In this report there are various topics relating to financial management which has been discussed. From the significance of financial accounting and reporting to IFRS and also the equities and debts of four ASX listed companies have been analyzed with the help their four consecutive years’ annual report (Belton, 2017).
There are various departments in an industry, which function routinely in order to achieve the goals and objectives of the organization. The operation of all these departments might not be dependent on each other’s functioning but is linked to together by the Finance & Accounting department. The working and operation of each and every department in the organization is recorded by the financial and accounting department and the same is then reported to the users, especially the shareholders in the financial statements(Alexander, 2016). The primary objective of financial reporting is to disclose the financial information relating to the financial status as well as the financial performance of an entity for a specified time period to its users and shareholders. The requirement of the financial accounting and reporting is inevitable and irreplaceable. The components that form part of financial reporting are: the financial statements which includes Balance Sheet, Profit & Loss Accounts, Cash Flow Statements and a statement reflecting changes in the equity position of equity holders; the notes forming part of the financial statements.
The financial accounting and reporting bears great significance for each and every organization as it helps in complying with the various requirements the statutes and regulatory. The statutory auditors express their audit opinion on the basis of the financial reports of the company. In order to raise capital an organization is required to present its financial data through audited financial reports. Moreover, the public can evaluate and analyze the financial performance of the company only on the basis of its financial reports (Bromwich & Scapens, 2016).
As per the above discussion it is evident that the transparency in the financial accounting and reporting is a critical issue since its users rely on it. The decision making process of the shareholders and other users are dependent highly on the performance of the company as disclosed in the financial reports. This makes it necessary to be regulated by a regulating body so that they are prepared following certain standards which will apply to each and every organization uniformly and the same shall not be biased (Vieira, et al., 2017). If the managers are allowed to disclose the financial information voluntarily, then the chances that there disclosures will involve window dressing is apparently high. In order to increase their market share and investors they are ought to reflect great performance in their financial reports which might be false. Therefore, on the basis of the above findings, we can undoubtedly say that the financial accounting and reporting should be regulated.
The Australian Accounting Standards Board is an agency of the Government which oversee the development and maintenance of the standards in respect of financial reporting which are applicable to various entities both in private and public sectors operating in Australia. On the other hand global accounting standard also known as International Financial Reporting Standards are issued by the International Accounting Standards Board usually known as IASB(Choy, 2018). The basic intention of the global accounting standard is to furnish such accounting standards in a language which is acceptable and understandable globally in all business affairs so that the financial statements of a company could be understood and also compared all over the world.
The Australian accounting standard board plays a vital role in the setting process of the global accounting standards by contributing in the development of such standards and in facilitating the participation of the Australian community. For the adoption of the international financial accounting standards in the financial reports, the Australian accounting standards board has enacted a wide strategic administration from the Australian Financial Reporting Council also known as FRC (Andiola, et al., 2018). The AASB has issued various numbers of Australian Accounting Standards which incorporates the global accounting standards along with other supporting AASB standard incorporating the IAS. The Australian Accounting Standards incorporating the global accounting standards are: AASB 1 incorporating IFRS 1 which deals with the First time Adoption of Australian Accounting Standards in case of the former and First time adoption of international financial reporting standards in case of the latter; AASB 101 and AASB 102 incorporates IAS 1 and IAS 2, these deals with presentation of financial statements and inventories respectively .
There are around 120 member nations of International Accounting Standard Board, of which roughly 90 countries have implemented IFRS fully as issued by the IASB and also include a conformity report in respect of the same in their financial reports. However, the adoption of International Financial Reporting Standards has not been made mandatory (Cheatham & Cheatham, 1996). This is because of the effect the adoption of IFRS might have on the economy of the adopting country. It is prudent to analyze the effect of its implementation on the economy of each and every member country before making it mandatory.
For the purpose of answering the below questions we have considered the annual reports of fours companies listed on the Australian Stock Exchange (ASX), belonging to the materials industry and analyzes the financial statements of four consecutive years in respect of each company. The years considered are 2017, 2016, 2015 and 2014. The four companies which are considered in the report are:
The analysis of the changes in the equity of the company for the four consecutive years is presented below:
|
Equity component
|
Year 2017 USD million |
Year 2016 USD million |
Year 2015 USD million |
Year 2014 USD million |
|
Contributions |
1416.90 |
1445.10 |
1680.60 |
2072.20 |
|
Reserves |
(881.70) |
(800.20) |
(666.50) |
(414.30) |
|
Retained Earnings |
286.70 |
139.00 |
452.10 |
370.40 |
|
Non-controlling interest |
69.60 |
61.60 |
120.80 |
111.00 |
From the above representation, we can observe the changes in the equity position of the company during the four years, with continuous decrease in the contributions which may be due to investment withdrawing their investment or the company itself buying back its shares to reduce public investment (Jefferson, 2017). There is an increase in the negative figures of the reserves; this may be due to lower creation of reserves as compared to its requirements. Retained earnings has increased in 2015, decreased in 2016 and again increased in 2017, this depends on the profit generation. Non-controlling interest has decreased in all these years.
