Corporate & Financial Accounting: Equity, Debt & Regulations

This report assesses various aspects of financial reporting to help investors understand a company's financial standing. It discusses the importance of owners’ equity and analyzes the debt and equity positions of four selected firms to identify changes made to maintain competitiveness. The report also examines corporate regulations, including whether financial reporting should be regulated or left to managers' discretion, and the role of the Australian Accounting Standards Board (AASB) in global accounting standards, explaining why IFRS is not mandatory for IASB member countries. The analysis includes a detailed look at equity items for the selected firms and a comparative evaluation of their debt and equity positions to understand their current financial health.

Running head: CORPORATE AND FINANCIAL ACCOUNTING
Corporate and Financial Accounting
Name of the Student:
Name of the University:
Authors Note:

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Executive Summary:
The assessment evaluates different segments of financial reports, which can allow the
investor to understand the current financial position of the organisation. The significance of
owners’ equity is also discussed, where the current financial position of the organisation can
be used for detecting the level of changes in their current positions. The comparative analysis
is been conducted on four of the selected firms by analysing the debt and equity position of
the organisation. This analysis helps in detecting the relevant changes, which has been
conducted by the companies for continuing the operating in the competitive market.

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Table of Contents
Introduction:...............................................................................................................................3
Corporate Regulations:...............................................................................................................3
i) Critically discussing whether financial reporting needs to be regulated or managers should
be allowed to disclose the information voluntarily:...................................................................3
Accounting Standard Setting:....................................................................................................5
ii) Crucially examining the AASB in taking part with the global accounting standards setting
process, while depicting why IFRS is not compulsory for members of the IASB countries:....5
Owners’ Equity:.........................................................................................................................6
iii) Listing each items of equity for the selected firms, while discussing the changes in each
item:............................................................................................................................................6
iv) Providing a comparative analysis of the debt and equity position of the four firms that
have been selected:.....................................................................................................................9
Conclusion:..............................................................................................................................10
References and Bibliography:..................................................................................................12

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Introduction:
The assessment aims in detecting the presence of corporate regulations, accounting
standard settings and owners’ equity. The evaluation directly helps in understanding the
significance of financial accounting and reporting, which needs to be conducted by the
organisation over the period of time. In addition, the need for the financial reports to be
regulated or the mangers can disclose the reports in accordance with their requirements.
Further evaluations are also conducted in the assessment that the IFRS settings proposed by
the IASB is not compulsory for members countries. The relevant evaluation of equity
selection has been conducted for understanding the financial performance of the selected four
companies. Hence, the debt and equity position of the companies are comparatively evaluated
to understand their current financial position.
Corporate Regulations:
i) Critically discussing whether financial reporting needs to be regulated or managers
should be allowed to disclose the information voluntarily:
The financial reporting system needs to be regulated with adequate measures and
standards, as it allows the stakeholders of the organisation for detecting the accurate financial
position of the organisation. The regulated financial reporting subsystem will ensure the
stakeholders about the correct financial position of the organisation and detect the measures,
which has been taken by the management for securing their future operations. In addition, the
financial reporting system helps in understanding the accurate operational details of the
organisation and the growth, which has been obtained over the past fiscal years. Dumay
(2016) mentioned that the presence of scandal and misleading reports conducted by

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companies with the presence of regulations indicates the importance of regulations, which is
needed for controlling the unethical action of the organisations.
There have been many instances, where scandals are conducted by the management of
the organisation for inflating their annual report and presenting the wrong financial position
to their investors. Therefore, giving powers to the managers in handling the overall financial
reporting system will create chaos and decreases the risk of the investors. Furthermore,
problems can be detected, where the manager will directly manipulate the financial report in
accordance with their preference, which can directly reduce reliability of the financial report.
The managers will also use the manipulative structure for reducing the level of profits for
declining the dividend payment and inflating the financial position during low performance
years. In this context, Wahlen, Baginski and Bradshaw (2014) stated that the biggest scandals
such as ABC learning and HIH Insurance directly indicates the manipulative measures, which
can be taken into consideration by the managers for altering the financial report according to
their needs. Hence, it can be understood that the preparation of the financial report cannot be
handed over to the managers of the organisation, as they will not comply with the fair
representation of the data in their annual report.
Therefore, with the presence of an accurate regulatory conceptual framework for
preparing the annual report can eventually help in portraying the accurate financial position
of the organisation. In addition, the different standards have been included for analysing
different segments of the organisation, which help in depicting the accurate financial position
of the company. In addition, the standards governing the fair value method and amortization
method has mainly forced the organisation to represent their fair value of the total assets held
in the current date. Hameed (2014) argued that there is different level of loopholes, which are
currently present within the current standards and is utilised by the management for inflating
their annual report.

