You are an investigator from a regulator, such as ASIC, assigned to research and report on the extent
of compliance or non-compliance of the accounting standards by a high profile international company
to eventually determine whether its financial statements are faithfully represented.
Your research needs to focus on the compliance of accounting standards by the high profile
international company in the context of financial accounting theories, concepts, regulations, practices
and other topics which you have learnt in this unit, such as:
? Accounting theory
? Measurement system
? Financial statements
? Annual report
? Internal controls
? Board of Directors
? Regulatory bodies
? Political issues
? International accounting
And apply them to derive your conclusions and recommendations.
The above list is only illustrative and your case study report is not required to address all the above
mentioned areas. You can include other topics of this unit, as related to the company assigned to you
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Accounting Standards, guidelines and policies are the set of rules and regulations that an organization follows. These are voluntary in case of sole proprietorship and partnership business but it is mandatory as per court of law to prepare and present financial and non-financial performance to various stakeholders. Today we have International Accounting Standard (IAS), US Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standard (IFRS) and various regional accounting standards such as Australian Accounting Standard, Indian Accounting Standard, GAAP Canada etc. These accounting standards are providing a prescribed set of practices that an organization should comply in order to bring consistency, transparency and accuracy in preparation and presentation of accounting statements.
In this report, we are going to see how an organization follows these accounting standards and compliances? For this study, I have taken AMP Limited as the case under study. It is an Australian financial service company thus here IFRS and Australian Accounting Standard (AAS) are applicable. I am playing the role of a member of ASIC to conduct an examination of AMP’s compliance fulfilment.
AMP Limited is one of the oldest financial service company established in 1849 as non-profit life insurance and mutual society organization which later in 1998 demutualised as public limited listed in both Australian and New Zealand Exchange. Today the company operates in 11 countries in 4 continents. The company is engaged in- financial services, retail superannuation, corporate superannuation, self-managed superannuation, insurance, banking and investment management. It has partnership with 55000 Australian companies including 100000 retail banking customers. Overall it manages around 3.8 million customers in Australia and New Zealand. [Ashbaugh, H. (2001)]
A study on compliances followed or not followed by AMP
Methodology- It is a descriptive study which involves a detail study of company reports, statements and other statutory information provided by various accounting regulatory to understand whether AMP has been following various applicable compliances or not.
Accounting Theory- AMP follows a consolidated financial reporting system for the parent company as well as for the subsidiaries under it. The information presented in annual report includes facts and figures of both parent company and its subsidiaries. The company prepares accounting reports and follows the accounting practices as mentioned in- [Crawford, L.,et.al2012]
• Corporation Act.2001
• Australian Accounting Standard as per Australian Accounting Standard Board
• International Financial Reporting Standard as per International Accounting Standards Board.
• Australian and New Zealand Corporate Tax and Income Tax Act.
• Financial Service Council
• Australian Prudential Regulation Authority 1998.
These are the major acts and regulations that AMP follows to fulfil the compliances with law.
Measurement system- The reporting of AMP is done as per the Money measurement concept as the annual report presented in 2017 gives the material facts that can be expressed in terms of monetary value. All the monetary facts and figures are presented in Australian dollar ($AUD) which is rounded to the nearest million dollar unless otherwise stated. As AMP is having subsidiary business thus it is presenting fully consolidated financial statements in the annual report under AMP Group Financial Statement heading. As the company is having branches or association with other regions thus here AMP is applying Reserve Bank Act. 1959 for the foreign exchanges transactions. Here is how the exchange measurement is treated- [Soderstrom, N. S.et.al2007]
Transactions- Date of transaction, Monetary assets and liabilities- Reporting date, Non-monetary assets and liabilities carried at fair value- Date fair value is determined, Income and expenses- Average exchange rate, Assets and liabilities- Reporting date, Equity- Historical date, Reserves- Reporting date. This follows the guidelines of AASB-139.
Financial Statements- AMP follows International Accounting Standard (IAS-1) and Australian Accounting Standards (AASB) 7- Financial Instruments Disclosure, AASB-9-Financial Instruments, AASB-10- Consolidated Financial Statements, AACB-101- presentation of accounting statements and AASB-1039- Concise financial statements. [AASB. (2018)]
Here is the disclosure about its financial statement reporting-
1. The financial reporting is done in general purpose.
2. It follows the above mentioned and other accounting standard and guidelines issued by IFRS and AASB.
3. It presented the translation and transaction effect on financial statements.
4. The financial statement is prepared as per IAS-1- Going Concern basis using historical cost basis. [Bloom, R.,et.al1989]
5. It has applied AASB-13-Fiar Value Measurement concept for assets and liabilities associated with life insurance contracts and investment contracts.
