Forecasting Volatility in Financial Markets

Question: Discuss about the Forecasting Volatility in Financial Markets. Answer: Introduction Commonwealth bank of Australia is the biggest bank in Australia by assets and customer base. It offers a variety of financial services and products that aims at improving the financial welfare of its customers. It is an Australian multinational with banking and financial interests in other countries such as New Zealand, United Kingdom, United States of America, Fiji and Asia. It is headquartered in Sydney Australia with its CEO being Ian Narev. Other senior executive officers include David Whitening its Chief Information Officer and Dave White. Moreover, its subsidiaries include; Bank west, ASB Bank and the Commonwealth securities. In 2015/2016 financial year it recorded outstanding revenue of $24.58 billion AUD to top in the financial markets revenue collectors(Alexander, 2008). Due to its ability to improve on its products and innovate with time, Commbank has continued to grow and add its customer base due to efficiency in service delivery. Commonwealth bank of Australia has committed itself to fulfilling the corporate and legal responsibilities by implementing policies, practices and procedures to give the Australian people, the visitors and its customers quality financial services. Accounts Analysis/ Financial statements Analysis In financial year ending 30th June 2016, commonwealth bank group reported an increase in net profit after income tax at $9.247 billion up from $9.084 billion in 2015. The statement of comprehensive income shows a marginal increase in net profit or loss of the company which is a joy to the shareholders. However, the total comprehensive income tax net of income tax fell from $9.772 billion in the year 2015 to $9.534 billion in this financial year. As at 30th June 2016, the total asset base of commonwealth bank group stood at $ 933.07 billion up from $ 873.44 billion in 2015. Net liabilities for the bank stood at $ 872.32 billion up from $ 820.7 in the previous 2015(Armour et al., n.d.). The total shareholders equity rose to $ 60.76 billion in 2016 from $ 52.99 billion in 2015. Ordinary share capital as at 30th June 2016 stood at $ 34,125 million while other equity investments stood at $ 406 million. Reserves held by the bank stood at $ 3115 million while retained profits as at 30th June 2016 stood at $ 20,443 million. Additionally, equity attributable to equity holders of the bank is at $ 58,076 million. Cash and cash equivalent at the end of the year is $ 12,909 million down from $ 18,165 million at the end of year 2015(Armour et al., n.d.). Cash and cash equivalent at the end are a contribution of financing activities, investing activities and operating activities of the bank at that particular year. Board of Directors Report Having audited the balance sheet and the income statement of Commonwealth bank for the year ending 30th June 2016, and other financial statements such as the cash flow statements, these are the conclusions made by the board of directores report. Indeed, a lot of financial statements such as statements of income and balances sheet stetements are responsible for decision making by the companys management (Basic accounting, 2010). The responsibility of the board of directors report is to have the opinion expressed in the financial statements that is based on the audits. Audited reports are conducted in accordance to the international stanadrds on Auditing and referenced to the relevant national standards and practices in auditing. The directors report require that we plan and perform audit inorder to get a reasonable assurance on the audited financial statements so as not to have material misstatements. Auditing financial statements include examining evidence selectively or otherwise, examination of supporting figures and financial statements disclosure. It also includes accounting principles disclosures used and the management estimates made in the financial statements. Presentation of the overall financial position of commonwealth bank is also done as required by the statutory laws governing corporates. Therefore an audit provides reasonable basis for formation of an opinion. In qualified opinions, there are matters that do not necessarily affect the opinion of the auditors.in circumctanses that financial statements are analysed more extensively. The empasies paragraphonly highlights an issue affecting the financial statements of commonwealth bank of Australia. The emphasy paragraph does not increasingly affect the auditors opinion on the books of financial statements (LeRoy and Werner, 2001). Audited reports are conducted in accordance to the international stanadrds on Auditing and referenced to the relevant national standards and practices in auditing. The directors report require that we plan and perform audit inorder to get a reasonable assurance on the audited financial statements so as not to have material misstatements. The paragraph forming the opinion should only show that the auditor doe not have a caveat emptor in opinion formation regard. Fraud in Commonwealth bank of Australia According to audited financial statements, commonwealth bank of Australia has no fraud in its books. In addition to using an emphasis paragraph for matters affecting financial statements, the auditor may also qualify his or her opinion by the auditor should consider including in its opinion a paragraph of emphasis describing the inconsistency Audited reports are conducted in accordance to the international stanadrds on Auditing and referenced to the relevant national standards and practices in auditing. The directors report require that we plan and perform audit inorder to get a reasonable assurance on the audited financial statements so as not to have material misstatements. There are no fraudulent accounts detected, therefore the auditor gave an unqualified report to the accounts of the bank. The only accounts with problems are dispute accounts of customers and credit card disputes. They are handled internally by the operations department of the commonwealth bank. All accounts with transactional disputes are reversed and their original position reinstated. This is made easier due to the audit trail of bank accounts statements and the audit trail. Outside material The commonwealth bank of Australia conducts other important functions for the society. Like any other organization, it has a corporate responsibility issue that affects the society positively. It is important to note that the company contributes a lot of positive influence in Australia mainly in health and education. Critical review Commonwealth bank of Australia has committed itself to fulfilling the corporate and legal responsibilities by implementing policies, practices and procedures to give the Australian people, the visitors and its customers quality financial services. The statement of comprehensive income shows a marginal increase in net profit or loss of the company which is a joy to the shareholders. However, the total comprehensive income tax net of income tax fell from $9.772 billion in the year 2015 to $9.534 billion in this financial year. Due to its ability to improve on its products and innovate with time, Commbank, has continued to grow and add its customer base due to efficiency in service delivery. Comparisons with standards In accounting matters, all accounting and financial records have to be prepared in accordance to international accounting standards (IAS). Commonwealth bank of Australia keeps its books according to these standards. The accounting principle is the general standard in which financial statements are based on. However, different auditors have been appointed during the annual general meetings to audit the financial statements of the bank and give their opinion. In corporate social responsibility standards, commonwealth bank of Australia has done better than many corporates in Australia(Zuber-Skerritt, 2012). They include; community and education investment, environmental, social and governance (ESG) issues, diversity, training, customer satisfaction and Greenhouse gas emission CBA. Conclusion and suggestion In conclusion, commonwealth bank of Australia has done well in financial and banking spheres. Over the years, it has grown in leaps and bounds due to efficiency in service delivery and products innovation. The accounting responsibility to the shareholders by the management is to keep good books of accounts. This way, standards in accounting are kept and applied to detect accounting fraud. This should be the general rule in commonwealth bank and the general banking sector in Australia. Therefore, to safeguard the interest of the shareholder, proper books of accounts are necessary in all aspects presently and in the future. References Alexander, C. (2008). Market risk analysis. Chichester, England: Wiley. Alexander, C. (2008). Market risk analysis. Chichester, England: Wiley. Armour, J., Awrey, D., Davies, P., Enriques, L., Gordon, J., Mayer, C. and Payne, J. (n.d.). Principles of financial regulation. Basic accounting. (2010). London: Teach Yourself. 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