Corporate and Finance Accounting: Equity & Debt Analysis of ASX

This report provides an analysis of corporate and finance accounting, focusing on the equity and debt structures of four retail companies listed on the Australian Securities Exchange (ASX): Myer Holdings Limited, Breville Group Ltd, Premier Investments Limited, and Cash Converter International. The analysis covers a four-year period (2014-2017), examining changes in equity and debt positions, factors influencing these changes such as share issuances, hedging transactions, and currency fluctuations. The report also discusses the importance of corporate regulation in financial accounting and reporting, highlighting the role of the Australian Accounting Standards Board (AASB) in aligning with global accounting standards set by the International Accounting Standards Board (IASB), while noting that IFRS adoption is not compulsory for IASB member countries. The study emphasizes the need for standardized reporting frameworks to ensure fair and comparable financial information for decision-making by various stakeholders.

Corporate and Finance Accounting
Corporate and Finance Accounting
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Corporate and Finance Accounting
EXECUTIVE SUMMARY
In the present Scenario/framework, a wide range of users require information regarding Financial
Position, changes in financial position and financial performance of the entities for making economic
decisions regarding investment, regulatory position of an entity, distribution of profits and dividend etc.
Thus, Financial Accounting and Reporting provides measures to identify the financial position of an
entity through accounting and financial statements.
Financial Statements should be prepared according to some rules, guidelines and standards so that it can
provide fair view of financial framework of an entity to the ultimate end users for decision making
without misleading them. Such accounting standards are as GAAP, IASB, IndAS etc based on clearly
articulated principles.
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Corporate and Finance Accounting
Contents
EXECUTIVE SUMMARY.................................................................................................................................2
INTRODUCTION...........................................................................................................................................4
CORPORATE REGULATION...........................................................................................................................5
FRAMING PROCESS OF GLOBAL ACCOUNTING STANDARDS.......................................................................6
OWNER'S EQUITY........................................................................................................................................7
CONCLUSION.............................................................................................................................................12
REFERENCE:...............................................................................................................................................13
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Corporate and Finance Accounting
INTRODUCTION
Main purpose of Accounting and Reporting of financial statement is to provide factual and meaningful
information about financial position of an entity as per standards. In this assignment we will discuss about
the need of financial accounting and reporting and it should be regulated or not to disclose financial
accounting information by the managers.
Here I will also discuss about the participation of Australian Accounting Standards Boards participation
in the process of setting global accounting Standards. I will also enlighten on the discussion that IFRS set
by the international accounting Standards are not compulsory for the member countries of IASB.
I will also analysis the equity position of companies from retail sector for four years listed on ASX. At
last i will do comparative analysis of equity and debt position of public listed companies listed on the
Australian Securities Exchange (ASX).
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Corporate and Finance Accounting
CORPORATE REGULATION
Financial Accounting and Reporting of Financial Statements is the base for the users to derive
information for their decision-making purpose. If the financial statements are prepared on the basis of
specified reporting frameworks will provide fair view of the financial statements of entities (Bonner,
2012). Now the Question comes, why these reporting frameworks have been developed and should be
complied with? I will come up to this with an answer, but before this I create a situation.
Suppose there are two companies COMPANY 'ABC' and COMPANY 'XYZ' from same Industry
(e.g. Retail Industry). They both follow different accounting methods. ABC follows Mercantile
(Accrual) Basis i.e. revenues are accountable as and when they accrue and XYZ follows cash basis
system i.e. on actual receipt basis. Now in this situation how the reporting user will compare the financial
position of these two companies of the same field.
Now take another situation, two companies of the same field prepare their financial statements for
different accounting periods according to their own interest and for own benefits to mislead the decision
of users. ABC prepares Cash Flow Statement and other one i.e. XYZ prepares Fund Flow statement in
such situation how one can derive comparable information from the financial statements (Brown, 2011).
Now I come to an answer of my above question, if the preparation and presentation of financial
Statements made voluntarily on the management, they would present the financial position of the entity in
the interest of the entity and mislead the public users and will create complexities for the ultimate users in
decision making (Christopher, 2013). The conflicts may arise which affects the following (Ramanna,
2009):-
 Investor's Risk And Return Decision.
 Employer's Stability and Profitability.
 Misleading Financial Statements for the users
 Government and economy of the Country
 Last but not the least, lender
To overrule above complexities, a regulatory framework is needed for the management of the entity to
present financial statements. Financial statements prepared in accordance to the rules and standards
framed under reporting framework would present clear cut financial position of the entities and all the
companies of the same industry at on same base which will be beneficial to all the ultimate users (Hines,
2008).
