Financial Accounting Report: NAB and CBA Financial Analysis

This report provides a comprehensive financial accounting analysis of National Australia Bank Ltd (NAB) and Commonwealth Bank of Australia (CBA). Part A focuses on key balance sheet items such as shareholders' funds and liabilities, facilitating a comparative evaluation of their financial performance and aiding in decision-making. The analysis reveals that CBA operates at a larger scale than NAB, and the report explains fluctuations in financial statement items. Part B delves into the concepts of small and large proprietary companies, as well as reporting entities, evaluating compliance and implications of related regulations. The report examines items under owners' equity, including common stock, other equity, retained earnings, and accumulated other comprehensive income. It also explores the movement in these items and those under the liabilities section, such as deposits, derivative liabilities, payables, and both short and long-term borrowings, providing explanations for observed changes. The report concludes with a summary of the findings and references supporting the analysis.

Corporate
&
Financial
Accounting

ABSTRACT
The study summarises in part A, analysis of key items of balance sheet like shareholder's
funds, different heads of liabilities etc. in National Australia Bank Ltd(NAB) and
Commonwealth Bank of Australia(CBA) which assist in making comparison, evaluation of
performance and in decision-making processes. Form this analysis it has been found that CBA is
operating at larger scale as compare to NAB and also main reason of fluctuations in different
items stated in financial statements of companies. Moreover in part B it covers core concept of
small and large proprietary company and reporting entity, form which evaluation of effective
compliance and implications of rules related to them is obtained.

Table of Contents
ABSTRACT.....................................................................................................................................2
INTRODUCTION...........................................................................................................................4
ASSESSMENT TASK:...................................................................................................................4
PART A...........................................................................................................................................4
(1) Items recorded by selected companies under owners’ equity heading:.................................4
Explanation of understanding about each reported item:............................................................5
(2) Movement in items reported under owner equity section with reason:.................................5
(3) Items recorded by selected companies under liabilities section:............................................6
Explanation:.................................................................................................................................7
(4). Explanation about movement in items reported under liabilities head with reason:............8
PART B..........................................................................................................................................11
Concepts of small proprietary company, large proprietary company and reporting entity:......11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
ANNEXURE..................................................................................................................................14

INTRODUCTION
In listed companies, financial accounting is essential task which gather and provide
crucial business data for financial reporting as well as preparation of financial statements.
Companies are required to adopt proper procedures relating to financial accounting along with
compliance requirements. It also assist stakeholder and investor to make momentous investment
decisions (Adesara, 2016). In part A of study, main aim is to provide a complete understanding
of each of the items reported by companies National Australia Bank Ltd and Commonwealth
Bank of Australia in their financial statements. It also covers merits and demerits of fund sources
reported by both corporations. Further part B of study evaluates the concepts of small proprietary
company, large proprietary company and reporting entity. Also, their classification on the basis
of compliance and reporting requirements.
ASSESSMENT TASK:
PART A
(1) Items recorded by selected companies under owners’ equity heading:
National Australia Bank Ltd (NAB):
(AUD in million)
2016 2017 2018
Stockholders' equity
Common stock 34285 34627 35982
Other Equity 617 492 307
Retained earnings 16378 16442 16673
Accumulated other comprehensive income 12 -255 -261
Total stockholders' equity 51292 51306 52701
Commonwealth Bank of Australia (CBA):
(AUD in million)
2016 2017 2018
Stockholders' equity
Common stock 33845 34971 37270
Other Equity 1822 1189 993

Retained earnings 23627 26330 28360
Accumulated other comprehensive income 912 680 683
Total stockholders' equity 60206 63170 67306
Explanation of understanding about each reported item:
 Common Stock and Other Equity: Common stock implies to securities amount in any
corporation which reflects ownership. By appointing a board members and voting on
company policy, owners of common stock perform control. Common stakeholders are
at bottom of the ranking list in relation of ownership framework. At the time of
liquidation, after complete payment of bond holders, preferred investors as well as other
debt-holders has title to a corporation's assets or equity. In this head company has
reported securities issued. Other equity includes any other residual value of common
stock which is not specifically mentioned in other heads of equity.
 Retained earnings: In financial reporting, retained earnings relate to part of net profit
that enterprise retains instead of distributes as dividend payments to its securities holders.
Likewise, if corporation loses, that deficit will be conserved and labelled losses which
have been retained accordingly, cumulative losses, or cumulative deficit. Retained
earnings and losses, with losses compensating income, are accumulated year by year.
These are recorded in balance sheet's shareholders ' equity portion (Jie, Xi and Chaoyang,
2015).
 Accumulated other comprehensive income: This reported item under equity head of
balance sheet comprises amount and balance of any unrealized profits or loss including
any appropriation or other adjustment. Other-comprehensive earnings includes loss or
profit on any specific kind of investments, employees pension fund plans and foreign
exchange hedging event loss or income. This figure is superficially excluded out of net
profits since these profits and losses still not realized. Stakeholders and Investors by
analysing corporation's balance sheet can apply OCI balance as benchmark to asses any
forthcoming threats or decline in net profits. Unrealized profits and losses from the
pension scheme of a business are usually reported in OCI. Corporations have various
kinds of financing commitments related to pension plan For instance, in upcoming years,

