Importance of complying with accounting standards and principles

The report provide insights about the importance of complying with the accounting standards and principles for the purpose of recording, recognizing and presenting the financial information in the annual reports. It is very important for the companies to properly follow all the rules and regulations so that reliable and relevant information can be communicated to the investors and shareholders (Brigham and Ehrhardt, 2013). 

The report analyse the financial statements of CBA and National Bank of Australia and discusses the each line item of the statements prepared. It includes the evaluation of comprehensive income statement, cash flow statement, balance sheet and reporting of tax expense. The evaluation is done are compared to each other.

Commonwealth Bank

CBA is an Australian banking group that is engaged in providing integrated financial services to the countries like Australia, New Zealand and others. Its core activities include distribution of financial services. It operates through retail banking services, Bankwest, New Zealand other divisions. The services offered by the company include business loans, international payments, insurance services and credit cards. It is listed on ASX and considered as the largest financial institution in the country (Bloomberg. 2018).

National Bank of Australia

It is also a financial institution having its operations in Australia, United States and United Kingdom. It operates through segments like Consumer Banking and Wealth, Corporate and Institutional banking, Business and private banking and NZ Banking segments. It offers services like term deposits, savings account, statutory trust and farm management accounts. NBA also look for provide commercial and personal loans to its clients across the country (Bloomberg. 2018).

• Ordinary share capital

Ordinary share capital is the capital which is given by the proprietors of the business in return of shares. They are positioned after the inclination shares. The conventional offer capital of the Commonwealth Bank of Australia is A$34971 and that of the National Australian Bank is A$34627 which is lower when contrasted with the previous bank. The investor capital of both the banks have been quickened when contrasted with the earlier year from the yearly reports, potentially on the grounds that the organizations may have sold the offers which raised the income and diminished the costs. The offer capital of Commonwealth bank expanded from A$33845 to A$34971 and that of the National Bank of Australia is A$34285 to A$34627, which is as yet a moderate raise.

• Other equity Investments

They are the record which fills in as a legitimate proof of the proprietorship right in a firm like an offer declaration. They are issued to the investors of the organization and are utilized to support the business.

• Reserves

Evaluation of comprehensive income statement

They represent the amount kept aside by the firm with the purpose of meeting its liabilities that may arise in future. CBA has reserved worth $1869 and NBA reported the same amounted to $237. The reserves have been diminished in the event of Commonwealth Bank of Australia because of the debt repayments.

• Retained earnings

It reflects the amount retained by the company in the business after paying all of its liabilities and other payments. It is the profit left with the company for paying dividends to its shareholders.  It tends to be utilized by the organization to pay the obligations and in addition the future profits. The upsurge in retained income implies the organizations are steady and beneficial. The RE of NBA has shown an upsurge from $16736 to $16442 while on the other side; CBA’s earnings reflected an increase from A$23435 to A$26330(Commonwealth Bank, 2018).

• Comparative analysis

The relative examination of the investor’s value of both the organizations exhibits the money related position of the organization. The above components decide how much the proprietors has put resources into the business and how they are performing in contrast with the previous years and the contenders as well. The share capital of Commonwealth bank expanded from A$33845 to A$34971 and that of the National Bank of Australia is A$34285 to A$34627, which is as yet a moderate raise.

• Operating activities

Operating activities are the operations of the business which are straightforwardly identified with the supply of the merchandise and the administrations to the market. These exercises are considered as the centre exercises of the organization and precedents of such exercises are conveying, showcasing and offering of an item or an administration.

They are the amount which is utilized by the land speculation trusts to define the cash flow from their operations.The Funds from operations are ascertained by including back the depreciation value and subtracting any profit on sale (Collins Hribar and Tian, 2014).

Changes in the Working Capital

Net Working Capital is characterized as the distinction between the current assets and current liabilities. In this manner an adjustment in the measure of the working capital will be reflected.

Net Operating Cash Flow

Net Operating income alludes to the money sum created by the organization through the income it acquires, barring costs which are in connection to the long term investment on capital things.  

Investing Activities

They are those exercises which will give the future advantage to the organization. The income from the contributing exercises is a thing which reports the adjustment in the total position of the organization whether through interest in the advantages and offer of the benefits.

