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ACCM4300 Financial Reporting Assignment Sample

Assignment Brief

Weighting - 20% of the overall assessment
Submission Via Turnitin-written Memo
Due Date Monday of Week 10 at 19:55 AEST

Assessment information

Work individually as this is not a group assignment. Any work which has been copied or shared between students will result in a Fail grade for all students concerned. So please make sure that the answer to this individual assignment is your own work and not copied from any source.

Required:

Part (A) – Write a memorandum to the Board of Directors (the members of the Board have varying degrees of accounting knowledge or understanding) as noted in the assignment details. The memo should be no more than 1000 words.

Assignment Components

Part A: Technical Component (15%)
This mark covers the technical content of your advice and the explanation on each of the issues, the calculations and the sources and references used and the format of the memo

Details of the Assignment for assignment help

Select Company:

You will select a set of Financial Report of an ASX Listed Company and obtain approval from your lecturer for the Group of Companies that you have selected. Please note that no two individuals may work on the same Group of Companies, so if another individual has already registered their interest in a particular Group of Companies, you will be advised to select a different Group of Companies.

Read the Annual Report including the financial statements of the Group and write a Memorandum to the Board of Directors clearly explaining some of the technical aspects of consolidation. Make sure you draw on the company’s specific details to explain the intricacies of consolidation to the Board and as much as possible avoid answering in general terms.

Please make sure that your assignment is in a MEMO Format – A Report format will not be marked. The assignment must include appropriate references to Accounting standards and other regulatory bodies.

Some of the aspects that you need to cover in your assignment are (but not restricted to):

1. Why did the parent entity have to prepare consolidated financial statements when the subsidiary company is a separate legal entity in its own right?

2. Does the published set of group financial statements reveal the company’s policy on corporate governance, Audit committees, Sustainability, Solvency? Does it reveal these issues and if so where and why?

3. Has there been any goodwill on the acquisition? Or any gain on bargain purchase? Where would you find it in the financial statements and what does it mean? Any impairment?

4. Any other relevant matter that you may wish the Board of Directors to make note of in respect of some transaction or event, the balance of account or disclosure that will assist them in understanding the financial statements of the group.

Solution

Memo to the Board of Directors

Date:

Subject: Technical Aspects of Consolidation for Commonwealth Bank of Australia

Reasons for Consolidation:

Parent companies as well as the subsidiary companies under them are necessarily required to merge and produce the relevant financial information of both the companies under one statement, which is basically called the consolidated financial statements. The parent company needs to present all the financial information in the statement of income and expenses as well as the balance sheet and the cash flow statement of its own company as well as the relevant information of its subsidiaries in the consolidated income statement as well as the balance sheet and the statement of cash flows (Santis, Grossi and Bisogno, 2019). As far as the Commonwealth Bank of Australia is concerned, there are three main subsidiaries under the parent company, which are the Commonwealth Securities, The colonial First State as well as the Bankwest. As per the Australian Accounting Standards Board or AASB 10 as well as AASB 3, the parent company as well as the subsidiary company needs to show the relevant information in the consolidated financial statements as well as the vital adjusted financial statements and at the same time, include the points in the notes to the financial statements in the annual report of the financial statement (AASB, 2021). The annual report of Commonwealth Bank of Australia shows all the information of the main company as well as the information of its three subsidiaries and at the same time, all the relevant information about the joint ventures of the company with other companies and business organizations. This is very crucial as the adjustment of the fair values of all the accounts will then be possible and will reflect a true and fair image of the consolidation (AASB, 2016). A consolidation worksheet is a tool that includes making adjustments in attempt to recognize goodwill. Fundamentally, the parent company would be in the greatest position to gather all the information and offer an integrated look at the financial reports by excluding all intra-group transactions in order to measure the overall performance and wealth of an entire corporation. The parent firm can use the consolidated reports to assess its control over its subsidiaries and plan forward for the next aim the group intends to attain (Sánchez-Serrano et al., 2020).

