7154AFE Financial Reporting: Medibank Health Insurance Analysis

This report provides a comprehensive analysis of the financial reporting of Medibank Health Insurance Company, focusing on the years 2016 and 2017. It identifies key stakeholders such as investors, lenders, and creditors, and examines the objectives and purpose of financial reports for these stakeholders. The report summarizes the company's environment, including its principal activities and future direction, and highlights specific items in the financial statements significant for assessing financial performance and position, such as accrual accounting, cash flows, total assets, liabilities, equity, revenues, and expenses. It also discusses changes in accounting policies related to market disclosure, revenue recognition, employee benefits, and share trading. Furthermore, the analysis considers other notes to the financial statements, like inventory and depreciation techniques, long-term debts, leases, and contingent liabilities, and evaluates how the annual report provides valuable information for estimating the organization's market value. The conclusion emphasizes the importance of financial reports for stakeholders' decision-making processes, recommending adherence to the information provided for assessing financial strength, weaknesses, solvency, liquidity, and overall market value.

Analysis of Financial Reporting of Medibank Health Insurance Company 1
ANALYSIS OF FINANCIAL REPORTING OF MEDIBANK HEALTH INSURANCE
COMPANY
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Analysis of Financial Reporting of Medibank Health Insurance Company 2
Analysis of Financial Reporting of Medibank Health Insurance Company
PART 1
Stakeholders of the Annual Report of Medibank Health Insurance Company
The key users of the general purpose financial reports include potential and existing
investors, the lenders and the other creditors that utilize the information therein in making
decision on whether to hold, sell or buy equity, settling or providing loans, exercising the
voting rights or influencing the management’s actions which could in turn affect use of
organization’s economic resources (CPA Australia 2012). With these, the general
shareholders of Medibank Health Insurance Company include potential and existing
investors, customers, lenders, creditors as well as government agencies. Investors include all
individual who have invested or are planning to invest in the company while lenders or
creditors are those firms or individuals that might offer financial assistance in terms of debts
or credit to the organization. These shareholders are interested with the report since it would
assist them in assessing the organization’s prospects for the future cash inflows and in
assessing how proficiently and successfully the management had been discharging their
functions in utilizing the organization’s current resources. To access such information, the
shareholders might require income statement, management report, balance sheet as well as
cash flow statement to assist them while making decision.
PART 2
a) Objective/Purpose for the Report to Different Stakeholders Identified in PART 1
The report aims to provide relevant information to different stakeholders of Medibank
Health Insurance Company. In essence, this report would be of greater importance to the
stakeholders as particularly the existing investors or shareholders in making-decision on
whether to hold, sell or buy extra shares (IAS 2018). The report would also be of greater help
to potential or existing lenders or creditors since it would helps them understand the company

Analysis of Financial Reporting of Medibank Health Insurance Company 3
prospects for the future cash inflows which are crucial in determining the company’s capacity
to settle its debts on time once it become due. The report would also be useful to the
stakeholders since it would help them in assessing the financial strength as well as
weaknesses of Medibank Health Insurance Company. It would also assist them in assessing
solvency and liquidity and its need as well as the company’s capacity to access financing.
This information would help the stakeholders especially the lenders in prediction how future
cash inflows would be distributed amongst individuals with claims on Medibank Health
Insurance Company.
b) Summary Of The Environment In Which Medibank Health Insurance Company
including Principal Activities as well as Proposed Direction in Future
Medibank Health Insurance Company is the leading health insurer within Australia. Its core
operations include Health insurance, whereby the company distributes and underwrites health
insurance policies under some of its key brands, Ahm and Medibank (Medibank Health
Insurance Company 2017). The company has a group of the related business operations
referred to as the Medibank Health that was referred to as the Complementary Services in the
past. As the company maintains assets in order to satisfy some of its regulatory reserves, it
could also be said to generate substantial investment returns from some of its portfolio of the
investment assets (Medibank Health Insurance Company 2016). It is committed in enhancing
client experience, generating shareholders’ value, maximising business performance and
financial returns as well as sustaining significant success and growth of the firm. The
summary of the environment in which the firm is operating is crucial in analysing the
organization’s financial report for different stakeholder’s identified above since it help them
to understand the demand and supply of different products and the impact of the trends to the
organization’s performance. Besides, the summary is crucial since it would help in decision-
making regarding the financial strength or weakness of the organization which is crucial in

