Corporate Accounting: IFRS Adoption and Equity Analysis of ASX Firms

This report examines the significance of financial reporting frameworks in corporate accounting, highlighting the necessity for standardized guidelines like IFRS and AASB to ensure comparability and reliability in financial statements. It contrasts the implications of voluntary financial reporting with regulated frameworks, emphasizing potential misstatements and economic disruptions. The analysis includes a discussion on the role of the Australian Accounting Standard Board (AASB) in adopting IFRS, considering why some countries prefer GAAP. Furthermore, the report provides an equity and debt analysis of four ASX-listed companies—Agrimin Limited, Aguia Resources Limited, Alara Resources Limited, and Alkane Resources Limited—detailing factors affecting changes in their equity, such as share issuances and options exercised. The report concludes by reinforcing the importance of adhering to regulated frameworks for transparent and reliable financial reporting.

CORPORATE ACCOUNTING
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EXECUTIVE SUMMARY:
As all we know, financial statements are used by the users to take the decision for the various
purposes such as investment, exit from an organization, purchase or supply etc. If these
financial decisions are prepared voluntary, then it would not be useful to anyone. To
overcome this issue, the financial reporting framework came into effect. Financial Statements
prepared on these underlying rules become critical for the decision making. As such,
financial statements are useful only when they are prepared by following such underlying
standards.
There are some standards, which are considered as global accounting standards like GAAP,
IFRS, and IASB etc. These standards are not compatible with the organizations of each
country. Thus, these are adopted subject to some modifications.
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Contents
EXECUTIVE SUMMARY:.........................................................................................................................2
BRIEF:....................................................................................................................................................4
CORPORATE REGULATION:...................................................................................................................5
ACCOUNTING STANDARD SETTING:.....................................................................................................6
OWNER’S EQUITY..................................................................................................................................7
CONCLUSION:......................................................................................................................................11
REFERENCES:.......................................................................................................................................12
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BRIEF:
Nowadays, every organization prepared and presented its financial statements using the
underlying guidelines and standards. In this assignment, we will discuss the importance of
financial reporting framework in the preparation and presentation of the financial statement.
We will also discuss the fact that why the management should not prepare and present the
financial record of the company according to their own wish.
In addition to that, we will be discussing the role of the Australian Accounting Standard
Board (AASB) in the adoption of International Financial Reporting Framework (IFRS). We
will discuss that why countries adopted the GAAP, does not adopt the IFRS.
Our discussion also includes the four companies listed on ASX and analysis of factors
affecting change in the equity of these companies. Finally, we will be discussing on equity
and debt analysis of the company.
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CORPORATE REGULATION:
Nowadays, every organization prepares its financial statements according to the standards,
guidelines, rules and financial reporting framework prevailing at the time of finalization of
books of accounts. But here, a question arises that what was the requirement of developing
such types of rules and frameworks etc. which is being followed by every organization?
Another question may come that what would be the scenario where an organization prepares
and presents their financial records as per their own wish (Deloitte, no date).
By answering the above question, it required to understand the need of the preparation and
presentation of the financial statements of an organization. The basic need for the preparation
and presentation of the financial statements is to put the financial record of the company at
the single platform so that it becomes useful to its shareholders (IFRS, no date). As such, if
the accounting is done as per the wish of the companies then it would not be comparable to
the other companies in the same industry. They will develop their own accounting and
reporting standards or rules, which ultimately beneficial to them.
For Example, Company X and Y which deals in the manufacturing sector. They have
recorded their expenses according to their own accounting rules i.e. company X record the
expenses at the time of they are actually paid but company Y book the expenses as and when
the liability to pay arise. As such, company X book the expenses on the cash basis and
company Y book the expenses on the accrual basis.
If the management has the power of preparation and presentation of the financial statement as
per their own wish then financial records cannot be compared with the other company.
Resulting which, it would not be useful to the users of the financial statement at all
(Wikipedia, no date). Besides it, these may generate the various problems, some of which
are as under:
i) There may a misstatement in the financial records.
ii) It may affect the user’s decision.
iii) It may impact the economic condition of the country due to misrepresentation.
iv) Financial Statements may not be useful to the stakeholders.