a defined benefit plan needs the employee to scheme certain retirement benefits. If
insufficient costs have been deposited in the scheme, liability of pension scheme rises
(Kai, 2015).
(2) Movement in items reported under owner equity section with reason:
Common Stock and other equity:
NAB has reported 34285 million of common stock in year 2016 which is increased to
34627 million and 35982 million in year 2017 and 2018 respectively. In CBA company has
reported common stock of 37270 million in year 2018 which was in 2017 and 2016 of 34971
million and 33845 million respectively. Core reason of increase in common stock is fresh issue
of shares by companies in during 2017 and 2016.
Retained Earnings:
NAB has shown balance of retained earning in year 2018 of 16673 million while in year
2017 and 2016 it was 16442 million and 16378 million respectively. This increase in during the
respective period is net effect of net profit of from continuing operations and net loss from
discontinued operations, dividend payments, Redemption of National Capital Instruments and
transfer in retained earnings. While in CBA retained earning of company was 23627 million in
year 2016 which has been increased to 26330 in year 2017 and 28360 million in year 2018. Here
in this banking company such increase is net impact of Actuarial gains of defined benefit
superannuation-plans, Losses on liabilities (at fair value) due to fluctuation in credit-risk, transfer
to reserves and payment of interim dividends.
Accumulated other-comprehensive income:
CBA has shown in balance sheet -261 million of loss under head of accumulate other-
comprehensive income which was -225 million and 12 million in year 2017 and 2016. Here this
decline is resulted due to other-comprehensive loss in year 2017 and year 2018. While CBA has
reported 683 million of accumulated other-comprehensive income which was 680 million and
912 million in year 2016 and 2017 respectively. This decreasing trend is due to foreign exchange
loss and deficit in head of other-comprehensive income in respective periods (Levi and Newton,
2016).
(3) Items recorded by selected companies under liabilities section:
National Australia Bank Ltd (NAB):
(AUD in million)

Liabilities 2016 2017 2018
Deposits 459714 462072 503145
Derivative liabilities 44899 28861 24969
Payables 43903 36683 38192
Short-term borrowing 167414 189662 169386
Long-term debt 9559 7431
Other liabilities 10377 10171 10675
Total liabilities 726307 737008 753798
Commonwealth Bank of Australia (CBA):
(AUD in million)
Liabilities 2016 2017 2018
Deposits 588045 626655 630358
Derivative liabilities 39921 30330 28472
Payables 38635 40464 32495
Short-term borrowing 162715 168034 173072
Long-term debt 15544 18726 22992
Other liabilities 27462 28449 19916
Total liabilities 872322 912658 907305
Explanation:
 Deposits: Balance of Deposits constitutes the bank's greatest responsibility, including
funds, saving as well as deposit accounts. There may be interest carrying accounts as well
as non interest carrying accounts. Even though payments are subject to debts, they are
essential for the capacity of bank to borrow. When a bank doesn't even have enough
funds, it may lead in weaker expansion in credit, or bank may have to accept debt in
order to satisfy the requirement for the credit that would be much cheaper than the value
earned on loans.
 Derivative liabilities: These liabilities may be current or non-current based on
contractual obligation; long term or short-term. Fair values stated in balance sheet as on
particular date of total liabilities consequent to contracts that fulfils criteria of being a

