The question is very important from financial accounting of view as it is one of the fundamental aspect of business on account of its strategic importance in understanding the true and transparent position of the company. Any error of non-reporting can hide material facts and may lead to wrong understanding of the financial position of the company. The said statement is used by multiple user with multiple vested interest including shareholders, creditors, investors, government, buyers etc. The report includes details of past, present and it set pace for the future course of actions (Accounting Edu.org, n.d.) in a standardised manner which if unregulated can present a false and incorrect information that can impact million of users.
The second point in favour of regulation and standardisation of financial statement of comparability of companies in same sector through similar type of reporting which if unregulated shall lead to different presentation and comparability of companies shall become difficult.
The third point that shall be considered is if the reporting is left at the discretion of the management, the financial shall be cooked up and shall represent only those aspects of the company which it wants its user to look and shall not represent true and fair view of the company.
Further, in the financial statement directors not only present the financial statement to the outside people but also appoint an independent auditor to express opinion on the financial statement and state whether the financial statement reflects a true and fair view and are free from any material misstatements.
Though there are various points in favour to continue the regulation as the same prevents any scam like Enron etc.
The Australian Accounting Standard Board is an agency which is controlled and monitored by the government of Australia. The Board has a reporting obligation to the parliament of Australia. On the other hand International Accounting Standard Board (IASB) is an independent organisation privately managed and controlled and is located in London. The Australian board contributes to International Accounting standard board under various ways including the following
The flow cooperation has been detailed here-in-below:
The members have not been compelled to comply with IFRS on account of following reasons:-
The Chosen Companies for analysing under part B of the report belongs to pharmaceuticals and Medical industry and are listed on Australian Stock Exchange. The name of the companies that have been chosen for analysis has been detailed here-in-below:-
Actinogen Medical limited is an entity listed on Australian Stock Exchange and primarily deals with treatment of Alzheimer disease and age related neurodegenerative disease. The company is a clinical stage biotechnological company. ( Reuters.com, 2018)
A detailed breakup of the equity of the company has been extracted from the annual report of the company and the same has been detailed here-in–below:
$ Mio |
|||||
Sl No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Contributed Equity |
26.57 |
26.31 |
26.25 |
7.25 |
2 |
Reserve Shares |
-1.14 |
-1.14 |
-1.14 |
0 |
3 |
Reserves |
7.01 |
6.84 |
6.5 |
4.79 |
4 |
Accumulated Losses |
-23.07 |
-19.89 |
-16.25 |
-10.82 |
5 |
Total Equity |
9.37 |
12.12 |
15.36 |
1.22 |
(Ernst & Young, 2017) (Ernst & Young, 2017)
On perusal of the above table it can be seen that the contributed equity of the company has seen a sharp escalation in the year 2014 to 2015 and the losses of the company has been ever increasing on account of poor performance to the extent wiping out the entire contributed entity. Further, it can also be understood that reserve shares of the company has seen no increase since 2015 as the company has not proposed any buyback since then.
The reserves of the company have been at normal with not much fluctuations. There is no element of minority interest in the consolidation statement of the company in the past 4 years as analysed under the report. Before, analysing further, let us understand the key assumption underlying the analysis:
Further, let us understand the key terms in the equity portion of the balance sheet:
On analysing the contributed equity of the company, the following has been understood that company has incurred significant cost to raise capital in the period 2015. The details of the same has been detailed here-in-below:
Contributed Equity |
|||||
Sl No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Full Ordinary Shares |
28.86 |
28.59 |
28.53 |
8.67 |
2 |
Capital Raising Costs |
-2.28 |
-2.28 |
-2.28 |
-1.43 |
3 |
Total Contributed Equity |
26.58 |
26.31 |
26.25 |
7.24 |
Further, capital raising cost represent expenditure that has been incurred by the company for raising money through issue of ordinary shares.
It can also be observed that company has been making losses for a long time and is ever increasing as presented in the table above. Further, there is no non-controlling interest as displayed in annual report Statement of Financial Position of the company for the past 4 years.
To further understand, let us analyse the reserve portion of the company. The same has been detailed here-in-below:
Reserve |
|||||
Sl. No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Option Reserve |
6.93 |
6.82 |
6.5 |
4.79 |
2 |
Available for Sale Investment Reserve |
0.077 |
0.022 |
||
7.01 |
6.84 |
6.50 |
4.79 |
On perusal of the above, it can be seen that company has only two reserve i.e option and available for sale investment reserve in terms of relevant standards under AASB. The information about these reserves have already been detailed above.