As such, these factors may disrupt the economic environment of the country as well as of the
company. If the financial statements are prepared voluntary there may be a lot of intricacies
in the preparation and presentation of the financial statements (Pontius, 2018). These
intricacies need to be eliminated for the better preparation and presentation of the financial
records of the company. To eliminate these issues, financial accounting and reporting
frameworks have been developed. These are the benchmarks, which needs to be followed by
every organization in the recording of their financial activities. (Mirza, 2015)
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Thus, if the accounting and reporting are based on the designed rules and frameworks, these
would be more beneficial to the users as well as shareholders of the company. In this
approach, to manipulate the data is not an easy task and if it manipulates the data it will
ultimately affect the company adversely. So, the company should prepare and present the
data as per regulated frameworks rather than on the basis of their own rules.
ACCOUNTING STANDARD SETTING:
There are some accounting and reporting standards regulatory authority like IFRS, IASB etc.
International Financial Reporting Framework (IFRS) are the accounting standards which has
been issued by the International Accounting Standard Board. In the recent years, the
organizations have started working outside the boundary of their country, which requires him
to prepare their books as per globally recognized standards (AUASB, 2009). Financial
Statements prepared on the basis of the IFRS may be recognized globally as they had been
prepared according to the standards that are followed by many countries.
Australian Accounting Standard Board (AASB) is the Australian governing body. It deals
with the setting out of the standards for the organizations of Australia. The main task of the
AASB is to monitor the standards and make the corresponding amendment as suitable.
As we have discussed, IFRS are the accounting standards which are recognized globally.
These should be followed by every organization operating in different countries. But there are
some problems in the countries due to which countries would not be able to adopt such
standards as it is. Therefore, these standards are adopted with some changes or modification
which are adjacent to the country’s profile (Kumaran, 2015).
In the instant case, AASB is the accounting standards which are in the convergence of the
IFRS. In other words, these are the globally recognized standards which have been adopted
due to some changes or modification with the need of the country Australia (Deloitte, 2003).
Thus, the Australian companies need to follows these standards in the preparation and
presentation of the financial statements. Further, a company following the AASB does not
mean that it has not followed the IFRS.
IFRS is not compulsory to be followed by the member countries of IASB.
As we know that IFRS has been issued by the IASB. Besides that, member countries do not
follow the IFRS. They follow the Generally Accepted Accounting Principles (GAAP). There
no more difference in the IFRS and GAAP (Burggraf, 2016). But these countries denying to
adopt IFRS as they consider that IFRS is more difficult to implement than GAAP. They also
contest that migration from GAAP to IFRS would also be costlier to them in terms of
training, system changing etc. As such, IFRS is not compulsory for the member countries of
IASB (Camfferman, 2017).
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OWNER’S EQUITY
For this analysis, we have taken the following companies from the manufacturing industry.
These are as follows:
a) Agrimin Limited
b) Aguia Resources Limited
c) Alara Resources Limited
d) Alkane Resources Limited
Discussion in details:
a) Agrimin Limited: The company is engaged in the business of mining of potash. It has
100 percent ownership of the SOP project in Australia. The former name of the
company is Global Resources Corporation. The equity and debt analysis of the
company are as under:
Particular 2017 ($) 2016 ($) 2015 ($) 2014 ($)
Equity 18,297,397 5,930,535 3,484,564 1,417,935
Debt - - - -
Year 2014:
In this year the equity of the company has been majorly changed in comparison to the
previous year. The reason for the change in the equity is that it has raised the fund of
$ 569,000 through the issue of right shares. In addition to that, it has raised the fund of
$ 7,10,000 from the issue of shares in the open market. Option exercised during the
year was $ 32. Expenses incurred on raising fund has been debited to the equity.
Year 2015:
In this year the equity of the company includes the issue of share options and a fresh
issue of shares. During the year, 3445601 shares exercised by the employees and
raised $ 300421 from such issue of share options. The company has a lot of time
issued the shares to raise the fund of $ 1115000.
The one more reason for the change in the equity of the company was that it has
issued the shares to Rewards Minerals Limited as a consideration for the acquisition
of the technical data of the Mackay Project.
Year 2016:
In the year 2016, the equity of the company has been increased due to an issue of
shares for the arrangement of funds. It has also issue share options to the employee
and raised the fund of $ 641,244 which resulted in an increase in the equity. The
equity of the company includes the shares issued under the share placement plan of $
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2,520,500. The transaction cost of $ 146,035 has been debited to the equity. The
equity of the company has also been affected by the reserves.
