Financial reporting is a major aspect, which enables in gaining an insight of the financial performance of an organisation. The report has been prepared for forwarding the same to the CEO of ANZ Bank for gaining an overview of the significant issues concerning the allegations of setting interest rates on business and commercial loans to reap maximum benefits. The financial market regulator, ASIC, which is responsible for ensuring the investors’ interest, has viewed this conduct as a violence of lending. As a result, it has fined the bank for such misconduct (Goodwin et al. 2016). Therefore, this report sheds light on each issue of ANZ Bank to help the CEO of the bank in understanding the financial outcome.
1a:
This segment is concerned with the way the business and commercial loans are depicted in the annual report of ANZ Bank. This is complied with the “Section B4.4.1 of Section 4.4 of AASB 9” that describes the re-categorisation of financial assets. It needs the organisations to re-categorise their financial assets; in case, they modify their business model to manage financial assets. According to “Section B4.4.1 (a) of AASB 9”, a body comprises of a group of commercial loans, which it holds for selling in short-run. It has been observed that the unit needs to acquire firm managing commercial loans having a business structure to control loans for obtaining contractual cash flows (Aasb.gov.au 2017). Such group is not for sale and it has been managed along with commercial loans collected. The loans are preserved for obtaining contractual cash flows.
In case of ANZ Bank, it has been identified that it records business and commercial loans by complying with AASB 9. This is mainly intended to increase the accuracy and reliability of the financial statements along with providing an easy understanding for the associated stakeholders of the bank (Barth 2013). Such types of loans are disclosed in the asset segment of the statement of financial position of ANZ Bank in the form of net advances and loans, as laid out in “Page 22 of the annual report”.
Figure 1: Recording of net loans and advances of ANZ Bank in asset side of balance sheet
(Source: News.iguana2.com 2017)
This section aims to explain whether ANZ Bank is needed to report the ASIC allegations in relation to Bank Bill Swap Rate (BBSR) in the financial statements published in its annual report. It could be stated that such disclosure is crucial for the bank to comply with the ASIC regulations. This is because BBSR has significant impact on the financial statement of the bank, which is needed to be reported in its financial statements, as per ASIC guidelines (Birt et al. 2014). This reporting process is related in association with “Section B3.2.16 (a) of AASB 9”, which denotes the enforcement of de-recognition standard principles (Aasb.gov.au 2017). In addition, this section denotes the repurchase agreements and lending securities.
The two factors pertinent to the banking sector that have considerable effect on the values of the financial assets of ANZ Bank are briefly discussed as follows:
Internal controls:
Internal control is a significant factor having the ability to have an influence on the cash balance and inventory value on the balance sheet statement of the organisation. It has been observed that internal control is the collection of policies and procedures for providing protection to the business assets by deterring thefts and intrinsic frauds (Carey, Potter and Tanewski 2014). Thus, the values of inventory and cash are minimised in the statement of financial position, as ineffective control increase the risk related to theft and staff fraud.
Cash management practices:
It has been observed that the policies and regulations pertaining to cash management could ensure that a financial institution has cash reserves for investing in working capital having significant impact on assets in the statement of financial position (Crawford, Lont and Scott 2014). The different constituents associated with the policy of cash management have influence on the financial asset values, which are included in cash reserves and collection of accounts receivable. It has been observed that the cash reserves increase the overall cash value stored in the bank accounts. This helps in ensuring maintenance of liquidity and ANZ Bank could pay its bills at the time there is shortage of cash availability due to fall in sales margin. On the other hand, effective apportionment of the process of accounts receivable aim to minimise time, which it undertakes for accumulating money owed to the financial institution (Erb and Pelger 2015). As a result, it would lead to decline in the amounts of cash balance and accounts receivable.
2a:
This section concentrates on penalty payment imposed on ANZ Bank due to unethical conduct in relation to commercial loan grants. The question under consideration is related to reporting and recording of the payment of fine in the financial statements of ANZ Bank. Such issue is in compliance with AASB 137 and this issue has been disclosed in the policy of refund of the organisation. In relation to such situation, it is observed that there is identification of provision for effective anticipation of the refund costs inherent in “Paragraphs 10, 14, 15 and 17 of AASB 137” (Aasb.gov.au, 2017). With the help of these paragraphs, the refund policy of ANZ Bank could be explained relating to fine payment.
In relation to the existing scenario, it is observed that fine payment is a practical compulsion of the bank, since it is engaged in fraudulent activities (Jin, Shan and Taylor 2015). It has been observed that constructive obligations is obtained from the organisational activities, in which ANZ Bank has disclosed that other parties would admit different accountabilities and as a result, the party has formed an effective expectation on the party sections by discharging the responsibilities (Morris et al. 2013). Hence, these payments are disclosed as contingent liabilities in the balance sheet.
This question focuses with the overdraft reporting in the financial statements of ANZ Bank in the years 2015 and 2016. The report could be published only after ASIC has completed its investigation. In relation to the scenario under consideration, it has complied with AASB 107. According to “Section 8 of AASB 137”, the cash and cash equivalents in relation to the reporting of overdraft of an organisation has been explained (Aasb.gov.au, 2017). It has been observed that borrowings are taken into account in the form of financial activities. On the other hand, there are few nations, in which the repayable bank overdrafts on demand develop an intrinsic portion of the cash management of the organisation. Under such scenario, the bank overdrafts are included as portion of cash and cash equivalents. One of the significant features related to banking arrangements is that the bank balance changes from positive to overdraft (Palmer 2013). The overdraft is depicted in the form of liability in balance sheet and it is posted differently from the remaining liabilities for offsetting with the leftover cash reserves of ANZ Bank. Thus, it could be stated that the overdraft would be applied in the annual report of 2016. However, as the penalty is imposed in 2016, there would not be any action in the financial statements of 2015.
