Corporate Accounting and Accounting Standards for Financial Analysis

This study material covers the topics of corporate regulation, accounting standard setting, owners' equity, and debt and equity position of four firms. It discusses the benefits of regulating financial accounting and reporting, the role of the Australian Accounting Standard Board, and the analysis of debt and equity position of National Australia Bank, Common Wealth Bank, Westpac, and Australian and New Zealand Bank.

Corporate Accounting
Accounting Standards
Financial analysis
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Executive summary
There are several factors which might impact the business performance on sustainable
basis such as financial leverage, cost of capital, company’s financial disclosure. The benefit
of regulating the financial accounting and reporting may result in adding value to the
organisation as the organisation shall not fall in general competition of over disclosure.

Table of Contents
Executive summary...............................................................................................................................1
Introduction...........................................................................................................................................3
Answer to question no-1........................................................................................................................3
CORPORATE REGULATION.............................................................................................................3
Answer to question no-2........................................................................................................................4
ACCOUNTING STANDARD SETTING.............................................................................................4
Answer to question no-3........................................................................................................................5
Owners’ Equity......................................................................................................................................5
Ordinary Share capital.......................................................................................................................7
Other Equity Instruments and retained earning..................................................................................7
Reserves............................................................................................................................................7
Retained profits.................................................................................................................................8
Answer to question no-4........................................................................................................................8
Debt and equity position of the four firms that you have selected.......................................................8
Conclusion.........................................................................................................................................9
References...........................................................................................................................................11

Introduction
The modern mind set of the managers nowadays have made them ideally shift to the
concept of transparent financial reporting and accounting. The financial leverage and cost of
capital should be considered by company to sustain the busienss in long run.
Answer to question no-1
CORPORATE REGULATION
The decision of whether the financial task related to accounting and reporting should
be regulated by an organisation or whether the concerned managers should be given the
authority to disclose the financial information on voluntary basis depends on the way in
which the entity performs and visions. The public shall include the competitive firms also and
disclosing the information on a general basis shall create an open environment (Schaltegger,
& Burritt, 2017).
The benefit of regulating the financial accounting and reporting may result in adding
value to the organisation as the organisation shall not fall in general competition of over
disclosure. Keeping the reporting regulated shall help the organisation to perform
strategically and those strategies shall not be known to the competitors of the entity (Ioannou,
& Serafeim, 2017). However, some entities may choose to provide the managers with the
power to make voluntary disclosures. There are certain benefits that are accrued if there is
voluntary disclosure. The markets nowadays want full-fledged knowledge about the
operation of the entities. By providing information about all the aspects, the entity is in a
position to gather more potential investors. The shareholders who have already been the
members of the entity shall also remain attached to the entity, if they shall not be cheated
(Jordan, 2014).
. The public is much satisfied when it is kept informed. The transparency shown by
the organisation helps in making the entity more acceptable. The current market requirement
is that every business must make the operational results available to the public. All the large
businesses in this era believe in preparation of financial reports in a widely acceptable
manner and as per the relevant accounting standards (Bhimani, Silvola, & Sivabalan, 2016).
The preparation and presentation of financial information in an acceptable form leads to the
public disclosure in a manner that is understandable by a layman also.

Answer to question no-2
ACCOUNTING STANDARD SETTING
The Australian Accounting Standard Board (AASB) is an organisation that is
established for setting and monitoring of accounting standards for Australia. In addition to
setting of standards for Australian corporations, the board is also efficient in helping the
International Accounting Standard Board (IASB). The International Accounting Standard
Board is bestowed with the function of developing and approving the International Financial
Reporting Standard (IFRS). It operates and is established as an oversight body that oversees
all the working related to International Financial Reporting Standards.
The IASB in its function of identifying technical issues related to the IFRSs asks for
collaboration and help from different Accounting Standard setting bodies, one major of them
being the Australian Accounting Standard Board. The AASB provides all the input to the
IASB in form of the technical issues that it identifies. After the technical issues are identified,
the IASB needs to make research on the issues. It is practically impossible for IASB to itself
make research on everything. So the AASB helps in making the research. Based on the
research certain consultation documents are prepared. The documents prepared include,
exposure drafts, invitations to comment, draft interpretations, and discussion papers (Morris,
2017).
For preparation of these documents certain communications are also done with the
stakeholders. But using a single method to communicate with the stakeholders is not easy as
well as convenient. To bring better convenience, certain communication tools are formulated
and they involve roundtable discussions, focus groups, project advisory panels, and
interpretation advisory panels. The AASB also receives such documents from the remaining
organisations based in Australia. All the documents are altogether submitted to the
International Accounting Standard Board. When the IASB receives all the documents and
recommendations and suggestions, it finally inculcates the same in formation of the
international standards. After everything is done, the IFRS are issued by the IASB with the
help of AASB. This cycle revolves continuously and the AASB continually works in helping
the IASB (Howieson, 2017).
The IASB constitutes several countries in its formation that represent the members of
this oversight board. The members of the IASB help it in formulating the IFRS as per the