So the disclosure of financial accounting information should be regulated. It should not come to the hand
of management.
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Corporate and Finance Accounting
FRAMING PROCESS OF GLOBAL ACCOUNTING STANDARDS
In present era and upcoming future, global investments and trades will spread their webs across the
International boundaries. Therefore, International Accounting Standards Board (IASB) has framed
International Financial Reporting standards (IFRS) to provide common platform to understand and
compare affairs of business of different entities dealing across the global (Deloitte, 2005).
Australian Accounting Standards Board (AASB) is an independent setter to develop accounting standards
for the businesses of country Australia. AASB is continuously participating and developing a single set of
Standards that can be used worldwide (AASB, 2016). Therefore, AASB is regularly contributing its
participation in adopting and amending the IFRS which will be suitable for the Australian Companies.
IFRS are Global Accounting Standards; hence AASB is working to reduce hurdles in adopting IFRS by
amending them in accordance to country Australia. It means Australian Companies using both AASB
issued standards and IFRS also (Rouse, no date).
AASB itself take active participation and also encourage other constituents to take part in global
accounting standards process by (Mirza, 2015):
 Conducting global meeting on technical issues.
 On its Web portal where AASB publishes consultative documents and approaches about work
program.
 Communicating and through invitation.
 Through Roundtable Discussion on selected topics.
The member countries of IASB are not compiled to follow IFRS as there all standards are part of
reporting framework as one provides rules and other provides principles for reporting. Generally
Accepted Accounting Principles (GAAP), most of the countries using GAAP and not adopting IFRS as it
is costlier in terms of staff training and system changing (IFRS, no date). Therefore, it is not compulsory
for the member countries IASB to adopt IFRS (Maverick, no date).
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Corporate and Finance Accounting
OWNER'S EQUITY
For the purpose of equity analysis, following four listed retail companies have been taken:
1. Myer Holdings Limited
2. Breville Group Ltd
3. Premier Investments Limited
4. Cash Converter International
Let us discuss each above listed company one by one:
1. Myer Holdings Limited:-Myer Holdings Limited is an Australian based retail department store
which deals in huge range of products including men’s, women’s children’s and babies clothing,
accessories, footwear, cosmetics, electrical and computer, toys, games, stationery’s etc. it has
large number of stores across Australia. It also generate large amount of revenue.
Particulars 2017 ( $'000 ) 2016 ( $'000 ) 2015 ( $'000 ) 2014 ( $'000 )
Equity 1,072,868 110,7765 863,016 893,413
Debt 318,647 239,548 542,143 505,405
Year 2014:-
Equity Analysis:
In the year 2014 the equity portion consist of increase number of shares i.e. 210($’000) which
were issued to Equity plan trust at market value and some shares were also allocated on
exercising of options at $2.14. There is also a large cash flow hedge due to loss in
revaluation .Acquisition of non controlling interest and currency translation arrived during the
year.
In 2014 the revolving cash facility is placed which is unsecured and subject to various
representations and events of default and the fair value of borrowings have been showing at their
carrying amount which leads to insignificant discounting.
Year 2015:-
Equity Analysis:
There is minor change in equity due to cash flow hedges .e there is gain of 17760 due to hedging
of instruments which are directly recorded to reserve .The currency translation due to disposed of
investments during the year are also raised (Adams, 2017).
There is change in debt due to change in cash and cash equivalent transactions.
The reason for change in equity is due to hedge accounting and option exercised by the
controlling interest (35%) namely sass & bide.
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Corporate and Finance Accounting
Year 2016:-
Equity Analysis:
As contributed equity of the company is same but during the year it issued shares 234661660
shares at $0.94 per share under Entitlement Offer. Shares were also issued to equity plan. And
also the reserve changed due to hedge transactions.
Year 2017-
Equity Analysis:
The contributed shares are same in this year .the change in reserve is due to hedge transaction and
currency fluctuations.
During the year an onerous lease provision was made under a non cancellable lease which will be
amortized on straight line basis
The major change in equity is due to share issuance under entitlement offer. Reserves are also
changed due to hedge transactions
2. Breville Group Ltd.:- . Breville Group Ltd deals in electrical appliances. Company distribute its
products through various channels under own brands.
