ACC201 - Financial Accounting Report: Suncorp Group Analysis, Term 1

This report provides a comprehensive analysis of Suncorp Group Limited's financial performance, focusing on key financial aspects such as revenue, assets, and liabilities. The report begins by identifying Suncorp Group as a finance and banking corporation listed on the Australian Stock Exchange and provides its current share price. The analysis delves into relevant financial information, including the company's revenue generation, asset and liability management, and the application of accounting standards like AASB 13 and IAS 18. The report further examines fair presentation, discussing measurement bases like historical cost and their significance in financial reporting. It also includes a profit and loss statement analysis for Lalchand Ltd, highlighting administrative, finance, selling and distribution, income tax, and investment-related expenses. Finally, the report addresses accounting estimates, particularly how directors can manage gains and losses from hedged items using IAS 39, and how Suncorp Group applies accounting estimates in its financial statements, including the use of historical cost and estimations for insurance contracts and claims liabilities. The report uses the company's annual reports to support its findings.

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Name of the Student
Name of the University
Author Note

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Table of Contents
Task 1.........................................................................................................................................2
Topic 1: Relevant Information for a company...........................................................................2
Topic 2: Fair Presentation..........................................................................................................3
Topic 3: Accounting Estimates..................................................................................................6
References..................................................................................................................................9

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Task 1
 Suncorp Group Limited is a type of finance and banking corporation that is traded in
Australian Stock Exchange. The company has headquartered in Brisbane, Australia.
The company was founded in the year 1996. It is one of the largest insurance group of
Australia.
 Web link of the company:
https://www.suncorpgroup.com.au/uploads/FY19-Annual-Report.pdf
 Current share price of Suncorp limited (at end of FY 2019): $13.47
 To
The lecturer,
I hereby, likely to say you that the company selected for the accounting estimates is
Suncorp Group Limited, that is traded in the Australian Stock Exchange. The company is one
of the largest insurance group of Australia and has been attracted by many of the investors.
The current stock price of the company is $13.47 at the end of June 2019.
Thankyou
Topic 1: Relevant Information for a company
A. The amount of revenue Suncorp group has generated will help to identify the
performance of the company. In addition to this, how the company has managed its
assets and liabilities will also help the investors to identify the company performance
towards its debts and equity (Suncorpgroup.com.au, 2020). The total revenue
generated at the financial year 2018 was $14,190 million and in 2019 it has increased
to $15,560 million. This means that the company has performed better in the current
year. From the company’s annual report it is found that the company has helped the

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investments to grow by providing $3 billion of new credits in the small business.
They had made commercial solutions of insurance to properly manage their assets and
protects them from their traders and enterprises (Badertscher, Shanthikumar and Teoh
2019). The liabilities of the company has been raised from cash flows, repayments,
transaction costs, changes in fair values, loans & advances, derivatives, short & long-
term borrowings, tax liabilities, gross policy liabilities, outstanding claims, amount
due to reinsurers and many more (Posavac et al. 2019). The total amount of liabilities
found form the comprehensive financial position of the company was $85,360million
in the FY 2018 and then it has been decreased to $83,102million in the FY 2019. This
means that the company has also efficiency managed its liabilities. Hence, from this it
can be found that the company is properly managing its assets and liabilities.
B. According to accounting standard, AASB 13 standard of financial recognition of
investment securities, the carrying amount of these investment securities must be
written at its lowers value or fair value of cost in the financial statements (Weetman
2019). This must be properly disclosed in the company’s financial statements.
According to accounting standard of IAS 18, any kind of profits or revenue
generated from dividends must be recognised only when the shareholders income has
been established. This means that, dividend profits should be recognised only when
the dividend has been declared to the shareholders.
Topic 2: Fair Presentation
i. Measurement bases determines the monetary amounts of the financial elements that
are determined in the financial statement. It is very important to include these
measurement bases for the recognition of assets & liabilities. The financial
performance of an organisation affects every stakeholders and shareholders involved
in the business. Measurement basis helps in making financial reporting process. Any

