Corporate and Financial Accounting: Regulation vs Liberalisation

The report analyses the need for financial accounting regulation and the contribution of Australian Accounting Standard Board in setting International Financial Reporting Standard. It also includes contributed equity analysis of four Australian listed entities along with their net debt position.

TABLE OF CONTENT
Executive Summary........................................................1
Annexure-1.....................................................................2
Annexure-2.....................................................................3
Annexure-3.....................................................................4
References:..................................................................11

CORPORATE AND FINANCIAL ACCOUNTING
Executive Summary
The report has been prepared with an intention to understand whether financial accounting shall be
continued to be regulated or the same shall be liberalised giving way to managers to report
information based on their discretion and voluntarily.( Refer Annexure-1)
Further, the report seeks out to understand the contribution of Australian Accounting standard Board
in the process setting of International Financial Reporting Standard and why IFRS is not compulsory
on members of International Accounting Standard Board. (Refer Annexure-2)
In the end, the report deals in detail with the contributed equity analysis of four Australian listed
entities along with their net debt position.(Refer Annexure-3)

Annexure-1
Financial Accounting is very important aspect as through this the financial statements of the company
is prepared which shows the position of the company to outside people like shareholders, creditors,
suppliers ,buyers and investors. Taking the help of the standardised accounting procedure financials
of the company is prepared which include a lot of detailed report and future aspects of the
company(Accounting Edu.org, n.d.).There are various reasons which talk about the need to control
the financial reporting, as the users to the financial statement are many and on the basis of financial
information interpretation the users make the investing decision in the company, but these different
users to the financials are allowed to prepare the financial statements on their own way than it will be
prepared accordingly to meet there individual demand. If this happens than different financial
statements will be interpreted in a different manner. All the country follow different set of accounting
standards and accounting procedure so there to need for accounting regulation and parity.
These disclosures solve many issues between the management of the company and users to the
financial statement. It also states that the directors not only present the financial statement to the
outside people but also appoint an independent auditor to express opinion on the financial statement
and state whether the financial statement reflects a true and fair view and are free from any material
misstatements .It also becomes users to do make comparison with other group company in similar
industry.( The Student Room Group Ltd. , n.d.)
Therefore all the transactions recorded in the financial statement must be only monetary in nature.
The choice of accounting method must be such which is reliable and easy to understand for others
and make comparison with other report easily. However accounting standards sometimes may have a
negative impact for the prepares of financial statement as no experiment can be done on accounting
transactions treatment, but still there is a need that the financial statement and accounting are
regulated so that the users can easily interpret it and comparable and saving of time.

Annexure-2
The Australian Accounting Standard Board is a Government Agency, which reports to parliament of
Australia while International Accounting Standard Board is a private organisation which is set up in
London as is of independent nature. The AASB contributes to the IASB through funding and co-
operating with IASB by replying to the draft discussion, reviews, aligning vision with IFRS, adopting
IFRS etc. The IASB in turn cooperates with its members for convergence in accounting standard in
the world.(Australian Accounting Standard Board, n.d.)
The process flow is detailed here-in-below:
(a) AASB identifies technical issue which require look through;
(b) Theissues are referred to IASB;
(c) The issue shall be added to agenda;
(d) The AASB shall do research and consider the issue;
(e) A consultation shall take place with stakeholders;(Australian Accounting Standard Board, n.d.)
(f) Issuing of standard or other pronouncement;
(g) The report shall be submitted to IASB for comment;
(h) Implementation and compliance
IFRS is not mandatory on member countries of IASB on account of following reasons:
(a) To adopt IFRS is not a simple process it requires a lot of convergence from national standard
to IFRS.
(i)

