Regulation Of Financial Accounting And Reporting – Analysis Of ASX Listed Companies
- December 28, 2023/ Uncategorized
Critical Analysis of Financial Accounting and Reporting Regulation
Financial Accounting is very important aspect as through this the financial statements of the company is prepared which shows the position of the company to outside people like shareholders, creditors, suppliers ,buyers and investors. Taking the help of the standardised accounting procedure financials of the company is prepared which include a lot of detailed report and future aspects of the company(Accounting Edu.org, n.d.).There are various reasons which talk about the need to control the financial reporting, as the users to the financial statement are many and on the basis of financial information interpretation the users make the investing decision in the company, but these different users to the financials are allowed to prepare the financial statements on their own way than it will be prepared accordingly to meet there individual demand. If this happens than different financial statements will be interpreted in a different manner. All the country follow different set of accounting standards and accounting procedure so there to need for accounting regulation and parity.
These disclosures solve many issues between the management of the company and users to the financial statement. It also states that the directors not only present the financial statement to the outside people but also appoint an independent auditor to express opinion on the financial statement and state whether the financial statement reflects a true and fair view and are free from any material misstatements .It also becomes users to do make comparison with other group company in similar industry.( The Student Room Group Ltd. , n.d.)
Therefore all the transactions recorded in the financial statement must be only monetary in nature. The choice of accounting method must be such which is reliable and easy to understand for others and make comparison with other report easily. However accounting standards sometimes may have a negative impact for the prepares of financial statement as no experiment can be done on accounting transactions treatment, but still there is a need that the financial statement and accounting are regulated so that the users can easily interpret it and comparable and saving of time.
The Australian Accounting Standard Board is a Government Agency, which reports to parliament of Australia while International Accounting Standard Board is a private organisation which is set up in London as is of independent nature. The AASB contributes to the IASB through funding and co-operating with IASB by replying to the draft discussion, reviews, aligning vision with IFRS, adopting IFRS etc. The IASB in turn cooperates with its members for convergence in accounting standard in the world.(Australian Accounting Standard Board, n.d.)
The role of the Australian Accounting Standards Board in the IFRS Setting Process
The process flow is detailed here-in-below:
- AASB identifies technical issue which require look through;
- Theissues are referred to IASB;
- The issue shall be added to agenda;
- The AASB shall do research and consider the issue;
- A consultation shall take place with stakeholders;(Australian Accounting Standard Board, n.d.)
- Issuing of standard or other pronouncement;
- The report shall be submitted to IASB for comment;
- Implementation and compliance
IFRS is not mandatory on member countries of IASB on account of following reasons:
- To adopt IFRS is not a simple process it requires a lot of convergence from national standard to IFRS.
The company that have chosen under part B of the report are four Australian listed entities under basic mineral category. These companies are engaged in the exploration of minerals. The name of the entities chosen is:-
- Orica Limited:
- Newcrest Mining Limited;
- Orocobre Limited;
- Santos Limited;
Brief Profile of the companies
Orica Limited is engaged in providing commercial explosives for blasting in mines and infrastructure market. It is global leader in providing ground service for the purpose of mining and tunnelling.
