The present assignment covers the financial report analysis for the listed companies based in Australia. In order to assess the financial statements of current years, National Australian Bank and AMP Limited has been selected that are engaged in the business financial service with respect to market capitalization. The report aims to present the conceptual framework compliance and standards of AASB requirements for recognizing and representing the financial information for the benefit of stakeholders. The study involves the assessment of financial statements based on the level of prudence as well as by addressing the Corporate Reporting disparity together with the identification of differences in financial information disclosures.
National Australia Bank is a largest financial institution in Australia with respect to market capitalization as well as customers. The bank is engaged in the banking and financial services serving the areas of Australia, New Zealand and Asia with revenue amounted to $20.176 billion and the net income amounted to $6.357 billion during the current year. It has been noted that the organization has total assets amounted to $945.0 billion and the number of employees around 35,063 during the latest year (Nab.com.au 2017).
AMP Limited is a financial service organization in Australian region that deals in the business of superannuation products as well as investment products together with the insurance, banking and financial advice. The organization has been found in the year 1849 with its headquarters in Australia. It has been noted that the company has total income amounted to $972 million during the current year while the value of total assets amounted to $110.4 billion while the number of employees approximately 5,400 has been reported during the latest year (Amp.com.au 2017).
Conceptual framework is an analytical model that incorporates different variations as well as principles to recognize the financial information of the company. Australian companies are regulated by the conceptual framework as per AASB standards in terms of nature, time and extent of the business transactions (Biddle et al. 2015). Accounting standards and frameworks provides the requirement to consider the prudence level while preparing the financial statements to recognize assets, liabilities, incomes and expenses. AASB standards also require the business organizations to consider the accrual method for recording financial information so that the company can present true and fair view for disclosing true and fair view (Edgley, Jones and Atkins 2015).
In view of the annual report of National Australia Bank, requirements of accrual method as well as going concern method has been complied representing increase or decrease in sales revenue of the accounting years. The financial report represents the information of company’s sales for the current year as well as for the previous year as comparative analysis together with the information on corporate tax and other business expenses (Nab.com.au 2017). The organization represented the information on comprehensive income representing the profit amounted to $6,407 million along with the financial charges, expenses related to occupancy general expenses (refer appendix 1 and 2).
The principal characteristic in the accounting conceptual framework involves relevance, level of prudence and reliability that helps in preparing financial statements reflecting true and fair view. Recognition of financial information should be done by considering the concept of relevance, which provides the reporting of relevant business transactions in the annual report. In order to prepare the financial report it is essential to follow the level of prudence, which states the recognition of financial information as per conservative approach so that the value of income or sales revenue does not show overestimated amount (Ortas, Gallego?Alvarez and Álvarez Etxeberria 2015). The prudence level further provides that the business expenses are not recorded as underestimated balance which reflects unrealistic profit amount. Another essential criterion of the conceptual framework is reliability that provides the involvement of material business information in the financial statements (Francis et al. 2015).
Similarly, financial report of AMP Limited has been prepared as per the regulations of conceptual framework and relevant accounting standards. The company reported the value of incomes as well as expenses by considering the prudence level based on the accrual method of accounting. In order to record the value of assets and liabilities, the company estimated and reported the value based on fair and current market value (refer appendix 3). The management followed the regulations of AASB to prepare the income statement, balance sheet, cash flow statements and necessary disclosures (Amp.com.au 2017). It has been noted that the segment information of the company has been disclosed by following the AASB standards as well as regulations of conceptual framework (refer appendix 4).
The prudence level in conceptual framework for preparing the statements of financial information of the company is an application of rational and realistic estimates to recognize the business incomes, expenditures and potential losses. As per the accounting policies, the business incomes should not be overestimated while the expenses should not be underestimated since it reflects unrealistic profitability. The corporate reporting means the financial information disclosures in terms of integrated reporting, corporate governance and social responsibility statements (Martínez?Ferrero, Garcia?Sanchez and Cuadrado?Ballesteros 2015).
In order to present a corporate governance report, it is important to include the directors’ contribution, management’s effective performance and the compliance of essential regulations. The financial statements of the company disclose the relationship strength with the consumers, stakeholders as well as the society (Preiato, Brown and Tarca 2015). Therefore, considering the statement of corporate governance of National Australia Bank, it has been noted that the shareholding number of equity shares is presented with the details of top 20 investors holding the company’s shares (Nab.com.au 2017) (refer appendix 5). Besides, the financial report of AMP Limited represents the corporate governance overview in order to maintain the values of business for the benefit of stakeholders (Amp.com.au 2017). The company duly reported the information on financial services, banking charges and relevant income in terms of interest incomes that represents the value of company’s performance (refer appendix 6).
