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Executive Summary

The importance of accurate and professionally prepared financial reports cannot be overestimated for any business, including ANZ. Accurate book keeping gives a clear picture of the financial position of the business with regards to the industry in which it operates. The financial strength, as indicated by the records in the accounting books, can equally help the bank and other lending institutions to vet the ability of the company to pay the loan with interest in need be. Similarly, clear accounting records are highly important to investors and the government, and failure to keep accurate records in accordance with required standards of accounting can lead into a host of financial and legal problems in the company.

Following the requirement by the CEO, to the financial controller at the company, I hereby present the ANZ’s detailed financial report regarding particular areas. Precisely, the report delves into ways of reporting allegations in the books of accounts of the investigating entity (Australian Securities and Investments Commission), and how the same are reported into ANZ books. Also, the report includes appropriate ways of representing accrual fines that are imposed on ANZ after the breach of law. Finally, the concept of write-offs is explored and it is found that defaults are detrimental to the future of ANZ’s image and financial strength.








Executive Summary. 2

Reporting Business and Other Commercial Loans ANZ’s 2016 Financial Statements. 4

Will ANZ Need to Report ASIC’s Allegation?. 4

Factors Relevant To Banking Sector That Would Impact On the Value of Financial Assets in ANZ   5

Recording and Reporting Fine Payment in ANZ’s Financial Statements. 6

Reporting ASIC’s Investigation over ‘ANZ Assured’ Overdraft in ANZ’s 2015 and 2016 Annual Report 8

Appropriate Accounting Treatment for ANZ to Write off Bad Loans from Its Books as Shown In 2016’s Financial Statements. 9

Impact of the Potential Default on Anz’s Future Year’s Financial Position and Performance. 9

References. 11











Reporting Business and Other Commercial Loans ANZ’s 2016 Financial Statements

Business and other commercial loans fall under the broad category of financial liabilities. Contextually, liabilities refer to the monetary obligations of the firm in addition to claims creditors have on the company assets. An aspect of these obligations is that they are economic resources the firm is required to outside parties because of goods or services transferred at a point in the past. Liabilities can primarily be divided into two categories: current liabilities and long-term liabilities. The former category includes accounts payable, accrued taxes, payroll liabilities, and most importantly, current value of representing business loans or leases. The former category encompasses balances of company loans, leases, as well as other leases beyond financial year.

In ANZ’s 2016 financial report, therefore, all business and other commercial loans should be reported a liabilities. Nonetheless, the category can be refined into current liabilities or long-term liabilities depending on whether loans are to be paid within the year or the obligations extend beyond the timeframe in question.

Will ANZ Need to Report ASIC’s Allegation?

ASIC’s allegations against ANZ are serious and a possible breach of the law. The allegations can be understood as an obligating event because it obligates the company to deal with it presently. Allegations about ANZ’s act of setting interest rates on business and other commercial loans to its benefit is an independent past event from the company’s future operations. As stipulated in Paragraph 19 of AASB 137, an event can only be recognised in a company’s financial reports as provision if an obligation arising from a past event exists singly of the firm’s future actions. These obligations include but are not limited to penalties for unlawful conduct. Such penalties are recognized to lead to outflow of resources from the company that embody economic benefits in settlement irrespective of whatever actions the company takes in future.

Even though it is understood that financial statements strictly concentrate on the financial position of the company at the end of the current financial year with no regards to a probable position at a later date, ANZ will be compelled to recognize the allegations for reasons already insinuated above. Specifically, given the fact that if the allegations are confirmed after thorough investigation, the entity will have to bear an obligation that will force it to give up resources. As such, the issues raised by ASIC will be recognised as provisions ANZ’S books of account.