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Accounting Standard Setting:
ii) Crucially examining the AASB in taking part with the global accounting standards
setting process, while depicting why IFRS is not compulsory for members of the IASB
countries:
Figure 1: Depicting the AASB
(Source: Aasb.gov.au 2018)
The Australian Accounting Standard Board has been the major contributor to the
global accounting standard setting process such as IFRS. AASB has been improving the level
of standards by implementing different regulation and rules for preparing the annual report.
In addition, the accurate financial performance of the organisation is mainly detected with the

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changes that has been conducted by AASB over the period of time. The AASB standard
setting process has been depicted in the above figure, which has been evaluated by the
standards for generating adequate financial report of the organisations. The AASB measures
have relevantly added awareness, outreach and education, which needs to be conducted for
detecting the accurate level of reports (Nobes 2014).
There are also provisions conducted in the IASB, where the member countries can
choose not use the IFRS accounting system in preparing their annual report. This measure
eventually allows the member countries for formulate the annual report in accordance with
the accurate financial performance of the company. The IFRS system is mainly a complex
measure, which can only be used by multinational companies whose financial report is
needed for different stocks markets around the world. Moreover, adequate expenses is needed
to be conducted by the organisation in preparing the annual report in accordance with the
IFRS regulation, which directly increases the level of expenses of medium and small
companies. Hence, the IFRS regulations have been altered, where the companies listed in the
financial market in overseas needs to follow the IFRS regulations system. The excessive
expenses, which needs to be incurred by organisation in preparing the annual report in
accordance with the IFRS setting is the main reason, why the regulation is not imposed in
member countries (Leuz and Wysocki 2016).
Owners’ Equity:
iii) Listing each items of equity for the selected firms, while discussing the changes in
each item:
Equity Components Explanation
Contributed equity This section is known as the paid-up capital, where the cash and

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other assets given by shareholders given to the company
Reserves
Reserves is mainly a measure, which has been preserved used by
the organisation for the purchase of an asset.
Retained earnings
The total profits that the organisation has earned till date after
deducting the dividends.
Non-controlling interests
The non-controlling interest indicate that the investor has less than
50% of the outstanding shares, while it does not have control over
the decision of the organisation.
Rio Tinto 2017 2016 2015 2014
Share capital 4,360 4,139 4,174 4,765
Share premium account 4,306 4,304 4,300 4,288
Other reserves 12,284 9,216 9,139 11,122
Retained earnings 23,761 21,631 19,736 26,110
Attributable to non-controlling
interests 6,404 6,440 6,779 8,309
Total Equity 51,115 45,730 44,128 54,594
The total equity of the organisation has mainly declined over the period of four years,
which can be detected from the above table. The reduction in share capital is witnessed for
the organisation, while slight increment in share premium account is detected. The other
reserves have increased over the period, while drastic decline in retained earnings and non-
controlling interests have been witnessed during the past four fiscal years (Riotinto.com
2018).
Fortescue Metals Group
Limited 2018 2017 2016 2015

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Contributed equity 1,287 1,289 1,301 1,294
Reserves 46 39 33 46
Retained earnings 8,386 8,392 7,058 6,184
Non-controlling interest 12 14 14 13
Total Equity 9,731 9,734 8,406 7,537
The increment in total equity of the Fortescue Metals Group Limited is due to the rise
in retained earnings of the organization. The other components of the equity segments have
altered slightly, which has low influence in the change of the organization equity section
(Fmgl.com.au 2018).
BHP Billiton 2018 2017 2016 2015
Share capital 2,243 2,243 2,243 2,255
Treasury shares (5) (3) (76) (587)
Reserves 2,290 2,400 2,557 2,927
Retained earnings 51,064 52,618 60,044 74,548
Non-controlling
interest 5,078 5,468 5,777 6,239
Total Equity 60,670 62,726 70,545 85,382
Th decline in the total equity has been witnessed in the above table for BHP Billiton,
which has been conducted due to the falling retained earnings of the organisation. The
alternations in other segments of the equity section is relevantly minor, which did not
influence drastic decline in the total equity of the organisation (Bhp.com 2018).
Amcor Limited 2018 2017 2016 2015
Contributed equity 1,400.7 1,416.9 1,445.1 1,680.6
Reserves (907.1) (881.7) (800.2) (666.5)
Retained earnings 528.1 264.9 139.0 452.1
Non-controlling
interest 68.8 69.6 61.6 120.8
Total Equity 1,090.5 869.7 845.5 1,587.0

