Importance of Annual Reports of Listed Company for Investors and Security Markets

This report examines the importance of annual reports of listed companies for investors and security markets. It analyzes the relationship between social accountability and general purpose statements, the importance of full disclosure of information, and the role of Australian accounting standards boards. It also evaluates how investors and security markets react to different disclosures in the annual reports.

ANNUAL REPORTS OF LISTED COMPANY 1
Student name
University
Course
Unit
DATE

ANNUAL REPORTS OF LISTED COMPANY 2
EXECUTIVE SUMMARY
The purpose of this report is to comment on the information contained in the annual report of
Australian bank limited, access the relationship between social accountability and general
purpose statements, provide the importance of full disclosure of information in the annual reports
to the company, evaluate the importance of Australian accounting standards boards (AASBs).To
examine how investors and security markets react to different disclosures in the annual reports
and to outline the importance of Australian accounting standards boards(AASBs) in Australian
business practices. This study involved examination of annual reports of the company to
establish this facts. Income statement, statement of financial position and cash flow statement
was analyzed.it was established that annual reports are important to different groups of
individual.

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Table of Contents
1.0 INTRODUCTION.................................................................................................................................4
2.0 SOCIAL ACCOUNTABILITY AND GENERAL PURPOSE STATEMENT.....................................4
3.0 IMPORTANCE OF AUSTRALIAN ACCOUNTING STANDARD BOARD IN BUSINESS
PRACTICES...............................................................................................................................................5
4.0 INFORMATION CONTAINED IN ANNUAL REPORTS OF LISTED COMPANYS ON
AUSTRALIAN STOCK EXCHANGE (ASX)............................................................................................5
4.1 Income statement.............................................................................................................................5
4.2 Statement of financial position.......................................................................................................6
4.3 Cash flow statement.........................................................................................................................6
4.4 Foot notes.........................................................................................................................................6
4.5 Directors’ declaration......................................................................................................................7
5.0 INCENTIVES FOR MANAGERS TO DISCLOSE CERTAIN INFORMATION IN THE ANNUAL
REPORTS...................................................................................................................................................7
6.0 HOW INVESTORS AND SECURITY MARKETS REACT TO DISCLOSURE................................8
7.0 CONCLUSION.....................................................................................................................................8
8.0 REFERENCES....................................................................................................................................10
9.0 APPENDICES.....................................................................................................................................11

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1.0 INTRODUCTION
This report involves examination of the annual reports prepared by the Australian bank limited.it
involves in-depth analysis of different reports such as income statements, statements of financial
position and the cash flow statement for the company. This is to show various elements
contained in them and how such elements are used by various groups in decision making.
2.0 SOCIAL ACCOUNTABILITY AND GENERAL PURPOSE
STATEMENT
“Yes, it is true that Social accountability is part of objectives of general purpose financial
reports’. “Social accountability refers to a state of being responsible to give accurate information
to third parties so that they can be able to make informed decision making with regard to the
information given. Example investment decision. General purpose financial reports on the other
hand refers to reports that aims at giving information to users who are basically not within the
entity and don’t have the technical expertise to understand such reports. Therefore the two are
seen as part of each other (Tilling &Tilt, 2010).
 General purpose reports assist management to be accountable to those who provide
resources to the entity on how those resources have been utilized and whether they are
utilized in the best interest of shareholders.
 Provide information to consumers of goods and services of the company. The consumers
want to know whether the goods and services offered to them are of the correct quality
 Assist those with indirect interest like the government and labor organizations. These
bodies assist those with direct interest on company’s affairs like protecting rights of
workers. Government would want to know if the laws that govern operation of entities
are followed to the later such as disclosure requirements with regards to profits made for
tax purposes.
 Creditors to the company can use information contained in this reports to forecast the
forthcoming performance of the firm. For example the liquidity of the company can show
that it is able to pay its obligation in future. This will ensure that the entity is socially
responsible and accountable to creditors by making such information available to them.

