Corporate and Financial Accounting: Accounting Standard Setting, Business Combination Analysis

Verified

Added on  2023/01/06

|12
|3723
|61
AI Summary
This study explores accounting standard setting, regulation, and disclosure in corporate and financial accounting. It also analyzes business combinations and acquisitions in the context of two ASX listed companies. Learn about fair value consideration paid, components of acquisition costs, and recognized value of assets and liabilities.

Contribute Materials

Your contribution can guide someone’s learning journey. Share your documents today.
Document Page
Corporate and Financial
Accounting

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Part A: Accounting Standard Setting, Regulation and Disclosure.........................................3
Accounting Standard Setting:.................................................................................................3
Reporting Entity:....................................................................................................................5
Part B: Business Combination / Acquisition analysis:...........................................................6
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
Document Page
INTRODUCTION
Financial Accounting is accounting system that interacts with preparation of the financial
statements by combining the financial statements and transactions that have occurred. The main
purpose of financial accounting process is to maintain accurate records of fiscal details and
discover potential ways of seeking profitable finance means. Corporate accounting is accounting
framework used by the corporation to control the sales and spending of the company. Corporate
accounting often tends to monitor and forecast company activities on the basis of financial
position of the corporation. Financial accounting involves competent auditing in order to
determine the reports. Conversely, corporate accounting doesn't require auditing or reporting for
internal usage. Financial accounting practices are important for all organisations, but, corporate
accounting completely voluntary and is solely based on estimating or projecting the financial
performance of the organisation (Kabir and Rahman, 2016).
The study discusses multiple aspects of financial and corporate accounting. The first part
of study discusses about accounting standards settings and types of reporting entities in Australia
as well as other related topics. While second part of study focuses on thorough analysis of
business combination in context of two ASX listed corporations named : PPK Group and
AuMake International to explore various significant facts about business combination like
purchase consideration paid, disclosure of business combination etc.
MAIN BODY
Part A: Accounting Standard Setting, Regulation and Disclosure
Accounting Standard Setting:
According to studies, Australian Accounting Standards Board or AASB) contributes in
determining international accounting standards in variety of ways. Because AASB principally
aims to establish and sustain higher-quality financial-reporting standards over all industries of
Australian economy, this operates collaboratively in numerous ways that allow this to contribute
in setting of IFRSs. For illustration, AASB is involved in issuing documents that aim to integrate
IASB 's discussion articles and exposure draughts with view to encouraging stakeholders in
the Australia to partake in the procedure by supplying the panel with valuable information that
could be suggested to the IASB for establishing IFRS (Sivathaasan, 2016). The AASB
is Australian government agency, regulated by Australian Security and Investment Commission
Document Page
Act 2001. The key goal of AASB is to add to performance of stakeholder in order to improve the
trust that can supplement the Australian economic system in respect of the financial markets
and foreign monitoring process. The method is to identify the topic of interest and to enforce
Australian accounting including foreign company reporting practises in order to provide
guidelines that will satisfy consumer expectations and requirements (Garg, Peach and Simnett,
2020).
AASB further assists in establishing IFRS by ensuring that the multiple amendments
introduced to IFRS through IASB are properly evaluated and whether all stakeholders in
the Australia are sufficiently communicated to this. The panel is also interested in
introducing new reporting system as implemented by IFRS produced by IASB. In addition,
AASB aims to engage actively in ongoing IASB procedure of establishing global accounting
standards, and to ensure that the performance of standards is properly supported and
strengthened.
There are numerous reasons as to why IFRS set up by the IASB is not regarded
as mandatory for all of its members states or nations. For example, companies that have
international branches in different nations and places around the world will find implementing
the IFRS developed by IASB really quite complicated. That's because different accounting
principles and legislation differ and are implemented in different jurisdictions. Consequently,
IASB doesn't give its member nations a mandatory mandate to follow IFRSs. Besides that,
various Member states have separate regulatory authorities and thus rendering a mandatory
obligation for IASB members nations to implement IFRS could be quite disruptive to
introduction of state legislation. IFRS is developed by International Accounting Standards Board
to evaluate the implementation of business standards. For all nations, the required judicial
accounting processes are same (Garg, Peach and Simnett, 2020). However, each nation has its
own collection of rules to manage accounting practises, such as auditing, reviewing financial
reporting and improving the expertise of accounting learning. Reason that the modification of the
IFRS mechanism is not enforced by authority because the procedure is not a straightforward
conditional judgement. Jurisdictions in the accounting principles are different in various
jurisdictions, so to enforce a variety in regulations, to determine the auditing process in order to
conform with national requirements (Potter, Pinnuck Tanewski and Wright, 2019).