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The changes in total equity of the organisation has mainly declined over the four
years. This demise in total equity has been conducted by the negative reserves, declining
contributed equity and non-controlling interest (Assets.ctfassets.net 2018).
iv) Providing a comparative analysis of the debt and equity position of the four firms
that have been selected:
Rio Tinto 2017 2016 2015 2014
Equity 51,115 45,730 44,128 54,594
Debt 3,845 9,587 13,783 12,495
The above table analyses the different equity and debt position of Rio Tinto during the
past four fiscal year, which helps in detecting the current financial position of the
organisation. In addition, both the equity and debt of Rio Tinto has mainly declined over the
period of four fiscal year, which has relevantly improved their current financial performance.
Moreover, the debt of the organisation has mainly declined substantially, while equity has
reduced slowly in comparison to debt, which indicates that the company has effectively
achieved solvent condition (Riotinto.com 2018).
Fortescue Metals Group
Limited 2018 2017 2016 2015
Equity 9,731 9,734 8,406 7,537
Debt 3,112 2,633 5,188 7,188
The decline in debt and improvement of equity has been witnessed in the Fortescue
Metals Group Limited, which indicates the incremental financial position of the firm. In
addition, the equity value has mainly increased from 7,537 in 2015 to 9,731 in 2018, while
the debt values have declined in half from 7,188 in 2015 to 3,112 in 2018 (Fmgl.com.au
2018).

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BHP Billiton 2018 2017 2016 2015
Equity 60,670 62,726 70,545 85,382
Debt 10,934 16,321 26,102 24,417
Both the equity and debt position of BHP Billiton has mainly declined over the period
of four fiscal years, which has improved the current financial position of the organisation.
The decline in debt of BHP Billion is almost more than half, while the equity values have not
declined substantially in comparisons to the debt, which directly indicates the financial
performance of the organisation (Bhp.com 2018).
Amcor 2018 2017 2016 2015
Equity 1,090.5 869.7 845.5 1,587.0
Debt 3,872.2 4,049.5 3,829.4 2,880.4
The equity and debt combination of Amcor is relevant different from other
companies, where the equity values have declined over the period of four fiscal years, while
the debt has increased. This increment in the debt values of the organisation has mainly
indicated the low financial performance of the company, which led to the accumulation of
high debt and low equity (Assets.ctfassets.net 2018).
Therefore, from the evaluation of the above table the overall equity and debt of the
four companies can be detected. In addition, the reduction in debt accumulation of Rio Tinto,
Fortescue Metals Group Limited, and BHP Billiton can be witnessed during the past four
fiscal years. However, only Amcor Limited debt values have increased during the four fiscal
years, which directly indicates the low financial performance of the organization. Therefore,
it could be assumed that the financial performance of Rio Tinto, Fortescue Metals Group
Limited, and BHP Billiton has improved, while Amcor Limited performance has declined.

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Conclusion:
The overall assessment mainly comprises of different segments, which helps in
supporting the different level of segments of financial reporting. In addition, the financial
report needs to be regulated, as it might help in portraying the accurate financial performance
of the organisation. the regulation might reduce the level of unethical measure, which can be
used by managers in inflating their financial performance. Furthermore, the IFRS system has
been evaluated, which can help in detecting the accurate financial reports of an organisation.
Likewise, the accountings standard settings have also been conducted, where the contribution
of the AASB has been highlighted for preparing the annual report of the organisation.
Furthermore, the financial performance of the selected companies has been conducted for
identifying the level of debt and equity, which has been acquired by the organisations. Lastly,
the level of comparative study has been conducted for the current financial performance of
the organisations, where only Amcor’s financial position is seen to decline over the period of
four fiscal years.

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References and Bibliography:
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Bhp.com. (2018). [online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
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[Accessed 24 Sep. 2018].

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