Analysis Of Cash Flow And Comprehensive Income Essay For National Australian Bank.

(i) From your firm’s financial statement, list each item of reported in the CASH FLOWS STATEMENT and write your understanding of each item. Discuss any changes in each item of CASH FLOWS STATEMENT for your firm over the past year articulating the reasons for the change.

(ii) Provide a comparative analysis of your company’s three broad categories of cash flows (operating activities, investing activities, financing activities) and make a comparative evaluation for three years.

(iii) What items have been reported in the other comprehensive income statement

(iv) Explain your understanding of each item reported in the other comprehensive income statement

(v) Why these items have not been reported in Income Statement/Profit and Loss Statement

(vi)What is your firm’s tax expense in its latest financial statements?

(vii) Is this figure the same as the company tax rate times your firm’s accounting income? Explain why this is, or is not, the case for your firm.

(viii) Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.

Items reported in the Cash Flow Statement

With the changes in economic, each and organization needs to comply with the accounting and income tax rules and regulation to prepare the financial statements of company.  Income statement is accompanied with the expenses and revenue which company needs to record to identify the true and fair view of the profit earned. In addition to this, cash flow statement is prepared to identify the inflow and outflow of cash in busienss irrespective of the fact that whether it belongs to present year or not. In this report, National Australian Bank has been selected to evaluate the recording of the income tax as per the accounting rules and income tax rules and regulation as per the AASB 112.

This report reflects the entire amount shown in the compressive income statement and Cash Flow Statement Company. The National Australian bank is one of the four largest banks in Australia and set up its business over the last 160 years.

Cash flow statement is the statement which is accompanied with the inflow and outflow of cash in busienss in the present year irrespective the fact that it belongs to present year or not.

After analysing the annual report of National Australian Bank, it is observed that bank has seen high amount of diversity in its cash paters over the years. However, dividend payment of company is  AUD 4750 million  in 2017 which is 5% higher as compared to last year data. It has also increased its cash outflow from its operating activities which have reflected that company has increased its outflow of operating activities by 12% since last three year.

There are several other transactions such as interest received, issue of bonds, proceed of  also like interest received, dividend received, proceeds from issue of bonds, proceeds from debt issues which reflects good amount of cash flow in business.

The reflected table shows that cash flow statement of company reflects that company has increased its cash outflow mainly from the investing activities. As the evident for the operating activities, National Australian Bank has increased its cash outflow by 20% since last two ears. The investment activity also includes its investment in buying new assets in the books of accounts (Common Wealth Bank, 2017).

In addition to this, cash used in the investing activities and the entire amount shown in the cash flow statement reflects that the free cash flow of company has been increased by 12% over the last one year.

Changes in the Cash Flow Statement over the Past Year

There are several items have been recorded in the comprehensive income statement of the company.

The comprehensive income statement is accompanied with the two separate accounts. The first specific account cannot be reclassified into the profit and loss account. It included all the changes in h financial libiliteis designed at the fair value attributable. The revaluation of land and building, currency adjustment will also be included in the books of account of company (Kubrick, et al. 2016).

There is another section which could be classified into the profit and loss account. It includes all the losses and profited earned by company due to the impact of foreign exchange reserve and debt adjustment in the books of accounts

All these transactions are recorded and adjusted after deducting the tax payment in the books of account of company.

These all the transactions are recorded in the books of account and comprehensive income statement of company.

It total equity capital shown in the comprehensive income statement of National Australian Bank covers all the amount of owners and non-controlling interest (Mullinova, and Simonyants, 2016).

All the listed companies in Australia are required to comply with the IFRS rules and standards while formulating the statement of company.

These accounting standards are framed by the AASB which needs to be complied by the companies to prepare their financial statement

These certain items cannot be reflected in the statement of the profit and loss account which needs to be presented in the comprehensive income statement of National Australian bank

As per the IFRS rules and regulations, comprehensive income statement and incomes statement should be presented into two main accounts for the better transparency of the busienss.

It is considered that tax is the amount of money which needs to be paid by the companies as their legal obligation. It is the amount of money charged on the profit and loss account of company.  It is the compulsory monetary payment which is made by the National Australian Bank to government on its earning (National Australian Bank, 2017).

It is evaluated that National Australian Bank has two types of income one is taxable income computed by following the all the income tax rules and regulation given under the AASB 112 and accounting income is computed by using the accounting rules (Phillips,  Pincus, and Rego, 2013). 

The tax rate times computed the tax payment by using the accounting income i.e. 30% tax charged on the total accounting income.

Comparative Analysis of Cash Flows for Three Years

Therefore, it could be inferred that due to the difference between the accounting rules and regulation and taxation rules, there may arise difference between the tax amount computed on both incomes (Pulker,.Scott, and Pollard, 2018).

It is observed that deferred tax assets is generated when firm pays tax on its taxable income which amounted to more than the tax paid on its accounting income.

The recording of the deferred tax shows the amount of asset which company has in its books of account. After analysing the annual report of company, it could be inferred that company has deferred tax assets of AUD $ 1925 which reflects that it has paid the tax amount which is far beyond the tax computation on its accounting income (Badenhorst, and Ferreira, P2016).

In both years, National Australian Bank has kept the deferred tax assets in its balance sheet.

