Analysis Of Cash Flow, Other Comprehensive Income Statement, And Taxation Of An ASX Listed Company

Understanding Cash Flow Statement

Accounting is the process which assists in recording of the business transactions in the books of accounts of company. In this report, accounting and taxation rules have been discussed and analysis have been made how the difference between the accounting and taxation rules impacts the recording of the financial transactions in the books of accounts.  It is analyzed that each and every entity is required to prepare the financial accounts with a view to prepare the financial details to its stakeholders. (Carlon, Tran, and Tran-Nam, 2013).

1.

Cash flow statement reveals the details of the cash inflow and outflow from the business in the present year without considering the fact that whether it belongs to present year or next year. It shows all the investment and amount of cash received by company in the present years.

• It is prepared on the basis of cash basis no on the accrual basis.
• National Australian Bank has shown the high diversity in the cash patterns over the financial year which shows the flow of cash in the present year and it is identified that company has high amount of cash outflow from its business. In 2017, National Australian Bank had made the dividend payment of AUD $ 4750 million as compared to AUD 4593 million in 2016 which is 5% higher as compared to last year data (Nethercott, and Anamourlis, 2009).
• The net cash generated by National Australian Bank in 2017 has been higher as compared to last year which reflects that company has increased the flow of cash in its business.
• The increase in its net cash has been to AUD $ 12573 million in 2017 which is 20% higher as compared to last year data (National Australian Bank, 2017).
• National Australian Bank has issued bonds, debentures and received interest which reflects that company has high flow of cash in its business in the previous year (Hamilton-Jessop, 2014).

2.

AUD IN MILLION Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2016-17	2015-16	2014-15
Net cash provided or used by operating activities	13,217	14,460	(13,090)
Net cash provided or used in investing activities	(313)	(9,970)	(1,830)
Net cash provided or used in financing activities	(331)	9496	1,326

The above shown table reflects the flow of cash of the bank in all of its three activities.

The cash flow from the operating activities has gone down to AUD $ 13217 million in 2017 which is 10% lower as compared to last year data.

The flow of investing activities has shown the cash outflow of AUD $ 313 million which is comparative less as compared to last year data.

The flow of cash from the financial activities reflects outflow of cash AUD $ 331 million due to payment to debentures and bonds holders (National Australian Bank, 2017).

This details shows that as compared to last year data, the cash outflow of business as compared to last year data have gone decreased. It reflects the positive indicators for the business growth of organization and assists organization to grow effectively in long run (Rubinstein, and Vettori, 2018).

3.

There are following items are recorded in the books of accounts of company.

AUD in million	2016-2017	2015-16	2014-15
Profit/(Loss) for the period from continuing operations	6181	6425	6,806
Other comprehensive income
Items that may be reclassified to profit or loss (net of tax)	(359)	305	35
Items that will not be reclassified to profit or loss (net of tax)	46	(325)	560
Other comprehensive income (net of tax)	(313)	(20)	595
Total comprehensive income from continuing operations	5868	6405	7401
Net loss for the year from discontinued operations	(893)	(6068)	(414)
Other comprehensive income for the year from discontinued operations, net of income tax	–	979	760
Total comprehensive income/(loss) for the period	4975	1316	7747
Total comprehensive income/(loss) attributable to:
Owners of NAB	4972	1311	7525
Non-controlling interests	3	5	222
Total comprehensive income from continuing operations attributable to:
Owners of NAB	4,969	410
Non-controlling interests	–	–
TOTAL

The statement of other comprehensive income statement is classified into two major segments. It is analysed that first item is classified into the profit and loss accounts. The fair value of the changes on financial liabilities designated at fair value attributable (Hanlon, and Nethercott, 2015).

The statement of other comprehensive income can be torn apart into two major segments. First is related to the items which cannot be classified into the profit and loss account. It includes the fair value of the assets and financial libiliteis shown in the books of accounts. It is accompanied with the credit risk, fair value transactions and recording of the assets.  It also includes the revaluation loss of the assets, currency adjustment and other contributed equity recorded after adjustment of the equity investment (Tran, and Zhu, 2017).