3a:
This issue complies with the accounting treatment of writing off bad debts in the ANZ bank account in its statement of financial position. This issue complies with “Section 1 of AASB 137” of the various accounting regulations. The financial statements have been developed in relation to AASB and other needs pertinent to reporting. The implemented policies of accounting are stable in relation to the identical financial year.
ANZ Bank has constructed its financial statements on accrual accounting basis through use of the historical cost accounting, excluding those areas, in which it is represented. The carrying amount of each non-current asset has been assessed based on the date of reporting to ensure that they do not exceed the recoverable amounts. The recoverable amount is identified as the net income anticipated from the cash inflows arising from sustainable utilisation and effective asset disposal or accumulation of assets.
The advances and loans are discovered at the recoverable amount after evaluating the needed provisions associated with impairment. There is identification of loan impairment, when there is significant amount of debt so that the overall principal and value of interest could be accumulated in relation to the terms of the loan agreement (Aasb.gov.au 2017). A specific realisation is used to evaluate impairment in association with the certain amounts through estimation of the probable losses according to the loan portfolios, in which pertinent realisation is not logical.
It has been observed that bad debts are written off at the time they are realised (Steenkamp et al. 2016). In case, there is an identification of impairment provision related to the loan, the writing off bad debts is developed in contrast to the provision. On the other hand, if there is absence of any previous impairment provision, then writing off bad debts is identified as expenditures in the income statement. It is, thus, observed that ANZ Bank in association with the standard of accounting would realise the writing off bad debts to be an expenditure in the income statement, since no provision has been developed earlier.
This issue explains regarding the effect of possible defaults on the financial performance and position of the upcoming years in the context of ANZ Bank. It has been observed that such defaults have influence on the sales margin of the bank. The operating activities of the organisation are affected because of such latent defaults. The possible defaults even have an effect on the credit management and liquidity of the organisation. Thus, these factors could be considered for accomplishing the enhancement in financial performance. Thus, maintaining the technique of risk management could be useful for uplifting the financial performance.
Conclusion:
The evaluation of the report discusses the influence of the breach of act on the part of ANZ bank in relation to the business and commercial loans. This report has even identified that AGIC detects this mistake and imposes a fine needed to be paid on the part of the bank. The posting of different transactions in the financial statements and sending the same to the CEO is the main objective of the study. In addition, this denotes all the transactions, which are posted in relation to the different standards of AASB, which is valuable and fair development of the report, which would help in gaining an insight of the report. It is, thus, observed that ANZ Bank in association with the standard of accounting would realise the writing off bad debts to be an expenditure in the income statement, since no provision has been developed earlier.
References:
Aasb.gov.au. (2017). [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 17 May 2017].
Aasb.gov.au. (2017). [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB9_12-10.pdf [Accessed 17 May 2017].
Aasb.gov.au. (2017). [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB101_09-07_COMPmay11_07-11.pdf [Accessed 17 May 2017].
Aasb.gov.au. (2017). [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB110_07-04_COMPjan15_07-15.pdf [Accessed 17 May 2017].
Aasb.gov.au. (2017). [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPoct10_01-11.pdf [Accessed 17 May 2017].
Barth, M.E., 2013. Measurement in financial reporting: the need for concepts. Accounting Horizons, 28(2), pp.331-352.
Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J. and Janson, P., 2014. Accounting: Business Reporting for Decision Making 5e.
Carey, P., Potter, B. and Tanewski, G., 2014. Application of the reporting entity concept in Australia. Abacus, 50(4), pp.460-489.
Crawford, L., Lont, D. and Scott, T., 2014. The effect of more rules?based guidance on expense disclosure under International Financial Reporting Standards. Accounting & Finance, 54(4), pp.1093-1124.
Erb, C. and Pelger, C., 2015. “Twisting words”? A study of the construction and reconstruction of reliability in financial reporting standard-setting. Accounting, Organizations and Society, 40, pp.13-40.
Goodwin, J., Atilgan, Y., Simsir, S.A. and Ahmed, K., 2016. Investor reaction to accounting misstatements under IFRS: Australian evidence.
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.
Morris, R.D., Gray, S.J., Pickering, J. and Aisbitt, S., 2013. Preparers’ perceptions of the costs and benefits of IFRS: Evidence from Australia’s implementation experience. Accounting Horizons, 28(1), pp.143-173.
News.iguana2.com. (2017). [online] Available at: https://news.iguana2.com/anz/ASX/ANZ/459865 [Accessed 17 May 2017].
Palmer, P.D., 2013. Exploring attitudes to financial reporting in the Australian not?for?profit sector. Accounting & Finance, 53(1), pp.217-241.
Steenkamp, N., Steenkamp, N., Steenkamp, S. and Steenkamp, S., 2016. AASB 138: catalyst for managerial decisions reducing R&D spending?. Journal of Financial Reporting and Accounting, 14(1), pp.116-130.
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