ACFI3001 Accounting Theory | Commonwealth Bank of Australia

This assignment covers the in-depth theoretical concepts with some practical accounting task application based on the topics from the subject.

This assignment requires a consideration of accounting theory concepts with critical analysis with application to General Purpose Financial Reporting by corporations. Students are required to prepare a comprehensive report directed to Commonwealth Bank detailing a critical analysis of the effectiveness of the corporation to meet the obligations of the conceptual framework of accounting.

1. Provide a critical analysis of the annual report of the corporation. Consideration of the adherence to AASB, true and fair, conceptual framework, corporations law etc should be considered.

2. Provide a comparison with other corporations listed on the ASX and how well you think your corporation has performed.

3. In summary, please consider if you were given $10,000 whether based on your company and it's annual report information provided whether you would be likely to invest in your company. Construct your summary to support your conclusion.

Answers:

Introduction

General purpose financial statement is the report that is issued for the financial years to provide understanding for the investors along with the creditors in the process of decision making. Accounting theory is the set of framework and assumption that has been performed to understand the decision-making process in the financial statement. To understand the concept and the process the organisation Commonwealth Bank of Australia is being selected. The primary purpose of the paper is to critically analyse the annual report of the bank and provide effective discussion on the operational activity of the bank.

Organisation overview

Commonwealth Bank of Australia is the multinational bank which has business across the worldwide. The bank provides various financial services, then funds management, broking service and also superannuation for the common people. It was founded in the year 1911 as the government bank and later on 1991 it was considered as the public company. In the present time, the bank is having more than 1200 branches and 4300 ATM in the area served by the company. The bank is having almost 49000 numbers of employees where 44% of executive managers are women (Commbank.com.au, 2018). The net profit of the bank after tax is around 9233 million dollar on the cash basis. In the year 2017, the bank has earned the income of around 26 billion dollars. The vision of the firm is to outshine at safeguarding and increasing the financial welfare of the customers. The organisation maintains their value which is integrity, accountability, collaboration, excellence and service for the customers (Ahmed, and Ndayisaba, 2016). The primary strategy of the firm is to provide an effective focus on their consumers and for that, they invest in four capabilities which are people, technology, productivity and the financial strength of the firm.

General purpose financial reporting analysis of CBA

Commonwealth Bank of Australia is one of the four biggest banks in the country and their primary purpose is to provide the outstanding financial service to the customers. The annual report of the company clearly shows that they are performing services to become a simple and better bank for the consumers (Liu, 2015). It is the primary strategy of the bank where they focus to deliver the balanced as well as a sustainable outcome for the community and also for the consumers. In the following year, they have performed numerous industry, regulatory as well as legal review. The Australian Accounting Standard Board provides the international financial reporting standard which allows the firm to provide their annual report (Bean, and Irvine, 2015). Furthermore, in this year Australian Prudential Regulation Authority have performed the independent inquiry in the bank and in their final report it can be seen that the organisation is facing shortcomings in their culture, governance as well as the accountability. This report clearly provides the view that the organisation needs to be improved in the five key areas and they are accountability, capability, governance, culture and customers. The regulatory authority has also applied capital adjustment on the firm.

The organisation with the changing world is also transforming their activity and it gets involved in their primary strategy. For instance, it is clear from the annual report of the firm that they want to simplify their business and provide the best in the digital era. In Australia Corporation Act is the principal legislation for the companies (Schlagwein, Thorogood, and Willcocks, 2014). It is utilized in the country to regulate the matters like the formation and operation of the firm, then the duty of the officers, fundraising along with the takeovers. The organisation is having the effective value regarding the group profit that has been performed under the Corporation Act 2001 along with the AASB. The executive statutory remuneration disclosure also provides the view that the year 2018 was much improved as compared to that of 2017 (Commbank.com.au, 2018). Commonwealth bank for the year has performed the re-segmentation where the expense is performed in the most effective way. Furthermore, it can be seen that the bank has faced the IFRS decision where the entity cannot assume the carrying value of the intangible assets. The primary impact of the change is directly on the opening of the retained earnings of around 56 million dollars. 

The bank is having the most effective and the vital working function for the development of trust and reputation in the market. This is due to the facts that in the recent years they have been involved in various scam and issues regarding their financial operation and their value within the market. In the operational activity of CBA, they provide a huge focus on the development and engagement of their staff members within the firm (Sethi, Martell, and Demir, 2017). This is highly effective for the improvement of the value of the customers. The corporation act helps the firm to maintain their position within the market where they can provide digital facilities to the customers and another secure medium. The investment in the privacy, as well as the cyber security, has been also performed within the bank to provide the safe transaction for the customers (Williams, 2016). The most effective Chabot of Commonwealth bank is Ceba and it is available for 24/7 with the help of NetBank along with the mobile application of CommBank. This application helps the customers to get a solution for their numerous issues and most of the time it also transfer them to the humanitarian assistance for providing an effective solution.

