The report is prepared for elucidating the analysis of owner’s equity and the debt position of the four companies that have been selected from the Australian stock exchange. The four companies are chosen from the sector of material’s, minerals and mining which comprised of Azure minerals limited, Boral limited, BHP Billiton limited and Adelaide Brighton limited. Boral limited is a manufacturing company that is engaged in supplying and construction of materials. Azure mineral limited is the company that is engaged in the exploration of minerals that has proven mine building credentials and discovery of minerals. Adelaide Brighton limited is an Australian company that is involved in manufacturing of cement. Boral limited on other hand is a supplier and manufacturer of building along with engaging in construction of materials (Kajuter et al. 2015). Furthermore, report demonstrates the importance of regulation of financial reports prepared by organizations. The standard setting process by the international standard board has also been discussed explaining several stages.
Critical discussion of regulation of financial reporting and accounting:
There are various reasons for which the regulation of financial and accounting reporting is considered essential. For the users of financial report such as employees, shareholders, government, public analysts and investor group, financial report are used as basis for decision making. For undertaking the financial and investment decisions, it is required by the investors to interpret the financial report in a systematic manner. Without the regulation of financial report, financial information would be interpreted in a diversified way that suits their respective requirements (Eccles and Serafeim 2016). There are various arguments presented in favor of regulation of the financial reporting and they are listed below:
Asymmetrical information- In the absence of financial reporting regulation, the participants of capital market tend to take their advantage from people having less knowledge about market. Such advantage leads to the participants getting involved in committing fraud, selling the shares more than it worth and buying the share at price less than it worth (Kajuter et al. 2018). It would not be possible to take such advantage in presence of financial reporting regulation.
Lack of reliability and commitment- Users are able to retrieve reliable information from the regulated financial report which forms the basis of credible commitment. The regulatory regimes intend to impose an effective enforcement that assist in producing reliable information (Frias?Aceituno et al. 2015).
Lack of comparability- The standardization benefits brought by the regulation of financial reporting can be developed effectively due troy the regulation of financial report, such standardization would facilitate the comparing of financial information contained in the financial report (Fontes et al. 2016).
Managers of companies rely on the channel of mandates financial reporting and voluntary disclosures for reporting the reliable financial information. In the event of disclosure of the fair value accounting, the discretion of manager is sought and their superior knowledge for reflecting the true performance of firms is considered important (Donohoe 2015).
Explanation of participation of Australian accounting standard board in the setting process of global accounting standard:
Australia has adopted the International financial reporting standard that complies with the strategic direction of the financial reporting council. The Australian accounting standard board has the objective of closely monitoring the accounting of international public sector.
AASB standard setting process:
(Source: Aasb.gov.au 2018)
A simplified view of the process of standard setting has been outlined in the above flow chart which presents the roles played by the AASB. The first step in the setting process requires board members to indentify the technical issue concerning the profit and nonprofit entities. Development of project proposal by AASB is the next step followed by conducting the assessment of the project potential benefits and thereafter, they undertake the decision relating to project value. The next step requires performing the presentation of agenda papers after discussing it with the staffs after the issue has been incorporated into the agenda. Such discussion helps in addressing the timings outcome, alternative approaches and scope issue. The related documents are made available for discussing with the stakeholders once the re4serach work has been done. The consideration outcome might results from pronouncement issue and the nest steps requires submission to the international organization by Australian organization (Dimitras 2018). Monitoring of the standard interpretation and implementation is done by sending request of formal letters by the AASB.
Explanation of why IFRS is not compulsory for member countries of IASB:
International accounting standard board (IASB) have developed and implemented the International financial reporting standard (IFRS). Adopting the international reporting standard would help in facilitating the financial statements comparison across different organization and countries. Adopting the IFRS is not mandatory for the members of IASB due to certain drawbacks of the reporting standard such as the level of financial reporting quality would be impacted by the full adoption of such reporting standard (Breuer 2018). For instance, one of the members of IASB that is United States would reject the full adoption of IFRS in their financial statement preparation due to the absence of market incentive. Furthermore, the fact that the benefits associated with such standard adoption would be offset by the cost incurred in adopting the international standard.
Analysis of owner’s equity of four selected companies:
This particular section of report demonstrates the analysis equity section of four chosen companies listed on the Australian stock exchange.
Reserves- Reserves represents the portion of profits of company that is required to leverage the organization’s financial position and is used for making repayment of debts, bonuses and repayment of dividends (De Villiers et al. 2014).
Retained earnings- Retained earnings are the total amount of profits that is reinvested into the company and they intend to fulfill specific purpose.
Issued capital- Issued capital represents the total amount that is contributed by the owners of busies in the form of capital and the providers are known as shareholders.
Analysis of each items of equity of Azure minerals limited:
The equity section of Azure minerals comprised of contributed equity, reserves and accumulated loss. Total amount of contributed equity stood at $ 73204797 and $ 65581982 for year 2017 and 2016 compared and $ 5121569 and $ 47965163 in year 2015 and 2014 respectively. It can be seen from the figure that the amount of contributed equity has increased consistently. Amount of reserves stood at $ 3371670 and $ 2909495 for year 2017 and 2016 compared to $ 3063288 and $ 2838053 for year 2015 and 2014 respectively. It is suggested from figure than reserves initially increased and decreased subsequently. Accumulated loss for year 2017 and 2016 is recorded at $ 59895515 and $ 52909974 compared to $ 46656589 and $ 45505229 (Azureminerals.com.au 2018).