Particulars 2017 ( $'000 ) 2016 ( $'000 ) 2015 ( $'000 ) 2014 ( $'000 )
Equity 259,609 246,005 23,1405 213,046
Debt 40,964 15,758 27,241 25,307
Year 2014:-
Equity Analysis:
During the year Company transferred shares 370500 to the participants under performance right
plan and Breville‘s trustees acquired shares 121500 during the year under performance right plan.
At the end of year 920000 shares were outstanding under plan. There is loss of 1352 due to
hedging transaction during the year.
Year 2015:-
Equity Analysis:
During the year there is only movement of shares 362000 from trustee to participants and there is
minor change due to hedging and currency fluctuations reserve.
Reason:
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Corporate and Finance Accounting
There is a huge change in the equity due to hedging transaction which result in lose.
Year 2016:-
Equity Analysis:
During the year hedging and fluctuation transactions affected the reserve due to which equity
changed.
Year 2017:-
Equity Analysis:
At the end of the year there are 914400 shares were outstanding under share based performance
right plan. There is loss due to foreign translation among subsidiaries resulting change in
reserves.
Reason:
Change in equity is resulting from hedge transactions and currency fluctuations.
3. Premier Investments Limited:-Premier Investment Limited deals in fashion market. Company
deals in two segments one is Investment in long and short term securities and other segment is of
retail fashion chains. Company deals in number of brands and has three subsidiaries companies.
Particulars 2017 ( $'000 ) 2016 ( $'000 ) 2015 ( $'000 ) 2014 ( $'000 )
Equity 1,335,673 1,338,555 1,338,307 1,298,529
Debt 257,628 184,275 173,389 82,412
Year 2014-
Equity Analysis:
During the year the contributed shares were same. A total of 454396 shares were issued under the
right plan. Minor change in reserve is due to hedge accounting and exchange fluctuations.
Provisions were utilized during the year.
Year 2015:-
Equity Analysis:
Contributed shares remained same during the year. a huge amount of gain arrived due to cash
hedge transaction resulted in increment of hedge reserve.
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Corporate and Finance Accounting
Reason:
Equity in both the year was uniform. The only change is due to change in reserves resulting from
hedge accounting and currency fluctuations (Helstrom, no date).
Year 2016:-
Equity Analysis:
A total of 784386 shares were issued in relation to performance right plans.
Year 2017:-
Equity Analysis:
Company issued shares 584305 during the year under performance right plan. a reserve namely
Fair Value was also created during the year.
During the year company obtained bank borrowings amounting $69 million which was secured
by land and building. Company again borrowed $50 million.
4. Cash Converter International: - Cash Converters International has number of stores which
provide number of services in the retail and personal finance sectors. It is basically franchised
retail network and was first to begin charity auction.
Particulars 2017 ( $'000 ) 2016 ( $'000 ) 2015 ( $'000 ) 2014 ( $'000 )
Equity 260,839 242,284 261,698 244,706
Debt 63,351 69,935 66,676 64,167
Year 2014:-
Equity Analysis:
During the year shares amounting (net of cost) $ 4970411 were issued which are fully paid up. No
securities are stapled to the cash converters international shares. Reserve for acquisition of non
controlling interest was made during the year.
Year 2015:-
Equity Analysis:
Company issued total of 52362135 shares during the year amount ($’000) 48720 (net of cost) during the
year.
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Reason:-
There is no major change in the equity of the above company.
Year2016:-
Equity Analysis:
During the year company issued shares under performance right. There is an increment in the dividend
investment plan Reserve.
Year 2017-
Equity Analysis:
Value of equity shares are not at par because company does not have authorized capital. Dividend
investment plan is also increasing during the year.
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Corporate and Finance Accounting
CONCLUSION
In this assignment we discussed about Financial Accounting and Reporting. It can be concluded that the
financial statements should be prepared in accordance to the reporting frameworks so that they will
provide a clear cut image to the ultimate users for their decision making. Managers should not be given
the power to the preparation of financial records as per their own wish.
From the above discussion it is very clear that Australian companies are following the IFRS.
From the equity analysis of the companies as discussed above, it may be concluded that equity of the
Myer Holding Limited and Premier Investment Limited has been changed majorly. Reason for such
changes issues of new shares, reserves created for cash flow hedging and currency fluctuation reserves. In
the debt analysis of these companies it can be concluded that the company Breville Group Limited has
low debt in comparison of others. At last, it is concluded that Breville Group Limited is better company
for investment purpose than others.
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