Improving Financial Disclosure: Discussion Of IASB’s Disclosure Initiative Project

Background of IASB’s Disclosure Initiative project

The proposition of IASB concerning the effective communications of financial information of entities, I have planned to make s submission in response to the same. I have been considering investments in two banking institutions that is ANZ bank and Westpac group. It has been explained that prepares of the financial statement regards the exercise as complex and many tomes it is perceived by investors that performance is depicted in insufficient manner using the financial statements. Valuable information in the annual report is drowned by poor presentation and organization of financial data (Burc? & Cotle?, 2014). This makes it difficult for investors to take any viable financial decisions. After going through the annual reports presented by both organizations, I have thought that there is need to increase the financial statements communication effectiveness. There needs to be more standardization in terms of both disclosures and preparation of financial statements.

I have gone through the proposition of set of principles of effective communication that comprise of being clear and simple, entity specific, linked to related information, organized for highlighting important matters, no unnecessary duplication, in appropriate format and comparable. After the analysis of annual report for financial year 2016 for both ANZ bank and Westpac Group, it has been ascertained that there are some of the effective principles of communication is lacking while some of the principles they are complying. Good and reputed banks would provide investors with much detailed information that would assist them in making financial decisions. Banks are required to make and provide with the proper segmental analysis and their liquidity and credit risks.

After going through and analyzing the annual reports and the information and components contained therein, I have come across some of the facts that both organizations have and not have made the disclosures. Westpac has done separate segmental analysis and there is a consistent segment definition. On other hand, ANZ bank has not done a separate analysis and have not adopted a segmentation approach. They have depicted in their notes to finance statements rather than showing it separately. Basel are comprehensive set of measures of reforms for strengthening the regulation of banking industry. It was ascertained after evaluation of the annual report that ANZ bank have not disclosed any information about Basel requirements separately. There was also not separate disclosure of the liquidity and credit risks. It was mainly mentioned in the notes to financial statements. On the other hand, Westpac has made appropriate disclosure of information and requirements of Basel and types of risks involves in banking industry. Regarding Tier I and Tier II, there was nothing properly mentioned in the annual report. However, this particular area was properly highlighted in the annual report of Westpac. Westpac has properly presented the divisional performance as against ANZ that did not presented this particular area.

Banks have also not been able to depict their performance trend using graphical presentation that will be helpful to investors in comparing and easily analyzing their performance (Ginesti et al., 2013). In spite of narrative disclosure in some context, it would have been appropriate to use the graphical presentation. In light of above facts identified, there is a need to have significant improvement in financial report communication. I would like to recommend some of the principles that IASB should put the most to work is entity specific and to make it comparable. Financial report of organizations should follow the principle of being entity specific and way of presentation. Principle of entity specific makes the information available in the annual report that is tailored according to the circumstances of the entity rather than being generic. General information are readily available outside the annual reports, therefore presenting the information that is specific to entities would be suitable (Weil et al., 2013). Moreover, information should be presented in a way that makes easy comparison across reporting period and among entities keeping in mind that usefulness of information should not be compromised. This can be done by using graphical presentation of certain available information in the annual report.

Concerns about disclosures in financial statements

The draft of disclosure initiatives provided by IASB also involves provision of guidance on formatting. It is perceived my stakeholders and investors of organization, that communication effectiveness of financial information can be improved with the use of proper formatting. Reason is attributable to the fact that there would be easy comparison of particular organization over two different reporting period and it would also facilitate comparison between entities. Recommendation of board for using the proper format to depict the financial information are based on many reasons. Various organizations in financial services such as banks have published reports that provides guidance on using the table and graphs in their annual report (Edwards, 2013). Moreover, there also exists uncertainty about the use of proper formats in preparation of annual reports. The communication of information to stakeholders would be improved by making effective use of formatting. It is for all the above-mentioned reasons and the facts that I have ascertained from analyzing the annual reports of two banking institutions, there is a need to make use of formatting as one of the principles that will help in generating effective communication of financial information contained in the financial report of organizations. I think that using the appropriate format for presenting the financial investors would be useful to investors in in making the analysis and comparison.

