HA2032 Corporate Accounting: Financial Reporting, Regulation & Equity

This report provides a comprehensive analysis of corporate accounting, covering financial reporting regulations, the role of the Australian Accounting Standards Board (AASB) in setting global standards, and an examination of owner's equity for four companies listed on the Australian Securities Exchange (ASX): Woolworths, Wesfarmers, JB Hi-Fi, and Metcash. It discusses the importance of regulating financial reporting to ensure credible commitments, comparability, and to address information asymmetry. The report also explains the AASB's participation in the global standard-setting process and reasons why IFRS adoption isn't compulsory for IASB member countries. The analysis of owner's equity includes a review of reserves, contributed equity, and retained earnings for each of the selected companies, offering insights into their financial positions and performance.

Running head: CORPORATE ACCOUNTING
Corporate accounting
Name of the Student:
Name of the University:
Author’s Note:

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Executive summary:
The report is divided into three sections comprising of corporate regulation, accounting standard
settings and owner’s equity. In the first section, the importance of regulation in the financial
reporting process has been addressed. The second section demonstrates critical explanation of te
standard setting process of AASB. Furthermore, last section depicts the analysis of owner’s
equity of four companies listed on Australian stock exchange. For this purpose, information have
been sourced from the published annual reports accessed from their respective websites.
Table of Contents

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Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................2
Critical discussion of regulation of financial accounting and regulation:.......................................2
Explanation of participation of Australian accounting standard board in the setting process of
global accounting standard:.............................................................................................................2
Explanation of why IFRS is not compulsory for member countries of IASB:................................2
Analysis of owner’s equity of four selected companies:.................................................................2
Conclusion:......................................................................................................................................2
References list:.................................................................................................................................3

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Introduction:
The report is prepared for evaluating the effectiveness of Internal financial reporting
standard (IFRS) and whether regulating the financial reporting is essential. In addition to this,
report also demonstrates the process of Australian accounting standard board in setting the global
accounting standard. The adoption of the international financial reporting standard has been
evaluated in terms of its mandate to the members of International Australian accounting standard
(IASB). The section of owner’s equity illustrates the analysis of the financial statements of four
public companies listed on the Australian stock exchange (ASX). Four companies that have been
selected from the list of AXS comprise of Woolworths, Wesfarmers, JB Hi-Fi and Met cash.
Discussion:
Critical discussion of regulation of financial accounting and regulation:
The need for regulation of financial accounting reporting arises because of several
reasons. Financial reporting has considerable number of users ranging from employee group,
investor group, government and public analyst adviser group to other key stakeholders. It is
essential for these users to systematically interpret and use the financial information for making
investment and financial decision. In the absence of regulation of financial report, such financial
reports would be prepared in a diversified way aligning to their requirements and therefore,
different financial reported will be interpreted by users in different way (Schührer 2018).
Consequently the financial information contained therein would be too ambiguous to understand
for users. The accounting practice differs from country to country and accounting regulation is

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required to eliminate the differences between the accounting practices and creating standard
practice (Schaltegger et al. 2017). Fowling mentioned points provides argument in favor of
regulation of financial disclosures and they are as follows:
Lack of credible commitment- The advantage of regulation the financial and accounting
reporting comes from the fact that they generate reliable information and many of which results
from credible commitment. There would be more effective enforcement imposed by regulatory
regimes as compared to voluntary regimes that helps in producing more credible commitments
and reliable disclosures (Morris 2017).
Lack of comparability- Regulation of financial report provides the benefit of
standardization of information that can be achieved in an effective and cheap way when such
reporting is prepared on mandatory basis (Stadler and Nobes 2018).
Asymmetry of information- It is argued that capital market participants are able to take
the advantage of people who have les information in the absence of regulation of financial
reporting. Such advantages can be taken in the form of buying share at fewer prices that they
actually worth, selling at price that it actually worth and committing outright fraud. Had the
financial reporting been regulated, such market participants would not be able to take the undue
market advantage (McConville and Cordery 2018).
Voluntary disclosure and mandated financial reporting are the two channels that is used
by managers to communicate the private information which is considered relevant as evident by
changes in liquidity and stock price. Furthermore, voluntary disclosure is used by mangers to
communicate superior knowledge of the performance of firms to investors and supplement the
mandatory reporting. Discretion of managers is often required in event of difficulty in