Comparative Analysis of Company’s Cash Flows

There is another section in which all the all the assets and other items which could be classified into the profit and loss accounts are recorded. It includes all the items such as loss and profit on the cash flow heading, adjustment in the debt instruments, and income tax adjustment (Kraal, Yapa, and Joshi, 2015).

These both sections are recorded in the comprehensive statement income statement. These amounts together with the amount shown in the total comprehensive income statement recorded from continues period of books.

In this figures all the loss emerged from the discounted operiatons in deducted from the comprehensive income from the discounted operation.

 In this figure the loss from the discontinued operations is deducted and any other comprehensive income from discontinued operations is also adjusted. The resultant figure forms the total comprehensive income for the year. This is shown as a sum of share of owners and non-controlling interest.

5.

It is analyzed that Australian Companies need to follow the accounting standards and guidelines in the financial reports of the company.  The accounting standards are framed by the AASB. This board is responsible for the framing the accounting standards in accordance with the principles of financial reporting standards. There are certain items which cannot be recorded in the profit and loss accounts and require to be shown in the separate comprehensive income statement.

It is analyzed that as per the IFRS rules and regulations, recording of the certain business transactions needs to be made in separate books of accounts.  There are two statement of profit and loss and other comprehensive income statement.  

These are the mandatory rules and regulations which needs be followed by Australian National Bank (Tran, 2015).

6.

Tax is the amount of money which is required to be paid by the Bank on its earned profit. It is analyzed that with the increasing profit of Australian National Bank, there is increase in the payment of tax throughout the time (Jin, Shan, and Taylor, 2015).

AUD IN MILLION	2016-17	2015-16
Current tax expense	2,480	2,553

7.

AUD IN MILLION	2016-17	2015-16
Profit before income tax expense	8,661	8,978
Prima facie income tax at 30%	2,598	2,693
Add / (deduct): Tax effect of amounts not deductible / (assessable):
Assessable foreign income	7	4
Foreign tax rate differences	(43)	(36)
Foreign branch income not assessable	(78)	(65)
(Over) / under provision in prior years	(17)	(26)
Offshore banking unit income	(62)	(56)
Restatement of deferred tax balances for tax rate changes	1	4
Treasury shares adjustment	–	(14)
Non-deductible hybrid distributions	70	58
Losses not tax effected	11	42
Other	(7)	(51)
Total income tax expense	2480	2553
Effective tax rate (%)	28.6%	28.4%

• It is analyzed that every company needs to compute the tax on the basis of the taxable income and income tax rules. The taxable income is amount of income computed on the basis of taxation rules and AASB 112 income tax standards.
• However, accounting income is the amount of income which is computed by following the accounting rules and regulation.
• In case of conflict between two rules, taxation rules and regulations will prevail and recording of the accounting details will be made accordingly.

It is analyzed due to the differences between the accounting rules and taxation rules there is difference between the tax amount paid by company as per the accounting rules and income tax transactions (Camfferman, and Zeff, 2018).

8.

AUD IN MILLION	2016-17	2015-16
Deferred tax asset	1,988	1,925

It is considered that deferred tax is the amount of money which reflects that company has assets in the books of accounts.

It is analyzed that when company has paid the tax as per the income tax rules which is more than the tax to be paid by the accounting rules then in that case the excess amount shown will be recorded as deferred tax assets in the balance sheet.

Items in Other Comprehensive Income Statement

However, if in case, , company has paid the tax as per the income tax rules less than the tax to be paid by the accounting rules then in that case the deficient amount  shown will be recorded as deferred tax liabilities in the balance sheet (Marley, and Pedersen,  2015).

9.

The current income tax expenses are the amount of tax paid and recorded in the profit and loss account as results of the activities relating the current financial year itself (Alevras, and Du Plessis, 2014).

The amount of tax payable is the amount of tax to be paid by company to government. It is accompanied with the all the accumulated tax liabilities to be paid by company to government.

