Analysis Of Annual Reports: Implementation Of IASB Operative Communication Principles

Current Communication Principles

The proposal of IASB regarding the operative communications of the financial statistics related to objects, I have structured it to reply for its submission. I am looking for an investment opportunity in Westpac group and ANZ bank. It is understood that preparation of financial statements concerning the implementation is clumsy and often it is observed by the investors as inconsistent about the performance in context of financial statements (Arnold, 2012). Annual report prepared contains vital information which is charred by incompetent demonstration of the data of finances. It becomes problematic to take important decisions on the basis of that. After reviewing the annual reports submitted by both organizations I have observed the requirement to escalate the quality of communication statements.

I have studied the plan of current communication which is guided by principles which requires being flawless and modest, object definitive, related to relevant information, prepared for emphasizing significant matters, no redundant repetition, presented in suitable format and analogous. After analyzing the annual report of both ANZ bank and Westpac Group for the year financial year 2016, it was established that some of the actual principles of communication can be added, which is absent while few of them comply (Anz.com, 2017)(westpac.com, 2017). Reputed and famous banks would assist the investors with analyzed evidence that would help them in preparing points to make financial decisions. Banks are obligated to create and deliver with the appropriate section wise analysis and their risks of credit allotment and liquidity.

After reviewing the analysis of annual reports and the data and constituents contained therein, I have made not of some of the particulars that both the banks have not made their disclosures. Westpac has conducted an independent analysis segment wise and there is a constant description of every segment whereas ANZ bank has not been seen to practice the same method as Westpac. They have incorporated their analysis details in the finance statements and have not mentioned it individually. Basel reforms include broader set of methods for consolidation of the rules of banking world. It was found out that ANZ bank has not submitted any kind of details about the requirements demanded by the Basel Reforms separately (Zehri & Chouaibi, 2013). There was no evidence of individual disclosure on the risks of credit allotment and liquidity status of the bank. But the notes of the financial statements contained those details. Moreover, Westpac was seen to make proper revelation of material and necessities of Basel Reforms and kinds of risks present in the banking world. About Tier I and Tier II, there was no written proof in the annual report. On the other hand, all the details were diligently mentioned in the Westpac annual report. Westpac has been particular in mentioning the performances of each division as compared to ANZ bank who has not written anything about that part.

Improvement in Communication of Financial Statements

Banks were unable to analyze and read the details of performance streak which was shown in a graphical presentation. This was done for the ease of banks to analyze their performance. On the accord of submitting a descriptive revelation in some of the matters, the use of graphical presentation would have been more relevant. In context of the given facts, there is a dire of enhancement in the communication of the financial reports.

I would like to suggest some guidelines which IASB should incorporate to enhance the efficiency and to work in an entity specific way for comparisons. Entity specific principles which are available in the annual report are structured according to the requirement of the time rather than being general (Ahmed, Neel & Wang, 2013). Other irrelevant information is available outside the ambit of annual reports that is why writing more specific details becomes appropriate. However, placement of information should be done to reduce the effort made for comparisons between entities and reporting periods. This should be done to keep the integrity of information intact. Graphical presentation in the annual report can prove to be handy to comply with the above requirements.

The draft of discovery initiatives delivered by IASB also contains requirements of supervision on formatting. It is interpreted by shareholders and financiers of the organization that communication efficiency of financial matters can be enhanced with the use of appropriate formatting (Zehri & Chouaibi, 2013). It can be observed that the process of comparison between two distinct reporting periods among the organization becomes easy and less time taking and can be practiced for doing the same thing between any two entities. Suggestion given by the board for applying suitable format to show the financial data are supported by many reasons.Several establishments in the financial world such as banks have printed reports that deliver guidance in making annual reports with the help of tables and graphs In addition to that, there is a factor of uncertainty when it comes to using suitable formats for constructing annual reports.The information which is delivered to the stakeholders will improve a lot if appropriate formatting is done. It is because of the reasons mentioned above that I have concluded the analysis of annual reports of two banks and I have found out that there is a requirement to use formatting in a proper way as one of the guidelines that will assist in producing active communication of financial details written in the financial report of institutions.