6. AMP has been following assets and liabilities on the face of consolidated financial statement of financial position in decreasing order of liquidity which doesn’t distinguish between current and noncurrent items.
7. The company has provided previous year’s figures where comparison is necessary and to disclose consistency.
Here are the disclosure of financial statements-
• Consolidated Income Statement
• Statement of comprehensive Income Statement
• Consolidated financial position statement
• Statement of changes in equity
• Statement of cash flow- as per IAS 3 (Revised)
• Notes to financial statements
Annual Report- AMP has prepared a consolidated annual report for the parent company and its subsidiaries to present both financial and non-financial performance along with the future events. The report started with the announcement of annual dividend declaration. The report is prepared for the year staring from 1st January, 2017 to 31st December, 2017 presented on 9th February, 2018. The annual report 2017 consists of the following section- [AMP Group (2018)]
1. 5-years financial summary
2. Facts and figures (key performance indicators) for 2017.
3. An overview about AMP business
4. 2017 highlights disclosing the strategies undertaken by the business
5. Future course of action
6. Corporate sustainability reporting
7. Board member detailing
8. Management team detailing
9. A report on Corporate Governance @AMP.
10. Director’s report
11. Remuneration report- Remuneration to directors, CEO and other key personnel.
12. Various consolidated financial statements along with referencing notes
13. Declaration of directors on authenticity and accuracy of annual report
14. Auditor’s report
15. Security holder’s statements disclosing the distribution of share capital with various categories shareholders.
16. Explanation of key terms used for financial statements.
Internal control- AMP has disclosed about the internal control mechanism in its Corporate Governance section. According to the annual report, it is the long term performance, sustainability of AMP performance and culture and addressing interest of all stakeholders are the key approach of AMP business. Here are the following approach for internal control of business-
Risk culture- AMP has taken initiatives to integrate risk awareness into employee decision making. The employees are using risk appetite statement in strategic initiative and reporting to the board.
Inclusion and diversity- AMP is following a diverse workplace culture where gender diversity is given as priority. The aim of 47% at senior executive role and 50% as middle manager role will be held by female by 2020. AMP group is now having 40% female in board. The company accepted that inclusion and diversity target is achieved due to organizational structure realignment and changes in operating model. [Jeanjean, T.,et.al2008]
Life Board Governance- In 2017, AMP introduced a change in decision making process for its life insurance business in Australia and New Zealand. It is the alignment of AMP subsidiary NMLA to AMP Life in matter of decision making where the AMP life board will take decisions now onwards. This change includes concurrent meeting to discuss common area of interest and responsibility and a change in board composition.
Corporate sustainability- The Company is conducting programs like Carbon neutral and the AMP foundation to contribute more than $1 million AUD for community support.
Customer advocacy- To help customers of AMP in complaint process, it has formed a centralised AMP Customer Advocacy forum for accessible, robust and transparent processing of complaints.
Material information disclosure- AMP follows the communication guidelines of ASX and NZX for communicating with its shareholders through e-mail.
Here is the governance structure as provided in annual report-
The company follows a 3 line risk management system where-
Line-1- The management is responsible for identifying, assessing, monitoring and managing material risks in business. They are responsible for day to day decision making and managing risk resulting from board’s risk appetite and strategy.
Line-2- It is the ERM team led by Group Chief Risk Officer for designing, implementing and monitoring the practices and processes to identify, assess, monitor and manage material risk and oversight business decisions.
Line-3- It is the internal audit team provides independent and objective assurance to the board for operational effectiveness of risk management across risk management and control process.
Here is internal control system framework
Megan Beer- Group Executive (GE) Insurance
Sally Bruce- GE AMP bank
Jack Regan- GE Advice New Zealand
Paul Sainsbury-Wealth solutions and Customer care service GE
Saskia Goedhart- Chief Risk Officer
Gordon Lefevre- CFO
Helen Livesey- Public Affair and Chief of staff GE
Craig Ryman- Technology and Operation GE
Brain Salter- Group General Counsel and Fiona Wardlaw- People and Culture GE
These people are also given additional changes in other business functions apart from the above.
