Corporate Regulations And Financial Reporting Process In Australian Securities Exchange

Importance of Corporate Regulations in Financial Reporting

Corporate regulations have been made and issued to ensure there is proper regulation in operations of corporations in the country. In Australia, the corporates are governed in accordance with the provisions of Corporations Act, 2001. The corporate regulations are also enumerated in the act. Apart from that the entities are also bound by the regulations of Australian Securities and Investments Commission (ASIC) for certain matters. A detailed discussion on the relevance of the corporate regulations to financial reporting process of entities operating in the country shall be made in the document. In addition four companies listed in the Australian Securities Exchange (ASX) shall be selected to discuss various elements of equity in these entities.

Financial accounting and reporting is the process of maintaining proper books of accounts of an organization & preparation and presentation of financial statements to disclose true and fair picture of the organization. Corporations Act, 2001 provides requirements in relation to the financial reporting and audit of such reports for entities operating in the country. ASIC is the corporate regulatory body governing the compliance requirements for corporates while reporting their financial information (Ioannou & Serafeim, 2017). Importance of corporate regulations in financial reporting is immensely important. The inherent limitations of accounting and financial reporting makes it compulsory to have mandatory corporate regulations for entities to comply while preparing and presenting the financial  statements. Brief discussion about the importance of corporate regulations and their benefits on financial reporting would be essential to determine the necessity of having such corporate regulations (Armstrong, Guay, Mehran & Weber, 2015).

Due to the inherent limitations of accounting there are number of areas such as accounting for inventory, depreciation, calculation of cost of goods sold, valuation of intangible assets, measurement of assets, etc. where accounting provides more than one alternative to the management and accountants. Corporate regulations help in reducing the number of alternatives to minimum to ensure that the financial statements are prepared in accordance with appropriate accounting principles and policies (Eccles & Serafeim, 2015).

Corporate regulations restrict the scope of manipulation in the financial reporting and accounting by the management and accountants as they have to abide by the corporate regulations in preparing and presenting the financial statements (Bhasin, 2015).

Due to reduction in number of alternatives for financial reporting the financial accounting and reporting must be in accordance with the corporate regulations. This increase the comparability of financial information.

Role of Australian Accounting Standards Board in Global Accounting Standards

Compulsory compliance requirements with corporate regulations improves financial accounting and reporting to disclose true and fair picture of corporates.

If the disclosure requirements in financial reporting are made voluntary and the managers are allowed to disclose financial information as per their choice then there would be huge scope of manipulation in accounting and financial reporting. As a result the financial statements will end up becoming a tool in the hands of the management to disclose the desired picture of an organization as per their preference instead of disclosing true and fair picture of corporates (Bhasin, 2015). Thus, the corporate regulations must be there to regulate financial accounting and reporting with a continuous objective to improve financial reporting. Management should never be allowed to only disclose information voluntarily as per their choice.

Australian Accounting Standards Board (AASB) is one of the members of International Accounting Standards Board (IASB) and plays an important role in the processing of setting global accounting standards. At the time of drafting new standards or proposing amendments for existing standards (IFRSs) the members of IASB including AASB is consulted. The preliminary drafts of new standards and amendment standards are provided to the members of the Board including AASB (Crane & Matten, 2016). The comments, suggestions, recommendations of all the members are invited on the drafts. Based on the comments, suggestions and recommendations necessary changes are made in the drafts. Once the final draft is ready the same is formulated as new standard or amended standard as per the standard process of the IASB.        

AASB participates in the global accounting standards setting process by providing its independent view on different matters while developing a new standard or IASB is in the process of issuing amendments to the existing standard / standards. AASB is one of the premier members of IASB and plays a pivotal role in the process of setting global accounting standards (Ntim, Opong & Danbolt, 2015). AASB participates in all the stages of accounting standards process. At the time of developing and publishing the discussion paper AASB provides its important inputs to improve the paper. At the time of developing and publishing the exposure draft AASB contributes by giving its valuable suggestions and recommendations to improve the draft and final standard. IASB follows the following standard setting process at the time of setting new accounting standards, AASB activity participates throughout the process (Albu, Albu & Alexander, 2014).

Selected Companies: Changes in Owners’ Equity over Past Four Years

                                     

The four companies that have been selected for this part of the document are Telstra Corporation, Queste communications Limited, TPG Telecom Limited and Vodafone Australia. All these companies are listed in ASX. The annual reports of all these companies have more or less included similar items under owners’ equity thus, before discussing the changes in owners’ equity over the last four years lets provide a brief discussion on the various elements of owners’ equity as reported in the financial statements of these companies (Schaltegger & Burritt, 2017). 

Share capital: It is the face value received by these companies from issue of ordinary shares in the market. The represent the ownership right of the shareholders in an organization.

Called up capital: Called up capital is another metaphor used for share capital.

Additional paid up capital: It is the excess amount over and above the face value of shares issued by an organization.

Reserves: Reserves are the accumulated amount of funds provided for specific future liabilities. No amount from such reserves should be used to pay dividend (Morris, 2017).

Accumulated losses: The amount of loss accumulated over the years is termed as accumulated losses.

Retained earnings: It is the accumulated amount of profit over the years that have remained after payment of dividend from profits earned by a company.

