Analysis Of Financial Reporting And Accounting Regulations: ASX Listed Companies In The Healthcare Industry

Financial Reporting and Accounting Regulations

The purpose of the report was to develop knowledge related to regulations followed by corporate while performing activities related to financial reporting and accounting. It gives an insight of the fact that whether the mangers of the organization should be permitted to disclose the information related to finances of the business or not. The report also discusses the AASB in the construction of IFRS. In addition to this, four companies listed in ASX are selected and the changes in the component of their total equity are evaluated for the past four years. Further, the report provides detailed information of the equity and debt position of the selected companies for the past four years.

In the opinion of Kaufman (2017), regulations are developed and implemented for governing and controlling the reporting if financial information so that the scandals and frauds within the organizations can be prevented. In order to fulfill this purpose, it is important that the regulations shall be developed so that the interest of company’s different stakeholders can be safeguarded. Zingales (2015), supported this by mentioning that there exist some situations when financial crises occur which created the urge for the development and implications of better regulations while reporting the financial information. The global financial crises which occurred in between 2007 to 2009 is an example such situation. Due to the financial crises which occurred at global level, the scope for systematically addressing the risks associated with the weak regulations related to reporting of financial information has widened. Moreover, after the occurrence of financial crises at global level the existing financial regulation were also were also proposed to be changed. This was done so that the financial meltdown at global level can be prevented in future.

According to Zietlow et al. (2018) if the financial regulations are present then it can aid the organization in safeguarding the failure associated with the external market, lay-off due to information production and opportunistic behavior, and lower the cost of enforcement confronted by the organizations. Flingstein and Calder, (2015) opined that the structure of the government, financial regulations, and political systems differs across different countries worldwide. Due to these factors, the financial analysts are unable to control the financial risks and therefore there is a significant need for the regulations are commonly accepted at global level to be applied in every organization regardless of the nation in which it operates.

AS per the findings of Ben-Amar and Mcllkenny, (2015) managers shall be permitted to disclose the company’s financial information voluntarily. By disclosing the financial information voluntarily will be beneficial in enhancing their ability to receive finance for the business from different market sources. In support of this, Hair et al. (2015) mentioned that disclosure of the information can be done in favor of the company as it will attract more funds for business expansion. For instance, if complete information regarding the financial status of the organization is available with the investors then they can plan to pay more for purchasing share of the organization. On the other hand, if limited information is available then they will only like to pay an average amount for the shares.

AASB’s Role in Developing IFRS

A vital role is played by AASB in setting the procedure for establishing accounting standards like IFRS which are internationally accepted. Different steps are included in setting the accounting standard by AASB. The detail information in this regard is mentioned below:

Exploration of financial issues by AASB:

This is the first step in setting the accounting standard by ASSB. Under this step, the AASB staff looks for any issues which are technical in nature and are essential for the organization for consideration (Lai, et al., 2017). Such issues which could be related to the profit making companies are considered for analysis by IASB or IFRIC. Apart from this, the issues which are identified in context of the organization which are operating as non-profit are analyzed by IPSASB.

Exploration of issues by individuals or organizations in Australia:

If in case, any issues are indentified by any individual or Australian organization with the IASB or AASB then it can be reported to the concerned authority i.e. AASB.

Addition of issues to agenda:

It becomes significant for the AASB to take initiative for the development of proposal of the project which entails details such as benefits on undertaking the project and the issues which will arise if the project is ignored and not undertaken. The time constraints as well as the availability of the resources for the project are also analyzed by AASB (Linnenluecke, et al., 2015). Further, the AASB performs perform the project review to analyze whether the project is feasible and shall be considered by IFRS and AASB or not. If in case the issues turn out be vague in the eyes of AASB then they are not added in the agenda. Such kind of decision is known as agenda rejection statement and is recorded by AASB in minutes for official purpose.