Board of Directors- AMP has 10 members board to represent shareholders of the organization and to manage its operations. Catherine Brenner is appointed as independent chairman of the organization. 8 out of the 10 directors of AMP limited are associated with one or other government or community involvement organizations. Apart from that all are also holding directorship position in other profitable organizations including the chairman of the board. Here is the brief about board role in organization apart from representing shareholders-
• Reviewing and approving strategic direction of the company and oversee implementation
• Overseeing and approving corporate governance model
• Approval of risk management framework
• Monitoring performance of management and business
• Approving appointment of CEO and CFO and their remuneration.
• Approving material transaction and capital initiatives.
Board composition- The Company is having the policy of not more than 2 executive directors where the chairman is non-executive and independent. The maximum tenure of a director is 9 years since elected in AGM for the first time.
Board committee- AMP has divided board into 4 committees such as-Audit committee, nomination and governance committee, people and remuneration committee and risk committee.
Currently the board follows both ASX and NZX corporate governance rules. It follows 3rd edition of Corporate Governance Principles and Recommendations offered by ASX Corporate Governance Council.
Additional disclosures – This includes apart from general financial statements, AMP also discloses additional information about the business to its stakeholders which are given below-
AS-17/AASB-114/IFRS-8- Segment reporting- A disclosure about business segment and segment performance
Accounting policy-recognition and measurement- It includes information regarding income tax, GST and other corporate tax charged by Australian and New Zealand govt., investment and life insurance contract taxation, deferred tax and tax consolidation.
Dividend franking credit- The utilization of franking credit account by AMP depends on regulations as mentioned in Corporation Act.2001.
Measurement of financial assets- loan, advances and other receivables are measured at amortised cost. This follows the guidelines of AASB-139-Financial instruments
Amortization- This shows the list of intangible assets that AMP has decided useful life in the following manner- Item Useful life
Capitalised costs- Up to 10 years
Value in-force business – wealth management and distribution businesses- 10 years
Value in-force business – wealth protection and mature business- 20 years
Distribution networks- 3–15 years
Fair value disclosure- This follows IFRS and AASB-13-Fair Value Measurement which is shown for financial assets and liabilities. While this statement also disclosed non measurement of financial assets and liabilities. The valuation is done at 3 levels where level 1 is about fair value as per the quoted price or active market price for the identical instruments, level 2 is about using inputs other than quoted prices as included in level 1 both directly and indirectly and level 3 is estimation of fair value using inputs from assets and liabilities that are not based on observable market data. The company has disclosed assets classification into 3 levels and also described the sources of quoted price or observable market price and valuation technique.
Risk exposure- AMP has divided market risk into 3 categories which are currency risk, interest rate risk and equity price risk. The organization has also disclosed about the risk exposure situation and mitigation and management strategy to reduce such risks.
Sensitivity analysis- AMP also followed sensitivity analysis to quantify risk factor associated with its business. (Basically the above mentioned risk factors) apart from the above 3 risk, it has also conducted 3 other risk factors such as liquidity risk, credit and refinancing risk.
Minimum capital resource disclosure- AMP is following minimum capital disclosure as per APRA guidelines
Life insurance and investment contract- This is applicable as per AASB-1038-Life insurance contract and AASB-4 Insurance contract. The life insurance business of AMP is following section-9 of Life Insurance Act. 1995.
Employee disclosure- This follows Australian Corporation and Disclosure Act. 2011 which includes disclosure of key management personnel, defined benefit plan and shared based payment system.
Lease- This is followed as per IFRS-17 and AASB-16 which is describing the operating lease commitment, non-cancellable operating leases and operating lease payment information.
Provisions- The group recognises provision creation as a legal and constructive obligation exist at balance sheet date. The group does it with estimation of outcomes on judgemental basis under accounting policy of recognition and measurement.
Contingent liabilities- Though organization hasn’t disclosed any specific policy for contingent liability still information are presented according to IAS 37 and AASB 137.
Auditor fees- This follows AASB-101 and 1054 clause for AMB. A consolidated audit fees statement is presented in annual report.
