Financial Reporting Disclosure in Australian Corporate Sector - Assignment Example

Financial Reporting Disclosure in Australian Corporate Sector Name of Student Institution Financial Reporting Disclosure in Australian Corporate Sector Introduction In the corporate sectors and other small businesses, financial reports are the documentary records they consolidate to track and assess how much money in terms of profit or loss the operations of the business is making. The intention of financial reporting is to convey this information to the investors and the stakeholders of the business. Hence, financial reporting is a part of essential contract between the business and the external investors since they have the right to know if their monetary investment is being spent astutely and at a remarkable return (Deegan, 2010, p. 574). The purpose of this paper is to come up with a report on two selected Australian corporate groups. The report involves analyzing the annual reports of the specified corporate groups based on pertinent management and accounting aspects. The two corporate groups under analysis are Firefax Media limited and Mirvac Group. The subsidiaries of Mirvac group include Mirvac limited, Mirvac property trust. The primary ongoing operations of Mirvac involves of real estate ventures, development, hotel business and investment management (Mirvac Group Annual Report 2011, p. 1). All these are under two divisions namely the Investment and Development divisions. Fairfax on the other hand is the Australia’s giant in the media industry. The group deals with the printing of news, information, promoting sales in dailies, magazines and online hubs, and radio dissemination (Fairfax Media Annual report, 2010, p. 15). Among the subsidiaries of Fairfax are; Independent Newspapers Limited, Fairfax Digital, Australian Radio and many others. Goodwill Methods The goodwill method employed by both firms is that of business combination. Here proceedings or transactions in which two or more entities or subsidiaries of a corporate group are brought under general control as a sole accounting entity (Deegan, 2010, p. 577). The acquirement system of accounting is utilized by both firms to explain for all business amalgamation, irrespective of whether equity resources or other assets are attained. The deliberation relocated for the acquirement of a controlled subsidiary encompasses the fair values of the relocated assets, incurred liabilities and the equity interests offered (Marvic 2011, p.40 and Fairfax Media, 2010, p. 46). For both Fairfax media and Mirvac, goodwill corresponds to the surplus of cost of an acquirement above the reasonable price of the Groups’ share of the ultimate recognizable assets of the purchased subsidiary at the time of acquirement. Therefore, both corporate groups incorporate goodwill on acquirements of entities in indefinable assets. For goodwill related to associates, it is integrated in investments in associates. Goodwill is spread to a reportable division for the intentions of impairment experimentation. For instance impairment of investment in associate $ (1, 060) million for Fairfax media while for Marvic the amount is $ 69.4 million (Marvic 2011, p.72 and Fairfax Media, 2010, p. 71). Fairfax did not have any meaningful investment in associates or acquisitions for the fiscal year as it recorded a zero figure in the consolidated financial statement. Marvic on its part recorded some meaningful acquisition for the said fiscal year; it managed to close the year with a $ 2.1 million investment in intangible assets. Therefore, goodwill is not paid off but rather it is examined for harm every twelve months. This examination may also be done more recurrently if variations in situations point to possibility of impairment, and is this is undertaken at cost minus accrued damage losses (Marvic 2011, p.40 and Fairfax Media, 2010, p. 46). It is also important to note that, additions and losses on the clearance of a subsidiary consist of the haulage sum of goodwill attached to the disposed subsidiary. For the rationale of evaluating impairment, assets are clustered at the lowest points where there are discretely particular cash flows that are mostly autonomous of the inflowing cash from other assets. In evaluating value in use, the anticipated upcoming cash flows are cut-rated to their current value by means of the post-tax marked down rate to mirror existing market estimations. The Groups evaluate at the close of each financial period whether there is purposeful proof that a financial assets are damaged. Therefore, for Fairfax and Marvic groups, a financial asset is blight and the related losses are sustained on condition that there is objective indication of injury (Marvic 2011, p.40 and Fairfax Media, 2010, p. 46). The impairment being the result of more occurrences that took place after the original acknowledgment of the asset and that loss occurrence affects the anticipated outlook cash flows of the financial asset that can be consistently projected. As regards equity investments categorized as accessible for sale, a considerable or protracted drop in the fair value of the security less than its cost is taken to be a pointer that the assets are blight (Marvic Annual Report, 2011, p.40). Regarding acquisition-by-acquisition model, the Marvic Group distinguishes any none controlling interest in the acquiree at reasonable cost or at the NCI’s balanced share of the acquiree’s net exclusive assets. The surplus of the transferred deliberation, the sum of any NCI in the entity and the acquisition-date fair price of any prior equity stake in the entity above the reasonable cost of the Marvic’s share of the net recognizable assets purchased is reported as goodwill in the financial statement (Marvic 2011, p.40). For instance in the consolidated financial statement, Mirvac group reported $ 12.5 million in NCI (Marvic 2011, p.78). This result is the sum of Marvic’s contributed equity and retained earnings of $ 10 and 2.5 respectively which is better than the prior year’s performance. According to Deegan (2010, p. 588), if those amounts are