Genworth Financial Statement Analysis

This assignment requires a detailed analysis of Genworth Mortgage Insurance Australia Ltd.'s financial statements, specifically focusing on the treatment of income tax. Students must compare the cash flow statement's depiction of income tax payments with the income statement's presentation, explaining the discrepancies based on accounting standards (AASB 122) and financial reporting practices. The analysis should also delve into the company's corporate governance practices and stakeholder perspectives regarding the recorded tax amounts.

RUNNING HEAD: Genworth Mortgage Insurance Australia Ltd
1
Name of the student-
Topic- Tax analysis of Genworth Mortgage Insurance Australia Ltd, 2017
University name

Tax analysis of Genworth Mortgage Insurance Australia Ltd
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Table of Contents
Answer to question-1.............................................................................................................................3
Answer to question-2.............................................................................................................................5
Answer to question no-3........................................................................................................................5
Answer to question no-4........................................................................................................................7
Answer to question no-5........................................................................................................................8
Answer to question no-6........................................................................................................................9
Answer to question no-7........................................................................................................................9
References...........................................................................................................................................12
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Tax analysis of Genworth Mortgage Insurance Australia Ltd
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In this report, annual report of Genworth Mortgage Insurance Australia Ltd has been analysed
to identify the tax amount payment and company’s liability to pay tax to government.
Answer to question-1
The annual report of Genworth Mortgage Insurance Australia Ltd has shown three parts of
the equity.
 Common Stock
 Other Accumulated profit
 Retained earnings or distributable profit
Common Stock is also known as contributed capital. It is paid up capital which reflects
the amount of cash and paid up and other assets that stakeholders had given to corporate in
exchange for the shares or stock in company. It is evaluated that Common Stock has
decreased equity capital by 40% since last four years. In 2013, Company was having AUD $
2,074 million equity capital which decreased to AUD $ 1354 million. Reserve or retained
earnings are the business profit which has been kept to strengthen the business’s financial
position. This amount of capital is also known as accumulated profit which company has
arranged from its earned profit throughout the time (Brigham and Ehrhardt, 2013). In
addition to this, accumulated profit of company is negative which is not good indicator for
company (Genworth Mortgage Insurance Australia Ltd, 2017).
Equity (Amount in dollar
million) ($M)
2017 2016
Common stock 1156 1354

Tax analysis of Genworth Mortgage Insurance Australia Ltd
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Accumulated profit (471) (473)
Retained earning 1133 1087
Total equity 4232 3833
Answer to question-2
It is evaluated that tax is the amount of money which is charged on the profit earned
by company. Genworth Mortgage Insurance Australia Ltd has been paying high amount of
tax and failed to manage effective tax planning program. However, since last two years, tax
expenses of Genworth Mortgage Insurance Australia Ltd have gone down due to decreased in
its annual income. In 2016, Genworth Mortgage Insurance company has paid income tax
expenses of AUD $ 9 7 million which reduced to AUD $ 64 million in 2016.
Particular(AUD $ in million) 2015 2016
Income tax expenses 97 67
Nonetheless, Company has decreased its tax payment by increased the tax deductible
expenses and increasing the overall interest expenses. It is observed that company has

Tax analysis of Genworth Mortgage Insurance Australia Ltd
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increased the interest expenses which eventually reduced the tax payment to government
(Bekaert and Hodrick, 2017).
Answer to question no-3
After going through the annual report of Genworth Mortgage Insurance Australia Ltd,
it is considered that Company’s tax expenses shown in balance sheet is not the same amount
of tax rate times. Genworth Mortgage Insurance Australia Ltd has paid AUD $ 97 million tax
expenses in 2017 which covers the entire deferred tax amount. At the same time, Tax rate
times of Genworth Mortgage Insurance company has been computed by using accounting
income* 30% tax rate, i.e. 156*30%. This amount is AUD $ 46.8 million. This would result
to differences in tax expense shown in the financial statements and company tax rates’
accounting income (Garrett, Hoitash, and Prawitt, 2014).
Explain why this
 Reason of differences between Company’s tax expenses shown in balance sheet and
amount of tax rate times on accounting income
 The treatment of charging tax on the earned profit of company is different as per the
accounting rules and taxation rules and regulations.
 The tax expenses shown in the financial statement of company is computed as per the
taxation rules and regulations and tax amount computed manually is based on the
accounting income.
 The differences between two taxes arise due to main two reasons.
First differences is related to items of revenue and expenses shown in the profit and loss
account and the items which are considered as revenue, expenses and other expenses which