Analysis of Financial Reporting of Medibank Health Insurance Company 4
making decision as to whether to hold, sell or buy shares (Sian & Roberts 2009).
c) Specific Items in the Financial Statements which are Significant in Assessing the
Financial Performance and Financial Position of Medibank Health Insurance Company
Some of the major items in the four primary financial statements of Medibank Health
Insurance Company which are significant in evaluating financial position and financial
performance of this firm includes, accrual accounting, cash inflows from the operating
activities, total assets, total liabilities, equity, total revenues, expenses, net income, cash and
cash equivalent. Equity entails residual interest in assets of a specific firm after deduction of
all liabilities. Liabilities entail present obligations of a company arising from the past
undertakings, which is projected to leads to outflow from organization resources. On the
other hand, assets comprises of resources controlled by an organization due to past
undertakings (Sian & Roberts 2009). The three are used in estimating the financial position of
an organization. Furthermore, expenses entails decrease in the economic benefit of an
organization in form of the cash outflows while income entails increase in the economic
benefit in terms of the cash inflows or the enhancement of the assets or decline in the
liabilities resulting from increased shareholders’ equity. There helps in assessing
organization’s performance over time. The cash flows from the operations, financing and
investing activities provide information on the organization’s cash payment and cash receipts
linked with its investing, financing and operating activities (White, Sondhi & Fried 2008).
These items are identified since they usually provide very relevant information about
Medibank Health Insurance Company financial standings at the end of the reporting period.
These items are important to Medibank Health Insurance Company since they help it in
recording some of its resources and its performance over the years. Therefore, the
shareholders are interested with information of these items since it helps them in assessing
the strengths and weaknesses of Medibank Health Insurance Company. They are also

Analysis of Financial Reporting of Medibank Health Insurance Company 5
interested in these items since it would assist them in assessing the company’s capacity to
generate cash inflow as well as in assessing the management efficiency in generating
revenue. It would also assist them in assessing the management effectiveness in utilizing their
resources to generate income or sales. This would be of greater importance for them in
making-decision on whether to sell, hold or buy their shares or whether to offer financial
assistance to the company or not.
d. Accounting Policies Used for Items in the Financial Statements
Some of the accounting policies noted includes the market disclosure. This policy was
changed to enable the company promote investor’s confidence and rights of the stockholder
by ensuring immediate disclosures of the market sensitive information in regard to the firm.
The policy was also aimed at facilitating compliance with the company’s obligations under
ASX listing regulations and Corporation Act through assignment of authorization process for
the market announcements and in reserving specific matters for the approval by board
members. There was also revenue accounting policy adjustment which is said to result in
increased revenue by around 1.2% which was said to be underpinned by the government-
approved average rate which rose by 5.64% over the year. The change in accounting policy
for the revenue was mainly important since it assisted in increasing Medibank gross margin
from 16.6% to 17.1% by 2017 (Medibank, 2017, pg. 32).
Additionally, there was change in the employees’ benefits. The change in the accounting
policy of the employees’ benefits for Medibank encompassed ensuring any form of
termination benefits for the employees are appropriate and justified. It also ensured that the
remunerations for different employees were in compliance with the relevant regulation and
legal requirements (Sian & Roberts 2009). The change is said to have resulted in reduced
remuneration amount for the employees. This change was made by Medibank with the aim of
attracting, motivating and retaining its non-executive directors, employees and executives

Analysis of Financial Reporting of Medibank Health Insurance Company 6
directors who are said to create some value for the organization’s shareholders (Medibank,
2017, pg. 36).
There is also share trading policy which was aimed at ensuring that Medibank’s employees
clearly understand their key responsibilities in relation to the company’s shares. It provided
restrictions on selling and buying Mebibank’s shares for the non-executive or other
employees within the firm (Medibank, 2017, pg. 37).
e) Examination of remaining notes to the financial statements of Medibank Health
Insurance Company
The other notes to the financial statements such as informative disclosure offer crucial
information regarding matters like inventory and depreciation technique utilized by the
company, details of the long-term debts, leases, contingent liabilities, pensions, income taxes
as well as techniques for consolidation. These notes are integral portion of the company’s
financial statements since they present relevant information which is not provided elsewhere
within the organization’s financial statements.
f) How Medibank Health Insurance Company’ annual report provides valuable or
useful information to stakeholders in estimating the organization’s market value
The annual report of Medibank Health Insurance Company could help in providing valuable
or helpful information to the stakeholders in assisting them in estimating organization’s
market value. In essence, the annual report provide information on the organization’s
liabilities, assets, expenses, income, and equity which is very useful to shareholders in
assessing organization’s prospects for the future cash inflows and in assessing the
management’s stewardship of its resources (Barth & Landsman 2010). In essence, the income
statement helps in assessing profitability level of an organization. In other words, it assist the