Factors Relevant To Banking Sector That Would Impact On the Value of Financial Assets in ANZ

The banking sector is extremely significant in the economy thereby making it subject to multivariate factors. This is primarily due to the numerous ways through which the banking sector is connected to the economy at individual business level and consumer level. One factor relevant to the financial sector that would inevitably impact on the value of financial assets in ANZ is interest rates. High interest rates are linked to the quantity of money that circulates through the economy. When the buying demand is higher than the amount of money that is circulating, the money is ultimately worth more. Consequently, the high demand for cash drives the cost upwards in terms of higher interest rates. At the same time, ANZ will have to pay investors higher interest to attract more money to lend out. Due to high interest rates, companies find it expensive to acquire loans for financing business operations, payroll, as well as purchases. This negative impact equally extends to consumers.

On the other hand, low interest rates represent the abundance of money in the system and the resultant anxiety of banks to lend it out. The low interest rates also motivate people to invest into the stock markets because bank certificates and deposits attract lower returns.

A second factor relevant to the financial sector that would impact on the value of financial assets in ANZ factor is Reserve Bank monetary policy. The government, through the Reserve Bank of Australia, conducts monetary policy, which is used to regulate the economy to maximise employment, stabilise prices, in addition to maintaining long term-interest rates. To achieve these goals, the RBA controls inflation and deflation. In case of inflation, excess money will flood the economy and the prices of goods and services will skyrocket due to low purchasing power of money. ANZ will then have to pay more to its creditors and charge more interest on debts. Conversely, deflation would imply an increased purchasing power of money as a result of its limited supply. Consequently, prices, salaries, business activities would plummet at ANZ. This is because monetary policies to discourage inflation would strip money out of the economy and raises interest rates.

Recording and Reporting Fine Payment in ANZ’s Financial Statements

According to paragraph 15B of AASB 134, a business is required to explain in its interim report any transaction and event that is significant to enhancing comprehension of the changes occur in its financial since the previous financial report.  Notably, these changes should be disclosed, especially if they are significant, and they include litigation settlements, reversed provisions relating to costs of restructuring among others. Similarly, paragraph 98 identifies litigation settlements as crucial circumstance that warrants a separate disclosure of expense in the statement of comprehensive income or in the notes.

It is pertinent to note that despite the fact that fines and penalties are legally enforceable and in most cases imposed by government agencies, they do not relate to taxes. As detailed in AASB 7, fines and penalties can neither be treated as taxes nor be perceived as deductible for tax purposes. This indicates that it is inappropriate to treat penalties imposed on a business entity for violating legal provisions like a tax. Therefore, the manner in which such a transaction would be recorded and reported in the company’s financial statements would be different.

As seen in the case, ASIC requires ANZ to pay a total sum of $212,500. This money should be paid in settlement of a violation of lending laws and market manipulations, an action that has been ascertained that the bank engaged in. In this manipulative scheme, it is established that ANZ offered ‘ANZ assured’ overdraft to its customers. As described elsewhere in the text, such an action results into an inevitable outflow of resources from ANZ yet these resources carry along with them financial benefits that the company is obliged to forego while settling the fine. Accordingly, it affects the business and must be accounted for appropriately in the financial reports.

Fine payments for breach of legal policies are liabilities in the long run. However, since the penalty is not deductible as corporate tax, ANZ should create separate account in the books of accounts expense section. As noted earlier, these should be recorded in the Statement of Comprehensive Income. Subsequently, the account should be titled “ASIC breaching penalty account” wherein the $212,500 should be posted.

Reporting ASIC’s Investigation over ‘ANZ Assured’ Overdraft in ANZ’s 2015 and 2016 Annual Report

According to AABS137, a contingent liability is a present obligation that has not yet been ascertained or measured with sufficient reliability. Contingent liabilities are categorically explained to be typical of a court case that requires payment but the case is yet to be made any clear. On the other hand, a contingent asset refer to court cases where a given entity would make gains but the lack of clarity of the case prompts further exploratory drilling to evaluate technical and commercial feasibility.  This resonates with the allegations that have been raised in this case.

