Corporate Governance Disclosures - Case Study Example

Reporting and disclosure practices [Insert al affiliation] Reporting and disclosure Reporting disclosure is one of the IFRS principles that state that each firm is required to information to the relevant parties or the management. It is noted that only adequate and full disclosure of such information will afford sound decision making by the management. It is, therefore, advised that the accountants disclose too much information than too little. Pursuant to the IAS, depending on the nature of the firms, the disclosure of this kind of information should be highlighted in the financial statements notes or rather in the supplement reports. Full disclosure is of great importance because an auditor uses the notes and other financial documents in carrying out an audit. Additionally, full disclosure is relevant is one of the statutory requirements. Doha Bank in Qatar Statement of financial position disclosure The Doha Bank has disclosed a total assets of $66,854,314, total liabilities of $55,617,384, total equity attributable to shareholders of $2,000,000. The income statement reveals a net interest income of $1,821,846, the net free and commission income disclosed is $405,347. The net operating income garnered was $2,517,926. The profit for the year was $1,308,683. Amendments of accounting policies disclosure and reporting The bank has adopted the consistent accounting policies of the prior year except a few amendments pursuant to the IFRS issued by IASB and IFRIC effective in January 2013. The IAS 1 presentation of other comprehensive income amendments items for instance, the amendments of the IAS 1 changes the grouping of items in OCI that could be reclassified to be presented in a separate from items that can never be classified further. The amendment has no impact on the group’s financial performance. The IAS 19 Employee benefits were revised, and IASB issued several changes such as removal of corridor mechanism and expected returns. Such changes have no effect on the group’s financial performance. IAS 28 which deals with investments in associates and joint ventures was disclosed as a consequence of IFRS 11 and IFRS 12 disclosure of other entities interests. Financial assets and financial liabilities disclosure and reporting The financial liabilities are recognized on the trade date that is the date when the group becomes the party to the provisions of the instruments. It involves regular purchases or rather the sales of financial assets that require assets delivery within a reasonable time frame. The financial liabilities and assets are measured at the fair value and not through a fair amount of the profit or loss. The categorization of financial items depends on the purpose and characteristics. Pursuant to the amendments, the financial assets can be classified as held to maturity, loans and receivables, available for sale and fair value through profit or loss. Investments in associate reporting The Bank derecognizes a financial asset when the rights of the contract expire or when it transfers to the group. Investments in associates are accounted for by use of equity method and are initially recognized at the cost inclusive of acquisition o investment in the investments in the respective associates. The group’s share of the pre and post-acquisition profits is recognized in the consolidated income statement. The consequent movements in the equity are recognized in the reserves. The carrying amount of the investment is adjusted for post-acquisition changes. The inter-group gains on the transactions and the associates are rooted out to the degree of the associated group’s interest. The losses incurred in inter groups is as well eliminated unless the evidence is provided that impairs the assets transfer. The group’s share from the associates is on the grounds of financial statements and is amended to conform to the accounting policies of the group. The inter-group gains are eliminated to the degree of the group’s interest on those who invest (International Accounting Standards Board, 2007) Foreign exchange transactions reporting The foreign exchange transactions denominations require translations to domestic currency, and this will be done by use of spot exchange rates respect to the date of the transaction. The monetary liabilities and assets need conversion while non-monetary assets and liabilities are computed and measured at a fair value then translated functional currency using the spot rate the date when the fair value was calculated. Offsetting: financial liabilities and assets are offset, and the amount showed on the balance sheet. The group shall so do if it has a legal right otherwise it is impractical. Available for sale financial assets The bank defines the available for sale as non-derivative investments that designated as available for sale and will not be classified as the financial assets. In case the fair value is not reliable at all, the unquoted equity will be carried at lower impairment cost. The interest income is recognized using the effective interest method in the profit or loss account. The dividend will be recognized after the group becomes entitled to the dividend in the respective profit or loss accounts. The gains or losses available for sale are recognized in the consolidated statement of income. Revenue recognition reporting The total revenue shall be recognized to the degree that the economic benefits will stream into the group, and it can reliably be measured. Interest income and expenses are recorded using effective interest rate after the financial instruments have been calculated at amortized cost. This amount is the discount of the future payments over the economic life of the financial instrument. Exposure to the credit risk disclosure The bank has disclosed the maximum exposure to the