Analysis Of Cash Flows Statement, Other Comprehensive Income Statement And Accounting For Corporate Income Tax Of Insurance Australia Group Limited

Cash Flows Statement

In order to analyze the annual report the chosen company listed on the Australian Stock exchange (ASX) is Insurance Australia Group Limited which is a multinational insurance company in Sydney, Australia. IAG is listed on the Australian Securities Exchange and is a constituent of the S&P/ASX 50 index. The principal continuing activity of the Group is the underwriting of general insurance and related corporate services and investing activities.

The cash flow statement of the chosen company of Insurance Australia Group Limited consist of the usual three segments that includes cash flow from operating activities, investing activities, Financing activities and the net cash and cash equivalents of the company. In the operating activities there are items like the depreciation, income adjustments, and changes in the accounts receivables, inventories and liability changes (Duff, 2016). It can be said from the above items that the cash flow of each of the item has been decreased. This is due to more income generation that is cash inflow.

Then comes the investing activities that deals with the capital expenditures, investments and other cash expenses. The net cash outflow from investing activities have been increased from 2016 to 2017 this is due to the increase in the capital expenditures in the present year (Schaltegger & Burritt, 2017).

In the cash flow statement of Insurance Australia Group Limited  the financing activities consists of the dividends that are paid, sale and purchase of stock and net borrowings(Goodwin, AtilganSimsir & Ahmed, 2017). There has been a drastic increase in the financing cash inflow due to the amount of other cash flow from financing activities -$106000 which was -$ 8000 in the last year of 2016.The cash and cash equivalents have also been increased as a result of other cash flow from financing activities and amounts to $376000 in 2017 that was -$329000 in 2016. The statement of cash flow is shown below for a detailed review.

Comparative analysis of three different categories of cash flow:

As depicted in the above graph and table the comparative analysis of cash flow from operating activities, financing activities and investing activities. Net cash flow from operating activities remained more or less constant in 2015 and 2017 but rose drastically in the year of 2016 to -$1946000. However, in 2016 and 2017 the cash flow from investing activities increased drastically from 2015 that was -$ 16, 92,000. There was net cash flow used in financing activities in year 2017 at amount -$13, 78,000 compared to -$5, 72,000 in year 2015. On other hand, from investing activities, there was a fall in cash flow to $ 11,18,000 in year 2017 as against -$16,92,000in 2015.

Other Comprehensive Income Statement

Items of Other Comprehensive Income Statement

The Comprehensive income statement of Insurance Australia Group Limited consists of the net profit that has remained more or less constant in both the years of 2016 and 2017. The items that are included are the net exchange difference from transaction of foreign operations taken to equity, the amount of foreign current translation reserve that have been transferred to net profit and fair value adjustment on cash flow hedges (Hartnett & Romcke, 2015). There also exists net income tax items that have been transferred to income statement.

Insightful explanation of each item of Other Comprehensive Income Statement

 The Net exchange differences from translation of foreign operation taken to translation reserve drastically from 2016 which was $65 m in 2016 to -$16 m. Then comes the remeasurements of defined benefit plans that is transferred to net profit on disposal of controlled entities that has taken place on 2017 at $25 m. There has also been a fair value adjustment on other comprehensive income from $ 33 m in 2016 to $ 9 m on 2017. The income tax on items was $25m in 2016 then reduced to -$16m in 2017.The total of comprehensive income amounts to $1014 m in 2017 which was $735 m in 2016.

Reasons for the items have not been reported in Income Statement/Profit and Loss Statement

Comprehensive income statement is used for the measurement of any change in interest of owners in business. It incorporates the income and expenses that have not been yet realized and it is used for bypassing the income statement (Du Plessis, Hargovan, & Harris, 2018). Other comprehensive income takes into account items such as losses and gains from derivative instruments, debt security on unrealized losses and gains, adjustments in foreign currency transactions and retirement plans or any pension losses or gains (Henderson, et al., 2015).

Clear description of your firm’s income tax expense 

The current tax expense in the year 2017 amounted to -$329 m in 2017 as stated in the financial statement. The amount has been increased from -$218 as on 2016. The tax was calculated as income tax expense divided by profit before income tax expense from discontinued operations and continuing operations (Beekes, Brown & Zhang, 2015).

 Verification of the figure of tax being same as the company tax rate times the firm’s accounting income

Income tax amount is computed using the tax rates that have been enacted considerably by the financial position statement. The current tax expense in the year 2017 amounted to -$329 m in 2017 as stated in the financial statement. The amount has been increased from -$218 m as on 2016. Therefore, it cannot be evaluated whether the figures of income tax expenses are same as the tax rate times the accounting income (McClure, Lanis & Govendir, 2017).