The income tax expense is recorded in the profit and loss accounts and on the other hand, income tax payable is the amount recorded as tax liability of the company (Nuryanah, and Islam, 2015).

10.

AUD IN MILLION	2016-17	2015-16
Income tax expense recorded in books	2480	2,553
Income tax paid	2544	3148

It is analyzed that the income tax paid is recorded in the cash flow statement and shows the cash outflow of tax amount of company.

It is analyzed that income tax expenses is the amount of tax charged on the profit and loss accounts and on other hand, Income tax paid is the amount of tax payment includes all the tax payment irrespective of the fact whether it belongs to future and previous year (Mudiyanselage, and Wijekoon, 2018).

The both amount vary due to the accrual and cash matching concept.

11.

Interesting thing

The main interesting thing was related to recording of the tax in the books of accounts. Tax authorities changes tax rules and regulation with the changes in economic

Confusing thing

The main confusing thing is related to recording of the deferred tax assets and deferred tax liabilities in the books of accounts.

Surprising thing

It is surprising that company can never have deferred tax asset and liabilities in its books of accounts at the same time.

Difficulty to understand

It is hard to follow all the accounting and taxation rules while recording of financial transactions and tax in the books of accounts.

Conclusion

It assists in strengthen the transparency of the business transactions recorded in the books of accounts. The annual reports contain all the transactions of the business and shown to stakeholders. In this report, National Australian Bank has been selected to evaluate the cash flow statement, income statement and taxation and accounting rules applicable on the company.

References

Alevras, A. and Du Plessis, J., 2014. The Payment of Dividends: Legal Confusion, Complexities and the Need for Comprehensive Reform in Australia. Co. Secur. Law J, pp.312-333.     

Camfferman, K. and Zeff, S.A., 2018. The Challenge of Setting Standards for a Worldwide Constituency: Research Implications from the IASB’s Early History. European Accounting Review, 27(2), pp.289-312.

Carlon, S., Tran, A. and Tran-Nam, B., 2013. How Close Are Taxable Income and Accounting Profit-An Empirical Study of Large Australian Companies. Austl. Tax F., 28, p.641.

Hamilton-Jessop, W.M., 2014. Accounting for tax consolidation: an investigation into the development and associated reporting requirements under the Australian group taxation system (Master’s thesis, University of Sydney).         

Hanlon, D. and Nethercott, L., 2015. Increasing Divergence between Accounting Practice and Taxation Law: The Case of in-Substance, The Debt Defeasance. Austl. Tax F., 20, p.101.

Jin, K., Shan, Y. and Taylor, S., 2015. Matching between revenues and expenses and the adoption of International Financial Reporting Standards. Pacific-Basin Finance Journal, 35, pp.90-107.

Kraal, D., Yapa, P.W.S. and Joshi, M., 2015. The Adoption of International Accounting Standard (IAS) 12 Income Taxes: Convergence or Divergence with Local Accounting Standards in Selected ASEAN Countries?.

Marley, S. and Pedersen, J., 2015. Accounting for Business: An Introduction. Pearson Higher Education AU.

Mudiyanselage, W. and Wijekoon, H.N., 2018. Towards the development of a financial reporting framework for Sri Lankan SMEs (Doctoral dissertation, The University of Waikato).

Nethercott, L. and Anamourlis, T., 2009. The relevance of accounting and business principles in consolidations. Tax Specialist, 13(2), p.112.

Nuryanah, S. and Islam, S., 2015. Corporate governance and financial management: computational optimisation modelling and accounting perspectives. Springer.

Rubinstein, F. and Vettori, G.G., 2018. Taxation of Investments in Bitcoins and Other Virtual Currencies: International Trends and the Brazilian Approach.

Tran, A. and Zhu, Y.H., 2017. The impact of adopting IFRS on corporate ETR and book-tax income gap. In Australian Tax Forum (Vol. 32, No. 4, p. 757). Tax Institute.

Tran, A., 2015. Can Taxable Income Be Estimated from Financial Reports of Listed Companies in Australia. Austl. Tax F., 30, p.569.

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].