Corporate Accounting: Analysis of Financial Statements of Commonwealth Bank and ANZ Bank

This report provides a comparative analysis of the cash flow statement, comprehensive items, and the debt equity position of Commonwealth Bank and ANZ Bank. It also includes an analysis of the owners equity, capital structure decisions, and accounting for taxes. The report provides a comprehensive assessment of the annual report in terms of providing an analysis of the various financial statements that include an assessment of statement of equity, cash flow statement and assess the impact of changes in these items of financial items.

Running head: CORPORATE ACCOUNTING
CORPORATE ACCOUNTING
Name of the Student
Name of the University
Author Note

CORPORATE ACCOUNTING
Executive Summary
The purpose of this report is to provide a comprehensive assessment of the annual report in
terms of providing an analysis of the various financial statements that include an assessment
of statement of equity , cash flow statement and assess the impact of changes in these items
of financial items . It requires the consideration of two companies from the same industry and
makes a comparative analysis of the two companies in respect of the items that include in
owners equity and cash flow statement. It also provides an overview of the tax items that are
there in the financial statement and makes an assessment of deferred tax liabilities that are
there in the financial statements.

CORPORATE ACCOUNTING
Table of Contents
Introduction................................................................................................................................4
Discussion..................................................................................................................................5
Owners equity........................................................................................................................5
Capital structure decisions.....................................................................................................6
Analysis of cash flow statement.............................................................................................7
Comparative Analysis............................................................................................................9
Reporting for comprehensive items.....................................................................................11
Disclosure of Comprehensive Items....................................................................................11
Comparative Analysis of Comprehensive Items..................................................................12
Accounting for Taxes...........................................................................................................12
Effective tax rate..................................................................................................................12
Deferred tax and liabilities...................................................................................................13
Cash tax rate comparison.....................................................................................................13
Difference between cash tax rate and book tax rate.............................................................14
Conclusion................................................................................................................................14
References................................................................................................................................15

CORPORATE ACCOUNTING
Introduction
In today’s competitive world , the reporting framework that is used by the businesses
are considered to be whether the same are appropriate and whether it meets the expectation
of the shareholders or not by providing them with relevant information. There is an ideal
reporting framework which consists of all relevant information ad disclosures that are
relevant for all users of the financial statements . The two companies that are considered for
this assessment are Commonwealth Bank and ANZ bank . which are both part of the banking
sector.
The commonwealth bank of Australia is the largest Australian multinational bank. It
has multiple businesses that is scattered all over New Zealand, Asia and the United states .
The bank is helpful in providing a variety of financial services that includes retail and
institutional banking , among . It is the largest listed company in Australia .
The ANZ bank is the third largest bank by market capitalisation in Australia. It has
operations in both Australia and New Zealand, with Australian operations dominating the
largest part of the business. In addition to operations in New Zealand and Australia, it has
operations in 34 other nations as well.
The assessment provides a comparative analysis of the cash flow statement ,
comprehensive items and the debt equity position of the business. The report also shows
computation of effective tax rate , tax rate and book rate.

CORPORATE ACCOUNTING
Discussion
Owners equity
The term owners equity represents the share capital which is used by the businesses
for the purpose of funding the operations of the business. The owners equity of a business
generally consists of share capital, reserves and other equity related funds(Ampenberger et
al.2013). The disclosures of owners equity are shown in the balance sheet of the business.
The annual report of ANZ bank which is shown for the year 2017 shows that the owners
equity is made up of equity share capital, reserves and retained earnings of the business. The
equity share capital is accumulated by the business by issuing equity shares to the public and
taking their capital for the purpose of financing projects and even day to day activities of the
business( Bhaird 2013). reserves are a part of the profits that is generated by business during
a particular period. Reserves are a great source of meeting unplanned expenses and can be
used as more of a slush fund for the business(Robb and Robinson 2014). They are a great
source of direct finance. It is used by businesses in making occasions and use of retained
earnings in a business. It is also known as ploughing back of profits.
The equity share capital of ANZ bank was shown at $ 10765 million in 2015 and the
same is shown to have increased significantly in 2017 which signifies that the management of
the company needed a huge amount of capital that is drawn from equity shares. The reserve
balance for the year 2015 is shown to be at $ 234 million and the same is shown to have
reduced drastically and the figure is shown to be at $ 178 million. There has been a growth in
the retained earnings of the business. The growth in the retained earnings of the business
signifies the growing strengths of the company(Konchitchki and Patatoukas 2013).
In case of commonwealth bank. the share capital is shown to be at $ 17865
million ,which has shown an improvement from the figures of the last years 2015 and 2016.