It is essential to revise the conceptual framework for reporting the provisional expenses during the financial year. It is essential to consider standard rates as well as limits in the recognition value of provisions based on the income benchmark required to eliminate the corporate reporting disparity (Xu and Gursoy 2015). Amount of provisions in case of National Australia Bank has been determined in terms of employee- benefits, restricting and self- insurance annual leave, long service leave as well as discount rates (Nab.com.au 2017). Moreover, AMP Limited recognized the amount of provision based on the employees’ service performance for the reporting date as well as cost rates (Amp.com.au 2017).
The recognition and representation of annual report of National Australia Bank as well as AMP are identical to a large extent. However, there are some differences in reporting of business information. The financial report of the National Australia Bank reflected separate information on “Material Business Risk” whereas in case of AMP Limited, representation has not been made in accordance with such business risk (Guerreiro, Rodrigues and Craig 2015). The financial report of AMP Limited represents the financial information for group income as well as for the company income separately, which is not reported in the financial report of National Australia Bank moreover, the financial report of National Australia Bank represented capital management along with the space rollout plans. Considering the estimates and judgments to determine the financial value of business information, National Australia Bank conducted the estimates values on the basis of historical records and conditions of current market structure. Besides, estimates considered by AMP Limited have been made on the basis of future events in terms of inventories, fixed assets and other provisions (Amp.com.au 2017). The financial report of AMP provided the capital management information funding activities for borrowings repayments, acquisitions and details on discontinued operations. Annual report of National Australia Bank does not incorporate such information required to analyze the efficiency of the organizations to manage the capital funds, borrowings and operational details (Nab.com.au 2017).
Compliance of AASB standards and conceptual framework to report the segmenting business information has been different in the annual report of both the companies (Abbott et al. 2016). Disclosure of segment information in case of National Australia Bank has been considered on the basis of operating segment as well as geographical details together with the elaboration of material information (Nab.com.au 2017). Moreover, the segment information in case of AMP, brief disclosure in terms of products and services based on the geographical location has been provided (Amp.com.au 2017). Additionally, recognition of employee benefits expenses, lease expenses, rent expenses, charges of depreciation and other information has been measured by considering different sources.
Considering the aforementioned discussion and analysis for recognition and representation of business information in the financial report of both the companies, it can be recommended that appropriate disclosure of material transactions is essential. Though, both the organizations followed the regulations of conceptual framework, it is suggested that the companies should consider a benchmark format for reporting the business information as well as required disclosures. Several business information has been reported in an appropriate manner in the financial report of National Australia Bank, which is not present in the annual report of AMP Limited. Hence, it is suggested that presentation of business risk details as well as capital management details for borrowing funds is essential to report in the annual report. The information on business risk and provisions is essential for the users of annual report in order to evaluate the performance and financial position of the business. It is recommended to consider the reasonable and reliable future events for measuring the business information on the basis of reasonable estimates.
Conclusion
The analysis of financial report of Australian listed companies, National Australia Bank and AMP Limited stated that the companies met the relevant requirements of conceptual framework. It has been identified that both the companies followed the regulations of AASB standards to measure and report the business information as well as relevant disclosures. The companies complied the requirements to present the report on corporate social responsibility as well as corporate governance for the benefit of stakeholders and society. For the purpose of recording and business information in true and fair manner, it is essential to consider the accrual method, level of prudence as well as going concern basis so that overestimated incomes are not reported. The companies followed the significant accounting principles to record the financial data as well as business information during the financial year.
References
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Amp.com.au. 2017. Personal Banking, Home Loans, Super & Insurance – AMP. [online] Available at: https://www.amp.com.au [Accessed 8 Apr. 2017].
Atkins, J.F., Solomon, A., Norton, S. and Joseph, N.L., 2015. The emergence of integrated private reporting. Meditari Accountancy Research, 23(1), pp.28-61.
Biddle, G.C., Callahan, C.M., Hong, H.A. and Knowles, R.L., 2015. Do Adoptions of International Financial Reporting Standards Enhance Capital Investment Efficiency?. Available at SSRN 2353693.
Edgley, C., Jones, M.J. and Atkins, J., 2015. The adoption of the materiality concept in social and environmental reporting assurance: A field study approach. The British Accounting Review, 47(1), pp.1-18.
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Franco, G., Hope, O.K., Vyas, D. and Zhou, Y., 2015. Analyst report readability. Contemporary Accounting Research, 32(1), pp.76-104.
Guerreiro, M.S., Rodrigues, L.L. and Craig, R., 2015. Institutional change of accounting systems: the adoption of a regime of adapted International Financial Reporting Standards. European Accounting Review, 24(2), pp.379-409.
Martínez?Ferrero, J., Garcia?Sanchez, I.M. and Cuadrado?Ballesteros, B., 2015. Effect of financial reporting quality on sustainability information disclosure. Corporate Social Responsibility and Environmental Management, 22(1), pp.45-64.
Nab.com.au. 2017. Personal. [online] Available at: https://www.nab.com.au [Accessed 5 Apr. 2017].
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