Corporate Regulation And Accounting Standards – A Critical Analysis

Corporate Regulation

The report introduces about the importance of financial accounting disclosure for the management and other users. It suggested that the corporate financial reports should be regulated in order to avoid unnecessary errors and mistakes. The role played by AASB in setting the accounting standards is also discussed along with the reason why USA has not adopted IFRS. The further part of the report conduct an analysis of the four companies which states that ASX limited has low financial risk due to stable debt and equity component. Also the firm has increased profits which boosted up its retained earnings.

Numerous researches directing in field of bookkeeping and announcing proposed that the exposure of money related data has turned out to be particularly vital for the organizations and the directors. Detailing and reporting of budgetary information in regard of an organization has became important over the most recent couple of years because of the multifaceted nature of the organizations and complexity in their operations. The management of the organization communicates all the important and relevant data to the stakeholders through the yearly reports which comprises of financial and non-financial information. The stakeholders are those individuals who hold some level of enthusiasm for organization’s benefits and are authorized to have all the data about the execution and position of the entity (Wang, 2014). Exposure of accounting information assists the shareholders in figuring out that whether the organization is fiscally stable or not. In particular, outer partners that incorporate government, lenders, potential investor and different people who are not engaged with the everyday practices of the firm require more data about the functioning of the business so as to evaluate its performance by considering all the quantitative and qualitative aspects. There are different perspectives which are taken into account while disclosing the financial accounting information. They are known as liquidity, solvency, efficiency and profitability. To the extent non-money related execution is considered, factors like corporate social responsibility, sustainability reporting and consistence with GRI standards are evaluated (Collier, 2015). 

The above paragraph interprets the significance of financial accounting data and to maintain that the regulation and management of financial reporting has become the vital function of the managers. They should reveal the accounting data intentionally to every one of the users with the goal that they don’t have to incorporate such information which reflects faulty picture of the entity. The goal of planning budgetary data is to evaluate the genuine position or circumstance of the organization, to decide the measure of return it could offer to its potential financial inventors and others. Keeping in mind the end goal to achieve such intentions, it is essential for the directors to control and regulate its financial reporting procedures time to time so as to avoid deliberate mistakes and errors. It will result in harmonization and consistency in the practices by applying the different accounting standards that are important for the business according to its size and nature. The consistency in reporting of monetary data will in the long run assist the stakeholders with understanding the information effortlessly and contrast the same with the competitors (Christensen, Nikolaev and WITTENBERG?MOERMAN, 2016). Deliberate exposure and direction will encourage the administrators and the company to stay away from the likelihood of distortion of records and will result in attractive and solid outcomes. Moreover, activities like manipulation of accounts, falsification of the figures and misstatement can be stooped and avoided with the help of proper regulation and control. The company should adopt efficient and effective procedures for controlling errors in the financial statements and accounting information. It will eventually help it to grow in future and represent a true and fair view of its position to the potential investors and other people.

Accounting standard setting

Therefore, it can be said that the managers must disclose all the finance related data in a proper and understandable manner in the financial reports of the company. This will assist the users in analysing the performance of the entity by interpreting the past trends and looking at the fluctuations or the changes that have taken place.

Accounting standards are the benchmarks that are used at time of preparing monetary reports. They are those authoritative standards which lay down the procedure of preparing corporate financial reports so as the uniformity and consistency can be maintained. They are the essential wellspring of Generally Accepted Accounting Principles (GAAP). Such benchmarks set out the methods for directing a bookkeeping treatment of some particular business events and transactions. Australian Accounting Standard Board is an administration office established with a target to create and maintain the financial reports that will be material to all the type of organizations working in Australia. AASB has played an imperative job in procedure of setting the accounting standards at global pace. It has been collaborated with IASB in order to formulate some international standards that are to be applied by every entity in accounting field. The approved body in charge of setting the worldwide measures is the international accounting standard board (IASB) and it has teamed up with numerous other domestic standard setting bodies to acquire harmonization and consistency in the global benchmarks (AASB. 2018). AASB has made several techniques and strategies in order to figure out its role as a standard setter in the dynamic condition. The board has figured its methodologies in such a way, to the point that a legitimate relationship can be kept up with IASB and its set requirements. AASB help IASB in recognizing specialized issues and it additionally gets the feedback from a significant number of the Australian companies which are considered by IASB while setting the bookkeeping benchmarks. It presents some formal documents and statements in front of the board keeping in mind the end goal to get the feedback and look for remarks from IASB for getting the approval to develop such regulations and standards. On a whole, AASB provides the view points of the entities working in the country in respect of developing global accounting standards. The board share the same with the IASB and get authority on the standards that can be developed in context of the indentified issues and problems (AASB. 2018).

