Importance of Financial Reporting for Medibank Health Insurance

Discuss About The Financial Reporting Medibank Health Insurance.

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.

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 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 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

Key Users of Financial Reports and their Interest in Medibank Health Insurance

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 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.

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).

Specific Items in the Financial Statements Significant in Assessing Financial Performance and Position

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 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 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.

Remaining Notes to the Financial Statements of Medibank Health Insurance

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 contained therein provide very relevant information about Medibank Healthcare 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.

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 27^th May 2018]

IAS (2018), History of the Framework; the IFRS Framework; Available from:  https://www.iasplus.com/en/standards/other/framework [Accessed at 27^th 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 27^th 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 27^th 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