Year 2017:
In this year the equity includes the shares issued by the company to raise the fund. In
this year the options have not been exercised by the employees so equity of the
company has not been affected by it. The main reason for the change in the equity
was the issue of shares due to which equity has been affected by $ 13,405,148.
Transaction cost on such issues has also been debited to equity.
b) Aguia Resources Limited: The company is engaged in the business of exploration of
fertilizers resources in Brazil. Major focus of the company is on the phosphate project
in Brazil. The equity and debt analysis of the company is as under:
Particular 2017 ($) 2016 ($) 2015 ($) 2014 ($)
Equity 31,291,524 24,076,351 20,008,549 27,014,751
Debt - 213,949 1,000,000 -
Year 2014:
In the year 2014, the equity of the company includes the share issued through
placements and shares issued under the share purchase plan. The company has issued
fresh shares of $ 294,000. Equity of the company has also increased due to the issue
of shares of $ 35,193 as a consideration for the termination of PAC.
Year 2015:
In this year the component of equity includes the shares issued under placement and
shares issued due shortfall in the placement. In addition to that, the company has
issued the right shares of $ 169,845. The equity component of the company also
includes the reserves. In the reserve portion, there was an increase in the share-based
payment reserves and capital contribution reserves.
In the borrowing section, the company has taken the credit of $ 1,000,000 from the
Forbes Empredimentos Ltda at the rate of interest 1 percent per annum.
Year 2016:
In the year 2016, the company has issued the fresh share and raised the fund of $
9,503,096. The equity of the company has also been increased by the share options
exercised by the employees of $ 12,600. Transaction cost incurred on the issue of
such shares has been charged from equity (Boyte, 2017).
The borrowing of $ 786,051 has been repaid by the company. No further borrowing
made during this year.
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Year 2017:
In this year equity component of the company has been increased by the issue of the
shares of $ 8,500,000 and by the issue of share options of $ 198,112 exercised by the
employees.
During the year the company has not borrowed any amount. Thus, the company has
no debt.
c) Alara Resources Limited: The company is engaged in the business of exploring the
minerals. It is operating with the projects running in Saudi Arabia and Oman. Equity
and debt analysis of the company is as under:
Particular 2017 ($) 2016 ($) 2015 ($) 2014 ($)
Equity 9,586,424 8,465,460 37,746,585 38,921,574
Debt 215,939 - 1,509,585 1,510,103
Year 2014:
In the year 2014, the basic equity of the company was the same as in the year 2013.
The total equity portion has been changed due to the provision of foreign currency
translation reserve.
Year 2015:
In this year there was a movement in the basic equity by $ 60,000. The equity of the
company decreased due to the reduction in foreign currency translation reserves.
Option reserves increased due to the expiry of unexercised options.
Year 2016:
In the year 2016, the company has issued the shares of $ 2,580,075. Thus, equity of
the company has been increased. The equity of the company has also been affected by
the foreign currency translation reserve and option reserves. The option reserve
balance of $ 358,980 has been transferred to accumulated loss as the amount was
relatable to the options canceled and lapsed (Helstrom, no date).
Year 2017:
In this year the equity of the company has been increased due to the issue of shares of
$ 1,830,052. Equity of the company also increased as the fair value of the company
has been credited to option reserves.
d) Alkane Resources Limited: The company is engaged in the business of mining of
products like zirconium, niobium etc. The equity and debt analysis of the company is
as under:
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Particular 2017 ($ ‘000) 2016 ($ ‘000) 2015 ($ ‘000) 2014 ($ ‘000)
Equity 164,927 190,310 170,450 174,220
Debt - - - -
Year 2014:
In the year 2014, the equity of the company has been increased as the company has
issued share on the placement basis of $ 10,400,000. But equity has been reduced by
the amount expended of $ 600,000 on such issue of shares.
Year 2015:
In this year the component of the equity includes the share issued under share-based
payment. But in this case, the company issued shares at nil rate due to which equity of
the company remains unchanged. But the transaction cost of $ 3000 has been debited
to equity.
Year 2016:
In the year 2016, the company has issued the share to raise the fund of $ 12,388,000.
There was a shortfall in such issue. Such shares were issued as private placement I the
year 2017 i.e. equity of the year 2017 would get be affected.