derivative instruments or contract, and which are anticipated to be disposed off within or
after one year (Peerapongpipath and Hensawang, 2019).
 Accounts Payable: It is short-term debt in nature and just opposite of company's
accounts receivable. It occur when corporation acquire or buy product before paying any
amount with respect to such product. Accounts payable is one of the major part of
company's current liabilities and continuous by nature as company orders products on
credit at continuous basis. A listed institution put its effort to sustain accounts payable
balance at high enough in order to cover all current inventories.
 Short-term Borrowings: Amount stated in this head in financial statement reflects
aggregate carrying amount of debt carrying initial term of below one year or average one
year of operating cycle. Due to short term repayment cycle debts, these are shown under
this head. In listed companies, these borrowings may go higher in number so managing
and tracking payments of these borrowing is key task for them. In banking corporations
timely payments of short-term borrowings is important as per regulatory compliance.
 Long term debts: It includes amount of balance owed for term of more than 12 months.
These debt in bank's balance sheet could be mortgage bonds, inter-bank loan, issued
debentures, or some other obligations which are going to due after one year. Company
should disclose all long-term debts financial statement along with rate of interest and
maturity date. It assist in measurement of company's leverage. Balance and position of
long term debts in company determine it's liquidity position in company.
 Other Liabilities: In this section company shows any other long term obligation amount
which are not shown in other headings like any long term contractual obligations.
(4). Explanation about movement in items reported under liabilities head with reason:
Deposits: Both companies belongs to banking sector so this is liability for them. NAB's
deposits are 503145 million, 462072 million and 459714 million in year 2018, 2017 and 2016.
Where as CBA has reported deposits amounting 630358 million, 626655 million and 588045
million in year 2018,2017 and 2016 respectively. In both companies deposits are increasing due
to increase in saving habits in Australians and increase in saving accounts.
Derivative liabilities: CBA has reported current derivative obligation of 28472 million,
30330 million and 39921 million in year 2018,2017 and 2016 respectively. While in NAB's
current liability related to derivative contacts is 24969 million, 28861 million and 44899 million

in year 2018, 2017 and 2016 respectively. In both companies, during three year company's
derivative liabilities have been declined due to disposal of derivative liabilities.
Payables: NAB's payables in year 2016 was 43903 million which is further reduced to
36683 million in year 2017. However company's payable in year 2018 has been reached to
38192 million. Whereas CBA has reported payables amounting 32495 million, 40464 million
and 38635 million in year 2018,2017 and 2016 respectively. This fluctuation is due to payment
and addition in creditors (Pozniak, Bellanca and Vullo, 2016).
Short-term Borrowings: NAB's short-term borrowings in year 2018 was 169386 million
which was in year 2017 and 2016 of 189622 million and 167414 million. While CBA has
reported short-term borrowing amounting of 162715 million, 168034 million and 173072 million
in year 2016,2017 and 2018 respectively. Main reason of fluctuation in case of both companies
in balance of short-term borrowings is repayment or disposal of short-term debts and addition of
new short-term debts.
Long-term borrowings: In NAB company has taken an inter-bank loan of 9559 million
in year 2017 which has been decreased to 7431 million due to repayment of loan principle.
While in CBA long term debt in year 2018 was 22992 which was 18726 million and 15544
million in year 2017 and year 2016. These increase is due to additional debt funding.
Other Liabilities(Long term): Other liabilities amount in CBA in respect of year 2018
is 19916 million which was 28449 million and 27462 million in year 2017 and 2016
respectively. This is due to disposal of some bank-guarantees and other long term contracts.
Whereas in NAB amount of other liabilities in year 2018 is 10675 million and, 10171 million
and 10377 million respectively in year 2017 and 2016. There has minor reduction due to
payment of other long-term obligations.
(5) Advantages and disadvantages of different sources of funding:
Funding is considerable thing for a listed corporation as it facilitates effective working
and in long run assure entities financial performance. Mainly in companies there are two sources
of funding equity and debt. Both these have specific merits and demerits. Consideration of these
merits and demerits is significant to take vital business decisions. A wrong funding decision can
lead to adverse impact on company's growth. Here in this context following are advantages and
disadvantages of sources from which these companies have raised funds:

Raising Funds through common stock: Both companies have raised fund through issue
of securities or common stock. Under this method company invites application to raise funds by
selling its securities or by issuing new shares. This method is most commonly used by listed
companies and it is also refereed as inviting public deposits (ZHANG and ZHU, 2015).
Following are advantages and disadvantages of raising funds through common stock in context
of both corporations, as follows:
Advantages:
National Australia Bank Ltd (NAB):
This is banking company so raising funds though this source is cost effective and also it
acted as a means for company to generate cost free funds for making expansion in baking sector
and in opening of new branches.
Commonwealth Bank of Australia:
Australian commonwealth bank has unique place in banking sector, so main advantages
here for company is to raise funds by applying this source is enhancement in net-worth.
Disadvantages:
National Australia Bank Ltd (NAB): As company's common stock is continuously
increasing due to issue of share which in long may create disadvantage in term of loss of control
ownership control.
Commonwealth Bank of Australia: Due to inflation or any other reason securities of
company may go downward for a short period. So here disadvantage of company is that this cost
of downsizing in share price can be more than cost of debt.
Long term debts: It is another crucial and widely used method to obtain funds for business.
Both selected corporations have obtained funds through this source for business. Following are
key merits and demerits of raising funds through common stock in context of both corporations,
as follows:
Advantages:
National Australia Bank Ltd (NAB): Here major advantage of funding though this
long-term debt is interest paid by company in respect of loan is generally deductible in
calculation of tax payable while dividend payment are not.

