Analysis Of Disclosure Of Accounting Policies And Owners’ Equity In Australian Stock Exchange Companies

Benefits of Disclosure of Accounting Policies

In this project, we have prepared a brief analysis of whether disclosure of accounting policies should be regulated or not. Further, we have explained that how AASB has taken part in making the global accounting standards and what are the reasons that some of the countries are not following the IFRS accounting standards. Further, in this project, we have discussed the Owners’ Equity and the Debt equity ratio of Nufarm Limited, Duluxgroup ltd Iluka Resources and BlueScope steel ltd which are registered on the Australian Stock Exchange. These all companies are operating in the same industry. The report also contains the discussion whether the financial reporting and accounting should be regulated or manager should voluntarily disclose the information.  

1.To make the financial statement more effective and to make it more financially viable majority of company chooses the option to disclose the rule and regulation in the annual report of the company. By the disclosure of accounting policies and rule company also reduces the chances of possible adverse events. The company generally follows the policies of disclosure of accounting policies in the annual report to make investors aware of the actual financial position if the company and the possibilities of risk which the company is suffering through (Weil, et. al., 2013). Disclosure of accounting policies also influences the market price of the companies. Majority of companies follow the process of disclosure of accounting policies because of the political influence. 

Use of financial statements are generally made by the various users like investors, government, employees, analyst, advisor etc. information about the company is generally used by the above mentioned for the investment purpose in the company and the disclosure of the accounting policies help the investors to take proper understanding of the policies followed by the company.

If Accounting policies are not disclosed in the annual reports of the company then it would be difficult for the external users to compare the performance of one company with the other (Tarca, 2012). Every company uses different methods for the calculations of the value of items in the financial statements.

So to solve the problem of inconsistency between the various companies the Accounting standard board (ASB) has set some specific standards for the preparation of financial statements of the companies and set some rules for disclosures of accounting policies which are followed for the preparation of books of accounts of the company (Bevis, 2013). 

Importance of Financial Reporting

Managers should not be voluntarily be allowed for the disclosures of the accounting policies as because it is not possible every time that single set of accounting principles are to be followed for the generation of the financial statements of the company. And it would be helpful for the readers of the financial information to get the details about the company’s performance at the single place in the forms of schedule and notes.

Disclosures of accounting policies also prove useful when a company has changed its accounting policies due to various reason, may be due to change in laws and regulations or change in the working of the company (Sharma and Panigrahi, 2013).  All the changes can be disclosed at the one place and can explain the reason for the change of the accounting policies at a single place only.

It can also be noted that disclosure of accounting policies cannot change the incorrect treatment of the items in the financial statements.

Managers are not allowed to disclose the accounting policies voluntarily because disclosure of accounting policies is also required by the law.  Basically accounting standard also provides the uniform way for the preparation of financial statements of the entity (Zadek, et. al., 2013). And disclosure of accounting policies provides the transparency of the financial position of the company. 

2.AASB is a governmental agency of Australia who is engaged in the developing, assigning, and managing the accounting standards that prevail according to the law of Australia. Powers and duties of AASB are governed by the Australian Securities and Investments Commission Act 2001 (Yip and Young, 2012). The AASB also assist the IFRS in the implication of the policies at the local level and suggests the way by which improvement in the accounting regulation can be done. AASB generally works for the developing the best quality of standards for the preparation of financial statements of the entity. AASB was considered to be the globalize center of excellence (Christensen, et. al., 2015).  The aim of the AASB is for developing and maintaining the high quality of financial reports of the company.

The main aim of AASB is to achieve the following objectives:

• AASB was in favor of issuing the international accounting standard board documents in the Australian version.
• And want to develop the standard that produces the consistency in the same type of transactions.
• AASB also want to make the standard which undoubtedly affects the making process of International financial reporting standards.
• AASB world widely wants to promote the consistency and the analysis of accounting standards.

 Many of the European countries were following the IFRS accounting but there were many other countries also who were not following the IFRS accounting method. In their opinion switching to a new accounting method was not giving them the result as they were expecting. According to them switching to new accounting standards was not cost-effective and they argued that even if they started following the IFIS accounting the differences in the financial statements remains the same and financial statement would not present the identical reports as they were preparing earlier this can happen due to several reasons which can be explained as difference in the economic conditions, national laws, and objectives (Stevenson, 2012). Further, some other reasons like languages, culture and legal system also affect the IFRS implications. Differences in the understanding of the financial can also be arising due to the historical practice of maintaining the books by IASB method from so long. Many arguments arose that all the countries interpret the IFRS differently and it would be difficult to check the comparability of the financial reports of the two companies. 

Regulation of Accounting Policies

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.

Stockholders’ equity
Particular	2017	2016	2015	2014	change from 2014-15	change from 2015-16	change from 2016-17
SHAREHOLDERS’ EQUITY
Share Capital	4,554,400	4,688,100	4,673,800	4,663,100	0	0	-3
Reserves	174,700	224,900	225,100	73,800	205	0	-22
Retained Earnings	341,300	-415,800	-623,300	-671,700	-7	-33	-182
Other	468,300	488,100	463,500	395,200	17	5	-4
Total Equity	5,538,700	4,985,300	4,739,100	4,456,700	6	5	11

Stockholders’ equity
Particular	2017	2016	2015	2014	change from 2014-15	change from 2015-16	change from 2016-17
SHAREHOLDERS’ EQUITY
Share Capital	277,282	264,886	256,483	228,489	12	3	5
Reserves	-101,444	-97,852	-84,616	-91,397	-7	16	4
Retained Earnings	257,101	197,409	178,524	152,638	17	11	30
Other	-3,353	-55	1,013	1,931	-48	-105	5,996
Total Equity	407,300	353,730	351,245	291,661	20	1	15

