Importance Of Financial Accounting Regulation And Standards

Use of Financial Statement by the Public

Regulation of financial accounting is a very important aspect because of a variety of reasons. The most important aspect is the use of the financial statement by the outside public and interpreting the financials of the company in its own way, so a proper set of guidelines need to be prescribed for the accounting to be done and a standard and method to be set so that the different users to the financial statement interpret it accordingly and can take the future investment decision in the company .Any hiding of material facts from the outsiders  may make the financial statement fake so the financial statement should be prepare on a going concern basis with all the material aspects and transparent accounting, as the users to the financial statement are many which include creditors,government,shareholders,investors,suppliers and others. The financials of the company shows the past, present and future activities which need to be undertaken by the company which if not properly managed and regulated can show untrue information to the outside world and can impact many investors and users.

The second advantage and the need of controlling financial accounting is the ease of comparison of financials of the company with the other company within same industry so that it becomes easy for the investors to take decision to pool their surplus fund and which if not properly regulated can show a different report for different company and the comparison will become very much difficult for the users.   

The third advantage, if the financial accounting presentation and reporting is left at the end of the management than accounting and reporting will be done in such a way that it only shows the positive growth aspects of the company through which the small investors can be cheated and the management of the company can follow this as a regular practice.

The other advantage is that all the company needs to appoint an auditor in order to express his opinion whether the financial statement of the company are free from any material misstatements and reveals a true figure .

The main aim for financial accounting regulation to ensure corporate transparency and to discipline in maintenance in books of accounts.

Though there are various points which show the need to control the financial accounting aspects and not to be left UN attended in the hands of top level manger.

Australia Accounting Standard Board (AASB) it is a board which sets and provides the standards required by the public and private entity in Australia. These standards are set in such a way that it serves as an interaction between the global business and the Australian business and contributes in the reporting of standards which is recognised globally. The main functions of the Australian Accounting standard Board are:

• to form a framework from which the standards can be evaluated.
• to prepare new accounting standards under the act.(Australian Government, 2018)
• To prepare new accounting standard which is of use to worldwide.

• Australian Accounting standard Board identifies the issues which are technical  and require to be seen
• The issues which have been identified is referred to IASB
• IASB add such issue to the agenda
• Further research shall be carried on the issue
• Shareholders shall be consulted on such issue.
• Accounting standards are issued
• Report  need to be submitted for any comment from IASB
• Finally compliance shall be done.

Ease of Comparison

The IFRS set by the International Accounting Standards Board (IASB) not compulsory for the member countries of IASB due to following:

• To use and implement IFRS in Financial statement is not very easy.
• IFRS has got its own drawback to use.
• IFRS has its own set of policies and accounting procedure

The companies that have been chosen by me for the purpose of analysing under Part B of the report have an interest under basic materials and are listed on Australian Stock Exchange. The companies that have been selected for detailed analysis has been enumerated here-in-below:-

• Alara Resources Limited;
• Alchemy Limited;
• Alexium International Limited;
• Antipa Minerals Limited.

Alara Resources Limited is an Australian listed entity which is engaged in the exploration and development of minerals.  The company has its exploration activity in Australia, Saudi Arabia and Oman. The resources include copper, gold etc. (Reuters.com, 2018)

For the purpose of analysing the equity portion of the balance sheet of the above four entities, the following assumption have been undertaken: A detailed breakup of the equity of the company has been extracted from the annual report of the company and the same has been detailed here-in–below:

• Liabilities which are bearing interest have been considered as debt;
• Debt of non-current nature has been considered for the purpose of analysist;
• Analysis has been done on the basis of Consolidated Statement of Financial Position for the past 4 years for 4 entities;
• Gross debt has been considered without reducing cash and cash equivalent.
• The Annual report has been restated under many a cases, the restated figures have been considered.

