CORPORATE AND FINANCIAL ACCOUNTING

Executive summary

This study has indicated that financial reporting is mandated by different financial authority boards. In Australia, financial reporting and accounting activities are controlled by AASB. The study has mentioned that the financial reporting and accounting activities of the managers must be controlled by the legal system, so that the interests of all the stakeholders can be maintained. On the other hand, analyzing the debt and equity positions of the four retailers in Australia the study has indicated the retailers have used more equity capital than the debt capital.

Introduction

Financial reporting is one of the essential duties that every firm needs to perform adequately. The term “financial reporting” indicates the preparation of financial reports by considering each accounting and financial transaction, analysis and other information of the business. Preparing and presenting the financial reports a company can disclose its actual financial position during a particular time span. This is also important to the stakeholders of the company because stakeholders can make their decisions by using the financial reports of the business.

In this study the discussion will be made on financial reporting in the organizational context. At the same time, the study will also make a discussion on Australian Accounting Standard Board or AASB. In the last section of the study, the discussion will be made on the capital structure of four companies, which belong from the same industry. The study will focus on the capital structure of four retail companies in Australia.

Corporate regulations

In the introductory section of this study it has been mentioned that financial reporting is one of the most essential activities for the firms. The decision making of the stakeholders highly depends on the financial reporting and disclosure of the company. In the other words, it can be stated that the interests of the stakeholders are associated with the financial reporting of the business (Cereola et al., 2017). Considering this fact, it must be mentioned that the financial accounting and reporting must be done as per the regulations not as per the managers’ will.

If this matter is critically analyzed, it can be stated that managers are the internal stakeholders of the business and due to that their interests are also associated with the performance and financial position of the company. It is very natural that if the activities of the managers are not regulated or restricted by any law, they will try to fulfil their interests as much as possible. This may hamper the interests of the other stakeholders. For example, shareholders are the owners as well as key stakeholders of the business and their interest is to maximize the income level of the business and return from the business. In this context, if the activities of the managers are not regulated, they will definitely try to maximize their revenue, which will increase the cost of the business and decrease the income level and return percentage of the shareholders (Hellman et al., 2018). Hence, in that case the interests of the shareholders will be hampered. However, in this context, it is also important to be mentioned that if the managers’ activities are not properly regulated shareholders may influence them illegally and unethically to maximize their interests, which is also not right for the other stakeholders and future of the business. Therefore, from this discussion, it can be stated that the activities of the managers within an organizational territory must be regulated by the proper legal system and the company must not allow the managers to disclose the financial accounting information voluntarily

Accounting standards setting

Australian Accounting Standard Board or AASB is the main authorized body that regulates the financial activities of every business in Australia. The primary target of AASB is to develop a principle-based accounting system in Australia and contribute to the confidence of the stakeholders in the Australian economy. Kabir et al., (2017) stated that the accounting rules and regulations under the AASB have been developed in accordance to the rules and regulations of International Financial Reporting Standards or IFRS. It means the AASB is closely associated with IFRS. Now, in this point, it is important to identify how the AASB is integrated or takes part in the IFRS. In this context, it can be stated that one of the key requirements of IFRS is the full disclosure of accounting or financial information through financial reporting (Cereola et al., 2017). On the other hand, the AASB standards have also mandated the full disclosure principle for every business in Australia. It means by mandating the full disclosure principle the AASB has taken part in to IFRS.

Similarly, there are many other regulations like, the valuation of fixed assets or PPE of the business. As per the IFRS standards there is no specific rule or method through which the value of the fixed assets or PPE of the company is needed to be determined. The organizations may either follow the historical cost method or fair value method or mixed method for determining the value. On the other hand, the AASB has also not mandated any specific rule or method for determining the value of company’s fixed assets or PPE (Xu et al., 2017). It means from this perspective again AASB has taken part in the IFRS system.

Following the IFRS rules and regulations is not compulsory for the companies under the member countries of IASB. It is because the rules and regulations under the IFRS have been developed by considering the rules and regulations under International Accounting Standard Board or IASB. It means the member countries of IASB are already following the rules and regulations under the IFRS (Kabir et al., 2017). Moreover, the rules under the IASB are more sophisticated and stronger than the rules under IFRS. Due to this if the companies under the member countries of IASB are following the IASB properly they do not need to follow the IFRS. Hence, IFRS is not compulsory for the companies in IASB member countries.

Owner’s equity