Iluka Resources

Stockholders’ equity
Particular	2017	2016	2015	2014	change from 2014-15	change from 2015-16	change from 2016-17
SHAREHOLDERS’ EQUITY
Share Capital	1,120,000	1,120,000	1,120,000	1,120,000	0	0	0
Reserves	9,400	32,200	23,100	22,800	1	39	-71
Retained Earnings	-243,600	-46,400	272,800	297,400	-8	-117	425
Other	0	0	0	0
Total Equity	885,500	1,103,000	1,408,600	1,434,600	-2	-22	-20

Nufarm Limited

Stockholders’ equity
Particular	2017	2016	2015	2014	change from 2014-15	change from 2015-16	change from 2016-17
SHAREHOLDERS’ EQUITY
Share Capital	1,090,197	1,080,768	1,074,119	1,068,871	0	1	1
Reserves	-301,741	-276,148	-213,134	-248,573	-14	30	9
Retained Earnings	563,140	494,055	524,089	536,241	-2	-6	14
Other	4,395	4,621	4,789	5,229	-8	-4	-5
Total Equity	1,602,923	1,550,228	1,636,795	1,608,700	2	-5	3

Share capital: It refers to an amount which is invested in the company by the shareholders in exchange for Equity share capital of the company.  Share capital in the company can be raised in the form of equity share and by issuing the preferential shares (Tarca, 2012). From the above table, it can be concluded that only in the dull group ltd share capital is rising year by year reason can be the company is raising more fund by the issue of equity shares for investment purpose.

Reserves: Reserves are profits which basically belong to the company’s shareholders. They are the part of profit which is kept aside by the company to meet the emergency expenses of the company. In the above table percentage changes in the reserve, the value is shown year by year of individual companies

Retained Earnings:  Retained earnings basically forms the part of profit which is left with the company after paying the shareholders dividend and other related expenses of shareholders.  Percentage change in the retained earning year by year in above-mentioned companies are presented in the table given above (Navarro?García and Madrid?Guijarro, 2014).

Others Equity:  Funds which is raised by the company in the form other than the equity and preference shares then i.e.  Funds raised in the form of deposits shall form the part of others equity. The percentage change in other equity is given in the table presented above of various companies.

BlueScope steel ltd

Particular	2017	2016	2015	2014
Total Liabilities	4,036,700	4,163,300	3,138,400	3,062,200
Total Equity	5,538,700	4,985,300	4,739,100	4,456,700
DOE	0.72881723	0.83511524	0.66223545	0.68710032

 Duluxgroup ltd

Particular	2017	2016	2015	2014
Total Liabilities	854,801	842,072	807,864	743,437
Total Equity	407,300	353,730	351,245	291,661
DOE	2.0987012	2.3805501	2.3000014	2.5489764

 Iluka Resources

Particular	2017	2016	2015	2014
Total Liabilities	1,061,500	1,339,300	694,700	738,800
Total Equity	885,500	1,103,000	1,408,600	1,434,600
DOE	1.19876	1.214234	0.49318	0.51499

Nufarm Limited

Particular	2017	2016	2015	2014
Total Liabilities	2,041,965	1,910,910	1,937,393	1,562,746
Total Equity	1,602,923	1,550,228	1,636,795	1,608,700
DOE	1.27390087	1.23266384	1.18365037	0.97143408

Debt Equity ratio:  Debt equity ratio of the company indicates the financial position of the company. This ratio indicates the investment strategy of the company i.e. whether the company is making investments through its owned fund or through borrowed funds (Bellandi, 2012). Higher the debt-equity ratio indicates that the company is dealing more through borrowed funds then its owned fund.  The following the table of different companies indicates comparative debt equity statements of the above-mentioned companies.

Conclusion

The specific assignment provides the details about the pros and cons that whether financial accounting should be regulated or not. It further has concluded how Australian accounting standard has taken part in the IFRS setting process and whether is compulsory to follow IFRS or not. Other than that in this project Equity status and the comparative statement of Debt –equity ratio of 4 companies which are registered under ASX is compared. The report also provides us with information about the long-term solvency position of Nufarm Limited, Duluxgroup ltd Iluka Resources, and BlueScope steel ltd and the change in the position over the past four years. Also, we can obtain information about the items reported in the shareholder fund in all the four company with the help of the report 

References

Bellandi, F., (2012). Dual reporting for equity and other comprehensive income under IFRSs and US GAAP (Vol. 10). John Wiley & Sons.

Bevis, H.W., (2013). Corporate Financial Reporting in a Competitive Economy (RLE Accounting). Routledge.

Christensen, H.B., Lee, E., Walker, M. and Zeng, C., (2015). Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.

Navarro?García, J.C. and Madrid?Guijarro, A., (2014). The influence of improvements in accounting standards on earnings management: The case of IFRS. Australian Accounting Review, 24(2), pp.154-170.

Sharma, A. and Panigrahi, P.K., (2013). A review of financial accounting fraud detection based on data mining techniques. arXiv preprint arXiv:1309.3944.

Stevenson, K.M., (2012). The changing IASB and AASB relationship. Australian Accounting Review, 22(3), pp.239-243.

Tarca, A., 2012. The case for global accounting standards: Arguments and evidence.

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

Yip, R.W. and Young, D., (2012). Does mandatory IFRS adoption improve information comparability?. The Accounting Review, 87(5), pp.1767-1789.

Zadek, S., Evans, R. and Pruzan, P., (2013). Building corporate accountability: Emerging practice in social and ethical accounting and auditing. Routledge.