Financial Reporting Disclosures in Australian Corporate Sector, Essay Example

AASB Standards

Accounting Standards are crucial in setting a fair and level field for all business operations in any economy. These standards govern act as a guiding tool for all business entities in collection, recording and reporting of all financial activities. They ensure that all activities are executed within the law and that all financial transactions and measures are reported to the relevant authorities as required by the law. Australia is one of the world’s major economies. This is owing to its vast resources, exports and imports that the country manages on a daily basis. In Australia, the Australian Accounting Standards Board (AASB) defines the accepted reporting standards in Australia. This paper will critically look at two parent companies with more than one subsidiary, and analyse how these parent companies their financials. This will employ financial records within the 2013/2014 fiscal year. The selected companies are News Corporation.

AASB 3

The AASB 3 Business Combination covers and is applicable to all combined businesses in which the entities are independent entities, however, one or more of the entities are owned by one. This was implemented on 6^th March 2008 under section 334 in the Corporations Act 20001. This standard is essential in the identification of a combined business and the underlying obligations that both the acquirer and acquire have with regards to financial reporting and valuations.

AASB 10

The AASB 10 Consolidated Financial Statements standard covers and is applicable to all entities that control other entities. This standard is essential in setting the guidelines for financial reporting for such entities where they control one or more other separate entities.

News Corporation

News Corporation is predominantly a media oriented company with numerous subsidiaries that include newspapers, pay-tv distribution, sports programming, digital real estate services, digital education and information services. The parent company is based in Delaware and was originally called NewsCorp LLC when it was formed on December 11, 2012 while it was still under its former parent company, 21^st Century Fox (News Corp). The company’s stock is traded in the NASDAQ under the symbols “NWS” for the class B common stock and “NWSA” for the class A common stock. Their stock is also traded in the Australian Securities Exchange (ASX).

The company’s focus is in the creation and distribution of engaging and authoritative content to its clients, both business entities and individuals alike. The company’s media content is distributed in some of the world’s largest brands in the world. They include, The Herald Sun, The Times, The Wall Street Journal, realestate.com, FOX Sports Australia among many others. The company has also recently ventured into the provision of delivery and assessment services and digital education content. The company’s major sources of revenue include direct sales, licensing fees, recurring subscriptions and circulation copies sponsorships, sale of advertising and affiliate fees. The company manages all its businesses so as to take advantage of underlying technological and practice advantages. Its subsidiaries are Brisbane Broncos, in which it owns 69% of the company and Foxtel, which it owns half (News Corp).

Adherence to AASB 3

Goodwill

The AASB 3 rules require that the acquirer in any given transaction that amounts to a business combination, has to both recognize and measure the goodwill or an equivalent gain that arises from a bargain purchase. This standard has been set into place to ensure that the acquirer has to recognize and compensate goodwill, an intangible asset, which is part and parcel of the acquiree’s business entity.

News Corp has managed to recognize and measure the amount of goodwill that the company stands to benefit from in its subsidiaries. The company’s balance sheet recognizes this, especially after its split from 21^st Century Fox. After the split, News Corp was left with two subsidiaries, namely; Brisbane Broncos and Foxtel. This amounts to a combined business according to the definition provided by the AASB 3. News Corp has identified Goodwill as an asset and placed it in its balance sheet, with the value increasing from $2,588 Million in 2012, before the split, to $2,725 Million as shown in the company’s balance sheet (table 30) (News Corp).

Identifiable Assets

Paragraph 32 of the AASB 3 requires that the acquirer identify and quantify all assets that the acquirer seeks to gain from the purchase of the business from the acquiree. This is paramount in deciding the full value of the physical and tangible assets that are pertinent to the business operations of the company or business being acquired. News Corp manages to adhere to this requirement by identifying all the assets that the company seeks to gain from its departure from 21^stCentury Fox (News Corp).

Assumed Liabilities

The AASB 3 requires that the acquirer identify and measure any and all assumed liabilities upon acquisition. This is vital in detailing the financial obligations of the acquirer on previous financial transactions carried out by the acquiree. News Corp abides by this requirement by identifying and quantifying the liabilities that would be assumed upon separation from 21^st Century Fox.

Leighton Holdings Ltd

This is a diverse corporate entity that has ventured into infrastructure, environmental services, engineering, building and property, telecommunications, mining and resources industries. It is based in St. Leonards and is considered the largest contractor in Australia.

Adherence to AASB 3

Leighton International Limited, a subsidiary of acquired Leighton Welspun Contractors Private Limited (LWIN), one of its Chinese joint ventures on 27^th December 2013. This acquisition from Welspun Infra Projects Private Limited. The company previously had a 39.9% stake in the joint venture but bought all of the stake in the venture, absorbing it as one of Leighton Holding’s subsidiaries (Leighton Holdings Limited). This acquisition was conducted while adhering to the AASB 3 regulations and standards in the following ways;

• It was determined that the compensation to be paid to Welspun for LWIN, would be at $275.9 million. This was based on the following;
• A cash consideration of $110 million
• $165.9 million for the 60.1% interest that the group previously held at fair value on the date of the sale.
• $58.8 million for the identifiable net assets that the group had acquired from LWIN at fair value.
• $217.1 million for goodwill on the acquisition as the fair value was surpassed by the total purchase consideration for LWIN’s identifiable net assets.
• A total loss of $78.3 million on acquisition resulting from the re-measurement of the groups equity interest at fair value together with the reclassification of the business from a joint venture to a combined business.

Adherence to AASB 10

Leighton Holding has managed to adhere to AASB 10 standards in the 28^th June 2013 sale of its 70% stake in TA to OTPP (Ontario Teacher’s Pension Plan) (Leighton Holdings Limited). The company’s sale of its stake followed the control principle where the company derecognized its stake in the form of assets and liabilities by virtue of losing control of TA. Adherence to AASB 10 was achieved in the following ways:

Leighton Holding recognized the receipt of $771.1 million in consideration (Leighton Holdings Limited). This comprised a $614.1 million cash consideration, a 157.0 million non-cash consideration, less $556.1 million (the value of TA’s net assets, giving a total of $215.0 million (Leighton Holdings Limited).

Reporting Practices

Both Leighton Holdings limited and News Corporation appear to have accounting and reporting practices that adhere to the AASB 3 standards. This standard largely applies in the identification of financial obligations in the case where an entity gains control of another company. Both have documented this in detail, adhering to every aspect of the AASB 3 standard.

However, News Corporation has failed to adhere to the AASB 10 standard. The company has failed to adhere to the requirement of non-controlling interest. This requirement states that a parent shall depict interest that is non-controlling when it comes to the consolidated statement of financial position within equity, distinctly from the parent owners’ equity. The company has provided the consolidated financial report with distinctly identifying exact figures for each of its subsidiaries.

In conclusion, both companies adhere to the AASB 3 standards in the purchase and sell of their stake in the subsidiary companies. However, it is also essential that the accounting requirements embodied in AASB 10 standards be observed. I would recommend the change in the accounting principles and practices of News Corp as they seem to be in line with IFRS standards and not AASB 10 standards.

Works Cited

Leighton Holdings Limited. Premliminary Final Report & Management Commentary for the year ended 31 December 2013. St. Leonards: Leighton Holdings Limited, 2014. Print. 24 March 2014. <http://www.leighton.com.au/__data/assets/pdf_file/0003/28443/ASX->.

News Corp. News Corp Form 10-K Annual Report. New York: News Corp, 2014. Print. 24 March 2014. <http://files.shareholder.com/downloads/AMDA-1ZMCJ9/3049973551x0xS1193125-13-373501/1564708/filing.pdf>.