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change in the measurement bases can affect the shareholders and stakeholders. Some
of the measurement bases are historical cost bases, fair value, current cost and net
realizable value (Blanco and Racaza 2018). The measurement bases finds the
reliability and the exact definition of the assets & liabilities. The market value
measurement bases determines the actual price of the assets in the competitive
market. Measurement bases is very important to accomplish the objective of financial
reporting process. The information of measurement bases helps in determining the
accuracy of financial reporting system. The most common bases of measurement is
the historical cost. In historical cost method, the assets are recorded at its fair value
and the amount of cash & cash equivalent paid during the time of acquisition.
Liabilities are recorded at the amount that has been received at the exchange for any
obligations. In case of realizable value measurement bases, the assets are recognised
as the actual amount of cash & cash equivalents that is currently obtained by the
selling of the asset. Liabilities amount are determined by their settlement values
(Burca, Nicolaescu and Draguţ 2019). Hence, the measurement bases is adopted by
most of the business entities to prepare their financial statements. The most common
method is the historical cost method.
Measurement bases helps to determine the economic phenomena of the business in
numbers. Different measurement bases have different implications & information’s related to
the assets & liabilities that is reflected in the comprehensive income statement of the
company. Hence, it is the most fundamental technique to determine that is related to
measurement concept and helps in fairly determine the value of assets and liabilities (Peach
and West 2017). Hence, it is very important to include these measurement bases while
performing the financial reporting process.
(ii) Profit & loss statement of Lalchand Ltd (For the year ended June 30 2016)

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Analysis:
1. Administrative expenses- This includes all the expenses that is recognised as a
percentage of sales. It is the expenses that has been incurred from staff & wages
benefits, office supplies and other consulting expenses.
2. Finance expenses- These are the expenses related to the borrowings from financial
investments (Buxbaum, Cohen and Fendrick 2018). These type of expenses are
related to outside the company’s business. It includes all the loans & interest of the
money that has been borrowed during the financial investment process.
3. Selling & Distribution expenses- This type of expenses has been incurred from the
promotional activities and distribution of the products to the customers. Distribution

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expenses have been incurred from the warehousing expenses, expenses related to the
packaging of the product and delivering the products to the target customers.
4. Income tax expenses- Income tax expense have been identified by the government
related to the business profit. This is known as the tax that has to be paid to the
government.
5. Loss on available for sale investment- This is the loss of the business that has been
ideally kept and cannot be used for trading purpose because the maturity period is
completed.
The above expenses have been incurred by Lalchand Ltd during the financial year
2016. The total net income generated by the company is $2,362,000 in the FY 2016.
Topic 3: Accounting Estimates
A. The directors can use the accounting standard IAS 39 for writing down the gains and
losses of hedged items. All the derivative instruments that has been used as hedged
instrument must be measured at the fair value. All the capital losses & gains must be
recognised at its fair value. It should reflect the credit quality of the derivative
instrument (Stuber et al. 2018). The hedged items that is traded in the open market
must be written at its market price value of the instrument. The recognition of these
financial instrument must be done on the basis of its risks. Such risks includes; the
interest rate risk, equity price risk, currency risks & commodity risk. There are
different type of risks involved in different derivative instruments. Then the directors
can record the capital gains & loss of the derivative instrument in the income
statement. This must be recognised during the time of sale of the derivative
instrument. In case of any unrealised gains or losses of the derivative instrument must
also be recognised in the income statement. This unrealised amount must be
determined at the value of exchange rate of the hedged items during the financial

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period. In case of any hedging transactions done for tax purposes, the hedged item
must be treated as the investments done for future contracts or investments done for
foreign currency contract. This is not determined as the hedged event even if it has
been sold for the tax purpose (Sun 2019). Hence, in this case, the gains and losses
from the hedged items is not recognised. But, the directors should have the
responsibility to clearly identify the transaction of the hedged item on daily basis.
This will help them in easy determination of the taxation related to the income
generated from the hedged item transactions. In every gain or losses of the underlying
contract, the director must determine its capital gain or loss according to the hedging
rules.
Therefore, the directors are advised to determine the fair value of the capital gains or
losses raised from the hedged items. It is best to recognise the amount of losses and gains in
the company’s income statement (Stubb and Higgins 2018). The account policies of
International Accounting Standard 39 needs to be followed for dealing with the classification
of hedged items. This must be done by reporting the risks involved with the hedge items.
B. Accounting Estimates
The accounting estimate of Suncorp Group Limited has done by simply determining
the carrying amount of the assets & liabilities in the financial statement. Some of the
accounting estimates found in the company’s annual report are:
 The financial statement has been prepared on the basis of historical cost method (page
88). This means that accounting estimation is done by comparing the historical data
and determining the value at the current financial year.
 The liabilities related to general insurance contract has been determined at its carrying
value (Page 110). These liabilities includes the liabilities that has been adopted for

