Introduction:
The report has been prepared to demonstrate the importance of regulation of financial report of companies and why the voluntary disclosure by managers of reporting entities considered essential. The accounting standard setting process of Australian accounting standard board has been explained critically and whether the IFRS set by standard board is mandatory for the member countries of IASB. The later section of report conducts an analysis on the equity position of the selected companies from the Australian stock exchange (Christensen et al. 2015). Companies that have been selected are Argimin limited, Bauxite resources limited, Jupiter mines limited and Adelaide Brighton limited. Agrimin limited is a mineral company that is engaged in the development and exploration of Australian mineral properties. Bauxite resources limited on other hand is a company that is engaged in the development, acquisition and exploration of minerals deposit of bauxite in Australia. Jupiter mines limited is a company is a company based in Perth, Australia which is involved in carrying out operation and development activities of mineral resource. Adelaide Brighton limited is a manufacturer company based in Australia with its principal activities of importing, producing, distribution and marketing of cement.
There are various users of financial reports seeking different information and such wide range of users comprised of government, employees, shareholders, investors, communities and other related parties. Regulation of financial reports helps in providing standardized information by bringing consistency in the information presented. There would be a diversified way of presenting the information in the absence of regulatory standard. This would lead to presentation of information distinctly and their interpretation in different manner. Users of regulated financial report are provided with advantage in deriving information that is reliable and credible (Ramanna and Sletten 2014).
The managers of reporting entities make use of the concept of voluntary disclosure for communication relevant private information to the users. Supplementation of mandatory reporting and communicating the superior knowledge about the performance of firms is disclosed via the platform of voluntary disclosure. In events of implementation of several accounting practices, managers of discretion is often sought as the voluntary disclosure basis is formed using the private information. An increased or enhanced mandatory reporting would result in providing users who more informative report.
The contribution, functioning, working and powers of the global standard setting process have been outlined by the AASB (Australian Accounting standard board). IFRS is adopted by Australian companies that comply with the requirement of council of financial reporting. There are several steps incorporated in the global standard setting process by AASB. In the first step, it is required by AASB to perform the identification of technical issue concerning the reporting entities. After the technical issue has been identified, development of proposal of project is done by AASB (Bepari and Mollik 2016). Next step requires deciding about the project worthiness after performing the evaluation of projects potential benefits. Once the agenda paper contains the issue discussed, staffs of regulators concerned are called upon to make a discussion presented in the research paper. After evaluating the agenda paper, staff makes the effort to address the scope issue, alternative approaches and the timings. This stage completes the research work and the documents are published for discussing with the stakeholders of respective companies along with seeking public comments. The consideration of AASB conclusion might be due to the issuer associated with pronouncement and then the submission of inputs is done to the organization (Morris 2017). Furthermore, the implementation and interpretation of the accounting standards are done requesting the formal letters to the AASB.
Analyzing the effectiveness of financial reporting regulations:
International accounting standard that has been issued by IFRS have fifteen member countries including United States. The comparison of the financial report prepared by different countries has been facilitated due to the adoption of International financial reporting standard. However, the adoption of IFRS by fully accepting it is associated with some drawbacks. It is not mandatory for member countries to fully adopt the IFRS because the financial report would lose certain quality. United States being a member of IASB has rejected the full adoption of IFRS because preparation of financial statements would not require marketing incentive. Furthermore, it has been ascertained that the cost related to IFRS adoption would offset the benefits that would be received. Furthermore, the mandatory adoption of IFRS comes with issue as no detailed rules are prescribed by the principle based standard. This leaves the process the accounting to the discretion of auditors and individual companies. Processing of similar nature transactions is done ad interpreted quite differently under such standard and thereby increasing the chance of window dressing (Pownall and Wieczynska 2018).
Analysis of the equity position of the selected companies from the ASX has been demonstrated in this section.
Contributed equity- Contributed capital is the amount of capital that is contributed by owners of company in the form of assets and cash in exchange of stocks of company.
Retained earnings- Retained earnings are the amount that is available for reinvestment in the core business activities of company. Such earnings are not intended to be distributed to shareholders. It is the accumulation of net income by the corporation that is retained at particular point of time for reinvestment (Capkun et al. 2016).
Accumulated loss- Accumulated losses are the cumulative loss that is incurred by the business which reduced the balance of retained earnings to negative.
Reserves- Reserves are the amount of profit that the businesses have apportioned by the business for particular purpose. The amounts are set aside for specific purpose such as expected legal settlement, purchasing fixed assets and paying off debts.
Equity of Agrimin limited comprised three items such as accumulated loss, share capital and reserves. Financial year 2017 and 2016 depicts that the amount of share capital stood at $ 36469022 and $ 23342362 compared to $ 1759977 and $ 20326653 in financial year 2014 and 2015. It is clearly indicated from figures that value of share capital has increased year on year. Reserves value has been found to be recorded at $ 351080 and $ 623093 in year 2017 and 2016 compared to $ 225331 and a negative value of $ 461322 in year 2015 and 2014 depicting that value increased initially and subsequently it declined. Amount of accumulated loss is recorded at $ 18522705 and $ 18034920 compared to $ 17067420 and $ 15880720 indicating that losses increased year on year.
