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Lecture 13

Deloitte: Consolidation a real life perspective

AASB10:

– Consolidation is based on control

– Control may be obtained in various manners, and not solely as a result of

the power to direct the financial and operating policies

– Exposure to risk/rewards is one the factors necessary in order to control,

but it is never the determining factor – AASB10 requires extensive use of

judgement (AASB12 requires disclosure of areas of judgement)

Why consolidation?

– Accounting is all about giving a true and fair view of the current situation

The issues facing consolidation accounting

– Changing accounting standards

– Accounting systems

– Timeliness of results

– Segment performance may not be fully disclosed

– Completeness of information

– The accounting standards have adapted to mitigate these flaws in the

concept through increased disclosures

Overview of the ideas and issues raised by Deloitte

– what Deloitte said was they don’t share that information because

shareholders are not interested in it. Matt doesn’t agree with this because

this kind of information may still be used by the CODM and therefore

should be disclosing this kind of information

– maybe there are some separate levels of financial information – the CODM

may only just use the summarised version

➢ value of segment reporting – very much from the perspective of

shareholders – pool that they are investing in – therefore the pool they

are interested in – segment reporting – shows how that pool has been

utilised – while matt considers segment reporting to be the disclosure of

necessary information to go through the risks associated with the

investments/projects of the company

➢ Consolidation is important because shareholders want to know

everything. However matt argues that its not everything because the

information is so aggregated

➢ AASB10 do we have the current ability to direct? Deloitte’s judgement

(Sarah) stated given past attendance at AGM – this doesn’t tell us a lot –

what attendance might be like this year (as opposed to last year) – at least

I would use qualifying language – we have some strong evidence – not

outrightedly stating it.

➢ Drawing into the essay in the final exam – as we know for Woolworths

there are not a lot inter-company transactions and so how does that add

to our argument? Whether the issue of eliminating intra-group

transactions is a problem or a good thing?

➢ Comment that Will made – consolidation doesn’t tell us the performance

in regards to the subsidiary – however these days in presentations to

shareholders – management commonly give the information to

shareholders about individual subsidiaries – more forthrights – hwoever

matt questions – why are you doing it in a separate form of

communication -= why is this not included in the annual report

o People in practice not just talking to shareholders- also to

creditors

o Key argument – don’t worry creditors because cross-guarantees

▪ Perculiar mechanism in Australia – hwoever not always

perfect Patricks example – some of the subsidiaries were

excluded from the cross guarantee – look at this note in

Qantas – attempts to describe the state of the cross

guarantee note – check this e.g. imagine if you are a creditor

from Jetstar cross guarantee – looking at this will this

convince you?

➢ Power – if you are a little creditor – trying to operate with a subsidiary in

a large group – power is a key issue – do you have the power to ask?

Do the standard setters bear in mind the feasibility of these accounting

standards and then having to audit them? Yes they do, meaningful dissection of

everything that comes into the annual report – as everything consolidates up

into segment notes and statements

– however key issue is that we don’t give these dissections to the users –

the consolidation worksheet is the full dissection – should we also

supplement our annual reports by providing the full consolidation

worksheets? Information overload may be a main issue as Will from

Deloitte mentions in his presentation

You are investing in the entire group – so we should show you the groups –

hwoever as a shareholder we are only investing in the parent entity (as matthew

dispute) the parent is then investing into a bunch of other subsidiaries. You are

not investing into a group – but a legal entity

True and Fair view

– An accurate reflection of reality; performance and position

– Providing information that leads to the right decisions

– Equal utility to all users

Exam hints: one of the essay style questions on the exam will raise the issue of

true and fair and will be in regards to the alignment of one of the accounting

methods – more based on your perspective

Matt thinks true and fair needs a true reflection of the performance and position

of the company – I want a clear explaination of a poor or good performance – we

want leading information not misleading information – as a shareholder I want

to get out because this group may be dangerous and there are big risks within it

– if this decision is the best decision to make I should know – im going to decide

to get out quickly – another idea is ‘fair’ I know the conceptual frameowkr states

that no user group is better than any other user group – its very hard to justify

that all this information provided reflects this.

The big picture of a third year unit

– Complying with A-IFRS

– Appreciate the politics, debate, compromise and (sometimes) the mess

involved in the standard setting process

– Appreciate that those standards are rarely use din the absence of

professional judgement. IFRS is said to be principles based

– Are you now able to move through the standards with efficiency? The

paragraphs in bold, the additional guidance, the purpose, the definitions,

etc.

– The required structure for a reporting entity’s financial statements:

o AASB101 para10:

▪ A statement of financial position

▪ A statement of comprehensive income

▪ A statement of changes in equity

▪ A statement of cash flows

▪ Notes to the accounts

– The conceptual framework tells me that no user group is more important

than another – if we are producing a document that is not useful for

powerless creditors then are we really upholding this

responsibility/framework/duties

– W10 helps us appreciate that the accounting standards are flawed and

that they are not aligned at all with the public interest – not clear – more

forced – does not address public interest – accounting is an opportunity

for organisations to look good and deliver to themselves a wealth effect if

they can – and therefore there is a lot of politics, debate and compromise

involved int the development of accounting standards there is strong

evidence of regulatory capturre and at different levels – e.g. your opinion

of an accounting standard is of Regularoy capture – more accounting

standards at least have some elemnts to address public interest –