The analysis of the changes in the equity of the company for the four consecutive years is presented below:
|
Equity component
|
Year 2017 USD |
Year 2016 USD |
Year 2015 USD |
Year 2014 USD |
|
Issued Capital |
18,680,470 |
16,008,208 |
11,044,157 |
11,044,157 |
|
Reserves |
257,671 |
681,323 |
292,751 |
32,101 |
|
Accumulated losses |
(11,054,205) |
(9,571,763) |
(7,649,968) |
(3,949,791) |
From the above data we can analyze that the issued capital has increased in the year 2016 and 2017, this must be due to issue of fresh shares or bonus share to the existing shareholders. The company has every increased the contribution to the reserves and we have observed the accumulated losses has increased due to the company incurring losses consecutively in the above years.Admiralty Resources NL
The company’s equity includes the following:
The analysis of the changes in the equity of the company for the four consecutive years is presented below:
|
Equity component
|
Year 2017 USD |
Year 2016 USD |
Year 2015 USD |
Year 2014 USD |
|
Issued Capital |
145,649,257 |
145,649,257 |
143,237,430 |
140,145,943 |
|
Reserves |
(773,488) |
(770,142) |
(555,129) |
(562,801) |
|
Accumulated losses |
(127,699,451) |
(129,144,799) |
(126,803,917) |
(122,354,202) |
We can analyze from the above data, we can see that the issued capital has increased in the year 2015; this has been due to issue of fresh share in 2015. There has been increase in the debit balance of the reserves every year and accumulated losses has been increasing due to losses incurred by the company in each of the four years (Mubako & O’Donnell, 2018).
The company’s equity includes the following:
The analysis of the changes in the equity of the company for the four consecutive years is presented below:
|
Equity component
|
Year 2017 USD million |
Year 2016 USD million |
Year 2015 USD million |
Year 2014 USD million |
|
Share Capital |
733.10 |
731.40 |
729.20 |
727.90 |
|
Reserves |
1.90 |
2.90 |
1.20 |
3.30 |
|
Retained Earnings |
510.60 |
483.30 |
474.30 |
402.80 |
|
Non-controlling interest |
2.60 |
2.50 |
2.60 |
2.70 |
From the above data, we observe a constant increase in the share capital due to issue of shares by the company. Reserves have decreased in the year 2015 and 2017 due to its utilization. Retained earnings has witnessed constant earning as the company is profit making. The decrease in the minority interest is due to the increase in the company’s holding in its subsidiary (Lessambo, 2018).
We provide below a comparative analysis of the debt and equity of the four companies for the year 2017.
|
Particulars
|
Amcor Ltd |
Alto Metals Ltd |
Admiralty Resources NL |
Adelaide Brighton Ltd |
|
Debt |
4179.40 |
– |
1.7063 |
560.00 |
|
Equity |
891.50 |
7.8840 |
17.1763 |
1248.20 |
|
Debt/Equity Ratio |
4.688 |
0 |
0.099 |
0.449 |
Debt equity ratio is a financial leverage, it indicates how much funds a company has raised in comparison to its own equity. From the above data we can analyze that Amcor Ltd has the most unfavorable D/E ratio as it exceeds 2 which is considered as an ideal D/E ratio. The D/E ratio of Alto Metals is 0 which most favorable, it might limit the return earning capacity of the company as it does not raise finance from outside. The D/E ratios of Admiralty and Adelaide range between 0 and 0.6, which is practically a very favorable ratio (Fay & Negangard, 2017).
Conclusion
From the above report we can conclude that all the requirements of the assignment have been met. The annual reports of the companies have been analyzed and the observations have also been discussed above.
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.
Andiola, L., Lambert, T. & Lynch, E., 2018. Sprandel, Inc.: Electronic Workpapers, Audit Documentation, and Closing Review Notes in the Audit of Accounts Receivable. Issues in Accounting Education, 33(2), pp. 43-55.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management Accounting Research, 31(1), pp. 1-9.
Cheatham, C. & Cheatham, L., 1996. Redesigning cost systems: Is standard costing obsolete?. Accounting Horizons, 10(4), p. 23.
Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, p. 145.
Fay, R. & Negangard, E., 2017. Manual journal entry testing : Data analytics and the risk of fraud. Journal of Accounting Education, Volume 38, pp. 37-49.
Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland. Technological Forecasting and Social Change, pp. 353-354.
Lessambo, F., 2018. Audit Risks: Identification and Procedures. Auditing, Assurance Services, and Forensics, 3(1), pp. 183-202.
Meroño-Cerdán, A., Lopez-Nicolas, C. & Molina-Castillo, F., 2017. Risk aversion, innovation and performance in family firms. Economics of Innovation and new technology, pp. 1-15.
Mubako, G. & O’Donnell, E., 2018. Effect of fraud risk assessments on auditor skepticism: Unintended consequences on evidence evaluation. International Journal of Auditing, 22(1), pp. 55-64.
Mun, K. a. S. I., 2018. A close look at the role of regulatory fit in consumers’ responses to unethical firms.. s.l.:s.n.
Vieira, R., O’Dwyer, B. & Schneider, R., 2017. Aligning Strategy and Performance Management Systems. SAGE Journals, 30(1).
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