Analysis of each items of equity of Boral limited:
The amount of issued capital is recorded at $ 4265.1 and $ 2246.2 in year 2017 and 2016 compared to $ 2316.6 in year 2015 and $ 2477.6 in year 2015 and 2014 respectively. Figures reflect that there is consistent increase in value of issued capital. Reserves value is recorded at $ 19.3 and $ 162.3 in year 2017 and 2016 as against $ 166.2 and $ 2.1 in year 2015 and 2014 respectively. In addition to this, amount of retained earnings is recorded at $ 1156.1 and $ 1098.1 in year 2017 and 2016 compared to $ 996.3 and $ 868.4 in year 2015 and 2014 respectively. Figure suggests that the value of retained earnings has reduced in current year. Total amount of retained earning s on other hand is recorded at $ 1156.1 in year 2017 and $ 3506.3 in year 2016 as against $ 996.3 and $ 868.4 in year 2015 and 2014 respectively (Boral.com 2018).
Analysis of each items of equity of BHP Billiton limited:
The components of equity of BHP Billiton include share capital, treasury shares, reserves and retained earnings. Share capital amount stood at $ 1186 for year four consecutive years. Amount of treasury shares is recorded at $ 3 and $ 33 in year 2017 and 2016 compared to $ 76 and $ in year 2015 and $ 587 in 2014 respectively. It can be seen that amount of treasury shares is decreasing continuously year on year. Total amount of retained earnings is recorded at $ 52618 and $ 49542 in year 2017 and 2016 compared to $ 60044 and $ 74548 in year 2015 and 2014 respectively. Value of reserves is recorded at $ 2400 and $ 2538 in year 2017 and 2016 compared to $ 2557 and $ 2927 in year 2015 and 2014 respectively and it is indicative of the fact that there is not much fluctuation in the value (Bhp.com 2018).
Analysis of each items of equity of Adelaide Brighton limited:
The components of equity comprised of share capital, retained earnings and reserves. Amount of share capital is recorded at $ 733.1 and 731.4 in year 2017 and 2016 compared to $ 729.2 and $ 727.9 in year 2015 and 2014 respectively. Retained earnings amount is recorded at $ 510.6 and $ 483.3 in year 2017 and 2016 compared to $ 474.3 and $ 402.8 in year 2015 and 2014 respectively. It is suggested by figure that there is continuous increase in value of retained earnings since the period of analysis. Reserves value on other hand is recorded at $ 1.9 and $ 2.9 in year 2017 and 2016 compared to $ 1.2 and $ 3.3 in year 2015 and 2014 respectively indicating that the value decreased initially and increased subsequently (Adbri.com 2018).
Comparative analysis of debt and equity position of chosen companies:
The comparative analysis of debt and equity position of companies has been evaluated by comparing the figure extracted from annual report. Total amount of liabilities of Azure minerals limited is recorded at $49,937,6 and $14,7115,2 for year 2017 and 2016 comparing to $37,929,4 and $28,3805,3 for year 2015 and 2014 respectively. Value of equity bon other hand is recorded at $ 16594102 and $ 15581503 for year 2017 and 2016. It is suggested from figures that value of equity is considerably more than total liabilities.
Total amount of liabilities is recorded at $ 3873.1 and $ 2294.2 in year 2017 and 2016 compared to $ 2341.3 and $ 2211 in year 2015 and 2014 respectively. Value of total equity on other hand is recorded at $ 3521.4 in year 2015 and 3348.1 in year 2014 compared to $ 5440.5 in year 2017 and $ 3506.3 in year 2016 respectively. From the figures, it is suggested that value of equity is more than liabilities value.
The total value of liabilities of BHP Billiton limited is recorded at $ 54280 in year 2017 and 54882 in year 2016. On other hand, the value of total amount of equity is recorded at $ 62726 and $ 60071 in year 2017 and 2016 respectively. The figures depicted suggest that total equity is more than the value of liabilities.
Total amount of liabilities is recorded at $ 764.8 and $ 606.6 in year 2017 and 2016 respectively. On other hand, the value of total equities has been recorded at $ 1248.2 in year 2017 and $ 1220.1 in year 2016 respectively. Therefore, the figure suggests that value of equities is more than value of total liabilities recorded.
It can be inferred from the above figures relating to the selected companies, that Azure mineral limited has considerably higher amount of total liabilities compared to other companies. Furthermore, azure minerals limited has higher amount of total equities recorded followed by BHP Billiton limited.
Conclusion:
From the analysis of the above discussed facts, it can be inferred that regulation of financial reporting is very important for producing reliable information. Managers of organization play a very crucial role in communicating the financial information to the users by using the principles of voluntary disclosures. Analysis of the owner’s equity reflects that compared to other firms, Azure minerals limited has highest total value of equities as well as total value of liabilities.
References and Bibliography list:
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Adams, C.A., 2015. The international integrated reporting council: a call to action. Critical Perspectives on Accounting, 27, pp.23-28.
Adbri.com. (2018). Retrieved 18 September 2018, from https://boral.com//wp-content/uploads/2017/09/170928-AON-2017-Annual-Report.pdf
Azureminerals.com.au., 2018. [online] Available at: https://azureminerals.com.au/wp-content/uploads/2017/09/Azure-AR-2017-V3-1.pdf [Accessed 20 Sep. 2018].
Bhp.com. (2018). Retrieved 18 September 2018, from https://boral.com//wp-content/uploads/2017/09/170928-AON-2017-Annual-Report.pdf
Boral.com. (2018). Retrieved 18 September 2018, from https://boral.com//wp-content/uploads/2017/09/170928-AON-2017-Annual-Report.pdf
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