ACCT2005: Annual Report Analysis and Interpretation

This report provides a comprehensive analysis of the Commonwealth Bank's annual report, focusing on its accounting policies, financial statements, and their consistency with relevant accounting standards. It examines the company's approach to asset valuation, liabilities, equity, revenue, and expenses, highlighting the bank's adherence to AASB and IFRS standards. The report also discusses the appropriateness of accounting changes, such as the deferred tax on the indefinite useful life of Brand Names, and its impact on the financial statements. Furthermore, it explores the connection between the bank's accounting policies and its overall business strategies, emphasizing how financial reporting supports the company's market share and business value. The analysis includes references to the company's annual report and relevant accounting literature.

Running Head: ANNUAL REPORT ANALYSIS AND INTERPRETATION
ANNUAL REPORT ANALYSIS AND INTERPRETATION
Name of the Student
Name of the University
Author Note

1ANNUAL REPORT ANALYSIS AND INTERPRETATION
Table of Contents
Answer 1....................................................................................................................................2
Accounting Policies of Company...........................................................................................2
Answer 2....................................................................................................................................3
Consistency of Accounting Policies.......................................................................................3
Answer 3....................................................................................................................................5
Appropriateness of Accounting Changes...............................................................................5
Answer 4....................................................................................................................................6
Connection between Accounting Policies of Company and its Strategies............................6

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Answer 1
Accounting Policies of Company
The analysis of financial statement provides the idea to investors in order to decide for
the investment of funds in the particular company. Annual reports are prepared for the
intention to give the information to the shareholders as well as other interested people, the
activities and the financial performance of the company. It helps in giving a lot of the
information about the business organization.
The Commonwealth Bank is the multinational Australian bank, which is
headquartered in Sydney, Australia. It has its business all across United Kingdom, United
States, Asia and New Zealand. Moreover, it provides the various financial services that
include retail banking, institutional banking, investment and broking services,
superannuation, business and institutional banking (Commbank.com.au. 2019).
The financial report of the Commonwealth bank includes consolidated as well as separate
financial statements of bank and the Group respectively. Moreover, the notes that
accompanies to the financial reports and the Independent Auditor also forms the part of the
financial report. Further, the incorporated and domicile of the bank is in Australia and it is
for-profit entity. Hence, the overview of the financial statement is that it contains principal
policies of accounting, basis of the accounting as well as future accounting development.
These accounting policy for the balances and the transactions helps in providing the
information for assisting in understanding of the measurement, recognition and disclosure of
the information. Further, the company’s financial report are prepared on the basis of going
concern by using historical cost basis that is except in case of certain assets and the liabilities
that are measured at the fair value (Albu, Albu & Alexander, 2014). Following are the some
of accounting policies covered in the annual report:

3ANNUAL REPORT ANALYSIS AND INTERPRETATION
 The group accesses at the date of each useful lives as well as residual values of the
balance sheet and assess whether there exist any objective evidence of the
impairment. In case if the carrying value of the asset is more than the amount of
recoverable then the carrying amount are immediately written down to recoverable
amount.
 The assets of the company are categorized as the assets that are held for trade,
insurance assets as well as other investments. The financial assets of the company are
measured at the fair value with the changes in the fair value recognized in other
Income of banking (Aasb.gov.au. 2019).
 The measurement of the land as well as building is at the fair value that is based on
the annual independent valuations of market.
 The measurement of the bills payable as well as other liabilities is done at the
contractual amount payable. This contractual payable of amount appropriates the fair
value.
 For the determination of the amount of the dividend to be paid, the relative strength of
the capital and the guidelines of the existing dividend payout ratio are to be
considered.
Answer 2
Consistency of Accounting Policies
Following are the groups of items of the company’s financial statement, under which
the consistency of the accounting policies with the relevant accounting standards are
described:
Assets- According to AASB accounting standard, the cost of the item of the plant,
property and equipment have to be recognized as the asset, if there is the probability

4ANNUAL REPORT ANALYSIS AND INTERPRETATION
that the associated economic benefits with the item will tends flow to the organization
and the cost of the item are reliably measured. Hence, the recognition of the plant,
property and equipment are done at the cost that consists of the direct as well as
incremental costs of acquisition less the accumulated depreciation and the impairment
if in case it is required. Therefore, Commonwealth bank also recognizes their assets in
accordance with the accounting standard of AASB (Aletkin, 2014).
Liabilities: The recognition of liability should be done in the financial statement
when there is the probability that the future sacrifice of the economic benefits will be
required and the liability amount can be reliably measured. Hence, the
Commonwealth bank follows the AASB accounting standard for recognizing
liabilities.
Equity: It is residual interest in the organization’s assets after the deducting the
liability. The Commonwealth bank follows same step in determining equity.
Revenue- The recognition of the revenue should be in the operating statement for the
determination of the reporting period’s results when there is the probability that
inflow, the other enhancement, or the saving in the future economic benefits’ outflows
has been occurred. Moreover, inflow or the other enhancement or the saving of the
future economic benefits’ outflows can be reliably measured. Hence, in case of
Commonwealth Company, AASB accounting standard has been followed for revenue
recognition (Aletkin, 2014).
Expenses- The recognition of the expenses should be done in the operating statements
for determining the financial results for the operating period when, there is the
probability that the consumption or the loss in the future economic benefits results in
the reduction in the assets or rise in the liabilities has been occurred. In addition, the
consumption or the loss of the future economic benefits can be reliably measured.