Analysis of Financial Reporting of Medibank Health Insurance Company 7
stakeholders in assessing how well an organization is generating earnings or how well it is
utilizing its assets or resources in generating income. On the other hand, the balance sheet
helps the stakeholders in determining how well the firm is able to handle some of its short
and long-term debt obligations (Walker 2003). It also assists the stakeholders in assessing the
organization’s level of the financial leverage.
g) Conclusion as well as Recommendation to Stakeholders
To sum up, financial reports are crucial and in particular financial statements to stakeholders
of a specific organization. As such, it would be effective for the stakeholders of
Medibank Health Insurance Company to make use of the financial reports or statements in
their decision-making process. This is based on the fact that the financial reports helps the
stakeholders of Medibank Health Insurance Company both potential and existing investors,
lenders, creditors and other shareholders in assessing the organization’s prospects for the
future cash inflows and in assessing how proficiently and successfully the management had
been discharging their functions in utilizing the organization’s current resources. In essence,
there is need to strictly follow the financial report of Medibank Health Insurance Company
since the report provide relevant information in making-decision on whether to hold, sell or
buy extra shares. It basically assists the stakeholders especially the potential or existing
lenders or creditors understand the company prospects for the future cash inflows which is
crucial in determining the company’s capacity to settle its debts on time once it become due.
In addition, it can be concluded that stakeholders of Medibank Health Insurance Company
should adhere to all the information provided in the financial statement in making decision
since the report helps them in assessing the financial strength as well as weaknesses of
Medibank Health Insurance Company. It also assists them in assessing solvency and liquidity
and its need as well as the company’s capacity to access financing. Besides, it can be
concluded that financial statement helps in assessing organization’s market value since items

Analysis of Financial Reporting of Medibank Health Insurance Company 8
contained therein provide very relevant information about Medibank Health Insurance
Company financial standings at the end of the reporting period. These items are important to
Medibank Health Insurance Company since they help it in recording some of its resources
and its performance over the years as well as in assessing the company’s capacity to generate
cash inflow as well as in assessing the management efficiency in generating revenue.

Analysis of Financial Reporting of Medibank Health Insurance Company 9
References
Barth, ME, & Landsman, WR (2010), ‘How did financial reporting contribute to the financial
crisis?,’ European accounting review, 19(3), 399-423.
CPA Australia (2012) Accounting Concepts and Principles: Available from:
https://www.cpaaustralia.com.au/documents/study-manual-accounting-concepts-and-
principles.pdf [Accessed at 27th May 2018]
IAS (2018), History of the Framework; the IFRS Framework; Available from:
https://www.iasplus.com/en/standards/other/framework [Accessed at 27th May 2018]
Medibank Health Insurance Company (2016), Medibank annual report 2016: Available from:
https://www.medibank.com.au/content/dam/medibank/About-Us/reporting-centre-2016/
Annual%20report/Medibank_Annual_Report_2016.pdf [Accessed at 27th May 2018]
Medibank Health Insurance Company (2017), Medibank annual report 2017: Available from:
https://www.medibank.com.au/content/dam/medibank/About-Us/pdfs/MPL_Annual_Report_
2017.pdf [Accessed at 27th May 2018]
Sian, S & Roberts, C (2009), ‘UK small owner-managed businesses: accounting and financial
reporting needs,’ Journal of small business and enterprise development, 16(2), 289-305.
Walker, RG (2003), Objectives of financial reporting. Abacus, 39(3), 340-355.
White, GI, Sondhi, AC & Fried, D (2008), Financial statements. John Wiley & Sons Inc.