Preparation of financial statements may be considered to be one of the most success-critical aspects of accounting studies as the process of such preparation may include the consideration of several components that are both external and internal to the business. Corporate reporting varies widely at a global level with different countries having different financial reporting framework. The introduction of Intentional Financial Reporting Standards (IFRSs) has made the task a bit simpler though, the challenge remains for the management to undertake the corporate reporting in such a manner that the same fulfils the information requirement of different stakeholders associated with the business (Fasb.org, 2018). Since the financial accounting acts as a business language, an effective corporate reporting may hold its importance in terms of its utility to the stakeholders who undertake their investment or other decisions around their stakes in the business based on such reporting (HAMPTON, 1999).
As stated earlier, the financial reporting is the language of the business and hence it becomes a critical task for the management to present the results of the operations and the financial state of affairs of the business for a specific reporting period to the stakeholders with accuracy, transparency and usefulness (Haslam, 2017). In order to do the same, the management may need to comply with certain standards and regulations which enhance the quality of such reporting. Conceptual Framework is a concept which basically lays down the goals and objectives behind such compliance framework (He, Evans and He, 2016).
ANZ is country’s third largest bank after Commonwealth Bank and Westpac Banking Corp in terms of market capitalization (Asx200list.com, 2018). Also, in New Zealand, this is the largest bank. In addition to Australia and New Zealand, the bank operates in other countries around the globe as well. As per the annual report of 2018, the company has total revenue of $30,327 million and profit of $6,416 million. Also, the total assets base of the business stands at $942,624 million. The present CEO of the group is Shayne Elliot. The company’s shares are listed in Australian Stock Exchange (ASX).
CF provides an overview of do’s and don’ts of company’s financial reporting related compliance. The accounting standards are created and issued by the Australian Accounting Standards Board (AASB) to ensure that the financial statements depict the true and fair view of the financial affairs of the business. In the given context of ANZ, the annual report for the year 2018 has been analysed to evaluate the effectiveness of the application of CF in their corporate reporting.
The in-depth analysis of the said annual report may reveal that the primary compliance requirements under CF have been complied with for the given firm. As per CF and respective accounting standard, the books of accounts should comply with the Generally Accepted Accounting Principles (GAAP) and also the relevant regulatory framework. The financial statement of ANZ is prepared on a historical cost basis and in compliance with the Australian Accounting Standards (AASs) as issued by AASB and also the Corporations Act 2001. In addition, the financial statements also comply with the relevant compliance requirements of IFRSs and Interpretations as issued by International Accounting Standards Board (IASB).
CF defines the asset, liability cost and expenses and as per the given definition, the standard setters have prepared respective sets of guidelines (Herath, McCoy, Lucas and Mensah, 2011). The qualitative characteristics of financial statements are relevance and faithful representation which may again be substantiated for the case of ANZ. The unqualified auditors’ report establishes the fact that the accounts are free from any material misstatements and hence represent the faithful picture of the financial health of the firm, both in terms of financial health as well a compliance requirement.
The qualitative characteristics of the CF demand a few more elements that must be present within the financial statements to make it purposeful for the intended audience (Smith, Haniffa and Fairbrass, 2010). These are relevance, reliability, materiality and timeliness. It has been observed that the annual report contains the directors’ declaration that the organisation has maintained an internal control system within the operation. The system exists, is in place and operating efficiently. In other words, the process of preparation of financial statements may be conceived to be free from any biases n terms of misappropriation, non-reporting or error or omissions.
In the case of ANZ, it has been observed that the basis of recognition, measurement, treatment and disclosure of elements of financial statements are in accordance with the relevant regulations. For example, the life insurance liabilities have been measured using the Margin of Safety (MOS) model which is in line with the pronouncement under AASB 1038: Life Insurance Contracts. Also, the obligation arising out of employee benefit is measured and recognised in the books of accounts in accordance with the AASB 119: Employee Benefits.
However, secondary research about the corporate reporting of ANZ may reveal certain disagreements of the boos of accounts with the standards. It has been noted that the former ANZ chief executive (CEO) Mike Smith was paid around $9.7 million for just three month’s work with the company. It is needless to mention that such excessive managerial remuneration has raised an eyebrow for many regulators across the globe and there has been serious allegations against the company for misappropriating the business fund for own vested interest (Mail Online, 2018).