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LAT (Liability adequacy test). The net premium liabilities are determined at the
carrying value of outstanding claim liabilities.
 The carrying value for the financial liabilities like non-interest bearing, variable rate
deposits & fixed rate deposits are determined in the short-term borrowings and
deposits. This carrying value has been written from the estimation of fair value (page
124).
 The statutory tax rates for various classes of the business has simply written on the
basis of historical cost (Suncorpgroup.com.au, 2020). The cost of tax rates related to
annuity & pension rates are simply written on the bases of previous year rates (page
30).
 The determination of insurance contracts are written on the basis of its estimation
from analysis of the company trends with related to the industrial data. These type of
claims liabilities are simply determined on the basis of accounting estimates (page
112).
 There is an accounting estimation done on future payments of the business for the
claims that has been reported on the reporting date from many years ago (Bogdan
2016). These estimation may not be accurate during the next accounting periods (page
165).
 Suncorp group has focused on historical experiences for determining the current
estimation of these claims. This estimation may change with respect to time. The
current estimation is determine by finding the variability of the current and historical
estimations. On the basis of variations, the current estimation is done. During this
process the company does many assumptions like future wages, average size of the
claim, associated risk margin and the possible inflations. Some of the examples is

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related to workers compensation, future uncertainty like earthquakes and many
more( (page 165)

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References
Badertscher, B.A., Shanthikumar, D.M. and Teoh, S.H., 2019. Private firm investment and
public peer misvaluation. The Accounting Review, 94(6), pp.31-60.
Blanco, M.N. and Racaza, C.R., 2018. FAIR VALUE ACCOUNTING: ITS
DEVELOPMENT AND ITS IMPORTANCE TO FINANCIAL STATEMENTS USERS.
Bogdan, V., 2016. FROM SCHRÖDINGER'S CAT TOWARDS A QUANTUM
APPROACH OF ACCOUNTING ESTIMATES, JUDGMENTS AND DECISION
MAKING. Annals of the University of Oradea, Economic Science Series, 25(2).
Burcă, V., Nicolăescu, C. and Drăguţ, D., 2019. Critical Analysis on the Amendments
Discussed, Concerning Changes in Accounting Estimates. Studies in Business and
Economics, 14(1), pp.17-33.
Buxbaum, J.D., Cohen, A.J. and Fendrick, A.M., 2018. Measures of the Burden of Medical
Expenses. Jama, 319(15), pp.1621-1621.
Peach, K. and West, C.S., 2017. Invitation to comment on ED 277 Disclosure Requirements
for Tier 2 Entities.
Posavac, S.S., Ratchford, M., Bollen, N.P. and Sanbonmatsu, D.M., 2019. Premature
infatuation and commitment in individual investing decisions. Journal of Economic
Psychology, 72, pp.245-259.
Stubbs, W. and Higgins, C., 2018. Stakeholders’ perspectives on the role of regulatory reform
in integrated reporting. Journal of Business Ethics, 147(3), pp.489-508.
Stuber, S., Hogan, C., Dennis, J.S., Stanley, J. and Wilkins, M., 2018. Do PCAOB
Inspections Improve the Accuracy of Accounting Estimates?. Working paper, Michigan State
University.

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Sun, T., 2019. Machine Learning Improves Accounting Estimates.
Suncorpgroup.com.au, 2020. [online] Suncorpgroup.com.au. Available at:
<https://www.suncorpgroup.com.au/uploads/FY19-Annual-Report.pdf> [Accessed 11 April
2020].
Weetman, P., 2019. Financial and management accounting. Pearson UK.