Annexure-3
The company that have chosen under part B of the report are four Australian listed entities under
basic mineral category. These companies are engaged in the exploration of minerals. The name of
the entities chosen is:-
(a) Orica Limited:
(b) Newcrest Mining Limited;
(c) Orocobre Limited;
(d) Santos Limited;
Brief Profile of the companies
Orica Limited is engaged in providing commercial explosives for blasting in mines and infrastructure
market. It is global leader in providing ground service for the purpose of mining and tunnelling.
The equity profile breakup of the company has been provided here-in-below:
($Mio)
Sl
NO Particulars 2014 2015 2016 2017
Equity
1 Ordinary Shares 1975 1954.4 2025.3 2068.5
2 Reserves -607 -216.8 -489.9 -565.8
3 Retained Earnings 2895 1247 1247.1 1459.6
Total Equity attributable to
ordinary shareholders of
Orica Limited 4263 2984.6 2782.5 2962.3
4
Non -controlling interest in
controlled entities 136.1 2.6 0.7 1.2
Total Equity 4399.1 2987.2 2783.2 2963.5
(Anon., 2014) (Orica Limited, 2015) (Orica Limited., 2016)(KPMG, 2017)
The following elements are part of equity of the company:
(a) Ordinary shares which are issued by the company under Initial public offer to the public or at the
time of incorporation of shares. These shares are the base of the setup of the company and
holders of such shares are owners of the company. Further, these shares are repaid at last in
case of winding up of the company. On perusal of the above table one can understand that the
ordinary shares of the company have undergone a change on account of issue of further shares
under various schemes of the company like dividend reinvestment plan, GEESP plan. The
breakup of the same has been provided here-in-below:

Sl NO Particulars 2014 2015 2016 2017
1
Opening Balance of the ordinary share
issued 1877.9
1877.
9 1975 2025.3
2
Share issued under dividend
reinvestment plan (13-12-13) 47.4 47.4
3
Share issued under dividend
reinvestment plan (01-07-14) 34.5 34.5
4 Share Issued - Loan Repayment 13.9 13.9
5 Share issued under GEESP Plan 1.3 1.3
6 Balance at the end of year 1975 1975
7 Share movement under buy back -21.7 -21.7
8 Share issued under GEESP Plan 1.1 1.9 0.6
9
Share issued under dividend
reinvestment plan 70.1 39.2
10
Deferred shares issued to settle Short
Term Incentive 3.4
11 Ordinary Share
1954.
4
2025.
3 2068.5
Further, it can be seen that company has bought back its own share in 2015.
(b) Reserves: Reserve means something that has been retained for future use resources forms
part of equity and show the intrinsic value of the share of the company.(Web Finance Inc,
2018) A positive reserve indicates a strong future prospect of the company. The reserve in
the books of company generally include:
(i) Share based payment which are paid to employees and key managerial personnel of the
company;
(ii) Cash flow hedging reserve is created by an entity to reduce the impact of change in
estimated cash flows of a financial asset or liability;
(iii) Foreign currency translation reserve is created in terms of requirement of AASB to
account for consolidation of foreign entities under different method like current and
temporal;
(c) Retained earnings: This shows the accumulation of profits of the company which are not
distributed as dividend to ordinary shareholders of the company rather they are retained for
expansion and emergency projects of the company. The retained earnings of the company
have shown a significant decline on account of significant loss reported by the company for
that financial year.
(d) Non- Controlling interest: This represents the share of minority shareholders who do not
exercise significant control over the company and are in minority. These generally represent
that fraction of the company which is not owned in the subsidiary by the parent company. The
flow of non-controlling interest over the 4 year has been presented here-in-below:

