Corporate and Financial Accounting: Role of AASB, Equity Analysis of 4 Companies

This assignment discusses the importance of regulated financial accounting and reporting, the role of AASB in setting IFRS, and a comparative analysis of equity and debt of 4 companies in the education sector listed on ASX. The companies considered are 3P Learning Education Limited, Evolve Education Group, G8 Education Limited, and Red Hill Education Limited.

Corporate and Financial Accounting 1
Corporate and Financial Accounting

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Executive Summary
The assignment below describes the responsibility for the financial accounting and reporting
and the role of AASB in setting the standards. Further, the financials of four companies for
four years have been taken into account and on the basis of which the comparative analysis of
equity alone and together with debt is described. The accounting theory and practices as
adopted in the modern organisations will help in enhancing the quality of reporting and
presentations in respect of different types of reports.

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Table of Contents
Executive Summary.................................................................................................................2
Introduction..............................................................................................................................4
Corporate Regulation..............................................................................................................5
Accounting Standard Setting..................................................................................................6
Owner’s Equity.........................................................................................................................8
Conclusion...............................................................................................................................13
References...............................................................................................................................14

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Introduction
The consequences of the financial accounting and reporting if allowed voluntarily have
discussed in detail. How the AASB sets IFRS along with the applicability on the member
countries have been discussed in the project. The companies taken into consideration are 3P
learning Education Limited, Evolve Education Group, G8 Education Limited and Red hill
Education Limited. All the companies considered deals in the education sector in Australia
and listed on ASX. The analysis of equity on a comparison basis for four years has been
considered along with the debt-equity analysis.

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Corporate Regulation
1. Critical examination of whether financial accounting or reporting should be
regulated or manager should be allowed to disclose voluntarily?
The financial accounting and reporting are both important for the users of the financial
statements to understand to invest in the company.
Advantages of financial reporting and accounting that why they should be regulated
The financial reporting helps in the coordination and performance of the complex data to
summarize it. With the help of reporting the financial actions can be interpreted and it will
also provide suggestions or recommendations to improve any deficiency (Bushman, R. and
Landsman, W.R., 2010). The reporting will help in the development of the documents which
will support the reports and will help the departments in evaluating them. The statutory
requirements relating to the reporting will be complied with and the schedules will have
adhered. The clients will be informed about the reporting requirements and the revenue will
be recognized. The contracts which are entered will be reviewed for interpreting the issues
and will be documented (Armstrong, C.S., et. al., 2016).
The accounting and reporting will help the companies in supporting the closing for the month
and year-end and the assessment of the processes for the same. The accounting and reporting
will help the companies in maintaining the accounting documents so that they become clear
and consistent. The activities of the auditors can be reviewed and monitored timely.
Disadvantages of financial reporting and accounting if allowed the manager to disclose
voluntarily
The financial accounting and reporting of allowed to the manager to disclose voluntarily then
the laws, rules, regulations, schedules, etc. will not be adhered to or complied with. The
financial statements are prepared on the basis of the forecasted models for the statement of

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profit or loss, statement of financial position and the statement for the cash flow position and
this will not be possible without proper regulated accounting and reporting (Armstrong, C.S.,
et. al., 2016). The results of operating activities, budgets and forecasts will not be prepared
and interpreted if allowed to manager voluntarily. The coordination among the departments
and the management which is required for the companies to prepare, to achieve its objective
and goals will not be present in the company without accounting and reporting. The investors
invest in the company on the basis of the timely presentations and reports and if these do not
exist on time then the company will not be able to attract the investors (Bushman, R. and
Landsman, W.R., 2010).
Hence, it is better to make the financial accounting and reporting regulated rather than
making it allowable to the managers to do it on a voluntary basis.
Accounting Standard Setting
2. Explanation of how AASB take part in setting IFRS and why IFRS is not compulsory
for member countries of IASB?
The AASB helps in issuing, maintaining and developing the accounting standards for the
profit-making as well as non-profit entities. According to section 229 of the ASIC Act, 2001,
the AASB is responsible to ensure that the proposed standard is suitable for different entities
and for different entities there are different Australian Accounting Standards. The AASB
specifies the nature and the type which should be followed by the entities in compliance with
the Australian Accounting Standards (Australian Government, 2018). The general purpose
financial statements are regulated by AASB and provide a framework which consists of two
tiers for such statements while in case of special purpose financial statements, AASB not
responsible for regulating and hence, they on their own decision the standard.
The following figure is depicting the standard-setting process:

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Image: Standard Setting Process
(Australian Government, 2018)
The AASB involves an issue which has been identified by the IASB or IFRIC on the basis of
substantive or non-substantive and monitors the issue closely. Further, the issues can be even
identified by the AASB members, stakeholders of Australia which will be further referred to
as IASB or IFRIC and AASB respectively. After the identification AASB will make the
project proposal which will be placed on agenda on the basis of its benefits otherwise it will
be reported as board agenda decision (Alver, L., et. al., 2014). If the issue is placed on the
agenda then the discussion will be done and the support can be taken from IASB, IPSASB
and the Accounting Standards Board of New Zealand. Further, the discussion with the
stakeholders will be done in various ways which may include:

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 Draft Exposure
 Invite to comment upon
 Discussions made on the roundtable
 Panels of the advisory group of the projects
 Drafting of the interpretations made by the board
 Discussion papers
 Panels of the advisory on the basis of the interpretations
 User groups which are required to be focussed
The result of the discussion will be the basis for the decision to issue the standard or not by
AASB which may either be a standard, framework document or an interpretation. This
decision will be consistent with the IFRS and the needs of the public as well as private
sectors will be considered. Before the submission is prepared the responses from the
organizations as well as individuals will be considered (Cortese, C.L., et. al., 2010). The
AASB will then request the stakeholders to issue recommendations and then the submission
will be made to IASB and IPSASB for issuing of the pronouncements. Lastly, the AASB will
monitor the implementation and compliance of the accounting standards in Australia and if
any revision is required then it can be done in the basic standards. The IFRS is not
compulsory for the member countries of IASB since there are standards notified applicable to
them in a specified manner and these standards specify more relevant information to the
countries to run effectively and efficiently.
Owner’s Equity
1. Equity description of 4 listed companies on ASX
The below-mentioned companies including Redhill Education Limited, G8 Education
Limited, Evolve Education Group, 3P Learning Education Limited are engaged in the sector

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which provides services related to education to consumers. The equity in the balance sheet
includes the terms which are as follows:
 Issued capital/ Contributed Equity- The share capital which has been generated by
the companies by issuing shares to the public, promoters, underwriters, etc.
 Reserves- The amount which has been reserved for the future use and for paying off
the immediate liability incurred by the company. The money can be kept in this
account for any specific or particular use in the future.
 Retained Profits/ (Accumulated Losses) -The amount which the company earns and
remained after the dividends have been distributed by the company and are retained
by the company. The negative retained profit is the accumulated loss.
 Non-Controlling Interest- The minority interest which is held by the minority i.e. the
holders of less than 50% shares in the company. The holders other than the subsidiary
are held by the minority holders.
The equity for four different companies have been provided below with a comparison of four
years from the latest audited financial statements:
3P Learning Limited ($’000)
Particulars 2014 2015 2016 2017
Issued Capital 2352 25113 33951 34092
Reserves 7954 7035 7382 5360
Retained Profits/ (Accumulated Losses) (3129) 956 2160 (4946)
Non-controlling Interest 87 38 56 (99)
Total Equity 7264 33142 43549 34407
The changes in the equity in above company are due to the issuing of shares to the members
while some are issued under the dividend investment plan. The reserves are decreased due to

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the drastic increase in the reserve for foreign currency. The other equity items are changed
due to the operational activities incurred in the company (Redhill Education Limited, 2017).
Evolve Education Group ($’000)
Particulars 2015 2016 2017 2018
Issued Capital 156926 157364 158106 159149
Retained Profits/ (Accumulated Losses) (8058) 3369 10565 (2574)
Total Equity 148868 160733 168671 156575
The above company was founded in 2014. The equity is increased due to the increase in the
number of shares issued under various schemes to the members, public, etc. The company
has paid the dividend and the activities made the loss to profit or vice-versa.
G8 Education Limited ($’000)
Particulars 2014 2015 2016 2017
Contributed Equity 548374 603043 641848 876394
Reserves 27257 43635 35649 44552
Retained Profits/ (Accumulated Losses) (33622) (43893) (51622) (55611)
Total Equity 542009 602785 625875 865335
The change in the equity of the above company is due to the vendors, investors purchased the
shares in the company and some of the issue is as per the dividend reinvestment plan. The
reserve has changed due to the change in the hedging, translation and share payment reserves.
Redhill Education Limited ($’000)
Particulars 2014 2015 2016 2017
Contributed Equity 18747 18752 18770 18770
Reserves 86 40 81 111
Retained Profits/ (Accumulated Losses) (8175) (6476) (6146) (4406)

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Total Equity 10658 12316 12705 14475
The shares are issued in the company in the years provided above which has brought a
change in the contributed equity but no issue or no expense has incurred in the last two years.
Share payment reserve has been changed in the years which changed the amount of reserve in
the company. The change in the reserve has affected the amount of retained profit or losses
since the transfer has taken place. The company is incurring profits in the year 2017 but the
previous year loss is high hence the amount is shown as a loss (Alver, 2014).
2. Comparative Analysis of debt and equity
Debt is the amount which the company owes from any other person where the company will
have an obligation to pay the amount with the conditions attached. The company sometimes
owes a debt to fulfil the purchases which are not possible under the existing circumstances.
The debt and equity of the four companies for the two years are shown below with the
comparative analysis-
3P Learning Limited ($'000)
Particulars 2017 2016
Debt 46251 53066
Equity 34407 43549
Debt Equity Ratio 1.34 1.22
The debt-equity ratio is less than 2 which is a good indicator but the company has huge
liabilities in respect of which the equity is less. However, the ideal ratio is 2:1 which means
that the company incurs a higher risk and depends more on debt.
Evolve Education Group ($'000)
Particulars 2018 2017
Debt 68519 56051

