Corporate Accounting: Financial Reporting Regulation, AASB Participation in Setting Global Standards, and Equity Analysis

This paper discusses whether financial accounting and reporting should be regulated, how AASB participates in setting global standards of accounting, and equity analysis of four public limited companies listed on the Australian Securities Exchange. The four firms have a favorable debt and equity position since they have used more of equity financing in funding most of their business operations. However, they have been making operational losses for the Financial Years 2014 all through 2017, which have consequentially translated into increasingly huge accumulated losses.

Running head: CORPORATE ACCOUNTING 1
Corporate Accounting
Name
Professor
Institution
Date

CORPORATE ACCOUNTING 2
Executive Summary
As per research, it has been found out that financial accounting and reporting should be
regulated. Managers must not be let to disclose financial accounting voluntarily. It has also been
established from research that there are a number of ways in which the Australian Accounting
Standards Board (AASB) participates in setting the global standards of accounting. These have
been discussed in detail in the sections below (Weaver, 2012).
For purposes of this task, four public limited companies which are listed on the
Australian Securities Exchange (ASX) that are in the same industry have been identified and
researched. These companies are Acacia Coal Limited, Aura Energy Limited, Amour Energy
Limited and A-Cap Resources Limited. The research findings indicate that the four firms have a
favorable debt and equity position since they have used more of equity financing in funding most
of their business operations. Furthermore, there are various changes in their items of equity such
as issued/contributed capital, reserves and accumulated losses. However, it has been noted that
for the Financial Years 2014 all through 2017, the four firms have been making operational
losses, which have consequentially translated into increasingly huge accumulated losses. The
analysis has been provided in the various sections below (Weaver, 2012).

CORPORATE ACCOUNTING 3
TABLE OF CONTENTS
CONTENT PAGE
Introduction.................................................................................................................................................4
Corporate governance..................................................................................................................................4
i. Whether Financial Accounting and Reporting Should be Regulated……………………………...4
Setting of accounting standards..............................................................................................................…...6
i. How AASB participates in setting of Global standards of accounting…………………………….6
ii. The reasons why the IFRS Established by IASB Are not mandatory for its member countries......7
Owners’ equity............................................................................................................................................7
i. Items of Equity...............................................................................................................................7
 Issued Capital…....................................…………………………….…………………..8
 Reserves………....................................................……………………………..……….8
 Retained earnings and Accumulated losses…….………..................................………..8
ii. Changes in items of equity and reasons for changes.......……………………………....……….....9
iii. Comparative analysis of the debt and equity position of the four firms……...…………………. .10
Conclusion.................................................................................................................................................13
References.................................................................................................................................................14

CORPORATE ACCOUNTING 4
Introduction
The main purpose of this paper is do carry out a research and discuss if the financial
accounting and reporting should be regulated or a manager should be allowed to disclose
financial accounting information voluntarily (Botzem, 2015). The paper also gives an
explanation on how the Australian Accounting Standards Board (AASB) participates in the
setting process of global accounting standards and why the IFRS set by IASB is not regarded
mandatory for IASB member countries. This paper also chooses four public limited companies
that are listed on the Australian Securities Exchange and discusses their annual financial reports
for the last four years with regard to items of equity as well as debt and equity positions (Berk &
DeMarzo, 2017).
A. Corporate Regulation
i. Whether Financial Accounting and Reporting Should be Regulated
After conducting research, it has been established that financial accounting and reporting
should be regulated. Managers must not be let to disclose financial accounting voluntarily. This
proposition is supported by a number of arguments, as found in the research. In the absence of
financial accounting reporting regulation, optimal levels of disclosure would not be generated in
the financial markets as a result of the interplaying forces (Botzem, 2015). Financial instrument
providers are faced with stiff competition in the capital and financial markets which are mainly
populated by numerous investors with various interests and objectives. Firms whose main
concern is to maximize their shareholder value often establish attractive incentives and consider
it necessary make disclosures of all information which is available to them, for purposes of
obtaining higher prices than those of their competitors (Ferran, Ho, & Oxford University Press,

CORPORATE ACCOUNTING 5
2014). This is done mainly because firms are aware that the investors would think otherwise and
make the worst assumptions regarding the company if the disclosures are not made
(Geddes, 2013). This means that a firm does not disclose its financial information adequately,
then interested and potential investors would end up assuming that there is some bad news or
reports which are being hidden from the public. The share price of the firm would therefore be
bid down and would consequentially lose value in comparison with that of the competing firms.
(Botzem, 2015).
In addition, this proposition is supported by the fact that regulation of disclosure of
financial information yields benefits which are both specific to the firm itself and the financial
market as a whole (Botzem, 2015). It has been found out that most firms may not be willing to
make voluntary disclosures of their financial accounting information since this may be in favor
of their competitive advantage as information which is proprietary might be let known to their
primary competitors (Frino, Chen & Hill, 2013). Such a decision of not making the disclosure
are beneficial to the firm itself but is not good for the public in general since it does not have
benefits which are economy-wide (Ferran, Ho, & Oxford University Press, 2014).
In conclusion, it is agreed that managers of firms must not be allowed to voluntarily
disclose financial information since they may be unwilling to make disclosures regarding some
key aspects which are crucial for decision making by investors and the public at large
(Weaver, 2012). Instead, the disclosure requirement must be highly regulated by the concerned
financial reporting agencies and bodies (Botzem, 2015). This enables capital allocation to the
projects which has the greatest yields, and enhances competition among firms thus promoting
improvements in productivity as well as competition in terms of prices. For instance, making
disclosures may help in revealing significant information regarding other firms within the

CORPORATE ACCOUNTING 6
industry, although the firm making the disclosure may not gain any benefits from the transfer of
information (Brealey, Allen & Myers, 2017). This can lead to under-production of information
by firms. In addition to this, when firms disclose their financial adequately, financial markets or
capital markets do not need to make any efforts in collecting the information since it has been
provided (Berk & DeMarzo, 2017). Therefore, regulation of disclosure would assist in
preventing duplication of efforts to collect the financial information by capital markets for
provision to investors and other key financial decision makers (Botzem, 2015).
ii. Setting of Accounting Standards
i. How AASB Participates in Setting of Global Standards of Accounting
According to research, there are a number of ways in which the Australian Accounting
Standards Board (AASB) participates in setting the global standards of accounting (Brealey,
Allen & Myers, 2017). Since the AASB aims primarily at developing and maintaining financial
reporting standards of high quality for all Australian economy sectors, it works in collaboration
in various ways which enables it to participate in the setting of the IFRS (Ferran, Ho, & Oxford
University Press, 2014). For instance, AASB is engaged in issuance of documents which seek to
incorporate the discussion papers and exposure drafts of IASB with a view to encouraging all
constituents in Australia to take part in the process by providing the board with useful
information which can be recommended to IASB for the purpose of setting IFRS (Rana, 2010).
AASB also participates in setting of IFRS by making sure that the various changes made
to IFRS by IASB are appropriately processed and adequate communication is made to all
constituents in Australia (Berk & DeMarzo, 2017). The board is also engaged in implementation
of the new differential framework of reporting as adopted by the IFRS established by IASB.

CORPORATE ACCOUNTING 7
Furthermore, AASB seeks to make an active participation in the ongoing IASB’s process of
setting global standards of accounting, and making sure that the output of the standards is
promoted and improved appropriately (Botzem, 2015).
ii. The Reasons Why the IFRS Established by IASB are Not Mandatory For Its
Member Countries
There are various reasons why the IFRS established by IASB are not considered
mandatory for its member states or countries. For instance, companies that have foreign
subsidiaries in various countries and locations over the world would find it quite difficult to
adopt the IFRS established by IASB (Anil, Kumar & Mariyappa, 2010). This is because there are
varying accounting standards and regulations that are adopted in various states. Therefore, IASB
does not give a compulsory requirement to its member countries to adopt the IFRS (Gitman &
Hennessey, 2008). In addition to this, different member countries have different regulating
bodies and therefore making a compulsory requirement for IASB member countries to adopt
IFRS may be very detrimental to adoption of the state regulations (Booth, Cleary & Rakita,
2016).
iii. Owner’s Equity
For the purpose of this section, four public limited companies which are listed on the
Australian Securities Exchange (ASX) that are in the same industry have been researched. These
companies are Acacia Coal Limited, Aura Energy Limited, Amour Energy Limited and A-Cap
Resources Limited (Ferran, Ho, & Oxford University Press, 2014). The annual reports of these
companies for the last four years have been analyzed and discussed with regard to items of
equity as well as debt and equity position, in the below sections (Megginson & Smart, 2009).