The equity profile breakup of the company has been provided here-in-below:
($Mio)
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
Equity |
|||||
1 |
Ordinary Shares |
1975 |
1954.4 |
2025.3 |
2068.5 |
2 |
Reserves |
-607 |
-216.8 |
-489.9 |
-565.8 |
3 |
Retained Earnings |
2895 |
1247 |
1247.1 |
1459.6 |
Total Equity attributable to ordinary shareholders of Orica Limited |
4263 |
2984.6 |
2782.5 |
2962.3 |
|
4 |
Non -controlling interest in controlled entities |
136.1 |
2.6 |
0.7 |
1.2 |
Total Equity |
4399.1 |
2987.2 |
2783.2 |
2963.5 |
(Anon., 2014) (Orica Limited, 2015) (Orica Limited., 2016)(KPMG, 2017)
The following elements are part of equity of the company:
- Ordinary shares which are issued by the company under Initial public offer to the public or at the time of incorporation of shares. These shares are the base of the setup of the company and holders of such shares are owners of the company. Further, these shares are repaid at last in case of winding up of the company. On perusal of the above table one can understand that the ordinary shares of the company have undergone a change on account of issue of further shares under various schemes of the company like dividend reinvestment plan, GEESP plan. The breakup of the same has been provided here-in-below:
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
1 |
Opening Balance of the ordinary share issued |
1877.9 |
1877.9 |
1975 |
2025.3 |
2 |
Share issued under dividend reinvestment plan (13-12-13) |
47.4 |
47.4 |
||
3 |
Share issued under dividend reinvestment plan (01-07-14) |
34.5 |
34.5 |
||
4 |
Share Issued – Loan Repayment |
13.9 |
13.9 |
||
5 |
Share issued under GEESP Plan |
1.3 |
1.3 |
||
6 |
Balance at the end of year |
1975 |
1975 |
||
7 |
Share movement under buy back |
-21.7 |
-21.7 |
||
8 |
Share issued under GEESP Plan |
1.1 |
1.9 |
0.6 |
|
9 |
Share issued under dividend reinvestment plan |
70.1 |
39.2 |
||
10 |
Deferred shares issued to settle Short Term Incentive |
3.4 |
|||
11 |
Ordinary Share |
1954.4 |
2025.3 |
2068.5 |
Further, it can be seen that company has bought back its own share in 2015.
- Reserves: Reserve means something that has been retained for future use resources forms part of equity and show the intrinsic value of the share of the company.(Web Finance Inc, 2018)A positive reserve indicates a strong future prospect of the company. The reserve in the books of company generally include:
- Share based payment which are paid to employees and key managerial personnel of the company;
- Cash flow hedging reserve is created by an entity to reduce the impact of change in estimated cash flows of a financial asset or liability;
- Foreign currency translation reserve is created in terms of requirement of AASB to account for consolidation of foreign entities under different method like current and temporal;
- Retained earnings: This shows the accumulation of profits of the company which are not distributed as dividend to ordinary shareholders of the company rather they are retained for expansion and emergency projects of the company. The retained earnings of the company have shown a significant decline on account of significant loss reported by the company for that financial year.
- Non- Controlling interest: This represents the share of minority shareholders who do not exercise significant control over the company and are in minority. These generally represent that fraction of the company which is not owned in the subsidiary by the parent company. The flow of non-controlling interest over the 4 year has been presented here-in-below:
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
1 |
Contributed Equity |
66.6 |
66.6 |
66.6 |
66.6 |
2 |
Reserves |
-16.9 |
-1.9 |
-7.8 |
-12.3 |
3 |
Retained Earnings |
86.4 |
-62.1 |
-58.1 |
-53.1 |
4 |
Non- controlling Interest |
136.1 |
2.6 |
0.7 |
1.2 |
On perusal of the above table one can understand that the non-controlling interest has fallen down drastically on account of retained earning reducing drastically in the backdrop of losses in the company.
- Analysis of debt position of the company: For the purpose of this, only interest bearing liabilities has been considered as debt. Further cash and cash equivalent is reduced to compute net debt for the company. In addition, to estimate the position capital gearing ratio and debt to equity ratio has been computed. The tabulation has been shown here-in-below:
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
1 |
Interest Bearing Borrowings |
2499.9 |
2300 |
1877.4 |
1957.8 |
2 |
Less Cash and Cash equivalent |
-263.2 |
-273.9 |
-328 |
-516.9 |
3 |
Net debt |
2236.7 |
2026.1 |
1549.4 |
1440.9 |
4 |
Total Equity |
4399.1 |
2987.2 |
2783.2 |
2963.5 |
5 |
Net debt and Total Equity |
6635.8 |
5013.3 |
4332.6 |
4404.4 |
6 |
Debt to Equity Ratio |
50.84% |
67.83% |
55.67% |
48.62% |
7 |
Gearing Ratio (%) |
33.71% |
40.41% |
35.76% |
32.72% |
On perusal of the above, the net debt of the company is decreasing on account of increasing cash and cash equivalent in the company.