Capital Expenditures

The sum an organization spends with a specific end goal to achieve the settled resources, land, structures and the gear. It is comprehended that the use on the capital things will give the advantage to the organization over the long haul (Campbell, 2015).

Evaluation of cash flow statement

Net Assets from Acquisitions

The net resources from acquisitions are fundamentally the sum which is landed subsequent to including all the above resources and consumptions.

Sales of Fixed Assets and Businesses

It is an ordinary procedure which is attempted either to pick up leverage when the cost is correct or can empowers the income and benefits or when the piece of the advantage or a whole resource winds up pointless.

Buy/Sale of Investments

All the transactions related to investments are made from the brokers and purchase of the same is done with an intention to secure the company. The correct market cost or the positive market cost when arrives the organization sells the investment.

Financing Activities

This category of activities includes business transactions with creditors and investors. They generally contribute to the expansion of business operation or enhancing its existing activities. It is the third category which is reflected in cash flow statement after reporting operating and investing activities.

Transactions like cash dividends paid, issue of shares and debt, change in long term debt, payment of financial obligations all appear under the financing activities of the company.

Net Change in Cash

The net change in the money mirrors the expansion or diminishing in the money and the money counterparts from the beginning stage to the end purpose of a year. The net change is computed because of money from working, contributing and the financing exercises (Graham and Lin, 2018).

Free Cash Flow

The free income is estimated by how much measure of the money the organization can produce in the wake of satisfying for every one of the costs and can be utilized for the extension, profits, decrease of the obligations and for other purposes.

From the income beneath it very well may be broke down and seen that if there should arise an occurrence of the Commonwealth bank the net money from working exercises has been enhanced and come to 2.651 from 0.841 when contrasted with the earlier year fundamentally on account of the expansion in the assets from tasks and that of the National Australian Bank have been lessened to 569 from (2327), the organization is attempting to improve.

Cash flow Statement	Commonwealth Bank	National Australian Bank
Fiscal year is July-June. All values AUD Millions.	2018	2017	2016	2018	2017	2016
Funds from Operations	15800	12389	17215	12648	16787	-13818
Funds from Operations Growth	0.2753	-0.2803	0.3469	-0.2466	2.2149	-1.4251
Changes in Working Capital	-14623	-13102	-21698	569	-2327	728
Net Operating Cash Flow	1177	-713	-4483	13217	14460	-13090
Net Operating Cash Flow Growth	2.6508	0.841	-1.618	-0.086	2.1047	-0.809
Net Operating Cash Flow / Interest Income	0.0341	0.0214	0.1314	0.4818	0.523	0.4614
Investing Activities
Capital Expenditures	-980	-1097	-1768	-1028	-875	-976
Capital Expenditures (Fixed Assets)	-477	-602	-1259	-1028	-875	-976
Capital Expenditures (Other Assets)	-503	-495	-509	–	–	–
Net Assets from Acquisitions	–	-31	-857	–	-11782	-33
Sale of Fixed Assets & Businesses	181	382	515	2269	52	382
Purchase/Sale of Investments	-271	-25	–	-1554	2635	-1203
Purchase of Investments	-271	-25	–	-23396	-22084	-25174
Sale of investments				21842	24719	23971
Other Sources	–	–	–
Net Investing Cash Flow	-1070	-771	-2110	-313	-9970	-1830
Net Investing Cash Flow Growth	0.3878	0.6346	0.6407	0.9686	4.4481	0.7402
Net Investing Cash Flow / Interest Income	-0.031	-0.0231	-0.0619	-0.0114	-0.3606	-0.0645
Cash Dividends Paid – Total	-5366	-6084	-5827	-4750	-4593	-3624
Common Dividends	-5366	-6084	-5827	-4750	-4593	-3624
Cash Dividend Growth	0.118	-0.0441	0.0602	-0.0342	-0.2674	0.0878
Change in Capital Stock	-40	-64	4025	-400	–	5232
Repurchase of Common & Preferred Stk.	-95	-98	-1047	-400	–	-1014
Sale of Common & Preferred Stock	55	34	5072	–	–	6246
Proceeds from Stock Options	55	34	5072	–	–	6246
Issuance/Reduction of Debt, Net	–	–	3489	4819	14089	-1224
Change in Long-Term Debt	–	–	3489	4819	14089	-1224
Issuance of Long-Term Debt	–	–	102907	37318	43632	28717
Reduction in Long-Term Debt	–	–	-99418	-32499	-29543	-29941
Other Funds	27	61	-67	–	–	942
Other Uses	–	–	-67	–	–	–
Other Sources	27	61	–	–	–	942
Net Financing Cash Flow	-934	10472	1620	-331	9496	1326
Net Financing Cash Flow Growth	1.0892	5.4642	1.2057	1.0349	6.1614	1.4109
Net Financing Cash Flow / Interest Income	-0.027	0.3144	0.0475	-0.0121	0.3434	0.0467
Exchange Rate Effect	715	-318	150	-733	6554	7605
Net Change in Cash	-112	8670	-4823	11840	20540	-5989
Free Cash Flow	700	-1315	-5742	12189	13585	-14066
Free Cash Flow Growth	1.5323	0.771	-1.8601	-0.1028	1.9658	-0.6587
Free Cash Flow Yield	-0.0346	–	–	0.0822	–	–

From the comparative analysis of both the organizations which are the Commonwealth Bank of Australia and the National Australian Bank, the near investigation is essentially embraced to gauge the monetary connection between the factors more than at least two announcing period. The most ideal approach to discover the situation in the market is to complete a relative investigation over an unmistakable timeframe. In addition there are numerous deceitful methods through which the benefit can be swelled yet under the situation of the income explanation it isn’t conceivable.

Evaluation of balance sheet

The financial analyst not just view the salary explanation, rather they likewise investigate the income articulations and every one of the action, for example, the income from working exercises, income from contributing exercises and finally income from the financing activities(National Bank of Australia, 2018). The distinction between the numerous years can be accounted for with the assistance of the examination articulation and the information is additionally exhibited regarding the rates. Since money is unmistakable and it tends to be estimated along these lines the money is the metric which will give the one type to its logical counterpart examination between the two associations.

The above analysis properly evaluates the cash flow statement of both the banks and compares the same against each other. In case of CBA, the net cash flows generated from the operations is $1177 and NBA’s cash flow from operations is $1321. The net cash flow from investing activities of CBA is -$1070 whereas NBA reported -$313 which is less risky (Commonwealth Bank, 2018).

In the other comprehensive statement of the banking companies picked mirrors the things that might be renamed to the benefits or misfortune accordingly and the other way around case. The reasonable esteem changes on the monetary liabilities have been diverted into the positive figure from (113) to 11 in the budgetary year 2017. Additionally the expense separated from, on the typical salary, has been exchanged to the Equity.

The currency adjustments done in case of foreign exchange transactions have reduced and became negative at -$273 for NBA. However, CBA reported a negative translation tax worth -$282 along with the reduction in its equity worth $9510 to $9209 in year 2017 (Commonwealth Bank, 2018).

The line items of Comprehensive income statement are not recorded in the P&L account of the firm because of the limitations hold by such account. It is as advance articulation and it gives a broad perspective of how organizations’ benefits out of core activities are given in Comprehensive Income Statement. (Faulkender, Hankins and Petersen, 2018).

From the above abstract it can be interpreted that total comprehensive income of the NBA is $4972 and that of the CBA is $9233. The comparative analysis is completed to mirror the progressions received by executing the bookkeeping approaches.

The Equity holders are getting the sum at long last. The gain or misfortune on the hedging instruments is high in case of the Commonwealth Bank in contrast with National Australian Bank. In the event that these things were incorporated into the income statement there may be an adjustment in the benefit owing to the investors as it would be included or subtracted from the total income. 

Reporting of tax expense

No, the comprehensive income will not be incorporated into the assessment of performance of managers as these salaries may occur and may not and consequently they are not the unadulterated source or the determinants of the execution of the chiefs (Huang, Lin and Raghunandan, 2015). The execution of the directors is accounted for through their capacity to devise the systems and to record the exchanges accurately. However, they will be at risk for their chronicle and posting of the passage in the under the correct head (Dagwell, Wines and Lambert, 2011).