CORPORATE ACCOUNTING 8
i. Items of Equity
The main items of equity for each of the above mentioned four firms are issued capital,
reserves and retained earnings or accumulated losses. Each of these has been further discussed
below (Brealey, Allen & Myers, 2017).
 Issued Capital
Issued capital is the number of company shares which have been issued to
shareholders of a company (Anil, Kumar & Mariyappa, 2010). They are shares
which have been allotted and are therefore subsequently entitled to shareholders.
Issued capital forms a significant part of a company’s authorized capital (Booth,
Cleary & Rakita, 2016).
 Reserves
These are assets held by a company which are highly liquid or easily convertible
into cash for purposes of meeting future payments of the company and other
emergencies as they come up (Brealey, Allen & Myers, 2017).
 Retained Earnings and Accumulated losses
Retained earnings is the aggregate net income which has been accumulated by a
company from the time it was incepted or established up to the current date of
financial reporting, less any amounts of dividends which have been distributed by
the company over time (Berk & DeMarzo, 2017).
Accumulated losses or deficit, on the other hand, represents retained earnings
which are negative. In other words, they are losses which have been cumulatively
incurred by the company since its inception (Anil, Kumar & Mariyappa, 2010).

CORPORATE ACCOUNTING 9
The following are the main changes that have been observed in each item of equity of the
four companies over the last four years from FY 2014 to FY 2017. These have been summarized
in the table below (Bevis, 2014).
Changes in items of Equity
a. Aura Energy
Limited
Item 2017 2016 2015 2014
Issued Capital
$
39,558,943
$
32,784,203
$
31,311,388
$
27,935,558
Reserves
$
841,671
$
1,029,542
$
901,252
$
1,238,119
Accumulated Losses
$
(23,503,501)
$
(19,973,039)
$
(18,451,415)
$
(16,474,803)
b. Acacia Coal
Limited
Item 2017 2016 2015 2014
Contributed Capital
$
40,412,015
$
38,492,606
$
38,492,606
$
38,492,606
Reserves
$
3,198,599
$
3,059,055
$
2,954,258
$
2,822,378
Accumulated Losses
$
(42,058,420)
$
(39,587,441)
$
(29,610,551)
$
(29,396,989)
c. Armour Coal
Limited
Item 2017 2016 2015 2014
Issued Capital
$
91,301,423
$
87,435,000
$
83,880,979
$
83,709,877

CORPORATE ACCOUNTING 10
Reserves
$
5,188,617
$
(638,474)
$
571,896
$
1,520,269
Accumulated Losses
$
(47,439,025)
$
(35,964,333)
$
(17,090,406)
$
(10,515,331)
d. A-Cap Resources Limited
Item 2017 2016 2015 2014
Contributed Equity $ 71,684,318
$
66,794,927
$
62,818,725
$
60,204,327
Reserves $ 5,596,640
$
6,978,305
$
6,015,075
$
(462,667)
Accumulated Losses $ (22,713,337)
$
(19,950,919)
$
(19,627,250)
$
(18,301,582)
Reasons for Changes in the Items of Equity for the Firms
 Issued Capital
The issued capital of the firms has increased over the financial years from
FY2014 to FY 2017. This could have been led by the issuance of more shares of
common stock by the companies for purposes of raising capital in order to fund
their various business operations (Booth, Cleary & Rakita, 2016).
 Reserves
The reserves for the four companies discussed above have been fluctuating over
the years from FY 2014 to FY 2017. The reason for the increase in the reserves is
that the firms may have set more funds for meeting future uncertainties and
emergencies (Joseph, 2009). However, the reserves might have decreased after

