Corporate accounting is a significant part of every business. The corporate accounting of a company can be interpreted in order to analyze and evaluate the financial statements and the accounting treatments of the company. This report discusses about the corporate accounting done in the two major companies listed under the ASX - Insurance Australia Group and Suncorp Group Ltd. In order to prepare this report, the annual reports of both these companies have been determined and a thorough analysis has been made of the reports. The financial results of the companies have been compared with one another for answering the questions of this assignment. At the end of the report, it can be seen that the accounting treatments of the two companies are same but their financial results are different. It can also be determined that their tax treatment is different, as their tax rates differ from one another.
A brief introduction of the companies that have been chosen and an overview of what will be discussed in the assignment
The insurance market in Australia can be segregated roughly into three components - general insurance, health insurance and life insurance (Driver et al., 2018). These three markets in the country are distinct, with several large companies operating in it. The companies Insurance Australia Group and Suncorp Group Ltd operate in the insurance industry of Australia. The Suncorp Group Ltd operates in the general and life insurance sector in Australia while Insurance Australia Group operates in the general insurance sector of the country.
With more than 13500 employees and headquarters in Sydney, the Insurance Australia Group operates in Malaysia, Thailand, New Zealand and Australia and provides contents, home, vehicle, commercial and general insurance products and services (Iag.com.au, 2018). The Suncorp Group Ltd, on the other hand, operates in New Zealand and Australia with more than employees and general insurance, wealth management, superannuation and life insurance products (Suncorpgroup.com.au, 2018). In this report, the financial statements of these two companies will be investigated and the details in the owners’ equity, cash flows statement, corporate income tax accounting and other comprehensive income statement of the companies have been mentioned. The corporate accounting and their individual treatments have been discussed in this report in detail.
Australia Group. The share capital or ordinary shares are the shares that have been issued and subscribed by the shareholders of a company and treasury shares are the shares, which are bought back by the company itself (Young, 2014). The retained earnings, on the contrary, are the amounts that have been retained in a company from its profits after paying them to its shareholders and reserves are the money that a company has put aside to claim for insurance (Ahlers et al., 2015). According to Lope et al. (2017), non-controlling interests refer to the portion of equity ownership on a subsidiary that the parent company does not attribute.
It can be analyzed from the above table that the total equity of Suncorp and Insurance Australia Group has improved from 2016 to 2017. However, in case of Insurance Australia, the improvement is not much. The analysis also highlights the possible reasons due to which the changes in equity from 2016 to 2017 have taken place. It can be seen that the non-controlling interest of Suncorp has decreased, retained earning has increased, reserves have decreased, and share capital has increased due to issue of further shares, which have led to the change of $13570 million total equity of Suncorp to $13790 million (Suncorpgroup.com.au, 2018). On the contrary, Insurance Australia’s total equity has increased from $6785 to $6792 million due to decrease in share capital, treasury shares and reserves and increase in retained earnings and non-controlling interests (Iag.com.au, 2018).
a Provide a comparative analysis of the debt and equity position of the two firms that you have selected.
The total amount of debt and equity in a company shows the debt and equity positions of the company (Khan, 2015). The following table shows the debt equity positions of Suncorp and Insurance Australia in the last two years -
From the above table, it can be determined that the debt and equity position of Suncorp Group is quite good, as the total equity of the company is quite high and higher than the total debt of the company. However, the debt and equity position of Insurance Australia is poor, as the company’s debts are quite high while its equity is much low.
According to Reid & Myddelton (2017), the financial statement prepared within an organization that provides information related to the disbursements and the receipts of cash in it through dividing items included in the statement into three diverse categories is called the cash flows statement. From the analysis of the cash flows statement of Suncorp Group Ltd and Insurance Australia Group, the following are the items found and the understanding of each item -
Net cash from (used in) operating activities - Warren and Jones (2018) stated that net cash from operating activities refer to the disbursements and receipts of cash that take place in a company from its main activities. The net cash from operating activities of Suncorp Group consists of various items such as payment of income tax, increase and decrease in current liabilities and assets, interest payment and receipts, payment and receipt of insurance premiums, and others. On the other hand, the net cash from operating activities in Insurance Australia consists of income taxes, finance cost, outward reinsurance and claim cost payment, operating payment and receipt, dividends, premiums, reinsurance, interests and trust distribution receipts.
The net cash from operating activities of Suncorp Group and Insurance Australia have changed from -$441 million to $195 million and $698 million to $630 million respectively from 2015 to 2017 (Suncropgroup.com.au and Iag.com.au, 2018). These changes in their respective cash from operating activities have changed due to increases and decreases in all the items such as interest payment and receipts, payment and receipt of insurance premiums, and others mentioned above.
Net cash from investing activities - According to Gordon et al. (2017), the cash balance of a company at which it is standing due to the inflow and outflow of cash because of its investing activities such as purchase of fixed assets, sale of fixed assets and others is called the net cash from investing activities. The net cash from investing activities in Insurance Australia consists of two items - cash inflow from acquisition and sale of plant and equipment and investments. On the contrary, Suncorp Group’s net cash from investing activities consist of sale of investment and proceeds from other investing activities.
It can be noticed that the net cash from investing activities of Suncorp Group and Insurance Group have changed from $1095 to $406 million and -$1692 to $1118 million from 2015 to 2017 respectively (Suncropgroup.com.au and Iag.com.au, 2018). These changes have taken place due to the companies’ increases in cash inflow from sale of fixed assets and increase in proceeds from other investing activities.
Net cash used in financing activities - The cash position of a company at which it stands due to changes in its cash outflow and inflow due to financing activities such as share issue, debenture issue and others is called net cash used in financing activities (Stevanovic et al., 2017). The net cash from financing activities of Suncorp Group lists items such as payment and receipt from borrowings, call of subordinated notes, preference share issue, and other financing activities. On the contrary, Insurance Australia’s net cash from financing activities consist of items such as borrowings repayment, dividend paid and received, payment for repurchasing shares and others.
It can be noticed that the net cash from investing activities of Suncorp Group and Insurance Group have changed from -$879 to -$262 million and -$572 to -$1378 million from 2015 to 2017 respectively (Suncropgroup.com.au and Iag.com.au, 2018).
Provide a comparative analysis of your companies’ three broad categories of cash flows and make a comparative evaluation for three years.
According to Golestani, Hosseini & Mehrjoo (2017), the comparison of the cash flows statement of two or more companies help in understanding the cash position as well as the changes that have taken place in the net cash balance of the companies. The table provided below provides the comparison of the three main components of the cash flows statement of Insurance Australia Group and Suncorp Group Ltd during the last three years -