Issue related to research and consideration:

If in case the issue is considered in the agenda then this step is processed. Under this step, the agenda papers are discussion and developed for the issue. The paper entails different details related to output timings, scope of the issue and what alternative approach can be used as a solution for the addressed issue (Head and Alford, 2015). The materials relevant to the issue are also drawn from different resources such as IPSASB, NASB, IASB, and other related organizations.

Consultation and discussion with the stakeholders:

Once the research is completed, the relevant documents are made available to the public for comments and the discussion with the stakeholders is then initiated. For this purpose, the round table discussion and focus group techniques are used. In order to discuss the details with the stakeholders such as, credit analyst, equity analyst, investors, and professionals for investment the technique of focus groups seems to be useful. Non-profit organizations such as credit granter, community agencies, donors, and financial statements preparer alos use focus group technique in their discussion.

Equity and Debt Positions of Selected ASX-Listed Companies

After the discussion with the stakeholders a panel for project advisory is developed which included the stakeholders decided by the AASB (Henderson, et al., 2015). This panel acts as a committee for advice giving to the AASB members and also suggests solutions to their problem. An interpretation advisory panel is also designed by the AASB on the basis of topic to topic. Alternative views are presented by this panel on the addressed issues and in addition to this recommendations are also provided to ASSB. The panel includes different members such as auditors, regulators, users and people engaged in the preparation of financial accounts.

Procurement and issue of standard:

In this step, the ASSB procures the standard in the form of a document of conceptual framework. All the organizations engaged in the profit making then adopts the procurement and consistency is maintained with IFRS (Levy, et al., 2018).

Submission:

In this step, the documents are submitted by AASB to organizations like IASB and IPSASB in order to take comments and reviews on them. This is helpful in setting high quality international standards.

Addressing stakeholder’s comments:

In this step, the stakeholders are invited for the comment letter over the issue of consultative document by IASB and IPSASB. The comments are addressed by AASB right before the final procurement.

Compliance and implementation:

In this step, the implantation of the accounting standards which are altered is monitored and by AASB. Due to this, the AASB standards which are domestic also result in alteration. The process furthers leads to revision of accounting standards which are internationally accepted by the organizations like IASB, IFRS, and IPSASB.

There is no compulsion for the member countries of IASB to accept IFRS standards as these countries may have own standards of accounting which are equal to IFRS (Nobes and Stadler, 2015). Moreover, the countries are always working on their accounting standards so that they can remain consistent with IFRS in order to report and interpret the financial information in a better way.

The ASX listed organizations selected for understanding the equity items are Ansell Ltd, Ramsay Healthcare, Health Scope Ltd and CSL Ltd. Healthcare sector is the common industry in which all the mentioned organization are operating.

Ramsay Healthcare entails different items its total equity such as treasury shares, issued capital, other reserves, convertible securities, non-controlling interest, and retained earnings. There is consistency in the issue capital of the organization since 2014. It is due to the fact that no additional share capital is issued by the organization in order to raise its capital in the stock market. There is an increment in the treasury shares value from $50330 to $70608. When the organization issues shares of the company such treasury shares can be buy-back (Feldstein, 2017). The increment in treasury shares signifies that more shares are issued by the organization in order to raise market funds. Consistency is also observed in the convertible securities valuing 252165 since 2014. An increment is observed in the value of retained earnings from $766656 to $1398664. Retained earnings are part of company’s net profit and the business retains such earnings for the purpose of reinvestment.  

Conclusion

Likewise, Ansell’s net equity also four items such as retained earnings, common stock, treasury stock, and equity of stock holder. There is an increment in the treasury stock value from $58900 in 2014 to $90200 in 2017 which shows that the company has issued new treasury stock in the market. Similarly increment is also observed in the value of retained earning which shows that the company is improving its financial strength as it is capable of saving more for the investment purpose.

