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HA2032 Corporate and Financial Accounting

Trimester 2 2018  

Individual Assignment  

Assessment Value: 20%

ASSIGNMENT TASKS
CORPORATE REGULATION (5 Marks)
(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.  

ACCOUNTING STANDARD SETTING (5 Marks)
(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?

OWNERS EQUITY (10 Marks)
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.




Answer

Executive summary

The report constructs the corporate regulation standards, the accounting practices, and the process regarding the implementation of the accounting norms as per the Australian Accounting Standards Board. The second section of the study illustrates the comparative analysis of the owner’s equity through the debt-equity ratio calculation of four ASX listed companies. Therefore, the companies are recommended to increase the overall productivity and the total revenue for the business orientation in the future. 

Introduction 

The research work is about the analysis regarding the corporate and financial accounting. The first section of the study will articulate the regulatory aspect of the financial accounting in terms to relate to the business standards. The second section mainly discusses the procedure of the Australian accounting standards board and the process to take part in the global accounting standard setting. In the last segment of the study, the four ASX listed companies of the same industry are required to be selected. Each item of the equity of four firms for the last four years will be analysed and get the understanding and reason behind the changes. Furthermore, the study will be generated a comparative analysis of the debt and equity of four firms from the latest annual report.

Corporate regulation

Discussion on whether the financial accounting and reporting should be regulated or manager should be allowed to disclose financial accounting information voluntarily

Under the corporate law, the Australian Accounting Standards are managed by the Australian Accounting Standards Board, which is regulated under the Australian government agency in Australia. The accounting standards are maintained for legitimating the requirements to control the business activities. Both the private and public sector entities are required to be articulated these accounting standards to maintain the financial report for their general purposes. There are two types of approaches such as mandatory approach and voluntary approach through which the companies can be regulated and conducted the report of financial accounting.

The mandatory approach of reporting can help in changing the corporate culture and environment through implementing the innovation as per the company’s requirement. This approach can generate the report in terms of delivering the completeness of the recording process (Leuz & Wysocki, 2016). In this context, Guay & Verrecchia (2018) cited that the approach could deliver the report in such way that can provide the comparability of the development and progress. The approach also maintains the legal certainty through which the managers can control the non-disclosure of negative performances within the organisation. In this approach, the managers can reduce the non-diversifiable market risk as well as the free rider problem. The approach can reduce the overall cost, standardisation of the corporate law and deliver the equal treatment for every investor in the industry. The mandatory accounting has some flaws including the gap of knowledge between regulators and investors that can pay an impact in business progression, inflexibility in the work process, the complexity of understanding, lack of efficiency and competitiveness regarding the unstable management structure. 

On the contrary, the voluntary approach to reporting is conducted by the managers of the companies. The capability of the approach has some set of pros and cons. The advantages of this approach are very flexible as the managers of the company conduct the approach. Thus, they can apply the techniques as per the requirements. The proximity of the approach is very high due to the good relationship of every entity. The employees can work independently in order to maintain the creativity as there is not any particular limitation in the work process. The approach can also enhance the collective interest of the industry as the managers negotiate with their employees to get the quality outcomes. The approach has some negative aspects, as there is not any regulatory body to control the business standards. Insufficient resources can make the financial accounting procedures much weaker. The approach can decrease the chances of the globalisation that can affect the business penetration (Depoers, Jeanjean & Jérôme, 2016).

In order to analyse all the advantages and disadvantages of the reporting and financial disclosure, it is stated that the mandatory accounting has the ability to increase the growth of the business by maintaining the regulations of the Australian Accounting Standards. The organisations can enhance the business penetration and spread the business in the global platform. On the other hand, though the voluntary approach can generate the flexibility, however, the approach cannot stand in terms of globalisation as well as the market orientation in a big aspect.  

Accounting standard setting

The procedure of the Australian Accounting Standards Board takes part in the global accounting standard-setting process 

The AASB is an agency of the Australian Government, which is controlled by the Australian Security and Investments Commission Act 2001. The main aim of the AASB is to contribute the stakeholder's performance to enhance the confidence that can complement the Australian economy in terms of increasing the capital markets and it external reporting mechanism. The process is to develop the issue of concern and maintain the Australian accounting and the external reporting business standards to provide the guidance, which can meet the customer's requirement and needs. The quality and the consistency can add the value to spread the activities in terms of following the procedures of the global accounting standards (Bamber & McMeeking, 2016). It also helps to develop the single set of accounting standards to run the business for worldwide use. The reasons are mentioned below: 

  • Construct the conceptual framework for      understanding the purpose of the proposed accounting standards.
  • The accounting standards are required to follow      the Corporations Act 2001, under section 334 for eliminating the errors.
  • Reducing the cost of capital to promote the      quality of accuracy and enable to compete with the overseas enterprises.
  • Managing the interpersonal relationship of the      entities and stakeholders of the company to decrease the communication gap      and manage the investors’ confidence in the Australian territory.  

The reason behind the IFRS set by the International Accounting Standards Board (IASB) not compulsory for the member countries of IASB

The IFRS is set by the International Accounting Standards Board to interpret the development regarding the business standards. The necessary judicial accounting procedures are the same for all the countries. However, every country has their own set of law to maintain the accounting activities like auditing, evaluating the financial reports, and enhancing the skills of accounting education. The reason that the adaptation of the IFRS process is not applied by jurisdiction as the process is not a simple binary decision. Jurisdictions of accounting standards are different in different countries, therefore to implement the range of rules, set the auditing structure to conduct the national standards. The corporate law of the different countries are different and the requirements are different. For that, it is not possible for every country to adopt the rules and implement it in their organisations. Thus, it is not compulsory for all the countries to follow the AASB range of procedures to compute and evaluate the accounting standards (Kvaal, 2017).   

