Corporate Regulations And Equity Evaluation

Corporate Regulations

The assessment aims in detecting the presence of corporate regulations, accounting standard settings and owners’ equity. The evaluation directly helps in understanding the significance of financial accounting and reporting, which needs to be conducted by the organisation over the period of time. In addition, the need for the financial reports to be regulated or the mangers can disclose the reports in accordance with their requirements. Further evaluations are also conducted in the assessment that the IFRS settings proposed by the IASB is not compulsory for members countries. The relevant evaluation of equity selection has been conducted for understanding the financial performance of the selected four companies. Hence, the debt and equity position of the companies are comparatively evaluated to understand their current financial position.

i) Critically discussing whether financial reporting needs to be regulated or managers should be allowed to disclose the information voluntarily:

The financial reporting system needs to be regulated with adequate measures and standards, as it allows the stakeholders of the organisation for detecting the accurate financial position of the organisation. The regulated financial reporting subsystem will ensure the stakeholders about the correct financial position of the organisation and detect the measures, which has been taken by the management for securing their future operations. In addition, the financial reporting system helps in understanding the accurate operational details of the organisation and the growth, which has been obtained over the past fiscal years. Dumay (2016) mentioned that the presence of scandal and misleading reports conducted by companies with the presence of regulations indicates the importance of regulations, which is needed for controlling the unethical action of the organisations.

There have been many instances, where scandals are conducted by the management of the organisation for inflating their annual report and presenting the wrong financial position to their investors. Therefore, giving powers to the managers in handling the overall financial reporting system will create chaos and decreases the risk of the investors. Furthermore, problems can be detected, where the manager will directly manipulate the financial report in accordance with their preference, which can directly reduce reliability of the financial report. The managers will also use the manipulative structure for reducing the level of profits for declining the dividend payment and inflating the financial position during low performance years. In this context, Wahlen, Baginski and Bradshaw (2014) stated that the biggest scandals such as ABC learning and HIH Insurance directly indicates the manipulative measures, which can be taken into consideration by the managers for altering the financial report according to their needs. Hence, it can be understood that the preparation of the financial report cannot be handed over to the managers of the organisation, as they will not comply with the fair representation of the data in their annual report.

Therefore, with the presence of an accurate regulatory conceptual framework for preparing the annual report can eventually help in portraying the accurate financial position of the organisation. In addition, the different standards have been included for analysing different segments of the organisation, which help in depicting the accurate financial position of the company. In addition, the standards governing the fair value method and amortization method has mainly forced the organisation to represent their fair value of the total assets held in the current date. Hameed (2014) argued that there is different level of loopholes, which are currently present within the current standards and is utilised by the management for inflating their annual report.

Accounting Standard Setting

The Australian Accounting Standard Board has been the major contributor to the global accounting standard setting process such as IFRS. AASB has been improving the level of standards by implementing different regulation and rules for preparing the annual report. In addition, the accurate financial performance of the organisation is mainly detected with the changes that has been conducted by AASB over the period of time. The AASB standard setting process has been depicted in the above figure, which has been evaluated by the standards for generating adequate financial report of the organisations. The AASB measures have relevantly added awareness, outreach and education, which needs to be conducted for detecting the accurate level of reports (Nobes 2014).

There are also provisions conducted in the IASB, where the member countries can choose not use the IFRS accounting system in preparing their annual report. This measure eventually allows the member countries for formulate the annual report in accordance with the accurate financial performance of the company. The IFRS system is mainly a complex measure, which can only be used by multinational companies whose financial report is needed for different stocks markets around the world. Moreover, adequate expenses is needed to be conducted by the organisation in preparing the annual report in accordance with the IFRS regulation, which directly increases the level of expenses of medium and small companies. Hence, the IFRS regulations have been altered, where the companies listed in the financial market in overseas needs to follow the IFRS regulations system. The excessive expenses, which needs to be incurred by organisation in preparing the annual report in accordance with the IFRS setting is the main reason, why the regulation is not imposed in member countries (Leuz and Wysocki 2016).

The total equity of the organisation has mainly declined over the period of four years, which can be detected from the above table. The reduction in share capital is witnessed for the organisation, while slight increment in share premium account is detected. The other reserves have increased over the period, while drastic decline in retained earnings and non-controlling interests have been witnessed during the past four fiscal years (Riotinto.com 2018).

The increment in total equity of the Fortescue Metals Group Limited is due to the rise in retained earnings of the organization. The other components of the equity segments have altered slightly, which has low influence in the change of the organization equity section (Fmgl.com.au 2018).

Th decline in the total equity has been witnessed in the above table for BHP Billiton, which has been conducted due to the falling retained earnings of the organisation. The alternations in other segments of the equity section is relevantly minor, which did not influence drastic decline in the total equity of the organisation (Bhp.com 2018).

The changes in total equity of the organisation has mainly declined over the four years. This demise in total equity has been conducted by the negative reserves, declining contributed equity and non-controlling interest (Assets.ctfassets.net 2018).