Further, to conclude the analysis of the company debt to equity ratio and capital gearing ratio has been computed. Further, cash and cash equivalent has not been reduced to compute net debt as the company has no debt in its statement of financial position:
Gearing Ratio |
|||||
Sl. No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Debt |
0 |
0 |
0 |
0 |
2 |
Equity |
9.37 |
12.12 |
15.36 |
1.22 |
3 |
Debt Equity Ratio |
0 |
0 |
0 |
0 |
4 |
Gearing Ratio |
0 |
0 |
0 |
0 |
On perusal of the above, it can be seen that company has no debt and thus analysis does not bear any fruits in the said case.
The company is listed on Australian Stock Exchange and is engaged in discovery and development of drug. The company has been using its technology to generate protein therapeutics. (Reuters.com, 2018)
The break of equity as presented in statement of financial position has been detailed here-in-below:
Adalta Limited |
$ Mio |
||||
Sl. No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Issued Capital |
17.56 |
8.15 |
5.49 |
5.49 |
2 |
Reserves |
0.04 |
0.04 |
0.04 |
0.04 |
3 |
Accumulated Losses |
-9.82 |
-6.99 |
-6.701 |
-5.321 |
4 |
Convertible Notes |
1.035 |
|||
5 |
Total Equity |
7.78 |
1.2 |
-0.136 |
0.209 |
(BUTLER SETTINERI (AUDIT) PTY LTD, 2017) (BUTLER SETTINERI (AUDIT) PTY LTD, 2017)
On perusal of the above table, it may be understood that the company losses have been ever increasing on account of poor financial results of the company.
The issued capital of the company has increased significantly twice in 4 years. The detailed breakup of the same has been given here-in-below:
Contributed Equity |
|||||
Sl No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Full Ordinary Shares |
17.56 |
2.49 |
2.49 |
2.49 |
2 |
Fully paid Series A Preference Shares |
3 |
3 |
3 |
|
3 |
Fully paid convertible notes |
2.66 |
|||
4 |
Total Contributed Equity |
17.56 |
8.15 |
5.49 |
5.49 |
On perusal of the above, it can be understood that the increase is on account of conversion of notes and preference shares of the company. Further the company has issued fresh ordinary shares during period 2017.
There is no minority interest as detailed above.
The breakup of reserve has been presented here-in-below:
Reserve |
|||||
Sl. No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Share based payment reserve |
0.04 |
0.04 |
0.04 |
0.04 |
Total |
0.04 |
0.04 |
0.04 |
0.04 |
There has been no change in reserve.
Capital Gearing ratio
Gearing Ratio |
|||||
Sl No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Debt |
0 |
0 |
0 |
0 |
2 |
Equity |
7.78 |
1.2 |
-0.136 |
0.209 |
3 |
Debt Equity Ratio |
0 |
0 |
0 |
0 |
4 |
Gearing Ratio |
0 |
0 |
0 |
0 |
On perusal of the above, it can be understood that the company has not debt accordingly the said analysis does not bear any fruit.
The company is listed on Australian Stock Exchange and is the developer and distributor of pharmaceutical intellectual property. (Reuters.com, 2018)
The changes in equity over the period has been detailed here-in-below:
AFT Pharmaceuticals |
$ Mio |
||||
Sl No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Share Capital |
62.944 |
53.902 |
12.892 |
0.033 |
2 |
Retained Earnings |
-44.025 |
-25.637 |
-10.732 |
3.181 |
3 |
Share Option Reserve |
0.295 |
0.065 |
||
4 |
Cash Flow Hedge Reserve |
-0.305 |
|||
5 |
Foreign Currency Translation Reserve |
0.256 |
-0.1 |
0.166 |
-0.166 |
6 |
Total Equity |
19.47 |
28.23 |
2.021 |
3.048 |
On perusal of the above, it may be seen that the share capital of the company has gone drastic change. The detailed breakup has been provided here-in-below:
Contributed Equity |
|||||
Sl. No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Full Ordinary Shares |
55.994 |
55.994 |
0.033 |
0.041 |
2 |
Capital Raising Costs |
-2.174 |
-2.092 |
-1.035 |
-0.008 |
3 |
Redeemable Preference Shares |
9.124 |
13.894 |
||
4 |
Total Contributed Equity |
62.944 |
53.902 |
12.892 |
0.033 |
The above increase has been on account of issue of shares and conversion of shares by the company over the period.
