Financial regulation is important to help in proper disclosure of financial information. This paper focus on the importance of financial regulation in the various companies. Financial regulation is important since it will increase the value of the auditors’ professionalism. There are also certain key procedures for setting the accounting standards and this is to be done according to the Australian standards of accounting as discussed below.
The financial accounting and reporting should be regulated and not left for the managers to disclose the financial accounting information voluntarily. It is considered that standardization is significant in the sense that it helps to spread expertise knowledge and information and this, therefore, improves consistency. Additionally, it can aid in the reduction of litigation risk exposed to the various auditors in a company, and this is through the provision of justified decisions. The standardization can be used by the accountants to prove their professional decisions, and this is by indicating that they comply with the best practices (Leuz and Wysocki, 2016 p.600).
The value of the auditors’ professionalism will, therefore, be increased. The other key benefit of regulation is that it aids in the production of market cost savings. A key example is that it is cheaper for different users to do comparison and even manage information all over a particular industry. The regulation will further help in reducing the costs used for negotiations with various parties, and this is especially when there is no much difference in the financial accounting information across all the firms. There is also the need for regulation of financial accounting and reporting because of the diverse users of financial information such as the employees, analyst adviser, the public, government, and the investor groups. Such stakeholders need to understand the financial information provided systematically to enable them to make viable financial decisions (Schaltegger and Burritt, 2017 p.120). When the different managers are allowed to prepare the financial accounting reports in diverse ways, it will result in different interpretations by the users.
Beatty and Liao (2014 p.350), argues that there is also the need for the regulation of financial accounting and reporting to help in the reduction of the various market externalities and failures. Due to the agency theory in which the management is involved in the agency contract with the owners of the company, there has to be constant supply of information in a systematic manner which can be interpreted by all the stakeholders. Also, the capital market is competitive, and therefore the firms will be forced to disclose the financial accounting and reporting voluntarily.
The regulation of the companies based on the financial reporting will result in the imposition of certain rules on the self-regulating profession. The regulation of the financial accounting and reporting of companies is also necessary because it provides accurate information to the various individuals who may use the information for making certain decisions about the particular company (Naranjo, Saavedra and Verdi, 2017 p.400). Based on the above argument, it can be concluded that there is the need for the regulation of financial accounting and reporting of the companies across the globe.
There are various procedures which is followed during the setting of the global accounting standard-setting process by the Australian Accounting Standards Board, and they are as discussed below;
The international accounting Standard Board may identify a particular technical issue. Such issues usually varies such that they could be substantive or non-substantive. The technical issue will then be taken into account by the board. Generally, the issues revolving around the profit entities are provided to the IASB while those which do not relate to the profit enterprises are addressed domestically (Bamber and McMeeking, 2016 p.70). Additionally, some of the stakeholders may provide certain technical issues which they could consider to be relevant and should, therefore, be taken into account by the AASB.
The ASSB will then establish a project proposal for the development of identified technical issue. Such a proposal will entail an evaluated benefits of carrying out such a project, and this will also include the costs which would occur when the project is not conducted. The time and resources will also be taken into account in the project proposal. The project proposal is then reviewed by the Australian Accounting Standards Board to make a viable decision on whether the project is necessary or not. However when the project is rejected, then such an issue will be reported as a board agenda decision.
The agenda papers established by the AASB staff is then discussed after the technical issue is added to the discussion agenda. The timing of outputs, scope of the issue and different approaches for addressing the issue is then addressed in the agenda papers (Pelger, 2016 p.70). The relevant materials from the various standard setters are used to help in verifying the issue, and this may include, the New Zealand Accounting Standards Board, IASB and from certain other varied organizations.
Upon the completion of the research by the AASB, the documents are made available for different comments by the public. Also, such documents are made available to open a discussion with the different stakeholders. Some of the documents may include;
The discussion papers provide different possible accounting policies on the topic.
The draft typically contains the proposed standard by AASB. It can also contain a draft amendment to a particular standard. The exposure drafts may also constitute certain proposal which are already refined and compared to the invitations in the discussion papers and consultation papers.
It contains a proposed interpretation of a particular standard.
The invitations to comment document typically aims to find various feedback about the proposals by the board.IT usually has the consultation paper or a discussion paper.
There are also certain techniques used by the AASB Board to consult different stakeholders, and some of the methods may include;
Such a panel may be formed on the basis of topic by topic, and their role entails the preparation of different views by the stakeholders on the technical issue. They can also provide recommendations on the issue. The members of the panel may include, auditors, users, preparers, and regulators.
The focus groups constitutes the various representatives of the users of the financial statements such as the investors, credit grantors and credit analysts. The private sectors focus groups, on the other hand, comprises of the community agencies, credit grantors and donors.
There are certain formal discussions which can be held by the AASB with different stakeholders, and this relates to the proposals made about the technical issue.
The project advisory panel can be appointed from various stakeholders, and this is particularly the experts in the particular issue. The pieces of advice and views of the members of the panel are sought by AASB. Each of the members are provided with agenda papers to provide their views on the topic.
