Analysis of Financial Statements and Annual Reports of Commonwealth Bank of Australia
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This assessment analyzes the financial statements and annual reports of Commonwealth Bank of Australia, concluding that the company has complied with necessary requirements. The report includes data extracted from the general purpose financial report of the Common Wealth Bank of Australia, relevant to the material analyzed.
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1 Sociology
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2 Executive Summary In the following assessment, the analysis of the financial statements and annual reports of the company, Commonwealth Bank of Australia would conclude the organisation has submitted its financial statements in accordance with the necessary requirements. The findings imply that the company was successful in complying with the provided standards. The report includes data extracted from the general purpose financial report of the Common Wealth Bank of Australia, relevant to the material analysed.
3 Table of Contents Introduction......................................................................................................................................4 Company Background.................................................................................................................4 Annual Reports Analysis.................................................................................................................4 Basic Structure.............................................................................................................................5 Remuneration and Director's report.........................................................................................5 Corporate governance report...................................................................................................5 AASB compliance.......................................................................................................................6 Conceptual framework - Prudence concept.................................................................................6 Conclusion and Recommendations..................................................................................................7 Reference List..................................................................................................................................8
4 Introduction Company Background The Commonwealth Bank of Australia is one of the leading companies which have been listed on the Australian stock exchange (CBA, 2019a). It is considered as one of the leaders in the market of mortgage lending of Australia. The organisation has been successful in providing a consistent and continuous growth in the market share price and has been paying the highest amount of dividend amongst all the Australian companies. The Commonwealth Bank of Australia is considered to be the top organisation which offers collaborated financial services like business banking, super animation, retail banking, funds management, investment and insurance. The primary markets of the company within which it operates regions of New Zealand, and Australia (Bloomberg, 2019). Despite being on the top of its game, the company has been facing some major issues within its operations. In the year 2008, it was found that several financial Advisors were employed by the CommonwealthBankofAustraliawhointentionallychosetoignoretheirrolesand responsibilities and instead went on prioritising their own personal interests rather than that of the clients and the customers (SMH, 2014). In depth investigations revealed that these Advisors and also failed in conducting the basic responsibilities as well such as completion of the financial requirements analysis documentation and providing financial advice. It is quite shocking that the Commonwealth Bank of Australia could also be an organisation that would indulge into deception, unusual investment including high risk, mission and financial Advisors that are unreliable. An apology came from the head of the Commonwealth Bank of Australia for the customers regarding such actions and outcomes unaccepted the fact that they had provided unreliable advices which caused huge financial losses. As of the financial year 2014, the bank has already paid sum of 52 million dollars to those customers who were impacted due to such action of the bank (SMH, 2014). The company claims of being focused towards the ethical aspects of the organisation under primary objective is to become the most ethical financial company which values openness, decency, transparency, honesty and good management. Annual Reports Analysis
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5 Basic Structure The annual report of any company is considered to be the primary information source regarding its activities as well as strategies. According to the Corporation Act of 2001 and the listing rules of the Australian Stock Exchange, the primary contents of the financial reports of a company include the corporate report audit report, director’s report, corporate social responsibility, financial report and the sustainability report (Joshi, Cahill and Sidhu, 2010). Remuneration and Director's report This report consists of such information which is related to the operations of the company, it Strategies and the overall financial position in the market. The report of the director includes a report of remuneration which consists of the discussion regarding the policy of the board on the remunerationofthecompanyanditsoverallrelationshipwiththeperformanceofthe organisation. According to the directors report of the Commonwealth Bank of Australia, the company has well complied with the necessary requirements. The company has provided relevantinformationregardingallofitsprincipleactivities,operations,strategiesand development of the future as well as regarding their remuneration policies. Corporate governance report A total of eight principles have been provided by the Australian stock exchange in relation to the corporate governance of Companies which have been provided below. Principle 1 and Principle 2:Lay solid foundations for the oversight and Management structure the board for adding value The board of directors of the company has been assigned with different committees on the basis of their expertise. Such management whose significant work is the delegation between the organisation's head is an instance of good governance. As a result, the directors have been provided with various responsibilities and have been informed significantly regarding the ongoing happenings within the company. Principle 6:Respecting the shareholders' rights In the annual report of the Commonwealth Bank of Australia, on the basis of the statement provided by the chairman of the company, the organisation is well aware that it has been
