Importance of Corporate Accounting in Organizations

The report evaluates the importance of corporate accounting in organizations. It studies the financial statements of Commonwealth Bank of Australia and Westpac Bank to understand the process of corporate accounting. The report covers cash flow statement, owner’s equity, comprehensive income statement and corporate taxation treatment of the business.

Running Head: Corporate Accounting
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Project Report: Corporate Accounting

Corporate Accounting
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Executive summary
The report has been prepared to evaluate the importance of the corporate accounting
in an organization. The report has been prepared to understand the process of corporate
accounting in better way. The Commonwealth bank of Australia and Westpac bank has been
taken into the context to identify the overall position of the business in an organization in
order to present, record and evaluate the final financial statement items and figures of the
business. The cash flow statement, owner’s equity, comprehensive income statement and
corporate taxation treatment of the business has been studied in the report. Through
conducting the study, it has been found that the annual report of an organization must be
transparent enough for the shareholders to make better decisions.

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Contents
Introduction of report........................................................................................................4
Companies brief................................................................................................................4
Commonwealths bank of Australia..............................................................................4
Westpac bank................................................................................................................4
Owner’s equity..................................................................................................................5
1.Equity item list...........................................................................................................5
2.Debt and equity position............................................................................................5
Cash flow statement..........................................................................................................6
3.Cash flow item list.....................................................................................................6
4.Comparative analysis in cash flows...........................................................................8
5.Comparative analysis among the companies.............................................................9
Comprehensive income statement..................................................................................10
6.Comprehensive income statement items.................................................................10
7.Reasons....................................................................................................................10
8.Comparative analysis...............................................................................................11
9.Manager’s performance...........................................................................................11
Accounting for corporate income tax.............................................................................11
10.Tax expenses of companies...................................................................................11
11.Effective tax rate....................................................................................................12
12.Deferred tax assets or liabilities.............................................................................12
13.Changes in the figures of Deferred tax assets or liabilities...................................13
14.Cash tax amount....................................................................................................13
15.Cash tax rate..........................................................................................................14

Corporate Accounting
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16.Book and cash tax rate...........................................................................................14
Conclusion......................................................................................................................14
References.......................................................................................................................16

Corporate Accounting
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Introduction of report:
Corporate accounting is accounting’s part which focuses on the treatment of the
accounting figures of the company. It evaluates the different item of the final financial
statement of an organization to conclude that whether the company has followed the proper
policies or whether the proper presentation has been done by the business to reach over the
conclusion. The corporate accounting process plays a crucial role in an organization and
stakeholder in order to make it easier for the internal and external stakeholder of the business
to identify the performance of the business and compare it with the other companies in the
same industry for the purpose of the investment etc. (Lumby and Jones, 2007).
The report has been conducted to understand the process of corporate accounting in
better way. The Commonwealth bank of Australia and Westpac bank has been taken into the
context to identify the overall position of the business in an organization in order to present,
record and evaluate the final financial statement items and figures of the business. The cash
flow statement, owner’s equity, comprehensive income statement and corporate taxation
treatment of the business has been studied in the report.
Companies brief:
Commonwealths bank of Australia:
Commonwealth bank of Australia (CBA) is an Australian bank which operating area
is worldwide. Mainly, the operating market of the business is new Zealand, Asia, United
states, united kingdom etc. the bank offers numerous financial services and products such as
consumer banking, corporate banking, investment management, global wealth management,
mortgages, private equity etc. the company is among the largest bank of the Australia and the
services of the bank are also huge in numbers (Home, 2018).
Westpac bank:
Westpac Bank is an Australian bank and financial service provider company. The
company is serving its operation at worldwide level. However, the main operating market of
the business is New Zealand, Australia, Asia, United States pacific region. The bank offers
numerous financial services and products such as consumer banking, corporate banking,
investment management, global wealth management, and mortgages, private equity etc.

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(Home, 2018). The bank is among the largest bank of the Australia and the services of the
bank are also huge in numbers.
Owner’s equity:
Owner’s equity is a head of statement of financial performance of an entity which
represents the entire funds which has been raised by the business through issuing the share
and through keeping few amount from the profit of the company for any emergency.
1. Equity item list:
The equity item list of CBA and Westpac bank has been prepared to enhance the
understanding about the equity items and identify the changes into the equity position of the
company from last year. The equity item list is as follows:
Equity Items
Commonwealth bank of
Australia Westpac Bank
AUD in million 2017 2016 Changes 2017 2016 Changes
Stockholders' equity
Share capital
Ordinary share capital 35262 34125 3.33% 34889 33469 4.24%
Other equity instrument - 406 -437 -369 18.43%
Reserves 2556 3115 -17.95% 858 790 8.61%
Retained earnings 22312 20430 9.21% 16871 15311 10.19%
Total stockholder's equity 60130 58076 3.54% 52181 49201 6.06%
(Annual report, 2017)
Above table represent that the main equity item of a business is share capital, reserves
and retained earnings. Share capital represents the amount which has been generated by an
entity through issuance of the equity shares and preference shares in the market. In case of
share capital in CBA, 3.33% improvement has been seen and the Westpac bank depicts
4.24% increment in equity share and 18.43% in preference shares of the company.
In addition, reserve stand for the amount which is kept aside by the business for any
sudden issue in the business which has been lowered by CBA by 17.95% and improved by
Westpac by 18.43%. The retained earnings are the amount which is retained for future
investment of the company. The retained earnings of both the company has been improved by
9.21% and 10.19% respectively.

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2. Debt and equity position:
Debt is the borrowings of an organization which has been raised by the business from
the market whereas the equity stands for the amount which has been raised by the business
through selling the ownership in the market. The debt and equity level of CBA and Westpac
are as follows:
Equity Items
Commonwealth bank of
Australia
Westpac
Bank
AUD in million 2017 2017
Long term debt 17953 17666
Equity 60130 52181
Debt / Equity 29.86% 33.86%
(Annual report, 2017)
The debt equity level of the CBA is 29.86% and the Westpac bank is 33.86% which
represents the higher position of Westpac. The Westpac is managing higher debt in context
The debt equity level of the CBA is 29.86% and the Westpac bank is 33.86% which
represents the higher position of Westpac. The Westpac is managing higher debt in context
with the equity than the CBA.
Cash flow statement:
Cash flow statement is a financial statement of an entity which represents the entire
changes in the cash outflow and inflow position of the company in a specific period of time.
3. Cash flow item list:
The cash flow item list of CBA and Westpac bank has been prepared to enhance the
understanding about the cash flow items and identify the changes into the cash flow position
of the company from last year. The equity item list is as follows:

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Figure 1: Cash flow statement of CBA
(Annual report, 2017)
On the basis of the evaluation on the cash flow statement of CBA and Westpac, it has
been found that the various items have been recorded in the cash flow statement on the basis
of the operating, investing and financial cash flows of the company. On the basis of the study,
it has been found that all those items of a business which is related to the main and daily
activity or operations of the business is represented in the operating activities of the business.
The operating level of CBA briefs positive changes into the cash flow position and Westpac
briefs downward position of operating cash (Lumby and Jones, 2007).

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Further, all those items of a business which is related to the investment activity or
operations of the business is represented in the investing activities of the business. The
investing level of CBA and Westpac briefs positive changes. Lastly, all those items of a
business which is related to the financial activity or operations of the business are represented
in the financing activities of the business. The financial level of CBA briefs positive changes
and in Westpac, it offers the negative changes.
Figure 2: Cash flow statement of Westpac
(Annual report, 2017)
4. Comparative analysis in cash flows:
The main activities of cash flows categories of the company have been done to identify
the occurred changes into the cash level of the business. In case of CBA, it has been found
that the entire cash position of the company has been improved from last year. The expenses
have been reduced due to which the operating outflows have been reduced (annual report,

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2017). As well as, through identifying the investing and financial activities of the business, it
has been found that the inflows of the company has been improved because of issue of new
shares and sales the PPE of the company.
Commonwealth bank of
Australia
AUD in million 2017 2016 2015
Net cash used for operating activities -1183 -5463 3204
Net cash used for investing activities 6006 2125 3480
Net cash provided by (used for) financing
activities 3509 -1990 1935
(Annual report, 2016)
Further, in case of Westpac, it has been found that the cash position of the company has
been changes at great level and explains about higher cash outflow of the company in 2017.
The operating expenses of the company have been improved and due to which the operating
outflows of the company has been improved. As well as, through identifying the investing
and financial activities of the business, it has been found that the inflows of the company has
been improved because of sales the PPE of the company and the financial activities depict
about reduced inflow because of repayment of borrowings.
Westpac Bank
AUD in million 2017 2016 2015
Net cash used for operating activities -235 3443 -2003
Net cash used for investing activities 1640 -6094 -7894
Net cash provided by (used for)
financing activities 45 5049 3548
(Annual report, 2016)
5. Comparative analysis among the companies:
Further, the comparative analysis has been done among both the companies to measure
the changes and performance of the companies in the industry. Through identifying the net
operating cash flows of both the companies, it has been found that the performance of
Westpac is better in current scenario but in the perspective of the growth, the position of CBs
is better (Lord, 2007). Further, the investing cash flows comparison depict that the position of
CBA is better and lastly, through evaluating the financing activities of the business, the
position of CBA us better in the growth and current scenario both.
Commonwealth bank of Westpac Bank

