Financial Reporting: AASB Standards, Disclosures & Acacia Coal

This report delves into the intricacies of financial reporting within the Australian context, focusing on the role of the Australian Accounting Standards Board (AASB) and using Acacia Coal Limited as a practical example. It addresses the misconception regarding social accounting as an objective of general-purpose financial reports, emphasizing the primacy of financial position reporting. The report justifies the necessity of AASBs in Australian business practices due to varying disclosure requirements based on entity type and public interest. An examination of Acacia Coal Limited's annual report reveals key financial statements like the profit and loss statement, balance sheet, and cash flow statement, alongside crucial ratios and earnings estimates. Furthermore, the report explores the incentives driving managers to disclose specific information in annual reports, such as bonuses, promotions, and improved company performance in the financial market. Finally, it analyzes how investors and securities markets react to the disclosed information, highlighting the impact of financial health indicators and auditor's reports on investment decisions. Desklib provides access to similar reports and solved assignments for students.

Financial Reporting 1
FINANCIAL REPORTING
by (Student’s Name)
Professor’s Name
Institution
Location of Institution
Course
Date

Financial Reporting 2
Executive Summary
Social accounting is not considered as one of the objectives in the general purpose
financial reports (GPFR).The most significant aspect is financial accounting of various
organizations in Australia. Further the disclosure regime in Australia is different based on the
requirements during the financial reporting and hence there is a need for setting of standards
based on the Australian business practices. The report focus on various issues relating to the
Australian Accounting Standards Board. It aims at answering certain questions based on the
AASB as discussed below in the paper. The company selected for the assignment is Acacia Coal
Limited.
Provide your comments regarding the aforementioned statement. Explain. (6 marks)
Social accountability is considered one of the key objectives of general purpose financial
reports in the AASB Conceptual Framework. The above statement is false because based on the
accounting standards of Australia, the most significant item to account for as a company is the
financial position of that particular organization. It is the responsibility of every organization to
be socially responsible and hence undertake activities which are beneficial to the surrounding
society (Laswad and Redmayne, 2015 p.180). Being socially responsible is the objective of the
specific organization and this is due to the benefits associated with it. For example, it will create
a good public image for the company. It may also result in huge profitability for the organization,
and this is especially when it produces goods and services which are of high quality to the
community.
Corporate social responsibility forms one of the key objectives of an organization
towards the community such that all the activities should be aimed at meeting the various interest
of different stakeholders in the society. The organizations must conduct their activities in an

Financial Reporting 3
ethical manner, and this, therefore, forms an integral role of a company. The AASB is only
concerned about the reporting technique which has been applied by an organization during the
financial accounting and reporting (Cordery and Sinclair, 2016 p.500). It, therefore, does not
consider whether the business has ethically conducted its activities or not. The social accounting,
therefore, is not part of the objectives of the general purpose financial reports. It typically forms
one of the goals of the specific organization with the aim of enhancing its image to the public
and all the other stakeholders in the real world business such as the investors, government,
creditors, customers, and suppliers. The fundamental goal of the general purpose financial report
is to ensure that the financial information reported is done systematically to enable the various
users to make viable decisions.
Based on the analysis of Australian financial regulatory framework, explain why it
is necessary to establish and develop AASBs in Australian business practices. (4 marks)
Based on the financial regulatory framework of Australia, it is vital to develop and
establish the AASBs in the Australian business practices. The disclosure regime in Australia is
different based on the requirements during the financial reporting, and this is because they are set
according to the type of business (Henderson, Peirson, Herbohn and Howieson, 2015 p.70). Such
financial reporting requirements are also principally based on the public interest level in a
particular entity. The key entities typically include small proprietary companies, disclosing
entities and the unlisted public companies.
Heenetigala, De Silva, Armstrong and Ediriweera, 2016 p.340), argues that the process
of setting the standards is a multi-process which requires the involvement of various business
groups, such as the accountants, investors, and other key stakeholders. This therefore means that
Acacia Coal Limited Company has to involve all the stakeholders during the annual reporting of

Financial Reporting 4
the financial information. After making of a standard, it is to be published to the Commonwealth
of Australia Gazette and the Australian Parliament is given a copy. Since the standards are set
based on the particular entity in Australia, it is prudent for the standards to be set based on the
Australian business practices.
Examine what types of information are provided in the annual report of your chosen
company. (6 marks)
The company selected is Acacia Coal Limited, and the following are the types of
information contained in the annual reports of the firm
(https://www.marketscreener.com/ACACIA-COAL-LTD.../Acacia-Coal-Annual-Report).
.
Profit and Loss Statement
The statement indicates a summary of the total income of the company, and this also
includes the various expenses is incurred during its fiscal year. The company uses expenses
layout for the profit and loss statements while preparing the financial reports (Hąbek and
Wolniak, 2016 p.400). However, at times.it may decide to change the layout based on the
prevailing financial regulatory framework.
Balance Sheet
According to Frias‐Aceituno, Rodríguez‐Ariza, and Garcia‐Sánche (2014 p.70), the
statement of financial position generally contains the assets, equity, liabilities, allocations, and
provisions of the company during the financial year which ended and a financial report had been
prepared. The balance sheet is prepared using the vertical format, and this makes it easy and
simple to comprehend by all the users of financial information of the company.
Ratios and Margins