Nonetheless, the development of format should be highly dependent upon the factors that are entity specific. This is so because, in some case, depending upon the types of information to be disclosed, using the tabular form would be more appropriate. There is a need to develop some in depth guidance on using the formatting in the financial statements of organization. Effectiveness of information contained in the notes disclosures can be further improved with the help of appropriate formatting. The components of proper formatting includes different types of formats that would be applied according to the nature of business entity and would be entity specific (Tokar, 2015). There should be common type of formatting and some of the formatting should be done depending upon circumstances of entities and their operation. Such type of disclosure would be in the interest of investors or stakeholders as well as preparers of financial statements. Furthermore, non-monetary guidance on use of formatting also needs to be developed.

As an investor, I would recommend that IASB should include some the principles of effective communication of financial information. The most effective principle would be entity specific, as it will assist the investors in generating information easily along with making it able to easily compare the financial information across entities and between reporting periods. Moreover, the guidance on formatting also needs to be developed further by taking into consideration some organization specific factors.

In the books of Harriette Ltd.
Journal Entries
			Dr.	Cr.
Date	Particulars	Amount	Amount
31/03/2017	Bank A/c.	Dr.	$8,200,000
	To.	Preference Share Application A/c.		$1,600,000
	To.	Ordinary Share Application A/c.		$6,600,000
	(Being application money received for 2,000,000 ordinary shares and 1,000,000 preference shares)
15/4/2017	Preference Share Application A/c.	Dr.	$1,600,000
	To.	Preference Share Capital A/c.		$1,600,000
	(Being application money received for pf. Shares transferred to Pf. Share capital)
	Ordinary Share Application A/c.	Dr.	$6,600,000
	To.	Ordinary Share Capital A/c.		$6,000,000
	To.	Ordinary Share Allotment A/c.		$600,000
	(Being application money received for ordinary share capital transferred to ordinary share capital and excess amount adjusted with due allotment)
	Ordinary Share Allotment A/c.	Dr.	$3,000,000
	To.	Ordinary Share Capital A/c.		$3,000,000
	(Being allotment money due on alloted shares)
15/5/2017	Bank A/c.	Dr.	$2,400,000
	To.	Ordinary Share Allotment A/c.		$2,400,000
	(Being due allotment money received)
1/8/2017	Ordinary Share Call A/c.	Dr.	$1,000,000
	To.	Ordinary Share Capital A/c.		$1,000,000
	(Being call money due on alloted shares)
1/9/2017	Bank A/c.	Dr.	$975,000
	Calls-in-Arrear A/c.	Dr.	$25,000
	To.	Ordinary Share Call A/c.		$1,000,000
	(Being due call money received except for 50000 shares)
15/9/2017	Ordinary Share Capital A/c.	Dr.	$250,000
	To.	Calls-in-Arrear A/c.		$25,000
	To.	Ordinary Share Forfeiture A/c.		$225,000
	(Being the 50000 shares, for which call money is due, forfeited accordingly)
	Bank A/c.	Dr.	$210,000
	Ordinary Share Forfeiture A/c.	Dr.	$40,000
	To.	Ordinary Share Capital A/c.		$250,000
	(Being the forfeited shares reissued for $4.20 per shares)
	Cost of Forfeiture & Reissue A/c.	Dr.	$7,500
	To.	Bank A/c.		$7,500
	(Being cost of forfeiture and reissue of shares paid)
	Ordinary Share Forfeiture A/c.	Dr.	$185,000
	To.	Cost of Forfeiture & Reissue A/c.		$7,500
	To.	Capital Reserve A/c.		$177,500
	(Being the balance of share forfeiture a/c. after adjusting with cost of forfeiture and reissue transferred to capital reserve)

Workings:

Particulars		Nos. Of Shares	Value per Share	Amount

Pf. Share Application Received	A	800000	$2	$1,600,000
Ordinary Share Application Received	B	2200000	$3	$6,600,000
Ordinary Share Application Alloted	C	2000000	$3	$6,000,000
Ordinary Share Application Adjsuted	D=B-C	200000	$3	$600,000
Ordinary Share Allotment Due	E	2000000	$1.50	$3,000,000
Ordinary Share Allotment Received	F=E-D	1800000		$2,400,000
Ordinary Share Call Due	G	2000000	$0.50	$1,000,000
Ordinary Share Call Received	H	1950000	$0.50	$975,000
Calls-in-Arrear	I	50000	$0.50	$25,000
Share Capital Forfeited	J	50000	$5	$250,000
Share Forfeiture	K=I-J	50000		$225,000
Share Capital received fro Reissue	L	50000	$4.20	$210,000
Share forfeiture adjusted with reissue	M=J-L	50000		$40,000

Worksheet for Current Tax Liability/(Refundable):
Particulars	Amount	Amount
Accounting profit before tax		$66,000
Add:
Doubtful Debt Expense	$5,000
Annual Leave	$23,000
Warranty Expense	$12,000
Depreciation Expense for accounting purpose	$60,000
Insurance	$40,000	$140,000
		$206,000
Less:
Government Grant	$20,000
Bad debt expense	$1,000
Annual Leave Paid	$3,000
Insurance Paid	$50,000
Warranty Expense Paid	$2,000
Depreciation Expense for Tax Purpose	$50,000	$126,000
Taxable income		$80,000
Tax on taxable income @30%		$24,000
Less: 30% Tax paid on Sales Revenue		$205,800
Income Tax Refundable		($181,800)

Deferred Tax Worksheet:
Particulars	Carrying Amount	Tax Base	Taxable Temp’y Diffs	Deductible Temp’y Diffs
	$	$	$	$
Assets
Cash	$10,000	$10,000
Trade Receivables	$125,000	$125,000
Allowance for Doubtful Debts	($4,000)	$0		$4,000
Inventories	$60,000	$60,000
Prepaid Insurance	$10,000		$10,000
Goodwill	$20,000	$20,000
Equipment	$300,000	$300,000
Accumulated Depreciation	($60,000)	($50,000)		$10,000
Liabilities
Trade Payables	$35,000	$35,000
Provision for Warranties	$10,000			$10,000
Provision for Annual Leave	$20,000			$20,000
Loan Payable	$90,000	$90,000
Total Temporary differences			$10,000	$44,000
Deferred tax liability (30%)			$3,000
Deferred tax asset (30%)				$13,200

			Dr.	Cr.
Date	Particulars	Amount	Amount

30/06/2017	Income Tax Expense A/c.	Dr.	$24,000
	Income Tax Refundable A/c.	Dr.	$181,800
	To,	Advance Tax Paid A/c.		$205,800
	(Being Income tax expenses adjusted with advance tax paid and income tax refundable recorded)
			$13,200
	Deferred Tax Assets A/c.	Dr.		$3,000
	To,	Deferred Tax Liability A/c.		$10,200
	To,	Income Tax Expense A/c.
	(Being deferred tax assets and deferred tax liabilities recorded)
	Profit & loss A/c.		$21,000
	To,	Income Tax Expense A/c.		$21,000
	(Being income tax expense transferred to P/L A/c.)

Worksheet for Curret Tax Liability/(Refundable):
Particulars	Amount	Amount
Accounting profit before tax		($44,000)
Add:
Doubtful Debt Expense	$5,000
Annual Leave	$23,000
Warranty Expense	$12,000
Depreciation Expense for accounting purpose	$60,000
Insurance	$40,000	$140,000
		$96,000
Less:
Government Grant	$20,000
Bad debt expense	$1,000
Annual Leave Paid	$3,000
Insurance Paid	$50,000
Warranty Expense Paid	$2,000
Depreciation Expense for Tax Purpose	$50,000	$126,000
Taxable income		($30,000)
Tax on taxable income @30%		$0
Less: 30% Tax paid on Sales Revenue		$172,800
Income Tax Refundable		($172,800)

Deferred Tax Worksheet:
Particulars	Carrying Amount	Tax Base	Taxable Temp’y Diffs	Deductible Temp’y Diffs
	$	$	$	$
Assets
Cash	$10,000	$10,000
Trade Receivables	$125,000	$125,000
Allowance for Doubtful Debts	($4,000)	$0		$4,000
Inventories	$60,000	$60,000
Prepaid Insurance	$10,000	$0	$10,000
Goodwill	$20,000	$20,000
Equipment (Net)	$300,000	$300,000
Accumulated Depreciation	($60,000)	($50,000)		$10,000
Liabilities
Trade Payables	$35,000	$35,000
Provision for Warranties	$10,000	$0		$10,000
Provision for Annual Leave	$20,000	$0		$20,000
Loan Payable	$90,000	$90,000
Total Temporary differences			$10,000	$44,000
Deferred tax liability (30%)			$3,000
Deferred tax asset (30%)				$13,200

Workings:

	Base
Particulars	Accounting	Tax
Equipment-at Cost	$300,000	$300,000
Useful Life (in years)	5	6
Depreciation Expenses p.a.	$60,000	$50,000
Period of Utilization (in years)	1	1
Accumulated Depreciation	$60,000	$50,000
Equipment (net Value)	$240,000	$250,000
Particulars	Amount
Doubtful Debt Expense	$5,000
Less: Prov. For Doubtful debt	$4,000
Bad Debt Expense	$1,000
Annual Leave Expense	$23,000
Less: Prov. For Annual Leave	$20,000
Annual Leave Paid	$3,000
Warranty Expense	$12,000
Less: Prov. For Warranty	$10,000
Warranty Expense Paid	$2,000
Insurance Expense	$40,000
Add: Prepaid Insurance	$10,000
Insurance Paid	$50,000

In the books of Snowy Ltd.
Journal Entries
			Dr.	Cr
Date	Particulars	Amount	Amount
1/7/2015	Plant-A A/c.		$150,000
	Plant-B A/c.		$250,000
		Bank A/c.		$400,000
	(Being Plant A and Plant B acquired for cash)
30/6/2016	Depreciation Expense A/c.		65000
		Accum. Dep. – Plant A A/c.		15000
		Accum. Dep. – Plant B A/c.		50000
	(Being depreciation charged on Plant A & Plant B)
	Accum. Dep. – Plant A A/c.		15000
	Loss on Revaluation A/c.		$15,000
		Plant A A/c.		$30,000
	(Being Plant A revalued at fair value and loss on revaluation recorded)
	Accum. Dep. – Plant B A/c.		50000
		Gain on Revaluation A/c.		$35,000
		Plant B A/c.		$15,000
	(Being Plant B revalued at fair value and gain on revaluation recorded)
	Gain on Revaluation A/c.		$35,000
		Loss on Revaluation A/c.		15000
		Asset Revaluation Reserve A/c.		$20,000
	(Being the gain and loss of revaluation transferred to asset revaluation reserve)
	Deferred Tax Assets A/c.		$10,500
		Deferred Tax Liabilities A/c.		$4,500
		Income Tax Expense A/c.		$6,000
	(Being deferred tax recorded for the asset revaluation)
30/06/2017	Depreciation Expense A/c.		72083
		Accum. Dep. – Plant A A/c.		13333
		Accum. Dep. – Plant B A/c.		58750
	(Being depreciation charged on Plant A & Plant B)
	Accum. Dep. – Plant A A/c.		13333
		Gain on Revaluation A/c.		$8,333
		Plant A A/c.		$5,000
	(Being Plant A revalued at fair value and gain on revaluation recorded)
	Accum. Dep. – Plant B A/c.		58750
	Loss on Revaluation A/c.		$46,250
		Plant B A/c.		$105,000
	(Being Plant B revalued at fair value and loss on revaluation recorded)
	Gain on Revaluation A/c.		$8,333
	Asset Revaluation Reserve A/c.		$37,917
		Loss on Revaluation A/c.		$46,250
	(Being the gain and loss of revaluation transferred to asset revaluation reserve)
	Deferred Tax Assets A/c.		$2,500
	Income Tax Expense A/c.		$11,375
		Deferred Tax Liabilities A/c.		$13,875
	(Being deferred tax recorded for the asset revaluation)

Workings:

Computation of Revaluation Gain/(Loss) & Deferred Tax:
Year	Opening Balance	Estimated Life (in years)	Residual Value	Depreciation p.a.	Closing Value	Fair Value	Revaluation Gain/(Loss)	Deferred Tax Assets/ (Liabilities)
	A	B	C	D=(A-C)/B	E=A-D	F	G=F-E	H=Gx30%
Plant A:
2015-16	$150,000	10	$0	15000	$135,000	$120,000	($15,000)	($4,500)
2016-17	$120,000	9	$0	13333	$106,667	$115,000	$8,333	$2,500
Plant B:
2015-16	$250,000	5	$0	50000	$200,000	$235,000	$35,000	$10,500
2016-17	$235,000	4	$0	58750	$176,250	$130,000	($46,250)	($13,875)

Calculation of Impairment Loss:
Particulars	Amount
Fair Value,less, Cost to Sell	$820,000
Value in Use	$900,000
Recoverable Amount	$900,000
(Higher of Fair Value & Value in use)
Less: Carrying Amount of CGU	$1,055,000
Total Impairment Gain/(Loss)	($155,000)
Allocation of Specified Impairment Loss:
Particulars	Carrying Amount	Fair Value	Impairment Loss
Total Impairment Loss			$155,000
Less:
Cash	$32,000	$32,000	$0
Land	$600,000	$520,000	$80,000
Inventory	$5,000	$5,000	$0
Accounts Receivable	$13,000	$13,000	$0
Patent	$60,000	$50,000	$10,000
Goodwill	$15,000	$0	$15,000
Balance Impairment Loss			$50,000
Impairment Loss Allocation as per Weightage:
Particulars	Carrying Amount	Net Carrying Amount	Weightage	Impairment Loss
Balance Impairment Loss				$50,000
Motor Vehicle	$300,000
Less: Accum. Depreciation	($120,000)	$180,000	55%	$27,273
Plant & Equipment	$200,000
Less: Accum. Depreciation	($50,000)	$150,000	45%	$22,727
Total	$330,000	$330,000	100%	$50,000

In the books of Blizzard Ltd.
Journal Entries
			Dr.	Cr.
Date	Particulars	Amount	Amount
30/06/2017	Impairment Loss A/c.		$155,000
		Land A/c.		$80,000
		Patent A/c.		$10,000
		Goodwill A/c.		$15,000
		Motor Vehicle A/c.		$27,273
		Plant & Equipment A/c.		$22,727
	(Being assets under the specific cash generating unit impaired)
	Profit & Loss A/c.		$155,000
		Impairment Loss A/c.		$155,000
	(Being impairment loss transferred to P/L A/c.)

Reference

Baxter, W. T. (2014). Accounting theory (Vol. 3). Routledge

Bonin, H. (2013). Generational accounting: theory and application. Springer Science & Business Media

Burc?, V., & Cotle?, D. (2014). Considerations on IASB Recent Issued Standards.

Craig, D., & Michaela, R. (2014). Financial Accounting Theory.

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.

Edwards, J. R. (2013). A History of Financial Accounting (RLE Accounting) (Vol. 29). Routledge.

Ginesti, G., Macchioni, R., Sannino, G., & Drago, C. (2013). Firms’ Disclosure Compliance with IASB’s Management Commentary Framework: An Empirical Investigation.

Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting. Pearson Higher Education AU.

Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J., & Van der Tas, L. (2016). Applying international financial reporting standards. John Wiley & Sons.

Tokar, M. (2015). What kind of accounting standards should the IASB write?. Journal of Accounting and Management Information Systems, 14(3), 439-452.

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Williams, J. (2014). Financial accounting. McGraw-Hill Higher Education.

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