Appropriate Formatting for Financial Reports

However, the improvement of format should be based on the factors which are specific and relevant to the entity. This will depend on the nature of information to be disclosed, which can be expressed more clearly in the tabular form. Requirement of fundamental guidance is there for using the new formatting styles in the financial details of organization. Quality of information mentioned in the notes of disclosures can be made better by using proper formatting.

The constituents of suitable formatting will contain diverse formats that would be used according to the type of business object and would be specific in all its sense. Both generalized formatting and condition based formatting should be there so that both of them can be used as per the requirement. This type of disclosure will lift the spirits of investors, stakeholders and the creators of the financial statements. Furthermore, development of non-monetary regulation for the use of formatting is also required.

Placing myself in the shoes of an investor, I would suggest that IASB should take account of some of the guidelines of operational communication of financial data. The most relevant principle would be definitive to the entity, as it will support the investors in producing information with much ease while making it easily comparable. It will change the nature of financial information through objects among reporting periods. Besides, the supervision on formatting also needs to be taken further by considering factors which are specific to some organization.

In the books of Harriette Ltd.
Journal Entries
Date	Particulars	Amount (Dr.)	Amount (Cr.)

31/03/2017	Bank A/c	$8,200,000
	Preference Share Application A/c		$1,600,000
	Ordinary Share Application A/c		$6,600,000
(Being application money received for 2,000,000 ordinary shares and 1,000,000 preference shares)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
15/4/2017	Preference Share Application A/c	$1,600,000
	Preference Share Capital A/c		$1,600,000
(Being application money received for preference Shares application transferred to Preference Share capital)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
	Ordinary Share Application A/c	$6,600,000
	Ordinary Share Capital A/c		$6,000,000
	Ordinary Share Allotment A/c		$600,000
(Being application money received for ordinary share capital transferred to ordinary share capital and excess amount adjusted with due allotment)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
	Ordinary Share Allotment A/c	$3,000,000
	Ordinary Share Capital A/c		$3,000,000
(Being allotment money due on allocated shares)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
15/5/2017	Bank A/c	$2,400,000
	Ordinary Share Allotment A/c		$2,400,000
(Being due allotment money received)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
1/8/2017	Ordinary Share Call A/c	$1,000,000
	Ordinary Share Capital A/c		$1,000,000
(Being call money due on allocated shares)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
1/9/2017	Bank A/c	$975,000
	Calls-in-Arrear A/c	$25,000
	Ordinary Share Call A/c		$1,000,000
(Being due call money received except for 50,000 shares)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
15/9/2017	Ordinary Share Capital A/c	$250,000
	Calls-in-Arrear A/c		$25,000
	Ordinary Share Forfeiture A/c		$225,000
(Being the 50,000 shares, for which call money is due, forfeited accordingly)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
	Bank A/c	$210,000
	Ordinary Share Forfeiture A/c	$40,000
	Ordinary Share Capital A/c		$250,000
(Being the forfeited shares reissued for $4.20 per shares)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
	Cost of Forfeiture & Reissue A/c	$7,500
	Bank A/c		$7,500
(Being cost of forfeiture and reissue of shares paid)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
	Ordinary Share Forfeiture A/c	$185,000
	Cost of Forfeiture & Reissue A/c		$7,500
	Capital Reserve A/c		$177,500
(Being the balance of share forfeiture account after adjusting with cost of forfeiture and reissue transferred to capital reserve)

Workings:

Particulars		Nos. Of Shares	Value per Share	Amount

Pf. Share Application Received	A	800,000	$2	$1,600,000
Ordinary Share Application Received	B	2,200,000	$3	$6,600,000
Ordinary Share Application Allocated	C	2,000,000	$3	$6,000,000
Ordinary Share Application Adjusted	D=B-C	200,000	$3	$600,000
Ordinary Share Allotment Due	E	2000,000	$1.50	$3,000,000
Ordinary Share Allotment Received	F=E-D	1,800,000		$2,400,000
Ordinary Share Call Due	G	2,000,000	$0.50	$1,000,000
Ordinary Share Call Received	H	1,950,000	$0.50	$975,000
Calls-in-Arrear	I	50,000	$0.50	$25,000
Share Capital Forfeited	J	50,000	$5	$250,000
Share Forfeiture	K=I-J	50000		$225,000
Share Capital received fro Reissue	L	50000	$4.20	$210,000
Share forfeiture adjusted with reissue	M=J-L	50000		$40,000

Worksheet for Current Tax Liability/(Refundable)
Particulars	Amount	Amount
Accounting profit before tax		$66,000
Add:
Doubtful Debt Expense	$5,000
Annual Leave	$23,000
Warranty Expense	$12,000
Depreciation Expense for accounting purpose	$60,000
Insurance	$40,000	$140,000
		$206,000
Less:
Government Grant	$20,000
Bad debt expense	$1,000
Annual Leave Paid	$3,000
Insurance Paid	$50,000
Warranty Expense Paid	$2,000
Depreciation Expense for Tax Purpose	$50,000	$126,000
Taxable income		$80,000

Tax on taxable income @30%		$24,000
Less: 30% Tax paid on Sales Revenue		$205,800
Income Tax Refundable		($181,800)

Source: (Created by Author)

Deferred Tax Worksheet
Particulars	Carrying Amount	Tax Base	Taxable Temporary differences	Deductible Temporary differences
Amount	Amount	Amount	Amount
Assets
Cash	$10,000	$10,000
Trade Receivables	$125,000	$125,000
Allowance for Doubtful Debts	($4,000)	$0		$4,000
Inventories	$60,000	$60,000
Prepaid Insurance	$10,000		$10,000
Goodwill	$20,000	$20,000
Equipment	$300,000	$300,000
Accumulated Depreciation	($60,000)	($50,000)		$10,000
Liabilities
Trade Payables	$35,000	$35,000
Provision for Warranties	$10,000			$10,000
Provision for Annual Leave	$20,000			$20,000
Loan Payable	$90,000	$90,000
Total Temporary differences			$10,000	$44,000

Deferred tax liability (30%)			$3,000
Deferred tax asset (30%)				$13,200

Journal Entries

Date	Particulars	Amount (Dr.)	Amount (Cr.)
30/06/2017	Income Tax Expense A/c	$24,000
	Income Tax Refundable A/c	$181,800
	Advance Tax Paid A/c		$205,800
(Being Income tax expenses adjusted with advance tax paid and income tax refundable recorded)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
	Deferred Tax Assets A/c	$13,200
	Deferred Tax Liability A/c		$3,000
	Income Tax Expense A/c		$10,200
(Being deferred tax assets and deferred tax liabilities recorded)
Date	Particulars	Amount (Dr.)	Amount (Cr.)
	Profit & loss A/c	$21,000
	Income Tax Expense A/c		$21,000
(Being income tax expense transferred to profit and loss account)

Worksheet for Current Tax Liability/(Refundable)
Particulars	Amount	Amount

Accounting profit before tax		($44,000)
Add:
Doubtful Debt Expense	$5,000
Annual Leave	$23,000
Warranty Expense	$12,000
Depreciation Expense for accounting purpose	$60,000
Insurance	$40,000	$140,000
		$96,000
Less:
Government Grant	$20,000
Bad debt expense	$1,000
Annual Leave Paid	$3,000
Insurance Paid	$50,000
Warranty Expense Paid	$2,000
Depreciation Expense for Tax Purpose	$50,000	$126,000
Taxable income		($30,000)

