HA2032 Financial Management: Role, Standards & Financial Analysis

This report assesses the role of managers in financial reporting, arguing for regulated accounting procedures over voluntary disclosure to prevent fraud and manipulation. It examines the functions of the Australian Accounting Standards Board (AASB) and the International Accounting Standards Board (IASB) in setting and implementing accounting standards. The report includes a financial analysis of four Australian Stock Exchange-listed companies in the materials industry (Alt Metals Limited, Amcor Limited, Adelaide Brighton Limited, and Admiralty Resources NL) for the years 2014-2017, focusing on the components of equity (issued capital, reserves, retained earnings, and non-controlling interest) and changes therein. The analysis explains the trends in each component, such as increases or decreases in share capital, reserve utilization, and accumulated profits or losses, providing insights into the financial health and strategies of these companies. The annual reports of these companies for the years 2014, 2015, 2016 and 2017 have been considered for the purpose of analysis.

[FINANCIAL MANAGEMENT REPORT]

Executive Summary
The report is prepared on the financial and corporate accounting topics of evaluation of
managers’ role in reporting. The report also highlights the role being played by the Australian
Accounting Standards Board and the International Accounting Standards Board in the standards
setting and formulation and implementation of the same. Finally, the report all shows the
financial analysis of the proportion of debt and equity in the 4 companies and what have been
the changes in the components of equity over the last 4 years in case of these 4 companies
along with the brief explanation of each one of them.

Table of Contents
EXECUTIVE SUMMARY...........................................................................................................................2
INTRODUCTION......................................................................................................................................4
ASSESSMENT OF QUESTION 1................................................................................................................4
ASSESSMENT OF QUESTION 2................................................................................................................5
ASSESSMENT OF QUESTION 3................................................................................................................6
ASSESSMENT OF QUESTION 4................................................................................................................9
CONCLUSION..........................................................................................................................................9
REFERENCES.........................................................................................................................................10

Introduction
The report has 3 major sections. The first one dealing on the requirement of regulated
accounting procedures instead of voluntary reporting in hands of managers. The 2nd deals with
functions of AASB and IASB, two of the major accounting bodies, the 3rd and 4th section deals on
the financial reporting aspect (Bumgarner & Vasarhelyi, 2018).
Assessment of Question 1
The management of the company is responsible for preparation and presentation of the
financial statements of the company and is majorly involved in dealing with all the other
departments, divisions within the company and then reporting the same in the financial
statements. The management are their disposal to decide on the estimates and assumptions to
be taken while preparation of the financial statements and the judgements to be made during
the process. It is this report based on which the audit is being conducted by the auditors and
then they express their opinion on the financial statements. Some of the major financials parts
include profit and loss account, the balance sheet, the statement of changes in equity and the
cash flow statement (Belton, 2017). The management also needs to ensure that the company
has complied with all the rules and regulations, laws, accounting standards and guidance notes
while preparing the financial statements such that there is clarity in understanding by the
stakeholders.
The decision to give the authority to managers to report and account the financial information
can work both the positive as well as negative side. The positive side may include the more
detailed information regarding the component profit and loss account and other financials with
all the adjustments and assumptions stated in annual report. And the negative side may many
of the critical and significant disclosures which are now compulsory and important from the
perspective of investment decision may be missed out as disclosing information would be
voluntary and this may affect the investor’s big time (Goldmann, 2016). Furthermore, it may
also lead to window dressing of the financials as most of the accounting managers would try to
show only the positive sides of business leaving the negative side. Lastly, the financials may
become lengthy and irrelevant if information that is not required is also being disclosed in the
financial statements. Considering all the above discussion and the repercussions it may have on
the investors and stakeholders, it can be concluded that the reporting and accounting of
financial information should not be made voluntary and should be regulated by the regulatory
body which will prevent the instances of fraud, window dressing and manipulation. It will also
prevent biasness and enable standardization of data (Dichev, 2017).