The income tax expenses are the amount of money charged on the taxable income of the company and will be paid to government as tax.

The current income tax is the amount of tax paid by National Australian Bank.

The tax relates to the accruals of the previous financial year.

On the other hand, income tax payable is the total cumulative amount of tax payable by the company.
It is amount of total tax libiliteis which company needs to pay and records in the total libiliteis side (Chytis, 2015).

The income tax is charged on the current year profit which is recorded in the income statement of company. It is charged on the taxable income computed as per the AASB 112.

The income tax paid by National Australian Bank is the total amount of tax payment made by National Australian Bank in the current year irrespective of the fact that whether it relates to current year or not (Lukic, R., 2017)

Income tax paid recorded in the cash flow statement and reflects the total cash outflow.

Income tax expenses is charged on the profit and recorded in the income statement account.

Interesting thing

The most interesting thing about the recording of the tax is related to the changing rules and consistent amendment which each and every corporate body needs to consider while computing the tax. This level of complexity in the recording of the income tax in the books of account of company increases my divergent thinking with the income tax recording and tax compliance program in effective manner (Larson, Lewis, and Spilker, 2017).

Items Reported in the Comprehensive Income Statement

Surprising

The main surprising thing is relate to the complexity of the taxation rules and its contradiction with the accounting rules while recording various business transactions. I have surprised that how income tax board consistently changes the taxation rules with the change in economic factors. However, eventually, it blocks high amount of capital which may increase the overall cost of capital of business.

Confusing

It is the biggest confusion for the corporate bodies to determine the entry for the tax refund and its time value impact in the books of account.  The main confusing fact is related to the recording of the deferred tax assets and deferred tax liabilities. This recoding procedure generates question in my mind that why National Australian Bank cannot record deferred tax assets and liabilities at the same time (Skinner, 2008).

Difficulty

National Australian Bank cannot book deferred tax assets and deferred tax liabilities in its balance sheet at the same time.  In addition to this, it becomes complex for National Australian Bank to comply with the accounting and income tax rules and regulation of AASB 112 while formulating the financial statement of company.

Conclusion

After analysing all the factors and case study of the National Australian Bank, it could be inferred that it has been paying high amount of tax in its books of account. The deferred tax assets is recorded as asset to company which might positively impact the busienss functioning in long run and blocked high amount of profit.   Now in the end, after analysing the annual report of company, it could be inferred that National Australian Bank has deferred tax assets of AUD $ 1925 which reflects that it has paid the tax amount which is far beyond the tax computation on its accounting income. In addition to this, if in case, National Australian Bank finds contradiction between the accounting rules and regulation with the taxation rules and regulation then income tax rules and regulation will override and all the entries and tax computation will be made as per the taxation rules.

References

Badenhorst, W.M. and Ferreira, P.H., 2016. The Financial Crisis and the Value?relevance of Recognised Deferred Tax Assets. Australian Accounting Review, 26(3), pp.291-300.

Chytis, E., 2015, February. Deferred Tax Assets from unused Tax Losses under the prism of Financial Crisis. In International Conference on Business & Economics of the Hellenic Open University, Athens. Retrieved from https://193.108 (Vol. 160).

Common Wealth Bank  2017., Annual report., [Online]., Available from https://www.nab.com.au/about-us/shareholder-centre/financial-disclosuresandreporting/annual-reports-and-presentations., [Accessed 14th May, 2018].

Kubick, T.R., Lynch, D.P., Mayberry, M.A. and Omer, T.C., 2016. The effects of regulatory scrutiny on tax avoidance: An examination of SEC comment letters. The Accounting Review, 91(6), pp.1751-1780.

Larson, M.P., Lewis, T.K. and Spilker, B.C., 2017. A Case Integrating Financial and Tax Accounting Using the Balance Sheet Approach to Account for Income Taxes. Issues in Accounting Education, 32(4), pp.41-49.

Lukic, R., 2017. Deferred Taxes in Trade. Revista de Management Comparat International, 18(5), pp.527-544.

Morris, J.L., 2017. Classification of Deferred Tax Assets and Deferred Tax Liabilities: An Evaluation of FASB's Attempt at Standards Simplication. Journal of Accounting and Finance, 17(8), pp.198-208.

Mullinova, S. and Simonyants, N., 2016. Reflection of a deferred tax liability in the credit union reporting according to IFRS (IAS) 12" Income taxes". Modern European Researches, (1), pp.83-88.

National Australian Bank  2017., Annual report., [Online]., Available from https://www.nab.com.au/about-us/shareholder-centre/financial-disclosuresandreporting/annual-reports-and-presentations., [Accessed 14th May, 2018].

Phillips, J., Pincus, M. and Rego, S.O., 2013. Earnings management: New evidence based on deferred tax expense. The Accounting Review, 78(2), pp.491-521.

Pulker, C.E., Scott, J.A. and Pollard, C.M., 2018. Ultra-processed family foods in Australia: nutrition claims, health claims and marketing techniques. Public health nutrition, 21(1), pp.38-48.

Skinner, D.J., 2008. The rise of deferred tax assets in Japan: The role of deferred tax accounting in the Japanese banking crisis. Journal of Accounting and Economics, 46(2-3), pp.218-239.