The Australia and New Zealand banking group is considered as the third largest bank in Australia in terms of market capitalization

The Australia and New Zealand banking group is considered as the third largest bank in Australia in terms of market capitalization. The major competitors of the corporation are Westpac banking group and commonwealth bank. ANZ is considered the largest bank in New Zealand. In addition to Australia and NewZealand, the company operates in thirty-four other countries and was named as a most sustainable bank as per the DowJones sustainability index in the year 2008. It was established in 1951 in Melbourne Australia.
Westpac Banking Corporation is among the big four banks in Australia. Westpac is an Australian bank headquartered at New SouthWales. Westpac is considered as a mostsustainable bank for the fourth time in a row in 2017 by the DowJones sustainability index. The company has more than 40000 employees and around 1400 branches. The vision of the bank is to become the world’s biggest service company by helping communities and customers for growing and prospering.
Owner’s equity
Each item of the equity of both the companies
Equity items of the ANZ banking group and Westpac banking corporation are as follows:
Issues capital-the ordinary shares of the company are recorded at the amount paid up per share net of the directly attributable cost of issue. The ordinary shares entitle the shareholder in participating in the dividend in case of winding up of the company and to share of the proceeds of them in the proportion of total amount paid by the shareholders (Brealey, et. al., 2012). It also entitles the shareholders to vote in the shareholders meeting.
Westpac banking corporation issued capital in the year 2017 and 2016 is 34,889,000 and 33,469,000 respectively. TheANZ banking group issued capital in 2017 and 2016 is 29,088,000 and 28,765,000.
Reserves- these are the profits which has been appropriated by the company for purposes. Reserves recorded by ANZ Banking Corporation is 37,000 and by Westpac banking corporation is 794,000
Retained earnings- these are the accumulated net income of the company which is retained at the end of reporting period. They are the net earnings after dividend which is available for reinvestment in the core business of the organization or for repayment of their debt. retained earnings recorded by ANZ banking corporation are 29,834,000 and Westpac banking corporation is 26,100,000.
Changes in the items of the equity of both companies
ANZ banking group
Stockholders’ equity
Particular 2017 2016 2015 change from 2015-16 change from 2016-17
Share Capital 29,088,000 28,765,000 28,367,000 1.403038742 1.122892404
Reserves 37,000 1,078,000 1,571,000 -31.38128581 -96.567718
Retained Earnings 29,834,000 27,975,000 27,309,000 2.438756454 6.645218945
Other 116,000 109,000 106,000 2.830188679 6.422018349
Total Equity 59,075,000 57,927,000 57,353,000 1.000819486 1.981804685
DOE Total Liabilities/ Total Equity
The major reason fora change in the equity position of the company is the reduction of reserves. Major reserves have been utilized in the current year.
Westpac banking group
Stockholders’ equity
Particular 2017 2016 2015 change from 2015-16 change from 2016-17
Share Capital 34,889,000 33,469,000 29,280,000 14.30669399 4.24273208
Reserves 794,000 727,000 1,031,000 -29.48593598
Retained Earnings 26,100,000 24,379,000 23,172,000 5.208872777 7.059354362
Other 54,000 61,000 817,000
Total Equity 61,342,000 58,181,000 53,915,000 7.91245479 5.433045152
DOE Total Liabilities/ Total Equity
The major reason for changes in the equity position of companies is the increment in retained earnings and reserves. The company has announced fewer dividends in the current year and thus increases retained earnings for capital purposes.