Determining the process of setting global standard by IASB:
From the annual report of Adelaide Brighton limited, it has been seen that there are three components comprising of retained earnings, reserves and share capital. It is presented in the annual report that amount of contributed equity stood at $ 733.1 and 731.4 in recent financial year 2017 and 2016 as against $ 727.9 and 729.2 in year 2014 and 2015 respectively. This depicts that there has not been much increase in share capital value. There has been consistent increment in value of retained earnings presented in the financial report to $ 510.6 and $ 483.3 in financial year 2017 and 2016 compared to $ 474.3 and $ 402.8 in year 2015 and 2014. Value of reserves on other hand has initially increased and has increased substantially in the recent financial year. The amount is recorded at $ 1.9 and 2.9 in financial year 2016 and 2017. However, financial year 2015 recorded reserves of amount $ 3.3 as against $ 1.2 in year 2014.
Total amount of issued capital for Jupiter mines limited has remained constant at $ 526639293 for four consecutive years that is 2017., 2016, 2015 and 2014 respectively. Amount of reserves on other hand is recorded at $ 180488 in year 2017. However, the value of reserves was nil in both the years 2016 and 2015 respectively. Looking at the figures of accumulated loss in year 2017, the value is recorded at $ 51395961 compared to $ 251495298 in year 2016 indicating that there has been considerable increase in value in recent year.
Equity of bauxite resources limited comprised of contributed equity, reserves and retained earnings of which the value of contributed equity has reduced considerably from $ 87651716 in year 2014 to $ 78401613 I year 2015. Value has further declined to $ 66631264 in year 2016 to $ 66641060 in year 2016 and 2017. There has been reduction in the amount of accumulated loss recorded in recent financial year 2016 and 2017 at amount $ 47450689 and $ 47949155. On other hand, financial year 2015 and 2014 has higher amount of loss recorded at $ 51788573 and $ 41166374. It is indicated by figures that the value increased initially and declined later on.
The equity position of Agrimin limited for year 2017 and 2016 stood at $ 18297397 and $ 5930535 compared to total amount of liabilities that is recorded at $ 646322 and $ 151558. It is indicated by the figures that total amount of liabilities is significantly lower than the amount of equity (Agrimin.com.au 2018).
Evaluating the applicability of IFRS on the IASB member countries:
Total amount of equity of Adelaide Brighton limited for year 2017 and 2016 stood at $ 1248.2 and $ 1220.1. On other hand, the amount of total liabilities for both years is recoded at $ 764.8 and $ 606.6 (adbri.com.au 2018). It can be seen that value of equities is significantly higher than the value of total liabilities.
For Jupiter mines limited, there has been significant increase in issued capital value in the financial year 2017 at amount $ 7073956 compared to financial year 2016 at amount $ 469235. Total amount of liabilities of Jupiter mines limited for year 2017 is recorded at $ 475423820 compared to $ 275143995 depicting a considerable increase in liabilities in recent year (Jupitermines.com 2018). It is suggested by the figure that total amount of liabilities is considerably higher than the value of equity.
The total amount of liabilities of bauxite resources limited stood at $ 73183 and $ 104123 in year 2017 and 2016 respectively. On other hand, amount of equity is recorded at $ 19253124 compared to $ 19751815 which illustrates the fact that amount of equity depicted in the balance sheet is considerably higher than the total liabilities recorded (Bauxiteresource.com.au 2018).
Analysis of the above presented figures results in drawing conclusion that Jupiter Mines limited has recorded higher liabilities as against all the companies selected for evaluation. On other hand, Adelaide Brighton limited has lower amount of equity compared to all other companies.
Conclusion:
The discussion of the above facts illustrates that the regulation of financial reporting plays a very important role in disclosing of financial information. Managers have also considerable role to play disclosing the important financial information by employing the voluntary disclosure platform. It has also been found that the adoption of IFRS is not mandatory for the member of IASB countries because of some shortcomings. From the analysis of the above facts and figure4s of above listed companies on ASX, it can be seen that the equity comprised of three important elements such as reserves, retained earnings and contributed capital or share capital. The comparative analysis illustrates that the total amount of equity is owned by Adelaide Brighton limited. On other hand, Jupiter mines limited has higher amount of total liabilities compared to other companies operating in the same sector.
References and Bibliography list:
Aasb.gov.au., 2018. The standard-setting process . [online] Available at: https://www.aasb.gov.au/About-the-AASB/The-standard-setting-process.aspx [Accessed 19 Sep. 2018].
adbri.com.au., 2018. Retrieved 12 September 2018, from https://www.amcor.com/investors/financial-information/annual-reports
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Kraal, D., Yapa, P.W.S. and Joshi, M., 2015. The Adoption of International Accounting Standard (IAS) 12 Income Taxes: Convergence or Divergence with Local Accounting Standards in Selected ASEAN Countries?.
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