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
Reporting Entity:
Australia has differentiated disclosure system in which financial reporting standards are defined
by the form of organisation, mainly based on entity's extent of public interests. One may define
the categories of organizations as:
a. Disclosing entities (primarily listed companies and licensed controlled investment
schemes/approved interest-undertakings) which have listed stocks or issued equity as
well as other stocks as a consequence of issuance of prospectus (Davern,, Gyles, Hanlon
and Pinnuck, 2018);
b. Unlisted public corporations and large private corporations (i.e. a private corporation
which satisfies at least two of following criteria: first one is $10 million or greater gross
operating profits, five million or greater gross assets or Fifty or greater number
of employees); and
c. Small-proprietary corporations.
Under Corporate laws, all reporting organisations, corporations and regulated controlled
investment-schemes are mandated to keep records that accurately document their fiscal
transactions as well as allow annual reports to be prepared and audited. All corporations with the
exception of small-proprietary companies have to file yearly financial statements.
These statements include balance sheet, statement of profits and losses and statement of cash
flows. The subjects to be reported in financial statements are found in relevant accounting
standards established by Australian Accounting Standards Board and governed by Corporate
Law. The Corporate law also requires for the preparing of the consolidated financial statements
whereby statements are needed by accounting standard (Yang and Simnett, 2019). This typically
happens in cases where one person is manipulating one or even more other corporations. yearly
financial statements must be distributed to company’s shareholders (for review at the reporting
corporation's or corporation 's yearly general meeting) as well as should be filed with Australian
Securities and Investment-Commission.
In conjunction to meetings the requirements of annual accounting, accounting agencies are
expected to file half-yearly financial reports. Usually these are abbreviated version of annual
financial statements. Half-yearly financial statements should be sent to ASIC but should not be
distributed to shareholders.
Both such annual as well as half-yearly financial statements require to be:
Document Page
accompanied by directors report on the company 's activities;
accompanied by statement from the directors about whether accounts conform
with accounting principles provisions and provide an accurate and fair representation
of financial situation of the company and whether organisation is solvent enough;
Audited (in case of semi-annual financial-statements audited/evaluated) by a licenced
auditor who's independent of company (Kabir, Rahman and Su, 2017).
Three key aspects underpin Australia 's structure for financial reporting process:
Accounting standards which all organisations needed to file financial statements should
use;
Auditing criteria to be adopted for auditing annual financial-statements; as well as
Appropriate degree of oversight and compliance to ensuring that companies file their
financial statements in compliance with requirements of Corporate Law and relevant
accounting standards, including that such financial statements are reviewed in
compliance with standards provided by profession.
Part B: Business Combination / Acquisition analysis:
Business combinations did the company report:
Here below are two selected ASX listed companies and their reported business
combinations, as follows:
PPK Group Limited (ASX: PPK): It is a plastics manufacturer, producing and selling acrylic
and thermoplastic-sheeting. The Company also produces handheld devices for underground coal
mining sector, and has a commercial property portfolio. PPK Group has reported that it has
stepped into contractual arrangements to purchase AIC investment corporation Pty Ltd (AICIC)
as well as 50% stake in BNNT Technology. The firm has conducted proper review and
structured paperwork to conclude with acquisition (Annual Report: PPK Group, 2019).
AuMake International: Company has resolved Broadway's acquisition with firm taking full
operating control of company. This purchase is an integral part of AuMake's strategy, which
includes traditional and digital stores as well as a collaborative alliance with JD.com. Broadway
company has over 20 years of presence in Chinese tourism sector, as well as being a dominant
player in the Australia and New Zealand with opportunity to draw Chinese tourists towards its
Document Page
retail outlets from which they can buy brands and goods from ANZ (Annual Report: AuMake
International, 2019).
Fair Value Consideration Paid:
As per to Financial Accounting Standards Board, AS Codification topic 820, term Fair
Value is described as price which would be offered to sale any asset or charged to transfer
any liability in orderly transaction among market participants at measurement date. In mark-to-
market valuation fair value of all assets and debts of a corporation should be recorded in the
accounts. In most situations original cost is considered for valuing assets.
In certain situations, calculating a reasonable value for a commodity can be challenging if there
isn't an active demand for it. This is always a concern whenever accountants conduct a valuation
of the business. The accountant, for instance, could not calculate a reasonable value
for uncommon machine tool (Whittred, 2020). To asses fair value, accountant will
use discounted cash flows produced by assets. In this situation, accountant uses cash outflow to
buy equipment and cash inflows produced through use of equipment throughout its lifespan. In
this context following are the fair-value considerations paid by selected corporations:
PPK Group Limited: PPK Group limited has paid $ 9.041 million to acquire AICIC.
AuMake International: AuMake has paid $14.2 million to acquire Broadway business.
Components of acquisition costs, e.g. cash consideration and noncash consideration:
PPK Group Limited: PPK obtained $3,535 M from professional investors, most of whom
are current shareholders, to finance AICIC acquisition. Company issued $0.35 per-share
on 10.1 million shares Delightfully, PPK's stock price has held in $2 range,
post announcement.
AuMake International: As on 23rd July, 2019, company completed acquisition of
company Broadway. AuMake has issued 17.2 million shares @ 0.151 per share as well as
paid in cash $2.8 million.
Fair value of net identifiable assets acquired:
PPK Group Limited:
Current asset position $ 21.47 million ($11.496 million highly liquid)
Net working capital $ 13.235
AuMake International:

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
Cash $ 17496
Trade Receivables $ 164732
Trade Payables $ (393392)
Related Party Loans $ (183960)
Fair Value of assets $ 395124
Recognised value of each class of assets, liabilities and contingent liabilities:
PPK Group Limited:
Recognised amounts of identifiable assets $000
Cash 17
Other Receivables 9
Investment in a joint venture 19340
Payables 75
Identifiable net assets (deficiency) 19291
AuMake International:
Cash $ 17496
Trade Receivables $ 164732
Trade Payables $ (393392)
Related Party Loans $ (183960)
Fair Value of assets $ 395124
Goodwill or gain on bargain purchase has been recorded including percentage of total
consideration:
PPK Group Limited:
Gain on Bargain Purchase: $19291000 (net identifiable assets) [213%] 9041000
(Consideration) = $ 10250000
AuMake International: $ 300000 (100%)
Comparative Analysis:
PPK Group Limited: PPK Group has gained 100 percent of AIC Investment Corporation
securities (AICIC) during current year-2019. Accounting for such transaction is complicated and
Document Page
involves administrators to exercise discretion in assessing the fair values of purchased assets and
obligations, fair value of consideration of acquisition, and the distribution of considerations of
acquisition to individually defined intangible assets as well as goodwill. Business combination
is a crucial audit subject, because of:
Scale as well as materiality of acquisition to Group;
The degree of judgement needed for the evaluation of purchase price distribution of the
Company, including the evaluation of recognizable intangible assets resulting from the purchase;
The degree of judgement needed in the evaluation of Group 's estimates relating to the
calculation of deferred considerations (Bugeja and Loyeung, 2017).
In regards to the acquisitions, company's procedures involved, among others:
Review of legal documentation and position paper of the administration on the purchase to get
an overview of the payment;
Appraisal of acquisition against the requirements of business combination as specified in
AASB 3 Business Combinations and evaluation of acquisition date as well as other important
presumption by the company.
Evaluating Management's assessment of fair value of assets and obligations purchased,
including recognition of any historically unreported intangible assets;
Determining fair value of acquisition valuation;
Examining the tax ramifications relevant to acquisition accounting in conjunction with tax
specialists;
Evaluating the Group's documentation for the purchase, including verifying the statistical
precision of the estimates and related journal entries; including
Determining the appropriateness of Group's reports of financial report with regard to AASB 3
and the criteria therein.
The business combination relates to a mixture of different organisations or businesses are
one reporting body. The product of almost all of the business the variations are that one person,
the acquirer, secures control over one or more of them. Some other firms, the acquiree. If an
individual has possession of one or more other non-business organisations to put together these
companies are not a company mix. If an object becomes an object class of assets that don't form
a business; assign the expense of the party to the person recognizable assets and obligations in
the party on the basis of their relative equal values date of purchase. Business combination could
Document Page
be organised in a number of forms for contractual, tax and other purposes. It may include the
acquisition by a company of the capital of some other company, the acquisition of all net assets
of that other entity, assumption of liabilities of some other corporation, or purchase of any of net
assets of some other organisation which together constitute several or even more companies.
This may be affected by the issuance of equity securities, the exchange of money, marketable
securities or other resources, or a mixture thereof. The agreement can be among shareholders of
the joint venture or among one company and shareholders of some other entity (Ancuţa,
Moisescu and Varlanuta, 2017).
AuMake International:
The approach of accounting is being used in accounting for company combinations, irrespective
of whether capital securities or other investments are purchased. The transferred compensation
shall be the sum of the acquisition-date equal values of acquired securities, of the given equity
instruments or obligations payable by acquirer to the previous owners of acquiree and balance of
any non-controlling interests of acquiree. For any corporate arrangement, the non-controlling
interests in the acquiree shall be assessed either at market value or proportionate share
of measurable net assets of acquiree. Both purchase expenses shall be paid on the basis of benefit
or loss.
Upon purchase of a company, the merged entity shall determine financial assets obtained
and liabilities assumed for proper classification and identification in compliance with contractual
provisions, economic circumstances, operational or accounting practises of consolidated entity
and any applicable contract terms that are in effect at acquisition date. Where only a corporate
merger is done in phases, the combined company shall re-assess the previously owned ownership
stake in acquiree at point of acquisition-the fair valuation and the disparity between fair
values and the prior carrying balance shall be reflected in benefit or loss (Gheorghe, A.A. and
Florentina, 2017).
Contingent consideration which is to be exchanged by acquirer shall be accepted
at acquisition-date of reasonable value. Consequent adjustments in the market value
of contingent expectation known as assets and liabilities are considered in terms of benefit or
loss. Contingent liability, known as equity, also isn't reassessed and the resulting payment is paid
within the equity. The disparity between fair valuation on the purchased properties, the presumed