Comparative analysis of the debt and equity position of the two firms
ANZ banking group
Particular 2017 2016 2015
Total Liabilities 838,251,000 856,942,000 832,547,000
Total Equity 59,075,000 57,927,000 57,353,000
DOE 14.1896064 14.7934815 14.5161892
Westpac banking group
Particular 2017 2016 2015
Total Liabilities 790,533,000 781,021,000 758,241,000
Total Equity 61,342,000 58,181,000 53,915,000
DOE 12.887304 13.423987 14.063637
Cash flow statement
Items reported in the cash flow statement
Following items are reported in the cash flow statement of ANZ banking corporation
• Provision for credit impairment
• Amortization and depreciation
• foreign exchange adjustment
• sale of premises and equipment
• Impairment of investment in AmBank
• Profit on Esanda Dealer Finance divestment
• Trading securities
• Collateral paid
• Investments backing policy liabilities
• Life insurance contract policy liabilities
• Settlement balances owed by ANZ
• Deposits and other borrowings
Following items are reported in the cash flow statement of Westpac banking corporation
• Dividends received exclusive of life business
• Other non-interest income
• Receipts from policyholders and customers
• Payments to policyholders and suppliers
• Interest & other items which are of a similar nature
• Trading securities and financial assets designated at fair value
• Life insurance assets and liabilities
• Regulatory deposit with the overseas central banks
• Receivable which is due from the other financial institution
• Payables which are due to other financial institutions
• Derivative financial instruments
Changes in the items of cash flow statement
ANZ banking group
particular 2017 2016 2015 change from 2015-16 change from 2016-17
Cash From Operating Activities 23972 10841 21476 -49.52039486 121.1235126
Depreciation/Depletion 972 – –
Non-Cash Items -3196 – –
Changes in Working Capital 19775 10841 21476 -49.52039486 82.40937183
Cash From Investing Activities -12830 -14410 -9776 47.40180033 -10.96460791
Capital Expenditures – -337 -321 4.984423676
Other Investing Cash Flow Items, Total -12830 -14073 -9455 48.8418826 -8.832516166
Cash From Financing Activities -6667 1958 2043 -4.160548213 -440.5005107
Total Cash Dividends Paid -4210 -4564 -3763 21.28620781 -7.756354075
Issuance (Retirement) of Stock, Net -176 – 2452
Issuance (Retirement) of Debt, Net -2281 6522 3354 94.45438283 -134.9739344
Foreign Exchange Effects -2647 -1447 7306 -119.8056392 82.93020041
Net Change in Cash 1828 -3058 21049 -114.5280061 -159.7776324
Westpac banking group
Particular 2017 2016 2015 change from 2015-16 change from 2016-17
Cash From Operating Activities 2820 5497 -541 -1116.081331 -48.69929052
Cash Receipts 31133 31817 32377 -1.72962288 -2.149794135
Cash Payments -15415 -16721 -18319 -8.72318358 -7.810537647
Cash Taxes Paid -3552 -3469 -3426 1.255107998 2.392620352
Changes in Working Capital -9346 -6130 -11173 -45.13559474 52.46329527
Cash From Investing Activities -1698 -7245 -18715 -61.28773711 -76.563147
Capital Expenditures -1030 -1228 -1307 -6.044376435 -16.1237785
Other Investing Cash Flow Items, Total -668 -6017 -17408 -65.43543199 -88.89812199
Cash From Financing Activities 552 4573 5513 -17.05060765 -87.92914935
Financing Cash Flow Items -40 -808 921 -187.7307275 -95.04950495
Total Cash Dividends Paid -4839 -5402 -4340 24.47004608 -10.4220659
Issuance (Retirement) of Stock, Net -67 3418 -138 -2576.811594 -101.9602106
Issuance (Retirement) of Debt, Net 5498 7365 9070 -18.79823594 -25.34962661
Foreign Exchange Effects -292 -580 2753 -121.0679259 -49.65517241
Net Change in Cash 1382 2245 -10990 -120.4276615 -38.44097996

