Financial Reporting Policy of Accounting

In this assessment task, you will be required to review a financial reporting policy of an ASX listed public company. The example below is of Sonic Healthcare Limited, an listed Australian company that provides laboratory services, pathology, and radiology services. Please find the Annual Report of this company for Financial Year 2011 in the Moodle Resources Folder.   
 
A. Review the Managing Director’s Report (pages 5 – 35) and Corporate Governance Statement (pages 37-47); 
 
1. Summarise in your own words (1000-1500 words)at least 5 major highlights that the Managing Director has mentioned in his report. Please note they need to be important considering the past or next years operations of the company  2. List and briefly describe all the events notes in both these Statements /Reports which are in compliance with the company’s policies on various matters B. Research and locate AASB Framework: Framework for the Preparation and Presentation of Financial Statements C. Review and summarise reporting requirements as appearing in the Framework (1000-1500 words) 
 
Prepare your answer in a word-processed document, appropriately structured under headings and sub-heading to organise the information. You may attach the relevant pages of standards and legislations as annexures to your document.  

 

Introduction

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Sonic Healthcare Limited is a healthcare company providing solutions like radiology services, laboratory services, and pathology. This company was founded in the year 1987 and was registered in Australia. It is one of the largest diagnostic companies and has its presence in the countries like UK, America, Switzerland, Belgium, etc. As it is the leader in healthcare services in Australia, it is now in the expansion mode in other countries of the world. 
 
A. Review the Managing Director’s Report and Corporate Governance Statement
 
1. Summarise in your own words at least 5 major highlights that the Managing Director has mentioned in his report. Please note they need to be important considering the past or next year’s operations of the company

The five important highlights that the Managing Director has mentioned in his report are as follows:

1.    The company has been able to reap benefits of the investments that it had made for the period of last six years in order to gain access to the Western Europe and USA markets(Rahman, 2016). This benefit is even expected to increase in the next years. 
2.    In the next few years of the company’s operations, the company plans to focus on earning growth and synergy creation in the eight countries where it has been successful in establishing the market(Thomson, 2014).
3.    The year 2011 has been significant for the company as a new five year funding agreement between the industry and government has helped company grow both organically and inorganically(Rayman, 2013). This has led it to be the market leader with 24% more revenue than its competitor.
4.    In the period of last six year the growth of the company has been significant. In the US market the company has become the third largest operator with revenues exceeding US$700 million(Morris, 2017). There is further growth potential which the company expect to explore in future.
5.    Another area which the company expects to focus in the coming years is the UK market. Currently the market share of the company in Germany is less than 10% with intense growth potential. Other UK subsidiaries like Ireland, Switzerland and Belgium will also be the focus area for the coming years.
6.    As the company operates in an industry which is not affected by the ups and downs of the global economy, it has been successful in the past years to grow successfully and also expect this in future.
7.    The company has aims to improve its investments in research areas like genetic testing, preventive medicine, and other diagnostic technologies in the coming years.

 

2. List and briefly describe all the events notes in both these Statements /Reports which are in compliance with the company’s policies on various matters

The events of the company which are in accordance with the company’s policies are as follows:
 
1.    The company’s foundation principle is to become a leader in the area of its operation and the company has been successfully doing so. It is the market leader in the Australian market with significant market share("TRANSLATION OF INNOVATION SYSTEMS INTO INDUSTRIAL POLICY: THE HEALTHCARE SECTOR IN AUSTRALIA", 2001). In US market, the company has achieved the position of being the third largest player. In other markets, the company has made strategic plans to achieve leadership position.
2.    According to the company’s foundation principles, the company aims to provide premium healthcare services to its customers("Focus On Accounting Standards", 1995). This is well justified by the company as it operates through extensive infrastructure capability which include many laboratories, primary care centres, radiology clinics, collection centre, etc. With high end services, it provides relief to 75 million patients in a year.
3.    Another important principle of the company is the enhancement of the shareholders’ value of the company. The company enhances the earnings per share and return on capital invested every year with its successful business. Every year the company also make huge investments in order to boost its performance and remain attractive to shareholders("Adoption of International Accounting Standards", 2008). With the aim to create synergies in the other markets, it aims to improve the investment returns.
4.    As the company has a policy to perform well for its stakeholders and shareholder, it has a rule under which the executive of the company do not get any portion of long term incentive unless the performance of the company lies at least at the median of the benchmark group.
5.    The company works in accordance with its foundation principle of enhancing the value of the employees through meaningful employment opportunities(Zhang, 2007). The company works for overall development of the employees and also reward them for good work. The core value of the company is to provide job satisfaction and create an environment of work which leads to growth.
6.    According to the foundation principles, the company should achieve operational excellence in its field. This operational excellence can be clearly seen in the gross profit margin and net profit margin. By continuously developing technologies to reduce its cost of services, the company has developed operational efficiency.

