Importance of Corporate Regulations and Accounting Standards in Financial Reporting

This document discusses the relevance of corporate regulations to financial reporting process of entities operating in Australia. It also includes a brief discussion on owners’ equity and various elements of it. The document further explains the role of Australian Accounting Standards Board in setting International accounting standards. The changes in owners’ equity over the last four years of four companies listed in the Australian Securities Exchange (ASX) are also analyzed. Finally, a comparative analysis of debt and equity position of these companies is presented.

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

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CORPORATE ACCOUNTING
Executive summary:
The auspicious objectives of corporate regulations include regulation of the disclosure
requirements in financial statements of corporates as well as to regulate the financial reporting
framework of corporates operating in a country. The purpose of this document is to understand
the importance of corporate regulations and accounting standards in improving the disclosures
made in financial reports of organizations. Apart from that a brief discussion shall also be made
on owners’ equity and various elements of it.

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Contents
Executive summary:........................................................................................................................1
Introduction:....................................................................................................................................3
Corporate regulations:.....................................................................................................................3
Australian Accounting Standards Board’s role in setting International accounting standards:......5
Owners’ Equity:...............................................................................................................................6
Conclusion:....................................................................................................................................13
References:....................................................................................................................................14

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Introduction:
Corporate regulations have been made and issued to ensure there is proper regulation in
operations of corporations in the country. In Australia, the corporates are governed in accordance
with the provisions of Corporations Act, 2001. The corporate regulations are also enumerated in
the act. Apart from that the entities are also bound by the regulations of Australian Securities and
Investments Commission (ASIC) for certain matters. A detailed discussion on the relevance of
the corporate regulations to financial reporting process of entities operating in the country shall
be made in the document. In addition four companies listed in the Australian Securities
Exchange (ASX) shall be selected to discuss various elements of equity in these entities.
Corporate regulations:
Financial accounting and reporting is the process of maintaining proper books of
accounts of an organization & preparation and presentation of financial statements to disclose
true and fair picture of the organization. Corporations Act, 2001 provides requirements in
relation to the financial reporting and audit of such reports for entities operating in the country.
ASIC is the corporate regulatory body governing the compliance requirements for corporates
while reporting their financial information (Ioannou & Serafeim, 2017). Importance of corporate
regulations in financial reporting is immensely important. The inherent limitations of accounting
and financial reporting makes it compulsory to have mandatory corporate regulations for entities
to comply while preparing and presenting the financial statements. Brief discussion about the
importance of corporate regulations and their benefits on financial reporting would be essential
to determine the necessity of having such corporate regulations (Armstrong, Guay, Mehran &
Weber, 2015).

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Number of areas where accounting provides alternative accounting principles and policies:
Due to the inherent limitations of accounting there are number of areas such as accounting for
inventory, depreciation, calculation of cost of goods sold, valuation of intangible assets,
measurement of assets, etc. where accounting provides more than one alternative to the
management and accountants. Corporate regulations help in reducing the number of alternatives
to minimum to ensure that the financial statements are prepared in accordance with appropriate
accounting principles and policies (Eccles & Serafeim, 2015).
Reducing the scope manipulation by the accountants and management:
Corporate regulations restrict the scope of manipulation in the financial reporting and accounting
by the management and accountants as they have to abide by the corporate regulations in
preparing and presenting the financial statements (Bhasin, 2015).
Comparability:
Due to reduction in number of alternatives for financial reporting the financial accounting and
reporting must be in accordance with the corporate regulations. This increase the comparability
of financial information.
Disclosure of true and fair picture:
Compulsory compliance requirements with corporate regulations improves financial accounting
and reporting to disclose true and fair picture of corporates.
If the disclosure requirements in financial reporting are made voluntary and the managers are
allowed to disclose financial information as per their choice then there would be huge scope of
manipulation in accounting and financial reporting. As a result the financial statements will end