The following key terms have been identified for the purpose of analysing the equity portion of the balance sheet of the companies:

• Ordinary Equity Shares: These are normal shares of the company and are issued at the time of inception of the company as increased by additional requirement from time to time. These shareholders are the owner of the company and have claim on the assets of the company post disposition of all claims. The liability of such shareholders are restricted to the extent of face value of such shares.

• Preference shares: These are second class of shareholders with less risk compared to equity and a fixed rate of return. These share generally do not enjoy the benefits as enjoyed by equity shareholders.

• Options: These are the rights issued to personnel of company to be exercised on vesting date and a used for the computation of diluted Earnings per Share.

• Reserves: These are portion of equity which are saved by the company to meet the needs of future expansion or any unforeseen event in the future.

• Foreign Currency translation Reserve: These are part of reserves of the company and are created in terms of AASB and IFRS while consolidating the books of account of the subsidiaries in foreign currency. The difference is passed through this reserve.

• Available for Sale Investment Reserve:  These are created in terms of alignment with AASB and IFRS to mark investment at fair value on reporting date.

• Option Reserve: These are c are created with an intention to make appropriate apportionment to meet any liability to convert option right into equity;

• Cash flow hedging reserve: These reserves are created by a company to reduce the burden of change in estimated cash flows on the financials of the company;

• Non-Controlling interest: These represent claim of persons who hold a minor stake in the company and have no significant control over the functioning of the company.

• Treasury Shares: These share represent that portion of ordinary shares that have been bought back by the company;

Alara Resources	$ Mio
Sl No	Particulars	2017	2016	2015	2014
1	Share Capital	65.16999	63.48543	61.018659	60.95866
2	Reserve	0.208726	0.367395	0.361429	1.508722
3	Accumulated loss	-53.5683	-53.3098	-23.07369	-23.1211
4	Non-controlling Interest	2.223974	2.077566	0.559818	0.424727
5	Total Equity	9.586424	8.46546	37.746585	38.92157

On perusal of the above table, it may be understood that share capital of the company has not undergone much change. However, the company has been sitting on the mountain of losses significant rise in 2016 on account of poor performance of the company during the said year. Further, the non- controlling interest has undergone an increase. The detailed breakup of issued share capital has been presented here-in-below:

Issued Share Capital
Sl No	Particulars	2017	2016	2015	2014
1	Opening Share Balance	63.48543	61.01866	60.958659	60.95866
2	Share Movement during FY	1.830052	2.580075	0.06	0
3	Share Issue Cost	-0.14549	-0.11331	0	0
4	Total Contributed Equity	65.16999	63.48543	61.018659	60.95866

Further, the company has raised additional capital during 2016 and 2017 as seen above.

Further, w.r.t reserve all the balance are mainly on account of the reserves that have been defined above and hence not harped herein.

On the debt part it may be seen that company does not have any significant debt. The detailed computation of debt to equity ratio and capital gearing ratio has been presented here-in-below:

Gearing Ratio
Sl No	Particulars	2017	2016	2015	2014
1	Debt	0.21594	0	1.50959	1.5101
2	Equity	9.58642	8.46546	37.7466	38.9216
3	Debt Equity Ratio	0.02	0.00	0.04	0.04
4	Gearing Ratio	0.02	0.00	0.04	0.04

The company is listed on Australian Stock Exchange and is engaged in exploration of gold and other base metals. (Reuters.com, 2018)

The breakup of equity of the company has been presented here-in-below:

Alchemy Resources Limited	$ Mio
Sl No	Particulars	2017	2016	2015	2014
1	Contributed Equity	30.91407	29.31302	29.285022	NA
2	Reserve	0.52582	0.503907	0.444647
3	Accumulated loss	-16.7647	-16.0113	-15.44982
4	Total Equity	14.67523	13.80561	14.279849

(BDO Audit Pty Ltd, 2017) (BDO Audit Pty Ltd, 2017)

On perusal of the above table, it may be understood that the company has been continuously incurring losses for the period.