Accounting for Corporate Tax		Commonwealth Bank of Australia	National Australian Bank
Tax Expense		3960	2480
Income tax expense		3960	2480
Earnings before Tax		13944	8661
Effective Tax rate		28%	29%
Deferred Tax Assets/Liabilities (17)		332	1988
2016		340	1925
Deferred tax assets increase		573
Increase/ Decrease		-8	63
Income tax provision		3960	2480
Increase/Decrease in Deferred Tax		565	63
Total taxes		4525	2543
Other income		5626	4842
Tax paid on other Income		16	14
Unlevered Taxes		4509	2529
Earnings Before Income tax		13944	8661
Cash Tax Rate		32%	29%
Income Tax Provision		3960	2480
Deferred Tax		332	1988
Total Taxes		4292	4468
Interest Income		17600	13182
Tax paid		50.0	37.7
Cash Tax Amount		4242	4430

The tax expenses that have been appeared in the most recent year of both the organizations are A$3960 and A$2480 separately for the Commonwealth bank of Australia and National Australian Bank (National Bank of Australia, 2018). 

The calculation had been appeared above and the powerful expense rate of National Australian Bank is higher at 29%.

The deferred tax can be utilized by the organization to lessen the assessable pay and it is appeared to be determined sheet under the present resources head. Then again the deferred tax impose obligation is recorded keeping in mind the end goal to discover how much risk the organization will pay in future due to the present changes (Bradley, 2017).

The deferred tax resource of the Commonwealth Bank of Australia expanded by A$573 and the liabilities diminished by A$8, anyway if there should arise an occurrence of the National Australian Bank, the conceded assess resources expanded by A$63. 

The cash tax amount for the Commonwealth bank is A$4242 and that of the National Australian Bank is A$4430(Commonwealth Bank, 2018).

The cash tax rate of the Commonwealth Bank of Australia is higher in contrast with the National Australian Bank at 32% (Commonwealth Bank, 2018).

The principle reason that the cash tax rate is not the same as the book rate in light of the fact that the pre assessable salary which is accounted for to the IRS by and large does not compare to the pre-tax book and consequently makes the brief and in addition the changeless contrasts. Temporary difference causes the conceded charge while the perpetual causes the successful assessment rate (Dyreng, Hanlon, Maydew and Thornock, 2017).

Conclusion 

From the above report, it can be concluded that both the banks follows the same accounting principles and standards for preparing their financial reports. The comparative analysis states that CBA has performed well in comparison to its competitor NBA.

References 

Bloomberg (2018). Company Overview of Commonwealth Bank of Australia. [Online] Available at:https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=874262 [Accessed on 28 September 2018].

Bloomberg (2018). Company Overview of National Australia Bank Limited. [Online] Available at: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=322495 

Bradley, S., (2017). Inattention to Deferred Increases in Tax Bases: How Michigan Home Buyers Are Paying for Assessment Limits. Review of Economics and Statistics, 99(1), pp.53-66.

Brigham, E.F. and Ehrhardt, M.C., (2013). Financial management: Theory and practice. 4^th ed, USA: Engage Learning.

Campbell, J.L., (2015) The fair value of cash flow hedges, future profitability, and stock returns. Contemporary Accounting Research, 32(1), pp.243-279.

Collins, D.W., Hribar, P. and Tian, X.S., (2014) Cash flow asymmetry: Causes and implications for conditional conservatism research. Journal of Accounting and Economics, 58(2-3), pp.173-200.

Commonwealth Bank, (2018) Annual Report [online] Available from https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/annual_report_2017_14_aug_2017.pdf [Accessed on 28 September 2018]

Dagwell, R., Wines, G., and Lambert, C. (2011). Corporate accounting in Australia. 2^nd, Australia: Pearson Higher Education AU.

Dyreng, S.D., Hanlon, M., Maydew, E.L. and Thornock, J.R., (2017) Changes in corporate effective tax rates over the past 25 years. Journal of Financial Economics, 124(3), pp.441-463.

Faulkender, M.W., Hankins, K.W. and Petersen, M.A., (2018) Understanding the Rise in Corporate Cash: Precautionary Savings or Foreign Taxes.

Graham, R.C. and Lin, K.C., (2018) The influence of other comprehensive income on discretionary expenditures. Journal of Business Finance & Accounting, 45(1-2), pp.72-91.

Huang, H.W., Lin, S. and Raghunandan, K., (2015) The volatility of other comprehensive income and audit fees. Accounting Horizons, 30(2), pp.195-210.

National Bank of Australia, (2018) Annual Report [online] Available at: https://capital.nab.com.au/docs/NAB-2017-annual-financial-report.pdf [Accessed on 28 September 2018].