier for the internal and external stakeholders of the business to make better decision, to allow the potential investors to make decision about the investment into the company etc. if the proper information is not offered in the annual report of the business than it could affect the business at huge level.

Thus, it is necessary for the managers and the business to follow the financial regulatory in order to prepare and present the annual report of the business. The frameworks and the accounting regulatory make it easier for the business to set the uniformity in the annual report and offer all the relevant information about the company in the annual reports. Further, these frameworks and rules also stop the managers to offers the manipulative information in the annual report to affect the decisions of the stakeholders of the company.

2. Accounting standards are prepared by the accounting bodies and followed by the companies in order to offer the guidance and uniformity in the annual report of the business. These standards make it sure that all the relevant information and the details are provided in the annual report of the business and the recording of all the financial figures are done in a proper way. AASB makes and amends the accounting standards in the Australian market. It is a government body which evaluates the market, international regulatory etc in order to make the better accounting standards for the Australian businesses. The AASB is responsible for the changes, development, maintenance etc of the accounting standards.

Australian Accounting standards board (AASB) and the policies, rules and regulations of AASB are important for the business. The AASB takes the concern on various factors to develop and make the changes in the already existing accounting standards of the business. The international accounting standard board (IASB) is the international body which regulates the accounting standard. It is a private body which mainly commits the implementations and development in the accounting standards to set a high quality across the international level for the purpose of public interest.  The IASB framework cooperates with the different nations accounting bodies to help them to maintain and set better accounting standards to offer transparent information about the business to the stakeholders.

The role of Australian Accounting Standards Board (AASB) in maintaining accounting standards

AASB has considered the framework of IASB. These steps have been taken by AASB in order to maintain the policies in such a way that the adequate information is provided by the annual report of the company to the stakeholders of the business. AASB assists the IASB in order to find out the issues and the lose points of the accounting standards so that it could be formulated soon.

Further, the AASB also asks for the individual entities in the Australian market to identify the errors in the accounting standards. The AASB regulates its accounting standards through the IASB standards in order to maintain the better framework and policies of the business. The main reasons behind not making it mandatory for few of the countries to follow the IFRS rule is that the already set accounting standards of the country could not be aligned with the new rules of the IFRS. If the country would force the entities of that country to adopt the rules then it would affect negatively on the reporting standards of the country. 

Owner’s equity is the item related to the total funds which is maintained by the businesses in order to invest in the long term project and the run the activities of the business in better way. In the report, the owner’s equity of the CBA, Westpac, Australia and New Zealand bank and NAB has been taken into the concern. The study has been performed on the last 4 year’s equity position of both the companies. Below given table represent the last 4 years equity level of all the 4 companies of Australia:

(Common Wealth Australian Bank) AUD in million

2014

2015

2015

2017

Share capital

24591

25742

2687

34971

Reserve

1564

1687

1789

1869

Retained earning

25252

2589

2610

26330

(National Australian Bank) (Amount in Millions)

2014

2015

2015

2017

Share capital

48415

53096

58120

61288

Reserve

110

145

155

178

Accumulated earning

14255

15255

16454

17252

(Westpac) (Amount in Millions)

2014

2015

2015

2017

Share capital

29251

25254

30252

34627

Reserve

112

168

210

237

Retained earning

15442

15891

16422

16442

(Australian and New Zealand Bank) (Amount in Millions)

2014

2015

2015

2017

Share capital

28254

27845

31252

33544

Reserve

114

188

210

225

Retained earning

13442

1441

1551

16642

On the basis of the above table, the main components of owner’s equity of the company are share capital, reserves and the retained earnings. Share capital represents the total funds which have been raised by the business through selling the equity and preference shares in the market. Share capital position of CBA represent that the share position of the company has been improved from $ 24591 to $ 34971 in the year of 2017. The share capital shows an improvement of 42.21% in the total share capital of the business. The improvement has been seen in the share capital of the business because of the better capital market position and the issue of shares in the market. Further, on the basis of the NAB share capital position, it has been found that the 26.59% increment has occurred into the share capital position of the business. The changes have taken place because of higher issuance of the shares in the market. The owner’s equity level of Westpac bank and Australia and New Zealand bank also explains about 18.38% and 18.72% increment in the share capital of the businesses. In case of both the companies, increment has taken place because of better market position and stock level.

Analysis of owner's equity in four selected Australian public limited companies

Further, reserves represent the total funds which have maintained by the business from its operating profit in order to save the business from any sudden losses. Reserve position of CBA represent that the reserve has been improved by 19.50% in 2017 from 2017. The changes have occurred due to the demand of the economy and the international operations of the company. Further, on the basis of the NAB share capital position, it has been found that the 61.82% increment has occurred into the reserve position of the business. The changes have taken place because of higher fluctuations in the debtor’s level etc. the reserve level of Westpac bank and Australia and New Zealand bank also explains about 111.61% and 97.37% increment in the reserve of the businesses. In case of both the companies, increment has taken place because of demand of the business.

Lastly, retained earnings represent the total funds which are kept from the net profit in order to manage the internal operations and the long term project of the business. Retained earnings of CBA represent that the retained earnings has been improved by 4.27% in 2017 from 2014. The changes have occurred due to the better dividend payout ratio of the business. Further, on the basis of the NAB retained earnings position, it has been found that the 21.02% increment has occurred into the retained earnings position of the business. The changes have taken place because of the funds demand in the business. The retained earnings level of Westpac bank and Australia and New Zealand bank also explains about 6.48% and 23.81% increment in the retained earnings of the businesses. In case of both the companies, the dividend payout ratios have been the main reasons behind increment in the retained earnings.

