Corporate Accounting For Composition Wesfarmers Limited: Report And Leasing Analysis

Board Composition of Wesfarmers Limited

Discuss about the Corporate Accounting for Composition Wesfarmers Limited.

1) Board Composition Wesfarmer’s Limited

i) There are eight non-executive independent directors in Wesfarmers. The Chairman of the company is observed to be independent in nature. The list of the names and then nature of the independence is shown below:

Name	Director Independence Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Michael Chaney	Independent
Richard Goyder	Independent
Terry Bowen	Independent
Paul Bassat	Independent
James Graham	Non- Independent
Tony Howarth	Independent
Wayne Osborn	Independent
Diane Smith-Gander	Independent
Vanessa Wallace	Independent
Jennifer Westacott	Independent

(Wesfarmers.com.au. 2016)

ii) No the company does not have either dual CEO or Chairman

iii) Wesfarm’s Limited has ten directors. The composition of the directors along  with the positing  held by them is shown below as follows:

Number	Name	Position Held
1	Michael Chaney	Non-executive Chairman
2	Richard Goyder	Managing Director
3	Terry Bowen	Finance Director
4	Paul Bassat	Non-executive Director
5	James Graham	Non- Independent
6	Tony Howarth	Non-executive Director
7	Wayne Osborn	Non-executive Director
8	Diane Smith-Gander	Non-executive Director
9	Vanessa Wallace	Non-executive Director
10	Jennifer Westacott	Non-executive Director

iv) Wesfarmers Ltd. holds annual general meeting twice during the month of June and November. The next annual, general meeting of the company is scheduled to be held on 10^th November 2016 (Wesfarmers.com.au. 2016).

v) The qualification of the directors along with the names is shown below as follows:

Name	Qualification
Michael Chaney	Bachelor of science and Master of Business Administration from University of Australia
Richard Goyder	Bachelor of commerce, University of Western Australia
Terry Bowen	Bachelor of Accountancy and fellow of CPA Australia
Paul Bassat	Bachelor of commerce, University of Melbourne
James Graham	Bachelor of Engineering with honors in Chemical Engineering, University of Sydney, also a Master of Business Administration, University of New South Wales, Fellow of the Australian Academy of Technological Sciences and Engineering
Tony Howarth	Fellow of the Financial Services Institute of Australasia
Wayne Osborn	Diploma specializing in electrical engineering from the Gordon Institute of Technology, a Master of Business Administration, Deakin University
Diane Smith-Gander	Bachelor of Economics degree obtained from the University of Western Australia and a Master of Business Administration degree from The University of Sydney
Vanessa Wallace	Bachelor of Commerce degree, The University of New South Wales and MBA from IMD Switzerland
Jennifer Westacott	Bachelor of Arts done from University of New South Wales and moreover she was a Scholar of Chevening from London School of Economics

(Wesfarmers.com.au. 2016).

vi), vii), viii) and ix)

The experience of the directors, gender, committees and their work in the other boards have also been stated, are shown below as follows:

Name	Gender	Experience
Michael Chaney	Male	Worked for more than eight years as a petroleum geologist in Australia and USA, also served as a chairman at  Woodside Petroleum Limited and National Australia Bank
Richard Goyder	Male	Appointed as an chairman in Ausstralian B20. Worked at Tube makers of Australia Limited,  Director at Gresham Partners Holdings Limited, commissioner at Australian Football League
Terry Bowen	Male	Previous holdings in financial role in companies such as Tube makers of Australia Limited, CFO at Jetstar Airways and AWB Limited
Paul Bassat	Male	Co-founder at SEEK Ltd., Square Peg Capital Pty Ltd., director at Peter MacCallum Cancer Foundation
James Graham	Male	Previous positions held as directors in companies such as Rabobank Australia Limited, Advisory Council of The Institute for Neuroscience and Muscle Research, Rabobank Australia Limited and Rabobank New Zealand Limited
Tony Howarth	Male	Experienced in then senior management position s in   Challenge Bank Ltd., CEO at Hartleys Limited
Wayne Osborn	Male	Director in several other companies such as  Iluka Resources Limited, South32 Limited, Leighton Holdings, Alcoa of Australia Ltd. Chairman at Thiess Pty Ltd
Diane Smith-Gander	Female	More than  eleven years of experience in the field of banking executive, partner at McKinsey & Company
Vanessa Wallace	Female	Strategy management consultant for the past 30 years, director at several other companies such as Booz & Company, AMP Limited and AMP Capital Holdings Limited
Jennifer Westacott	Female	Board director and a leading partner at KPMG, she was a lead partner specializing in water practice, sustainability and climate change, Holding leadership roles in Victorian and NSW Governments.