In order to assess the changes in owners’ equity over the last four years period it is imperative to have the table showing the balances in owners’ equity and different elements of owners’ equity. Queste Communications Limited: The following table contains the balances in owners’ equity account over the last four years: 

Queste communications Limited
Amount in $
Year	2017	2016	2015	2014
Equity:
Issued capital	6,149,888.00	6,149,888.00	6,268,445.00	6,268,445.00
Reserves	3,182,215.00	3,270,684.00	3,200,408.00	3,106,232.00
Accumulated loss	(6,281,531.00)	(4,769,667.00)	(4,057,596.00)	(3,313,407.00)
Non-controlling interests	2,088,208.00	3,011,476.00	3,313,099.00	3,520,654.00
Total equity	5,138,780.00	7,662,381.00	8,724,356.00	9,581,924.00

One of the most important characteristics that can be identified from the above balances in owners’ equity of the company is that each year the amount of equity has reduced. It almost seems like a trend for the company (Camfferman & Zeff, 2015). The main reason for such reduction in owners’ equity of the company is ever increasing accumulating losses of the company. In 2014 the accumulated losses of the company was $3,520,654. Within a period of three years the same has increased to $6,281,531.    

Vodafone Australia: The following figures contained in the table below represent the amount of owners’’ equity in last 4 years ended in 2017.

Vodafone
Amount in ?’ Million
Year	2017	2016	2015	2014
Equity:
Called up share capital	4,796.00	4,796.00	5,246.00	3,792.00
Additional paid in capital	151,808.00	151,694.00	161,801.00	116,973.00
Treasury shares	(8,610.00)	(8,777.00)	(9,747.00)	(7,187.00)
Accumulated losses	(105,851.00)	(95,683.00)	(85,882.00)	(51,428.00)
Accumulated other comprehensive income	30,057.00	31,295.00	20,092.00	8,652.00
Total equity	72,200.00	83,325.00	91,510.00	70,802.00

The owners’ equity of the company has more or less been stable over the years however, in last two years the accumulated losses of the company have increased as a result the net owners’ equity in 2017 is GBP 72,200 million (Martínez?Ferrero, Garcia?Sanchez & Cuadrado?Ballesteros, 2015). 

TPG Telecom Limited:

The table below contains all necessary information about the balance in owners’ equity in last four years.

TPG Telecom Limited
Amount in $’ million
Year	2017	2016	2015	2014
Equity:
Share capital	1,449.40	1,051.90	516.90	516.90
Reserves	(18.10)	41.20	76.50	48.40
Retained earnings	963.30	681.00	409.80	267.10
Total equity	2,394.60	1,774.10	1,003.20	832.40

The owners’ equity of TPG Telecom has increased each of its last four years. The reason for the increase in owners’ equity of the company is mainly the issue of shares of the company and it ever increasing retained earnings. In 2017 the company has a net owners’ equity of $2,394.6 million compared to $832.40 million in 2014 (Griffin, 2015). 

Telstra Corporation: The amount of owners’ equity in the Balance sheet of the company I n last four years showed the following balances:

Telstra Corporation Limited
Amount in $’ million
Year	2017	2016	2015	2014
Equity:
Share capital	4,421.00	5,167.00	5,198.00	5,719.00
Reserves	(105.00)	62.00	372.00	(228.00)
Retained earnings	10,225.00	10,642.00	8,533.00	8,331.00
Total equity	14,541.00	15,871.00	14,103.00	13,822.00

Owners’ equity of Telstra Corporation in 2017 is $14,541 million has decreased from of $15,871 million of 2016 due to the reduction in the amount of retained earnings and negative reserves balance in 2017 (Ives, 2015). 

Debt and equity position of an organization helps in assessing the long term solvency position of business organizations. Generally debt to equity ratio used to evaluate the long term solvency position of companies. Here the four firms namely, Queste Corporation Limited, Vodafone Australia, TPG Telecom Limited and Telstra Corporation Limited are all in the telecommunication industry in the country. Taking into consideration the long term debt of these companies and equity balances at the end of reporting period 2017 a preliminary idea can be derived about the debt to equity position of the company (Žager, Mališ & Sa?er, 2017).

Let’s have the table showing the debt to equity position of the company as at the end of reporting period 2017.

Amounts are in million
Companies	Queste	Vodafone	TPG	Telstra
Equity	5.14	72,200.00	2,394.60	14,541.00
Long term borrowings and debt	–	34,523.00	–	14,808.00
Debt to equity ratio	NA	0.48	NA	1.02

Queste and TPG both are relatively small companies compared to the size of Vodafone Australia and Telstra Corporation. TPG and Queste both have no long term borrowings thus, capital employed in both these companies are solely consists of the funds of owners. Thus, calculating debt to equity ratio for these two companies is not possible. In case of Vodafone Australia and Telstra, both companies are very huge in their business operations and have used extensive amount of debt funds as can be seen from the above table (Osadchy, Akhmetshin, Amirova, Bochkareva, Gazizyanova & Yumashev, 2018). In 2017 the total amount of owners’ equity is GBP 72,200 million and debt fund is GBP 34,523 million. Thus, the company enjoys quite strong debt and equity position with a debt to equity ratio of 0.48. Teltstra Corporation on the other hand has $14,541 millin of equity fund as on June 30, 2017 compared to a debt fund of $14,808 million on the same date. Hence, the amount of debt fund for the company higher compared to the amount of equity. The debt to equity ratio of 1.02 for the company is thus, not as impressive as that of Vodafone.

Conclusion:

An organization is Australia broadly has two long term sources, i.e. External source and internal source. Debt and borrowings are external sources and equity, retained earnings are the internal sources of finance. It is important to have a balance between owners’ equity and debt fund to make optimum use of resources and enjoy the benefits of financial leverage. From the above document it can be understand that out of the four companies two, Telstra and Vodafone, have significantly large scale of operations and have used debt and equity funds quite well. The other two are significantly small companies, TPG and Queste, and yet to make use of debt funds in business operations.    

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