Contemporary Accounting Theory Report: Pinnacle vs Nedbank Analysis

This report provides a comparative analysis of the accounting practices of Pinnacle Investment Management Group (Australia) and Nedbank Group Limited (South Africa). It begins with an introduction to corporate external reporting and its significance, followed by a literature review on the history and development of the Conceptual Framework for Financial Reporting, including its application, benefits, and limitations. The report then examines the financial statements of both companies, including the Consolidated Statement of Profit or Loss, Comprehensive Income, Financial Position, Changes in Equity, and Cash Flows, along with the notes to the financial statements. It analyzes revenue recognition, measurement bases, and qualitative characteristics exhibited in the financial reports. The second part of the report focuses on integrated reporting, comparing sustainability reporting guidelines, particularly the Global Reporting Initiative (GRI) standards. The report concludes with an assessment of the companies' disclosures related to Corporate Social Responsibility (CSR) and their overall reporting practices.

CONTEMPORARY ACCOUNTING

Pinnacle vs Nedbank
Executive Summary
In the present scenario, sustainability and integrated reporting is the need of the hour as it
highlights the performance of the company in terms of different parameters. The review is done
with the aid of two different companies that are based in Australia and South Africa. The report
initiates with the introduction followed by the review of literature in terms of a conceptual
framework for financial reporting. The conceptual framework of both the company is adequately
discussed and how it is used by the company. Further, the second part deals in Integrated
reporting where a holistic view is CSR is provided. The report is based on Australian company
that is Pinnacle Investment and Nedbank Group Ltd that is a South African company.
Furthermore, the index of an integrated report is prepared and the pattern of disclosure of the SA
company. The overall analysis indicates that the companies provide adequate disclosure and
provides relevant disclosures when it comes to CSR.
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Pinnacle vs Nedbank
Contents
Introduction......................................................................................................................................3
Part – A Conceptual framework......................................................................................................4
Part – B integrated reporting............................................................................................................9
Conclusion.....................................................................................................................................13
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Pinnacle vs Nedbank
Introduction
Corporate external reporting practices are the need of the hour as it emphasizes on the conceptual
framework of the company together with the performance of the company. A sound corporate
financial reporting practice is the need of the hour as it the pillar of a strong financial system and
the process with which financial and non-financial information can be communicated (Kruger,
2015). The report emphasizes the conceptual framework of two major companies in Australia
and South Africa and the same is contrasted. The annual report of both the companies is
downloaded and studied in terms of revenue recognition, measurement bases, and other
qualitative features. While the second part of the report deals in sustainability reporting where
the GRI standard of Medibank and Capitec Bank Holdings Ltd is studied in terms of
sustainability.
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Pinnacle vs Nedbank
Part – A Conceptual framework
Literature review history and development of the conceptual framework of financial
reporting
There was no standard set of rules for preparing the financial statements until the major scams
like Enron, Dotcom and such other cases took place. It was then the regulators realized the
importance of formulating a set of rules to govern the preparation and presentation of financial
statements. In the late 1980s, the IASB (International Accounting Standards Board) took up the
formulation of rules a major item and issued 8 standards on such areas that were not previously
covered by the accounting standards. This was first made applicable in the USA and was later on
followed by different countries as they started incorporating the conceptual framework in their
respective country’s guidelines (Lajili & Zéghal, 2010).
Application IFRS/IASB CF of financial reporting.
A lot of concepts are theoretical and when it comes to practical application, things are different.
From an accountant’s viewpoint, not everything that is explained in the conceptual framework
can be applied practically. And on the other hand, a few such practical issues are faced by the
accountant for whom the conceptual framework does not have an answer and in such cases,
relevant assumptions have to be made to complete the accounting, reporting, and disclosures
about the same (Moroney & Windsor, 2012)
Potential benefits and limitations of the Conceptual Framework for financial reporting
The benefits of the conceptual framework are that it provides credibility to the financial
statements and ensures a set of rules and regulations based on which the statements are prepared
and presented. Also since it is acceptable worldwide, financial statements prepared using the
conceptual framework can be compared across nations and can be understood and interpreted by
foreign investors and third parties also. The limitations of the conceptual framework are that it
reduces the role of an accountant to a tick mark process and leaves the reasoning and logic part
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Pinnacle vs Nedbank
aside (Leisyte & Westerheijden, 2014). Given the rate of technological advancements, a lot of
complex structured transactions are taking place, the accounting and reporting of which is
becoming a challenge. Thus the limitation is that there could be a different set of interpretations
for the same transaction by different accountants and hence the facility of comparability is lost in
such cases (Schneider, Johnston & Down, 2017).