The above table analyses the different equity and debt position of Rio Tinto during the past four fiscal year, which helps in detecting the current financial position of the organisation. In addition, both the equity and debt of Rio Tinto has mainly declined over the period of four fiscal year, which has relevantly improved their current financial performance. Moreover, the debt of the organisation has mainly declined substantially, while equity has reduced slowly in comparison to debt, which indicates that the company has effectively achieved solvent condition (Riotinto.com 2018).

Owners’ Equity

The decline in debt and improvement of equity has been witnessed in the Fortescue Metals Group Limited, which indicates the incremental financial position of the firm. In addition, the equity value has mainly increased from 7,537 in 2015 to 9,731 in 2018, while the debt values have declined in half from 7,188 in 2015 to 3,112 in 2018 (Fmgl.com.au 2018).

Both the equity and debt position of BHP Billiton has mainly declined over the period of four fiscal years, which has improved the current financial position of the organisation. The decline in debt of BHP Billion is almost more than half, while the equity values have not declined substantially in comparisons to the debt, which directly indicates the financial performance of the organisation (Bhp.com 2018).

The equity and debt combination of Amcor is relevant different from other companies, where the equity values have declined over the period of four fiscal years, while the debt has increased. This increment in the debt values of the organisation has mainly indicated the low financial performance of the company, which led to the accumulation of high debt and low equity (Assets.ctfassets.net 2018).

Therefore, from the evaluation of the above table the overall equity and debt of the four companies can be detected. In addition, the reduction in debt accumulation of Rio Tinto, Fortescue Metals Group Limited, and BHP Billiton can be witnessed during the past four fiscal years. However, only Amcor Limited debt values have increased during the four fiscal years, which directly indicates the low financial performance of the organization. Therefore, it could be assumed that the financial performance of Rio Tinto, Fortescue Metals Group Limited, and BHP Billiton has improved, while Amcor Limited performance has declined.

Conclusion:

The overall assessment mainly comprises of different segments, which helps in supporting the different level of segments of financial reporting. In addition, the financial report needs to be regulated, as it might help in portraying the accurate financial performance of the organisation. the regulation might reduce the level of unethical measure, which can be used by managers in inflating their financial performance. Furthermore, the IFRS system has been evaluated, which can help in detecting the accurate financial reports of an organisation. Likewise, the accountings standard settings have also been conducted, where the contribution of the AASB has been highlighted for preparing the annual report of the organisation. Furthermore, the financial performance of the selected companies has been conducted for identifying the level of debt and equity, which has been acquired by the organisations. Lastly, the level of comparative study has been conducted for the current financial performance of the organisations, where only Amcor’s financial position is seen to decline over the period of four fiscal years.

References and Bibliography:

Aasb.gov.au. (2018). [online] Available at: https://www.aasb.gov.au/admin/file/content102/c3/AASB%20Standard-setting%20process.pdf [Accessed 24 Sep. 2018].

Acharya, V.V. and Ryan, S.G., 2016. Banks’ financial reporting and financial system stability. Journal of Accounting Research, 54(2), pp.277-340.

Assets.ctfassets.net. (2018). [online] Available at: https://assets.ctfassets.net/f7tuyt85vtoa/Ry9ogH9cQemqGA800oiGE/cbcc6bef0d76b79be2a227dfc13a7e87/Amcor_Annual_Report_2018.PDF [Accessed 24 Sep. 2018].

Bhp.com. (2018). [online] Available at: https://www.bhp.com/-/media/documents/investors/annual-reports/2018/bhpannualreport2018.pdf [Accessed 24 Sep. 2018].

Christiaens, J., Vanhee, C., Manes-Rossi, F., Aversano, N. and Van Cauwenberge, P., 2015. The effect of IPSAS on reforming governmental financial reporting: An international comparison. International Review of Administrative Sciences, 81(1), pp.158-177.

Dumay, J., 2016. A critical reflection on the future of intellectual capital: from reporting to disclosure. Journal of Intellectual capital, 17(1), pp.168-184.

Fmgl.com.au. (2018). [online] Available at: https://www.fmgl.com.au/docs/default-source/annual-reporting-suite/fy18-annual-report.pdf [Accessed 24 Sep. 2018].

Hameed, M., 2014. application of International financial reporting standards in Oman: away forward to improve the economy of young Oman. Muscat: Oman college of managment and technology.

Leuz, C. and Wysocki, P.D., 2016. The economics of disclosure and financial reporting regulation: Evidence and suggestions for future research. Journal of Accounting Research, 54(2), pp.525-622.

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.

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Riotinto.com. (2018). [online] Available at: https://www.riotinto.com/documents/RT_2017_Annual_Report.pdf [Accessed 24 Sep. 2018].

Rutledge, R.W., Karim, K.E. and Kim, T., 2016. The FASB’s and IASB’s New Revenue Recognition Standard: What Will Be the Effects on Earnings Quality, Deferred Taxes, Management Compensation, and on Industry?Specific Reporting?. Journal of Corporate Accounting & Finance, 27(6), pp.43-48.

Tschopp, D. and Nastanski, M., 2014. The harmonization and convergence of corporate social responsibility reporting standards. Journal of Business Ethics, 125(1), pp.147-162.

Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education.

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