However despite being accepted on the global level, there are some member countries of IASB which do not apply and adopt International Financial Reporting Standards in the procedure of creating and preparing their financial reports. Since, AASB has an important role to play in standard setting, all the Australian companies are required to follow the guidelines and principles of IFRS while preparing their reports. Yet, the situation is not same for some countries like United States (Evans, Houston, Peters and Pratt, 2014).  The country still uses GAAP as their benchmarks to prepare monetary reports. Accepting IFRS over GAAP is a controversial move and there are some reasons why USA is not up for it. One of the reasons is that adoption of IFRS is a costly affair and switching to it from GAAP can cost high to the country. Furthermore, the country will face problems at time of comparing the financial data as there will be no common ground on which the quantitative data of the organization working in different parts of the world can be compared. Apart from this, IFRS lack a quality factor as it does not bring much quality to the financial reports as compare to what GAAP does. So, these are the reasons why IFRS is not compulsory for many members of IASB as they are finding it difficult to adopt because of various differences (Lam, 2015).

The ASX listed companies are selected operating in the Australian financial sector. The items of Owners’ equity of each company are analysed along with their debt and equity position

AMP Limited

(AUD in millions)	2014	2015	2016	2017
Share capital	9508	9566	9619	9376
Reserves	-1888	-1866	-1972	-2010
Retained Earnings	566	819	-185	-164

ASX Limited

(AUD in millions)	2014	2015	2016	2017
Share capital	3027.2	3027.2	3027.2	3027.2
Reserves	162.8	206.2	220.0	258.7
Retained Earnings	480.9	526.3	576.9	622.2

Bendigo and Adelaide

(AUD in millions)	2014	2015	2016	2017
Share capital	4355.6	4223.6	4288.2	4448.7
Reserves	101.1	95	87.9	112.3
Retained Earnings	509.8	623.1	739.2	864.6

Bank of Queensland

(AUD in millions)	2014	2015	2016	2017
Share capital	3021	3122	3243	3360
Reserves	114	90	33	57
Retained Earnings	206	257	311	371

Explanation of the items

• Share capital: It is also known as ordinary share capital which is invested by the investors and shareholders in the business. The amount of issued, subscribed and authorized capital consists of the entire share capital of the firm. In other words, it is that part of the capital which comes from the issue of shares.

Among the four listed companies, AMP Limited has the highest share capital with $9376 million followed by Bendigo and Adelaide limited at $4448.7 million. The capital of AMP has increased due to the increased market value of the company and its outstanding performance in the past year. The share capital has decreased in 2017 because of the loss made by the company in 2016. ASX’s share capital remains same in all the years whereas the share capital of Bendigo shows fluctuating trend. However, an increasing trend was noticed in Bank of Queensland’s share capita as it grew from $3021 million to $3360 million in 2017. This was because of the increase in the number of shares issued by the company.

• Reserves: They are those amounts which are kept aside for some particular purposes and for future contingencies. They help the companies to deal with the liabilities which are identifiable in present but may arise in future.

The reserves of AMP Limited were negative in all the four years which shows the accumulated losses of the company. The highest reserves were maintained by ASX limited as the amount of reverse increase from $162.8 million to $258.7 million. Bendigo’s reserves have also increased during the last year but BOQ has made low reserves in the past years.

• Retained earnings: It is also the item of owners’ equity which represents the amount retained by the company in the business. It is the earnings of the firm left after paying all the obligations and liabilities. Generally, the figure of retained earnings is utilized for the purpose of paying dividends.

