Corporate Accounting: Comprehensive Income Statements and Financial Reporting Standards

This article discusses the comprehensive income statements of three companies, their similarities and differences, and the clarity of financial information provided. It also delves into the current IFRS framework defining operating profit and earnings before interest and tax, the definition of profit and loss and other comprehensive income as per IASB, and the importance of up-gradation to meet the challenges of financial reporting.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Authors Note:

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Contents
Executive Summary:........................................................................................................................1
Part I:...............................................................................................................................................4
Macmohon Holdings Limited:.....................................................................................................4
Mercantile Investment Company Limited:..................................................................................4
Maca Limited:..............................................................................................................................4
Similarity and differences between comprehensive income statements of three companies:.....4
Clarity of financial information:..................................................................................................5
Part II:..............................................................................................................................................5
Introduction:................................................................................................................................5
Financial information presented under current IASB requirements:...........................................6
Disclosure requirements:.............................................................................................................6
Breaking Boilerplate:...................................................................................................................6
Current IFRS framework defining operating profit and earnings before interest and tax:..........7
Definition of profit and loss and other compressive income as per IASB:.................................8
Stakeholders’ requirements:........................................................................................................8
Other comprehensive income as per GAAP and IFRS:...............................................................9
Importance of up-gradation to meet the challenges of financial reporting:.................................9
Conclusion:..................................................................................................................................9
Recommendation:......................................................................................................................10

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References:....................................................................................................................................11

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Part I:
Macmohon Holdings Limited:
The comprehensive income statement of the company includes revenue from continuing
operations, i.e. $359,645,000 for the year 2017, with corresponding amount for the previous
year. All expenses incurred in earning the revenue have also been provided in the statement.
Profit from continuing operations has been shown in the comprehensive income statement. All
the relevant details in relation to foreign currency translation has been provided in the statement.
Apart from profit / loss from continuing operations the company has also provided financial
information as to the profit or loss from discontinuing operations (Du, Stevens and McEnroe,
2015).
Mercantile Investment Company Limited:
Comprehensive Income statement of the company has provided all detailed information
about its revenue and expenditures for the current financial year along with corresponding
figures for previous financial year. The amount of profit earned from both continuing and
discontinuing operations have been reported in the statement. Earnings per share, both basic and
diluted, have been reported in the statement (De Simone, 2016).
Maca Limited:
The Comprehensive income statement of Maca contains revenue from core business
operations and other income along with direct and finance costs of the company. Profit
attributable to controlling and non-controlling interests have been provided in the statement to
help the users of the financial statements.

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Similarity and differences between comprehensive income statements of three
companies:
All the three companies have reported all necessary details about the amount of revenue
earned and expenditures incurred in business. This is the most significant similarity between the
comprehensive income statements of all the three companies. The companies reported revenue
from business along with other income and all expenditures incurred to earn revenue from
business. All the three companies have also reported the amount of profit before and after
taxation. Apart from that another major similarity is that each of the three companies have
reported EPS, basic and diluted (Barth, Landsman and Lang, 2008).
The differences are not much but one contrast difference is the fact that Maca has
reported income from controlling and non-controlling interests whereas other two companies
have reported income from continuing and discontinuing operations.
Clarity of financial information:
Honestly, the clarity of financial information does come from comprehensive income
statement as reported by these entities since the disclosure regarding items of revenue and
expenditures have been provided in significant detail. However, for an ordinary person it would
be quite difficult to assess the impact of different items on the performance of these entities
(Skeldon, 2014). Thus, it is important to bring necessary changes to the existing structure of
comprehensive income statement to make it more understandable for the users of financial
information. Important thing to note is that the users of financial information are not expected to
have significant knowledge in accounting thus, the financial statements must be easy to read and
understand.