Disclosures made by the Commonwealth Bank of Australia

As per the Board of Directors of the bank, a good corporate governance is the foundation of the success of all business companies and so, it is crucial for the all the companies to assess the risk and then attempt to implement strategies so that they are able to meet the objectives of the company. For this reason, the Board of Directors of the CBA has effectively adopted the comprehensive rules and regulations of Corporate Governance Guidelines, which is also in compliance with the “Corporate Governance Principles and Recommendations” that has been released by the ASX Corporate Governance Council (Chan, Watson and Woodliff, 2014). As far as the audit committee is concerned, the audit committee of the bank consists of three independent directors who have a good expertise in the field of accountancy and finance. The responsibilities of all the audit committee is duly fulfilled by all the members of the audit committee and the relevant disclosure have been made in the annual report of both the parent company as well as the subsidiary companies. Solvency refers to a company's capacity to satisfy its long-term financial obligations. The interest coverage ratio, which divides operational income by interest costs to illustrate a company's ability to pay interest on its debt, can be used to assess its solvency. A larger value indicates better solvency (Coulon, 2020). As far as the CBA is concerned, there is no disclosure as such which has been made in the annual report of both the companies, but the solvency situation can easily be analyzed using the financial metrics like the calculation and the interpretation of the solvency ratios, which will give a better idea about the debt liability position of the bank. As per the sustainability report of the Commonwealth Bank of Australia, the business organization aims at believing that the success of a business is dependent on the actions as well as the customer profile and satisfaction along with the great interests of the stakeholders and the community, and this is the sustainability goal of the bank as well (CBA, 2021). There are several disclosures that have been made by the sustainability report of the bank, which mainly consists of the:

1. Responsible Financial operations

2. Sustainable business practices

3. Community contribution and action

4. Engagement of talent in the company

5. Environmental Stewardship

 Goodwill

As far as the goodwill is concerned, it is clearly evident from the fact that the bank is involved with a number of other financial institutions regarding funds management as well as brokerage and investment securities. The goodwill was definitely purchased upon the acquisition of the Aussie home loans, where there was a decrease in the overall value of the acquired goodwill by approximately $72 million as a matter of fact after the adoption of the AASB 15 by the bank (CBA, 2021). The goodwill will be mentioned in the notes to accounts sections of the financial statements of the annual report where the section of goodwill will be comprised under the Intangible Section and the amount which will be recorded will be the amount at which the goodwill is purchased as well as the closing amount. No impairment of the goodwill will be recorded in the financial statements of the parent company or the subsidiary company (Carlin, Finch and Ford, 2007).

Intra Group Transactions

These transactions are those transactions that takes place between the entities under the parent group of the company. These might include all the different transactions of the profit or loss that has been realized between the parent company and the subsidiary company. As far as the Commonwealth Bank of Australia is concerned, the intra group transactions also contains the different borrowed funds by the parent company to the subsidiary company and this way, the Board of Directors can easily get a fair and true picture of the financial status of the subsidiaries as well as the Bank after a thorough analysis of the intra group transactions (Pane and Dodds, 2020). This will be very helpful for an overall observation.

References

AASB. 2021. Compiled AASB Standard AASB 10 Consolidated Financial Statements. Retrieved 18 May 2021, from https://www.aasb.gov.au/admin/file/content105/c9/AASB10_07-15_COMPdec17_01-18.pdf

Almagtome, A., Khaghaany, M., &Önce, S., 2020. Corporate Governance Quality, Stakeholders’ Pressure, and Sustainable Development: An Integrated Approach. International Journal of Mathematical, Engineering and Management Sciences, Vol 5 No 6, pp. 1077-1090.

CBA, 2021. 2020 Annual Report - CommBank. [online] Commbank.com.au. Available at: <https://www.commbank.com.au/about-us/investors/annual-reports/annual-report-2020.html> [Accessed 19 May 2021].

Coulon, Y., 2020. Key Liquidity and Solvency Ratios. In Rational Investing with Ratios (pp. 47-62). Palgrave Pivot, Cham.

Kabir, H., Su, L., & Rahman, A., 2020. Firm life cycle and the disclosure of estimates and judgments in goodwill impairment tests: Evidence from Australia. Journal of Contemporary Accounting & Economics, Vol 16 No 3, pp. 100207.

Pane, T. and Dodds, N., 2020. Icing, spreads and tax avoidance purposes. Taxation in Australia, 54(11), pp.619-623.

Sánchez-Serrano, J.R., Alaminos, D., García-Lagos, F. and Callejón-Gil, A.M., 2020. Predicting Audit Opinion in Consolidated Financial Statements with Artificial Neural Networks. Mathematics, Vol 8 No. 8, p.1288.

Santis, S., Grossi, G. and Bisogno, M., 2019. Drivers for the voluntary adoption of consolidated financial statements in local governments. Public Money & Management, Vol 39 No 8, pp.534-543.

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