Westpac Banking Corporation: Accounting Standards Report (ACCT603)

This report examines the application of accounting standards within Westpac Banking Corporation, focusing on the impact of AASB 9, AASB 15, and AASB 16. The analysis details the changes implemented by Westpac, including the reduction in retained earnings due to AASB 9, the 5-step model for revenue recognition under AASB 15, and the balance sheet implications of AASB 16 related to leases. The report highlights the significance of accounting standards for financial reporting, enabling comparisons and informing investment decisions. It also explores the impact of these changes on Westpac's financial statements, including modifications to impairment provisions, revenue recognition, and lease accounting. The report provides a comprehensive overview of how Westpac has adapted to these new standards and the resulting effects on its financial position.

ACCOUNTING FOR CORPORATE
STRUCTURE
Running Head: Accounting for Corporate Structure

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Executive Summary
Contents
Introduction........................................................................................................................................................................ 3
Significance of Accounting Standards for the Corporations and other Users.....................................................................3
Application of Accounting Standards in Westpac Banking Corporation.......................................................................4
Application of AASB 9 (Financial Instruments) in Westpac Banking Corporation..........................................................4
Application of AASB 15 (Revenue from Contracts with Customers) in Westpac Banking Corporation..........................5
Application of AASB 16 (Leases) in Westpac Banking Corporation...............................................................................5
Conclusion........................................................................................................................................................................... 6
References........................................................................................................................................................................... 7
This report discusses about the importance of Accounting standards and its application in Westpac
Banking Corporation. Accounting standards are the accounting guidelines followed by the companies
for the preparation and presentation of their financial statements. Westpac Banking corporation has
majorly brought changes to the application of three accounting standards namely AASB 139, AASB
118 and AASB 117 by replacing them with AASB 9, AASB 15 and AASB 16. AASB 9 has reduced
Westpac’s retained earnings to $722 million and $495 million for group and parent entity respectively.
It happened due to AASB 9 which rose the amount of impairment provision. AASB 15 has given a 5-
step model for recognising the revenue and expenses. AASB 16 mandates the lessee to show all lease
with a duration more than 12 months on his balance sheet as right of use on assets’ side and lease
liability on liabilities’ side. It is expected that AASB 16 would result in $3.4 billion of right-of-use
asset along with the corresponding lease-liability.

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Introduction
Accounting Standards are set to guide the practice of accounting the business transactions and events. The
requirements of accounting have a direct effect on the preparation and presentation of company’s books of
accounts and financial statements. It facilitates comparison of the financial statement with different organisation
to make correct investment decision (Simone, 2016).
In Australia, the accounting practices of the companies are guided by the standards formed by the Australian
Accounting Standards Board (AASB).

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These accounting standards guide the companies to prepare their financial statements in a way that it presents
their financial position, cash flows and financial performance during the given financial year. This information
helps internal and external users of financial statements to arrive at correct and wise decision regarding
allocation of the available economic resources (Australian Accounting Standards Board, n.d.).
Westpac Banking Corporation is counted as the major financial institution incorporated in the year 2002. It
offers banking & financial services in the country Australia as well as New Zealand (Bloomberg, n.d.). It is
basically into five segments which includes Consumer bank, BT-Financial Group, Westpac New Zealand,
Commercial & Business Bank and Westpac Institutional Bank (Financial Times, n.d.). The bank also provides
the services like equity access, retirement deposits, savings and bank accounts, investment equity, protected
equity, personal loans, overdraft service etc. It is a bank which follows various Accounting Standards for the
preparing and presenting their financial statements.
Significance of Accounting Standards for the Corporations and other
Users
When financial statements, prepared by the companies are in compliance with the required accounting
standards, it becomes fit for the inter-firm comparisons. This assist the users like investors, suppliers,
customers, IT department, government, banks, financial institution etc. to make appropriate decision regarding
the allocation of their scarce economic resources (Abdulridha, Dakhil and Mohammad, 2018).
These financial statements act as a mean to hold management of the organisation accountable to all those
people and organisations who invested in the firm (Australian Accounting Standards Board, n.d.).
Application of Accounting Standards in Westpac Banking Corporation
Application of AASB 9 (Financial Instruments) in Westpac Banking Corporation
The AASB 9 has been adopted by Westpac Banking Corporation in the year 2018. The Retained earnings of the
group on October 2018 got reduced by $722 million and the same declined for the parent entity by $495
million. This reduction was majorly due to the introduction of new AASB 9 which increased the impairment

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provisions. AASB 9 uses the fair value as a measure of the assets as well as liabilities (Dunbar and Laing,
2017).
The impairment model was revised and introduced by AASB 9 as per which the expected credit losses (ECL)
needs to be recognised by the organisations on the basis of information that is unbiased and forward-looking.
AASB 9 has replaced AASB 139 according to which impairments were supposed to be recognised only if the
objective proof indicating the loss is present. The new impairment model as per AASB 9 would apply to credit
commitments, financial assets at a cost that is amortised, debt securities valued at FVOCI and lease receivables.
Model of classification and measurement given in AASB 139 has been replaced by the model given by AASB
9. In the new model of AASB 9, financial assets are categorised on the basis of: the business model under
which financial assets are managed, and to ensure the representation of SPPI (solely payments of principal and
interest) by the contractual cash-flows under a particular instrument.
The hedge related accounting has been changed by the AASB 9. It has introduced an approach based mainly on
the principles wherein the eligibility for both hedged items as well as hedging-instruments has increased
(Westpac Group Annual Report, 2019).
Application of AASB 15 (Revenue from Contracts with Customers) in Westpac Banking Corporation
Westpac Banking Corporation replaced the older AASB 118 (Revenue and related Interpretations) & adopted
AASB 15 in the year 2018. New AASB 15 has provided systematic-approach to the revenue recognition. It
formulated 5-step model that governs the measurement of revenue and its recognition. It includes the following:
1. Identification of contract-with-customer
2. Each Performance- obligation mentioned in the contract is identified
3. Contract’s consideration-amount is determined
4. Allocation of consideration to each of the performance obligation
5. Revenue recognition once each of the performance obligation stands satisfied (CPA Australia, n.d.).

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Westpac Banking Corporation applied the new AASB 15 by reducing retained earnings’ opening-balance on 1
October 2018 (Date of Initial-Application). This retained earnings’ opening-balance was reduced by $5000000
for the entire Westpac Banking Corporation group and by $7000000 for the parent-entity without any
comparative-restatement.
Income and expenses are now being reported on gross-basis which were earlier reported on Net-basis
(especially fee-income).
Specific facility related fees which were earlier classified as non-interest income are now classified as interest
income (Westpac Group Annual Report, 2019).
Application of AASB 16 (Leases) in Westpac Banking Corporation
AASB 117 (Leases) has been replace by AASB 16 (Leases) on 1st October, 2018. As per this new standard,
every lease more than twelve-months duration is needed to be shown by the lessee on balance-sheet as right of
use asset and lease liability (Australian Government Department of Finance, n.d.). It is expected that AASB 16
would result in $3.4 billion of right-of-use asset along with the corresponding lease-liability which would not
have any impact on retained earnings (Westpac Group Annual Report, 2019).
Conclusion
Accounting standards are very important part of accounting which needs to be followed by the organisations
while preparing and reporting their financial statements. This facilitate the investors and other interested parties
to carry out the comparison and make the needed investment decision. Westpac Banking corporation is an ASX
listed company which carries out its operation in Australia and New Zealand. It has replaced three Accounting
Standards with the new one. AASB 9 has reduced the retained earnings of Westpac because of increase in
impairment provision. AASB 15 has introduced a systematic approach for recognising the revenue under which
revenue and expenses are measured using 5-step model. Also, AASB 117 has been replaced by AASB 16
which requires the lessee to show all the lease of more than 12 months duration on his balance sheet as right of
use on assets’ side and lease liability on liabilities’ side.

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References
Abdulridha, W.A., Dakhil, M.S. and Mohmmad, R.A. (2018). The Importance of Standard Accounting
Disclosure: An Assessment of External Auditor and Institutional Investor’s Point of View. The Journal of
Social Sciences Research. 4, 23-29. Retrieved from https://www.arpgweb.com/pdf-files/spi4.5.23.29.pdf
Australian Accounting Standards Board. (n.d.). What is an accounting standard?. Retrieved from
https://www.aasb.gov.au/About-the-AASB/For-students.aspx#qa1438
Australian Accounting Standards Board. (n.d.). What is the purpose and importance of accounting standards in
the corporate world?. Retrieved from https://www.aasb.gov.au/About-the-AASB/For-students.aspx#qa1441
Australian Government Department of Finance. (n.d.). AASB 16 - Leases Implementation Guide (RMG 110).
Retrieved from https://www.finance.gov.au/publications/resource-management-guides/aasb-16-leases-
implementation-guide-rmg-110

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Bloomberg. (n.d.). Westpac Banking Corp. Retrieved from
https://www.bloomberg.com/profile/company/WBC:AU
CPA Australia. (n.d.). IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS. Retrieved from
https://www.cpaaustralia.com.au/-/media/corporate/allfiles/document/professional-resources/ifrs-factsheets/
factsheet-ifrs15-revenue-from-contracts-with-customers.pdf?la=en&rev=84d42b2d736f424db3143e4345508d94
Dunbar, K. and Laing, G.K. (2017). Deconstructing the Accounting Standard AASB 13 FairValue: Exit vs
Entry Price for Assets. Journal of New Business Ideas & Trends. 15 (2), 12-19. Retrieved from
http://jnbit.org/upload/JNBIT_Dunbar_Laing_15(2)_2017.pdf
Financial Times. (n.d.). About the company. Retrieved from
https://markets.ft.com/data/equities/tearsheet/profile?s=WBC:ASX
Simone, L.D. (2016). Does a common set of accounting standards affect tax-motivated income shifting for
multinational firms?. Journal of Accounting and Economics, 61(1), 145-165. Retrieved from
https://www.sciencedirect.com/science/article/abs/pii/S0165410115000464
Westpac Group Annual Report. (2019). Annual Report 2019. Retrieved from
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2019_Westpac_Group_Annual_Report.pdf