Sl
NO Particulars 2014 2015 2016 2017
1 Contributed Equity 66.6 66.6 66.6 66.6
2 Reserves -16.9 -1.9 -7.8 -12.3
3 Retained Earnings 86.4 -62.1 -58.1 -53.1
4 Non- controlling Interest 136.1 2.6 0.7 1.2
On perusal of the above table one can understand that the non-controlling interest has fallen
down drastically on account of retained earning reducing drastically in the backdrop of losses
in the company.
(e) Analysis of debt position of the company: For the purpose of this, only interest bearing
liabilities has been considered as debt. Further cash and cash equivalent is reduced to
compute net debt for the company. In addition, to estimate the position capital gearing ratio
and debt to equity ratio has been computed. The tabulation has been shown here-in-below:
Sl
NO Particulars 2014 2015 2016 2017
1 Interest Bearing Borrowings 2499.9 2300 1877.4 1957.8
2 Less Cash and Cash equivalent -263.2 -273.9 -328 -516.9
3 Net debt 2236.7 2026.1 1549.4 1440.9
4 Total Equity 4399.1 2987.2 2783.2 2963.5
5 Net debt and Total Equity 6635.8 5013.3 4332.6 4404.4
6 Debt to Equity Ratio
50.84
%
67.83
%
55.67
%
48.62
%
7 Gearing Ratio (%)
33.71
%
40.41
%
35.76
%
32.72
%
On perusal of the above, the net debt of the company is decreasing on account of increasing
cash and cash equivalent in the company.
Newcrest Mining Limited
Newcrest Mining Limited is engaged in gold mining. It is engaged in exploration, mine development
and sale of gold etc.(Reuters, 2018)
The equity profile breakup of the company has been provided here-in-below:
Sl
NO Particulars 2014 2015 2016 2017
Equity
1 Issued Capital 11679 11673 11666 11657
2 Retained Earnings -5055 -4679 -4347 -4154
3 Reserves 517 -145 -278 -53
Total Equity attributable to ordinary
shareholders of Orica Limited 7141 6849 7041 7450

4 Non -controlling interest in controlled entities 119 108 79 84
Total Equity 7260 6957 7120 7534
(Newcrest Mining Limite, 2014)(Newcrest Mining Limited, 2015)
On perusal of the above table, one can understand that the equity of the company has not undergone
any significant change. However, minority interest has reduced in the company. Further, the retained
earnings of the company are slowly recovering. A detailed analysis is presented here-in-below:
Movement in issued capital
The issued capital of Newcrest mining has not undergone a sea change and the detail of the same
has been tabulated here-in-below:
Sl
NO Particulars 2014 2015 2016 2017
1 Opening Balance
1167
9
1167
9
1167
3
1166
6
2 Share Issued during the year
3 Dividend reinvestment plan 10
4 Share repurchased and held in treasury -6 -7 -19
5 Issued Capital
1167
9
1167
3
1166
6
1165
7
Further, the company has bought back its shares of minimal amount during the period of 4 years.
Retained Earnings
The retained earnings of the company are negative symbolising company has incurred huge losses in
the past and has been trying to recover the same.
Reserves
The reserves of the company have turned negative on account of losses while consolidating books of
subsidiary in the account of parent. The detailed breakup of the same has been tabulated here-in-
below:
Sl
NO Particulars 2014
201
5
201
6
201
7
1 Equity Settlement Reserve
No
informatio
70 78 88
2 Foreign Currency Translation reserve -246 -340 -168
3 Hedge Reserve 6 -16 27

4 Fair Value Reserve 25
5 Total -145 -278 -53
Further, fair value reserve is created against the valuation of assets in terms of AASB 13 to account
for increase in value of asset
Non-Controlling interest
The non-controlling interest has reduced drastically on account of reserve losses.
Debt Position
The analysis of debt position has been presented here-in-below:
Sl
NO Particulars 2014 2015 2016 2017
1 Net debt 3935 2889 2107 1499
2 Total Equity 7260 6957 7120 7534
3 Net debt and Total Equity 11195 9846 9227 9033
4 Debt to Equity Ratio
54.20
%
41.53
%
29.59
%
19.90
%
5 Gearing Ratio (%)
35.15
%
29.34
%
22.84
%
16.59
%
On perusal of the above table, one can understand the net debt of the company is falling. Further, the
gearing ratio has decreased on account of significant reduce in net debt on account of increase in
cash reserve of the company.
Orocobre Limited
The company primarily operates in Argentina and is a mining giant. (Reuters, 2018)The movement of
equity of the company over the period of four years have been presented here-in-below:
Sl
NO Particulars 2014 2015 2016 2017
Equity
1 Issued Capital 123
158.4
6 242.24 243.18
2 Retained Earnings 83.04 82.19 60.28 80.7
3 Reserves -54.353 -76.53 -111.79 -105.86
Total Equity attributable to ordinary
shareholders of Orica Limited 151.687
164.1
2 190.73 218.02
4
Non -controlling interest in controlled
entities -1.132 -1.06 -1.31
Total Equity 150.555
163.0
6 189.42 218.02
( Orocobre Limited Pty Ltd, 2017)