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implementation of fair value accounting. Since the private information of managers forms the
basis of voluntary disclosures, they tend to be more informative about the true earnings. It has
been found that there would be more informative disclosure by managers if there is increased
mandatory reporting (Domino et al. 2015).
Explanation of participation of Australian accounting standard board in the setting process
of global accounting standard:
The Australian accounting standard board (AASB) outlines the functions and power
about it working and contribution to the global standard setting process. The international
financial reporting has been adopted by Australia that aligns with the financial reporting council
strategic direction. Therefore, the work program of AASB incorporates IFRIC work program
and IASB work program. However, there is variation in degree of involvement which may be
non substantive or substantive. The work program of International public sector accounting
standard board is closely monitored by AASB (Maas et al. 2016).

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AASB standard setting process:
(Source: Aasb.gov.au 2018)
The above chart provides a simplified view of the standard setting process that outlines
the roles played by AASB. They are entrusted with the responsibility of identifying technical
issue, setting oversights and strategic directives; consider the issue and research, completing RIS
and considering submission and consultation of issue. Identification of technical issue is done by
the board members of AASB in relation to the profit and nonprofit entities. A project proposal is

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developed by AASB after the identification of technical issue has been done. Furthermore, an
assessment of potential benefits of the project is done and decision about the worthiness of
project is undertaken. After adding issue to the agenda, the agenda papers are presented a
discussed with staff which addresses the alternative approaches, scope of issue and outcome
timings. Thereafter completing the research work, the related documents are made available for
discussing with stakeholders and for public comments. The issue of pronouncements might be
the outcomes of consideration of AASB. All the inputs provided by the Australian organization
are submitted to international organizations. The formal letters are requested by AASB and the
interpretation and implementation of accounting standards is monitored by the standard.
Explanation of why IFRS is not compulsory for member countries of IASB:
The international financial reporting standard (IFRS) is the accounting standards that
have been implemented and developed by International accounting standard board having fifteen
member countries including IFRS. A business is able to facilitate comparison of their financial
statements by the adoption of this particular reporting standard. In the current scenario, it is not
mandatory for the member of IASB countries to adopt the reporting standard because the full
acceptance of standard results in loosing of certain level of quality. For instance, full acceptance
of IFRS would be rejected by United States because they might not have market incentive for
preparing financial statements (Camfferman and Zeff 2018). In addition to this, it is also
believed that benefits would be outweighed by the cost associated with the adoption of IFRS.
Analysis of owner’s equity of four selected companies:
In this particular section of report, the analysis of comprehensive statement of changes in
equity of four chosen companies has been demonstrated.

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Reserves- Reserves are those portions of profitability of business that helps in
strengthening the financial position of organization. The funds that forms the part of reserves are
often used by organization to repay debts, purchase fixed assets, dividend repayment and
bonuses (Tan et al. 2016).
Contributed equity- Contributed capital is one of the components of equity that are also
known as the issued capital which are contributed by the shareholders of company for buying the
stocks. They represent the contribution of owner into the business (Dagwell et al. 2015).
Retained earnings- Retained earnings are the profits that have been reinvested into the
business and they represent the net earnings after making the payment of dividends (Uyar 2016).
Analysis of each items of equity of Woolworths:
The items of equity comprised of reserves, contributed equity and retained earnings. The
amount of contributed equity stood at $ (million) 6055 in year 2018 compared to $ 5615, $ 5252
and 5064.9 in year 2017, 2016 and 2015 respectively. From the figures, it can be inferred that the
value contributed equity has increased since year 2015. Value of reserves is recorded at $ 353, $
357 in year 2018 and 2017 compared to $ 93.9 and 95.1 in year 2016 and 2015 respectively. It is
suggested by the figure that reserves value has increased in recent years. Furthermore, retained
earnings are recorded at $ 4073, $ 3554, $ 3124.5 and $ 5831.0 in year 2018, 2017, 2016 and
2015 respectively (Woolworthsgroup.com.au 2018). It can be seen that retained earning value
decreased initially and increased subsequently.
Analysis of each items of equity of Wesfarmers:

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The items of equity comprised of equity capital, reserves, retained earnings and reserved
shares. For year ending 2018 and 2017, issued capital is reported at $ 22277 million and $ 22268
million compared to $ 21937 and $ 21844 in year 2016 and 2015 respectively. There has been
consistent increase in value of issued capital. Value of retained earnings is recorded at $ 176 for
year 2018 compared to $ 1509, $ 874 and $ 2742 for year 2017, 2016 and 2015 respectively.
Value of retained earning has declined significantly initially and increased and decline further in
the current year. Reserves other hand stood at 344, 190, 166 and 226 for year 2018, 2017, 2016
and 2015 respectively. Value of reserves declined initially and then increased thereafter
indicating that the reserves account has enhanced due to increased profits.
Analysis of each items of equity of JB Hi-Fi:
The amount of contributed equity stood at $ 438.7 and $ 49.3 in year 2017 and 2016
compared to $ 565.21 in year 2015. It is indicated by the figure that there has been considerable
decline in value of contributed equity. Value of reserves is recorded at $ 33.2 and $ 27.1 in year
2017 and 2016 compared to $ 17.63 in year 2015 respectively indicating a consistent increase in
value. Now, looking at the figures of retained earnings, it can be seen that the amount is recorded
at $ 381.6 and $ 328.3 in year 2017 and 2016 respectively compared to $ 269.3 in year 2015. The
figure suggests that the value of retained earnings is increasing year on year.
Analysis of each items of equity of Met cash:
For Met cash, the amount of contributed and other equity is recorded at $ 600 in year
2018 as against $ 1719.3, $ 1626, $ 2391.9 in year 2017, 2016 and 2015 respectively. It is
suggested by the figures that the value of equity decreased significantly in year 2018. Looking at
the figures of retained earnings, it indicates that value has increased to $ 780.6 in year 2018 as

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against accumulated loss of $ 87.7 in year 2017, $ 184.7 and $ 765.9 in year 2017, 2016 and
2015 respectively. Amount of reserves for year 2018 stood at $ 0.7 compared to $ 3.0 in year
2017 and $ 4.1 in year 2016 and 2015 respectively (metcash.com 2018).
Comparative analysis of debt and equity position of chosen companies:
The total amount of liabilities of Woolworths limited for year ending 2018 and 2017 is
recorded at $ 12709 and $ 13167 compared to total value of equity that is recorded at $ 10849
and $ 9876. It is suggested by the figure that value of equity is less as against total amount of
debt.
For Wesfarmers limited, the total amount of liabilities is recorded at $ 14179 in year 2018
and 16174 in year 2017 respectively indicating that total amount owed by organization to other
has reduced. Looking at the figures of equity, it can be seen that equity has reduced from $
23941 in year 2017 to $ 22754 in year 2018 respectively (wesfarmers.com.au 2018).
For JB Hi-Fi, the total amount of liabilities or debt is recorded at $ 1598.9 and $ 587.6 in
year 2017 and 2016 compared to 551.5 in year 2015 respectively. It can be seen from the figures
that the total amount of liabilities has significantly increased in year 2017. Total amount of
equity on other hand stood at $ 853.5 in year 2017 compared to $ 404.7 in year 2016 and $
343.47 in year 2015 respectively (Jbhifi.com.au 2018). The figure suggests that total amount of
equity has increased considerably in year 2017.
The amount of total debt for Met Cash is recorded at $ 2330.4 and $ 2294.9 in year 2018
and 2017 compared to $ 2254.2 and $ 2313.3 in year 2016 and 2015 respectively. It can be seen
from there is not much fluctuation in the value of total debt for considerable number of years. On