Accounting for Corporate Income Tax

Deferred tax that is reported in the balance sheet along with the reasons for the record

The Deferred tax is accounted by the method of balance sheet asset resulting from temporary differences between the tax bases of liabilities and assets and their carrying amount in the financial statements (Devos & Zackrisson, 2015). Recognition of deferred tax assets are done to the extent that the availability of taxable profit in future is probable against the temporary differences that are deductible. In current year, there has been deferred tax assets are -$545 m in 2017 and $603 m in 2016.

Current tax assets or income tax payable recorded by the company

In Insurance Australia Group Limited the income tax assets amounts to $66 m in 2017 and $ 69.4m in 2016. The Income tax expenses is the amount that is calculated based on the standard accounting rules and on the amount of tax that is owed by company to tax authorities. Income tax payable is the amount that the company owes in terms of tax based on tax code rules. Until the company makes the payment of tax, the amount of income tax payable appears on the balance sheet section as liability (Carnegie & O’Connell, 2014).

Verification of the income tax expense shown in the income statement same as the income tax paid shown in the cash flow statement

The income tax expense shown in the income statement is not same as the income tax paid shown in the cash flow statement that amounts to $137 m in 2017 and $ 388 m in 2016 The Income tax payments includes the impact of income tax of certain loss or gain relating to financing or investing activities so that after tax cash flow is reflected in the subtotals of net cash flow. On other hand Income tax expense is the amount that represents the recording of income tax costs (Barth, 2015). However, the expense for income tax under the income statement generally varies with the income tax expenses mentioned in the cash flow statement. The main reason for this is that the tax expenses accounted for by the company under the income tax payable records the amount after accounting for various expenses like, operating expenses, administrative expenses, selling expenses, financing charges and various other expenses, if any. The income left after meeting all these expenses are taxed at the rate of 30% as per the Australian tax code (Leong, 2015). On the other hand, the income tax recorded under the cash flow statement is the taxes applicable on the operating activities of the company (Sivathaasan, 2016).

Unique characteristics in the financial statements, new insights, and other information

From the annual report analysis of the Australian company of Insurance Australia Group Limited, it has been identified that charge for current income tax is made on the basis of the adjusted profits that are attributable for any disallowed or non-assessable items (Tran, 2015). Moreover, the current tax is measured by referencing the income tax payable amount or recoverable amount with regard to the tax loss or taxable profit for the accounting year (Balakrishnan, Watts & Zuo, 2016). It is computed through using the tax laws and tax rates that is the substantively enacted or enacted at the reporting date. Therefore, the company follows all the requirements of ATO (Australian tax office) while treating various taxes under the financial statement (Hoopes, Robinson & Slemrod, 2018).

References

Balakrishnan, K., Watts, R., & Zuo, L. (2016). The effect of accounting conservatism on corporate investment during the global financial crisis. Journal of Business Finance & Accounting, 43(5-6), 513-542.

Barth, M. E. (2015). Financial accounting research, practice, and financial accountability. Abacus, 51(4), 499-510.

Beekes, W., Brown, P., & Zhang, Q. (2015). Corporate governance and the informativeness of disclosures in Australia: A re?examination. Accounting & Finance, 55(4), 931-963.

Carnegie, G. D., & O’Connell, B. T. (2014). A longitudinal study of the interplay of corporate collapse, accounting failure and governance change in Australia: Early 1890s to early 2000s. Critical Perspectives on Accounting, 25(6), 446-468.

Devos, K., & Zackrisson, M. (2015). Tax compliance and the public disclosure of tax information: An Australia/Norway comparison. eJournal of Tax Research, 13(1), 108.

Du Plessis, J. J., Hargovan, A., & Harris, J. (2018). Principles of contemporary corporate governance. Cambridge University Press.

Duff, A. (2016). Corporate social responsibility reporting in professional accounting firms. The British Accounting Review, 48(1), 74-86.

Goodwin, J., Atilgan, Y., Simsir, S. A., & Ahmed, K. (2017). Investor reaction to accounting misstatements under IFRS: Australian evidence.

Hartnett, N., & Romcke, J. (2015). The predictability of management forecast error: a study of Australian IPO disclosures.

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

Hoopes, J. L., Robinson, L., & Slemrod, J. (2018). Public tax-return disclosure (No. w24318). National Bureau of Economic Research.

Leong, R. (2015). Structuring an undergraduate accounting theory course to enhance the learning experience of Australian students: Preliminary findings.

McClure, R., Lanis, R., & Govendir, B. (2017). Analysis of Tax Avoidance Strategies of Top Foreign Multinationals Operating in Australia: An Expose.

Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts and practice. Routledge.

Sivathaasan, N. (2016). Corporate governance and leverage in Australia: A pitch. Journal of Accounting and Management Information Systems, 15(4), 819-825.

Tran, A. (2015). Can Taxable Income Be Estimated from Financial Reports of Listed Companies in Australia. Austl. Tax F., 30, 569.

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