There is no minority interest in the company. Further, the company has been making losses over the years on account of poor performance which is alignment with the industry. The company has three reserves and the description of all the reserves have already been provided.
Gearing Ratio |
|||||
Sl No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Debt |
23.426 |
23.161 |
20.739 |
13.137 |
2 |
Equity |
19.47 |
28.23 |
2.021 |
3.048 |
3 |
Debt Equity Ratio |
1.20 |
0.82 |
10.26 |
4.31 |
4 |
Gearing Ratio |
0.55 |
0.45 |
0.91 |
0.81 |
The company has debt and the company has reduced the debt equity ratio by increasing equity
Antara Lifesciences Limited
The statement of changes in equity as presented in balance sheet has been presented here-in-below:
Anatara Life Science |
$ Mio |
||||
Sl No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Share Capital |
16.941 |
16.941 |
8.42 |
0.8 |
2 |
Retained Earnings |
-5.369 |
-3.663 |
-2.939 |
|
3 |
Other Reserve |
0.448 |
0.197 |
||
4 |
Total Equity |
12.02 |
13.475 |
5.481 |
0.8 |
On perusal of the above, it may be understood that company has raised capital from the market. The detailed break up of equity is presented here-in-below:
Contributed Equity |
|||||
Sl No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Full Ordinary Shares |
16.942 |
8.421 |
1.971 |
0.8 |
2 |
Capital Raising Costs |
-0.585 |
-0.55 |
||
3 |
Additional Equity raised |
9.106 |
7 |
||
4 |
Total Contributed Equity |
16.942 |
16.942 |
8.421 |
0.8 |
It can also be understood that company has been incurring losses which is in alignment with the industry. Further, the detailed breakup of other reserve is provided here-in-below:
Reserve |
|||||
Sl. No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Share based payment reserve |
0.198 |
|||
2 |
Share based payment expense |
0.251 |
0.242 |
||
3 |
Exercise of Options |
-0.044 |
|||
0.45 |
0.198 |
0.00 |
Further, the analysis of debt to equity has been presented here-in-below:
Gearing Ratio |
|||||
Sl No |
Particulars |
2017 |
2016 |
2015 |
2014 |
1 |
Debt |
23.426 |
0 |
0 |
0 |
2 |
Equity |
12.02 |
13.475 |
5.481 |
0.8 |
3 |
Debt Equity Ratio |
1.95 |
0.00 |
0.00 |
0.00 |
4 |
Gearing Ratio |
0.66 |
0.00 |
0.00 |
0.00 |
On perusal of the above, it can be understood that company has recently issued debt and there was no debt over the past 3 years. The company has done the same on lack of availability of funds through other modes.
References:
Accounting Edu.org, n.d. What is Financial Accounting?. [Online] Available at: https://www.accountingedu.org/what-is-financial-accounting.html[Accessed 21 September 2018].
BUTLER SETTINERI (AUDIT) PTY LTD, 2017. Financial Report 2017. [Online] Available at: https://adalta.com.au/investors/annual-financial-reports/[Accessed 28 September 2018].
Ernst & Young, 2017. Annual Financial statement. [Online] Available at: https://actinogen.com.au/wp-content/uploads/2017/10/20171023-ASX-1729365-Annual-Report-to-Shareholders.pdf[Accessed 28 September 2018].
pwc, 2017. AFT Financial Statement. [Online] Available at: investors.aftpharm.com/…/annual-reports/170524_2017_Financial_Statements.pd[Accessed 28 September 2018].
Reuters.com, 2018. Actinogen Medical Ltd (ACW.AX). [Online] Available at: https://in.reuters.com/finance/stocks/overview/ACW.AX[Accessed 28 September 2018].
Reuters.com, 2018. Adalta Ltd (1AD.AX). [Online] Available at: https://www.reuters.com/finance/stocks/companyProfile/1AD.AX[Accessed 28 September 2018].
Reuters.com, 2018. AFT Pharmaceuticals Ltd (AFT.NZ). [Online] Available at: https://in.reuters.com/finance/stocks/overview/AFT.NZ[Accessed 28 September 2018].
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