Assessment of Question 2
The Australian Accounting Standards Board is the regulatory body for setting up of the
accounting standards and implementing the same in Australia. It is responsible for setting it up
for both the private as well as the public companies. It also helps in the overall development
and monitoring if the companies in Australia are meeting the minimum requirements of
reporting and disclosures and thereby take corrective actions. Similarly, the global accounting
standards are being developed and implemented by the accounting body called International
Accounting Standards Board (IASB). The standards which are being set up and prepared by IASB
in congruence with the accounting bodies over the world are called International Financial
Reporting Standards, denoted as IFRS (Choy, 2018). The primary objective of IFRS standards is
to develop standards in such a fashion that they are easily understandable and acceptable and
meets all the critical and significant requirements of the stakeholders.
The AASB also plays a significant role and does an active participation in the standard setting
procedure and which is being framed by IASB (Carlin, 2009). The AASB is being supported by
one of the regulatory bodies called financial reporting Council (FRC) in the overall
implementation and monitoring of the standards and the guidance notes all across Australia. In
terms of standards, the AASB standards have also originated from global accounting standards
only and the same can be evidentiated as follows:
1. AASB 1 deals with First time implementation of Australian Accounting Standards is
derived from IFRS 1 – First time implementation of International Accounting Standards.
2. AASB 101 deals with presentation of financial statements, IAS 1 deals with the same.
3. AASB 101 deals with presentation of inventories, IAS 2 deals with the same.
There are nearly 120 member nations of the IASB Board out of which nearly 90 nations have
adopted the IFRS standards and confirmed on the same (Fay & Negangard, 2017). The rest have
either adopted with some changes or in convergence with the local standards or the same has
not yet been adopted as it may have a direct impact on all the companies or even the economy.
Therefore, the standards being introduced by IASB have not been made compulsory and
prudence has been followed in this aspect. Furthermore the decision to not make it compulsory
is justified considering the circumstances of the case (Werner, 2017).

Assessment of Question 3
In this section of the report, the financial analysis of the 4 companies for the last 4 completed
financial years has been done in respect of the equity and its components. The annual report
has been considered for the years 2014, 2015, 2016 and 2017. All the 4 companies which has
been chosen for analysis are listed on the Australian Stock Exchange and do belong to the
material industry (Mubako & O'Donnell, 2018).
1. Alt Metals Limited
2. Amcor Limited
3. Adelaide Brighton Limited
4. Admiralty Resources NL
The components of equity has been shown below for the last 4 years.
1. Alto Metals Limited
The components of equity in the given company have been listed below:
 Issued capital: This is the share capital of the company as has been explained
above. It shows the capital invested by the owners (investors) in the company
 Reserves: This is mostly due to the requirement of the laws and legal regulations.
This is separated from the yearly profit for special purposes.
 Accumulated Losses: this is the sum total of the losses and profits of the past
year earned by the entity (Dumay & Baard, 2017).
The brief summary for equity components for the last 4 years has been shown below:
Equity
component
Year 2017
USD
Year 2016
USD
Year 2015
USD
Year 2014
USD
Issued Capital 18,680,470 16,008,208 11,044,157 11,044,157
Reserves 257,671 681,323 292,751 32,101
Accumulated
losses
(11,054,205) (9,571,763) (7,649,968) (3,949,791)
The above table indicates that the company has been issuing the share capital every year and
so the balance has increased. The reserves have decreased because of the losses incurred by
company and the utilization of the reserves. Also, the accumulated reserves has increased due
to continuous losses in past year.
2. Amcor Limited:
 Contributed Equity: The overall share capital of the company is being divided in
small parts called shares. The owners of these share units are called
shareholders of the company and are called the owners. These are generally
listed on some stock exchange and can be bought, sold or traded. The annual

