Background on Analyzed Companies
Accounting is the first and foremost function which shall be adhered by each and every organization whether it is the private sector companies or the Government sector companies. Without the accounting no one can judge how the particular company is functioning and which company will have high stock price, etc (Anastasia, 2015). These considerations come only from the accounting and which in turn help the users of the financial statements. The accounting process can be completed properly only when it is done within the proper framework and the guidelines. The framework that has been named for the accounting is referred as the Conceptual Framework and the guidelines for accounting are referred to as the Accounting Standards (Brwon , Dutton and Rietz). In this report the importance of conceptual framework and the accounting standards have been highlighted with the reference of the annual reports of the two companies. For making an effective analysis, the companies listed in the Australian Stock Exchange have been chosen namely Suncorp Limited and Woolworths Limited and the due analysis have been made of the annual reports of the companies with reference to the conceptual framework and the accounting standards. Thereafter, the discussion has been made of the reasons for the disparity in the corporate reporting caused due to inclusion of the importance of the prudence in the conceptual framework. At the last report has given the brief comparison of annual reports of the companies and has ended the report with conclusion and recommendation. With these prospects, the report has been framed in different headings and appropriate sub headings.
For the purpose of the analysis, two companies have been chosen that are listed in the Australian Stock Exchange. The background of each company is given below:
- Suncorp Group Limited– The Company is at number fifteen position out of the twenty companies listed in the Australian exchange. The company has been incorporated in the year 1996 in Queensland of Australia. The company is in the banking sector and now comes under the private sector. It was previously owned by the Australian Government. The company is engaged in the business of Insurance and banking area including the life insurance cover for the individuals, marine insurance, stock insurance and others and the banking arrangements including opening of an accounts, cash credit facilities and loan, etc. The company is at number one of the company engaged in insurance and banking sector in Australia and second largest company across the New Zealand (Suncorp Official Website).
- Woolworths Limited – The Company is very old and is incorporated in the year of 1924 in Sydney, Australia. It is also listed in the Australian Stock Exchange. It is engaged into the business of departmental stores including the supermarket. It has encouraged the farmers to do more and more work and earn accordingly. It deals in all kind of goods specially related to food industry. Since 1924, it has been into this business and as of now it is number one company dealing in Food Industry in Australia and caters New Zealand (Woolworths Official Website).
The annual report is the document which every company is required to maintain annually and submit the same to the stock exchange and the registrar so as to ensure the transparency to every user of it. It includes the financial statements, director report, auditor report and the message that the chairman gives to the stakeholders of the company to know the future operations of the company (Financial Statement Analysis).
With conceptual framework- Conceptual framework represents the infrastructure required to prepare the financial statements and other reports and that too in compliance with the relevant regulatory framework. As any kind of framework allow particular functioned to be performed effectively and efficiently. There are three characteristics for the conceptual framework to be present in every organization – relevance, faithful representation and neutrality (Weiss, 2014). The annual reports of the companies have been analyzed in this respect as whether it has been followed uniformly or not.
- Suncorp Group Limited- From the analysis of the annual report for the year ending 2016, the following have been observed:
- The auditor report contains the fact of the key matters of concern found during the audit of the company and the same has been mentioned separately. It includes measurement of outstanding liabilities and the related assets which have arisen out of the main business of the company or reinsurance and other possible recoveries amounting to $7,711 million. Similarly, the auditor has further informed in the key matters that the company has made special provision for the impairment of loans and advances amounting to $164 million. Both of the aspects details that the company’s financial statements have been faithfully represented.
- The company’s annual report has shown the calculation of the Earning per Share (EPS) both basic and diluted separately. Also the company has mentioned that how much dividend has been paid during the year to the shareholder of the company. In this way the information in the Annual report is very useful and have relevancy.
- Woolworths Limited- From the analysis of the annual report for the year ending 2016, the following have been observed:
- In the notes to five year summary of the company’s financial position and performance, the various facts have been mentioned regarding the number of segments operating within the company and the segments which have been demerged from the company’s other business segments. It means that the financial statements have been faithfully represented
- The brief results have been given in the annual report which details not only the figures of the financial statements but also the earning per share, dividend share, the total figures of the whole group and thereafter the trading performance of the whole group and segment wise has been given which entails that all the relevant details have been provided to the users of the financial statements.
Analyzing the Conceptual Framework
With AASB- AASB stands for the Australian Accounting Standard Board. The board has started issuing the standards from the year 2002 after formation of the board in the year 1999. Thereafter from the year 2005 it is mandatory for all the companies to incorporate the disclosure requirements of all the accounting standards as issued and as relevant (HAL official website, 2013). Application of the accounting standards ensures that the financial statements of the company provides the true fair view of the financial statements and will be relevant for the users of the financial statements (IASB,2010). Following are the analysis made whether the two companies so selected complies with the AASB requirements.
