Analysis of Annual report with respect to compliance with AASB
Executive Summary:
This is an individual assignment in
which I need to demonstrate the understanding of accounting standards and the
theoretical and philosophical approaches which is related to more complex
accounting problems. The focus has been made on how company executive’s compensation
and employee benefits have been addressed in corporate reporting with the
revision in conceptual framework. Here I need to take the annual reports of two
listed companies under ASX and required to make analysis of the above mentioned
topic in this light. For this we need to make research and compare the selected
companies’ annual reports which provide the support for compliance with the
AASB requirements and compliance to accounting conceptual framework which has
been used in preparation and presentation of the annual reports.
Table of Contents
Introduction:
To make analysis here I have selected two companies
one from telecommunication sector. In this report I have made the detailed
analysis of annual reports to understand the compliance with the AASB and
accounting conceptual theory and framework related to director’s compensation
and employee benefits and how it has been demonstrated in the annual reports
prepared. The first company is TPG Telecom Limited and second is Telstra
Corporation Limited.
Annual Reports analysis:
The basic accounting standard applicable to all the
company’s annual report is AASB 101related to preparation and presentation of
the financial statements of the organization, so every organization’s financial
statements must be adhered to requirement of AASB 101. Other than this standard
I have also analyzed the annual reports with respect to compliance with AASB
119 and AASB 1028 which are related to employee benefits, and AASB 124 and AASB
1046 also being analyzed so far as applicable to the company and compliance has
been made with respect to it.
Employees have been considered as the special part
of an organization and it is an asset of the organization which cannot measured
easily in terms of numeric values and that is why it is not being shown on the
face of financial statements. Since, the beginning of accounting this concept
has been followed and for making accounting of all the benefits paid to an
employee being shown under the separate head on the face of financial
statements. There are various standard and accounting approaches has been
issued by accounting bodies for making reporting of the benefits paid to
employees, how retirement benefits to be recognized in financial statements and
any special disclosure requirement as a part of duties of organization.
Requirement of AASB 119 related to employee benefits:
AASB 119 has been issued with an objective to make
accounting and disclosure for employee benefits, and as per basic requirement this
standard requires to recognize a liability as and when an employee has provided
the service in exchange for employee benefits which is to be paid in future and
recognition of an expense as and when the entity consumes the economic benefits
which is arising from services provided by an employee in exchange for employee
benefits. This standard has been revised and the revised form is being
applicable for the reporting periods beginning on or after 1st
January 2013. There are certain changes have been made in the parameters
related to recognition, measurement and presentation with respect to employee
benefits. And the period from which the revised form of AASB 119 has been
applied; needs to be disclosed in accounting policy as well as the quantitative
impact of those changes. Additionally, the transitional provisions requires for
restatement of earliest prior period. There are certain specific requirements
which need to be compliance with:
§ Immediate
recognition of all actuarial gains and losses in other comprehensive income:
As per this requirement an
organization is required to re-measure actuarial gains and losses which needs
to be recognized in other comprehensive income based on the changes which are
resulted from experience adjustments and changes took place in actuarial
assumptions which now needs to be recognized immediately in other comprehensive
income.
§ Presentation
of defined benefit costs: Following components are required to be presented
under the head of defined benefit plans-
(a) Service
cost recognized in profit and loss
(b) Net
interest related to net defined benefit assets or liability which is to be
recognized in profit and loss; and
(c) Re-measurement
of the net defined benefit assets and liability which needs to be recognized in
other comprehensive income.
§ Additional
disclosures requirement for defined benefit plans:
With the amendments in the in this
standard additional disclosures requirements has been defined as under:
(a) A
narrative descriptions of the defined benefit plans and characteristics of the
plans and risk associated with it
(b) Reconciliation
of the numerical calculations and disclosures of the amounts in the financial
statements arising from the defined benefits plans
(c) Sensitivity
analysis related to actuarial an assumption which affects the timing, amount
and uncertainty in relation of the future cash flows.
§ Changes
related to measurement of timing and recognition of the termination benefits:
Under the revised statement of AASB 119R, the
termination benefits which are recognized at the earlier of when the entity
recognizes related restructuring costs and when the entity can no longer
withdraw the offer of those benefits.
Analyze the TPG Telecom Limited annual report:
If we analyze the annual report of TPG Telecom
Limited total employee benefits expenses recognized in income statement is
$139.1 million for financial year 2015 which is increased by 34% compare to
financial year 2014. And total employee benefits disclosed on the face of
consolidated statement of financial position is $14.4 million in financial year
2015 under the current liabilities and $2.0 million under the head non-current
liabilities.
