Reporting and Disclosure Practices - Example

Reporting and Disclosure Practices Maryam Al-Attiya ID:200902082 Abrar Al-Malki ID:200913002 Dr: Ahmed Mohammad International Accounting L52 Reporting and Disclosure Reporting disclosure is one of the IFRS principles that state that each firm is required to present information for certain parties or the management. Only adequate and full disclosure of such information will give management the ability to make appropriate decisions. It is, therefore, advised that the accountants disclose too much information than too little. In perspective to the IAS, depending on the nature of the firms, the disclosure of this kind of information should be shown in the financial statements notes. Full disclosure is very important because an auditor uses the notes and other financial documents in doing an audit. In addition full disclosure is also one of the legal requirements. Doha Bank in Qatar Statement of financial position disclosure The Doha Bank has disclosed total assets of $66,854,314, total liabilities of $55,617,384, total equity attributable to shareholders of $2,000,000. The income statement shows a net interest income of $1,821,846, the net free and commission income disclosed is $405,347. The net operating income gathered was $2,517,926 and the profit for the year was $1,308,683. Adjustments of accounting policies disclosure and reporting The bank uses the consistent accounting policies of the previous year but has changed a few things, which follow the IFRS issued by IASB and IFRIC starting in January 2013. The IAS 1 presentation of other broad income changes items such as, the IAS 1 changes the grouping of items in OCI (other comprehensive income) that could be regrouped to be presented in a separate from items that can never be classified more. The adjustment 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 because 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. It involves regular purchases or the sales of financial assets that require delivery within a certain time period. The financial liabilities and assets are measured at the fair value and not through a fair amount of the profit or loss. The way financial items are categorized depends on the purpose of each of the items. Following the changes made, the financial assets can be classified as (HTM) held to maturity, loans and receivables, available for sale and fair value through profit or loss. Investments in associate reporting The Bank stops recognizing a financial asset when the rights of the contract ends or when it transfers to the group. Investments are accounted for by use of equity method and are at first recognized as the cost overall of acquisition or investment. The results of the movements in the equity are shown in the assets. The carrying amount of the investment is adjusted for post-acquisition changes. The losses incurred in subsidiary are also eliminated unless the evidence is given that damage the assets transferring resulting in the loss. The subsidiaries financial statements must be edited to fit that of the accounting policies of the group. The inter-group gains are removed to the level of the group’s interest on those who invest (International Accounting Standards Board, 2007) Foreign exchange transactions reporting The foreign exchange transactions require translations to be made into local domestic currency, and this will be done by the use of exchange rates on the date of the business. The current liabilities and assets need conversion while non-current assets and liabilities are measured at a fair value. First, they need to be translated into functional currency using the rate on the date when the fair value was calculated. For offsetting, financial liabilities and assets are balanced, and the amount is shown on the balance sheet. The group shall do that if it has a legal right otherwise it is unlikely. Available for sale financial assets The Doha Bank defines the available for sale as not original investments that allocated 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 damage cost. The interest income is obtained using the effective interest method in the profit or loss account. The dividend is known after the group becomes authorized to the dividend in the profit or loss accounts. The gains or losses available for sale are contained in the consolidated statement of income. Revenue recognition reporting The total revenue will be recognized to the degree that the economic benefits come into the group, and is a measurement of their success or failure. Interest income and expenses are recorded using effective interest rate after all of them have been added at pay off cost. This amount is the discount of the future payments over the economic life of the financial asset. Exposure to the credit risk disclosure The bank has disclosed the maximum amount of information to the credit risk before checking the security damage that might be faced. The assets were recorded on the statement of financial position. The exposures below are the net carrying amounts as shown 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 traditional banking and the insurance activities. It is clearly published in the traditional banking that it provides a number of products and services to the bank and the corporate customers of those that are funded and those who are not supported by credit facilities. It also performs centralized risk management activities. It does this is through the issue of debts and borrowings. The retail banking provides differentiated credit cards, loans and other transactions to retail customers. Insurance instruments activities disclosure The instrument activities include insurance, offering advice on the investment opportunities and arrangements for investments. The segment profit for the year for the bank was $ 1,312,652. The disclosure of geographical specifies the geographical distribution of the income of groups based on locations where the branch books the business. It is clear that bank of China has full disclosure of its reports and other critical information relevant to the decision-making process of the management and the inspection process. It can be seen that the Doha bank disclosed most of their information in qualitative form without providing proof in quantitative form. In short, the bank emphasized a few disclosures that cannot give a fair and correct view of the banks matters. On the other hand, the Bank of China has clearly disclosed all the information including serious ones such as income statements, statement of financial position and cash flow statements. The Doha bank did not disclose the payment of the creditors in the notes of financial statements. The Bank of China Hong Kong From its annual