Tax analysis of Genworth Mortgage Insurance Australia Ltd
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deductible expenses as per the tax rules. Depreciation accounting, recording of donation and
charging bed debts are different as per the accounting and income tax rules AASB-122.
Answer to question no-4
After going through the annual report of Genworth Mortgage Insurance Australia Ltd, it is
considered that deferred tax assets is AUD $ 10 million. This deferred tax amount should be
recognized and carried forward only to the limit that it is reasonably certainty that sufficient
future taxable income against which deferred tax assets will be realised. It is observed that
company has paid higher tax to government as per the income tax rule and regualtions
(Kundakchyan and Zulfakarova, 2014). It is considered that accounting income and taxable
income are not same and that is why, we see the recording of deferred tax assets and deferred
tax liabilities in the books of accounts of company. For instance, if company finds that due to
the difference between accounting and income tax provision, if company has charged higher
tax revenue by considering accounting rules and regulations then all the excess tax payment
will be shown as deferred tax assets. On the other hand, if company charged lower tax as per
the accounting rules as compared to tax rules and regulations then difference in amount
would be shown as deferred tax liabilities (Genworth Mortgage Insurance Australia Ltd,
2017).
Genworth Mortgage Insurance Australia Ltd has shown Deferred tax amount in its assets
side of balance sheet which reflects that company may take refunds from the government in
case of changes in tax rules and regulations.
Particular (AUD $ million) 2017 2016

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Deferred tax assets 11 10
Answer to question no-5
Current tax assets and other income tax payable by company
It is considered that the current tax payable by company is zero in 2016. The income tax
payable is recorded on the liabilities side of company which shows tax amount to be paid by
company as per the tax rules and regulations given under AASB 122 (Laudon and Traver,
2013). The current tax assets reflect the amount which company might take from the
government. In this case, Genworth Mortgage Insurance Australia Ltd has no current tax
assets no any current tax liabilities.
Deferred tax payment of company is AUD $ 10 million.
Particular(AUD $ in million) 2016 2017
Income tax Expenses 86 67
Why income tax expenses is not same as the income tax payable
The main reason is that income tax expenses charged on the profit of current year. On
the other hand, income tax payable is the accumulation of outstanding tax which company
will pay in future and shown on the liabilities side of balance sheet (Genworth Mortgage
Insurance Australia Ltd, 2017).

Tax analysis of Genworth Mortgage Insurance Australia Ltd
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Answer to question no-6
Is the income tax expense shown in the income statement same as the income tax paid shown
in the cash flow statement? If not
No, the incomes tax expenses, shown in the income statement are not same as the income tax
payment shown in the cash flow statement.
Why are the differences?
Cash flow statement reflects the cash outflow and inflow of money in the current years. The
cash flow of income tax in current year is AUD $ 88 million which covers all the tax payment
by the company in current year. It may include tax for present and future period. On the other
hand, tax payment shown in the profit and loss account is charged for the current year profit
as per the taxation rules of AASB122. The cash flow statement reflects all the tax payment
either related to current, previous and future year. On the other hand, tax charged in the
income statement, is charged on the current year profit of company. The current tax payment
shown in the profit and loss account is AUD $ 67 million.
Answer to question no-7
Treatment of tax in your firm’s financial statements
Interesting thing about the recorded its entire tax amount
The main interesting thing about the recorded its entire tax amount is related to recording of
tax as per the accounting rules and regulation and income tax rules as per the AASB-122.
It reflects the blockage of high amount of cash in the business.

Tax analysis of Genworth Mortgage Insurance Australia Ltd
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Surprising thing about the recorded its entire tax amount
The main surprising thing about the Recording of its entire tax amount of Genworth
Mortgage Insurance Australia Ltd is related to company’s corporate governance program and
recording process of tax in the annual report of company. Company can never have deferred
assets and deferred liabilities at the same time in its balance sheet (Genworth Mortgage
Insurance Australia Ltd, 2017).
Difficulty in recorded the entire tax amount
Genworth Mortgage Insurance Australia Ltdmay find difficult to record its deferred tax
amount. It has no current tax payable and no current tax assets in its books of accounts.
Stakeholders of Genworth Mortgage Insurance Australia Ltd, 2017may find difficult
to bifurcate taxation amount by considering taxation rules and regulation as per AASB-122
and accounting rules and regulation (Genworth Mortgage Insurance Australia Ltd, 2017).
New insight about the company account for the income tax
The main insight about the company account for the income tax is related to how
company formulate its financial statement as per the income tax rules and regulations.
Company has zero amount of current tax payable and current tax assets in its books of
account.

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References
Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge
University Press.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice.
Cengage Learning.
Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal
of Accounting Research, 52(5), pp.1087-1125.
Genworth Mortgage Insurance Australia Ltd, 2017, annual report, Retrieved on 21st January,
2017 from http://investor.genworth.com.au/Investor-Centre/?page=reports-and-presentations
Kundakchyan, R.M. and Zulfakarova, L.F., 2014. Current issues of optimal capital structure
based on forecasting financial performance of the company. Life Science Journal, 11(6s),
pp.368-371.
Laudon, K.C. and Traver, C.G., 2013. E-commerce. Pearson.