Corporate Accounting: Standards, Regulations, and Equity Analysis

This article discusses the importance of financial accounting standards and regulations, the relationship between AASB and IFRS, and equity analysis of companies listed on ASX. It covers the equity and debt analysis of Eclipse Metals Limited, Manhattan Corporation Limited, Marmota Energy Limited, and Metgasco Limited. The article emphasizes the need for standardized financial reporting and the risks associated with voluntary preparation of financial statements. It also explains why some member countries of IASB do not follow IFRS. The article is relevant for students pursuing courses in accounting, finance, and business management.

Corporate Accounting
CORPORATE ACCOUNTING
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Corporate Accounting
EXECUTIVE SUMMARY:
Financial accounting is the important task for every organization but it become critical when
it is used for the purpose of preparation of the financial statements because these are used by
the users and stakeholders of the company. These are used by then for the purpose of various
decision makings, investment plans by comparing them with others. As such, these financial
recording and reporting should be standardized rather than preparing it on the basis of
standards or policies developed in-house.
IFRS are the standards which are accepted by all the organizations worldwide. AASB is the
body, which develop the standards of accounting for the Australian organizations. These
standards are identical to the IFRS. Further, member countries if IASB not adopting the IFRS
as they reckon that it would be very typical or meaningless to adopt the IFRS.
In the equity analysis, reasons for the variation are considered i.e. there are many components
which affect the equity of the company.
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Contents
EXECUTIVE SUMMARY:..........................................................................................................................2
BRIEF:....................................................................................................................................................4
CORPORATE REGULATION:....................................................................................................................5
ACCOUNTING STANDARDS SETTINGS:...................................................................................................6
OWNER’S EQUITY:.................................................................................................................................7
CONCLUSION:......................................................................................................................................10
REFERENCE:.........................................................................................................................................11
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Corporate Accounting
BRIEF:
As we all know that financial accounting and reporting are the important task for the
organization. But, in the globalization environment financial statements of all the
organization should be at such platform so that, it can be easy to understand the financial
position of all the enterprises. It is necessary to avoid the geographical limitation in the
preparation of financial statements. We will discuss that whether preparation and reporting of
the financial transactions should be regulated by standards or guidelines or it should be kept
free on the part of the management.
Further, we will also be discussing the AASB and its relationship with the IFRS. In addition
to that we will also discuss the causes as to why member countries of the IASB do not adopt
the IFRS.
We will be discussing the equity and dept analysis of four companies listed on ASX.
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Corporate Accounting
CORPORATE REGULATION:
Every organization deals with the financial transactions. Recording of these financial
transactions is called as financial accounting. To know the financial position of an enterprise,
financial accounting plays a critical role. Financial accounting is the first step of the financial
statement of an enterprise (AICPA, no date). Purpose of preparation of the financial
statements is to make them available to the users. Users may use these statements for the
purpose of taking decisions, investment plans etc.
As we know that there are some financial reporting standards, which are surrounding us.
These standards need to be followed by us in the financial accounting and reporting of the
financial transactions (Edupristine, 2017). Financial reporting on the basis of these standards
or guidelines provides the useful, relevant and reliable information to the stakeholders of the
company. But, here we are eager to know the fact of introduction of these standards or
guidelines in the recording and reporting of the financial transactions (AUASB, 2009).
There may be situation where every company prepares its own financial statements or record
the transaction according to their will and wish. In other words, it can be said that companies
have developed their own rules and procedures to record the transactions for the reporting
purposes (Burggraf, 2016). In the global market, entire world is considered as single market.
Stakeholders of every company is looking for secure their investments. But, all these things
can only be possible from the financial statement of the organizations (Lexicon, no date).
The biggest risk in the voluntary preparation of financial statement is that the comparison of
the financial statements of these companies may not be possible. The reason thereof is that
the every organization will report its performance in its own manner i.e. each one would try
to show better in its manner. Apart from that there may be some risk or issues that may arise
in such practice (Camfferman, 2017). These are as follows:
a) Users may not get clear understanding of these statements, which would restrict them
to take correct decisions.
b) It would lead to misstatements in the financial statements.
c) It would not show the affect thereof to the country’s economy correctly.
