Regulation Of Financial Accounting And Reporting, AASB’s Role In Global Standards, And Comparative Analysis Of ASX Listed Companies

Critical discussion on Regulation of Financial Accounting and Reporting

The report is a brief discussion on the how the accounting and reporting of financial information should be regulated and how monitored or whether it should be made mandatory. Secondly, IASB and AASB and many other accounting boards all over the world set, frame and implement the accounting standards across the countries so it has been discussed as to why the standardization and uniformity is not there and why IASB does not makes it compulsory to have IFRS in all the member nations (Arnott, et al., 2017). Lastly, the financial analysis of debt and equity of the 4 companies across 4 different financial years has also been done to access the debt equity position.

The finance function is the one which consolidates the data for all the departments, functions, and divisions and then prepares and presents the financial data in the financial statements. It is the central point of contact for each of the financial data and reporting purposes. The users of the financial statements depends and take their decisions based on the financial statements which is being prepared and presented by the management. The shareholders and the stakeholders of the company are the ones who rely on these financials and take their decision and therefore they should be informed on all the critical and significant aspects which are warranted and necessary for decision making (Venezia, 2017). The same is generally done by giving a detailed disclosures and notes on accounts. The primary objective of financial accounting and reporting is to give details on the performance and position of the company during the year which can help them to take necessary decisions. This is altogether inevitable for any business entity and therefore there are many rules, regulations, laws and accounting standards which have been set to govern the same. There are various standards which needs to be compulsorily complied and the information that needs to be compulsorily disclosed in the financial statements.

The auditors of the company also audit the details being provided by management and give a reasonable assurance based on the same to the users of the financial statements. Moreover, the stakeholders may need some critical information which should be a part of the financial reporting process (Bae, 2017). In case the managers of the company are given the authority and are allowed to report the information voluntarily, a lot of critical information may be missed and that may affect the final decision making process. Also, there might be a case of window dressing of the financials of the entity in order to show an enhanced performance which actually might not be the case.  Thus, there is always a need of the regulatory body which will be setting up the standards and guidance’s on the reporting procedures and get the same implemented as it would prevent biasness and fraud. On the basis of above findings, it can be said that the financial reporting process should be regulated.

Role of AASB in the Global Accounting Standards Framework

Australian Accounting Standards Board, generally being addressed as AASB is the accounting and governing body for accounting standards in Australia. It develops the standards and guidance notes for both the public as well as private companies. Furthermore, the agency which is responsible for developing and implementing the standards globally is International Accounting Standards Board and is known as IASB (Bumgarner & Vasarhelyi, 2018). The Standards developed by it are called International Financial Reporting Standards. The global accounting standards have been prepared in a way that it is easily understandable and acceptable and are able to meet most of the information requirements of the general public and stakeholders. It also makes the data comparable and standardized.

The AASB has an instrumental and a pivotal role to play in the setting and forming of the accounting standards globally by IASB. It contributes by participation in development of these standards and then implementing it for the entire Australian Accounting community. For the same, the AASB committee is being assisted by one of the governing strategic body called FRC, Financial Reporting Council (Islam & Islam, 2011). The AASB also issues the local accounting standards which are based on the global accounting standards. Some of these include AASB 1 on First time adoption of Australian Accounting Standards (derived from IASB 1 on first time implementation of International Accounting Standards), AASB 1 derived from IAS 1 and AASB 102 derived from IAS 2 on presentation of financial statements and the inventory respectively.

There are 120 member nations of IASB out of 90 have implemented and confirmed on the adoption of IFRS in respective nations, rest are following the local GAAP with minor modifications. The adoption of this IFRS is not mandatory by IASB across the nations and it is justified because of the fact that different nations and economies may have different impact of its adoption. And, therefore a flexibility needs to be given to the countries to analyses its impact before making it mandatory and it is prudent and logical from the perspective of the companies as well (Marques, 2018).

The financial analysis has been done considering 4 major Australian companies. All the below mentioned 4 companies are listed on the Australian Stock Exchange. The financial analysis has been done based on the annual reports of 2017, 2016, 2015 and 2014. The four companies are listed below:

1. oOh!media Limited
2. APN Outdoor Group Limited
3. BHP Billiton NL
4. South 32 Limited

The items of equity listed in the respective annual report and the changes over the 4 years has been listed below:

Comparative Analysis of Debt and Equity Position of ASX Listed Companies

The equity portion of the company comprises of below elements:

• Common Stock: This is the share capital of the company which are divided in shares. The owners of the units of shares are called the shareholders. This section shows the subscribed, issued and the paid up capital of the company.
• Retained Earnings: These are the sum total of the past earnings of the company and are accumulated profit and losses of company post other adjustments like dividend payment, etc(Kachelmeier, et al., 2018).
• Comprehensive Income: It is the non-operative income earned by the company. This is being shown in comprehensive income statement. Example: Actuarial Gains and losses.
• Minority Interest: these are the shares which shareholders of the subsidiary companies hold. Since they have less than 50% shareholding, therefore they are being termed as minority interest or the non-controlling interest.