The auditor has audited the remuneration report for the year 2018 and opined that the managerial remuneration is in line with the Section 300A of the Corporations Act 2001. However, it is to be noted that the compliance with laws and regulations, at times, does not prove to be sufficient as far as transparency and integrity of the management and consequently overall financial performance of the business is considered. There has been a term called “substance over form” which must be considered while assessing the overall reporting and its effectiveness for the stakeholders (Rihanna and Mahadevappa, 2011). Payment to directors and managerial persons may comply with the requirements of the legislation. But such payment is made out of the profit which is primarily attributable to the shareholders and therefore, the business should allow only those expenses which are genuinely charged against profits. The excessive remuneration may not be construed to be viable in the backdrop of agency theory. In this context, agency theory may be referred.
The theory suggests that the directors are the agents of the shareholders and hence the management and Board should act in their fiduciary capabilities. Since the owner groups do not run the entire show, they have appointed directors and hence, it becomes duties and responsibilities on the part of directors to act with utmost integrity honesty and transparency. In other words, the ethics should prevail in the relationship (Lion, 2012).
The comparison has been performed with reference to AMA Group Limited (AMA) which is another company listed in ASX. The audit report for the company for the year 2017 has been unqualified. The company maintains policy charters which lay down the policies regarding the internal control, preparation of financial statement has reporting compliance. An in-depth look into the annual report of AMA reveals that there have not been any major changes on the accenting policies of the firm. In addition, the company has provided detailed disclosures on the fair value measurement of financial assets and liabilities (https://amagroupltd.com, 2018).
Therefore, it may be stated that AMA has complied with CF and comparatively stands in a better position than that of ANZ as far as compliance with reporting requirements of standard setters are concerned.
Conclusion
ANZ has been accused of excessive managerial remuneration. The board will need to re-evaluate the payment. The management should consider corporate reporting with utmost priority. The Board should formulate policies around the internal control and strong corporate governance.
Based on the discussion and analysis performed in the previous sections of the report, it may be conceived that the corporate reporting has been the strength of a company in terms of its usefulness to the stakeholders in undertaking their respective decisions. The management should consider both financial and non-financial elements of a business in its reporting framework (Jhunjhunwala, 2014). It may finally be concluded that well-designed policies of corporate reporting may significantly contribute towards relevance and reliability of the financial statement which ultimately helps the firm to attain its corporate goal of sustainability in the long-term (Kampanje, 2013).
References
Asx200list.com. (2018). ASX 200 List of Companies – Directory. [online] Available at: https://www.asx200list.com [Accessed 15 Dec. 2018].
Fasb.org. (2018). The Conceptual Framework. [online] Available at: https://www.fasb.org/jsp/FASB/Page/BridgePage&cid=1176168367774#section_1 [Accessed 15 Dec. 2018].
HAMPTON, G. (1999). The Role of Present Value-based Measurement in General Purpose Financial Reporting. Australian Accounting Review, 9(17), pp.22-32.
Haslam, C. (2017). International Financial Reporting Standards (IFRS): Stress Testing in Financialized Reporting Entities. Accounting, Economics, and Law: A Convivium, 7(2), pp.105-108.
He, L., Evans, E. and He, R. (2016). The Impact of AASB 8 Operating Segments on Analysts’ Earnings Forecasts: Australian Evidence. Australian Accounting Review, 26(4), pp.330-340.
Herath, S., McCoy, R., Lucas, S. and Mensah, E. (2011). Understanding international financial reporting standards (IFRS): a review and evaluation of IFRS research. International Journal of Managerial and Financial Accounting, 3(3), p.304.
https://amagroupltd.com. (2018). Annual Report. [online] Available at: https://amagroupltd.com/wp-content/uploads/2017/09/Annual-Report-to-shareholders-1.pdf [Accessed 15 Dec. 2018].
Jhunjhunwala, S. (2014). Beyond Financial Reporting-International Integrated Reporting Framework. Indian Journal of Corporate Governance, 7(1), pp.73-80.
Kampanje, B. (2013). Bridging Gap between IAS 1 and IASB Conceptual Framework on Users of Financial Statements. SSRN Electronic Journal.
Lion, J. (2012). How the IASB Interacts with Domestic Standard Setters – A Network of Standard Setters. Australian Accounting Review, 22(3), pp.244-245.
Mail Online. (2018). Former ANZ bank CEO Mike Smith received $9.7m doing three months’ work. [online] Available at: https://www.dailymail.co.uk/news/article-3914880/Former-ANZ-bank-chief-executive-Mike-Smith-received-9-7m-three-months-work.html [Accessed 15 Dec. 2018].
Rihanna, R. and Dr.B.Mahadevappa, D. (2011). The Conceptual Framework Of Corporate Social. Indian Journal of Applied Research, 1(4), pp.40-50.
Smith, J., Haniffa, R. and Fairbrass, J. (2010). A Conceptual Framework for Investigating ‘Capture’ in Corporate Sustainability Reporting Assurance. Journal of Business Ethics, 99(3), pp.425-439.
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