Corporate Accounting Report: Financial Reporting and Equity Analysis

This report provides a comprehensive overview of corporate accounting, focusing on the relevance of International Financial Reporting Standards (IFRS) and the role of the Australian Accounting Standards Board (AASB). It examines voluntary disclosure practices and the importance of IFRS in ensuring transparency and comparability in financial reporting. The report delves into the analysis of equity components, including issued capital, retained earnings, and reserves, for four companies listed on the Australian Securities Exchange: Ramsay Health Care Limited, Capitol Health Limited, SDI Ltd, and Virtus Health Limited. Furthermore, it compares the debt-to-equity ratios of these companies, providing insights into their financial stability. The report concludes with a summary of findings, emphasizing the importance of adhering to financial accounting and reporting frameworks for effective corporate governance.

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Corporate Accounting

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Executive Summary
Today, the pace and impact of globalization have created a stronger connectivity among the
financial markets at international level. As a result, it has become necessary for the companies to
strictly comply with the international accounting standards while preparing their financial
statements. The IFRS has established a series of regulations and codes which are applicable to
the framework of corporate reporting for every country to disclose their material information.
From the report, it has been found that a sound corporate reporting system facilitates economic
development of a country by reinforcing shareholders' confidence and enhancing transparency,
comparability as well as financial stability. Moreover, it was observed that an effective reporting
structure also enables worldwide sharing of financial resources along with economy integration.
AASB also supports this for minimizing mis-utilization of resources, and corruption. In addition,
the AASB has also been found to promote compliance and that that management should not be
provided absolute freedom to decide what accounting information should be incorporated in the
financial statements in order to control information irregularity.

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Table of Contents
Introduction......................................................................................................................................3
Financial Reporting and Voluntary Disclosure...............................................................................4
AASB & IASB................................................................................................................................5
Participation of AASB in setting IFRS........................................................................................5
Non-compulsion of IFRS for IASB members..............................................................................6
Discussion on items of equity..........................................................................................................8
Comparison of debt and equity for the four companies................................................................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

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Introduction
The following report is designed to provide an understanding of corporate accounting concepts
and its relevance for companies in the preparation and disclosure of their financial statements.
The report discusses the relevance of disclosing financial information by the managers as per
IFRS or voluntarily. Along with this, emphasize has been made on the role of AASB in the
setting process of IFRS on global level, and the reasons why the associate countries of IASB are
not required to follow the IFRS framework. In this context, the report also analyses the financial
statements, and debt-equity position of four companies listed on Australian Securities Exchange:
Ransay healthcare limited, Capitil health limited, SDI limited and Vtrus Health Limited.

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Financial Reporting and Voluntary Disclosure
Voluntary disclosure of financial information refers to the practice of incorporating information
by the companies' management outside the principles of International Financial Reporting
Structure (IFRS), and Securities Exchange Commission requirements. Many companies believe
that voluntary disclosure is relevant for enabling effective decision making by the users of
financial statements (Newberry, 2015). Managers also adopts voluntary disclosure in addition to
the mandatory reporting system in order to communicate their entity's performance to the
stakeholders.
However, in comparison to voluntary disclosure, IFRS reporting principles proves to be more
systematic and authentic. The true and fair scenario of a company's performance sometimes
become hard to determine when managers follow voluntary disclosure system thereby hurting
the decision making process of the customers, banks, government and the society as a whole.
When annual reports are prepared by the managers according to IFRS rules, it enables them to
give more relevant and timely information to the investors for predicting future income.
Moreover, the adoption of voluntary disclosure of information may lead to presentation of
manipulated information by the management, resulting in inaccurate picture of financial state of
the entity, no exemption from liabilities, increased cost, reputation harm, and penalties for the
undisclosed details in the reports (Newberry, 2015).
In addition to this, the growing complexity and volume of financial statements in today's
competitive businesses, the risk of non-uniformity in the information and exclusion of material
items in the annual reports is high. IFRS facilitates managers to comply effectively with the