Owner’s equity 

Selection of each item of equity of four firms and discussion of the changes for last four years

Arrow mineral ltd

Equity items2017($)2016($)2015($)2014($)
Issued capital30,404,87627,872,07226,384,65423,209,714
Reserves953,954897,198653,752443,652
Accumulated losses(22,602,265)(21,714,623)(20,920,114)(18,481,621)

Table 1: Equity analysis of Arrow mineral ltd

(Source: self-developed)

Issued capital of the company can imply the number of shares issued by the shareholders of the company. The above table indicates the growth in the number of issued capital. The reserve of the company has implied the amount, which the company keeps aside to use for future uncertainty. The reserve amount has been also increased which indicates a healthy growth for the company. Accumulated losses of the company have generated high balance over the past four years, which means the company’s retained earnings are zero. In order to eliminate the risk, the company is required to sell the shares or borrow some money to cover up the deficits.

Artemis resources limited

Equity items2017($)2016($)2015($)2014($)
Share Capital39,067,55432,374,44329,956,601 28,918,344
Reserves172,000          -125,000572,536
Accumulated losses(33,315,441)(31,136,937)(24,784,451)(21,302,051)

Table 2: Equity analysis of Artemis resources limited

(Source: self-developed)


The share capital of the company has shown a positive involvement of the shareholders who are interested to invest on the company’s shares. The reserve has indicated a negative growth of the company. In 2016 the company’s reserve has shown zero balance which means the company cannot able to save some money for its future usage. The accumulated losses of the company over the last four years have been increased.

Anova metals limited

Equity items2017($)2016($)2015($)2014($)
Issued capital 44,747,74134,947,12332,895,62429,315,219
Reserves1,863,0072,425,122,176,1611,897,431 
Accumulated losses(28,157,576(24,980,833) (22,774,331)(19,118,001)

Table 3: Equity analysis of Anova metals limited

(Source: self-developed)

The numbers of issued shares have been showing a growth in productivity of Anova Metals limited. The increase in the shareholders involvement has reflected the healthy progress of the company. The reserve amounts of the company have been showing more or less the same. The accumulated losses have been increasing over the last four accounting years, which indicates the company cannot be able to generate the retained earnings from the market. 

Amani gold limited

Equity items2017($)2016($)2015($)2014($)
Issued capital47,883,51736,719,40630,550,12528,320,657
Reserves7,852,6269,681,6438,347,4315,220,698
Accumulated losses(30,445,659)(30,690,744)(28,777,632)(25,901,388)

Table 4: Equity analysis of Amani gold limited

(Source: self-developed)

The issued shares of the company have been showing a positive impact in business orientation. It also implies the high volume of productivity of the company. The reserves of the company show the company can be able to keep aside a small amount of money to cover the future uncertainty. The accumulated losses of the company have been increasing which indicates the company has a tendency to borrow loans to generate the business activities.

Comparative analysis of the debt and equity position of the four selected firms

Arrow   mineral ltd

2014201520162017
Long   term debts


 $100,708.00 
Equity   shareholders' fund  $5,171,745.00  $6,118,292.00  $7,054,647.00  $8,756,565.00 
Debt to   equity ratio 0%0%0%1.15%

Table 5: Calculation of the debt-equity ratio

(Source: Arrow Minerals | Arrow Minerals Limited (ASX: AMD). 2018)

The company did not borrow any long-term debt during 2014, 2015 and 2016. In the year 2017, the debt-equity ratio of the company is 1.15%, which indicates the company has an ability to cover up the long-term loan. 

Artemis resources limited

2014201520162017
Long term debts



Equity shareholders'   fund  $8,182,490.00  $5,297,150.00  $1,237,506.00  $5,924,113.00 
Debt to equity ratio   0%0%0%0%

Table 6: calculation of debt-equity ratio

(Source: Home - Artemis Resources. 2018)

The company has enough capital to run the business without borrowing any debts and equity.

Anova metals limited

2014201520162017
Long term debts


 $        182,150.00 
Equity shareholders' fund  $  12,094,649.00  $  12,297,454.00  $  12,391,418.00  $  18,453,172.00 
Debt to equity ratio 0%0%0%1%

Table 7: calculation of debt-equity ratio

(Source: Anova Metals » Annual & Half Yearly Reports. 2018)

The company has generated debt-equity ratio of 1% in the year 2017, which indicates the company has the high financial leverage.

Amani gold limited

2014201520162017
Long term debts


 $        487,013.00 
Equity shareholders' fund  $    7,639,967.00  $  10,119,924.00  $  15,710,305.00  $  25,674,183.00 
Debt to equity ratio 0%0%0%2%

Table 8: calculation of debt-equity ratio

(Source: Annual Reports | Amani Gold. 2018)

The company has generated 2% debt-equity ratio, which indicates the company has $2 of debt for every dollar of equity. 

Conclusion

The entire study has generated the advantages and disadvantages of the mandatory accounting standards and the voluntary accounting approaches procedures to evaluate the company potentiality. The study has focused the analysis of the Australian Accounting Standards Board and the procedure through which AASB can regulate the other countries business practices by using the set of IFRS rules and regulations. The study has further implied the equity changes of four selected companies for four years. Along with that, the study has reflected the comparative analysis of four-selected company’s debt-equity ratio to understand the business potentiality of the companies. 

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