credit risk before considering the collateral that was held. The assets were recorded on the statement of financial position. The exposures are below the net carrying amounts as highlighted in the balance sheet. The total exposure was $91324773 in 2013 which is an increase from $75,601,441 in the year 2012. The bank has disclosed the two primary segments of its operation which are conventional banking and the insurance activities. It is clearly published in the conventional banking that indeed it provides a number of products and services to the bank and the corporate customers inclusive of those that are funded and those who are not supported by credit facilities. It also performs centralized risk management activities. This is through the issue of debts and borrowings. The retail banking provides diversified credit cards, loans among other transactions with the retail customers. Insurance instruments activities disclosure The instrument activities include the carrying out of the insurance, offering advice on the investment opportunities and arrangements for investments. The segment profit for the year of the bank was $1312652. The disclosure of geographical stipulates that the geographical distribution of the income of groups based on locations where the branch books the business. It is clear and evident that bank of China has full disclosure of its reports and other critical information relevant to the decision-making the process of the management and the audit process. It can be seen that the Doha bank disclosed most of their information in literature form without providing evidence in quantitative form. In short, the bank highlighted a few disclosures that cannot afford determination of the fair and correct view of the banks affairs. Conversely, the Bank of China has categorically disclosed all the information ranging from the critical one such as the income statements, statement of financial position and cash flow statements. The Doha bank did not disclose the remuneration of the creditors in the notes of financial statements. The Bank of China Hong Kong From the annual report of December 2013, the bank disclosed critical financial information. The financial statements that are revealed include the consolidated financial position, the consolidated statement of changes in the equity, consolidated statement of cash flows and statement of financial position. Comprehensive income statement disclosure and reporting From the consolidated comprehensive income statement, it is disclosed that the Bank of China had a profit of HK$47,243,535 in 2013 from HK$30,161,485 in 2012 (appendix 5). The total comprehensive income for the year was HK$49,315,095 which is an increase from HK$32,894,016 in 2012. Statement of financial position disclosure and reporting The statement of financial position highlights that the bank generated non-current assets of HK$55,924,398 (appendix 8). The total current assets were HK$5,009,299,890. This is an increase from the prior year that had total current assets of HK$4,527,003,912. On aggregate, the total net current assets stood at HK$1,190,694,309. The total equity for the firm was HK$1,246,112,873. It is further disclosed that the individuals responsible for signing the statements are Chu Xiaoming and Guo Chun, the directors (Laibstain, 2011). The statement of equity changes (appendix 7) illustrate the amount of issued share capital, share premium, capital reserve, the available for sale investment revaluation reserve, the general reserve, retained profits , proposed final dividends and the total equity. The cash flow statement stipulates the cash flow from the operating activities, cash flow from the investing activities, the net increase in the cash and cash equivalents and the cash and cash equivalent stated in the consolidated statement of cash flows (Filbeck & Mullineaux, 2009). The statement of financial position discloses the total non-current assets, the current assets, current liabilities, the net current assets and the equity. As one of the requisites in the international accounting standards board, the Bank of China disclosed the information about the changes in the accounting period that was due in January 2013. The information revealed was the amendments of the HKFRS1 for the first time adoption of financial reporting standards, HKFRS 11 which are information relevant to the disclosure of arrangements. The HKFRS 10 was amended to elucidate the transition guidance and give an additional break to the retrospective application of the principles which confines the prerequisite to providing adjusted relative information to only the prior comparative era. The changes that simplify the demonstration amendments that is essential only if the consolidation finale as to which articles are controlled by the group is diverse between HKFRS 10 and HKAS27. HKAS 1 amendments alter the item groupings that are presented in the OCI (other comprehensive income). The items are subject to reclassification to portray profit or loss at some future point in time. For instance, the gain made through net investment hedging or changes in the translation of operations of foreign are presented disjointedly from the items that can never be reclassified. Such amendments have exaggerated the appearance only and, therefore, have no effect on the financial position of the group. HKFRS 9 is the first phase issued in 2009 to replace the HKAS 39 which highlights the recognition and measurement of financial instruments. The phase mainly focuses on the classification of financial assets. It is noted that this is inconsistent with the prior principle that required the classification of financial assets into four categories. The entity shall classify the financial assets at amortized cost on the basis of the firm’s business management model and cash flows of contractual characteristics