Financial Reporting 5
It contains a variety of ratios and margins such as profitability ratio, the gross margin,
operating margin, return on equity, net margin and the liquidity ratio. Such ratios and margins
are to establish the financial position of the company to know if it can meet various obligations
when they fall due (Kavanagh and Johnson, 2017 p.567).
Earnings and Estimates
It contains all the revenues the company has generated for the whole of the financial year.
Additionally it has the forecasted revenue by the company for the period of the fiscal year. They
are therefore the future estimated earnings for the company based on the earnings per share.
Cash flow Statement
The cash flow statement contains the total amount of capital investment and funding the
company has received during the financial year (Frias‐Aceituno et al.2014 p.70). For example, it
includes the investment activities, financial activities, marketing activities, operating activities
and also the non-cash financing activities.
Explain what are the incentives for the managers to disclose certain type of
information in the annual report (6 marks)
There are various incentives which the managers obtain when they disclose certain types
of information in the annual reports. For example, the managers are likely to be given bonuses by
the company, and this is because some of the information disclosed in the annual reports are
significant to help in the valuation of the company by the various users such as the investors. The
bonuses awarded to the managers form a key incentive for the disclosure of certain information
by the managers in the annual reports (Guay and Verrecchia, 2018 p.67). The other incentive is

Financial Reporting 6
the promotion to another level in the company's hierarchy. When the information provided in the
annual reports are such that it reflects good performance by a company, the managers
responsible for the management and administration of such an organization is likely to be
promoted to a higher rank, and this is a motivating factor for the disclosure of information in the
annual reports.
The other incentive is profit making by the particular organization. It is argued that those
companies which make additional disclosure in their annual reports are likely to generate more
profits compared to those who do not. The additional disclosure of information results in more
benefits than the costs (Kitch, 2017 p.70). The disclosure of certain types of information by the
managers is also motivated by better performance a company is likely to obtain in the financial
market. Further, the desire of the managers to increase the shareholders' wealth in the company is
a vital motivator to disclose certain types of information in the annual reports of the company,
and this forms one of the incentives of disclosure of information by the managers in the annual
reports.
The incentive to differentiate a particular company from the other based on profitability
is significant for the disclosure of information by the managers. The additional information
provided by the managers is used as a basis for evaluating the company's performance, and this
enables the organization to raise capital depending on the best terms available (Miller and
Skinner, 2015 p.230). The more a company is profitable, the more it is likely to raise capital
easily, and hence it can be concluded that the disclosure by the managers is to enable a firm to
raise additional capital easily.

Financial Reporting 7
In your opinion, from the perspective of the investors and securities market, discuss
how the investors or securities markets will react to the disclosures of certain information
provided in the annual report, which are discussed in item 3), or in other sources. Provide
appropriate evidence to demonstrate your arguments. (6 marks)
The investors and the securities market react differently based on the information
provided in the annual reports. For example, when the financial statement of position indicates
that the company has more liabilities than the assets, it would be clear that that the company may
be running at a loss. The investors will, therefore, be forced to remove their shares from the
company. Additionally, the potential investors who could be interested in the company may
decide not to invest. However when the company's balance sheet shows more assets than the
liabilities, it is likely that the company is doing better and making more profit, the reaction of the
investors in such circumstance will be to invest more of their shares with the aim of the obtaining
more profits(Miller and Skinner, 2015 p.230). The potential investors, on the other hand, will be
willing to put their investment in the company .The auditor’s report information is also important
to the various investors since it establishes the fair view of a company. The ratios and margins
typically indicate the profitability level of a company and hence based on the ratios and margins
displayed in the annual reports, the investors and other users are likely to react differently. For
example when the profitability ration is low, it shows that the company is not generating enough
profit and hence the investors will automatically invest in another firm which is more profitable.
According to Grewal, Riedl, and Serafeim (2018 p.100), the information on the income
statement is also an important element for the investors and the quality of information influences

Financial Reporting 8
the decisions made by the investors. For example, when there is a consistent loss in the company,
most of the investors will leave the company and look for other firms which are making profits
instead. Additionally, when the information in the profit and loss statement displays more profits
being generated by the company, the reaction of the investors would be to invest more into the
business enterprise with the aim of obtaining more revenue.

Financial Reporting 9
References
Cordery, C.J., and Sinclair, R.s, 2016. Decision-Usefulness and Stewardship As Conceptual
Framework Objectives: Continuing Challenges.
Frias‐Aceituno, J.V., Rodríguez‐Ariza, L. and Garcia‐Sánchez, I.M., 2014. Explanatory factors
of integrated sustainability and financial reporting. Business strategy and the environment, 23(1),
pp.56-72.
Grewal, J., Riedl, E.J. and Serafeim, G., 2018. Market reaction to mandatory nonfinancial
disclosure. Management Science.
Guay, W. and Verrecchia, R.E., 2018. Conservative disclosure. Journal of Financial Reporting.
Hąbek, P. and Wolniak, R., 2016. Assessing the quality of corporate social responsibility reports:
the case of reporting practices in selected European Union member states. Quality &
quantity, 50(1), pp.399-420.
Heenetigala, K., De Silva, C., Armstrong, A. and Ediriweera, A., 2016. Investigation of criteria
used for assurance practices of sustainability reporting in Australian listed companies. Victoria
University.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Kavanagh, M.J. and Johnson, R.D. eds., 2017. Human resource information systems: Basics,
applications, and future directions. Sage Publications.
Kitch, E.W., 2017. The law and economics of rights in valuable information. In Who Owns
Knowledge? (pp. 35-76). Routledge.

Financial Reporting 10
Laswad, F. and Redmayne, N.B., 2015. IPSAS or IFRS as the Framework for Public Sector
Financial Reporting? New Zealand Preparers’ Perspectives. Australian Accounting
Review, 25(2), pp.175-184.
Miller, G.S. and Skinner, D.J., 2015. The evolving disclosure landscape: How changes in
technology, the media, and capital markets are affecting disclosure. Journal of Accounting
Research, 53(2), pp.221-239.
https://www.marketscreener.com/ACACIA-COAL-LTD.../Acacia-Coal-Annual-Report.