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other hand, the value of equity is recorded at $ 1388.6 and $ 1637.4 in year 2018 and 2017
compared to $ 1538.4 and $ 1275.2 in year 2016 and 2015 respectively.
From the figures of all the four companies, it can be seen that JB Hi-Fi has lower amount
of total debt followed by Woolworths compared to Wesfarmers and Met Cash. For the figures of
equities, it can be seen that the value of equity of Wesfarmers is more than all other companies.
Conclusion:
The report has helped in addressing the importance of corporate regulation in the
financial and accounting reporting process that has outline the fact that regulations provides the
users with several benefits in terms of standardization, information reliability and symmetry and
comparability. In addition to this, conducting research on the AASB have identified that the
standard takes several steps for setting the process of global accounting standard. From the
analysis of the annual report of all the four selected companies concerning the area of entity, it
has been found that Wesfarmers has highest value of total equity compared to other companies
and the lowest value of debt represented by JB Hi-Fi indicating a better financial leverage.

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References list:
Aasb.gov.au. (2018). The standard-setting process . [online] Available at:
https://www.aasb.gov.au/About-the-AASB/The-standard-setting-process.aspx [Accessed 19 Sep.
2018].
Camfferman, K. and Zeff, S.A., 2018. The Challenge of Setting Standards for a Worldwide
Constituency: Research Implications from the IASB’s Early History. European Accounting
Review, 27(2), pp.289-312.
Dagwell, R., Wines, G. and Lambert, C., 2015. Corporate accounting in Australia. Pearson
Higher Education AU.
Domino, M.A., Wingreen, S.C. and Blanton, J.E., 2015. Social cognitive theory: The antecedents
and effects of ethical climate fit on organizational attitudes of corporate accounting professionals
—a reflection of client narcissism and fraud attitude risk. Journal of business ethics, 131(2),
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Group, D., 2018. Reports . [online] Wesfarmers.com.au. Available at:
http://www.wesfarmers.com.au/investor-centre/company-performance-news/reports [Accessed
19 Sep. 2018].
Jbhifi.com.au., 2018. [online] Available at:
https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Accessed 19 Sep. 2018].
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production, 136, pp.237-
248.

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McConville, D. and Cordery, C., 2018. Charity performance reporting, regulatory approaches
and standard-setting. Journal of Accounting and Public Policy, 37(4), pp.300-314.
Metcash | Australia’s leading wholesale distribution and marketing company., 2018. Results &
Disclosure - Metcash | Australia’s leading wholesale distribution and marketing company.
[online] Available at: https://www.metcash.com/investor-centre/results-disclosure/# [Accessed
19 Sep. 2018].
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Board and IFRS Adoption. Journal of International Accounting Research, 16(2), pp.155-157.
Schaltegger, S., Burritt, R. and Petersen, H., 2017. An introduction to corporate environmental
management: Striving for sustainability. Routledge.
Schührer, S., 2018. Identifying policy entrepreneurs of public sector accounting agenda setting in
Australia. Accounting, Auditing & Accountability Journal, 31(4), pp.1067-1097.
Stadler, C. and Nobes, C.W., 2018. Accounting for government grants: Standard-setting and
accounting choice. Journal of Accounting and Public Policy, 37(2), pp.113-129.
Tan, A., Chatterjee, B., Wise, V. and Hossain, M., 2016. An investigation into the potential
adoption of International Financial Reporting Standards in the United States: implications and
implementation. Australian Accounting Review, 26(1), pp.45-65.
Uyar, A., 2016. Evolution of corporate reporting and emerging trends. Journal of Corporate
Accounting & Finance, 27(4), pp.27-30.

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Woolworthsgroup.com.au., 2018. [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf [Accessed 19
Sep. 2018].