Financial Reporting Disclosure in Australian Corporate Sector

Name of Student

Institution

Financial Reporting Disclosure in Australian Corporate Sector

Introduction

Within Corporate sectors and some small and medium enterprises, financial statements and reports for documentary purposes which they consolidate to track and evaluate how much finances in respect to profits or losses the investment operations are making. The purpose of financial reports is to pass on this information to the stakeholders and the investors of the company (Deegan 2010). Thus, financial statements and reports is component of the critical contract between the external investors and the business because they have the right to be informed and to know if the fiscal investment is being spent shrewdly and at a significant return. The objective of this assignment is to develop a report based on two chosen corporate Australian groups. The report entails evaluating the yearly reports of the identified corporate groups focusing on their accounting practices and operational management.

The two companies being analyzed are Endeavour International Inc and Firefax Media Limited. The subsidiaries of Endeavor International are 8, while Firefax has five subsidiaries and it’s the major player in the media industry.

The goodwill methods:

Both the two companies have deployed business combination as a method of goodwill. In this case, the transactions and proceedings in which two or more subsidiaries or entities of an organization group are assigned to a common control as one accounting body. The accounting practices are observed by both companies for their investment amalgamation, regardless of whether equity assets or other resources are acquired (Deegan 2010). The regulation for the attainment of a controlled entity entails incurred liabilities; relocate assets and the equity interest offered.

For both Endeavor International and Fairfax, the goodwill reflects the surplus of cost of acquisition beyond the logical price of the share of the Group for the ultimate reasonable assets of the purchased entity at the acquisition time. Hence, the two corporate groups integrate goodwill on the acquisition of subsidiaries in indefinable assets. In view of the goodwill linked to the associates, it’s incorporated in business in associates. It is stretched to the reportage section for the purposes of impairment testing. For example, the investment impairment in associate for Fairfax group is $ (1,060) million while for Endeavor International Plc the sum is $98.8 million. Fairfax didn’t have a significant investment in acquisitions or associates for the financial year because it reflected nil figures in its financial consolidated statement.

Endeavor International on its side recorded some significant acquisition of the topical financial year, the Group managed to end the fiscal year with $2.1M investment from the intangible assets. Thus, the goodwill is rather retained to harm assessment in yearly basis as oppose to paying it off. This assessment could also be carried out more routinely when the variations is in scenario that is indicating some signals of impairment, and can be handled at a cost less accrued losses in damage.

It is also imperative to emphasize that, losses or additions towards the clearance of entity comprises of the haulage amount of goodwill subjected to the disposed entity.

On the grounds of impairment evaluation, assets are huddled on the lowest points where there are detached specific cash flows which are mainly independent of the cash inflows from the rest of assets. In assessing the in use value, the projected cash flows are discounted to the present value by way of post tax positioned down rate so as to reflect the present market approximations.

These companies assess at the end of every fiscal year period whether there is determined substantiation that a fiscal assets are damaged or not. As a result the Endeavor International and Fairfax, there fiscal asset is impaired and the relevant losses are sustained subject to injury indication (Endeavor International Plc 2010 financial report).

Impairment being the outcome of supplementary events which transpired after the initial recognition of the assets; that the loss events influence the projected position cash flows of the monetary assets which can be constantly anticipated. In respect to the equity investment grouped as available for sale, a protracted or considerable fall in the fair value a security below its cost is considered to the pointer of which the assets are impaired.

Concerning the acquisition by acquisition framework, the Endeavor International differentiates any non controlling interest (NCI) in the acquisition at costs reasonable or at the NCIs’ share balanced of the entity’s net limited assets. The addition of the deliberation transferred, the amount of any NCI in the subsidiary and the fair price tagged on the acquisition date of any pre equity venture in the subsidiary beyond the reasonable cost of the Endeavor’s share’s of the net tangible assets bought is indicated as goodwill in the fiscal statement. For example in the consolidated financial statement, Endeavor group reflected $12.5M in NCI. This result is the amount of Endeavor’s generated equity and sustained income of $10M and $2.5M respectively which is desirable compared to the performance of the previous year.

As Deegan (2010) puts it, when the amounts are under the reasonable value of the definitive tangible assets of the entity acquired and the level of all sums have been evaluated, the variation is recognized openly in the profit or loss as price cut on the investment consortium. In situation where any component of cash deliberation is in arrears, the sums that are supposed to be paid in the future are discounted to their present cost at the acquisition date.

Similar trend is also evident at the Fairfax Group whereby the deliberation is arrived at through acquisition by acquisition framework and they recorded $2,082M. The impairment losses were receptively nil figured of which is a desirable scenario for the Fairfax group. Nonetheless, this simply came to be true not very long ago since under the earlier guiding standards, the NCI was at every time recognized at its share of the entity’s sum assets. The fiscal year balance stood at $1,833M which indicates that no substantial acquisitions or investments were realized within that specific financial year.

By critically assessing the financial statements and the whole annual reports of the two groups, it is correct that they were prepared with keen compliance to the Australian Accounting Standard Boards, AASB 3 and the AASB 27 (AASB3 and AASB 127). This is true since at the preliminary sections of the financial statements there is a clear indication that the company directors issued a declaration that the financial statements have been done in accordance to the stated regulatory accounting standards. In view of the AASB 127, did not consider the accounting systems for investment amalgamations and their effects on consolidation, also the goodwill cropping up from investment grouping. The principle requires that the mother company will deliver the consolidated financial reports in which it combines or merges its investment in entities or associates in accordance with the AASB 127 standards. According to the financial reports of the two companies, they have entirely consolidated their financial operations of the entities under one fiscal statement for the given financial year (AASB3 and AASB 127).

AASB 3 checks the acquisition modality where every event or transaction is an investment transaction, and for every case the appropriate subsidiary is to account for each within their fiscal reports. All the subsidiaries are also projected to apply acquisition procedure in to account for each investment amalgamation. In the financial statements delivered by the two companies, it is mostly indicated that all the activities or transactions of the mother with the entities were investment combination.

The two corporate groups have shown that every entity makes their individual financial statements prior to the consolidation. Nonetheless, certain disparities were observed from these disclosures. For example the Endeavor International Plc in their disclosure highlighted the other segments of investment in their operations; wearers Fairfax did disclose a consolidated statement which is general. When comparing the 2 financial consolidated statements, it appears that Fairfax group didn’t conduct meaningful investment or acquisition in other entities and associates in comparison to Endeavor International which did disclose significant investment and acquisition is associates.

References

Deegan, C. (2010). Australian financial accounting/Craig Deegan,6th ed, Australia: McGraw-hill.

Fairfax Media Limited Annual Report 31st December 2010, Retrieved from : HYPERLINK “http://www.fxj.com.au/shareholders/AnnualReport_FXJ_100921.pdf” http://www.fxj.com.au/shareholders/AnnualReport_FXJ_100921.pdf

Endeavor International Plc. Group Annual Report 30th June 2011, retrived from:

APPENDIX:

  Jun-10 Jun-09

(i) Carrying amount of investment in associates  $M  $M

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.

(A) Asset revaluation reserve  $M  $M

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 Endeavor International Inc. consolidated financial statement.

27 NCI 2011 2010

Interest in:  $M  $M

Contributed equity 10 8.2

Retained earnings 2.5 2.8

Total 12.5 11

From Endeavor International Consolidated financial statement, Non Consolidated Interest: