Discuss about the Managerial Attributes and Executive Compensation.
In the recent times, it has been observed that the company that made several changes in the corporate and annual report structure. The Australian government rules suggest the company to include more information in the financial statement of the company. AASB is not responsible for giving more importance on the interest of stakeholders as they have been observed as the real benefactor of the annual report published by a particular organization. Hence, it has to be noted that the companies not only date to provide the financial information but it also needs to include non-financial items in the annual report so that the stakeholders can obtain the required information. Furthermore, the companies need to disclose the different types of accounting standards and methods, which have been followed in order to maintain the records throughout the financial year while preparation of the statements (Mora and Walker 2015).
Australia and New Zealand banking group Limited, headquartered at Melbourne whose lending activities are controlled by the government with employ strength of more than 48,000. The banking group operates with its subsidiaries in providing different types of financial products and retail services and serving institutional customers and small business units. Some of the company’s retail product consists of house loans, credit cards, merchant services, transaction banking, investment products and personal loans. The bank also provides commercial services such as cash management accounts and long-term deposits. It is also responsible for offering corporate banking service to large corporate, multinational corporations and small listed companies. In addition to the aforementioned services, the bank is also known for providing liquidity solution and working capital requirements including supply chain financing, trade finance, documentary trade, clearing services and risk management assistance to several clients via foreign exchange. In addition to this the bank is also responsible for providing mortgage insurance products, superannuation, general insurance product and savings account services (In.finance.yahoo.com. 2016).
The study shows the critical analyses of the annual report of the company and its compliance with the accounting standards in presentation of financial statements. The report describes the usage of annual report in highlighting of information related to compensation and benefits of employees who are considered as a part of stakeholder of ANZ banking group thereby explaining the effect of corporate culture on the selected components (Stone 2013).
Executives’ Compensation Structure:
According to Luo (2014), the company closes the information related to compensation of auditors by segregating auditors into two parts namely KPMG Australia and overseas related practice. The group has further declared that it has various types of the equity settled compensation plans on share basis. Through the annual report analysis it has been observed that the group has paid more than 40% as fixed cash emulation and 28% as long term incentive awards. The company has disclosed that the negative salary of the Chief Executive Officer i.e. Mr. M. Smith is highest in terms of both cash salary and nonmonetary benefits (Graham, Li and Qiu 2012).
The employee benefit seen in terms of provision for liability created by the company for long service leaves which includes on costs leaves. This is calculated based on discounting market yields on a reported date and estimating the future cash outflows. The employee benefit is further seen by the group’s operation in contribution to schemes such as superannuation in various countries and these contributions are recognized as a part of expense in the income statement. The group is further stated that the employee benefits scheme is in accordance with AASB 119 guidelines and the measurement is done by using projected unit credit technique. The re-measurements of the superannuation benefits of the employees has been defined with the actuarial gains and the losses including in the net interest and interest income. this has been the accurately recognized as the retained earnings which is made through the comprehensive income and the various types of contributions made by the group in terms of net defined benefit (Shareholder.anz.com. 2016).
The cultural influence on the strategy structure is based on the high-class lifestyle of the Australian society. This is evident from the compensation disclosure of all the high-ranking executives in the hierarchy. Despite of such high compensation structure there is uncertainty of future income. Therefore, the group has segregated the payment structure in such a manner that it includes both high cash payments and long-term rewards for the security of the executives (Fischer et al. 2013).
As previously discussed the executives are known for holding a higher class in the society and maintaining a strong financial live you the company’s compensation structure supports the aforementioned lifestyle. Hence it has been observed that ANZ provided higher benefits in terms of cash payments to its executives so that they can place themselves into the higher class in the society.
The incentive scheme is based on the performance of the individual employees. For the purpose of this the incentive schemes is based on the remuneration structure which helps the employees and the executives stay motivated for delivering better performance.
The long-term benefit of ANZ group includes provision for superannuation funds in the compensation structure. The long-term benefits are seen to be provided with a secure future with a sound financial salary structure to the employees who can contribute freely in the work (Laing and Perrin 2014).
it has been observed that most of the companies are keen to be recognized for their performance. Therefore, the group is known to provide shares to its executive as a part of its incentives or salary, include them as one of the owners of the company so that they always feel motivated, and take pride in working for the bank. This in turn creates a positive relation between the executives and the company (Jerome 2013).
As stated by Măciucă, Hlaciuc, and Ursache (2015), the concept of prudence follows conservatism principle of accounting. According to this, the expenses or the losses should be considered at the time of its occurrence. In this case the incomes or the profits shall be recorded only when it has taken place and realized accordingly. The aforementioned concept ensures that the accountants are able to reduce the risk level preparation of financial statements and delivered the same with more accuracy. Despite this, several scholars and accounting boards believed that prudence concept is conservative in nature, which ignores the expected revenues for reporting (Guiso, Sapienza and Zingales 2015).
It has been observed that IASB aims to resolve the issues, which has been overstated or excluded in the financial reports, and make the annual reporting structure more neutral and biased in nature. Due to this the IASB and AASB considers prudence as a vital component in the conceptual framework of accounting (Sedki Smith and Strickland 2014).
The Australia and New Zealand banking group is known to follow the conceptual framework provided as per both AASB and IASB in its financial statements preparation. The banking group is known to include the concept of prudence, which complies with the conceptual framework provided as per the AASB guidelines (PwC.2016).
The group has clearly specified that that depression of annual report comply with the Australian accounting standards Board for the share-based payments, employee benefits and life insurance contract. The statement of compliance report further states that the financial statements of the company has been prepared on the basis of Australian accounting standards and the various types of other authoritative pronouncements made in the financial report is based as per the Australian accounting standards Board’s (AASB) and Corporations Act 2001.
The concept of prudence is important for authenticating and insuring that the users receive accurate data in the financial statement of ANZ banking group. The different types of stakeholders considered the information about the profitability in securing their investments. Therefore, it is important for the company to include the components states the significance of prudence concept in the following ways:
This is used by several companies inflate their revenues and increase their profits in the market for the purpose of attracting more number of investors
By showcasing your amount of profit several companies are known to evade the burden of huge amount of taxes
In several situations is it has been observed that the concept of prudence is used for the purpose of reducing the profits so that the companies do not have to pay high incentive or make an adjustment in the salary increments of the employees
The company’s need to take precautionary steps to consider the harmful impact of financial manipulation while addressing the prudence in their financial statements. In several situations it had been observed that the company is increased the revenues for projecting a better image in the market and attract more investment in terms of equity financing from the market. In several cases, it has been also observed that the companies enhance the profit by only including the expected or the estimated revenues, which has not yet been realized, and there is no assurance of it to be realized in future (Zhuang 2016). In order to address this issue the accounting boards have decided to include the concept of prudence which will please allow the company’s to include the expected profit or the revenues did and unless it has been realized or assured. Additionally, the inclusion of this concept can compel the companies take into account the expected expenses or the losses, which might be overlooked during the preparation of the financial statements for the increasing amount of profits (Gebhardt, Mora, and Wagenhofer 2014).
The recommendations made to the exposure of the troughs of IASB and IFRS the conceptual framework introduced by AASB on prudence has included several new amendments. Among the amendments, AASB has introduced the principle under AASB 15, which includes revenue from contracts with customers. The newer standard suggested that the revenue should be recognized in the financial report as and when it has been realized and assured between the reporting entity and customer. Hence, AASB prevents any kind of putting of entities related to revenues, which are yet to be realized so that the users can be ensured to be fetched with most accurate information during the financial entities in the statements. It also removes the scope of any sort of disparities among the contradictory revenue standards, which has been used by several companies in manipulation of the financial reports (Strouhal et al. 2012).
ANZ banking group has clearly stated that it adheres to the “Revenue from contracts with customers” as stated in AASB 15 guideline issued on December 2014. This contains the disclosure of newer requirement for recognition of revenue. At present, it is expected that a major amount of proportion of the revenue on is outside the scope of AASB 15 although the company is in the process of assessment of impact of this guideline and estimate on the financial report.
Conclusion:
In the above study, it can be concluded that the financial reporting follows the conceptual framework given by IASB and AASB. It has been also observed that AASB is responsible for adopting several amendments issued by the IFRS and complying with the new standards of IASB on an immediate basis. Hence, it can be said that the group continues to follow either of the stated accounting standards then it can fulfill the various types of other requirements automatically. Thus it can be seen that ANZ banking group complies with the AAS reporting standards and the various disclosures are based as per the amendments made by the AASB. It can be further noted that the company is also prudent enough in reporting its revenues as per the latest guidelines given by the AASB norms. It can be further stated that the various types of consideration related to employee benefits and the compensation considerations have been properly fulfilled as per the Australian accounting standards Board. Hence the company needs to continue in fairly reporting its financial statements for attracting more number of investors which will create more business avenues for the Australia and New Zealand banking group.
Reference List:
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Gebhardt, G., Mora, A. and Wagenhofer, A., 2014. Revisiting the fundamental concepts of IFRS. Abacus, 50(1), pp.107-116
Graham, J.R., Li, S. and Qiu, J., 2012. Managerial attributes and executive compensation. Review of Financial Studies, 25(1), pp.144-186.
Guiso, L., Sapienza, P. and Zingales, L., 2015. The value of corporate culture. Journal of Financial Economics, 117(1), pp.60-76.
In.finance.yahoo.com. (2016). ANZ.AX Profile | ANZ BANK FPO Stock – Yahoo! India Finance. [online] Available at: https://in.finance.yahoo.com/q/pr?s=ANZ.AX [Accessed 13 Sep. 2016].
Jerome, N., 2013. Application of the Maslow’s hierarchy of need theory; impacts and implications on organizational culture, human resource and employee’s performance. International Journal of Business and Management Invention, 2(3), pp.39-45
Laing, G.K. and Perrin, R.W., 2014. Deconstructing an accounting paradigm shift: AASB 116 non-current asset measurement models. International Journal of Critical Accounting, 6(5-6), pp.509-519.
Luo, Y., 2014. Executive compensation in emerging markets: Theoretical developments and empirical evidence. eds. Boubaker, S and Nguyen DK,“Corporate Governance and Corporate Social Responsibility: Emerging Markets Focus,” World Scientific Publishing.
Măciucă, G., Hlaciuc, E. and Ursache, A., 2015. The Role of Prudence in Financial Reporting: IFRS versus Directive 34. Procedia Economics and Finance, 32, pp.738-744.
Mora, A. and Walker, M., 2015. The implications of research on accounting conservatism for accounting standard setting. Accounting and Business Research, 45(5), pp.620-650
PwC. (2016). Prudence returns: new IASB exposure draft reintroduces controversial term. [online] Available at: https://www.pwc.com/gx/en/services/audit-assurance/corporate-reporting/world-watch/iasb-prudence-conceptual-framework.html [Accessed 13 Aug. 2016].
Sedki, S.S., Smith, A. and Strickland, A., 2014. Differences and Similarities Between IFRS and GAAP on Inventory, Revenue Recognition and Consolidated Financial Statements. Journal of Accounting and Finance,14(2), p.120.
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Strouhal, J., Paseková, M., Blechová, B., Bonaci, C. and Andreicovici, I., 2012. Prudence principle and students’ perception on measurement in financial reporting. International Journal of Mathematical Models and Methods in Applied Sciences
Zhuang, Z., 2016. Discussion of ‘An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136’. Accounting & Finance, 56(1), pp.289-294.
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