2) The composition of the subsidiaries of the company is shown as follows:

Subsidiaries	Number of presence
Australian subsidiaries	(34) Bunnings Warehouse, Coles Supermarkets, Bi-Lo, Coles Express, Liquorland, Vintage Cellars, First Choice Liquor, Officeworks, Harris Technology,   Kmart Australia Limited, Tyre & Auto Service, Target Australia, Curragh Queensland Mining, Bengalla Mining Company
Foreign subsidiaries	Nil
Australian associates	Nil
Foreign associates	(1)Pick n Pay

3) Borrowing Cost of the company in the year 2015 is observed to be $ (283), the interest on the borrowing cost is 5.45%.

4) The audit report opinion of the company is done by Ernst & Young, the audit committee was renamed after Audit and Risk Committee in December 2014. The balance date of the audit report is given as 30^th June 2015

5) The total number of the employees of the company is 205,000.

6) The method of reporting the comprehensive income is based on the adoptions of AASB 9 (2013).

7) The financial well-being is seen in terms of the increase in the operating revenue of the company, which has increased from $ 60181 in the year 2014, and the $ 62447 in the year 2015. It has been further stated that the company’s EBIT increased of $ 1672 to $ 1783 in the year 2014 to 2015.

1)  As per the AASB guideline for operating leases under the Para 81 of the “Recognition and measurement”, an operating lease is termed as the lease anything other than the financial risk (Fatima 2016). Moreover, the unearned income from finance is the gross investment contributed in the asset and the net investment of the overall lease amount. Operating lease is termed as the financial agreement, which considers the values of the assets, which is lesser than the actual life of the useful equipment (Gross, Huston and Huston 2014).  The consultant preferred operating lease to financial lease for the purpose of reduction in the administration expenses. Operating leases transfers only the right to use the property to the lessee. Hence, for improving the overall cash flow of the company it is necessary to consider the operating risk method. The operating cash is expected to be performing in better way as there is no operating lease expense involved. In case of the operating lease will further provide the right to use the asset without ownership, hence the three will not be any transfer of ownership and the original owner of the item will remain the same (Aasb.gov.au. 2016).

Subsidiaries of Wesfarmers Limited

2) The disadvantages related to entering into financial lease agreements under the operating standards stated in the year 2015 are:

i) During the term of the lease, there is a possibility of the getting the assets damaged which makes the assets unfit for the use.

ii) It is often observed that in several situations due to the excessive wear and tear of the assets, only a handful amount of revenue may be generated from the sale of the asset (Faisal and Elahi 2016).

iii) In case of the financial leases the depreciation charged on the leased asset will not be available on the lessee of the designated company. It should be noted that financial lease will increase the debt (Vernimmen et al. 2014).

As per the new regulations of IFRS 16, the leases, which are considered, are either operating leases or financial leases. The leases and services of Oliver Ltd. will be considered under a single contract, the amounts relating to the services are not required to be addressed in the balance sheet. The increase in the lease assets and the finance, liabilities needs to be increased. The IAS 17 focused on the identification of the lease in an economic way only during purchasing of the asset. As per the classification to be done under the newer standards the leases are to be treated in a same way as per as per IAS17, but there will be a significant change in terms of the material off balance sheet under the leases. The key change will be observed in the financial metrics in form of the assets and liabilities (Ifrs.org. 2016).

As per the annual report analysis of a Wesfarmers Limited, the operating leases and the different types of initial direct costs are considered under the straight-line basis over the term of lease. This method is as per the previous lessee accounting method as followed under IAS 17 (Csbp.com.au. 2016). This clearly states that Wesfarmers Limited shows the off-balance-sheet leases in the income statement of the company. It has been further stated that the operating lease payments are recognized as an expense in the income statement and the incentives related to these leases are considered as liability when received and realized (Pwc.se. 2016).

As per the annual report, analysis of Fairfax media does not follow the straight-line method of charging lease, as the straight-line operating lease expense has been replaced by depreciation charge. It can be clearly observed that the company considers consideration of the depreciation amount while computing both operational and financial lease (Fairfax.ca. 2016).

Borrowing Cost of Wesfarmers Limited

The newer requirement of the IFRS 16 for the lease requirements eliminate most of the of balance sheet accounting required for the lesees and moreover redefines the various types of metrics related to financial paradigm such as EBITDA and gearing ratio. Although the applied measures will account for better compatibility of the financial statements but at the same time it may affect the different types of covenants, borrowing cost, perception of stakeholders and the credit ratings. Moreover as per the newer standard, which is due to come into effect from 1^st January 2019 may bring several shift in the lessor model of business offering and may account for the various behavioral lessees changes. It may also account for acceleration of market growth and put an augmented focus towards services rather than only physical assets (Accaglobal 2016).