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accounting standards and other relevant laws . IFRS acts as a common international language for
discussing business matters in a comparable and understandable form throughout the worldwide
boundaries. Furthermore, the adoption of IFRS is important for managers while dealing with
numerous countries to increase global trade and shareholding (Hellman et al., 2018). The
principles of IFRS develop a set of clear, cost-effective, and high quality information which is
enforceable and accepted at the global level.
AASB & IASB
Participation of AASB in setting IFRS
The policies and procedures of Australian Accounting Standards Board (AASB) define the
functions and powers of AASB. It sets out the nature and type of financial statements to be made
by the companies required to report as per the guidelines issued by Australian Accounting
Standards. The AASB also takes part in ensuring the appropriateness of the proposed standards
for various kinds of companies in accordance with the Australian Securities and Investments
Commission Act 2001 (Ipino, and Parbonetti, 2017). In addition to this, the AASB also confirms
the development, issuance and maintenance of external guidance and standards, along with the
Australian based rules that fulfill the user needs and improve the consistency of external
reporting and its quality. The underneath diagram provides the process of the standard-setting
process.

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(Source: AASB (2018))
Non-compulsion of IFRS for IASB members
IFRS Standards refer to a set of explicable, high quality, enforceable and worldwide
acknowledged Standards on the basis of effectively expressed accounting principles. The
principles issued by IFRS are usually complied with by all the countries. However, it has no
power to apply these Standards on the countries who are the members of IASB (International
Accounting Standard Board). The non member countries are required to abide by with all of the
issued IFRSs Standards as well as the IFRS Interpretations declared by the Board. IFRS
Standards entail principles and additional application regulations, which are compulsory and
have equivalent weight. On the other hand, some Standards include only illustrative examples

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which are not mandatory for the member countries of IASB. In addition to this, some Standards
and Interpretation provide just the conclusions for fulfilling the particular requirements.
Therefore, these are also not compulsory for the member countries of IASB (Hellman et al.,
2018). Apart from this, the reliability and accuracy of the financial statements made by the
member countries automatically go through the processes of IFRS, which does not force them to
comply with the IFRS.

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Discussion on items of equity
In order to understand the equity of four selected organizations the financial statements of the
organizations are analyzed. On the basis of the analysis the changes in the owner’s equity for last four
years is determined. The organizations listed for ASX and selected for this purpose are Ramsay Health
Care Limited, Capitol Health Limited, SDI Ltd, and Cochlear Limited. All the selected organizations are
operating in the healthcare industry.
Company Name 2014
($000)
2015
($000)
2016
($000)
2017
($000)
Ramsay Healthcare Limited
Treasury shares (50330) (80190) (88844) (70608)
Issue capital 713523 713523 713523 713523
Retained earnings 766656 955114 1176349 1398664
Convertible securities 252165 252165 252165 252165
Non-controlling interest 41085 (26744) 23172 82498
Other reserves (348) (12357) (30304) (17556)
Capitol Health Limited
Issued capital 31541 87543 87849 125854
Retained earnings 7122 5696 (2383) (5789)
Reserves - 644 (825) (1038)
SDI Ltd
Issued Capital 12890 12890 12890 12890
Reserves 284 1170 1160 763

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Retained profits 38901 44031 49729 52690
Virtus Health Limited
Issued capital 237135 238429 238829 242001
Reserves (1610) (12989) (12764) (11416)
Retained Profits (6139) 1995 12531 18127
Non-controlling interest 10240 18886 19448 19659
Description:
The items included in the total equity of Ramsay Healthcare Limited are issued capital, treasury
shares, retained earnings, convertible securities, non-controlling interest, and other reserves. The
issues capital for the company is same from the past four years which depicts that the company
has not raised any funds from the market since 2014. The values of treasury shares have
increased from 2014 to 2017 amounting from 50330 to 70608. The stock which is repurchased
by the company with an intention for resale is known as treasury stock (Wesson, Hamman, and
Bruwer, 2015). The value of convertible security also remains the same for past four years. The
retained earnings of Ramsay group show an increasing trend from the past four years amounting
from 766656 to 1398664. The amount of retained earnings will be used for the reinvestment
purpose by the company.
The items included in the total equity of Capital Health Limited are issued capital, retained
earnings, and reserves. It can be observed from the above table that the value of issued capital
has increased from 2014 to 2017 amounting from 31541 to 125854. This shows that the company
has been increasing its share capital to raise funds from the market. The retained earnings of the