The new strategy of the firm helps them to achieve the cost outcomes with the help of the simple operating model, then the innovation in automation and digitization within the firm. The new strategy of automation allows the firm to enhance their productivity as well as greater flexibility (Carnegie, 2016). Consequently, it is also clear that the organisation perform sustainability in their work and their operational field. Transaction and the accounting period concept of the accounting theory clearly show that Commonwealth Bank is having the highly effective operational function within the market. They are in the process of creating the transparency in the entire transaction and the accounting method where they have the ability to gain the trust of the customers (Worthington, 2016). It is the general fact that to achieve the trust of the customers the bank needs to make their security and their transaction visible to the consumers. It will help the firm to operate their financial activity and their service in the field with the help of valuable reporting process. The sustainability goal of the organisation is to provide valuable service to the customers, community, people as well as the shareholders of the firm. For the better customers’ outcome, the bank always prefers for listening to the feedback from their consumers.

Comparison with other ASX listed corporations

In Australia, there are 4 big banks in which are listed on the ASX corporations. Excluding CBA the other banks are National Australia Bank Limited, Westpac banking corporation, and New Zealand banking group (Chan, Watson, and Woodliff, 2014). In comparison with the CBA other banks have low market capitalization. For instance, it can be seen that in the year 2017 the market capitalization of CBA was 139.216 billion dollar whereas, for Westpac, it was 106.821 billion dollar, for ANZ it was 83.599 billion dollar and for NAB it was 79.465 billion dollar. All the four big banks in Australia are considered to be the best in their respective way (Buckby, Gallery, and Ma, 2015). All the banks try to provide the most outstanding security service to the customers in their area served. The CBA is having the largest ATM network and also the largest bank according to the market capitalization. Whereas, NAB is the only bank in this four big bank which does not charge any fees for the keeping of monthly account. Westpac is having the largest ATM network all over the world and ANZ is the only the bank in big four that supports the Apple Pay (Dagwell, Wines, and Lambert, 2015). Bank directly works for the customers and their primary priority is to provide the superior quality of service to their customers. Customers can get this bank on phone and also on live chat but the timing and the process are quite different as compared to one another.

It can be seen that all the four big banks are available for the customer service but their timing might be different. For example; CAB is available for 24/7, NAB is available on weekdays from 8 AM to 7 PM and on weekends they are available from 9 am to 6 pm, then Westpac is available from 8 am to 8 pm for the entire week and also ANZ is available from 7 am to 10 pm. The interest rate provided by the saving accounts of the big four bank generally differs from 0.1 to 0.5% (Sam, and Tiong, 2015). It can be seen that CAB and Westpac provide 2.51% whereas, NAB provides 2.50%b and ANZ provides 2.55%. The accounting condition of the banks is also different as it can be seen that CAB and ANZ provide reverting after the first 3 months. For Westpac, the reverting is performed after the first 5 months and NAB makes no withdrawal where at least one deposition in a month is required (Chariri, 2017). All the four big banks are listed on the ASX Corporation but their working function and their activity are different and for this, it creates a huge collision with the banking system in the country. The banks provide their effector to improve the accounting process and the transaction method within the country where customers can safely maintain their activity. The big four banks have a common application in the banking system where they are all associated with the financial issue in the recent years. These are the big bank of Australia which provides valuable service to the customers regarding the transaction and other activity in the banking sector.

Performance of CBA

Commonwealth Bank of Australia as compared to the other bank in ASX corporations list can be depicted to have the outstanding performance level. The accounting process and the development of transparency in the banking operation have created a greater value of the ban on their customers. The annual report and also the working function of CBA show that they are in the way to perform numerous actions in the field and deliver the best result to the customers (Cummings, and Durrani, 2016). The performance level of the bank is upgrading with their new strategy to make the banking simple and better for the consumers. It can be depicted from the comparison and the annual report of the bank that they have the highest market capitalization in the banking sector and also they provide robust service to their consumers. The leading mobile application of CBA allow the customers to get cardless cash, then the facility of tap and pay and also the facility of one swipe simple balance. Commonwealth Bank has also achieved the title of banking website of the year 2014 where they provide the easy as well as convenient banking service to the consumers regarding online banking (Lodhia, 2015). If the performance of CBA for the year 2018 is being compared with 2017 then the level has been decreased due to the challenges and the issue faced by the bank. But the performance level of CBA with a comparison to other ASX listed bank is quite developed and effective for the customers.