CORPORATE ACCOUNTING
The reserve balance and retained earnings balance also portrays a slight increase compared to
last year’s figures. This means that the business is performing better compared to last year
analysis. The increase in share capital of the company suggests that the management of the
business has issued new shares during the year(Arnold,and Yildiz 2015). The figures for
retained earnings is shown to be at $ 675 million
Capital structure decisions
The capital structure of a business depends on the requirements and applications that a
business needs for its funds(Serfling 2016.). In order to make decisions regarding capital
structures of the business , the management also needs to consider the costs and risk factors
which are associated with the sources or options that is available to a business(Graham, Leary
and Roberts 2015). The capital structure of ANZ Bank is shown to have both equity and debt
as per the balance sheet of a company. The company has taken significant amount of equity
and debt capital in 2017 which is evident as per the cash flows. The debt capital of the
business is shown to have increased from $ 1244 million to $ 1564 million during the year
2017(Anz.com 2018). This sudden increase in the capital structure of the company suggests
that the management of the business is planning to make an improvement in business
structure.
The balance sheet which is prepared by Commonwealth bank for the year shows that
the management of the company utilises both debt and equity capital of the business. The
debt balance of the business for the year 2017 is shown to be at $ 17654 million and the same
has reduced in comparison to previous years which shows that the management of the
company has repaid a part of the loan for the business(Commbank.com.au 2018). The
management is however mote intended on utilising the equity capital of the business for most
of the part and use some debt capital to attain a more favourable capital mix.

CORPORATE ACCOUNTING
The analysis shows that ANZ bank believes in balanced debt and equity capital mix as
the business is trying to raise more finance through debt since it is cheaper than raising
equity. On the other hand the management of Commonwealth Bank is trying to rely more on
equity capital as the business is trying to lower the burden of debt capital.
Analysis of cash flow statement
The various considerations in the report has been included with thw various types of
discussions which are seen in the annual reports of Commonwealth Bank and ANZ bank.
Based on the depictions of the cash flow statement the different categories are divided as
finance, operating and investing activities. The main categorization of the item is discussed
as follows:
Cash flow from operating activities
Commonwealth Bank
The various items that are included include the interest received from bank deposits
from the bank customers. This is the main source of income for the bank. The interest
income for the bank is $34112 million in the year 2016 and $ 34047 million in the year 2017.
It represents a slight reduction in the interest income of the bank. This reduction in interest
income can be attributed to reasons including a rising interest bank rate and a fall in cash
reserves of the banks. Another significant application of ach is ithe interest paid to
customers. It decreased from $16283 million to $ 16083 million in the year from 2016 to
2017, which is a good sign for the bank. They are able to reduce the interest expense in this
regard(Commbank.com.au 2018).
ANZ Bank
The various items that are included include the deposits and other borrowings made
by customers and the interest received and interest paid. The interest income for the bank

CORPORATE ACCOUNTING
reduced from $ 25416 million in 2016 to $ 25395 million. This reduction in interest income
can be attributed to reasons like a rise in interest rate or a fall in cash reserves . Also in the
annual report it can be found that the interest payment slightly increased from $ 10213
million to $ 10260 million between 2016 and 2017, which is not a good sign for the bank.
They have to try to find ways to improve this gap(Anz.com 2018)..
Cash flow from operating activities
Commonwealth Bank
The various items that are included in this activity include a net movement in
available for sale investments , a net increase in loans, bill discounted and receivables due
from other financial statements. The net movement in available for sale investments
represents the difference between sale and purchase of net proceeds from investment. The
net difference has increased from $ 2567 million to $ 2654 million between the year 2016
and 2017,which suggests that the bank has made better investment decisions and has
increased its earnings on the investment that it has made. There has been a decrease in loans
, bills discounted in the years between 2016 and 2107. It has decreased from $52825 million
to $ 45768 million, which suggests that the firm may have tightened its credit policy and that
it has increased its lending rates, which means that the customers are reluctant to borrow from
this bank(Commbank.com.au 2018).
ANZ bank
The various items that are included in this activity include a net movement in
available for sale assets , which is sales minus purchase and the sale of Asia Retail and
Wealth Businesses. The net movement in available for sale investments has increased from $
15678 million to $ 16213 million, which suggests that the bank has made good investment
choices and has taken advantage of employing an effective ROI(Anz.com 2018). It has sold

