Financial Reporting and Accounting Strategy Analysis: ANZ Bank Report

This report provides a detailed analysis of ANZ Bank's accounting strategy and financial reporting practices, examining the bank's approach to financial statements for the years 2015 and 2016. It covers key accounting policies and estimates, including the basis of preparation, income and expense recognition, and income tax. The report assesses the flexibility of these policies, compares them to those of a competitor (Westpac Bank), and evaluates their acceptability, reliability, and relevance. Furthermore, it determines whether the accounting strategy is revealing or hiding information, identifies any red flags, and evaluates the impact of political pressures on accounting standard-setting. The analysis also includes an assessment of ANZ Bank managers' accounting and reporting strategy, evaluating the quality of disclosures and identifying potential red flags, while also considering the bank's compliance with the conceptual framework. The report concludes with an overview of the bank's financial reporting strategy, its strengths, and potential areas for improvement.

Running head: REQUIREMENTS OF ACCOUNTING THEORY 1
Requirements of Accounting Theory
Name:
Institution:
Affiliation:

REQUIREMENTS OF ACCOUNTING THEORY 2
Executive Summary
Accounting reporting and strategy is very important in any organization. Success can only be
achieved if a company follows the right procedures in policy implementation and reporting, with
regards to accounting. The report looks at one of the most successful banks in Australia and New
Zealand, ANZ Bank and the kind of reporting strategy, which they use. The report has an
introduction, main body, which outlines the strategy that has been used by the bank and then
ends with a conclusion of the same. The report will look into the details of some of the
accounting policies, which have been put in place by ANZ Bank Limited.

REQUIREMENTS OF ACCOUNTING THEORY 3
Contents
Executive Summary.........................................................................................................................2
1.0 Introduction................................................................................................................................4
2.0 Accounting Policies and Estimates............................................................................................4
2.1 Accounting Policies and Estimates Used...............................................................................4
2.1.1 Basis of Preparation.........................................................................................................4
2.1.2 Recognition of Income....................................................................................................5
2.1.3 Recognition of Expense...................................................................................................6
2.1.4 Income Tax......................................................................................................................6
2.2 Flexibilities of Accounting Policies and Estimates Used by ANZ Bank Limited.................7
2.3 Accounting Policies and Estimates Used by ANZ Bank Competitors..................................7
2.4 If Policies and Estimates are Acceptable...............................................................................8
2.5 Is Accounting Strategy Hiding or Revealing.........................................................................9
2.6 Red Flags in Accounting Report..........................................................................................11
2.7 Which Accounting Positions Capture them and Why?........................................................11
3.0 Evaluation of Accounting Policy.............................................................................................11
3.1 Political pressures that affect the accounting standard-setting environmen........................11
3.2 Implications of organizations making accounting disclosures............................................12
3.3 Understand the Implications of Particular Accounting Disclosures....................................13
4.0 Report on ANZ Bank Managers’ Accounting and Reporting Strategy...................................13
4. 1 Identify Key Accounting Policies.......................................................................................13
4. 2 Assess Accounting Flexibility............................................................................................14
4.3 Evaluate Accounting Strategy..............................................................................................14
4.4 Evaluate the Quality of Disclosure......................................................................................15
4.5 Identify Potential Red Flags.................................................................................................17
5.0 Compliance with Conceptual Framework...............................................................................17
6.0 Conclusion...............................................................................................................................17
6.0 References................................................................................................................................19

REQUIREMENTS OF ACCOUNTING THEORY 4
Accounting Reporting Strategy of ANZ Bank
1.0 Introduction
ANZ Bank is one of the most successful banks in Australia and New Zealand. The report
views the annual reports for 2015 and 2016 for the bank and looks at the strategy which the bank
has used in its financial reporting (ANZ, 2017). The report therefore views various accounting
policies and how they have been applied to the organization.
2.0 Accounting Policies and Estimates
2.1 Accounting Policies and Estimates Used
2.1.1 Basis of Preparation
Compliance - The financial statements for ANZ Bank are prepared according to
requirements of the Financial Markets Conduct Act of 2013. The financial statements are in
compliance with Australia’s accepted accounting practices, International Financial Reporting
Standards and any other reporting standards which are applicable (ANZ, 2017).
Estimates and Assumptions – The financial statements have been prepared using
management judgements, estimates and assumptions which affect whatever has been reported.
Measurement – The financial statements have been prepared according to historical case
basis and some assets and liabilities are stated at a fair value. These assets and liabilities are
derivative financial instruments, assets which are available for sale, financial instruments which
have been held for trading and those that have been designated at fair value through profit and
loss.