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
liabilities as well as non-controlling interest in acquisitor, and fair value of exchanged
compensation is known as goodwill. If the valuation exchanged and pre-existing fair value is
lower than fair value of the identified net assets gained by the purchaser, the discrepancy shall be
regarded as a benefit explicitly in gains or losses by the purchaser on the sale date, only
after reassessment of recognition and calculation of net assets gained by the purchaser, the non-
controller; Originally, business combinations provided for on a preliminary basis. The acquirer
retroactively updates the provisional quantities acknowledged and also acknowledges added
assets or obligations after the assessment process, on the basis of updated knowledge gathered
about circumstances and conditions that occurred at the purchase date. The calculation period
shall conclude on either latter of (i) 12 months from date of purchase or (ii) when acquirer
collects all the details required to assess fair value.
CONCLUSION
From above study this has been articulated that corporate as well as financial accounting is
major aspect in business. The report focused on the review of Australian Accounting Standards
Board and the process by which AASB would control business practises in other nations by
applying the IFRS laws and legislation. The study also implied developments in the business
combination of selected firms. Entities heading into mergers, purchase/acquisitions and other
forms of combinations must obtain in-depth understanding of accounting and reporting criteria
regarding business-combinations in Accounting Standards. While this report offers a summary
of basic criteria, recognizing the specifics is essential to the proper implementation of the
guidelines.
Document Page
REFERENCES
Books and Journals:
Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion
under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting &
Economics, 12(3), pp.290-308.
Sivathaasan, N., 2016. Corporate governance and leverage in Australia: A pitch. Journal of
Accounting and Management Information Systems, 15(4), pp.819-825.
Garg, M., Peach, K. and Simnett, R., 2020. Evidence‐informed Approach to Setting Standards: A
Discussion on the Research Strategies of AASB and AUASB. Australian Accounting
Review.
Garg, M., Peach, K. and Simnett, R., 2020. Evidence‐informed Approach to Setting Standards: A
Discussion on the Research Strategies of AASB and AUASB. Australian Accounting
Review.
Potter, B., Pinnuck, M., Tanewski, G. and Wright, S., 2019. Keeping it private: financial
reporting by large proprietary companies in Australia. Accounting & Finance, 59(1),
pp.87-113.
Davern, M., Gyles, N., Hanlon, D. and Pinnuck, M., 2018. Is financial reporting still an effective
tool for equity investors in Australia. In Asaf Meeting, April 2018–Agenda paper
A (Vol. 8).
Yang, Y.J. and Simnett, R., 2019. Large Charities' Financial Reporting Framework Choice in
Australia. Available at SSRN 3412617.
Kabir, H., Rahman, A. and Su, L., 2017. The association between goodwill impairment loss and
goodwill impairment test-related disclosures in Australia. In 8th Conference on
Financial Markets and Corporate Governance (FMCG).
Whittred, G., 2020. The Evolution of Consolidated Financial Reporting in Australia: An
Evaluation of Alternative Hypotheses (Vol. 20). Routledge.
Bugeja, M. and Loyeung, A., 2017. Accounting for business combinations and takeover
premiums: Pre-and post-IFRS. Australian Journal of Management, 42(2), pp.183-204.
Ancuţa, A.G., Moisescu, F. and Varlanuta, F., 2017. Study Regarding the Financial Reporting of
Intangible Assets. Case of Romanian Pharmaceutical Industry. European Journal of
Sustainable Development, 6(1), pp.31-31.
Gheorghe, A.A. and Florentina, M., 2017. Study Regarding The Financial Reporting Of
Intangible Assets. Case Of Romanian Pharmaceutical Industry. Management Strategies
Journal, 35(1), pp.163-172.
Online:
Annual Report: PPK Group, 2019. [Online]. Available through:
https://www.ppkgroup.com.au/site/PDF/438765c6-657f-46f9-b4a4
4d317c74d316/AnnualReport2019
Annual Report: AuMake International, 2019. [Online]. Available through:
https://www.asx.com.au/asxpdf/20190830/pdf/44813dk9qk9689
1 out of 12
circle_padding
hide_on_mobile
zoom_out_icon
[object Object]

Your All-in-One AI-Powered Toolkit for Academic Success.

Available 24*7 on WhatsApp / Email

[object Object]