New Accounting Standard Disclosure- From 1st January, 2017 AMP has adopted a number of new accounting standards but none has impacted financial statements in a vast manner. No material impact has been declared by AMP in its annual report.
Here are the list of new accounting standards that have issued but not been effective-
• AASB-15-Revenue from contract with customers- It will be effective from 1st January 2018 for the exchanges of good and services with customers. It will be applicable to life insurance contract.
• AASB-9- Financial instruments- It will be applied for classification and measurement of financial instruments where new expected loss model will be introduced (expected credit loss or ECL) and new hedge accounting.
Auditor’s reporting- AMP has been following the auditing procedures and guidelines as prescribed in Australian Accounting Standard and Corporation Act. 2001. It is the Ernst and Young audit firm that has conducted audit for both parent and subsidiaries of AMB. As per the requirements, auditing has been conducted for all financial statements, notes to accounts, statement of equity and director declaration. The auditor’s opinion is formed under Corporation Act.2001. The auditor has also followed ethical requirements and standards as per Accounting Profession and Ethical Standard Board (APES) 110 code of ethics for professional accountant to conduct audit. Auditor has also declared the audit procedure such as valuation process of life insurance contract, investment contract, investment in financial assets, valuation of intangible assets such as goodwill and others and operation of AMP though its IT system. The whole audit report is prepared and conducted as per Australian Auditing Standard
Remuneration report- The remuneration report is prepared as per section 300A of Corporation Act. 2001. Apart from that the remuneration report has mentioned facts about the change of organization structure and operating model in its 5 year portfolio plan. The report is based on cost management system of the organization. The remuneration system reflects the delivery against improved financial performance and strategic priorities. The remuneration fixation was conducted as per company policy on performance measurement where overall STI outcomes target set was 90%. As per the company policy, fixed remuneration increases in the event of change in role. The CEO remuneration is remained same and it followed the guidelines of Director Remuneration section 300A of Corporation Act. 2001. In 2018, it is going to introduce a new plan called as “New Executive Performance Incentive Plan” which will be based on performance against score card which will be paid partly in cash and majorly in equity shares. The report also mentioned about removal or present STI and LTI plan in 2018
From the annual report no political and international accounting presence are there or unreported. The company has followed more or less each and every standards and guidelines prescribed by various regulatory and authorities. We found that AMP is mostly following International Accounting Standard as prescribed by IFRS, Australian Accounting Standard as prescribed by AASB and Corporation Act.2001. [Farrar, J. H. (2001)] Apart from that the company is following regulations relating to tax, auditing standard, currency exchanges as per Reserve Bank. We have seen that Amp is following a consolidated accounting disclosure for its own and subsidiaries. We also found that it is following the updated accounting standard and guidelines. We also found the organization is having their own rules and regulations which are mentioned in report. Overall, AMP is following requisite compliances as prescribed and also proved by the independent auditor’s statement. However, we can suggest the some more things-
The company can follow the following accounting standards which will help them to make report more clear and transparent-
1. IAS-8- Accounting policies, changes in accounting estimates- This includes presentation of changes in accounting policies introduced by the company which is missing in this report.
2. IAS-10- Event after reporting- This includes publication of future events after preparation of financial statements. There is no such section in annual reporting to introduce key dates.
3. IAS-19-Employee benefits- remuneration of employees and disclosure about employee stakes in the company is not enough, AMP should present future benefits of employees in this reporting under this section.
4. IAS-33- Earning per share- Apart from disclosing it in financial statements, a separate statement must be prepared to show EPS basic and diluted and effect on translation and transaction on it. [Carmona, S.et.al2008]
Apart from accounting standard, it has not included any hedging guidelines such as Foreign Exchange Act, Banking Regulation Act, and other financial services act which can be disclosed in future reports.
AASB. (2018, January 01). www.aasb.gov.au. Retrieved from http://www.aasb.gov.au/Pronouncements/Current-standards.aspx
AMP Group . (2018, February 09). corporate.amp.com.au. Retrieved from https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017%20annual%20report%2020%20March%
IFRS. (2018, April 24). www.iasplus.com. Retrieved from https://www.iasplus.com/en/standards/ias
Crawford, L., Crawford, L., Extance, H., Helliar, C., & Power, D. (2012). Operating segments: The usefulness of IFRS 8. ICAS.
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