The different items included by CSL Ltd in its equity are retained earnings, contributed equity, and reserves. The contributed equity is increased by the organization by issuing new equity shares in order to raise more market capital. The retained earnings has also increased from 5221 to 7403 since 2017 which signifies an increment in the profit of the company.

In regard to Healthcare Scope Ltd the equity items include reserves, issues capital, and accumulated losses. This shows that the company is undergoing huge business losses. It is also observed that the company has issued more shares in order to raise the capital for the business. The increasing share capital value from 1219 to 2708 since 2017 is evident.

The table mentioned below aids in conducting a comparative analysis of the position of equity and debt for the chosen companies:

The ratio of debt to equity of Rasmsay Healthcare Ltd is observed to be highest amongst the four which is 1.795. The ratio of debt to equity of CSL Ltd is observed as 1.49. Similarly, the ratio of debt to equity for Health Scope Ltd and Ansell Ltd are 0.76 and 0.65. It is considered believed that if the ratio of debt to equity is below 1 then it is considered to be favorable as it costs less to the company. Therefore, both Health Scope and Ansell Ltd has favorable bebt to equity ratio.

Conclusion

It can be concluded from the above analysis that a vital role is played by the financial regulations for improving the reporting and accounting practices of the financial information of the company. The financial regulations are helpful in protecting the financial markets worldwide from the downturn conditions such as global and organizational collapses. The above analysis also demonstrates that the AASB has designed an effective procedure for setting the accounting standard as it is consultative, systematic and addresses all of the stakeholder’s view. It was observed from the comparative analysis of debt to equity ratio of four companies that only Health Scope Ltd and Ansell Ltd have the favorable debt to equity ratio. On the contrary the other two companies have adverse debt to equity ratio. The Ramsay Healthcare Ltd and CSL Ltd has high debt to equity ratio which indicates high cost of finance to the company.

References

Ben?Amar, W. and McIlkenny, P. (2015) Board effectiveness and the voluntary disclosure of climate change information, Business Strategy and the Environment, 24(8), pp.704-719.

Feldstein, M. (2017) Options for Corporate Tax Reform in 2017, Brookings Papers on Economic Activity, 48(2 (Fall)), pp.401-408.

Fligstein, N. and Calder, R. (2015) Architecture of markets, Emerging Trends in the Social and Behavioral Sciences: An Interdisciplinary, Searchable, and Linkable Resource, pp.1-14.

Hair Jr, J.F., Wolfinbarger, M., Money, A.H., Samouel, P. and Page, M.J. (2015) Essentials of business research methods. UK: Routledge.

Head, B.W. and Alford, J. (2015) Wicked problems: Implications for public policy and management, Administration & Society, 47(6), pp.711-739.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B. (2015) Issues in financial accounting. Australia: Pearson Higher Education.

Kaufmann, W. (2017) Going by the book: The problem of regulatory unreasonableness. UK: Routledge.

Lai, A., Melloni, G. and Stacchezzini, R. (2017) What does materiality mean to integrated reporting preparers? An empirical exploration, Meditari Accountancy Research, 25(4), pp.533-552.

Levy, A., Bouheni, F.B. and Ammi, C. (2018) Financial Management: USGAAP and IFRS Standards. USA: John Wiley & Sons.

Linnenluecke, M.K., Birt, J., Lyon, J. and Sidhu, B.K. (2015) Planetary boundaries: implications for asset impairment, Accounting & Finance, 55(4), pp.911-929.

Nobes, C.W. and Stadler, C. (2015) The qualitative characteristics of financial information, and managers’ accounting decisions: evidence from IFRS policy changes, Accounting and Business Research, 45(5), pp.572-601.

Zietlow, J., Hankin, J.A., Seidner, A. and O’Brien, T. (2018) Financial management for nonprofit organizations: Policies and practices. USA: John Wiley & Sons.

Zingales, L. (2015) Presidential address: Does finance benefit society?, The Journal of Finance, 70(4), pp.1327-1363.

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