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up becoming a tool in the hands of the management to disclose the desired picture of an
organization as per their preference instead of disclosing true and fair picture of corporates
(Bhasin, 2015). Thus, the corporate regulations must be there to regulate financial accounting
and reporting with a continuous objective to improve financial reporting. Management should
never be allowed to only disclose information voluntarily as per their choice.
Australian Accounting Standards Board’s role in setting International accounting
standards:
Australian Accounting Standards Board (AASB) is one of the members of International
Accounting Standards Board (IASB) and plays an important role in the processing of setting
global accounting standards. At the time of drafting new standards or proposing amendments for
existing standards (IFRSs) the members of IASB including AASB is consulted. The preliminary
drafts of new standards and amendment standards are provided to the members of the Board
including AASB (Crane & Matten, 2016). The comments, suggestions, recommendations of all
the members are invited on the drafts. Based on the comments, suggestions and
recommendations necessary changes are made in the drafts. Once the final draft is ready the
same is formulated as new standard or amended standard as per the standard process of the
IASB.
AASB participates in the global accounting standards setting process by providing its
independent view on different matters while developing a new standard or IASB is in the process
of issuing amendments to the existing standard / standards. AASB is one of the premier members
of IASB and plays a pivotal role in the process of setting global accounting standards (Ntim,
Opong & Danbolt, 2015). AASB participates in all the stages of accounting standards process.
At the time of developing and publishing the discussion paper AASB provides its important

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inputs to improve the paper. At the time of developing and publishing the exposure draft AASB
contributes by giving its valuable suggestions and recommendations to improve the draft and
final standard. IASB follows the following standard setting process at the time of setting new
accounting standards, AASB activity participates throughout the process (Albu, Albu &
Alexander, 2014).
Owners’ Equity:
The four companies that have been selected for this part of the document are Telstra
Corporation, Queste communications Limited, TPG Telecom Limited and Vodafone Australia.
All these companies are listed in ASX. The annual reports of all these companies have more or
less included similar items under owners’ equity thus, before discussing the changes in owners’
equity over the last four years lets provide a brief discussion on the various elements of owners’
equity as reported in the financial statements of these companies (Schaltegger & Burritt, 2017).
Setting the agenda
Planning the project
Developing and publishing the discussion paper
Development and publication of exposure draft
Development and publication of the standard
Steps necessary after the issue of the standard

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Share capital: It is the face value received by these companies from issue of ordinary shares in
the market. The represent the ownership right of the shareholders in an organization.
Called up capital: Called up capital is another metaphor used for share capital.
Additional paid up capital: It is the excess amount over and above the face value of shares issued
by an organization.
Reserves: Reserves are the accumulated amount of funds provided for specific future liabilities.
No amount from such reserves should be used to pay dividend (Morris, 2017).
Accumulated losses: The amount of loss accumulated over the years is termed as accumulated
losses.
Retained earnings: It is the accumulated amount of profit over the years that have remained after
payment of dividend from profits earned by a company.
Changes in owners’ equity:
In order to assess the changes in owners’ equity over the last four years period it is imperative to
have the table showing the balances in owners’ equity and different elements of owners’ equity.
Queste Communications Limited: The following table contains the balances in owners’ equity
account over the last four years:
Queste communications Limited
Amount in $
Year 2017 2016 2015 2014

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Equity:
Issued capital 6,149,888.
00
6,149,888.
00
6,268,445.
00
6,268,445.
00
Reserves 3,182,215.
00
3,270,684.
00
3,200,408.
00
3,106,232.
00
Accumulated loss (6,281,531.0
0)
(4,769,667.0
0)
(4,057,596.0
0)
(3,313,407.0
0)
Non-controlling
interests
2,088,208.
00
3,011,476.
00
3,313,099.
00
3,520,654.
00
Total equity 5,138,780.
00
7,662,381.
00
8,724,356.
00
9,581,924.
00
One of the most important characteristics that can be identified from the above balances in
owners’ equity of the company is that each year the amount of equity has reduced. It almost
seems like a trend for the company (Camfferman & Zeff, 2015). The main reason for such
reduction in owners’ equity of the company is ever increasing accumulating losses of the
company. In 2014 the accumulated losses of the company was $3,520,654. Within a period of
three years the same has increased to $6,281,531.
Vodafone Australia: The following figures contained in the table below represent the amount of
owners’’ equity in last 4 years ended in 2017.