As such, there was number of problems in the voluntary preparation of financial records and
their presentation. It would totally useless to the organization and users as well.
To resolve these problems, some standards or financial reporting frameworks have been
developed for the better presentation of the financial information to the stakeholders of the
organizations. Thus, the accounting and reporting of financial transaction should be prepared
on the basis of regulated frameworks rather than following voluntary procedure as per own
wish.
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Corporate Accounting
ACCOUNTING STANDARDS SETTINGS:
In the recent years, number of the organizations has started their working in the other
countries. In this situation, every organization needs to prepare and present the financial data
of the unit operating in other countries as well as in the home country by way of
consolidation of figures and data (PWC, no date). In such scenario, there should be common
accounting and reporting standards so that it can easily be understood and easily be compiled.
As such, International Accounting Standard Board (IASB) has issued the International
Financial Reporting Standards (IFRS). IFRS refers to the standards which are common for all
the organizations in each country (Stevenson, 2012). These standards need to be followed by
every organization from different countries so that, uses can get the understanding of the
financial statements without geographical constraints (Gallaway, no date).
But, it have been noticed that number of countries could not adopt the IFRS completely as it
really was. They have adopted these IFRS subject to some conditions and some modifications
so that, it can easily be adopted by the organizations of these countries (Pawsey, no date).
Australian Accounting Standards Board (AASB) is the Australia based standards governing
body. This body has been entrusted to design and develop the accounting standards for the
organizations of Australian country. It is also entrusted to the regular monitoring of the
standards and does amendment according to the need (Turki, 2016).
In the instant case, AASB is responsible for the preparation and monitoring of the standards.
But, in this process, all the standards developed by the AASB are in consonance with the
IFRS. As such, IFRS is directly or indirectly is applicable to Australian companies. If there is
any modification in the IFRS, AASB need to do the amendment accordingly (Wikipedia, no
date).
Why the member countries of IASB not follow the IFRS?
International Accounting Standard Board (IASB) is the body, which is responsible to the
development and release of the global standards such as IFRS, GAAP etc. In the present
scenario, some countries follow the IFRS and some other follow the GAAP (Deloitte, no
date). When the IFRS was released it was assumed that it would be adopted by all the
countries of the world. But, there are some countries, which had not adopted the IFRS
because they were already adopting the GAAP. They had given the statement that it would
not be easy to them to adopt the IFRS because it could not show the better results than GAAP
(ReadyRatio, 2013). In addition to that, it would be very expensive to them in migration to
IFRS from GAAP. As such, they did not follow the IFRS.
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Corporate Accounting
OWNER’S EQUITY:
In this portion, we will be discussing about the equity analysis of the companies listed on
ASX. We have taken the following companies from energy industry for the purpose of
analysis:
a) Eclipse Metals Limited
b) Manhattan Corporation Limited
c) Marmota Energy Limited
d) Metgasco Limited
Detailed discussion:
a) Eclipse Metals Limited: The Company is engaged in the business of exploration of
minerals. In the minerals it explores the gold, iron, uranium etc. The equity analysis of
the company is as under:
Particular 2017 ($) 2016 ($) 2015 ($) 2014 ($)
Equity 3,113,494 2,642,920 2,283,071 4,021,790
Debt 3,92,929 257,041 514,430 498,088
Year 2014:
The equity of the company is affected by the various factors like issues of new shares,
conversion of debt into equity etc. In this year, the company has converted the
creditors into equity by way of issue of shares of $ 19,070. In addition to that,
company has issued the shares of $ 143,750 and expenses on issue of shares of $
21,874 have been debited to the equity of the company.
Year 2015:
In this also, the company has raised the fund of $ 345,000 by way of issue of shares
and expenses on such of $ 1,925 has been debited to the equity account. It means
equity of the company has been raised by that amount but equity of the company has
been reduced by the expenditure o issue. Reserves have been remains constant which
did not affected the equity of the company.
Year 2016:
In the year 2016, the company has issued the shares of $ 570,742 to raise the fund.
The expenses of $ 4,510 have been incurred on such issue which has been debited in
the equity. The equity of the company has been increased due to issue of shares.