report of December 2013, the bank disclosed important financial information. The financial statements that were exposed included the financial position, the statement of changes in the equity, statement of cash flows and statement of financial position. Comprehensive income statement disclosure and reporting From the full 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 income for the year was HK$ 49,315,095 which was an increase from HK$ 32,894,016 in 2012. Statement of financial position disclosure and reporting The statement of financial position shows 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 previous year that had total current assets of HK$4,527,003,912. The total net current assets were HK$1,190,694,309 and the total equity for the firm was HK$1,246,112,873. It also disclosed that the individuals responsible for signing the statements were Chu Xiaoming and Guo Chun who were the directors (Laibstain, 2011). The statement of equity changes (appendix 7) shows 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 specifies the cash flow from the operating activities and investing activities, the net increase in the cash and cash equivalents 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 basics 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 exposed was the adjustments of the HKFRS1 for the first time implementation of financial reporting standards, HKFRS 11 which are information appropriate to the disclosure of arrangements. The HKFRS 10 was changed to explain the change direction and give an additional break to the deep application of the principles which limit the need to provide adjusted relative information on only the past related era. The changes that simplify the demo adjustments that is essential only if the consolidation final as to which the group controls articles is different between HKFRS 10 and HKAS27. HKAS 1 adjustments change the item groupings that are presented in the OCI (other comprehensive income). The items are subject to reclassification to show profit or loss I the future. For example, the profit made through net investment hedging or changes in the translation of operations of foreign are presented separately from the items that can never be reclassified. Adjustments like this only amplify the look from outside and therefore, will have no effect on the financial position of the group. HKFRS 9 is the first stage issued in 2009 to replace the HKAS 39 which focused on the recognition and measurement of financial tools. The phase mainly touched on the organization of financial assets. It is noted that this is imbalanced with the earlier principle that required the grouping of financial assets into four categories. The entity will organize the financial assets at pay back cost on the reason of the firm’s business management and cash flows of agreement characteristics of the financial assets. The HKICPA made additions to the HKFRS 9 to address the liabilities and current recognition principles based on the financial tools contained in the HKFRS 9. The fair value option was to demonstrate the change in the fair value of a liability that is linked to the changes in the credit risk obtained from the loss or profit account except if shown not to be true. The bank further specifies the major accounting estimates on the group’s financial statements. It discloses that the group’s financial statements need management judgments, statements and estimates that have an effect on the reporting figures of revenues, liabilities, assets and expenses go together with the depending liabilities. It shows that the expectation of the uncertainty calls for assumptions that are concerned with the future and other estimates at the end of reporting period. Such sayings have notable risks of affecting material adjustments. On impairment of the readily available for sale kind of investments: the group groups specific assets that are available for sale and recognizes the movements in the value of equity. When the fair value of the equity declines, the management takes notice of and uses such decline in the determination of whether there exists a problem that needs to be recognized in the profit or loss statement. Deferred tax assets reporting Delayed taxes are recognized for not used tax losses to the degree that it is possible that profit which is taxed will be presented against which the losses can be exploited. The management is called to make the judgment required to estimated value of delayed tax that should be recognized in the possibility timing and taxable profits of the future with tax planning strategies. The section of operating information: for the purposes of management, the group is divided into units of business based on the five important operating segments. These sections include brokerage business, asset management business, investments, corporate finance business and financing, and loans business. The management checks the results of the separate segments for the purpose of decision-making on 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 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 located 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 was over 10% of the total groups’ income for the year 2013. Revenue disclosure The income and other gains: the analysis of the revenue was $354,045,457 while other increases $3,288,036. 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 complainants before 31st December 2012. In April 2013 and June 2013, the group gathered $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, the profit before tax generated by the group was $3288036 in 2013 which was an increase from $1545518 in 2012. In December 2013, the group had $29094 as the lost contributions from $48998 in 2012 available for reduction of contributions to the retirement benefits at a future date. Directors’ remuneration reporting The directors’ payment was disclosed as per the rules leading the listing of securities on the stock exchange. Independent non-executive directors were $540,000 which was 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 not clear how much was the payment to the directors and other executive members. Again, the company did not reveal the statement of cash flow for the public and other interested parties on how the cash and cash equivalents of the bank. This can raise the vice of frauds being committed. Unlike the Bank of China, the Doha bank did not bother at all to disclose the changes in the equity capital. This is the greatest weakness to the shareholders of Doha bank as they will be incapable of demanding their dividend amounts that is 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. 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. Appendix 1 app Read More