report shows the issued, subscribed and paid up share capital in the notes
section.
 Retained Earnings: this is the share of the earnings of the company and is
generally the sum total of all the accumulated profits and losses of the company
as on date. Dividend is declared out of the same.
 Non-controlling interest: This is the share capital of the shareholders in
subsidiary companies. Since the holding is no more than 50%, it is called minority
interest (Meroño-Cerdán, et al., 2017).
 Reserves: Reserves are generally being created by the companies for some
specific purposes and as a compliance of some law and regulations. Some of the
examples include dividend equalization reserve, general reserve, and capital
reserve. It is nothing but appropriation of profit.
The brief summary for equity components for the last 4 years has been shown below:
Equity component Year 2017
USD million
Year 2016
USD million
Year 2015
USD million
Year 2014
USD million
Contributions 1416.90 1445.10 1680.60 2072.20
Reserves (881.70) (800.20) (666.50) (414.30)
Retained Earnings 286.70 139.00 452.10 370.40
Non-controlling
interest
69.60 61.60 120.80 111.00
From the above table, we can see that the contributions have decreased continuously over the
years indicating the decrease in capital due to buy back of own shares by company. The balance
of reserves has declined year on year due to creating of reserves for various purposes. The
retained earnings has increased in 2017 due to the profits earned and decreased in 2016 due to
losses. The non-controlling interest has declined due to the decline in the subsidiaries and thus
balances of shareholders.
3. Adelaide Brighton Limited
The components of equity in the given company have been listed below:
 Issued capital: This is the share capital of the company as has been explained
above. It shows the capital invested by the owners (investors) in the company
 Reserves: This is mostly due to the requirement of the laws and legal regulations.
This is separated from the yearly profit for special purposes (Knechel & Salterio,
2016).
 Accumulated Losses: this is the sum total of the losses and profits of the past
year earned by the entity.
The brief summary for equity components for the last 4 years has been shown below:

Equity component Year 2017
USD million
Year 2016
USD million
Year 2015
USD million
Year 2014
USD million
Share Capital 733.10 731.40 729.20 727.90
Reserves 1.90 2.90 1.20 3.30
Retained Earnings 510.60 483.30 474.30 402.80
Non-controlling interest 2.60 2.50 2.60 2.70
For this company, the share capital has remained more or less constant without much changes,
the reserves has also been constant with very minimal changes, the retained earnings have
grown substantially over the year indicating profits earned during last few years and finally the
non-controlling interest has been more or less constant (Timothy, 2004).
4. Admiralty Resources NL
 Contributed Equity: The overall share capital of the company is being divided in
small parts called shares. The owners of these share units are called
shareholders of the company and are called the owners.
 Retained Earnings: this is the share of the earnings of the company and is
generally the sum total of all the accumulated profits and losses of the company
as on date. Dividend is declared out of the same.
 Non-controlling interest: This is the share capital of the shareholders in
subsidiary companies. Since the holding is no more than 50%, it is called minority
interest.
 Reserves: Reserves are generally being created by the companies for some
specific purposes and as a compliance of some law and regulations.
The brief summary for equity components for the last 4 years has been shown below:
Equity
component
Year 2017
USD
Year 2016
USD
Year 2015
USD
Year 2014
USD
Issued Capital 145,649,257 145,649,257 143,237,430 140,145,943
Reserves (773,488) (770,142) (555,129) (562,801)
Accumulated
losses
(127,699,451) (129,144,799) (126,803,917) (122,354,202)
In this case, the share capital has remained more or less constant, the reserves have increased
marginally due to special purposes and requirement of law and the accumulated losses have
increased marginally due to the losses in past year.

Assessment of Question 4
This section of the report deals with the debt equity ratios of the company and what is the
proportion of the debt and equity in the total capital. The below table highlights the same for 4
companies in 2017.
From the above table, we can see that apart from debt equity ratio of Amcor Limited, the debt
equity ratios for all the other companies have been fairly favorable considering the ideal
industry trend of 2:1 times (Appelbaum, et al., 2018). The debt equity ratio is the measure of
how solvent the company is and whether it will be able to do the business with its own capital.
Alto Metals Limited being a purely equity company, is risk free and Amcor having the debt
equity ratio of 4.6 times is most risky (Bizfluent, 2017).
Conclusion
The key learnings from the assignment include that there should be and there is a need of the
regulatory body for reporting and accounting and it should not be made voluntary considering
the consequences to the users of financial statements. Furthermore, the IASB is justified in not
making it mandatory to implement the global accounting standards, IFRS for all member
nations considering the impact it may have on the economies.
Particulars Amcor Ltd Alto Metals
Ltd
Admiralty
Resources NL
Adelaide
Brighton Ltd
Debt 4179.40 - 1.7063 560.00
Equity 891.50 7.8840 17.1763 1248.20
Debt/Equity
Ratio
4.688 0 0.099 0.449

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