Year 2017:
In the year 2017, the equity of the company includes the shares issued under the share
option scheme. The company has booked the equity by $ 2,570,000. Further, the
shortfall in the issue of share in the year 2016 was issued to private investors as
private placement and raised the fund of $ 4,141,000. As such, shares issued was the
main reason for the change in the equity of the company (Johnston, no date).
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CONCLUSION:
It is concluded that every company should follow the regulatory frameworks in the
preparation and presentation of the financial statements. So that, it may be useful for the
stakeholders and users for taking decision for their investments etc. We have also discussed
the IFRS and AASB. There is no more difference between these two terms. Australian
companies should follow the AASB.
For the purpose of equity analysis, we have taken four listed companies. Equity of any
company is affected by the issue of share capital, shares issued under share option plan etc. In
the above discussion, there was a major change in the equity of the Alara Resources Limited.
In the debt-equity analysis, debt-equity position of Alkane Resources Limited is much better
than other.
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REFERENCES:
AUASB (2009), Applicable Financial Reporting Framework [Online] Available from:
https://definedterm.com/applicable_financial_reporting_framework [Assessed 11 September
2018]
Burggraf, H. (2016), Global adoption of IFRS accounting standards nears finish line
[Online] Available from: http://www.internationalinvestment.net/products/global-adoption-
ifrs-accounting-standards-nears-finish-line/ [Assessed 11 September 2018]
Boyte, C. (2017), How dividends affect stockholder equity [Online] Available from:
https://www.investopedia.com/articles/investing/091015/how-dividends-affect-stockholders-
equity.asp [Assessed 11 September 2018]
Camfferman, K. (2017), The Challenge of Setting Standards for a Worldwide Constituency,
[Online] Available from:
https://www.tandfonline.com/doi/full/10.1080/09638180.2017.1296780 [Assessed 11
September 2018]
Deloitte (no date), Conceptual Framework for Financial Reporting 2018 [Online] Available
from: https://www.iasplus.com/en/standards/other/framework [Assessed 11 September 2018]
Deloitte (2003), Difference between Australian GAAP and IFRS and the future direction of
accounting standards [Online] Available from:
https://www.iasplus.com/en/publications/australia/other/pub99 [Assessed 11 September
2018]
Helstrom, K. (no date), Types of Transactions That Affect the Equity of the Company [Online]
Available from: https://yourbusiness.azcentral.com/types-transactions-affect-equity-
company-11158.html [Assessed 11 September 2018]
IFRS (no date), Conceptual Framework for Financial Reporting [Online] Available from:
https://www.ifrs.org/issued-standards/list-of-standards/conceptual-framework/ [Assessed on
11 September 2018]
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Johnston, K. (no date), Effect of liabilities and shares equity on a company [Online]
Available from: https://smallbusiness.chron.com/effect-liabilities-share-equity-company-
10659.html [Assessed 11 September 2018]
Kumaran, S. (2015), The Ten Generally Accepted Accounting Principles [Online] Available
from: https://www.invensis.net/blog/finance-and-accounting/ten-generally-accepted-
accounting-principles-gaap/ [Assessed 11 September 2018]
Mirza, A. (2015), IASB Framework for the Preparation and Presentation of Financial
Statements [Online] Available from:
https://onlinelibrary.wiley.com/doi/10.1002/9781119197102.ch2 [Assessed 11 September
2018]
Pontius, N. (2018), What is GAAP? [Online] Available from:
https://www.camcode.com/asset-tags/what-is-gaap/ [Assessed 11 September 2018]
Ramanna, K. (2009), Why do countries adopt International Financial Reporting Standards?
[Online] Available from: https://www.hbs.edu/faculty/Publication%20Files/09-102_1bc06d7-
7340-4f0a-b638-e23211a40c41.pdf [Assessed 11 September 2018]
RSM (no date), Which Financial Reporting Framework Applicable to me? [Online] Available
from: https://www.rsmuk.com/which-financial-reporting-framework-is-applicable-to-me
[Assessed on 11 September 2018]
Wikipedia (no date), International Financial Reporting Standards [Online] Available from:
https://en.wikipedia.org/wiki/International_Financial_Reporting_Standards [Assessed 11
September 2018]
Zhang, M. (no date), Australian GAAP vs IFRS [Online] Available from:
https://www.scribd.com/document/38996125/Australian-GAAP-vs-IFRS [Assessed 11
September 2018]
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