Year 2017:
In this year, the company has issued the shares and raised the fund of $ 1,215,750 and
expense on such issue was $ 12,621. In this year, the company has issued the shares in
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various forms such has it has issued the shares in consideration of consultancy fees, in
consideration of brokerage fees etc.
b) Manhattan Corporation Limited: The Company is engaged in the business of
exploration of uranium. The company is entrusted to development of resources in
Australia. The equity and debt analysis of the company is as under:
Particular 2017 ($) 2016 ($) 2015 ($) 2014 ($)
Equity 3,121,266 5,780,917 5,592,655 5,975,275
Debt 77,107 34,338 47,000 22,574
Year 2014:
The equity of the company has been affected by the issue of shares. In this year, the
company has issued the shares and raised the fund of $ 550,000 that means equity of
the company has been increased by $ 550,000. In the total equity, accumulated losses
have also been considered i.e. during the year company reported the loss due to which
total equity of the company has been reduced by such loss amount (Zacks, no date).
Year 2015:
In this year the company has not issued the further shares to raise the funds. But, the
reserves of the company have been increased because the company has issued the
shares of $ 202,635 under share based payment and fair value of these shares has been
transferred to share based payment reserves.
Year 2016:
In the year 2016, the company has issued the shares under placement of shares of $
172,500 and also issued the shares of $ 441,500 under shares purchase plan. The
expenses of $ 18,192 have also been incurred in such issues. As such, the equity of
the company has been raised by the amount $ 614,000 but reduced by the amount $
18,192.
Year 2017:
The shares issued during the year affected the equity of the company. In this year the
company has issued the shares of $ 10,000 under share placement option and issued
the shares of $ 130,000 under share purchase plan. The loss occurred during the year
also considered in the total equity of the company. As such, total equity of the
company has been increased by the shares issued and decreased by the amount of loss
considered in total equity (Helstrom, no date).
c) Marmota Energy Limited: The Company is engaged in the business of exploration of
various minerals like Gold, Uranium and Copper. The equity and debt analysis of the
company is as under:
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Particular 2017 ($) 2016 ($) 2015 ($) 2014 ($)
Equity 5,795,459 4,321,702 3,237,562 3,970,384
Debt 206,167 117,125 197,132 345,450
Year 2014:
In this year, the equity of the company has slightly changed in comparison to the
previous year because there was no more activity in this year like issue of shares, buy-
back of shares etc. There was a movement in the reserves because of revaluation of
assets available for sales. Reserves have been reduced by $ 2,000 which has also
affected the equity adversely.
Year 2015:
The company has raised the funds from the right issue of $ 210,674. In addition to
that it has also issued the shares under share placement option and raised the fund of $
200,000. Transaction cost incurred on such issues has been debited to equity by $
82,248. In the reserves portion the company has booked the fair value of shares issued
under share option plan by $ 10,160.
Year 2016:
In this year, the company has raised the huge amount of $ 1,463,916. It has raised the
fund by way of various options like issue of shares under placement option, shares
issued in consideration of director’s fees, right shares issued, shares issued under
share option exercised etc. Equity of the company has been reduced by the transaction
cost of $ 18,037.
Year 2017:
In the year 2017, the company has issued shares in consideration of consultant fees of
$ 15,056 and also issued the shares of $ 1,300,000 under placement options. The
transaction cost of $ 56,278 has reduced the equity of the company.
d) Metgasco Limited: The Company is engaged in the business of exploration of natural
gas and oil in Australia. The equity and debt analysis of the company is as under:
Particular 2017 ($) 2016 ($) 2015 ($) 2014 ($)
Equity 17,722,917 28,739,385 8,222,745 12,050,583
Debt 176,768 267,172 696,659 1,111,324
Year 2014:
In this year the company has not issued the fresh shares. Apart from that, share based
payment reserve increased by the fair value ($ 474,740) of the shares issued under the
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share option plan. Loss of the current year also reduced the equity portion of the
company.
Year 2015:
In the year 2015, the basic equity of the company is same as in the previous year.
During the year number of options could not be exercised or forfeited, due to which
share based payment reserved reduced and it ultimately reduced the total equity of the
company.