As per the annual report analysis of both Fairfax media and Wesfarmers Ltd the disclosure of the operating leases does not separately indicate the contract details due to the fact the present standard does not consider the dissimilarity in supply arrangement or services. If both the companies adhere to the new leasing policy then the leases will be recognized in the balance sheet. Moreover both the lessors and the lessees and maintain declaring separate lease components. In this way, the lessee will be able to take advantage of the use of asset either independently or in a combined fashion other resources, which are easily available to the lessee (Csbp.com.au. 2016).

As per the rulings of IFRS 10 related to the “consolidated financial statements”, the requirements of the presentation and preparation of the statement required the entities to consolidate entities, which it monitors. As per the “International accounting standards Board” (IASB), the prime users considered for the preparation of consolidated financial statements are the capital markets.

The non-controlling interest is considered as the action of equity ownership especially in a subsidiary, which has not been attributed to the parent company particularly, which has a controlling interest and is responsible for consolidation of financial result of the subsidiary. In case the non-controlling interest was classified as debt rather than in the equity section then it would mean that the company had less than 80% of the holdings or the other company is not directly under parent company.

The rationale for which the standard setters have selected the equity classification as per AASB 10 due to the application of paragraphs B94 and B95 under “non-controlling interest” given in the guideline of AASB 10. As the company, Brookwater Ltd. is responsible for holding 80% share in the Golf Ltd. as per the rulings of the guideline in case a subsidiary owns outstanding community preference share under equity, which are further held as non-controlling interest. In such a case the entity should be computed based on the share of profit or loss after the adjustment of dividend amount, even if the dividend is not declared. Moreover as the entities are susceptible to changes as per the rulings of AASB 10 the amount held under the non-controlling interest should be adjusted with the carrying amount of the various types of non-controlling and controlling interest reflect relevant changes in the interest of the subsidiary (Aasb.gov.au. 2016)

Reference List

Aasb.gov.au. (2016). [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11_COMPsep14_01-14.pdf [Accessed 23 Sep. 2016].

Aasb.gov.au. (2016). [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB139_07-04_FP_COMPdec12_01-13.pdf [Accessed 23 Sep. 2016].

Accaglobal, A. (2016). IFRS for SMEs | P2 Corporate reporting | ACCA Qualification | Students | ACCA | ACCA Global | ACCA Global. [online] Accaglobal.com. Available at: https://www.accaglobal.com/in/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/ifrs-for-smes.html [Accessed 23 Sep. 2016].

Csbp.com.au. (2016). [online] Available at: https://www.csbp.com.au/docs/default-source/reports-publications/annual-reports/2014-annual-report—wesfarmers.pdf?sfvrsn=10 [Accessed 23 Sep. 2016].

Fairfax.ca. (2016). Fairfax – Financials – Annual Reports . [online] Available at: https://www.fairfax.ca/financials/annual-reports/default.aspx [Accessed 23 Sep. 2016].

Faisal, M. and Elahi, F., 2016. Performance evaluation of lease financing as an instrument of financial market in Bangladesh (Doctoral dissertation, University of Dhaka).

Fatima, M., 2016. Differences and similarities between Ijara and conventional operating lease contracts. Market Forces, 1(4).

Gross, A.D., Huston, G.R. and Huston, J.M., 2014. The path of lease resistance: How changes to lease accounting treatment may impact your business. Business Horizons, 57(6), pp.759-765.

Ifrs.org. (2016). [online] Available at: https://www.ifrs.org/Current-Projects/IASB-Projects/Leases/Documents/IFRS_16_project-summary.pdf [Accessed 23 Sep. 2016].

Pwc.se. (2016). [online] Available at: https://www.pwc.se/sv/pdf-reports/ifrs-16-the-leases-standard-is-changing-are-you-ready.pdf [Accessed 23 Sep. 2016].

Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. and Salvi, A., 2014.Corporate finance: theory and practice. John Wiley & Sons.

Wesfarmers.com.au. (2016). Annual general meetings . [online] Available at: https://www.wesfarmers.com.au/investor-centre/your-shareholding/annual-general-meetings [Accessed 23 Sep. 2016].

Wesfarmers.com.au. (2016). Directors . [online] Available at: https://www.wesfarmers.com.au/who-we-are/directors [Accessed 23 Sep. 2016].

Wesfarmers.com.au. (2016). Richard Goyder AO . [online] Available at: https://www.wesfarmers.com.au/who-we-are/directors/profile/bod-richard-goyder-ao [Accessed 23 Sep. 2016].