Analysis of Annual report with respect to compliance with AASB
Executive Summary:
This
research report is related to the individual assignments which will helps to
understand us about the accounting standard issued by the AASB and their
practical use in the business by corporations. In this research report we will
focus on the employee benefit provide by the organization and compensation for
executives for the organization. For the analysis of this research and
preparation of report we have selected two different companies listed in the
Australia stock exchange based on the requirement of assignment. For the
purpose of analysis and research we have check the annual report of both the
companies and their views to comply with the AASB. Also we have compared the
financial statement of both the companies and analyze the financial statement
accordingly. Our selected companies for analysis are Adairs Limited and Gateway
Mining Limited.
Table of Contents
Introduction
– For the analysis of annual report with AASB we have selected two different
Australian companies listed in ASX. From the selected company, Gateway Mining
Limited in mining company which explore the gold and other metal and other
company Adairs limited are in business of home ware and furniture in Australia.
For the analysis of our topic of executive compensation and employee benefit we
have make detail analysis about the preparation of annual report of the
organization with AASB compliance.
For preparation and presentation of financial
statement of Australian company, Australian accounting standard board issued
AASB 101 which is basic accounting standard hence every organization need to comply with the it for proper compliance
with accounting standard. AASB 101 is
used for the prudence following of accounting policies and conceptual framework
of accounting concepts hence we have to comply with the ASSB 101. Other than
AASB 101 we have analyzed the other accounting standard relate to the employee
benefit and statutory requirement related to it. For the employee benefit and
measurement of retirement benefit of employee benefit organization should
comply with the AASB 119 and AASB 1028 hence we have analyzed both this both the
standard from annual report. Also with that in respect to the disclosure
requirement about the executive should be according to the AASB 124 and AASB
1046 hence we have also analyzed both the standard and annual report for
understand the organization compliance about the AASB in preparation of annual
report. Measurement of employee benefit is not much easy task hence Board
instructed to the organization for using the actuarial method for valuation of
employee benefit by way of AASB 119. Employee benefit includes many facilities
and pay provided by organization for their continuous service to the
organization. Employees are one of the important assets of the organization
hence organization need to take care of the disclosure requirement about the
employee in annual report. Benefit paid to employee cannot measured in terms of
numerical value hence now according to the requirement of standard most of
organizations are not disclosing the amount of employee benefit in the face of
annual report but they are providing the measurement and future plan in notes
to account.
AASB
119 for employee benefit
– AASB 119 is initiated by the board with intent to improve disclosure about
the employee benefit in the annual report. AASB required disclosing the
liability related to employee, which is related to current year and liability
related to future period should be discounted in the present if it can be
measured in numerical value. It also
required for recognizing the expense paid or payable to the employee in the
period in which service of employee taken. AASB 119 has been change from the
year 2013 in which board incorporated changes by considering some measurement
parameter for recognition and presentation of expenses incurred on employee
benefit. Board makes effective the changes from the year 2013 as well.
Organization also needs to disclose the impact of changes with the change of
accounting policy in the financial statement according to the AASB 101
requirement. In respect of change made in AASB 119 have following additional
requirement for the organization -
Ø All actuarial gain and loss should
be recognized immediately – With the change in AASB 119
organization need to re measure all employee benefit by using actuarial method
which cause gain and loss to the organization. Gain and loss from the re
measure should be recognized immediately with the comprehensive income. All the
actuarial loss and gain will be arise due to change in assumption according to
the revised AASB 119.
Ø Disclosing of expense incurred for
defined benefit - With the revision of AASB 119 organization
need to disclose following component in the head of defined benefit –
-
Expense incurred to pay for service cost
which is recognized in P&L account.
-
Net Interest expense concerning to the
assists and liability related to defined benefit recognized in P & L
Account.
-
Re measurement of assets and liability
concern to the concerns to the defined benefit from the comprehensive income.
Ø Other additional requirement for
disclosure of defined benefit plan – With the
revision in the standard AASB 119 their
some additional requirement for the organization which organization should
comply in preparation of financial
statement –
-
Provide description about the defined
benefit plan, characteristics and risk related to the plan.
-
Disclosure of the reconciliation of
calculation of defined benefit from the calculation of before revision
numerical value.
-
Sensitivity analysis of future cash flow
for benefit plan by considering timing, rate, discount, and uncertainty.
Ø Recognition
of termination benefit in annual report – With the revision of AASB 119
organization need to recognize the expenditure which is considered by the
organization as restructuring cost. Restructuring cost cannot be withdrawn by
the organization.
