Accounting Concepts and Changes in AASB 16- Leases: A Case Study of Westpac Banking Corporation

ADVANCED FINANCIAL ACCOUNTING
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Introduction
In this paper, the different accounting concepts which have been used by one of the Australian
bank named Westpac Banking Corporation in their annual report of 2017-2018 has been
analyzed in detail. Different accounting standards used by Westpac has also been evaluated. The
amended provision of the accounting standard 16 that is lease has also been discussed. The
important disclosures in respect of lease accounting have also been evaluated. The impact of new
terms on the entities has been examined. Westpac Banking Corporation is a well-known bank in
Australia situated in Sydney. It was founded in the year 1817. Headquarter of the bank is
situated at Westpac place in Australia. The bank provides financial services and different
banking services to its customers. It also provides services related to wealth management and
institutional services. The products of the bank are corporate banking, investment management,
consumer banking, insurance banking, private equity shares, mortgage banking, and management
of credit cards. The total number of branches of the Westpac throughout the world is 1204
branches and almost 3222 ATMs are installed throughout the world.
1)Accounting concepts used by Westpac Banking corporation
As there are different accounting concepts that are applied by entities of small size, medium-size,
and large organization. According to Kimmel et al. (2016, p-44), the different accounting
concepts are conservatism concepts, accrual concepts, matching concepts, concept of going
concern, cost concept, concept of business entity, concept of money measurement. While
analyzing the 2017-2018 annual report of Westpac it has been studied that the annual statement
of Westpac banking has been prepared as per the accounting standard issued by the Australian
board (AAS) and compliance of AAS means compliance of IFRS. The financial statement has
also been prepared considering the requirements of Banking Act, 1949 and the requirement of
Corporation Act, 2001. The financial statement of Westpac has been authorized by the directors
and the directors can reissue or amend the annual report of Westpac. The annual report of
Westpac has been prepared as per the relevant accounting policies. The management of Westpac
while preparing the annual report has followed the concept of historical cost. The securities
which are available for trading has been accounted at fair value. The financial liabilities and the
financial assets of the Westpac corporation have been recognized at fair value and which are
transferred at other comprehensive income categories (OCI). Different accounting assumptions,
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accounting policies have been applied while drafting the annual report. The estimates and the
relevant assumption which have been applied by the accountant of Westpac corporation are all
discussed at the audit committee of the company. While evaluating the going concern of
Westpac no indicators have been found which can prove that the company will shut down the
business soon. This implies that the company is following the going concern accounting
concepts. It has also been found that the corporation follows the accrual basis of doing an
accounting of company. According to Adhikari and Gårseth-Nesbakk (2016, p-125), the accrual
basis means that the company will recognize its revenue expenditure even if the amount of
expenditure has not been received and also the income will be recognized in the profit and loss
statement even if the income has not been received by the company.
The accounting of business combinations has been done by applying the acquisition method. The
accountant of the Westpac corporation has taken the fair value of all the assets at the time of
acquisition. The identifiable assets which have been acquired also measured and recognized at
fair value. Goodwill has been measured at the time of business combinations by comparing the
aggregate of consideration paid and share of minority interest with the amount of identifiable
assets. According to Klimczak et al. (2015, p-2017), if there is a loss in business combination
then it means that the company is paying more consideration to acquire the assets of the other
entity. The company has prepared the consolidated statement in its functional currency that is in
Australian dollar which is also the presentation currency of the company. The liabilities and
assets of the subsidiaries whose functional currency is not in Australian dollars are all converted
by using the exchange rate of the balance sheet date. The expenses and income of the company
are converted using the average rate of exchange of the year. The foreign exchange losses and
income of the corporation have been transferred to the income statements. The deferred income
which arises at the time of settlement of foreign transaction has been transferred to OCI. The
balance of equity of the foreign transactions are converted by applying the historical rate of
exchange.
The company has used different assumptions and different accounting estimates while doing
accounting of income tax, intangible assets, superannuation commitments, provisions. While
dong treatment of provisions related to the impairment charges company has also taken
significant estimates and assumptions. The company applied the provision of AASB-2016.
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AASB-9 has been applied which is related to the treatment of financial instruments such as
financial liabilities, equities, financial assets, derivative contracts, hedging instruments. The
company has adopted the standard of AASB 9 so that the retained earning can be reduced by
709 million dollars The standard of financial instruments also can recognize the estimated losses
which are based on future information. The other accounting standard which has been applied is
AASB which deals with revenue arising from contract. This standard deals with all contracts
except insurance contracts, leases, and financial instruments. To deal with the treatment of lease,
financial instruments and insurance respective standards have been issued by AASB. The
accountant has applied the terms of the standard AASB-17 which provides the treatment of
insurance. The insurance standard will contain terms that are used for risk adjustment relating to
life insurance and general insurance taken by the corporation. The reinsurance contracts and the
liabilities associated with it have been treated separately by the accountant.
The amount of interest expense and interest income which arise from different financial
liabilities and financial are being recognized by applying the method of effective interest rate
(IRR). The total amortization costs are computed by using effective interest method (IRR). The
income from commission and fees are also recognized using IRR. The dividend income, trading
income, premium income, are also calculated by applying the method of effective interest. The
deferred tax and the current tax of the company are transfer to the statement of profit and loss.
The taxes which are directly recognized are transferred to OCI. Certain assumptions have been
applied by calculating the liability of current tax payable by the company. The volume variances
have been computed by using the average rate of the balances of liabilities and assets of Westpac
Corporation. Sales and purchases relating to assets of the company except for receivables and
loans of company have been recognized on the date of trading. The financial liabilities of the
corporation recorded in the balance sheet when there is an obligation to record the liabilities
arise. The accountant of Westpac derecognize the financial assets when the entity has received
cash from other entity or when rights have been expired to receive any cash due from the
financial assets. The amount of loan which carries both deposit and mortgage facilities are
recorded at gross value on balance sheet. The interested accrued from the loans are recorded on a
net basis. The Westpac groups record two types of provision for impairment of its loans which
are assessed collectively as well as individually. To assess the collective loan and the individual
loans the accountant have to use different assumptions which are necessary to show the real
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