Bendigo has the highest retained earnings among the four companies which reflect that the company is constantly making efforts to increase its profits. Its RE increased from $509.8 to $864.6 because of the increased profit during the years. ASX Limited also has high RE reported at $622.2 million last year as compare to the prior years (Morningstar. 2018). AMP Earnings got negative in 2015 and 2016 due to the low profit earned by the company. BOQ has the low earnings.

AMP Limited (AUD in millions)	2014	2015	2016	2017
Total equity	8385	8895	7541	7283
Total Liabilities	126470	130813	132519	140802

The liabilities of the company have increased as compare to its equity which shows high financial risk and reflects that AMP relies more on debt rather than equity. Its debt equity ratio was 1.06 which was more than the ratio in past years (Morningstar. 2018).

ASX Limited (AUD in millions)	2014	2015	2016	2017
Total equity	3670.9	3759.7	38241.1	3908.1
Total Liabilities	4337.9	4298.9	6627.5	9303.6

The financial obligations of ASX Limited have increased in the past two years along with the upsurge in their equity. This makes the component of debt and equity stable and reflects that not all the operations of the firm are funded by debt.

Bendigo and Adelaide (AUD in millions)	2014	2015	2016	2017
Total equity	4966.5	4941.7	5115.3	5425.6
Total Liabilities	60096	61087	63457.4	65989.9

Bendigo has the stable ratio of 28% from the past two years. However, its ratio has increased due to the significant increase in company’s liabilities (Morningstar. 2018).

Bank of Queensland (AUD in millions)	2014	2015	2016	2017
Total equity	3341	3469	3587	3788
Total Liabilities	43564	44549	47266	47870

The D/E ratio of BOQ was 13% in 2017 and 7% in 2016 due to the low debt component of the firm. However, its total liabilities has increased to some extent as compare to its equity, making the company financial risky (Morningstar. 2018).

Conclusion

From the above report, it is concluded that it is very important for the manger to display all the necessary accounting information and regulate the procedure of financial reporting on periodic basis. Also the AASB has played a vital role in setting the accounting standards. The report also concludes that among the four companies, ASX limited is at better position as it has stable debt equity ratio, high retained earnings and positive reserves. The company is focused on improving its profits and earn growth in future.

References

AASB (2018). The Standard-Setting Process. [Online]. Available at: https://www.aasb.gov.au/About-the-AASB/The-standard-setting-process.aspx [Accessed 28 September 2018].

Collier, P.M. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.
Christensen, H.B., Nikolaev, V.V. and WITTENBERG?MOERMAN, R.E.G.I.N.A. (2016). Accounting information in financial contracting: The incomplete contract theory perspective. Journal of accounting research, 54(2), pp.397-435.

Evans, M.E., Houston, R.W., Peters, M.F. and Pratt, J.H. (2014). Reporting regulatory environments and earnings management: US and non-US firms using US GAAP or IFRS. The Accounting Review, 90(5), pp.1969-1994.

Lam, H. (2015). Why does the US Continue to Use GAAP and Will it Ever Converge to IFRS? CMC Senior Theses. [Online]. Available at: https://scholarship.claremont.edu/cgi/viewcontent.cgi?referer=https://www.google.co.in/&httpsredir=1&article=2018&context=cmc_theses [Accessed 28 September 2018].

Morningstar (2018). AMP Limited. [Online]. Available at: https://financials.morningstar.com/ratios/r.html?t=0P00006W6Q&culture=en&platform=sal [Accessed 28 September 2018].

Morningstar (2018). ASX Ltd. [Online]. Available at: https://financials.morningstar.com/ratios/r.html?t=0P00006W9V&culture=en&platform=sal [Accessed 28 September 2018].

Morningstar (2018). Bank of Queensland Ltd. [Online]. Available at: https://financials.morningstar.com/ratios/r.html?t=0P00006WAK&culture=en&platform=sal  [Accessed 28 September 2018].

Morningstar (2018). Bendigo and Adelaide Bank Ltd. [Online]. Available at: https://financials.morningstar.com/ratios/r.html?t=0P00006WAU&culture=en&platform=sal  [Accessed 28 September 2018].

Wang, C., (2014). Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), pp.955-992.