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Australia
AUD in million 2017 2016 Changes 2017 2016 Changes
Net cash used for operating
activities
-
1183
-
5463 -78.35% -235 3443 -106.83%
Net cash used for investing
activities 6006 2125 182.64% 1640
-
6094 -126.91%
Net cash provided by (used
for) financing activities 3509
-
1990 -276.33% 45 5049 -99.11%
(Annual report, 2017)
On the basis of the overall evaluation, better position has been maintained by the CBs
in order to manage the cash level and the performance of the business.
Comprehensive income statement:
Comprehensive income statement is a financial statement of an entity which
represents the different items of business which is not related to the daily activities of the
business.
6. Comprehensive income statement items:
The comprehensive income statement item list of CBA and Westpac bank has been
prepared to enhance the understanding about the comprehensive income statement items and
identify the changes into the profitability position of the company due to these items. The
comprehensive income statement item list is as follows:
Comprehensive income statement Items
Commonwealth
bank of Australia
Westpac
Bank
AUD in million 2017 2017
Recognised in equity -11 88
Transferred to income statements -666 -3
Recognised in equity 35 -42
Transferred to income statements 175 19
Exchange differences on translation of foreign
operations -3 -77
Available-for-sale securities reserve -25
Cash flow hedging reserve 7
Recognised in equity (net of tax) 19 -164
(Annual report, 2017)
7. Reasons:

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Comprehensive income statement is prepared separately by the companies in order to
maintain and present the items differently which are not related to business directly. Though,
they play an important role in the financial performance of the business and affect the
profitability position of the business (Jiashu, 2009). These items take place because of the
fluctuations in the economical factors and the fluctuation in the foreign currency. If these
items would be added into the financial performance statement of the business then it could
manipulate the result for the internal analysis of the business.
8. Comparative analysis:
In case of comparative analysis among the profitability level of the business and the
changes in the profitability level of the business after showing the impact of the
comprehensive income statement in the business, it has been found that the various changes
have occurred into the profitability level of both the business (Hillier, Grinblatt and Titman,
2011). In case of Westpac, it has been found that the profit of the company is $ 7843 million
before the impact and after the impact; it has been lowered to $ 7828 million. Further, in case
of CBA, it has been found that it has been found that the profit of the company is $ 8979
million before the impact and after the impact; it has been lowered to $ 8528 million. It
explains that the profit position of both the companies have been lower because of the
comprehensive income statement of the business.
9. Manager’s performance:
A manager and the top level management of a business always been evaluated on the
basis of the financial performance of the business. Such as, if a generate amount has been
generated by the business through its activities, than the performance of the manager would
be marked as good (Higgins, 2012). If the comprehensive income statement items are take
into concern then these items must not been added into the evaluation process because it is
not related to managers and the direct activities of the business.
Accounting for corporate income tax:
Accounting for corporate income tax is a crucial element of an entity which represents
the recording and the presentation of the taxation system of the company (Gapenski, 2008).
10. Tax expenses of companies:

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The tax expenses of CBA and Westpac has been studied under the head to identify that
how many expenses have been paid by the business to the government, the tax expenses of
the company are as follows:
Effective tax rate
Commonwealth
bank of Australia
Westpac
Bank
AUD in million 2017 2017
Income tax
expenses 3146 2620
(Annual report, 2017)
It explains that CBA has paid more tax amount to the Australian government against
the operations and the turnover of the business.
11. Effective tax rate:
Effective tax rate represent the tax which has been paid by the company from the
available earnings before tax (Bradley, 2017). The effective tax rate calculations explain that
the effective tax rate of CBA is higher as CBA has paid 25.95% amount of EBT as tax to the
Australian government.
Effective tax rate
Commonwealth
bank of Australia
Westpac
Bank
AUD in million 2017 2017
Income tax
expenses 3146 2620
EBT 12125 10463
Effective tax rate 25.95% 25.04%
(Annual report, 2017)
12. Deferred tax assets or liabilities:
The deferred tax assets and liabilities are shown in the annual report of the business to
depict the different of the taxation amount paid and the actual amount which has been
occurred (Gorry, Hassett, Hubbard and Mathur, 2017). The DTA and DTL of CBA and
Westpac are as follows:
Deferred tax assets and liabilities