issues they observe in their respective countries. The IFRS are issues with a view that a
harmony can be brought worldwide. However, the IASB does not mandate the application of
the IFRS issued by it to be mandatorily followed by the member countries. The countries are
given an option to bring changes in their already adopted standards to bring convergence and
harmony. Only a few entities in the respective countries that exceed a given threshold are
entitled to compulsorily follow the IFRS. Hence there is no compulsion on the member
countries and their respective entities to adopt them. It’s a personal choice that is provided to
the member countries and the rest of the countries (Baños-Caballero, García-Teruel, and
Martínez-Solano, 2014).Answer to question no-3
Answer to question no-3
Owners’ Equity
Common Wealth bank of Australia
(Amount shown in AUD $ in Million)
2014 2015 2015 2017
Share capital 24591 25742 2687 34971
Reserve 1564 1687 1789 1869
Retained earning 25252 2589 2610 26330
After analysing the owner’s equity of company, it is considered that Common Wealth
bank of Australia has increased its share capital by 22% since last three years. it has increased
its share capital to AUD $ 34971 million in 2017 which is 12% higher as compared to last
four year data (Grant, 2016). The increased share capital will also increase the overall cost of
capital of organization (Common Wealth bank of Australia, 2018).

(NAB) National Australia Bank (Amount
in Million)
2014 2015 2015 2017
Share capital 48415 53096 58120 61288
Reserve 110 145 155 178
Accumulated earning 14255 15255 16454 17252
(Australian and New Zealand Bank, 2018)
In case of National Australian Bank, share capital of company has also increased by
27% since last three years. It has resulted to AUD $ 61288 million share capital which
reflects that company has raised more capital by issue of the shares in market.
(Westpac) (Amount in Million) 2014 2015 2015 2017
Share capital 29251 25254 30252 34627
Reserve 112 168 210 237
Retained earning 15442 15891 16422 16442
In case of Westpac Bank, share capital of company has also increased by 9% since
last three years. However, as compared to other Banks, the increment in the share capital of
company shows the negative indicator for the future growth of the organization (Flannery,
2016).

(Australian and New Zealand Bank)
(Amount in Million)
2014 2015 2015 2017
Share capital 28254 27845 31252 33544
Reserve 114 188 210 225
Retained earning 13442 1441 1551 16642
The owner equity of Australian and New Zealand Bank have increased and have
resulted to AUD $ 33544 million. It is 20% higher as compared to last year data. However,
as compared to other bank, the owner’s equity of Australia and New Zealand Bank is low
(Australian and New Zealand Bank, 2018)
Ordinary Share capital
It is the capital which is provided by the shareholders to company. However, this
capital is accompanied with the retained earnings, reserve, share capital, and accumulated
profit of company. These four listed companies have been assessed and it is analyzed that
National Australian Bank has highest ordinary share capital and kept AUD $61288 million in
2017 and it is also followed by the Common wealth bank of Australia (Ehiedu, 2014).
Other Equity Instruments and retained earning
It is accompanied with the instrument or share capital which is issued as share
certificate, share warrant, and other shareholders. These all four banks have not issued other
equity instruments other than the share capital.
Reserves
It is the profit gathered by company and kept for the particular purpose. The Common
wealth of Australia has kept highest reserve of AUD $1869 which is followed by National
Australian Bank had its reserve of AUD $237. The reserve of the Westpac Bank and
Australian and New Zealand bank is very low (Baños-Caballero, García-Teruel, and
Martínez-Solano, 2014).