The capital structure level of all the 4 companies has been studied further in order to recognize the position of the financial gearing and cost of the business. The debt and equity funds are the main source of funds of a business. On the basis of the debt and equity level of the companies, it has been found that the different level is managed by the companies in order to manage the financial risk and cost level. The tables below represent the debt and equity level of all the companies.

NATIONAL AUSTRALIA BANK LTD  (NAB)

Fiscal year ends in September. AUD in millions except per share data.

2014-09

2015-09

2016-09

2017-09

Total stockholders' equity

47891

55494

51292

51306

Total liabilities

102793

110287

10377

10171

Debt / Equity

2.146

1.987

0.202

0.198

Common Wealth Bank

Fiscal year ends in September. AUD in millions except per share data.

2014-09

2015-09

2016-09

2017-09

Total stockholders' equity

48811

52431

60206

63170

Total liabilities

24207

25291

27462

28449

Debt / Equity

0.496

0.482

0.456

0.450

Westpac Bank

Fiscal year ends in September. AUD in millions except per share data.

2014-09

2015-09

2016-09

2017-09

Total stockholders' equity

48456

53098

58120

61288

Total liabilities

152251

184894

185707

186022

Debt / Equity

3.142

3.482

3.195

3.035

Australian and New Zealand Bank

Fiscal year ends in September. AUD in millions except per share data.

2014-09

2015-09

2016-09

2017-09

Total stockholders' equity

49207

57247

57818

58959

Total liabilities

93703

110756

113044

17710

Debt / Equity

1.904262

1.934704

1.95517

0.300378

On the basis of the above given table, it has been found that the debt and equity level of NAB, CBA, Westpac and ANB is 0.198, 0.45, 3.03 and 0.300 which has been reduced in all the banks by .908, 0.92, 0.034 and 0.84 from 2014. All of banks explain that the debt and equity level has been reduced by the banks in order to maintain the optimal capital structure level in the bank.

On the basis of the comparative analysis, it has been recognized that the debt equity level of CBA is better in the market. The CBA is maintained 0.45 times of debt against the equity in order to manage the financial gearing position and the cost of the business. In terms of other banks, it has been recognized that the financial gearing level of Westpac is higher in the industry and the lowest financial gearing position in the industry is of NAB. All of these banks except the CBA are required to make the changes in the capital structure level to make it more competitive. 

Conclusion:

On the basis of the above study on the various accounting factors and 4 Australian banks, it has been found that the uniformity is essential in the businesses in order to make t easier for the related parties and the stakeholders of the business to reach over a conclusion. The accounting standards and the AASB framework plays important role in order to set the uniformity and present all the financial and non financial information in the annual report of the business.

Annual report, Australian and New Zealand bank (26th September, 2018) <https://shareholder.anz.com/pages/annual-report-archive>

Annual report, Commonwealth bank of Australia (26th September, 2018) <https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/annual_report_2017_14_aug_2017.pdf>

Annual report, National Australia Bank (26th September, 2018) <https://www.nab.com.au/about-us/shareholder-centre/financial-disclosuresandreporting/annual-reports-and-presentations>

Annual report, Westpac Bank (26th September, 2018) <https://www.google.co.in/search?ei=LEyjW-3hBs-hyAOMp56oBA&q=wetpac+bank+annual+report&oq=wetpac+bank+annual+report&gs_l=psy-ab.3..0i13k1l3j0i13i30k1l2j0i22i30k1l5.2063.4535.0.4630.14.11.0.0.0.0.288.1327.2-5.5.0....0...1.1.64.psy-ab..9.5.1320....0.3S0qMxJ0Rz0>

Bhasin, Madan Lal. "Corporate accounting fraud: A case study of Satyam Computers Limited." (2015).

Bowen, Robert M., Shivaram Rajgopal, and Mohan Venkatachalam. "Accounting discretion, corporate governance, and firm performance." Contemporary accounting research 25.2 (2008): 351-405.

Brown, Philip, Wendy Beekes, and Peter Verhoeven. "Corporate governance, accounting and finance: A review." Accounting & finance 51.1 (2011): 96-172.

Cooper, David J., and Michael J. Sherer. "The value of corporate accounting reports: arguments for a political economy of accounting." Accounting, Organizations and Society 9.3-4 (2014): 207-232.

Danko, Dori, et al. "Corporate social responsibility: The united states vs. Europe." Journal of Corporate Accounting & Finance 19.6 (2008): 41-47.

Fan, Joseph PH, Stuart L. Gillan, and Xin Yu. "Property rights, R&D spillovers, and corporate accounting transparency in China." Emerging Markets Review 15 (2013): 34-56.

Haman, Janto, John Donald, and Jacqueline Birt. "Expectations and perceptions of overseas students in a post-graduate corporate accounting subject: A research note." Accounting Education: an international journal 19.6 (2010): 619-631.

Lara, Juan Manuel García, Beatriz García Osma, and Fernando Penalva. "Accounting conservatism and corporate governance." Review of accounting studies 14.1 (2009): 161-201.

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