below the reasonable value of the ultimate recognizable assets of the acquired entity and the extent of all amounts has been appraised, the variation is acknowledged straightforwardly in profit or loss as a price cut on business grouping. Where payment of any element of cash deliberation is overdue, the amounts to be paid in the future are cut-rated to their current cost at the date of acquisition. The same scenario is also evident in the Fairfax Media Group where the decision is made on an acquisition by acquisition basis and it recorded $ 2, 082 million (Fairfax Media, 2010, p. 96). Impairment losses were encouragingly zero figured which is a good thing for Fairfax media. However, this only came to be not so long ago because under the prior guiding principle, the non controlling interest was at all times acknowledged at its share of the acquiree's overall assets (Fairfax Media, 2010, p. 46). The balance for the year stood at $1, 833 million which imply that no major investments or acquisitions were made for that particular fiscal period. Therefore, with regards to the issue of goodwill and related aspects, it is evident that both these corporate use identical systems of treatment. Given the fact these two Groups are among Australia’s Major corporate groups, it can be inferred that all the other corporate groups in Australia are governed by some sort of accounting standards regarding the method of calculating and reporting acquisition issues in the yearly financial reporting where most if not all of them are expected to comply with. Conversely, there is no complete compliance with the standards per say as notable differences are evident in the two corporate groups regarding acquisition issues. From a critical evaluation of the financial statements and the entire annual reports of the two Australian corporate groups, it is clear that they have prepared their statement with strict compliance of the Australian Accounting Standard Boards; AASB 3 and the AASB 27. This is because at the preliminary stages of the financial statements the directors gives the assurance that the financial reports have been presented with regards to the mentioned standards among other accounting standards . According to the AASB 127, this standard never focuses on accounting methods for business amalgamations and their implications on consolidation, as well as goodwill coming up from a business grouping. The standard implies that a parent company shall provide consolidated financial statements in which it merges or combines its investments in associates and entities in harmony with the Standard (AASSB 127, p. 11). From the given financial statements, both the corporate groups have exclusively consolidated all financial activities of a number of their subsidiaries under a single financial statement for the given fiscal year. The AASB 3 focuses on the modality of acquisition where each transaction or event is a business transaction or not and for each case the relevant entity is to account for each in their financial reporting. All entities are also expected to apply acquisition method in accounting for each business combination (AASB 3, p. 11). From the financial reports presented by the two corporate groups, it is mostly mentioned that all the transactions or activities of the parent with subsidiaries were business combination. This can be taken as true from face value although there is no clear substantiation to show all the business combinations in the reports. The authenticity of this compliance is ascertained by the independent external auditors. Both the corporate groups have indicated that each subsidiary prepares its own financial statements before they are consolidated into one. However, some differences are noted from these disclosures. For instance, Marvic group in their disclosure specified all the other segments of business in their operation while Fairfax disclosed a general consolidated statement. Comparing the two consolidated financial results, it is evident that Fairfax media did not do meaningful acquisitions or investments in other associates and entities as compared to Marvic which disclosed some considerable acquisitions and investment in associates. However, as regards revenue, Fairfax disclosed huge revenue-$ 2, 490,316- in their consolidated statement as compared to Marvic which disclosed revenue of $ 1769.2 million. This indicates the reason why Marvic group in continuing its acquisition plans in order to match with Fairfax Media References Deegan, C. (2010). Australian financial accounting/Craig Deegan,6th ed, Australia: McGraw-hill. Fairfax Media Limited Annual Report 31st December 2010, Retrieved from : http://www.fxj.com.au/shareholders/AnnualReport_FXJ_100921.pdf Mirvac Group Annual Report 30th June 2011, retrived from: http://groupir.mirvac.com/phoenix.zhtml?c=144019&p=irol-reportsannual11   Jun-10 Jun-09 (i) Carrying amount of investment in associates     Balance at the beginning of the financial year 14, 819 14,764 Investments in associates acquired during the year 0 477 Adjustment for foreign exchange revaluation 8 20 Share of associates' net profit/(loss) after income tax expense 685 55 Dividends received/receivable from associates -350 -387 Impairment of investment in associate 1060 0 From Fairfax consolidated Financial statement Intangible Assets p. 71 (A) Asset revaluation reserve     Balance at beginning of the financial year 32 801 Revaluation of available for sale investments 2082 1358 Impairment losses transferred to net profit 0 2191 Tax effect on available for sale investments 281 0 Balance at end of the financial year 1833 32 From Fairfax consolidated financial statement, NCI p. 96 2011   Management rights — indefinite life 32 Goodwill 69.4 Other intangible assets 2.1 Balance 30 June 2011 74.4 2010   Management rights — indefinite life 10.5 Goodwill 44.4 Balance 30 June 2010 3 54.9 From Mirvac Consolidated financial statement, Intangible assets p. 72 27 NCI 2011 2010 Interest in:     Contributed equity 10 8.2 Retained earnings 2.5 2.8 Total 12.5 11 From Mirvac Consolidated financial statement, NCI. p. 78 Read More