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Equity 156575 168671
Debt Equity Ratio 0.44 0.33
The ratio of less than 2 is a good indicator for the company since the company will be able to
pay off the liabilities in the near future as the company has more equity than the liability. As
compared to the ideal ratio the company is not taking more risk and depends on equity.
G8 Education Limited ($'000)
Particulars 2017 2016
Debt 419520 542557
Equity 865335 625875
Debt Equity Ratio 0.48 0.87
The lenders of the company think that the ratio of less than 2 is good since the company will
not make default in the repayment of such loan taken. The company incurs less risk and
equity is more than the debt which means that the business is run on the dependence of the
equity (Alver, 2014).
Redhill Education Limited ($'000)
Particulars 2017 2016
Debt 25409 12534
Equity 14475 12705
Debt Equity Ratio 1.76 0.99
The debt-equity ratio of less than 2 is good for shareholders since the chances of insolvency;
bankruptcy will be less for the company. The ratio of less than 2 will ensure that the company

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can take additional debt from the sources to expand the business (Redhill Education Limited,
2017).

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Conclusion
From the above assignment, it can be concluded that the financial accounting and reporting
responsibilities should be regulated. Further, the procedure for setting the standard for the
general purpose has been with the AASB. The equity in every company has the same
description but the debt-equity ratio for every company describes the position of funding of
the companies and the dependence of company on equity and debt has been detailed.

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References
3P Learning Education Limited, (2015) Annual Report 2015. [Online].Available at:
https://cdn.3plearning.com/wp-content/uploads/2015/10/Annual-Report-web-version.pdf
[Accessed: 22 September 2018].
3P Learning Education Limited, (2017) Annual Report 2017. [Online]. Available at:
https://cdn.3plearning.com/wp-content/uploads/2017/01/3P-Learning-Limited-2017-Annual-
Report-ASX.pdf [Accessed: 22 September 2018].
Alver, L., et. al., (2014) Implementation of IFRSs and IFRS for SMEs: the case of Estonia.
Accounting and Management Information Systems, 13(2), pp.236.
Armstrong, C.S. (2016) The role of financial reporting and transparency in Corporate
Governance. FRBNY Economic Policy Review. PP. 107-128.
Australian Government, (2018) The Standard-Setting Process. [Online]..Available at:
https://www.aasb.gov.au/About-the-AASB/The-standard-setting-process.aspx [Accessed: 22
September 2018].
Australian Government, (2018) The AASB's for-profit entity standard-setting
framework.Australian Accounting Standards Board.
Bushman, R. and Landsman, W.R., (2010) The pros and cons of regulating corporate
reporting: a critical review of the arguments. Accounting and Business Research, 40(3),
pp.259-273.
Cortese, C.L. (2010) Powerful players: How constituents captured the setting of IFRS 6, an
accounting standard for the extractive industries. In Accounting Forum 34, (2), pp. 76-88).

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Evolve Education Group, (2016) Annual Report 2016. [Online]. Available at:
https://www.evolveeducation.co.nz/media/1107/evolve-annual-report-2016-final.pdf
[Accessed: 22 September 2018].
Evolve Education Group, (2018) Annual Report 2018. [Online]. Available at:
https://www.evolveeducation.co.nz/media/3088/evolve-education-group-annual-report-
2018.pdf [Accessed: 22 September 2018].
G8 Education Limited, (2015) Annual Report 2015. [Online]. Available at:
https://g8education.edu.au/wp-content/uploads/2013/09/2015-Annual-Report-final-as-at-
210216_CPS-Version-345pm.pdf [Accessed: 22 September 2018].
G8 Education Limited, (2017) Annual Report 2017. [Online]. Available at:
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_GEM_2017.pdf
[Accessed: 22 September 2018].
Redhill Education Limited, (2015) Annual Report 2015. [Online]. Available at:
http://www.redhilleducation.com/upload/modules/file_storage/FY2015-RedHill-Annual-
Report.pdf [Accessed: 22 September 2018].
Redhill Education Limited, (2017) Annual Report 2017. [Online]. Available at:
http://www.redhilleducation.com/upload/modules/file_storage/FY2017%20Annual
%20Report%20-%20FINAL%20double-page%20version.pdf [Accessed: 22 September
2018].