REQUIREMENTS OF ACCOUNTING THEORY 5
Rounding – ANZ Bank rounds off its financial statements to the nearest million dollars
unless stated otherwise.
Consolidated Subsidiaries – Consolidated financial statements include all the businesses
in Australia and New Zealand. The equity method of accounting is applied for any associates.
Foreign Currency – The financial statements of ANZ are presented in Australian dollars.
Any foreign currency transactions are converted into the functional currency using the day’s
prevailing exchange rates (ANZ, 2017). Any monetary assets or liabilities that have resulted
from foreign currency are converted at spot rates as at the reporting date. Any differences in
exchange rates are reported in the income statement.
2.1.2 Recognition of Income
Interest Income – This is calculated using the effective interest method. It is based on the
income which is received by ANZ Bank from interest on its assets minus interest that is paid on
liabilities. Assets include loans and mortgages while liabilities include accounts (ANZ, 2017).
Commission and Fees – ANZ Bank’s commission and fees are calculated using the
effective interest method. Commission and fees are gained after provision of various services to
bank customers.

REQUIREMENTS OF ACCOUNTING THEORY 6
2.1.3 Recognition of Expense
Interest Expense - Interest expense is the money which ANZ Bank incurs for funds
which it has borrowed. These can be bonds, debts or credit lines. It is calculated by multiplying
the interest rate with the outstanding principal amount of debt.
Loan Origination Expense – These are the fees that ANZ Bank pays to brokers for
originating lending business. It also includes expenses like legal costs and valuation fees. They
are part of the costs for acquiring the bank’s financial assets(ANZ, 2017).
2.1.4 Income Tax
Income Tax Expense – These are the yearly tax earnings for ANZ Bank comprising of
current and deferred tax that is based on Australian tax laws.

REQUIREMENTS OF ACCOUNTING THEORY 7
Current Tax – This is the expected tax for ANZ Bank, which is payable on the taxable
income for the year. It can either be recognised as a liability or asset.
Deferred Tax – ANZ Bank’s deferred tax is shown using the comprehensive tax balance
sheet method
Offsetting - The current and deferred tax assets of ANZ Bank are offset to the level at
which they relate to income tax imposed by Australian Taxation Authority.
2.2 Flexibilities of Accounting Policies and Estimates Used by ANZ Bank Limited
ANZ Bank continuously evaluates its estimates and judgments based on historical
experience and future events that may affect the accounting policies. With regards to credit
provisioning, the bank looks at impairment of loans at each reporting date of the financials. The
credit provisioning is estimated based on historical loss experiences by ANZ bank for its assets
which have same characteristics as the ones in the collective pool. The historical loss experience
is adjusted depending on the current data which can be observed and the events occurring in the
company.
ANZ Bank ensures that the financial instruments are measured at fair value by using
quoted market prices in the active market. If an active market lacks, ANZ bank bases the fair
value on present value estimates. The type of valuation models used by the bank include the
effect of bid/ask spread, counterparty spreads and any other factors that may influence fair value
(ANZ, 2017).Buying and selling of derivatives is used by ANZ Bank to hedge interest rate risk,
currency risk and any other exposures which the bank may face.
2.3 Accounting Policies and Estimates Used by ANZ Bank Competitors
The Competitor looked at is Westpac Bank and their accounting policies are as follows:

REQUIREMENTS OF ACCOUNTING THEORY 8
 The financial statements for Westpac are prepared in accordance to the Reserve Bank Act
and Overseas
 Judgements, estimates and assumptions are used in the preparation of Westpac’s
accounting statements
 Funding valuation adjustment is used in the fair value of derivatives by Westpac
 They have a disclosure statement for the year ended September 2014 which is used in
providing guidance to application of offsetting criteria
 The financial statements are authorised by board of directors before disclosure
 The financial statements are prepared based on principles of historical cost accounting
2.4 If Policies and Estimates are Acceptable
The policies and statements which can be used by ANZ Bank Limited are acceptable
as they are understandable. The information which is given in the company’s annual
statements is well presented and therefore understandable to users. A lot of additional
information is provided in the annual statements and this shoes transparency (Otley, 2016).
The policies and estimates are relevant. The information given in the annual reports
of ANZ bank influences the economic decisions of various stakeholders. All the financials
are presented in the annual report and stakeholders can make decisions based on this on
which strategic direction to take, which areas to improve and what assets the bank can
invest in.
The policies and estimates are also acceptable because they are reliable. The
information presented in ANZ Bank’s financial statements 2015 and 2016 is free of material