The table showing the changes in equity over the last 4 years is shown below:

oOh!media Limited
Equity Components	2017	2016	2015	2014
Common Stock	284	284	350	350
Retained Earnings	(66)	(53)	(47)	(56)
Comprehensive Inc. and Other	25	25	26	27
Minority Interest	(0)	(2)	(1)	(2)

From the above table, we can see that the common stock over the years has decreased over the past years which is due to the investors withdrawing their investment or the company buying back its own shares. The retained earnings has increased and decreased in respective years based on profit and loss earned and incurred by the company. The balance of comprehensive income has been more or less same. Lastly, the balance of the non-controlling interest has declined due to less holding in subsidiaries (Oberoi, 2018).

The components of equity in the company have been mentioned below:

• Issued capital: This is the sum total of all the shares being allotted by the company to the shareholders.
• Retained earnings: This is accumulated losses and gains of company as on date. Dividend and other allocations are done through this.
• Accumulated Losses: This is the sum total of all the past profits and losses of the company as on date.

The table showing the changes in equity over the last 4 years is shown below:

APN Outdoor Group Limited
Equity Components	2017	2016	2015	2014
Common Stock	222	222	222	222
Retained Earnings	(10)	22	41	36
Comprehensive Inc. and Other	4	4	6	5

From the above data, we can see that the share capital has been constant since 2014 and has not changed. The retained earnings declined in 2017 and 2016 due to the losses of company. The comprehensive income has also decreased in all the years due to the increase in the losses of the company year on year.

The company’s equity components are listed below:

• Issued capital: This is the sum total of all the shares being allotted by the company to the shareholders(Rimmer, 2017).
• Treasury shares: These are shares which are allotted to the employees of the company as part of employee stock option scheme.
• Reserves: The reserves are those created for any specific purposes or being made as a requirement of law. This is just an apportionment of the profit earned by the company.
• Retained earnings: This is the sum total of all the past profits and losses of the company as on date.
• Minority Interest: This is the one and same as non-controlling interest as has been explained above.

The table showing the changes in equity over the last 4 years is shown below:

BHP Billiton
Equity Components	2017	2016	2015	2014
Common Stock	2,243	2,243	2,243	2,255
Treasury Shares	(3)	(33)	(76)	(587)
Reserves	2,400	2,538	2,557	2,927
Retained Earnings	52,618	49,542	60,044	74,548
Minority Interest	5,468	5,781	5,777	6,239

In this company, the equity share capital has remained constant, the balance of treasury shares has declined due to buy back by ESOP trusts. The reserves has also decreased which indicates decreased allocation and more utilization for reserves and the retained earnings have decreased considerably till 2016 and then increased in 2017 indicating a profit in 2017. The minority interest has declined due to the disvestment of few of the subsidiaries.

The equity portion of the company comprises of below elements:

• Common Stock This is the overall share capital of the company which is divided in the form of the shares. The shares of the company are listed on stock exchange is traded there. The owners of the units of shares are called the shareholders. This section shows the subscribed, issued and the paid up capital of the company(Mahapatra, et al., 2017).
• Treasury Shares: These are shares which are allotted to the employees of the company as part of employee stock option scheme.
• Reserves: these are formed with some intension or as a requirement of some law or regulation like dividend equalization reserve, capital reserve, etc. Once the purpose is met, the reserves is reduced.
• Retained Earnings: These are the sum total of the past earnings of the company and are accumulated profit and losses of company post other adjustments like dividend payment, etc..
• Minority Interest: these are the shares which shareholders of the subsidiary companies hold. Since they have less than 50% shareholding, therefore they are being termed as minority interest or the non-controlling interest.

The table showing the changes in equity over the last 4 years is shown below:

South 32
Equity Components	2017	2016	2015	2014
Common Stock	14,747	14,958	14,958	561
Treasury Shares	(26)	(3)	0	–
Reserves	(3,503)	(3,555)	(3,557)	–
Retained Earnings	(982)	(1,977)	(365)	552
Minority Interest	(1)	(1)	(1)	–

From the above table, we can see that the company South 32 has issued the equity shares off late in almost all the years and had a major investment in one of the companies in 2015, the reserves has decreased because of the utilization, the retained earnings has decreased only in 2017 because the company made profits in this year and finally the non-controlling interest has been almost constant for all these years.

Mentioned below is the table showing the proportion or the composition of debt and equity in all the 4 companies mentioned above for the year 2017?

Debt Equity Ratios
Particulars	oOh!media	APN Outdoor	BHP Billiton	South 32
Debt	145	–	30,339	596
Equity	242	216	62,726	10,235
Debt/Equity Ratio	0.60	–	0.48	0.06

Insights on Equity Components and their Changes over the Last Four Years

From the above table on the summary of debt and equity in the companies, we can tell that all the companies are in balance and have favorable debt equity ratios (Sirois, et al., 2018). The ideal debt equity ratio is 2:1 and that indicates that all the other companies can arrange for debt at low cost in future. APN Outdoor Limited is in the best position as it is completely debt free. This shows that most of the companies are not relying on debt and want to do business using own capital.

Conclusion

There are various key learnings from the report like there should be a regulatory body for the reporting of financial and accounting information. Also, the IASB should give flexibility to the respective accounting bodies in the country to implement the IFRS and other global accounting standards.

References

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Sirois, L., Bédard, J. & Bera, P., 2018. The informational value of key audit matters in the auditor’s report: evidence from an Eye-tracking study.. Accounting Horizons., 32(2), pp. 141-162.

Venezia, I., 2017. Behavioral Finance: ‘Where Do Investors” Biases Come From?’. Singapore: WORLD SCIENTIFIC.