Tax on taxable income @30%		$0
Less: 30% Tax paid on Sales Revenue		$172,800

Income Tax Refundable		($172,800)

Source: (Created by Author)

Deferred Tax Worksheet
Particulars	Carrying Amount	Tax Base	Taxable Temporary Differences	Deductible Temporary Differences
	$	$	$	$
Assets
Cash	$10,000	$10,000
Trade Receivables	$125,000	$125,000
Allowance for Doubtful Debts	($4,000)	$0		$4,000
Inventories	$60,000	$60,000
Prepaid Insurance	$10,000	$0	$10,000
Goodwill	$20,000	$20,000
Equipment (Net)	$300,000	$300,000
Accumulated Depreciation	($60,000)	($50,000)		$10,000
Liabilities
Trade Payables	$35,000	$35,000
Provision for Warranties	$10,000	$0		$10,000
Provision for Annual Leave	$20,000	$0		$20,000
Loan Payable	$90,000	$90,000
Total Temporary differences			$10,000	$44,000
Deferred tax liability (30%)			$3,000
Deferred tax asset (30%)				$13,200

Source: (Created by Author)

Workings:

Particulars	Calculation Base
Accounting	Tax
Equipment-at Cost	$300,000	$300,000
Useful Life (in years)	5	6
Depreciation Expenses p.a.	$60,000	$50,000
Period of Utilization (in years)	1	1
Accumulated Depreciation	$60,000	$50,000
Equipment (net Value)	$240,000	$250,000
Particulars	Amount	Amount
Doubtful Debt Expense	$5,000
Less: Prov. For Doubtful debt	$4,000
Bad Debt Expense	$1,000
Annual Leave Expense	$23,000
Less: Prov. For Annual Leave	$20,000
Annual Leave Paid	$3,000
Warranty Expense	$12,000
Less: Prov. For Warranty	$10,000
Warranty Expense Paid	$2,000
Insurance Expense	$40,000
Add: Prepaid Insurance	$10,000
Insurance Paid	$50,000

In the books of Snowy Ltd.
Journal Entries
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
1/7/2015	Plant-A A/c.		$150,000
	Plant-B A/c.		$250,000
		Bank A/c.		$400,000
(Being Plant A and Plant B acquired for cash)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
30/6/2016	Depreciation Expense A/c	$65000
	Accumulated. Depreciation. – Plant A A/c		$15000
	Accumulated. Depreciation – Plant B A/c		$50000
(Being depreciation charged on Plant A & Plant B)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
	Accumulated. Depreciation – Plant A A/c.	15000
	Loss on Revaluation A/c.	$15,000
	Plant A A/c.		$30,000
(Being Plant A revalued at fair value and loss on revaluation recorded)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
	Accumulated. Dep. – Plant B A/c	50000
	Gain on Revaluation A/c		$35,000
	Plant B A/c		$15,000
(Being Plant B revalued at fair value and gain on revaluation recorded)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
	Gain on Revaluation A/c.	$35,000
	Loss on Revaluation A/c.		15000
	Asset Revaluation Reserve A/c.		$20,000
(Being the gain and loss of revaluation transferred to asset revaluation reserve)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
	Deferred Tax Assets A/c	$10,500
	Deferred Tax Liabilities A/c		$4,500
	Income Tax Expense A/c		$6,000
(Being deferred tax recorded for the asset revaluation)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
30/06/2017	Depreciation Expense A/c	72083
	Accumulated. Depreciation. – Plant A A/c		13333
	Accumulated. Depreciation. – Plant B A/c		58750
(Being depreciation charged on Plant A & Plant B)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
	Accumulated. Dep. – Plant A A/c	13333
	Gain on Revaluation A/c		$8,333
	Plant A A/c		$5,000
(Being Plant A revalued at fair value and gain on revaluation recorded)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
	Accumulated. Depreciation. – Plant B A/c	$58,750
	Loss on Revaluation A/c	$46,250
	Plant B A/c		$105,000
(Being Plant B revalued at fair value and loss on revaluation recorded)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
	Gain on Revaluation A/c	$8,333
	Asset Revaluation Reserve A/c	$37,917
	Loss on Revaluation A/c		$46,250
(Being the gain and loss of revaluation transferred to asset revaluation reserve)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
	Deferred Tax Assets A/c	$2,500
	Income Tax Expense A/c	$11,375
	Deferred Tax Liabilities A/c		$13,875
(Being deferred tax recorded for the asset revaluation)