REQUIREMENTS OF ACCOUNTING THEORY 9
error and bias and is not misleading. The information given represents all the financial
events that have taken place in ANZ Bank. The policies and estimates are comparable in
terms of different years and accounting periods hence stakeholders are able to identify
performance trends (Otley, 2016). This can help ANZ Bank know whether it is on the right
strategic path and where the company may be hurting.
2.5 Is Accounting Strategy Hiding or Revealing
The accounting strategy used by ANZ Bank is revealing. This is due to the fact that the
financial statements are comprehensive. The annual statements of ANZ bank contain different
financial reports which give a comprehensive picture of the bank’s status (ANZ, 2016). The
statements are a true reflection of ANZ Bank’s financial activities and give comprehensive
details of how the bank used its finances.
The accounting strategy is relevant and timely. The financial statements are produced in a
timely manner and are relevant to the business. They are also relevant to the stakeholders as they
show the bank’s true financial position. They are produced annually as required by bank
regulation laws.
The accounting strategy is reliable. The bank has made the annual reports public and
easily available to anyone who may want to access them (ANZ, 2016). The bank has provided a
link in their portal where annual reports since 1969 can be found, hence showing that the strategy
used is a revealing one. Stakeholders and shareholders can therefore access this information and
make informed decisions about the position of the bank and how to make their investments.

REQUIREMENTS OF ACCOUNTING THEORY 10
The accounting strategy is reveling as it is comparable. Financial statements for different
periods can easily be compared by ANZ Bank and a comparison can also be made with financial
statements of competitors (Singleton-Green, 2016).The financial statements of ANZ bank are
characterized by materiality. This is because they have disclosed each material item in a separate
manner, hence making it easier for anyone that wants to access the information for any purpose
(ANZ, 2016).

REQUIREMENTS OF ACCOUNTING THEORY 11
2.6 Red Flags in Accounting Report
The annual statements of ANZ Bank Limited do not show any red flags.
2.7 Which Accounting Positions Capture them and Why?
If there were any red flags, they would be captured by high discrepancies in the financial
statements of the company and high losses in some areas. In this case, there are no red flags
hence no accounting position captures anything.
3.0 Evaluation of Accounting Policy
3.1 Political pressures that affect the accounting standard-setting environment
The account reporting standards setting is considered to be a political process. This is
because it can have a great effect on ANZ Bank. Changes in Australian account standards or
introduction of any new standards can lead to redistribution of wealth in an economy.
Accounting bodies have complex roles in setting accounting standards. Accounting
principles which are sound provide important guidance in determining correct ways of reporting
accounting transactions. Accounting bodies must however look at economic consequences that
are brought about by changes in accounting standards.

REQUIREMENTS OF ACCOUNTING THEORY 12
Political influence can affect ANZ bank as it can affect the outcome of an accounting
process and therefore increase or decrease the bank’s wealth.
Australian accounting regulators are direct political appointments who can make different
decisions which affect wealth allocation between ANZ Bank and its customers. ANZ Bank will
therefore feel that they have undue political pressure if the effect is negative to the bank
(Singleton-Green, 2016).
Political forces in accounting reflect changes in economic, legal and institutional
environments and can assist accounting standards to be moved to the market equilibrium.
Another pressure that ANZ Bank may feel is when special interest groups seek to affect
accounting rules for self-interest hence making them be inefficient.
Political pressure may also be felt when the bank is forced to make adjustments which
may not be proper for the benefit of the selfish gains of few people. This may lead to incorrect
reporting which can negatively affect the bank. Investors may come in and invest in the bank yet
they have used wrong positions in determining the profitability of the bank and also its growth.
3.2 Implications of organizations making accounting disclosures
By ANZ Bank making accounting disclosures it can benefit from new corporate cash.
They can sell stock so that they raise cash and this can only be done successfully if the company
discloses its finances. Through this ANZ Bank will not have to worry about paying back interest
on any loan.
Making disclosures will assist in owner diversification as the owners can diversify their
investments. This is because they will be able to know the true financial position of the
company.ANZ Bank can grow its portfolio further. ANZ Bank will also benefit from increased