Comparative analysis of broad categories of cash flow statement
ANZ banking group
Particular 2017 2016 2015 change from 2015-16 change from 2016-17
Cash From Operating Activities 23972 10841 21476 -49.52039486 121.1235126
Cash From Investing Activities -12830 -14410 -9776 47.40180033 -10.96460791
Cash From Financing Activities -6667 1958 2043 -4.160548213 -440.5005107
Net Change in Cash 1828 -3058 21049 -114.5280061 -159.7776324
Westpac banking group
Particular 2017 2016 2015 change from 2015-16 change from 2016-17
Cash From Operating Activities 2820 5497 -541 -1116.081331 -48.69929052
Cash From Investing Activities -1698 -7245 -18715 -61.28773711 -76.563147
Cash From Financing Activities 552 4573 5513 -17.05060765 -87.92914935
Net Change in Cash 1382 2245 -10990 -120.4276615 -38.44097996
Comparative analysis of the two companies
It can be said that the cash position of ANZ banking corporation has been improved from the cash flow statement of the company in the year 2017. The favorable cash position gives positive sign regarding the growth rate of the company. The reason for more inflows is the reduction in payment of cash dividend and a reduction of investment in other assets (Bhandari&Iyer, 2013). ANZ banking corporation has reduced their capital expenditure in the current year. For the Westpac banking corporation, it can be said that the company has fewer cash inflows in the current year in comparison to 2016. A considerable reduction in all three broad categories of cash flow statement has been observed.
Other comprehensive income statement
Items reported in the other comprehensive income statement of both companies
Following items are recorded in the other comprehensive statement of ANZ banking corporation
• Foreign currency translation reserve
• Other reserve movements
Following items are recorded in the other comprehensive statement of Westpac banking corporation
• Foreign currency translation reserve
• Other reserve movements
• Following items are recorded in the other comprehensive statement of Westpac banking corporation
• Gains/(losses) on the securities available-for-sale
• cash flow hedging instruments gains and losses
• foreign currency translations exchange difference
• Cash flow hedging reserve
• Own credit adjustment on those financial liabilities of the company which are designated at the fair value
• Defined benefit obligation
Reasonsfor not reporting these items in the profit and loss account
The expenses, revenue, gains and losses recorded in the statement of comprehensive income cannot be recorded in the profit and loss account as per the generally accepted accounting principles. As per the principle, the comprehensive income is required to show exclusively in the statement of comprehensive income. There are some transactions which as per the accrual concept are required to be shown in the financial statements but these items are not realized during the reporting period. The incomes which are reported in the other comprehensive income statement are not related to the current year (Fridson& Alvarez, 2011). Thus because of the matching concept, these items cannot be recorded in the income statement of the company.
Comparative analysis of the items shown in the other comprehensive income statement
The exchange difference recorded in the comprehensive income statement of ANZ banking corporation is $-748 million in 2017 and loss for the exchange difference on translation of foreign operations recorded by the Westpac banking corporation is $91m. The Westpac banking corporation has also recorded the cash flow hedging reserve of $6m and available for sale security reserve of $18m. ANZ banking corporation has not recorded any cash flow hedges during the year (Rees and Shane, 2012). The gains and losses recorded in the equity and income statement of Westpac banking corporation are $75m.
Recommendation on should other comprehensive income be included in evaluating the performance of managers
No the other comprehensive income recorded in the books of accounts of the company should be used while evaluating the performance of the managers because these income are not related to the day to day operations of the company. The profits and losses in the other comprehensive income are mainly because of variations in markets and not due to the performance of managers. The managers do not have any control over these expenses or revenues. One of its examples is the exchange difference translation loss or profits which occur due to fluctuation in foreign currency.
Accounting for corporate income tax
Tax expenses shown in the latest financial statements
ANZ banking corporation
2017 2016
PBIT 9627 8178
Income tax expenses at the rate thirty percent 2888 2453
Permanent differences tax effect:
Australia wealth- contribution tax and policy holder income 194 152
Associate profit share -90 -162
Ambank investment write down 78
SRCB reclassification to held for sale 172
Taxation provisions not needed now -71
Convertible instrument interest 69 70
Overseas tax rates differential -37 -45