CORPORATE ACCOUNTING
its Asia and Retail wealth business to the amount of $5213 million , which suggests that the
bank have made a good decision because this division was not performing really well.
Cash flow from Financing activities
Commonwealth Bank
The various items that are included in this statement include the acquisition payments
of controlled entities and net sales from disposal of entities and business. The amounts for
payment of acquisition have changed from $ 564 million to $ 587 million in the years from
2016 and 2017. This suggests that a firm have more plans to expand their businesses in the
future. The net proceeds from disposal of entities and business has increased from $ 72
million to $ 112 million which suggests that the firm disposed of a lot of entities and
business which were not earning much revenue for the bank
ANZ bank
The various items that are included in this statement include the issue and redemption
of share capital , dividends paid and share buyback . The issue of share capital has reduced
from $ 34678 million to $ 2987 million in the year from 2016 and 2017 , which suggests
that the firm has been reluctant to bring more capital from public investors. The dividend
paid has reduced from $ 4532 million to $ 4321 million in the year from 2016 to 2107, which
suggests that the firm has made less profits in the year in the year 2016 than 2017.
Comparative Analysis
As per the cash flow statement of ANZ bank, the operating activities of the business
shown a balance of $ 32414 million for the year 2017 which has slightly decreased from the
previous year analysis of 2016 and 2015. This may be due to the increase in the overall
outflows of the business or lower sales of the business. The cash from investing activities of
the business shows a negative figure which is mainly due to excessive purchases of

CORPORATE ACCOUNTING
businesses and properties which the management of ANZ bank has undertaken during this
period. The financing activities of the business of the year 2017 shows that the business has
raises significant amount of capital from equity sources during the year which is mainly due
to the financing of some project meeting certain obligations. A graph and a table has been
shown to illustrate the following
particular
2015($
million)
2016($
million)
2017($
million)
net cash provided by operating activity 23626 23450 32414
net cash used/ provided by investing activities -6745 -12830 -21092
net cash used/provided by financing activities 2371 1958 -6667
Source-(Anz.com 2018).
net cash provided by
operating activity net cash used/ provided
by investing activities net cash used/provided by
financing activities
-30000
-20000
-10000
0
10000
20000
30000
40000
comaprati ve cash fl ow analysis of
ANZ bank
2015 2016 2017
The cash flow statement of commonwealth bank shows that the cash flow from
operating activity has increased significantly from the years 2016 and 2015. , which is mainly
due to higher interest income of the business. The cash investing activities of the business has
also decreased from the years 2017 which shows that the company has not made a significant
sale of assets and property. The net cash flows from financing activities has shown to be a
drop in the year 2017 because it has remitted a significant amount of loan capital. A table and
a graph has been illustrated as follows:

CORPORATE ACCOUNTING
particular
2015($
million)
2016($
million)
2017($
million)
net cash from operating activities 13369 13992 17519
net cash flow used in investing activities 21124 34128 11201
net cash flows used in financing activities 11710 23647 19912
Source-(Commbank.com.au 2018).
2015 2016 2017
13369 13992
17519
21124
34128
1120111710
23647
19912
Comparative cash flow analysis of
Commonwealth Bank
net cash from operating activities net cash flow used in investing activities
net cash flows used in financing activities
Reporting for comprehensive items
The comprehensive income for the year 2107 shows that the business of
Commonwealth Bank have made a foreign currency reserve net of tax and have invested in
hedging contracts. The comprehensive items that are included in the financial statements of
ANZ bank shows dividend income on treasury shares and the treasury shares of Wealth
Adjustment adjustment and the hedging contracts. The annual reports of both companies
show similar items in case f comprehensive item disclosures
Disclosure of Comprehensive Items
The comprehensive items are shown separately because they are extraordinary in
nature and therefore can affect the financial statements directly if included in the profit and