Conceptual framework and major components.
Pinnacle Investment Management Group is a multi affiliated investment management firm based
out in Australia with a mission to grow and support world-class investment management firms. It
was established in 2006 and today has 11 investment affiliates. The company asserts that the
most important part of its business is people and hence the group believes in delivering long term
growth for both investors and stakeholders.
Following the conceptual framework, the below statements have been prepared by the company:
Consolidated Statement of Profit or Loss
This statement shows the revenues earned and expenses incurred by the group during the
financial year. The resultant amount of profit or loss from continuing operations is arrived at.
This profit is attributable to the owners of the Group in the form of Basic Earnings per share and
Diluted Earnings per share.
Consolidated Statement of Comprehensive Income
This statement shows the increase or decreases to the net profit for the year caused due to
changes in the fair value of available for sale financial assets and the profit attributable to non-
controlling interests. A further classification of the total comprehensive income attributable to
continuing operations and discontinued operations is also provided.
Consolidated Statement of Financial Position
The statement of financial position is prepared as on the year-end which is 30 June 2018 showing
the amounts of assets owned by the group and liabilities owed as on this particular date. A finer
classification of assets and liabilities into current and non-current items is provided and the
balancing figure is understood as Equity which is the owner’s capital.
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Pinnacle vs Nedbank
Consolidated Statement of Changes in Equity
The opening balance of equity is the starting point upon which the additions or reductions due to
transactions with owners are shown and the closing balance of equity is arrived at. These
transactions with owners can be shares issued, share-based payments, share placement, options
issued, dividends paid to shareholders and acquisitions of non-controlling interests.
Consolidated Statement of Cash Flows
This statement shows the inflows and outflows from the operating, investing and financing
activities of the company. The opening cash balance is matched and tallied with the closing cash
balance and this statement includes the cash flows from both continuing and discontinuing
operations.
Notes to the consolidated financial statements (Nedbank Group Limited)
The notes provide finer explanations and break up figures for a majority of the items in all the
above reports.
Nedbank Group Limited has prepared the Annual Report following the South African
Companies Act, 71 of 2008. The audited financial statements comprise of the below:
Consolidated Statement of comprehensive income
Operating incomes includes the interest income on financial instruments and also the income
from lending activities. The operating expenses are deducted and the net profit for the year is
arrived at. This profit is attributable to the equity shareholders and preference shareholders and
the earnings per share both basic and diluted is presented in the statement of comprehensive
income.
Consolidated statement of financial position
This statement provides a summary of the assets, liabilities, and equity of the company as on the
reporting date.
Consolidated statement of changes in equity
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Pinnacle vs Nedbank
Equity comprises of ordinary shares, ordinary share premium, foreign currency translation
reserve, and property revaluation reserve. The movements in the form of additions and
reductions in each of these accounts is depicted to arrive at the closing balance of equity as on
the reporting date.
Consolidated statement of cash flows
The movements in cash balance and the segregation of the areas where cash is spent and received
during the year is provided in this statement. The broadheads of classification are operating,
investing and financing activities.
Notes to the consolidated financial statements
The reference to the respective accounting standards and the breakup of various broadheads on
the financial statements is provided in the notes to the consolidated financial statements.
Recognition principles and measurement bases
Revenue is classified into services revenue and other revenue. The recognition and measurement
of the revenue are done under the IFRS (International Financial Reporting Standards) issued by
the IASB.
Assets have been measured and presented under the historical cost convention method with an
exception of assets that are to be measured at fair values or as assets available for sale and
financial assets at fair value through profit or loss.
Liabilities are measured following the applicable Accounting Standards and IFRS that require
the initial recognition at historical cost and the subsequent measurement at fair values with a
provision of write down or impairment according to the market values.
What qualitative characteristics of information exhibit in the company’s financial reports?