ANNUAL REPORTS OF LISTED COMPANY 5
3.0 IMPORTANCE OF AUSTRALIAN ACCOUNTING
STANDARD BOARD IN BUSINESS PRACTICES.
i. It develop and maintain accounting standards and policies applicable to businesses in
Australian markets to ensure uniformity. For example IFRS-2 with regard to the payment
of shares, AASB 101 which is concerned with presentation of financial statements.
ii. It contributes to development of reporting framework, that is, standard of presenting
financial reports in Australian economy (Agoglia, Doupnik, & Tsakumis, 2011).
iii. Amend the policies-the body is concerned with repealing or changing the policies
affecting the financial sector in Australia for example applicable financial reporting
standards.
iv. This body helps accountants present accounting data in a uniform format that can be
understood by persons outside the business and have interest in the entity such as
investors.
v. It guide accountants on the way to conduct daily activities of the business in a manner
that is consistent and can be compared with performance of the same firms in the
industry.
vi. This body govern the international financial reporting standard (IFRS), this act as point of
convergence for all accountants to present reports in the same format ( AASB101 on
presentation of financial statements).
4.0 INFORMATION CONTAINED IN ANNUAL REPORTS OF
LISTED COMPANYS ON AUSTRALIAN STOCK EXCHANGE
(ASX).
4.1 Income statement
This is a statement that show the profit made by the company after incurring all running
cost, it acts as a guide on how to increase revenue by reducing cost of operation. It
includes incomes from investment activities such as interest income from loans advanced,
expenses incurred in operation such as rent, salaries and interest on loans, income tax
expense for the year, non-controlling interest (NCI) which is the portion out of profit or
loss attributable to minority shareholders. This is shown in Australian bank limited, page
59(Ramanna &Sletten, 2009).

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4.2 Statement of financial position.
This is a statement that show assets and liabilities of the company, it gives a position of
the company at a point in time, for example, it lists the assets held by the company
separately and liabilities separately and both must balance at all times.it also include
equity shares, reserves/retained earnings as shown in the statement of financial position
of Australian bank limited (Iatridis &Rouvolis, 2010).
4.3 Cash flow statement.
This statement show flow of funds in and out of the company. This statement give key
information to investors on how liquid the company is by analyzing how funds move into
and out of the company. This statement differ from income statement and statement of
financial position in that it records only cash transaction.it include the following;
Operating activities-This refers to the day-to-day activities of the company.
For example in my case, national bank of Australia, dividends received,
interest on loans and dividends on investments.
Investing activities-this are proceeds from investment on other entities, for
example proceeds on disposal of already acquired entities, cash received on
sale of assets and cash payments on acquisition of assets.
Financing activities-this is concern with how to finance the operation of the
company. This results in liabilities. For example in my case, repayment of loan indicates
that there was a loan borrowed to finance operation, sale of shares, redemption of bonds
and proposed dividends paid(Alp& Ustundag, 2009).
4.4 Foot notes
This underline basis adopted in preparation of financial statement and some assumptions
if any. Footnotes are prepared alongside financial statements, they accompany other
statements. examples, policies adopted in preparation, changes in principle adopted and
its effect, fair values of assets, leases of assets and state how company’s recognize its
assets(Beest, Braam &Boelens, 2009).

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4.5 Directors’ declaration.
This is an extension by directors to give information not contained in the financial
statements for example environmental disclosure. Statement made by the directors
regarding the financial statement prepared. They give their view on the state of operation
on the company, they give their analysis of situations facing the company like risks faced,
and they also outline challenges faced by the company.
(AASB 1048 on Clarification and Presentation of accounting Standards)
5.0 INCENTIVES FOR MANAGERS TO DISCLOSE CERTAIN
INFORMATION IN THE ANNUAL REPORTS.
Disclosure involve giving information to external parties by those inside the entity.
Annual reports of Australian company’s contain some disclosures which are of important.
Information asymmetry can affect the entity because customers might not know some
information about the company, managers therefore can use disclosures voluntarily to convey
important information to customers (Van, Scott &Terblanche, 2011).
 Managers will be more positioned in terms of competition because they are better
placed in terms of information.
 It boost the share value of the company .shareholders will see the firm as transparent
thus increasing their shareholding in the company.
 Reductions of cost funds this is because the company will raise funds so fast through
issue of their equity stock. This will enable the company to obtain cheap funds as
opposed to debt financing.
 Enhance growth of the company. Disclosure enable the company’s make other
investments through increased source of funds externally. This is because the firm is
seen as transparent.
 Disclosure increase the information held by members in the monetary marketplace. The fiscal
analyses are better exact and facts irregularities are reduced amongst the entities and other
users, and amongst members in the marketplace. Judgments adopted by managers are in
accordance to the need of stockholders. Stockholders will be attracted, and the liquidity of the
share rises (Ayers, Ramalingegowda &Yeung, 2011).