of the financial assets. The HKICPA posed additions to the HKFRS 9 to address the liabilities and current derecognition principles fundamentally pursuant to the financial instruments highlighted in the HKFRS 9. The fair value option was to illustrate the change in the fair value of a liability that is linked to the changes in the credit risk obtainable in the loss or profit account unless proven otherwise. The bank further stipulates the significant accounting estimates regarding the group’s financial statements. It discloses that the group’s financial statements require the management judgments, assumptions and estimates that have an effect on the reporting figures of revenues, liabilities, assets and expenses accompanied by the contingent liabilities. It shows that the anticipation of the uncertainty calls for assumptions that are concerned with the future and other estimates at the end of reporting period. Such axioms have a significant risk of affecting material amendments. Impairment of the readily available for sale kind of investments: the group categories specific assets that are available for sale and make recognition of the movements in the value of equity. When the fair value of the equity declines, the management makes an axiom about such decline in the determination of whether there exists an impairment that needs to be recognized in the profit or loss statement. Deferred tax assets reporting Deferred taxes are recognized for not used tax losses to the degree that it is feasible that profit that is taxed will be presented against which the losses can be exploited. The prudent management is called upon to make the judgment required to approximate the value of deferred tax assets taxes that should be recognized basing n the likelihood timing and taxable profits of the future with tax planning strategies. The segment of Operating information: for the purposes of management, the group is classified to units of business based on the five vital operating segments. These sections include brokerage business, asset management business, investments, corporate finance business and financing, and loans business. The management oversights the end results of the separate groups operating segments for the purpose of decision-making about allocation of resources and performance assessment. The performance of the segments is computed based on the profit or loss of the segments which is the consequent measure of loss or profit before tax. Geographical information disclosure There is a disclosure on the geographical information whereby it is highlighted that the group’s operations are situated in Hong Kong, all other non-current assets of the group are located in Hong Kong hence this requires no further geographical presentation of the information. The information disclosure of the potential customers of the bank of China is that the customer revenue is over 10% of the total groups’ income for the year 2013. Revenue disclosure The income and other gains: the analysis of the revenue was $354045457 while other increases $3288036. There was an equity interest in China Hong Kong Highway that placed in the Hong Kong court pending the court’s decisions against the group presented by two plaintiffs before 31st December 2012. In April 2013 and June 2013, the group garnered $6,236,034 from a number of liquidators and joint ventures (Beil, 2013). This amount represents the dividends paid by NCHK shares after the conclusion of the legal proceedings that had been ruled by the group. The dividends are recognized in the profit or loss consolidated statements. The foreign exchange gain that is the profit before tax generated by the group was $3288036 in 2013 which is an increase from $1545518 in 2012. In December 2013, the group had $29094 as the forfeited contributions from $48998 in 2012 available foe reduction of contributions to the retirement benefits at a future date. Directors’ remuneration reporting The directors’ remuneration was disclosed as per the rules governing the listing of securities on the stock exchange. Independent non-executive directors were $540,000 which is an increase from 450,000 in 2012. The executive directors and non-executive directors as follows; salaries and allowances coupled with benefits were $5219924, retirement benefits scheme contribution was $241,067 and total remuneration $5,460,991. It is, therefore, not clear how much is the remuneration of the directors and other executive members. Additionally, the company did not afford to disclose the statement of cash flow for the public and other interested parties to on how the cash and cash equivalents of the bank hence can raise the vice of frauds being committed. The unlike the Bank of China, the Doha bank did not bother whatsoever to disclose the changes in the equity capital. This is the greatest impediment to the shareholders of Doha bank as they will be incapable of demanding their dividend amounts that care generated by the bank. References Beil, F. J. (2013). Revenue recognition: Principles and practices. New York, N.Y.] (222 East 46th Street: Business Expert Press. Filbeck, G., & Mullineaux, D. J. (2009). Regulatory Monitoring and the Impact of Bank Holding Company Dividend Changes on Equity Returns. The Financial Review. doi:10.1111/j.1540-6288.1993.tb01355.x International Accounting Standards Board. (2007). Exposure draft International financial reporting standard for small and medium-sized entities: Comments to be received by 1 October 2007 (4th ed.). London: Author. Laibstain, S. (2011). Financial statement disclosures. New York, NY: American Institute of Certified Public Accountants. MAZAY, V., & WILKINS, T. (2008). Determinants of the Choice of Accounting for Investments in Associated Companies. Contemporary Accounting Research, 5. doi:10.1111/j.1911-3846.1993.tb00381.x Appendix 1 app Read More