PN has witnessed strong growth in the depth and breadth of its activities. With the addition of
two affiliates during the year, it has focused on a careful expansion and distribution strategy. The
Annual Report focuses on the timeliness of the information in the sense that all the relevant news
about the major acquisitions are provided in a systematic and timely manner. The events
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Pinnacle vs Nedbank
occurring after the balance sheet date are provided to help the stakeholders make informed
judgments about the financial statements. Due to the use of the internet and technology, the
Group ensures that all the critical information and press releases quickly reach the audience. The
Investor Relations section on the company’s website is updated with all the reports.
Comparability of information is another qualitative characteristic exhibited in the financial
reports. The prior-year figures have been provided in all areas for comparison purposes. In
addition to this, the major departures and changes in accounting policies and estimates in
comparison to the prior year have also been explained in the notes to the accounts. The financial
impact of the same has been quantified and expressed in monetary terms (Douma & Hein, 2013).
Understandability is the next qualitative characteristic focused on the annual report. A glossary
of terms explaining the various financial technical and financial terms makes it simpler for a
layman to read and interpret the annual report. The financial statements are also prepared per the
set guidelines which make comparisons across different companies possible and feasible. The
financial statements have to be read in conjunction with the notes to the financial statements to
gain a better understanding (Edward & Moutchnik, 2013).
Verifiability is enhanced by providing Notes to the financial statements. These notes contain
finer explanations and breakups of the various figures on the financial statements. Thus the
matching of different figures occurring in different areas of the annual report is achieved and the
characteristic of verifiability is exhibited in the company’s financial report (Fraser, 2011).
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Pinnacle vs Nedbank
Part – B integrated reporting
Comparison and contrasting the Sustainability Reporting Guidelines
The standards and principles that are being used by the organization not only and them to
improve the efficiency of the reporting process conducted by the organization but also had
helped them to adopt a new way of thinking that can breakdown various type of issues and also
reduce the risk of duplication. They also help the organization to acquire proper information that
can be used by them to make the proper allocation of capital. The use of proper frameworks in
the company will not only help the business to improve its value with time but also make it
financially stable in the international market (Cheng, Green & Ko, 2012).
The global reporting initiative was established by testing businesses all over the world. More
than 140 businesses and investors from 26 different countries were observed to be consulted and
tested. The most important function of this work is to create specific guidelines upon which the
integrated report of the company can be created.
Hence, it can be observed that the global reporting initiative is an international not-for-profit
organization which is based on a network structure. This is also a very important initiative that
will help organizations to report their economic, social, environmental and other governance
performances which will further help them to produce free sustainability reporting guidelines.
All these guidelines have been clearly mentioned in the fourth generation report which is
designed universally e for application of every kind of business and of any size. There is a
different type of frameworks present that can be used by the organization for consolidation of the
framework of the reporting performance in accordance to the norms and codes followed by the
organization in terms of sustainability (Bekiaris, Efthymiou & Koutoupis, 2013). This also
includes the harmonization of global framework so that multinational guidelines can be utilized
by the organizations for working in accordance with human rights. Various type of accounting
formats can be reported using the fourth generation format also enhancement of the quality of
sustainability report is observed if they are used properly in the integration of reports (Cheng,
Green & Ko, 2012).
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Pinnacle vs Nedbank
Theory applicability
The sustainability reporting system of an organization is used by them in order to determine all
the sustainability activities that are being carried out by it. These activities also determine the
legitimacy of the organization. For proper operations in society, it is very important for
organizations to conduct legitimate business. The organization should conduct legal business in
terms of existence so that all the rights can be preserved in order to continue the operations. It is
observed that the organizations are under constant public scrutiny so as to determine whether the
business is earning a profit or not (Black, 2010). There are various exceptions for an organization
that can affect the overall impact that is being created on them by the environment and society. If
the society will not allow the organization to practice easily then it will not be able to conduct the
business really because of which the capital will be restricted and also the labor customer support
will decrease because of which the organization will be collapsed. Proper corporate governance
practices were being utilized by the organization for enhancing the legitimacy of the
organization's workforce (Cohen & Dey, 2013). Also, the sustainability reporting system is
necessary for the organization to communicate all the sustainable activities and performances of
the organization and its legitimacy while functioning.