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Hence, in case of Commonwealth bank also, AASB accounting standard has been
followed for operating expenses (Istrate, 2015).
Therefore, it can be said that the policies of the accounting of Commonwealth bank are
consistent with the accounting standard. Moreover, the financial statements of the company
are prepared according to the standards, Australian Accounting Interpretations that are
adopted by Australian Accounting Standards Board (AASB) as well as International
Financial Reporting Standard (IFRS) issued by the International Accounting Standards Board
(Christensen et al. 2015).
Answer 3
Appropriateness of Accounting Changes
Deferred tax on the indefinite useful life of Brand Names- earlier, in the year 2008,
the bank did not recognize the deferred tax on Bankwest brand that was acquired by the
business combination because brand was having indefinite useful life as well as the carrying
value was expected to realized by the sale (Henderson et al. 2015). However, the IFRS
Interpretation Committee in November, 2016 has published the agenda decision that the
entity cannot assume indefinite useful life of the intangible asset’s carrying value to be
recovered by the sale. This has resulted into Bankwest changed for being realized through the
use given that there would be no expected, planned as well as the potential sale of the
Bankwest in coming near future (Chen, Ding & Xu, 2014). Hence, Commonwealth bank has
strived for changing their accounting policy for accounting of the deferred tax on Bankwest
brand. This has resulted into decreased opening retained income of $56 million with the
increased deferred tax liabilities. There has been offset of deferred tax liabilities against the
deferred tax assets. However, there was having no impact on the profit (Nobes & Stadler,
2015).

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Answer 4
Connection between Accounting Policies of Company and its Strategies
Financial accounting plays the vital role in the business for keeping all the track of its
financial transactions. This process helps the company in recording as well as reporting the
financial data, which goes in as well as out of their operations of the business. The accounting
data are recorded on the series of the financial statements that includes the balance-sheet,
cash-flow statements as well as the income statements. Moreover, companies have to adhere
to the series of the accounting principles in their financial accounting. It facilitates the
investors with the baseline of the analysis as well as comparison between the other
organizations and their financial health. It also helps the creditors for assessing the liquidity,
solvency as well as creditworthiness of the business. The investors’ uses the information from
the financial statements in order to take the decisions based on understanding about the
history as well as current financial health of the organization. The requirement set by the
AASB and IFRS creates the consistency in style and timing of the financial accounts that
implies that the investors likely get the accounting information that are being filtered, based
on the current condition (Goncharov & Van Triest, 2014).
Hence, in case of Commonwealth bank, the accounting policies of the company has
link with its strategy because of the fact that company prepare the financial reports, which is
being served to the stakeholders for disclosing the company’s financial results. The
accounting policy that helps in supporting the strategy of the company is measurement of its
land and building at the fair values that are based on the annual independent market
valuations. It allows the company to create the picture of the real business value. It helps the
business to know their business is at what level in the global competitive market
environment. Moreover, not only this, it also helps in boosting the market share and it suggest

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the ways for better management of the assets as well as largest capital investments (Tayeh,
Al-Jarrah & Tarhini, 2015).
Hence, financial report of the company contains the policies of principal accounting,
the basis of the accounting and the future development of accounting. Moreover, the
company provides the information that is consistent with the accounting standards to their
stakeholders. Further, in case of any changes that took place in the standards of accounting,
company strives to change their accounting policies as and when required. Lastly, the policy
of accounting adopted by the company supports the company’s strategy that ultimately helps
the company in boosting the market share and creating the real business value (Bouten &
Hoozée, 2015).

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Reference
Aasb.gov.au. (2019). Retrieved 18 July 2019, from
https://aasb.gov.au/admin/file/content102/c3/SAC4_3-95.pdf
Albu, C. N., Albu, N., & Alexander, D. (2014). When global accounting standards meet the
local context—Insights from an emerging economy. Critical Perspectives on
Accounting, 25(6), 489-510.
Aletkin, P. A. (2014). International financial reporting standards implementation into the
Russian accounting system. Mediterranean Journal of Social Sciences, 5(24), 33.
Bouten, L., & Hoozée, S. (2015). Challenges in sustainability and integrated reporting. Issues
in Accounting Education Teaching Notes, 30(4), 83-93.
Chen, C. J., Ding, Y., & Xu, B. (2014). Convergence of accounting standards and foreign
direct investment. The International Journal of Accounting, 49(1), 53-86.
Christensen, H. B., Lee, E., Walker, M., & Zeng, C. (2015). Incentives or standards: What
determines accounting quality changes around IFRS adoption?. European Accounting
Review, 24(1), 31-61.
Commbank.com.au.(2019). Retrieved 18 July 2019, from
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
results/fy18/cba-annual-report-2018.pdf
Goncharov, I., & Van Triest, S. (2014). Unintended consequences of changing accounting
standards: the case of fair value accounting and mandatory dividends. Abacus, 50(3),
341-367.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial
accounting. Pearson Higher Education AU.

9ANNUAL REPORT ANALYSIS AND INTERPRETATION
Istrate, C. (2015). The persistence of the accounting policies after the transition to IFRS of
the Romanian listed companies. Accounting and Management Information
Systems, 14(4), 599.
Nobes, C. W., & Stadler, C. (2015). The qualitative characteristics of financial information,
and managers’ accounting decisions: evidence from IFRS policy changes. Accounting
and Business Research, 45(5), 572-601.
Tayeh, M., Al-Jarrah, I. M., & Tarhini, A. (2015). Accounting vs. market-based measures of
firm performance related to information technology investments. International
Review of Social Sciences and Humanities, 9(1), 129-145.