The Board of Directors of Commonwealth Bank of Australia Report 2022

Company Accounting
Name of the Student
Name of the University
Author’s Note

MEMO
To: The Board of Directors of Commonwealth Bank of Australia
From: The Accountants
Date: 18.08.2019
Subject: Explanation on the Technical Aspects of Consolidation
The main aim of this memo is to shed lights in certain technical aspects of consolidation.
Consolidation refers to the process to combine the financial results of many subsidiary firms
into the joint results of the parent company. The use of this method can be seen when a parent
entity retains more than 50% of the shares of another entity (La Rosa et al.2013). The
following discussion discusses about certain aspects of consolidation accounting in the
financial accounting of Commonwealth Bank of Australia (Commonwealth Bank).
Need for the Parent Entity to Prepare Consolidated Financial Statements
According to the 2019 Annual Report of Commonwealth Bank, the bank has published
consolidated as well as standalone financial statements of the Group and the Bank
respectively for the financial year 2019. The main components of these financial statements
are income statement, statement of comprehensive income, balance sheet, statement of
change in equity and statement of cash flows (asx.com.au 2019). The parent entity that is
Commonwealth Bank had to prepare these consolidated financial statements in spite of the
fact that the subsidiary entities are separate legal entities and have their own rights and there
are certain reasons for this (aasb.gov.au 2019). A business that possesses more than 50% of
the outstanding voting common stock of another business organization is known as the parent
company; and the corporation that the parent company acquires and controls is known as the
subsidiary company (La Rosa et al.2013). In case of Commonwealth Bank, the bank itself

and its subsidiary companies uphold their individual accounting data as well as information
and they have their own financial reporting practice (legislation.gov.au 2019). However, in
the presence of the fact that a central management of Commonwealth Bank controls the
parent entity as well as subsidiary entities and both the parent and subsidiary entities are
related to each other, the requirement for Commonwealth Bank is the preparation of one set
of financial statements and these statements are called the consolidated financial statements
(aasb.gov.au 2019). These consolidated financial statements consolidate the financial reports
of the entity with the financial reports of the subsidiaries and shows the parent and its
subsidiaries as a single company (Picker et al.2019). The same aspect can be seen in case of
Commonwealth Bank as the bank has shown the financial statements of the parent entity and
subsidiary companies (legislation.gov.au 2019). One crucial aspect is that Commonwealth
Bank possesses more than 50% of the outstanding voting common stocks of its subsidiaries
which is another reason to prepare consolidated financial statements by the bank
(Christensen, Cottrell and Baker 2013).
Inclusion of Policies on Corporate Governance, Audit Committee, Sustainability and
Solvency in the Financial Statement
As per the 2019 Annual Report of Commonwealth Bank, it has disclosed the information
related to corporate governance, audit committee, sustainability and solvency in separate
parts in the annual report (asx.com.au 2019). There is a separate section in the 2019 Annual
Report of Commonwealth Bank named “Corporate Governance” and the bank has included
all the information related to corporate governance in that section (asx.com.au 2019). The
major parts under this section are the bank’s commitment towards corporate governance,
details on board of directors and executive leadership team, commitment towards corporate
governance, the adopted corporate governance framework, stakeholder engagement and
others (asx.com.au 2019). These aspects cover all the necessary dimensions of corporate