Retained profits
The retained earnings is the amount of profit which is prepared by accumulating the
profit year by year. It is kept for particular purpose such as redeeming the debentures and
paying loans. The retained profit of Westpac has been highest and recorded to AUD $ 17442.
Answer to question no-4
Debt and equity position of the four firms that you have selected
The debt and equity play pivotal role in the capital structure of company. All four
companies have been analysed to evaluate the financial structure, leverage and cost of capital
of company (Mwangi, and Murigu, 2015).
NATIONAL AUSTRALIA BANK LTD (NAB) Debt and equity capital
Fiscal year ends in September. AUD in
millions except per share data.
2013
-09
2014
-09
2015
-09
2016
-09
2017
-09
TT
M
Total stockholders' equity 4656
1
4789
1
5549
4
5129
2
5130
6
525
25
Total liabilities 7618
07
8353
93
8995
39
7263
07
7370
08
787
425
The National Australian bank has kept stable financial debt portion in its business.
However, the debt to equity portion of Bank is already very high which reflects 43% debt
portion and 67% equity portion. It will be beneficial for the National Australian bank to lower
down its cost of capital and increase its overall outcomes (Weygandt, Kimmel, and Kieso,
2015).
Common Wealth Bank Debt and equity capital
Fiscal year ends in September. AUD in
millions except per share data.
2013
-09
2014
-09
2015
-09
2016
-09
2017
-09
TT
M
Total stockholders' equity 4252
1
4552
1
4586
1
5252
1
5254
2
535
42
Total liabilities 6212
2
6752
5
6952
1
7012
5
7124
5
784
54
The debt to equity portion of that Common Wealth bank of Australia is already very
high which reflects 47% debt portion and 63% equity portion. The Common Wealth bank of

Australia has kept stable debt to equity ratio over the last three years which may positively
impact the business functions of Organizaiton if it will maintain sustainable profit business.
Westpac Debt and equity capital
Fiscal year ends in September. AUD in
millions except per share data.
2013
-09
2014
-09
2015
-09
2016
-09
2017
-09
TT
M
Total stockholders' equity 3525
1
3845
1
3985
2
3992
5
4252
8
565
65
Total liabilities 5525
1
5684
5
5875
4
6245
7
7024
1
785
24
The Westpac bank has increased its financial debt portion in its business with a view
to reduce its overall cost of capital. However, the debt to equity portion of Bank is already
very high which reflects 48% debt portion and 62% equity portion which might negatively
impact the business if company fails to cover its interest payment out of its available profits
(Westpac Bank, 2018).
Australian and New Zealand Bank Debt and equity capital
Fiscal year ends in September. AUD in
millions except per share data.
2013
-09
2014
-09
2015
-09
2016
-09
2017
-09
TT
M
Total stockholders' equity 5252
1
5654
5
5876
5
6254
5
7254
2
784
54
Total liabilities 6545
4
6645
7
6845
7
7241
4
7525
1
794
58
The Australian and New Zealand Bank has lower down its debt to equity portion as it
has increased its equity potion and as compared to higher than its debt portion increment in
capital structure (White, Sondh, and Fried, 2015).
Conclusion
After analysing these four banks, the main crux of this analysis is that Common
Australian Bank for New Zealand has kept sustainable business practice by setting
equilibrium between its cost of capital and financial leverage as well. On the other hand,
Australian and New Zealand will have lowest cost of capital due to high debt to equity ratio.
It might be good for Australian and New Zealand Bank to keep high debt portion as it has
good amount of profitability in its business.

References
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http://shareholder.anz.com/pages/annual-report-archive., [Accessed on 25th September 2018]
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Commonwealth Bank, (2018) Annual Report [online] Available from
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-
reports/annual_report_2017_14_aug_2017.pdf [Accessed on 25th September 2018]
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Ioannou, I., & Serafeim, G. (2017). The consequences of mandatory corporate sustainability
reporting.
Jordan, B., 2014. Fundamentals of investments. 3rd ed, Australia: McGraw-Hill Higher
Education.

Morris, R. D. (2017). Discussion of: The Phoenix Rises: The Australian Accounting
Standards Board and IFRS Adoption. Journal of International Accounting Research, 16(2),
155-157.
Mwangi, M. and Murigu, J.W., 2015. The determinants of financial performance in general
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annual-reports-and-presentations., [Accessed 25th September, 2018].
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