Year 2016:
In this year, the company has bought back its shares from the open market. It has
bought back the share of $ 2,466,615. The transaction cost of $ 12,218 has also been
booked in the equity. Due to these reasons the total equity of the company has been
reduced.
Year 2017:
In the year 2017, the equity of the company also reduced because of cancellation of
shares by the company. In this year, the company has cancelled the shares and returns
the capital of $ 9,961,649. Opening balance of share based payment reserves of $
8,652 has been transferred to accumulated loss.
CONCLUSION:
From the above discussion, it can be concluded that there are some financial reporting
standards and these standards should be followed in the accounting or reporting of the
financial information so that, these financial statement may be useful to the user and
stakeholders of the company. It should not be prepared by the companies according to its own
policies and procedures.
AASB is the Australian convergence of IFRS. We conclude that, Australian companies are
following the IFRS. On the other side, some countries are not adopting the IFRS. They are
adopting the GAAP. In our view, these countries should also follow the IFRS.
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REFERENCE:
AICPA (no date), IFRS FAQs [Online] Available from: https://www.ifrs.com/ifrs_faqs.html
[Assessed 14 September 2018]
AUASB (2009), Applicable Financial Reporting Framework [Online] Available from:
https://definedterm.com/applicable_financial_reporting_framework [Assessed 14 September
2018]
Burggraf, H. (2016), Global adoption of IFRS accounting standards nears finish line
[Online] Available from: http://www.internationalinvestment.net/products/global-adoption-
ifrs-accounting-standards-nears-finish-line/ [Assessed 14 September 2018]
Camfferman, K. (2017), The Challenge of Setting Standards for a Worldwide Constituency,
[Online] Available from:
https://www.tandfonline.com/doi/full/10.1080/09638180.2017.1296780 [Assessed 14
September 2018]
Deloitte (no date), Conceptual Framework for Financial Reporting 2018 [Online] Available
from: https://www.iasplus.com/en/standards/other/framework [Assessed 14 September 2018]
Deloitte (no date), Adoption of IFRS by country [Online] Available from:
https://www.iasplus.com/en/resources/ifrs-topics/adoption-of-ifrs [Assessed 14 September
2018]
Edupristine (2017), Financial Reporting [Online] Available from:
https://www.edupristine.com/blog/financial-reporting [Assessed 14 September 2018]
Gallaway, J. (no date), The journey to international accounting standards [Online] Available
from: https://www.intheblack.com/articles/2018/02/01/journey-international-accounting-
standards [Assessed 14 September 2018]
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Helstrom, K. (no date), Types of Transactions That Affect the Equity of the Company [Online]
Available from: https://yourbusiness.azcentral.com/types-transactions-affect-equity-
company-11158.html [Assessed 14 September 2018]
Lexicon (no date), Definition of International Financial Reporting Standards [Online]
Available from: http://lexicon.ft.com/Term?term=International-Financial-Reporting-
Standards--IFRS [Assessed 14 September 2018]
Pawsey, N. (no date), The impact of IFRS adoption in Australia [Online] Available from:
https://researchoutput.csu.edu.au/en/publications/aasb-research-report-no-3-the-impact-of-
ifrs-adoption-in-australi [Assessed 14 September 2018]
PWC (no date), Financial Reporting Framework [Online] Available from:
https://www.pwc.com/zm/en/publications/financial-reporting-framework.html [Assessed 14
September 2018]
ReadyRatio (2013), Difference between IFRS & US GAAP [Online] Available from:
https://www.readyratios.com/articles/acca/differences-between-ifrs-us-gaap.html [Assessed
14 September 2018]
Stevenson, K. (2012), The changing IASB and AASB relationship [Online] Available from:
https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1835-2561.2012.00182.x [Assessed 14
September 2018]
Turki, H. (2016), The effect of IFRS mandatory adoption on the information asymmetry
[Online] Available from:
https://www.tandfonline.com/doi/full/10.1080/23311975.2016.1209100 [Assessed 14
September 2018]
Zacks (no date), What Items Impact Stockholders Equity? [Online] Available from:
https://finance.zacks.com/items-impact-stockholders-equity-3448.html [Assessed 14
September 2018]
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