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Commonwealth
bank of Australia
Westpac
Bank
AUD in million 2017 2017
Deferred tax assets 1380 1053
(Annual report, 2017)
It explains that the CBA has paid extra amount to the government which will be
compensate in the next year of the business as well as the Westpac has paid extra amount to
the government.
13. Changes in the figures of Deferred tax assets or liabilities:
The changes into both the banks have been identified against the last year in order to
identify that whether the extra amount is paid by the business. Still few amount if held by the
business for the future operations of the business. the below table describes that the deferred
tax assets of CBA has been improved by 74.02% while the DTA of Westpac bank has been
reduced because of the fact that the amount has been compensated by the business in current
payment.
Changes in Deferred tax assets and liabilities
Commonwealth bank of
Australia Westpac Bank
AUD in million 2017 2016 Change 2017 2016 Change
Deferred tax assets 1380 793 74.02% 1053 1399 -24.73%
(Annual report, 2016)
14. Cash tax amount:
The cash tax amount is the value which is calculated through measuring the DTA, DTL
and the book tax rate of the business. The cash tax amount is adjusted through adding the
DTA amount in book tax rate and deducts the DTL amount from the same (Lord, 2007). The
cash tax amount of both the companies have been evaluated and presented in the below table:
Cash tax amount
Commonwealth bank
of Australia
Westpac
Bank
AUD in million 2017 2017
Book Income tax expenses 3146 2620

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ADD: Increment in the deferred
tax assets 587 -346
unleveraged cash taxes 3733 2274
On the basis of the above table, it has been found that the cash tax paid by the CBA is
higher and due to which the deferred assets of the company has also been higher.
15. Cash tax rate:
Further, the cash tax rate of the business has been evaluated on the basis of the above
calculated cash tax amount of the company and it has been found that the cash tax rate of
CBA is higher in the industry.
Cash tax rate
Commonwealth
bank of Australia
Westpac
Bank
AUD in million 2017 2017
Book Income tax expenses 3146 2620
ADD: Increment in the
deferred tax assets 587 -346
unleveraged cash taxes 3733 2274
EBT 12125 10463
Cash tax arte 30.79% 21.73%
16. Book and cash tax rate:
Lastly, the book rate has been compared with the cash tax rate of the business to
identify the differences.
Tax rate changes
Commonwealth
bank of Australia
Westpac
Bank
AUD in
million 2017 2017
Book tax rate 30% 30%
Cash tax rate 30.79% 21.73%

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It explains that the CBA has paid even more than the book tax rate to the bank. It
expresses that the credibility of CBA is better.
Conclusion:
To conclude, it has been found that the corporate accounting offers a great purpose to
the business and the stakeholders of the business. The study has been performed on
Commonwealth bank of Australia and Westpac bank and it has been identified that the
overall position of the business in an organization in order to present, record and evaluate the
final financial statement items and figures of the business. On the basis of the report, it has
been concluded that the annual report of an organization must be transparent enough for the
shareholders to make better decisions.

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References:
Annual report. 2016. Commonwealth bank of Australia. [online]. Available at:
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-
reports/2016_Annual_Report_to_Shareholders_15_August_2016.pdf (accessed 20/9/18).
Annual report. 2016. Westpac Bank. [online]. Available at:
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2016_Westpac_Annual_Report (accessed 20/9/18).
Annual report. 2017. Commonwealth bank of Australia. [online]. Available at:
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-
reports/annual_report_2017_14_aug_2017.pdf (accessed 20/9/18).
Annual report. 2017. Westpac Bank. [online]. Available at:
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2017_Westpac_Annual_Report_Web_ready_&_Bookmarked.pdf (accessed 20/9/18).
Bradley, S., 2017. Inattention to Deferred Increases in Tax Bases: How Michigan Home
Buyers Are Paying for Assessment Limits. Review of Economics and Statistics, 99(1), pp.53-
66.
Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial
management. Health Administration Press.
Gorry, A., Hassett, K.A., Hubbard, R.G. and Mathur, A., 2017. The response of deferred
executive compensation to changes in tax rates. Journal of Public Economics, 151 (2), pp.28-
40.
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Hillier, D., Grinblatt, M. and Titman, S., 2011. Financial markets and corporate strategy.
McGraw Hill.
Home. 2018. Commonwealth bank of Australia. [online]. Available at:
https://www.commbank.com.au/ (accessed 20/9/18).
Home. 2018. Westpac Bank. [online]. Available at: https://www.westpac.com.au/ (accessed
20/9/18).

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Jiashu, G., 2009. Study on Fair Value Accounting——on the essential characteristics of
financial accounting [J]. Accounting Research, 5, p.003.
Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3
(2). P. 17.
Lumby,S and Jones,C,.2007. Corporate finance theory & practice, 7th edition, Thomson,
London.