Investment in CBA

The organisation is developing their business process and their banking function which makes them the most effective banking system within the country. It can be seen from the annual report and other facts that security and the transparency in the accounting process is the vital aspect for the firm. It shows the development and operational service of the bank that is being provided by CBA within the country (Carnegie, and O’Connell, 2014). Investing in the Commonwealth Bank of Australia will help to develop the process and the working function within the market. The annual report clearly shows that the bank leads in the retail as well as commercial banking sector and for that investing in this bank would create a positive impact on the customers. Transparency in the accounting process and the broking service within the field allow the stakeholders to perform their activity in the field (Salim, Arjomandi, and Seufert, 2016). The bank is performing well in the market as compared to other banks in Australia where it can be seen that the market capitalization is high and for that, the investing in this bank will provide high success for the customers. The bank also provides the largest ATM service as well as the customer service for 24/7 which effectively help the investors to manage their business process in the market.

Recommendations

Bank faces some of the huge financial challenges in the recent years and for that, it is highly recommended that they need to improve the governance as well as the accountability of the firm. Furthermore, it is suggested that the bank needs to empower their customers and their staff members in developing working function within the market. The changes in the regulatory function and the financial activity allow the bank to provide the upgraded system within the market. It is also recommended that Commonwealth Bank needs to maintain their strategy and the digital banking system to enhance the operational function of the firm.

Conclusion

It is eventually concluded from the paper that Commonwealth Bank of Australia is one of the best and the effective operational bank in the country. It is also evaluated in the annual report and the business process that the bank has faced some of the issues in their operational activity but they have held the valuable position within the market. Moreover, it is also valued that the bank is having the topmost market capitalization in the term of the banking sector in Australia that helps to enhance the working function.

References

Ahmed, A.D. and Ndayisaba, G.A., 2016. Effect of corporate governance on CEO pay-risk taking association: empirical evidence from Australian financial institutions. The Journal of Developing Areas, 50(4), pp.309-344.

Bean, A. and Irvine, H., 2015. Derivatives disclosure in corporate annual reports: bank analysts' perceptions of usefulness. Accounting and Business Research, 45(5), pp.602-619.

Buckby, S., Gallery, G. and Ma, J., 2015. An analysis of risk management disclosures: Australian evidence. Managerial Auditing Journal, 30(8/9), pp.812-869.

Carnegie, G.D. and O’Connell, B.T., 2014. A longitudinal study of the interplay of corporate collapse, accounting failure and governance change in Australia: Early 1890s to early 2000s. Critical Perspectives on Accounting, 25(6), pp.446-468.

Carnegie, G.D., 2016. The accounting professional project and bank failures: The case of the early 1890s Australian banking crisis. Journal of Management History, 22(4), pp.389-412.

Chan, M.C., Watson, J. and Woodliff, D., 2014. Corporate governance quality and CSR disclosures. Journal of Business Ethics, 125(1), pp.59-73.

Chariri, A., 2017. Financial reporting practice as a ritual: understanding accounting within an institutional framework. JURNAL NASIONAL, 14(01), pp.107-135.

Commbank.com.au, 2018. Annual Report. [online] Available at: https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/results/fy18/cba-annual-report-2018.pdf [Accessed 20 Aug. 2018].

Cummings, J.R. and Durrani, K.J., 2016. Effect of the Basel Accord capital requirements on the loan-loss provisioning practices of Australian banks. Journal of Banking & Finance, 67, pp.23-36.

Dagwell, R., Wines, G. and Lambert, C., 2015. Corporate accounting in Australia. Pearson Higher Education AU.

Liu, S., 2015. NAB vs ANZ vs Westpac vs CommBank | Australian bank comparison | finder.com.au. [online] finder.com.au. Available at: https://www.finder.com.au/savings-accounts/big-four-banks [Accessed 20 Aug. 2018].

Lodhia, S., 2015. Exploring the transition to integrated reporting through a practice lens: an Australian customer owned bank perspective. Journal of Business Ethics, 129(3), pp.585-598.

Salim, R., Arjomandi, A. and Seufert, J.H., 2016. Does corporate governance affect Australian banks' performance?. Journal of International Financial Markets, Institutions and Money, 43, pp.113-125.

Sam, C.Y. and Tiong, P.N., 2015. An investigation of the corporate responsibility report assurance statements of the Big Four banks in Australia. Journal of Economics Library, 2(1), pp.3-14.

Schlagwein, D., Thorogood, A. and Willcocks, L.P., 2014. How Commonwealth Bank of Australia Gained Benefits Using a Standards-Based, Multi-Provider Cloud Model. MIS Quarterly Executive, 13(4).

Sethi, S.P., Martell, T.F. and Demir, M., 2017. An evaluation of the quality of corporate social responsibility reports by some of the world’s largest financial institutions. Journal of Business Ethics, 140(4), pp.787-805.

Williams, B., 2016. The impact of non-interest income on bank risk in Australia. Journal of Banking & Finance, 73, pp.16-37.

Worthington, A.C., 2016. Financial literacy and financial literacy programmes in Australia. In Financial Literacy and the Limits of Financial Decision-Making (pp. 281-301). Palgrave Macmillan, Cham.