B. Research and locate AASB Framework: Framework for the Preparation and Presentation of FinancialStatements

According to the Australian Accounting Standards Board, the framework related to preparation and presentation of the financial statements of the company need to be followed by all publically listed company registered in Australia(Gao& Sidhu, 2016). Sonic Healthcare Limited being registered in Australian jurisdiction, also need to follow this frameworks. The various aspects of the company’s annual reports indicate this compliance. Let’s review some of these aspects:
1.    The financial of the company has been prepared on going concern basis. All the items of income statement and balance sheet has been recorded in such a way as the company would continue its operations for the foreseeable future(Shim, Siegel &Shim, 2012). This is in accordance with the framework on preparation and presentation of financial statement.
2.    According to the economic characteristics, all the items of the balance has been grouped. For example under the group current assets, it include items like cash, inventory and other assets which can be easily liquidated(An actuary's guide to compliance with statement of financial accounting standards no. 87, 1987). This is also in accordance with the requirements of the framework.
3.    The sub-classification of the equity has been done appropriately into retained earnings, reserve and surplus, etc. All type of equity shareholders like common shareholders, preferred shareholders, redeemable shareholders, cumulative preference shareholders are reported under this head. This is also in accordance with the framework of AASB.
4.    All the items which meets the definition of an asset, liability and equity has been rightly identified and reported in the balance sheet of the company(Kim &Im, 2017). This is accordance with the standard which requires correct classification and reporting of these items on balance sheet.
5.    All the items which meets the definition of operating income and expenditures have been correctly identified and reported in the income statement in order to calculate the operating profit. This is also in accordance with the standard on presentation of income statement.
6.    All the financial information related to the company which is required by the users to take important investment decisions has been provided by the company through, income statement, balance sheet, remuneration report, director’s report, auditor’s independence declaration, corporate governance statement, notes to financial statements, and consolidated cash flow statement. All these have been prepared and presented according to the requirements of Australian Accounting Standards Board.

C. Review and summarise reporting requirements as appearing in the Framework

The reporting requirements as per the framework of preparation and presentation of the financial statements of the company are as follows:

1.    As per the framework, the assets of a company is recorded at the historical cost and carried at the current costs(AMIR & ZIV, 1997). Similarly with the liabilities of the company which are recorded at the amout which was exchanges as proceeds but carried at its current obligation status.
2.    Financial statement reporting is done with the objective to profit information to the users like analysts, investors, general public, media, etc. Hence its reporting must be simple and understandable in order to comply with the standards criteria. 
3.    The elements of Balance should be classified in Assets, Liabilities and Equity Capital. All the other items should be classified under these headings according the definition of each.
4.    The elements of the income statement of the company should be classified under income and expenditure from operations(Romic, 2013). This method of reporting is to help users to simplify the process of evaluation.
5.    Other reporting documents that is required are Management’s discussion and Analysis. This document helps in understanding the financial reports better as it gives an idea about the accounting policy which is followed("Fundamental of Financial Statement Analysis", 2007). Like for example the method of depreciation which is followed by the company is provided in this statement.
6.    The Australian Accounting Standards require companies to report its financial statements at least end of every year and also quarterly if possible. This is to ensure that general public is aware of the financial status of the company.
7.    All the items which satisfy the requirement of being characterised as an element should be reported in the balance sheet or the income statement according to its nature. This item should be depicted in words and in monetary amount and the accounting policies related to it should also be disclosed.
8.    While reporting the financial statements, the materiality aspect of each item should be analysed and revalued if necessary before reporting. 
9.    The concept of probability is also taken into account while reporting these statements. When there is uncertainty of the future economic benefits, the aspect of probability rises. For example when it is anticipated that a receivable would be paid, it is recorded as accounts receivable in the asset side of the balance sheet(White, 1971).
10.    Income is reported in the income statement and is calculated by taking into account the expenses and income from operations.

References

Rahman, A. (2016). Australian accounting standards review board. [Place of publication not identified]: Routledge.
Morris, R. (2017). Discussion of: The Phoenix Rises: The Australian Accounting Standards Board and IFRS Adoption. Journal Of International Accounting Research, 16(2), 155-157. http://dx.doi.org/10.2308/jiar-10545
TRANSLATION OF INNOVATION SYSTEMS INTO INDUSTRIAL POLICY: THE HEALTHCARE SECTOR IN AUSTRALIA. (2001). Industry And Innovation, 8(3), 291-308. http://dx.doi.org/10.1080/13662710120104592
Adoption of International Accounting Standards. (2008). Australian Accounting Review, 18(3), 173-174. http://dx.doi.org/10.1111/j.1835-2561.2008.0021.x
Kim, J., &Im, C. (2017). Reported Profits And Effective Tax Rate Following Accounting Standards Changes Analysis Of Consolidated Financial Statements And Separate Financial Statements. Journal Of Applied Business Research (JABR), 33(6), 1171. http://dx.doi.org/10.19030/jabr.v33i6.10053
Romic, L. (2013). Presentation of Financial Statements. International Journal Of Economics, Finance And Management Sciences, 1(1), 1. http://dx.doi.org/10.11648/j.ijefm.20130101.11
Fundamental of Financial Statement Analysis. (2007). SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.1588981
Shim, J., Siegel, J., & Shim, J. (2012). Financial accounting. New York: McGraw-Hill.
 Thomson, R. (2014). Assets, liabilities and risks. Orion, 17(0). http://dx.doi.org/10.5784/17-0-188
Focus On Accounting Standards. (1995). Australian Accounting Review, 5(10), 2-2. http://dx.doi.org/10.1111/j.1835-2561.1995.tb00374.x
Gao, R., & Sidhu, B. (2016). Convergence of accounting standards and financial reporting externality: evidence from mandatory IFRS adoption. Accounting & Finance. http://dx.doi.org/10.1111/acfi.12236
AMIR, E., & ZIV, A. (1997). Economic Consequences of Alternative Adoption Rules for New Accounting Standards. Contemporary Accounting Research, 14(3), 543-568. http://dx.doi.org/10.1111/j.1911-3846.1997.tb00540.x
Rayman, R. (2013). Accounting Standards. Hoboken: Taylor and Francis.
Zhang, P. (2007). The Impact of the Public's Expectations of Auditors on Audit Quality and Auditing Standards Compliance. Contemporary Accounting Research, 24(2), 631-654. http://dx.doi.org/10.1506/t776-2658-q417-1110
An actuary's guide to compliance with statement of financial accounting standards no. 87. (1987). Washington, DC.
White, J. (1971). Preparation of the statement of changes in financial position. Fayetteville, Ark.: Bureau of Business and Economic Research.

 

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