Newcrest Mining Limited
Newcrest Mining Limited is engaged in gold mining. It is engaged in exploration, mine development and sale of gold etc.(Reuters, 2018)
The equity profile breakup of the company has been provided here-in-below:
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
Equity |
|||||
1 |
Issued Capital |
11679 |
11673 |
11666 |
11657 |
2 |
Retained Earnings |
-5055 |
-4679 |
-4347 |
-4154 |
3 |
Reserves |
517 |
-145 |
-278 |
-53 |
Total Equity attributable to ordinary shareholders of Orica Limited |
7141 |
6849 |
7041 |
7450 |
|
4 |
Non -controlling interest in controlled entities |
119 |
108 |
79 |
84 |
Total Equity |
7260 |
6957 |
7120 |
7534 |
(Newcrest Mining Limite, 2014)(Newcrest Mining Limited, 2015)
On perusal of the above table, one can understand that the equity of the company has not undergone any significant change. However, minority interest has reduced in the company. Further, the retained earnings of the company are slowly recovering. A detailed analysis is presented here-in-below:
Movement in issued capital
The issued capital of Newcrest mining has not undergone a sea change and the detail of the same has been tabulated here-in-below:
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
1 |
Opening Balance |
11679 |
11679 |
11673 |
11666 |
2 |
Share Issued during the year |
||||
3 |
Dividend reinvestment plan |
10 |
|||
4 |
Share repurchased and held in treasury |
-6 |
-7 |
-19 |
|
5 |
Issued Capital |
11679 |
11673 |
11666 |
11657 |
Further, the company has bought back its shares of minimal amount during the period of 4 years.
Retained Earnings
The retained earnings of the company are negative symbolising company has incurred huge losses in the past and has been trying to recover the same.
Reserves
The reserves of the company have turned negative on account of losses while consolidating books of subsidiary in the account of parent. The detailed breakup of the same has been tabulated here-in-below:
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
1 |
Equity Settlement Reserve |
No information |
70 |
78 |
88 |
2 |
Foreign Currency Translation reserve |
-246 |
-340 |
-168 |
|
3 |
Hedge Reserve |
6 |
-16 |
27 |
|
4 |
Fair Value Reserve |
25 |
|||
5 |
Total |
-145 |
-278 |
-53 |
Further, fair value reserve is created against the valuation of assets in terms of AASB 13 to account for increase in value of asset
Comparative Analysis of the Equity and Debt Position of ASX Listed Companies
Non-Controlling interest
The non-controlling interest has reduced drastically on account of reserve losses.
Debt Position
The analysis of debt position has been presented here-in-below:
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
1 |
Net debt |
3935 |
2889 |
2107 |
1499 |
2 |
Total Equity |
7260 |
6957 |
7120 |
7534 |
3 |
Net debt and Total Equity |
11195 |
9846 |
9227 |
9033 |
4 |
Debt to Equity Ratio |
54.20% |
41.53% |
29.59% |
19.90% |
5 |
Gearing Ratio (%) |
35.15% |
29.34% |
22.84% |
16.59% |
On perusal of the above table, one can understand the net debt of the company is falling. Further, the gearing ratio has decreased on account of significant reduce in net debt on account of increase in cash reserve of the company.
Orocobre Limited
The company primarily operates in Argentina and is a mining giant. (Reuters, 2018)The movement of equity of the company over the period of four years have been presented here-in-below:
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
Equity |
|||||
1 |
Issued Capital |
123 |
158.46 |
242.24 |
243.18 |
2 |
Retained Earnings |
83.04 |
82.19 |
60.28 |
80.7 |
3 |
Reserves |
-54.353 |
-76.53 |
-111.79 |
-105.86 |
Total Equity attributable to ordinary shareholders of Orica Limited |
151.687 |
164.12 |
190.73 |
218.02 |
|
4 |
Non -controlling interest in controlled entities |
-1.132 |
-1.06 |
-1.31 |
|
Total Equity |
150.555 |
163.06 |
189.42 |
218.02 |
( Orocobre Limited Pty Ltd, 2017)
On perusal of the above table, one can understand that the equity of the company has increased over the period and the non-controlling interest of the company has been wiped off from the balancesheet.