Commonwealth Bank of Australia: For company here benefit of funding through this
source is that timely repayment of loan can enhance company's creditability and performance in
market.
Disadvantages:
National Australia Bank Ltd (NAB): Any late payment of debt can impact company's
investors' trust and also credit rating.
Commonwealth Bank of Australia: So much dependence upon debt funding can lead to
adverse liquidity position in long run.
PART B
Concepts of small proprietary company, large proprietary company and reporting entity:
A proprietary corporation or company is basically a specific kind of company which is
wholly based on single private ownership or holdings without any public sector or government
influence may be limited in nature or unlimited. These short of corporations not require to
comply with rule of jurisdiction and any formal restrictions since these are not governed by any
specific regulatory. These companies are also further classified into two major kind based on
operations level or scale. These may be small-scale proprietary or large-scale proprietary
corporation. Following are implications of being classified as either one of these three types of
companies in terms of compliance and reporting requirements, as discussed below:
Small scale proprietary company: Small proprietary company/ corporation which meets any of
following discussed key parameters, is regarded as small proprietary enterprise, as follows:
 The aggregated amount of revenue of any firm and corporation in any financial year has
reached at level of more than 25 million dollars.
 The aggregated assets as on year end date in any financial year of corporation or any
controlled firm is more than the level of $12.5 million.
 Employee number in any company is 50 or more at financial year end (ZHANG and
ZHU, 2015).
To become a proprietary company as large-scale proprietary corporation, following discussed
parameter should be fulfilled, as follows:

 Companies having aggregate amount of turnover or revenue in any financial year entity
of $50 million and more.
 Companies along with their controlled entities those stated in financial statement amount
of aggregate of its assets at financial year end of amounting $25 million or more.
 Company or its group entity having number of employees 100 or more as on financial
year ending.
An annual report along with director's report in respect of each financial year required to be
formulated and filed by large proprietors. Also entire accounts required to be audited and
examined unless there any provision which grants exemption to organization.
Reporting Entity Concept: In 1992, in an effort to decrease disclosure demands by
applying accounting standards, Australian accountant industry embraced this idea. This idea
requires' reporting entity' to draw up a monetary document in conformity with all billing norms
and interpretations known to as General Financial Purpose Reports. On the other side,' non-
reporting entities or organizations' can produce special financial reports for their purposes.
Simply these are entities for those reporting of financial statement is compulsory. Further these
entities have some additional reporting liabilities imposed by concerned regulatory authority.
CONCLUSION
From above discussed study it has been articulated that a deep and walk-through check or
analysis is useful for both investors and owners of company. Evaluation of each balance sheet
item is necessary as it help to recognise some crucial and hidden fact about any particular
corporation. In listed corporates, managerial personnels perform analysis to take strategic and
commercial decisions. Compliance of relevant rules and criteria for different entities is
significant to avoid complexities in business.

REFERENCES
Books and Journals:
Adesara, D. N., 2016. Deliberative Study of Financial Management of Barclays Company.
International Journal of Management, IT and Engineering. 6(9). pp.45-51.
Jie, Y., Xi, C. and Chaoyang, X., 2015. Does Managerial Self-interest Lead to the Corporate
Herd Investment?. Communication of Finance and Accounting, (9), p.20.
Kai, C.H.A.N.G., 2015. The Effect of Environmental Information Disclosure on Financial
Performance——Empirical Evidence from Cross-sectional Data of Heavy-pollution
Industries in China. Collected Essays on Finance and Economics, (1), p.10.
Levi, M. and Newton, D., 2016. Flash of green: are environmentally driven stock returns
sustainable?. Managerial Finance. 42(11). pp.1091-1109.
Peerapongpipath, P. and Hensawang, S., 2019. The Influence of Institutional Shareholdings on
Corporate Governance: Empirical Evidences of the Listed Companies on the Stock
Exchange of Thailand in the SET100. Asian Administration & Management Review.
2(1).
Pozniak, L., Bellanca, S. and Vullo, F., 2016. Determinants of internet financial communication:
evidence from AIM Italia. International Advances in Economic Research. 22(1).
pp.111-112.
ZHANG, L. and ZHU, T., 2015. Tax collection, corporate tax avoidance and corporate
investment efficiency. Journal of Audit & Economics, (2), p.9

ANNEXURE
National Australia Bank Ltd:

Commonwealth Bank of Australia