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Part II:
Abstract:
The conceptual Framework issued by the International Accounting Standards Board,
referred to as IASB here in after in this document, guides the accountants in preparation and
presentation of financial statements in accordance with in the International Accounting Standards
(IAS) and International Financial Reporting Standards (IFRS). Detailed discussion on the
financial reporting of Macmohon Holdings Limited, Marcantile Investments Company Limited
and Maca Limited is made in this document.
Introduction:
IASB has issued IASs and IFRSs which are to be followed by the accountants strictly
while preparing financial reports. Evaluation of financial statements of few companies listed in
ASX has been made here. Along with that the news articles, documents and other research
papers shall be evaluated with the objective of understanding nuances of IASs and IFRSs.
Literature Review:
Companies are required to comply with appropriate accounting standards to report
financial information in a suitable format. IASB has issued number of accounting standards that
countries have more or less followed to develop their own sets of accounting standards
applicable for financial reporting. Australian Accounting Standards Board (AASB) has issued
standards for accounting which Australian companies must follow (Schaltegger and Burritt,
2017).

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Disclosure requirements:
Number of articles have been written on the importance of increasing the disclosure
requirements in financial reports. It is specifically considering the fact that the size and
operations of entities over the years have increased multiple times with ever increasing impact of
globalization. However, the entities despite becoming so large have not really changed the
financial information reported by them. As a result the financial reports prepared under the
existing standards applicable are not really capable in properly disclosing the financial position
and performance of these large multi-national entities (Christensen et. al. 2015).
Breaking Boilerplate:
Hans Hoogervorst, Chairman of IASB, in his 10 point agenda speech in IFRS Conference
in Amsterdam, Netherlands mentioned the importance of breaking the boilerplate in financial
reporting. It is essential to improve the disclosure requirements and thus, necessary to make
behavioural changes in financial reporting disclosure. Since there has been no change in the
conceptual framework for number of years now the disclosure requirements for large and small
entities have remained more or less similar (Nobes, 2014). Thus, for large entities with
significant business operations in different parts of the world the current financial reporting
requirements are not appropriate to disclose all necessary information required by the users.
Thus, the existing financial reporting requirements is not commensurate for large entities
with huge amount of operations spreading in different parts of the world. The financial reporting
requirements though appropriate for normal entities with significant operations but often not
commensurate with the size and business operations of multi-national large entities. Hence,
valuable information is often hidden by the boilerplate disclosures (Cascino and Gassen, 2015).

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Current IFRS framework defining operating profit and earnings before interest and tax:
IAS 1, Presentation of financial statements, issued by the IASB provides all relevant
guidelines and provisions to be followed for presentation of different items and the structure in
financial statements. As per IAS 1 an entity must disclose the amount of profit earned or loss
incurred from business operations by preparing the books of accounts in accordance with the
fundamental principles of accounting. The IASB has stated that an entity must disclose financial
information by following the three fundamental accounting concepts; these are Accrual basis of
accounting, Going concern assumption and consistency (Abata, 2015.). In case an entity has not
followed any particular fundamental accounting principles then necessary disclosure shall be
made in the notes to accounts.
The operating profit before interest and tax in case of an entity must be reported in accordance
with the accounting principles and policies. Operating profit before interest and tax is the amount
of profit earned by an entity after deducting all expenditures except interest and tax. Operating
profit before and interest and tax is calculated by taking into consideration the amount of revenue
from continuing operations. The current IFRS framework definitely provides significant details
about the various expenditures that have to be deducted in order to calculate the operating profit
before interest and tax. However, with ever changing dynamics of business and expansion of
business to different corners of the world it is important to keep on modifying the existing
framework of IFRS for better clarity in financial reporting (Schaltegger, Burritt and Petersen,
2017). This includes clarity to the definition provided in the existing framework for operating
profit before interest and tax.
EBIT as defined in the existing framework is the earnings before interest and taxes is the amount
of revenue earned from continuing business operations reduced by the amount of expenditures