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6.0 HOW INVESTORS AND SECURITY MARKETS REACT TO
DISCLOSURE
Investors includes people who purchase the shares of the company with an aim of reaping more
benefits in future like the shareholders. This people need full disclosure to make their investment
decision based on the information given to them by those within the entity. Therefore, the company
should provide accurate and full information to shareholders. Based on the level of information held
by shareholders, they will decide how much stock to purchase from which company and when to do
it. Company’s’ who give out full disclosure are able to make huge profits as opposed to those who
don’t thus assisting investors to reap more benefits in form of dividends thus reacting positively. For
example in the Australian bank limited, there is net loss reported in the income statement and this will
be shared (note 41), this will thus results in loss per share, the investors will therefore react negatively
to this disclosure because the aim of every investor is to make profits on investment. In this case also,
assets are more than liabilities which is favorable condition for investors.
(Profit before interest and tax/number of shares) 100%.
 Security markets are those bodies involved with trading stock such as Australian stock
exchange (ASX). This entities need full disclosure on information about different company’s
performance. Based on the information held by these bodies, the share prices will differ.Non-
disclosure of information make some company’s not access enough funds from external
providers (Hossain & Hammami, 2009).
 Security markets is more concerned with fair values of shares of the company. If the share
price rises in the Australian stock exchange, it will lead to increment of investment, for
example for my case, it increased in 2017(note 6) (Gibson, 2012).
 Information asymmetry leads to insufficient information to investor about future cash flow
thus affecting the operation of security market (Frias, Rodríguez &Garcia, 2014.).
7.0 CONCLUSION
In conclusion, annual reports of a company are important in so many ways as it help the company in
furtherance of their business in a very smooth way, they point out to the company areas which need to
be addressed like the expenses if incurred on unnecessary ways. It portray the image as to how such
company perform. The kind of information contained in this reports are very useful to the third
parties such as investors as it helps them make their different investment decision. Every serious

ANNUAL REPORTS OF LISTED COMPANY 9
investor must see the annual report of the company that he wants to invest in to check on its
profitability, liquidity and earnings per share.

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8.0 REFERENCES
Agoglia, C.P., Doupnik, T.S. and Tsakumis, G.T., 2011. Principles-based versus rules-based
accounting standards: The influence of standard precision and audit committee strength on
financial reporting decisions. The Accounting Review, 86(3), pp.747-767.
Alp, A. and Ustundag, S., 2009. Financial reporting transformation: the experience of
Turkey. Critical perspectives on Accounting, 20(5), pp.680-699.
Annual reports for the Australian national bank for the year ended 2017.
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_NAB_2017.pdf
Ayers, B.C., Ramalingegowda, S. and Yeung, P.E., 2011. Hometown advantage: The effects
of monitoring institution location on financial reporting discretion. Journal of Accounting
and Economics, 52(1), pp.41-61.
Beest, F.V., Braam, G.J.M. and Boelens, S., 2009. Quality of Financial Reporting: measuring
qualitative characteristics.
Frias‐Aceituno, J.V., Rodríguez‐Ariza, L. and Garcia‐Sánchez, I.M., 2014. Explanatory
factors of integrated sustainability and financial reporting. Business strategy and the
environment, 23(1), pp.56-72.
Gibson, C.H., 2012. Financial reporting and analysis. Nelson Education.
Hossain, M. and Hammami, H., 2009. Voluntary disclosure in the annual reports of an
emerging country: The case of Qatar. Advances in Accounting, 25(2), pp.255-265.
Iatridis, G. and Rouvolis, S., 2010. The post-adoption effects of the implementation of
International Financial Reporting Standards in Greece. Journal of international accounting,
auditing and taxation, 19(1), pp.55-65.
Ramanna, K. and Sletten, E., 2009. Why do countries adopt international financial reporting
standards?
Tilling, M.V. and Tilt, C.A., 2010. The edge of legitimacy: Voluntary social and
environmental reporting in Rothmans' 1956-1999 annual reports. Accounting, Auditing &
Accountability Journal, 23(1), pp.55-81.
Van Greuning, H., Scott, D. and Terblanche, S., 2011. International financial reporting
standards: a practical guide. The World Bank.

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9.0 APPENDICES
LOSS REPORTEDB FOR THE YEAR
EARNINGS PER SHARE.