The organizations are required to determine the legitimacy of the relationship present between
the company and the environment. It has been theory stated by different economics that the
actions of the organization are directly connected to the environment conditions of the market
because of which the society is also affected (Goergen, M. & Renneboog, 2011). Legitimating is
the process that can be carried out by the organization for proper justification of a subordinate
system that can help to import, transform or export the energy material or information (Douma &
Hein, 2013).
Check list and adherence by the Pinnacle Investment Management Group
There are various types of elements that are to be included in the integrated report so as to link
them fundamentally but at the same time, they are not mutually exclusive.
 It is needed for them to determine the environment of the market so as to understand the
circumstances under which it is operating.
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Pinnacle vs Nedbank
 The government structure of the organization used by it to create value in short, medium
and long term aspects.
 The business model used by the organization is also needed to be assessed. All the risks
and opportunities that are prevailing upon the organization should be determined so as to
know the power of the organization to create value while conducting the operations.
 Proper allocation of resources is required by the organization so as to reduce the budget.
One of the most important functions is to determine the performance of the strategic
activities carried out by the organization (Henriques, 2013).
 Proper Outlook needed to be presented over the challenges and uncertainty that are being
faced by the organization and also future implications should be made. Proper
presentation of the integrated report should be determined so as to quantify or evaluate all
the matters.
Nedbank Group Ltd. integrated report and comparison of the contents
Yes, the organization prepares an integrated report that reflects all the commitments and
responsibilities towards the clients, shareholders and other stakeholders of the organization. It is
very important for the organization to maintain a strong relationship with its stakeholders who
has to enhance the business performance by getting maximum investment. Regular engagement
with investors of the organization should be made in order to focus on the areas that are
considered to be of material importance to the business. The organizations try to work in
accordance with a code of conduct that helps it to reflect the risks and opportunities for particular
areas and also show the issues of interest to their shareholders (Vieira, 2018).
• Management of social and environmental risks.
• Utilizing proper business ethics.
• Workforce and people.
• Investments, products, and market conditions.
• Sustainability of the operations carried out by the organization.
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Pinnacle vs Nedbank
The organization tries to create an environment where learning is a part of an employee’s career
and development choices so as to recognize all the benefits individually. The organization types
to invest in employees by providing them proper opportunities for learning the needs and talents
that are required for the long-term success of the organization. There are various types of
programs that are being sponsored by the organization in terms of education and career
development which can be utilized by the employees for making a better future (Abdulsamad,
Yusoff & Lasyoud, 2018).
Therefore the organization is observed to provide significant time and effort to the employee
orientation process so that proper learning and development skills can be inculcated by them.
Proper communication of the code of conduct and other principles are needed to be reinforced
for effective risk management and other behaviors (Samaha, K. & Dahaway, 2010). There was
also different type of environmental impacts that was being observed because of the operations at
working conducted by the organization. Hence comedy was made important for the company to
determine all these impacts by monitoring and reducing resources that are emitting carbon and
harming the environment. Proper implementation of the environmental management plan should
also be done in order to maintain the sustainability of the supply chain (Pearce, 2012).
Corporate social responsibility of Nedbank Group Ltd.
Address of the organization was an education fraternity that provided a source of future
employees. All the financial services didn't impact the environment much. However, the group
tried to maintain the environment by taking proper measures. Various commitments were made
by the organization in terms of sustainability regulations:
• Proper implementation of employment practices.
• Promotion of a well-thought investment proposal.
• Working in accordance with proper corporate governance principles.
• Creating better opportunities for employees in terms of education and other facilities.
• Conducting business ethically.
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Pinnacle vs Nedbank
Conclusion
The overall analysis provides a major glimpse that both the companies has adhered to the
concept of sustainability reporting. Furthermore, the conceptual framework principle has been
effectively followed. Overall it can be commented that the benefits of the CF is immense as it
provides immense credibility to the financial system and ensures that the financial statement s
are prepared as per the regulations that has been set down. Therefore, the principle of CF is a
guiding force and from the report it is evident that it plays a leading role in financial reporting.
Moreover, the integrated or sustainability is an important component in reporting and it is
witnessed from the study that the Australian and South African company both adheres to the
reporting. The information can be easily received by an in-depth study of both the organization.
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