Based on the outcome of the consideration taken into account by the AASB, the technical issue may be pronounced as a standard or even a conceptual framework document. For the profit entities, their pronouncement will be based on the international financial reporting standards as will be issued by the international accounting standards board (Islam, Khan, Hughes and Ali, 2017 p.30). Such an action is taken to ensure that financial statements are developed in compliance with the ASSB standards. Also during the setting of the standards by the AASB, the specific requirements for the non-profit making enterprises are taken into account.
During the submission of the documents of the technical issue to the international organization, the AASB considers the different inputs of a variety of input by the Australian organizations including individuals (Pelger, 2016 p.70). The documents are submitted formally to the IASB for views and comments.
The different stakeholders are requested by the AASB for the formal comment letters, and this relates to the consultative documents which have been provided by IPSASB and IASB. The efforts of various stakeholders are usually taken into account by the AASB during the final submission of the documents.
During the process of implementation of the standard, the AASB play a role in reviewing and monitoring of the accounting standard, and this also includes the interpretations of the standard in Australia. The review helps in making amendments to the standard when necessary to the domestic AASB (Christensen, Lee, Walker, and Zeng, 2015 p.45). There are various organizations which play a role in compliance of the Australian accounting standards and such include, the Institute of public accountants, Australian Securities and Investment Commission, Australian Prudential Regulation Authority and the Chartered Accountants Australia and New Zealand.
The IFRS set by the IASB is not mandatory for the member nations of IASB since the countries have also set their committees to deal with the setting of the IFRS which is applicable in the particular country.
The items of equity selected for analysis include, retained earnings, share capital, reserve and treasury stock.
The retained earnings are typically the profits generated by a company less the dividends earned. When a particular entry is added to the accounting records, the amount of the retained earnings is adjusted, and this has an effect on both the revenue and expenses (Cohen, 2017 p.230). Such profits are never distributed to the shareholders, but instead, they can be reinvested by the firm.
According to Cao, Myers, Myers, and Omer, (2015 p.80) the share capital refers to value of capital which is invested by shareholders of a company for various uses in the business. It is further categorized into a variety of equity issued such as preferred stock and the common stock.
The reserves of a company constitutes the profits set aside for a particular purpose, for instance, to buy fixed assets and repay debts (Antoniou, Doukas and Subrahmanyam, 2015 p.360). Generally, they are used in the maintenance of the financial
The treasury stock typically represents the variations between the outstanding shares and shares issued by a company. Additionally, they represent the shares which have been reacquired by a company into their stock (Antoniou et al.2015 p.360).
The four selected companies entails the Commonwealth Bank, Insurance Australia, ANZ Banking Group Limited and Suncorp Group Limited. The companies are all in the financial sector.
According to Barwick and Douglas, (2014 p.200), the various equity items seem to change over time, and this is based on the performance of the company.The retained earnings, for instance, keeps on increasing for the four years, like in 2013, the retained profits were $ 16,360 while in 2012 it was $13,356.However, the reserves reduces year after year like in 2012 it was at $1,571 while in 2013 it reduced to $1,331.The reduction in the reserves was due to the many projects the company is investing. The share capital also seem to be increasing based on the financial statements of the company.The increase could be associated with issue of new shares by the company.
Based on the analysis of the financial statements of the company, there are variety of changes witnessed in the various items of equity. For instance, share capital increase constantly, like in 2013 it was at $5,353 million and later increased to $6,775 in 2014. The reserves also on the other hand also increases continuously (Muheki, Lueg, Lueg and Schmaltz, 2015 p.78). However, the retained earnings seem to reduce every particular year, and this can be attributed by the various expenses the company incurs for different projects.
Suncorp Group Limited Company also experience the similar changes in the different items of equity. For instance, the retained earnings reduces annually due to the different projects the firm undertakes yearly (Qu, Percy, Stewart and Hu, 2018 p.530).
Unlike in the other companies where there seem to be a common trend, the case for AZN Banking is different such that the retained earnings increases rather annually, like in 2013 the value of retained earnings were $21,948 million and in 2014 it was $24,544 million, 2015 it was $27,309 million, and lastly in 2016 it was $27,975 (Roengpitya, Tarashev, Tsatsaronis and Villegas, 2017 p.34). The reserves, on the other hand, has kept on increasing constantly, like in 2013 it was $97 million and in 2014 it was $206 million.
Based on the analysis it can be said that the Common Wealth Bank when compared with the ANZ Bank, it mostly depends on debt as a form of financing of most of the activities (Evans, Healey, Nehme and Nicholls, 2015 p.100). The figure below indicates the debt-equity ratio of the two companies as listed in the exchange market.
The debt and equity position of Suncorp Group Limited and Insurance Australia is that the Suncorp Group depends on the equity as a form of financing and this due to the huge profits it generates from some of its core activities.
Conclusion
In summary, the companies should be regulated because it can aid in the reduction of litigation risk exposed to the various auditors in a company, and this is through the provision of justified decisions. There is also the need for regulation of financial accounting and reporting because of the diverse users of financial information such as the employees, analyst adviser, the public, government, and the investor groups
References
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