Issued Share Capital
Sl No	Particulars	2017	2016	2015	2014
1	Ordinary Shares	29.313	29.285	28.635	NA
2	Placement	0.51927	0	0
3	Non – Renounceable Issue to Shareholders	0.60879	0	0
4	Placement of Non – Renounceable Issue shortfall shares	0.54515	0	0
5	Share issue Cost	-0.0722	0	0
6	Issue of shares	0	0.028	0.65
7	Closing Balance	30.9141	29.313	29.285

The company has issued minimal shares during the year and there has been no significant changes in the equity of the company.

Further, w.r.t reserve all the balance are mainly on account of the reserves that have been defined above and hence not harped herein.

Prevention of Misleading Information

Further, it shall be pertinent to note that company has no debt. The computation of debt to equity ratio and gearing ratio has been presented here-in-below:

Gearing Ratio
Sl No	Particulars	2017	2016	2015	2014
1	Debt	0	0	0	NA
2	Equity	14.67523	13.80561	14.279849
3	Debt Equity Ratio	0.00	0.00	0.00
4	Gearing Ratio	0.00	0.00	0.00

The company is listed on Australian Stock Exchange and is engaged in conducting research and development of technology, licensing etc. The company also sells its specialised chemistry to customers. ( THE FINANCIAL TIMES LTD, 2018)

The detailed breakup of the equity of the company has been presented here-in-below:

ALEXIUM INTERNATIONAL GROUP LIMITED	$ Mio
Sl No	Particulars	2017	2016	2015	2014
1	Contributed Equity	52.82004	51.63448	41.363396	24.80534
2	Reserve	8.973213	9.051563	4.417082	0.449482
3	Accumulated loss	-61.5738	-49.4185	-33.97364	-22.2101
4	Total Equity	0.219474	11.26753	11.806837	3.044746

(GRANT THORNTON AUDIT PTY LTD, 2017)(GRANT THORNTON AUDIT PTY LTD, 2017)

On perusal of the above table, it may understood that losses of the company have been increasing continuously which is in alignment with above 2 companies reported. Further, the total equity of company has fallen drastically on account of losses.

The company has issued additional shares during the year. The detailed breakup of the same has been provided here-in-below:

Issued Share Capital
Sl No	Particulars	2017	2016	2015	2014
1	Balance at the beginning of the year	51.6345	41.3634	24.8053	18.0928
2	Options converted to shares	0.66303	3.90611	1.7595	0.12667
3	Capital Raising		6	10.1625	5.22
4	Cost of Capital raising		-0.369	-2.4496	-0.4038
5	Shares issued in lieu of salary & Sales	0.31975	0.27928	0.34575	0.12841
6	Shares issued in lieu of services	0.20278	0.45469
7	Share Purchase Plan	0	0	0	1.49998
8	Unmarketable Parcel Buyback	0	0	0	-0.0124
9	Derivative	0	0	5.01821	0.00329
10	Series A & B convertible Note	0	0	1.6475	0.15
11	Transfer of Conversion note	0	0	0.0742
12	Total	52.82	51.6345	41.3634	24.8048

On perusal of the above table, it may be understood that the company has raised capital during 2015 and converted many notes thereby increasing the total contributed equity.

Further, w.r.t reserve all the balance are mainly on account of the reserves that have been defined above and hence not harped herein.

Further, w.r.t debt the following computation has been made

Gearing Ratio
Sl No	Particulars	2017	2016	2015	2014
1	Debt	1.45	0.018549	0	1.07
2	Equity	0.219474	11.26753	11.806837	3.044746
3	Debt Equity Ratio	6.61	0.00	0.00	0.35
4	Gearing Ratio	0.87	0.00	0.00	0.26

On perusal of the above, it may be understood that the debt to equity ratio has increased significantly and the company is relying heavily on debt as majority of equity has been washed away on account of losses in the company.