ASIC would turn out to be the beneficiary of the on-going case since it is the body charged with the duty of regulating the financial market, in order to provide a fair and transparent financial market as well as provide protection to investors’ interests. Accordingly, the company views the investigations contingent asset. In case the investigation unearths tangible convicting evidence, ANZ would have to pay ASIC a fine. For his reason, ASIC records the investigations in its 2015 annual report as a contingent asset.

Be that as it may, upon completing investigations and establishing that ANZ engaged in a fraudulent activity, the information would take a new place in the 2016 annual financial report. In the financial books of the company, a new account titled fine payable from ANZ wherein it would post the penalty given at the end of the investigation. Similarly, a detailed description of the nature of the violation that was investigated and the key findings would be detailed.

Appropriate Accounting Treatment for ANZ to Write off Bad Loans from Its Books as Shown In 2016’s Financial Statements

AASB 7 informs that provisions should only be recognised when a present obligation exits, the future sacrifice of economic rewards are predictable, and there is a possibility of obtaining a reliable measurement of the amount of the provision. Similarly, AASB 1032 advises that bad debts should be written off as soon as they are identified and it offers two alternatives for treating them. One way is through provision for impairment. If the company recognises a provision for impairment with regards to loans then write offs for bad debts should be made against that provision. On the contrary, if it the company had not recognised a provision for impairment in prior then the write-offs for bad any bad debt is treated as expenses in the company profit and loss account. The same concept would be applied in the case of ANZ.

It is explained in 2016 annual report that loans are considered partially or completely uncollectable if it is written off against related provisions for impairment. Since ANZ expects the unfortunate situation of having to scrap bad debts from its books of account. According to 2016 Annual Report, the total provisions were $1.2 billion. With this amount in recognised provisions, the write off its bad debts against this provision where by bad write-offs ascertained by the end of the financial period are deducted from the provision.

Impact of the Potential Default on Anz’s Future Year’s Financial Position and Performance

A default will be destructive to ANZ. If a company does not tread carefully along the financial path that is already littered with defaults, it could end tragically when circumstances compel it to write off bad debts. Studies show that debts, especially accrual of bad debts, are toxic and effective killers of a business through bankruptcy and financial ruin (Cecchetti, S.G., Mohanty, M.S. & Zampolli, F., 2011). Defaults will most probably ruin ANZ’s financial books. Moreover, defaulters will damage the firm’s reputation make it difficult for it to attract investors or secure finances from lenders other lenders. Historically, many large corporations and well established businesses have failed because of defaulters. Some of the most common companies that never survived the ordeal are Lehman Brothers and Bear Stearns.

Whatever hinders a business’ access to credit is definitely destroying it. Credit is the lifeline of the companies operating in the banking sector. With a good reputation, ANZ can attract investors and other entities seeking loans. In fact, credit will even allow the company to invest in other ventures as it expands, and to maintain sufficient cash reserves to run daily activities. Without credits in the contemporary business environment where businesses are threatened by numerous economic challenges, it future becomes rather bleak.

Defaults can have a negative impact ANZ’s employees. Due to increasing debts, the firm may get to a point when it will not provide insurance, pay increments, implement effective employee recognition programs, and other activities that keep the workforce engaged and happy. As a result, employee turnover may catastrophically hit the organization. Losing workers that have consumed a lot of company resources on training and development is expensive, and a workforce that has been part of the firm for a long time is irreplaceable and priceless for a company.  All these factors would impair ANZ’S ability to perform effectively.





AASB (2010). AASB 101 Presentation of Financial Statements.

AASB (2011). AASB 101 Presentation of Financial Statements.

AASB (2014). AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

AASB (2015). AASB 7 August 2015 Financial Instruments: Disclosures.

ANZ (2016). ANZ Annual Reoort 2016.

ANZ (2016). ANZ annual report 2016. [online] Available at: http://www.shareholder.anz.com/pages/annual-report-and-shareholder-review [Accessed 23 May 2017].

Cecchetti, S.G., Mohanty, M.S. and Zampolli, F., 2011. The real effects of debt.