On perusal of the above table, one can understand that the equity of the company has increased
over the period and the non-controlling interest of the company has been wiped off from the
balancesheet.
Movement in issued capital
The issued capital of the company has increased significantly on account of fresh issues and exercise
of options.
Retained Earnings
The retained earnings of the company are falling over the years of account of losses in the business
Reserves
The reserves of the company have been falling drastically over the year. The movement of the same
has been detailed here-in-below:
Sl
NO Particulars 2014 2015 2016 2017
1 Option Reserve 1.7 2.62 3.22 2.97
2 Foreign Currency Translation reserve
-
47.64
-
74.37
-
109.61
-
104.92
3 Hedge Reserve -2.56 -4.5 -5.22 -3.75
4 Other Reserve -0.28 -0.18 -0.17
5 Total -48.5
-
76.53
-
111.79
-
105.87
The main reason for such fall is the consolidation of accounts of subsidiary in the books of parent on
account of which losses have been recognised as FCTR.
Non-Controlling interest
The non-controlling interest has been negative for three years and wiped out in 2017.
Debt Position
The analysis of debt position has been presented here-in-below:
Sl NO Particulars 2014 2015 2016 2017
1 Net debt -11.49 10.45 -21.92 -40.82
2 Total Equity
150.55
5
163.0
6 189.42 218.02
3 Net debt and Total Equity
139.06
5
173.5
1 167.5 177.2
4 Debt to Equity Ratio -7.63% 6.41%
-
11.57%
-
18.72%
5 Gearing Ratio (%) -8.26% 6.02%
-
13.09%
-
23.04%

On perusal of the above table, one can understand that the company is having significant cash
reserves on account of which net debt is negative.
Santos Limited
Santos Limited is a natural gas company. The company is engaged in exploration, development,
production and sale of natural gas.(Reuters, 2018)
The movement of equity of the company over the period of four years have been presented here-in-
below:
Sl. No. Particulars 2014 2015 2016 2017
Equity
1 Issued Capital 5,7
62 8,
119 8,8
83 9,0
34
2 Reserves -
335 -
699 -
510 51
3 Retained Earnings 2,2
78 1 -
1,293 -
1,934
4 Non-controlling Interest -4 - - -
Total Equity 7,7
01 7,
421 7,0
80 7,1
51
(Santos Ltd, 2016)(Anon., 2017)
On perusal of the above table, one can understand that the equity has not undergone much
movement but has decreased by 10% on account of falling retained earnings of the company. Further,
the losses are on account of market prices of gas. The non-controlling interest has been wiped off
from the balance sheet. Further, the reserves have decreased on account of foreign currency
translation reserve as stated above.
Debt Position
The analysis of debt position has been presented here-in-below:
Sl. No. Particulars 2014 2015 2016 2017
1 Net Debt 7,490 4749 3492 2731
2 Total Equity 7,701 7,421 7,080 7,151
3 Net Debt and Total Equity 15,191 12,170 10,572 9,882
4 Debt to Equity Ratio 97.26% 63.99% 49.32% 38.19%
5 Gearing Ratio 49.31% 39.02% 33.03% 27.64%
On perusal of the above table, one can understand that net debt of the company has fallen near about
three fold on account of cash reserves of the company.

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[Accessed 21 September 2018].
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[Accessed 21 September 2018].