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incurred to earn such revenue except the amount of interest and tax. The EBIT is to be calculated
under accrual basis of accounting as per IFRS standard (Barth et. al. 2014).
Definition of profit and loss and other compressive income as per IASB:
As per the guidelines provided by the IASB the profit and loss is the resultant amount of
revenue after deducting all necessary expenditures incurred and taxes paid by a business. It is
different from operating profit before interest and tax (EBIT) as it includes the amount of
revenue and expenditures from non-continuing business operations. The IASB and International
Financial Reporting Standards Board, IFRSB here in after, have clearly mentioned in the
permeable to the financial reporting and accounting standards that the organizations must follow
the accounting principles and policies along with applicable accounting standards to disclose the
amount of profit and loss of a business. The books of accounts must be prepared in accordance
with the double entry system of accounting and as per accrual basis to correctly report the
amount of profit earned or loss incurred from business operation for a particular period (Müller,
Riedl and Sellhorn, 2015).
Stakeholders’ requirements:
The stakeholders of an organization uses the financial information provided in the
financial reports of the organization to assess the financial performance and position of the
organization as on a particular period. The current definition provided of profit and loss certainly
meets the requirements of the users of financial statements. But it is equally true that the
complexity of business is increasing significantly and the IFRSs must be modified accordingly,
to provide the stakeholders of an organization with all necessary information required by them
for assessment of financial performance and position of the organization as on a particular date
(Black, 2016).

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Other comprehensive income as per GAAP and IFRS:
Other comprehensive income as defined by the Generally Accepted Accounting
Principles, here in after to be referred to as GAAP, and International Financial Reporting
Standards is those amount of revenues, expenses, gains and losses that have not been included in
computation of net income in the income statement of an organization. Thus, in effective terms
these are the amount of revenues, expenses, losses and gains that are reported after reporting net
income in the income statement (Daske et. al. 2013).
Importance of up-gradation to meet the challenges of financial reporting:
The current definition provided on other comprehensive income in the existing
conceptual framework of IASB certainly meets the financial information requirements of users
of financial statements and stakeholders of business. But the ever complexity of business
operations and expansion of business must be considered to make necessary changes in the
existing framework to include important elements for appropriate disclosure of other
comprehensive income as per the requirements of the stakeholders of an organization (Barth et.
al. 2014).
Conclusion:
Taking into consideration the discussion it would be not incorrect to state that the existing
framework though not insufficient for disclosing the financial performance and position of an
entity but there is certainly huge room for improvement. The quality of disclosure required in the
existing framework has to be updated keeping in mind the expansion of business due to the ever
increasing effects of globalization. IASB and IFRSB are also continuously looking to improve
the quality of financial reporting by developing and issuing new financial reporting standards.

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Recommendation:
In order to ensure that the quality of financial information provided in the financial
statements is as per the requirements of users of financial reports it is important to keep on
looking for new and better ways to prepare and present financial reports. Development and issue
of IFRSs and IASs is the most effective method to improve the quality of financial reporting
(Pilcher and Gilchrist, 2018)
The IASB and IFRSB must continuously look to make necessary changes in the existing
conceptual framework by issuing new and improved standards to ensure that the users of
financial information are able to currently evaluate the financial state of an entity and its position
as on a particular date. The IASB and IFRSB should also consider different sets of accounting
standards for small and medium and large enterprises. The objective of improving the quality of
financial reporting must be achieved and in order to do that all necessary efforts have to be made
by the Global Governing Body of accounting and financial reporting standards, IFRB and IASB
(Du, McEnroe and Stevens, 2016).

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Business Finance & Accounting, 41(3-4), pp.297-327.
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Cascino, S. and Gassen, J., 2015. What drives the comparability effect of mandatory IFRS
adoption?. Review of Accounting Studies, 20(1), pp.242-282.
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Daske, H., Hail, L., Leuz, C. and Verdi, R., 2013. Adopting a label: Heterogeneity in the
economic consequences around IAS/IFRS adoptions. Journal of Accounting Research, 51(3),
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Nobes, C., 2014. International classification of financial reporting. Routledge.
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