Antipa Minerals Limited

Antipa Minerals is listed on Australian Stock Exchange and is engaged in exploration of minerals. The company has various projects at its disposal including North Telfer etc. (Reuters.com, 2018)

The movement of equity of the company has been detailed here-in-below:

ANTIPA MINERALS LIMITED	$ Mio
Sl No	Particulars	2017	2016	2015	2014
1	Equity	27.41809	20.99138	17.24997	16.11763
2	Reserve	2.701221	1.650447	0.786075	0.781234
3	Accumulated loss	-8.46006	-6.8592	-5.271801	-4.61798
4	Total Equity	21.65926	15.78263	12.764244	12.28089

(BDO Audit (WA) Pty Ltd, 2017) (BDO Audit (WA) Pty Ltd, 2017)

On perusal of the above table, it may be understood that company losses have been mounting but there has been increase in equity on account of the reason stated here-in-below: 

Issued Share Capital
Sl No	Particulars	2017	2016	2015	2014
1	Balance at the beginning of the year	20.99138	17.24997	16.117627	15.73837
2	Share Placement	3.634425	0.5565	0	0
3	Share Purchase plan	3.396297	0	0	0
4	Purchase Unlisted options	0.00012	0	0	0
5	Transaction cost	-0.60413	-0.15091	-0.173766	-0.00074
6	Exercise Option	0	3.335821	0.000131	0
7	Right Issue	0	0	1.305978	0
8	Consideration Shares	0	0	0	0.38
	Total	27.41809	20.99138	17.24997	16.11763

On the basis of above, it may be seen that there has been increase in equity on account of share placement and share purchase plan.

Further, w.r.t reserve all the balance are mainly on account of the reserves that have been defined above and hence not harped herein.

Further, w.r.t debt the following computation has been made:

Gearing Ratio
Sl No	Particulars	2017	2016	2015	2014
1	Debt	0	0	0	0
2	Equity	21.65926	15.78263	12.764244	12.28089
3	Debt Equity Ratio	0.00	0.00	0.00	0.00
4	Gearing Ratio	0.00	0.00	0.00	0.00

On perusal of the above table, it may be understood that the company has no debt and accordingly the analysis for debt is not fruitful.

References:

THE FINANCIAL TIMES LTD, 2018. Alexium International Group Ltd. [Online]
Available at: https://markets.ft.com/data/equities/tearsheet/summary?s=AJX:ASX
[Accessed 27 September 2018].

Australian Accounting Standard Board, n.d. What is AASB. [Online]
Available at: https://www.aasb.gov.au/About-the-AASB/Frequently-asked-questions.aspx
[Accessed 21 September 2018].

Australian Government, 2018. About the AASB. [Online]
Available at: https://www.aasb.gov.au/About-the-AASB.aspx
[Accessed 27 September 2018].

BDO Audit (WA) Pty Ltd, 2017. Annual Report 2017. [Online]
Available at: https://antipaminerals.com.au/annual-report-for-the-year-ended-30-june-2017/
[Accessed 27 September 2018].

BDO Audit Pty Ltd, 2017. Annual Report 2017. [Online]
Available at: https://alchemyresources.com.au/annual-reports/2017
[Accessed 27 September 20018].

GRANT THORNTON AUDIT PTY LTD, 2017. Annual Report 2017. [Online]
Available at: alexiuminternational.com/wp-content/…/2017-Annual-Report-to-Shareholders.pd
[Accessed 27 September 2018].

Reuters.com, 2018. Alara Resources Ltd. [Online]
Available at: https://in.reuters.com/finance/stocks/overview/AUQ.AX
[Accessed 27 September 2018].

Reuters.com, 2018. Alchemy Resources Ltd (ALY.AX). [Online]
Available at: https://www.reuters.com/finance/stocks/overview/ALY.AX
[Accessed 27 September 2018].

Reuters.com, 2018. Antipa Minerals Ltd (AZY.AX). [Online]
Available at: https://www.reuters.com/finance/stocks/overview/AZY.AX
[Accessed 27 September 2018].