6 assigned with an important role for playing in the improvement and garden of the financial well being of its stakeholders hence striving for delivering them with long term value (CBA, 2019b). However, this does not make sure that the rights of the shareholders are being provided with appropriate value. AASB compliance In Australia, all the business organisations required for the standards which have been set by the Australian accounting standard board (AASB). And it is quite important for the Commonwealth Bank of Australia for complying with the standards which have been provided by this agency. One of the standards which have been provided by the AASB is the AASB107 cash flow statements, which should be followed by the companies. The primary objective of this standard is providing information related to how cash and cash equivalents are generated and used during the financial accounting reporting period. This is done by the disclosure of the cash flow statement of the company, which helps in the classification of the cash flows on the basis of financing, investing and operating activities. Commonwealth Bank of Australia has been able to disclose as well as present its cash flow statement within its financial report showing that it has significantly identified all the cash flows properly with respect to their types. The company was successful in openly presenting the cash flow values which is necessary for the shareholders and their interests. Another standard which business organisations need to comply with is the Financial Instrument Disclosure (AASB7). It implies that all the financial liabilities or Assets of a company should be stated at their value and should be provided clearly within the financial position statement of the company (Tahat, et., 2016). The Commonwealth Bank of Australia has very well complied with this standard as it was stated in the financial statement notes that the measurement of the financial instruments of the company was done at the fair value. Conceptual framework - Prudence concept The annual financial report of a company should comply with the conceptual Framework (Gebhardt,MoraandWagenhofer,2014).Theconceptualframeworkisresponsiblefor establishing the principles which guide the standards of accounting. The Framework helps in the
7 identification of the uses of the financial statements and also helps in defining the aims of financial reporting, the elements, disclosures, measurements and characteristics of the same (Barker, 2015). According to the exposure draft of the conceptual framework, prudence has been defined as the process of implementing careful judgment while facing uncertainty and risk (Cooper, 2015). The income and assets should not be overstated and the expenses and liabilities of the company should not be understated since it might cause misstatement. Since the conceptual Framework is a new requirement, the prudence concept should be exercised by the Commonwealth Bank of Australia in its future reporting however, it should also be ensured by the organisation that the disclosures made by them would still be transparent and would provide information which is useful for the shareholders (Tracey, 2015). Conclusion and Recommendations Various accounting standards and conceptual framework are available for business organisations to comply with and follow. In the above assessment, the reports of one of the leading companies of Australia, the Commonwealth Bank of Australia, were compliant; however, some debates still exist because the company has failed in delivering at some aspects. New additions and changes within the course framework and standards might give rise to various temptations when it comes to reporting financial statements honestly and fairly however, it is still in the hands of a company as to which way they would report their financial statements. Nevertheless, the shareholders of the company should be provided with relevant and significant information which would be used by them as a basis of their decision making. Hence, business organisations are responsible for delivering the same.
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8 Reference List Barker, R., 2015. Conservatism, prudence and the IASB's conceptual framework. Accounting and Business Research, 45(4), pp.514-538. Bloomberg, 2019. Company Overview of Commonwealth Bank Limited. [online] Available at: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=51994258 [Accessed on 30 April 2019] CBA,2019a.AboutCommonwealthBank.[online]Availableat: https://www.commbank.com.au/about-us.html[Accessed on 30 April 2019] CBA,2019b.AnnualReports.[online]Availableat: https://www.commbank.com.au/about-us/investors/annual-reports.html[Accessed on 30 April 2019] Cooper, S., 2015. A tale of ‘prudence’.Investor Perspectives, IFRS. Gebhardt, G., Mora, A. and Wagenhofer, A., 2014. Revisiting the fundamental concepts of IFRS.Abacus,50(1), pp.107-116. Joshi, M., Cahill, D. and Sidhu, J., 2010. Intellectual capital performance in the banking sector: AnassessmentofAustralianownedbanks.JournalofHumanResourceCosting& Accounting,14(2), pp.151-170. SMH,2014.Insider'sviewtoCBAfinancialplanningscandal.[online]Availableat: https://www.smh.com.au/business/banking-and-finance/insiders-view-to-cba-financial-planning- scandal-20140504-zr4dp.html[Accessed on 30 April 2019] Tahat, Y.A., Dunne, T., Fifield, S. and Power, D.M., 2016. The impact of IFRS 7 on the significance of financial instruments disclosure: Evidence from Jordan. Accounting Research Journal, 29(3), pp.241-273. Tracey,E.,2015.Discussionof‘Conservatism,prudenceandtheIASB'sconceptual framework’by Richard Barker (2015). Accounting and Business Research, 45(4), pp.539-542.