CORPORATE ACCOUNTING
loss statement. In addition to this , the items are non recurring in nature for the companies
which are considered for this assessment and therefore the same is not shown in the profit and
loss statement(Sunder, Sunder and Zhang 2018).
Comparative Analysis of Comprehensive Items
The comprehensive items of both ANZ bank and Commonwealth Bank effectively
shows same items such as hedge cash flow contracts, foreign currency reserve during the
year. The comprehensive income of ANZ bank is shown to be $ 23, 564 million during 2017
and the same has decreased from the previous year. While the comprehensive income of
Commonwealth Bank is shown to be $ 32, 432 million which is quite higher than ANZ bank
but this can be due to higher scale of operations of Commonwealth Bank compared to ANZ
bank. A graphical representation of the cash flows is shown in the figure below
The comprehensive items which are shown in the annual reports of the business
should not affect the decision making process of the management as these items are non
recurring in nature and may or may not take place in a year. The management van however
make provisions for the same.
Accounting for Taxes
The tax expense which is incurred by Commonwealth Bank as per the profit and loss
statement is shown to be $ 8788 million for the year 2017 and the same has increased in
comparison to previous year analysis. The tax expense of ANZ bank is shown to be $ 3206
million for the year 2017(Anz.com 2018).
Effective tax rate
Computation of effective tax rate
Particulars Commonwealth Bank($) Anz bank($)
Income tax expense 8788 3206
Earning before tax 27,906 9627

CORPORATE ACCOUNTING
Effective tax rate 31.49% 33.30%
The effective tax rate of Commonwealth bank which is calculated in the table above is
shown to be 31.49% which is a little lower than effective tax rate for the year 2017. The
effective tax rate of ANZ bank is a little higher compared to the effective tax rate which is
shown for Commonwealth Bank.
Deferred tax and liabilities
The deferred tax and liabilities refer to the tax obligations that are either paid in
advance by the business or is due to be paid and the same relates to tax items for the precious
years as well(Markle 2016). The deferred tax and liabilities are shown in the balance sheet of
both the companies, as shown in the annual reports that are prepared by the
companies(Graham et al. 2013). The deferred tax liabilities ANZ bank for the year 2017 is
shown to have a slight increase while the deferred tax assets of the business is shown to have
a declining trend. This indicates that the business has tax obligations that relates to past years.
In the case of Commonwealth bank, the company has only deferred tax assets which are
shown in the financial statements and the same is shown to have an increasing trend during
the years.
Cash tax rate comparison
Computation of effective tax rate
($
million)
($
million)
Particulars
Com
Bank
ANZ
bank
Income tax provision 8788 3206
Add: Increase in DTL 32
Less: Increase in DTA -78 -45
Add: taxes on finance costs 1370.1 702
Cash tax amount 10080.1 3895
EBIT 31245 10987
Cash tax rate 32.26% 35.45%

CORPORATE ACCOUNTING
Computation of effective tax rate
Particulars
Commonwealth Bank($
million)
Anz bank($
million)
Income tax expense 8788 3206
Earning before tax 27,906 9627
Effective tax rate 31.49% 33.30%
The cash tax rate which is computed in the above table shows that the cash tax rate of
ANZ bank is more than the Commonwealth Bank for the year 2017. The computation
considers the change in deferred tax assets and liabilities of the business.
Difference between cash tax rate and book tax rate
The cash tax rate computation considers the cash items of the business and also
considers the changes that takes place in deferred tax assets and liabilities of the business as
shown in the table above. The book tax rate on the other hand does not consider such changes
and is the general tax rate on which tax is charged on a business(Hoi, Wu and Zhang 2013).
Conclusion
Thus , from the discussion above , it can be ascertained that the business of
commonwealth bank is larger in operations and profit growing capacity than ANZ bank. This
is the main reason that their profits are considerably high. The position of Commonwealth
Bank is shown to be better than ANZ bank , which means that the liquidity position of the
bank is also better in comparison to ANZ bank.

CORPORATE ACCOUNTING
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avoidance: Evidence from the field. The Accounting Review, 89(3), pp.991-1023.

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