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Westpac banking corporation
2017 2016
PBIT 11515 10644
Income tax expenses at the rate thirty percent 3455 3193
Amount effect which is not assessable in calculation of taxable income
Hybrid distribution of capital 64 50
Life insurance :
Policyholder earnings tax adjustments 8 -2
Life business tax rate adjustment -1
Adjustment of dividend -3 -4
Non assessable item-other -3 -10
Non deductible item- other 32 35

Effective tax rate
ANZ banking group
Income tax expense
Current tax expense 3094 2738
Adjustments recognizedregarding the current tax of previous years -19 -23
Deferred tax expenses/(income) related to origination &reversal of temporary difference 131 -257
Income tax expenses 3,206 2,458
In Australia 2349 1752
In Overseas 857 706
Income tax expense 3,206 2,458
Effective tax rate 33.30% 30.10%
Westpac Banking group
Income tax expense
Current tax expense 3404 3351
deferred tax movement 110 -102
Income taxes over or under a provision in previous years 4 -65
Income tax expenses 3518 3184
In Australia 3072 2835
In Overseas 446 349
Income tax expense 3518 3184
Effective tax rate 30.55% 29.91%

Deferred tax assets/liabilities reported in the balance sheet
ANZ banking corporation
The deferred tax assets recorded by the company in the year 2017 and 2016 is $675 and $623 respectively. The deferred tax liability record by ANZ in 2017 and 2016 is $257 and $227 respectively (Laux, 2013).
Unrecognized deferred tax liability and assets
Total $4 million is recognized as the unrecognized deferred tax assets which are related to the unusedrealized tax loss. The Unrecognized deferred tax liability related to foreign tax cost is $413 million.
Westpac banking corporation

The major reason for recording the deferred tax liability occurs when the actual taxation expenses of the company are lower in comparison of the amount of taxation recorded in the financial statements of the company. This is because of the differences between the standard accounting practices and tax accounting rules (Harrington, et. al., 2012). The deferred tax liability indicates that the company is under the tax obligation.
The deferred tax assets are often made because of the amount of tax actually paid or carried forward but they are not recognized in the books of accounts. These are recorded because of taxation authorities recognizing the expenses and revenues at different times than the accounting standards.
Increase or decrease in the deferred tax assets or in the deferred tax liability reported by both companies
ANZ banking group $m Westpac banking group $m
opening balance of Net deferred tax asset/(liability) 418 36
closing balances of Net deferred tax asset/(liability) 396 10
net change in Net deferred tax asset/(liability) 22 26

Calculation of cash tax amount for ANZ banking Group and Westpac Banking group
For calculating the cash tax amount the adjustment of deferred tax assets and liabilities are required in book tax amount
ANZ banking group
= $3206 + $346 = $3552

Westpac banking group
=$3518 -$3354 =$ 164

Calculation of cash tax rate for both companies

ANZ banking group
= ($3552/ $9627)*100 = 36.89%

Westpac banking group
= ($164 / $11515)*100 = 1.42%
The ANZ bank has the higher tax in comparison to Westpac bank.
Difference between cash tax rate and book tax rate
Cash tax rate is the percentage of pretax operating profit which is paid to the taxation authorities by the company on the assumptions that the operating profits are completely equity financed. The company’s tax rate is influenced by the debt amount held by the company. This is because the long-term debt interest payments shield the pretax profits on tax payable calculation (Cronin, et. al., 2013). In the books of accounts of the company the tax expenses or the book,the tax is usually greater than the actual cash tax payment during the period. The major reason behind this is that the entities can recognize the revenue and expense items at different for book-tax purposes. In the company’s books of accounts, the tax rates reflect the use of leverage. On the other hand, the unleveraged cash tax rate removes the influence of debt on the company’s tax rates. This is the main reason forthe variation between the cash tax rate and book tax rate. The book tax rate and the cash tax rate will always remain different till the recorded book tax amount in paid in cash by the company.
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Conclusion
Discussion about the financial position of ANZ banking corporation and Westpac banking corporation has been made in this assignment. Positive changes in the equity position of both the companies have been observed. Thedebt-equity ratio of the ANZ banking group is 14 and Westpac is 12 which indicatesa high amount of debt in the capital structure of both the companies. The cash flow position of ANZ banking corporation has been improved in comparison to last year. Further, the items reported by the companies in the other comprehensive income statement include foreign currency translation reserve and cash flow hedges. The current year income tax expense of ANZ banking corporation is $3,206m and of Westpac,a banking corporation is $3518m.

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References
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Cronin, J.A., Lin, E.Y., Power, L. and Cooper, M., (2013).Distributing the corporate income tax: Revised US treasury methodology. National Tax Journal, 66(1), p.239.
Farshadfar, S. and Monem, R., (2013).Further evidence on the usefulness of direct method cash flow components for forecasting future cash flows. The international journal of accounting, 48(1), pp.111-133.
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