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company in 2014 and 2015 are 7122 and 5696 and it shows a negative amount for 2016 and
2017. This shows that more losses have incurred on the company than the profits. The company
has no reserves in the year 2014. In 2015 the reserves were 644 but in the year 2016 and 2017
the reserves shows negative value which depicts accumulated losses.
The items included in the total equity of SDI Ltd are issued capital, reserves, and retained
earnings. The values of issued capital of SDI Ltd from 2014 to 2017 are 31541, 87543, 87849,
and 125854. This clearly indicates an increasing trend in the capital issued by the company in the
last four years. The reason behind this increasing value is that the company requires more funds
for business and therefore issues more shares in the market so that more funds from the market
can be raised (Means, 2017). The value of reserves shows an increasing trend form 2014 to 2015
and is reduced in 2016 and 2017. This depicts that the company has earned more profit in 2015
and in the consecutive years it has reduced relatively due to increasing expenses. On the other
hand, the retained earnings of the company have increased from the year 2014 to 2017. This
shows that the company has earned more profit as compared to expenses and losses incurred on
it. This also shows that the financial strength is improving consecutively.
In regard to Vitrus Health Limited, the issued capital has increased from 2014 to 2017 in small
amounts as the company wants to raise more funds from market for further operations. The
reserves of the company remain negative since 2014 which shows that expenses of the company
are greater than its profits due to which the saving capacity of the company is reduced (Ward,
2016). The company has retained profit in 2015, 2016, and 2017 and the amount is increasing.
This shows that the company has managed to earn more 2015, 2016, and 2017 in comparison to
its expenses. Apart from this, the non-controlling interest is also increasing since 2014 which
shows that the goodwill of the company is increasing.

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Comparison of debt and equity for the four companies
The comparison of debt and equity position is as follows:
Ramsay Capitol SDI Virtus
Debt to Equity Ratio 0.65 0.26 0.17 0.95
Total Long Term Debt ($) 3633950 - 2000 183662
Total Equity($) 2104795 101863 69554 273067
From the above table it can be observed that the debt to equity ratio of Virtus Health Limited is
highest i.e. 0.95. The second highest is of Ramsay Healthcare Limited and is observed to be 0.65.
Capitol Health Limited is on third place and SDI Ltd is on fourth place in terms of debt to equity
ratio and the values are observed to be 0.26 and 0.17. Since the debt-to-equity ratio of SDI Ltd is
lowest it can be considered that the company has lesser liabilities and is performing very well in
the industry. In other words it can be said that the business of SDI Ltd is more stable as
compared to other companies. The lesser value of debt-to-equity ratio is considered to be
favorable for the investors as it depicts that the company has less amounts of debts and can easily
deliver payments to the investors (Baby, 2016). Therefore, the investors like to make investments
in the companies which has lower debt-to-equity ratio so that payments will be delivered to them
timely.

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Conclusion
On the basis of above report, it can be concluded that it is appropriate for the managers to
comply with the financial accounting and reporting framework while making their financial
documents rather than adopting the voluntary disclosure of the financial information. This would
not only allow the entities to be safeguarded from any potential liability or penalty but would
also help in providing a proper and accurate view of the performance for intelligent decision
making. Apart from this, the report has found that the financial situation of SDL Ltd is sound in
terms of debt and equity composition in comparison to other three companies of Australia.

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References
AASB (2018) Australian Government. [Online]. Available at: https://www.aasb.gov.au/About-
the-AASB/The-standard-setting-process.aspx (Accessed: 26 Sept, 2018)
Baby, S. (2016) Analysis of capital structure in different industries in India, Journal of
Management in Practice, 1(1).
Hellman, N., Carenys, J. and Moya Gutierrez, S. (2018) Introducing More IFRS Principles of
Disclosure–Will the Poor Disclosers Improve?, Accounting in Europe, 8 (12) pp.1-80.
Ipino, E. and Parbonetti, A. (2017) Mandatory IFRS adoption: the trade-off between accrual-
based and real earnings management, Accounting and Business Research, 47(1), pp.91-121.
Means, G. (2017) The modern corporation and private property. UK: Routledge.
Newberry, S. (2015) Public sector accounting: shifting concepts of accountability, Public Money
& Management, 35(5), pp.371-376.
Ward, J. (2016) Keeping the family business healthy: How to plan for continuing growth,
profitability, and family leadership. Germany: Springer.
Wesson, N., Hamman, W.D. and Bruwer, B.W. (2015). Share repurchase and dividend payout
behaviour: The South African experience, South African Journal of Business
Management, 46(3), pp.43-54.