- Suncorp Group Limited- From the analysis of the annual report for the year ending 2016, the following have been observed in regard to the compliance with the relevant accounting standards:
- In the notes to the financial statements of the company, it has given the statement of compliance stating that the consolidated financial statements are the general purpose financial statements and have been prepared in accordance with the Australian Accounting Standards issues by the Board and that too in compliance with the International Financial Reporting Standards issued by the International accounting board.
- In the section of the other significant accounting policies, it has been very well and clearly mentioned that the company has complied with the AASB 1038 Life Insurance Contracts and as per the requirements of the AASB, the company has disclosed the relevant statutory funds of life insurance as well as disclosed and bifurcated the investment linked and non investment liked business of the company.
- Woolworths Limited- From the analysis of the annual report for the year ending 2016, the following have been observed in regard to the compliance with the relevant accounting standards:
- In the section of the Remuneration Report of the company, it is mentioned that the definition of the key managerial personnel have been identified in accordance with AASB 124 as detailed under the Related Part Disclosures.
- As the company is in the industry where there assets keep on losing its value due to normal wear and tear and also because of the change in fashion. Therefore, the company is forced to comply with the AASB on the Impairment of Assets and the company have complied the same as it is very well depicted from the Note number 11 of the financial statements relating to Property Plant and Equipment.
Prudence is the concept which in itself entails the faithful presentation and true and fair view of the financial statements for the particular period end. Prudence refers to the accounting policy as to ensure that for all the expenses and losses the company shall anticipate and make the provisions accordingly but the company is not allowed to make the estimation and provide for the gains or incomes. Therefore prudence allows the company to decide in anticipation for any losses and expenditure.
If this concept is included in the conceptual framework, then the framework will have the strong structure. Conceptual framework defines to have the financial statements faithful presentation, relevancy and the reliability. If the prudence will come within this framework then the structure will provide more relevant and reliable financial statements as the users of the financial statements will derive more and more information of the earning ability of the company. It is so because the expenses and losses anticipation will provide the exact figures of the financial position and performance of the company and help various stakeholders of the company to invest or not to invest in the company.
The above inclusion to some extent will bring disparity in the corporate reporting as the corporate will resist anticipating for losses and expenses as it will decrease the earning of the company and in turn reduce the chances of having investment from the investors. If it is included then the company has to follow and accept accordingly. In this way, there will be disparity in corporate reporting.
- Five Year Summary – The annual report of the company Woolworths Limited has laid down the last five year summary containing all the details and which have been found very useful by the users of the financial statements and whereas the same is not available in Suncorp Limited and the users have to obtain the summary through the other sources.
- Compliance with AASB and Others: Both the companies have complied with the relevant accounting standards applicable to their business. First company has complied with AASB 108 whereas other company has complied with AASB 136 and it ensures that both the companies are in compliance of the conceptual framework and the leading accounting standards.
Thus, the annual reports of both the companies are in statutory compliance.
Conclusion And Recommendation
In this report the importance of the conceptual framework has been emphasized and describes how the framework itself allows the compliance with the relevant and applicable accounting standards. For this paper two companies have been selected from the Australia namely Suncorp Limited and Woolworths Limited. The detailed analysis of the annual report of both the companies have been made and the study has been concluded with the comparison and contrast of the annual reports.
Through the analysis, it is recommended that though the annual report of both the companies are effective but the annual report of Woolworths Limited is more exhaustive and detailed.
References
Anastasia, (2015), “Financial Statement Analysis : An Introduction” available on https://www.cleverism.com/financial-statement-analysis-introduction/ accessed on 20/04/2017
Brwon C, Dutton M, Rietz T, “Financial Statement Analysis”, available on https://tippie.uiowa.edu/iem/modules/finstatement.ppt accessed on 20-04-2017.
Financial Statement Analysis available on https://www.business-solutions-and-resources.com/financial-statement-analysis.html accessed on20/04/2017
HAL official website, (2013), “Should Financial Statements Represent Fairly or be Relevant”, available on https://hal.inria.fr/halshs-00873959/document accessed on 02/05/2016.
IASB (International Accounting Standards Board), (2010), “Conceptual Framework for Financial Reporting 2010” , pages 16-21
Suncorp Official Website, “Annual Report 2016” available on https://www.suncorpgroup.com.au/investors/reports accessed on 19/04/2017.
Weiss D, (2014), “Faithful Representation” available on https://bschool.huji.ac.il/.upload/Seminars/Faithful%20Representation%20October%202014.pdf accessed on 02/05/2016..
Woolworths Limited Official Website, “Annual Report 2016” available on https://www.woolworths.com.au/ accessed on 20/04/2017.
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