Analysis of Annual report of Gateway Mining Limited -
Measurement of employee benefit is not much easy
task hence Board instructed to the organization for using the actuarial method
for valuation of employee benefit by way of AASB 119. Employee benefit includes
many facilities and pay provided by organization for their continuous service
to the organization. Employees are one of the important assets of the
organization hence organization need to take care of the disclosure requirement
about the employee in annual report. Benefit paid to employee cannot measured
in terms of numerical value hence now according to the requirement of standard most
of organizations are not disclosing the amount of employee benefit in the face
of annual report but they are providing the measurement and future plan in
notes to account. But Gateway Mining
Limited discloses the employee benefit expense in the profit and loss account I
separate heading. In the notes of
account company mentioned that amount which is payable within one year is
considered as amount expected to be paid to
employee and amount which is due after one year are discounted in the
present year for appropriate measurement of liability related to employee.
Gateway mining has incurred employee benefit expense
in the year 2014 of $22862 which is reduced in the year 2015 to 19960 by 12.70%
compared to year 2014. But organization not discloses the liability relate to
the employee benefit in the face of financial statement.
Short term employee benefits are measured in the
year in which they are incurred but expenses which are related to the future
are discounted in the present value terms.
Superannuation expense of the employee are
considered in the year in which that is incurred hence need not discount it on
the current year in terms of present value.
Note one of the notes to account disclosed that how
share based payment is paid in terms of equity to the employee of the
organization. If equity is awarded to
the employee then minimum expense will be recognized and remaining expense will
be recognized over the period of time of vesting period.
From the whole analysis of annual report it is very
clear that organization is not following the AASB 15 and AASB 9 which will be
effective from 2018 hence organization will comply with this standard from the
year 2018 as Gateway mining not adopting any standard before effective adoption
by board.
If we analyze the annual report of Adairs Limited
than we found that they have disclose the employee benefit in the face of
annual report. In the financial statement they disclose separately for senior
executive remuneration in head of statutory disclosure. Organization disclosed
the cash salary, bonus, superannuation benefit and non monetary benefit for
short term as well as long term employee benefit, share based payment and
terminal benefit to the executives.
In the face of profit and loss account organization
recognized the employee benefit expense which is $39595000 for the year 2014
and 49618000 for 2015 hence increase in the expense hence increase in employee
benefit in the year 2015 will be 20% from year 2014.
In the notes to account of annual report Adairs
recognized that organization recognized the expenses related to 12 months in
the financial statement and liability related to this are considered based on
expected amount to be paid to the
employee for this.
Liability for long term service to be measured in
the present value of expected future payment by using actuarial valuation
method.
Superannuation of executive and employee are
considered but it is varied according to their job position hence we have measured
by using actuarial method of valuation.
Organization is not paying any share based payment
in the year 2015 hence they need not to disclose in the financial statement. For
the preparation of annual report Adairs used the AASB with corporation Act 2001
to comply with statutory requirement.
We have analyzed the disclosure and presentation of
annual report of both the organization but looking to the annual report it
precise clears that presentation and disclosure of annual report of Gateway
mining is much better than Adairs as Gateway mining disclose everything in the
financial statement according to the AASB and also provide clarification in
notes to account about the policies. No doubt both the company are operating
business in different industry as one company are in the business of home appliances
whereas other one is in mining of gold. But disclosure of the employee benefit
should not make difference. Gateway mining adopts the applicable accounting
standard timely but Adairs limited adopt the standard as and when it will
become effective. Also looking to the notes to account of both the organization
it is clear that notes to account of Gateway Mining are more precise and
according to the AASB. As Gateway mining disclose the information about the
policy adopted for the measurement in notes to account and impact of the
adoption of the policy in notes to account as well.
Therefore annual report of Gateway mining can be
considered in line with AASB and statutory requirement of corporation Act 2001.
Conclusion
– Accounting body issued the accounting standard to make the financial
statement comparable and standard which help to the investor for bring
confidence on financial statement. Accounting standard issued by the body are
for the purpose of nullify the issued faced by the organization in today era
but due to difference in adoption of accounting
standard by the organization not bring harmony in the financial statement of
all the organization. Also investors also have ambiguity about the annual
report as different financial statement reflects different result by using
different policy hence objective of the hence all the organization should use
the single policy and disclosure in the annual report. As per AASB 1053
applicability of AASB is based on the tier of the as private organization are
fall in tier 2 hence they have same AASB applicability.
Management of the organization is responsible for
compliance with the financial statement with annual report hence organization
should follow the AASB and statutory obligation at the time of preparation of
annual report. AASB are issued to harmonize
the financial statement of within country but if organizations are not
following the AASB issued by the board than objective of issuance of AASB could
not achieve. Organization should comply with all the requirement related to
executive and employees benefit hence all should be disclose in the annual
report.
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