CORPORATE ACCOUNTING 11
being used by the companies in meeting those purposes for which they were set
(Bevis, 2014).
 Accumulated Losses
For the financial years 2014, 2015, 2015 and 2017, the four firms have been
incurring accumulated losses which have been increasing yearly (Anil, Kumar &
Mariyappa, 2010). This is because the companies have been making loses or
negative operational net profits, thus translating into accumulated losses over the
years (Berk & DeMarzo, 2017).
ii. Comparative Analysis of The Debt and Equity Position of the Four Firms
a. Aura Energy
Limited
Particulars 2017 2016 2015 2014
Total Debt (Liabilities)
$
743,356
$
716,095
$
583,024
$
758,184
Total shareholders’
Equity
$
16,897,113
$
13,840,706
$
13,761,825
$
12,698,874
Debt to Equity Ratio
$
0.04
$
0.05
$
0.04
$
0.06
b. Acacia Coal Limited
Particulars 2017 2016 2015 2014
Total Debt (Liabilities)
$
278,424
$
120,335
$
328,246
$
398,835
Total shareholders
‘Equity
$
1,552,194
$
1,964,220
$
11,836,551
$
11,917,995
Debt to Equity Ratio
$
0.18
$
0.06
$
0.03
$
0.03

CORPORATE ACCOUNTING 12
c. Armour Coal
Limited
Particulars 2017 2016 2015 2014
Total Debt (Liabilities)
$
42,683,877
$
26,955,892
$
2,149,934
$
688,069
Total shareholders’
Equity
$
49,051,015
$
50,832,193
$
67,362,469
$
74,714,814
Debt to Equity Ratio
$
0.87
$
0.53
$
0.03
$
0.01
d. A-Cap Resources Limited
Particulars 2017 2016 2015 2014
Total Debt (Liabilities)
$
492,656
$
772,756
$
974,181
$
1,193,038
Total Shareholders'
Equity
$
54,567,321
$
53,822,313
$
49,206,550
$
41,440,078
Debt to Equity Ratio
$
0.01
$
0.01
$
0.02
$
0.03
As per the observation from the above comparative analysis, the equity and debt position
of the four companies is much favorable (Berk & DeMarzo, 2017). This is because the firms
have a debt to equity ratio of more than 1:1, which is an indication that they have used less of
debt financing and more of equity financing in funding their short term as well as long term
business operations (Frino, Chen & Hill, 2013). Therefore, the firms can be concluded to have a
stable leverage, and are not at a risk of insolvency as a result of extremely high finance costs or
borrowing costs (Anil, Kumar & Mariyappa, 2010).

CORPORATE ACCOUNTING 13
Conclusion
As per the above discussion, the main items of equity that are identified from the
statements of financial position of the above firms are issued capital, reserves and accumulated
loses (Verma, 2008). Issued capital refers to the number of company shares which have been
issued to shareholders of a company (Berk & DeMarzo, 2017). Reserves are the assets that are
held by the firm which are highly liquid for purposes of meeting future needs and emergencies
while accumulated losses are the aggregate net losses which have been incurred by a company
from the time it was incepted or established up to the current date of financial reporting (Booth,
Cleary & Rakita, 2016).
From the above discussion, it can be concluded that the four firms have a favorable debt
and equity position since the debt to equity ratio of the companies for the last four years analyzed
does not exceed 1:1. This indicates that the companies have used more of equity financing in
funding most of their business operations (Bevis, 2014). Additionally, with regard to their
changes in equity items, the firms have demonstrated various trends in their issued/contributed
capital, reserves and accumulated losses (Kumar, Kumar & Mariyappa, 2010). For the Financial
Years 2014 all through 2017, the four firms have been making operational losses, which have
consequentially translated into increasingly huge accumulated losses (Anil, Kumar & Mariyappa,
2010). The analysis has been provided above.

CORPORATE ACCOUNTING 14
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