If we analyze the notes to accounts prepared for these
disclosures, the liabilities related for employee benefits which are expected
to be settled within next 12 months of the reporting dates which represents the
present obligations which is resulting from the employees services provided up
to the reporting date and such amount has been calculated as undiscounted
amounts based on the remuneration of the employees that the group expects to
pay.
The other non-current employee benefits has been
measured based on the long-term service of the future benefits that employee
have earned in return for their services in relation of current and prior periods.
Such amounts has been calculated based on the expected increase in the
remunerations of the employees based on the on-costs and expected settlements
dates and such amounts has been discounted using the corporate bonds as on the
balance sheet date.
The performance rights plans (Employees defined
benefits plans) in which detailed explanations has been given about the plan,
the number of employees getting the benefits of plan, how the scheme has been
designed under this plan and how such share-based payments reserve has been
created under this plan.
The disclosure of the superannuation plan reflects
that the contributions for such plan has been recognized as an expense in the
income statement on an accrual basis and amount contributed under such plan has
been disclosed under this note.
Analyze the Telstra Corporation Limited annual report:
If we analyze the notes to the financial statements
prepares the detailed disclosures has been made related to employee benefits
expenses and employee benefit plan related provisions has been disclosed in
details as under:
(a) The
worker’s compensation liabilities provision has been made based on the present
value of these estimated liabilities which is computed based on the actuarial
value compensation. It has been also mentioned that present value has been
calculated by using the appropriate rates in relation to the risks specific to
the liability with a similar due date.
(b) The
provisions made under the head employee benefits related to wages, salaries,
annual leave and other current liabilities at the nominal amounts on the accrual basis. It has been
mentioned that under that note; the calculation related to employee benefits
has been made based on the remuneration rates at the current settlement dates
which also include the related costs.
(c) Notes
for defined contribution plans mentioned that the plan is limited to making the
contributions in accordance with the minimum statutory requirements. It has
been clearly mentioned that the group have no any legal or any kind of constructive
obligation to pay additional contributions if the fund does not hold sufficient
assets to pay all employee benefits relating to current and past employee
services. The contributions made to this plans are recorded as an expenses on
the face of income statement and a liability under this head has been
recognized as and when a future payment has become payable for the services
provided by the employees.
(d) The
correspondence notes prepared for defined benefits plans includes various
schemes and a detailed notes has been prepared containing all the related
provisions of the scheme. The Telstra Superannuation scheme has been designed
specifically for employees post employment period where the liability has been
calculated based on the fair value of the plan assets is less than the present
value of the defined benefit obligations, the net deficit is recognized as a
liability.
Difference in disclosure of both the organization:
So, we make the analysis of annual reports of the
companies we find that compliance with respect to AASB 119 has been identified
more clearly in most of the cases, however the disclosure and presentation
found in the annual report of Telstra Corporation Limited is much better
compare to TPG telecom limited in which the detailed information has been given
related to all the amount recognized in the financial statements. Other than
that both the companies are in telecommunication industry as both the companies
are in same industry the requirements with respect to following of accounting
standard and compliance to accounting statutory framework is equally applicable
to both the organization. Telstra Corporation limited believes in timely
adoption of all the accounting standard applicable to the organization and any
amendments occur in the accounting standard has been disclosed in detail in the
notes to accounts prepared in support of the financial statements. Hence
Telstra Corporation Limited adopted all the accounting standard and amendment
in accounting standard for preparation of financial statement for the year
2015. Based on the analysis of annual reports of Telstra Corporation Limited is
can be concluded that the report issued by the Auditor of Telstra is in line
and based in the presentation of all the information in financial statements.
However if we analyze the annual report of TPG Telecom Limited then; it is very
clear that Alumina not following some of the AASB and amendment in AASB for
preparation of annual report of the organization.
Conclusions:
The different accounting bodies are
working on the current issued faced by the organization and based on mature
analysis they issue the some norms and conditions in form of accounting
standard to make the financial statement comparable for stakeholders who are
using this financial statements for various purposes which gives the
credibility and confidence to stakeholders that the information provided under
the annual reports are true and has been verified and checked by auditors of
the company before approving the same. So, compliance with respect to AASB
issued by the Australian Accounting body is requires for all the companies
which have covered under its jurisdiction. Basically, the applicability of all
AASB has been decided based on the form of organization and in which tier it
has been covered.
Recommendations:
It is the responsibilities of
management of every organization to make compliance with the specific
accounting framework and relevant accounting policies and practices for which
standard has been issued by the relevant accounting bodies. AASB issued by
Australian accounting standard board are issued to standardize and harmonies
financial statement of all the organization within the countries. However
difference has been found with respect to compliance of such standard and accounting
policies so, in order to achieve the objective of harmonization of financial
statement it is necessary for every organization to make full compliance with
AASB whether it is related to employee benefits or other transactions of the
company in measurement, recognition and disclosure in annual report.
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