Movement in issued capital
The issued capital of the company has increased significantly on account of fresh issues and exercise of options.
Retained Earnings
The retained earnings of the company are falling over the years of account of losses in the business
Reserves
The reserves of the company have been falling drastically over the year. The movement of the same has been detailed here-in-below
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
1 |
Option Reserve |
1.7 |
2.62 |
3.22 |
2.97 |
2 |
Foreign Currency Translation reserve |
-47.64 |
-74.37 |
-109.61 |
-104.92 |
3 |
Hedge Reserve |
-2.56 |
-4.5 |
-5.22 |
-3.75 |
4 |
Other Reserve |
-0.28 |
-0.18 |
-0.17 |
|
5 |
Total |
-48.5 |
-76.53 |
-111.79 |
-105.87 |
The main reason for such fall is the consolidation of accounts of subsidiary in the books of parent on account of which losses have been recognised as FCTR.
Non-Controlling interest
The non-controlling interest has been negative for three years and wiped out in 2017.
Debt Position
The analysis of debt position has been presented here-in-below:
Sl NO |
Particulars |
2014 |
2015 |
2016 |
2017 |
1 |
Net debt |
-11.49 |
10.45 |
-21.92 |
-40.82 |
2 |
Total Equity |
150.555 |
163.06 |
189.42 |
218.02 |
3 |
Net debt and Total Equity |
139.065 |
173.51 |
167.5 |
177.2 |
4 |
Debt to Equity Ratio |
-7.63% |
6.41% |
-11.57% |
-18.72% |
5 |
Gearing Ratio (%) |
-8.26% |
6.02% |
-13.09% |
-23.04% |
On perusal of the above table, one can understand that the company is having significant cash reserves on account of which net debt is negative.
Santos Limited
Santos Limited is a natural gas company. The company is engaged in exploration, development, production and sale of natural gas.(Reuters, 2018)
The movement of equity of the company over the period of four years have been presented here-in-below:
Sl. No. |
Particulars |
2014 |
2015 |
2016 |
2017 |
Equity |
|||||
1 |
Issued Capital |
5,762 |
8,119 |
8,883 |
9,034 |
2 |
Reserves |
-335 |
-699 |
-510 |
51 |
3 |
Retained Earnings |
2,278 |
1 |
-1,293 |
-1,934 |
4 |
Non-controlling Interest |
-4 |
– |
– |
– |
Total Equity |
7,701 |
7,421 |
7,080 |
7,151 |
(Santos Ltd, 2016)(Anon., 2017)
On perusal of the above table, one can understand that the equity has not undergone much movement but has decreased by 10% on account of falling retained earnings of the company. Further, the losses are on account of market prices of gas. The non-controlling interest has been wiped off from the balance sheet. Further, the reserves have decreased on account of foreign currency translation reserve as stated above.
Debt Position
The analysis of debt position has been presented here-in-below:
Sl. No. |
Particulars |
2014 |
2015 |
2016 |
2017 |
1 |
Net Debt |
7,490 |
4749 |
3492 |
2731 |
2 |
Total Equity |
7,701 |
7,421 |
7,080 |
7,151 |
3 |
Net Debt and Total Equity |
15,191 |
12,170 |
10,572 |
9,882 |
4 |
Debt to Equity Ratio |
97.26% |
63.99% |
49.32% |
38.19% |
5 |
Gearing Ratio |
49.31% |
39.02% |
33.03% |
27.64% |
On perusal of the above table, one can understand that net debt of the company has fallen near about three fold on account of cash reserves of the company.
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