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Vodafone
Amount in ₤' Million
Year 2017 2016 2015 2014
Equity:
Called up share capital 4,796.
00
4,796.
00
5,246.
00
3,792.
00
Additional paid in capital 151,808.
00
151,694.
00
161,801.
00
116,973.
00
Treasury shares (8,610.0
0)
(8,777.0
0)
(9,747.0
0)
(7,187.0
0)
Accumulated losses (105,851.0
0)
(95,683.0
0)
(85,882.0
0)
(51,428.0
0)
Accumulated other comprehensive
income
30,057.
00
31,295.
00
20,092.
00
8,652.
00
Total equity 72,200.
00
83,325.
00
91,510.
00
70,802.
00
The owners’ equity of the company has more or less been stable over the years however, in last
two years the accumulated losses of the company have increased as a result the net owners’

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equity in 2017 is GBP 72,200 million (Martínez‐Ferrero, Garcia‐Sanchez & Cuadrado‐
Ballesteros, 2015).
TPG Telecom Limited:
The table below contains all necessary information about the balance in owners’ equity in last
four years.
TPG Telecom Limited
Amount in $' million
Year 2017 2016 2015 2014
Equity:
Share capital 1,44
9.40
1,05
1.90
51
6.90
51
6.90
Reserves (1
8.10)
4
1.20
7
6.50
4
8.40
Retained earnings 96
3.30
68
1.00
40
9.80
26
7.10
Total equity 2,39
4.60
1,77
4.10
1,00
3.20
83
2.40
The owners’ equity of TPG Telecom has increased each of its last four years. The reason for the
increase in owners’ equity of the company is mainly the issue of shares of the company and it

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ever increasing retained earnings. In 2017 the company has a net owners’ equity of $2,394.6
million compared to $832.40 million in 2014 (Griffin, 2015).
Telstra Corporation: The amount of owners’ equity in the Balance sheet of the company I n last
four years showed the following balances:
Telstra Corporation Limited
Amount in $' million
Year 2017 2016 2015 2014
Equity:
Share capital 4,42
1.00
5,167
.00
5,198
.00
5,719
.00
Reserves (105
.00)
6
2.00
37
2.00
(228
.00)
Retained earnings 10,225
.00
10,642
.00
8,533
.00
8,331
.00
Total equity 14,541
.00
15,871
.00
14,103
.00
13,822
.00
Owners’ equity of Telstra Corporation in 2017 is $14,541 million has decreased from of $15,871
million of 2016 due to the reduction in the amount of retained earnings and negative reserves
balance in 2017 (Ives, 2015).

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Debt and equity position comparative analysis of all four firms:
Debt and equity position of an organization helps in assessing the long term solvency position of
business organizations. Generally debt to equity ratio used to evaluate the long term solvency
position of companies. Here the four firms namely, Queste Corporation Limited, Vodafone
Australia, TPG Telecom Limited and Telstra Corporation Limited are all in the
telecommunication industry in the country. Taking into consideration the long term debt of these
companies and equity balances at the end of reporting period 2017 a preliminary idea can be
derived about the debt to equity position of the company (Žager, Mališ & Sačer, 2017).
Let’s have the table showing the debt to equity position of the company as at the end of reporting
period 2017.
Amounts are in million
Companies Queste Vodafone TPG Telstra
Equity
5.14
72,20
0.00
2,39
4.60
14,54
1.00
Long term borrowings and
debt -
34,52
3.00 -
14,80
8.00
Debt to equity ratio NA
0.48
NA
1.02

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Queste and TPG both are relatively small companies compared to the size of Vodafone Australia
and Telstra Corporation. TPG and Queste both have no long term borrowings thus, capital
employed in both these companies are solely consists of the funds of owners. Thus, calculating
debt to equity ratio for these two companies is not possible. In case of Vodafone Australia and
Telstra, both companies are very huge in their business operations and have used extensive
amount of debt funds as can be seen from the above table (Osadchy, Akhmetshin, Amirova,
Bochkareva, Gazizyanova & Yumashev, 2018). In 2017 the total amount of owners’ equity is
GBP 72,200 million and debt fund is GBP 34,523 million. Thus, the company enjoys quite
strong debt and equity position with a debt to equity ratio of 0.48. Teltstra Corporation on the
other hand has $14,541 millin of equity fund as on June 30, 2017 compared to a debt fund of
$14,808 million on the same date. Hence, the amount of debt fund for the company higher
compared to the amount of equity. The debt to equity ratio of 1.02 for the company is thus, not as
impressive as that of Vodafone.
Conclusion:
An organization is Australia broadly has two long term sources, i.e. External source and internal
source. Debt and borrowings are external sources and equity, retained earnings are the internal
sources of finance. It is important to have a balance between owners’ equity and debt fund to
make optimum use of resources and enjoy the benefits of financial leverage. From the above
document it can be understand that out of the four companies two, Telstra and Vodafone, have
significantly large scale of operations and have used debt and equity funds quite well. The other
two are significantly small companies, TPG and Queste, and yet to make use of debt funds in
business operations.

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