Workings:

Computation of Revaluation Gain/(Loss) & Deferred Tax
Year	Opening Balance	Estimated Life (in years)	Residual Value	Depreciation p.a.	Closing Value	Fair Value	Revaluation Gain/(Loss)	Deferred Tax Assets/ (Liabilities)
	A	B	C	D=(A-C)/B	E=A-D	F	G=F-E	H=Gx30%
Plant A:
2015-16	$150,000	10	$0	15000	$135,000	$120,000	($15,000)	($4,500)
2016-17	$120,000	9	$0	13333	$106,667	$115,000	$8,333	$2,500
Plant B:
2015-16	$250,000	5	$0	50000	$200,000	$235,000	$35,000	$10,500
2016-17	$235,000	4	$0	58750	$176,250	$130,000	($46,250)	($13,875)

Source: (Created by Author)

Allocation of Specified Impairment Loss
Particulars	Carrying Amount	Fair Value	Impairment Loss

Total Impairment Loss			$155,000
Less:
Cash	$32,000	$32,000	$0
Land	$600,000	$520,000	$80,000
Inventory	$5,000	$5,000	$0
Accounts Receivable	$13,000	$13,000	$0
Patent	$60,000	$50,000	$10,000
Goodwill	$15,000	$0	$15,000
Balance Impairment Loss			$50,000
Impairment Loss Allocation as per Weightage
Particulars	Carrying Amount	Net Carrying Amount	Weightage
Balance Impairment Loss
Motor Vehicle	$300,000
Less: Accumulated. Depreciation	($120,000)	$180,000	55%
Plant & Equipment	$200,000
Less: Accumulated. Depreciation	($50,000)	$150,000	45%
Total	$330,000	$330,000	100%

In the books of Blizzard Ltd.
Journal Entries
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
30/06/2017	Impairment Loss A/c	$155,000
	Land A/c		$80,000
	Patent A/c		$10,000
	Goodwill A/c		$15,000
	Motor Vehicle A/c		$27,273
	Plant & Equipment A/c		$22,727
(Being assets under the specific cash generating unit impaired)
Dated	Particulars	Amount (Dr.)	Amount (Cr.)
	Profit & Loss A/c	$155,000
	Impairment Loss A/c		$155,000
(Being impairment loss transferred to profit and loss account)

References & Bibliography

Ahmed, A. S., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), 1344-1372.

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Arnold, P. J. (2012). The political economy of financial harmonization: The East Asian financial crisis and the rise of international accounting standards. Accounting, Organizations and Society, 37(6), 361-381.

Craig, D., & Michaela, R. (2014). Financial Accounting Theory.

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.

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Glaum, M., Baetge, J., Grothe, A., & Oberdörster, T. (2013). Introduction of International Accounting Standards, disclosure quality and accuracy of analysts’ earnings forecasts. European Accounting Review, 22(1), 79-116.

Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting. Pearson Higher Education AU.

Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

westpac.com. (2017). www.westpac.com. Westpac.com. Retrieved 14 September 2017, from https://www.westpac.com

Williams, J. (2014). Financial accounting. McGraw-Hill Higher Education.

Zehri, F., & Chouaibi, J. (2013). Adoption determinants of the International Accounting Standards IAS/IFRS by the developing countries. Journal of Economics Finance and Administrative Science, 18(35), 56-62.

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