Corporate Accounting: Financial Reporting Regulation, AASB's Participation in Setting Global Standards, and Equity Analysis of ASX-listed Companies

This paper discusses the regulation of financial accounting and reporting, AASB's participation in setting global accounting standards, and equity analysis of four ASX-listed companies. The research findings indicate that financial accounting and reporting should be regulated, and AASB participates in setting global accounting standards. The four companies analyzed have a favorable debt and equity position, with changes in items of equity such as issued/contributed capital, reserves, and accumulated losses. However, they have been making operational losses for the last four years.

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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 (Vernimmen
et al 2014, pp. 25). These have been discussed in detail in the sections below.
For the purpose 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
(Vernimmen et al 2014, pp. 23). The analysis has been provided in the various sections below.

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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.................................................................................................................................................12
References.................................................................................................................................................13

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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 (Vernimmen et al 2014, pp. 22). 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
(Vernimmen et al 2014, pp. 22).
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 (Zeff 2012, pp.
807). 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. 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 (Whittington
2008, pp. 495). 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. This is

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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 (Vernimmen et al
2014, pp. 22). 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 (Zeff 2012,
pp. 807).
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 (Zeff 2012, pp. 808). 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. 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 (Whittington 2008, pp. 495).
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. Instead,
the disclosure requirement must be highly regulated by the concerned financial reporting
agencies and bodies (Zeff 2012, pp. 809). 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 industry, although the firm

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making the disclosure may not gain any benefits from the transfer of information. This can lead
to under-production of information by firms (Whittington 2008, pp. 496). 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. 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
(Georgiou 2010, pp. 101).
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. 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 (Whittington 2008, pp. 495). 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 (Georgiou 2010, pp. 103).
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. The board is also engaged in implementation of the new differential
framework of reporting as adopted by the IFRS established by IASB (Georgiou 2010, pp. 102).

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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 (Ghosh 2011, pp. 109).
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 (Morais and Curto 2008, pp. 103). 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. 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 (Georgiou 2010, pp. 102).
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. 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 (Whittington 2008, pp. 499).
i. Items of Equity

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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 (Tirole 2010, pp. 31).
 Issued Capital
According to Tirole (2010), issued capital is the number of company shares which
have been issued to shareholders of a company. 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 (Schroeder, Clark and
Cathey 2009, pp. 78).
 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 (Maynard 2017, pp. 13).
 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 (Lee 2009, pp. 140).
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 (Deegan 2013, pp. 114).

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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 (Tirole 2010, pp. 32).
I. 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

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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 (Baker, Singleton and Veit 2011, pp. 16). 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
(Brealey, Myers and Marcus 2012, pp. 48).
 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 (Baker, Singleton and Veit 2011, pp. 15). However, the reserves

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might have decreased after being used by the companies in meeting those
purposes for which they were set (Brealey, Myers & Allen 2011, pp. 447).
 Accumulated Losses
For the financial years 2014, 2015, 2015 and 2017, the four firms have been
incurring accumulated losses which have been increasing yearly. This is because
the companies have been making loses or negative operational net profits, thus
translating into accumulated losses over the years (Baker, Singleton and Veit
2011, pp. 12).
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

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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. 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. 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 (Brown, Beekes and Verhoeven 2011,
pp. 105).

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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. Issued capital refers to the number of company shares which have been issued to
shareholders of a company. 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. 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
(Brown, Beekes and Verhoeven 2011, pp. 105). Additionally, with regard to their changes in
equity items, the firms have demonstrated various trends in their issued/contributed capital,
reserves and accumulated losses. 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 (Hillier, Grinblatt and Titman 2011, pp. 21). The analysis has been
provided in the above sections.

CORPORATE ACCOUNTING 14
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CORPORATE ACCOUNTING 15
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