Analysis of the Financials of Bendigo and Adelaide Bank-Australia


This paper seeks to conduct an accounting analysis of Bendigo and Adelaide Bank –Australia’s full-year financial statements for 2008. This paper will include preparation of a summary of activities and their strategies from the annual report and other sources, identifying the accounting policies that are relevant to the company’s success or failure and the accounting standards and rules which apply in respect of these accounting policies as adopted. This will also evaluate the flexibility management available to the company in selecting accounting policies and the accounting strategy employed by management for each accounting policy and identity the possible incentive behind the choice of strategy. This paper will also evaluate the quality of disclosure of information made in the accounts, identify questionable accounting numbers and make an attempt to undo possible distortions in the numbers provided by management by using a footnoted and other information in the annual report. The latter part will summarize any finanisc losurecial press discussion of the company’s performance and accounting numbers

Analysis and Discussion

A brief summary of the company’s activities and its strategies as outlined in the annual report and any other sources considered relevant.

Bendigo and Adelaide Bank is a publicly listed bank in Australia and its activities and strategies may be summarized in its being able to deliver an improvement in shareholder value in 2007/2008 despite difficult market conditions. The Bank has prospered through the past market cycles which can be attributed to its prudent financial management (Van Horne,1992; Ross et. al, 1996) as a feature of its operational style. Such strategy is also believed to have held the Bank in good stead through good times and bad timestheing that last 150 years (Bendigo and Adelaide Bank Limited, 2009). The bank may still be considered a regional leader in its own region but smaller compared with the Big Four banks (Invest Smart, 2009).

A merger involving the company which happened in 2007/2008 is believed to have caused a more resilient company. Thus it’s company’s bank’s share price during the period mentioned reflected the this assertion during pressures that constrained all Australian banks due to the Australian economy’s showing signs of slowing down and expectations for weaker economic conditions that had persisted through the rest of 2008 (Bendigo and Adelaide Bank Limited, 2009).

In effect, the bank has its focus last year on building a solid foundation to construct a fully integrated bank. It prioritized supporting its staff through the process, improving business performance and realizing revenue and cost synergies. It considered the same all critical groundwork for the merged bank to move towards creating a strong but flexible organization in responding to changing economic conditions (Bendigo and Adelaide Bank Limited, 2009). The company appeared to have weathered a financial crisis in 2008 as it was able to sustain operation despite problems caused by the economy.

The company also has focused strongly on building the awareness of the community philosophies that the company has built for its directors, officer and managers, employees and even its other stakeholders.

Background information

Identify the key accounting policies relevant to the company’s success or lack of it

The key accounting policies (Meigs and Meigs, 1995) relevant to the company’s success must have something to do with company policies pertaining to basis of financial statement preparation. As a company governed by law, Bendigo and Adelaide Bank must comply with the provisions of the Corporations Act of 2001. In addition, it had its financial reports prepared in compliance with Banking Act since the latter law is deemed to have complied with the account provisions of Corporate Act of 2001. Its general-purpose financial report, which is the main subject of investigation for this paper, was prepared in accordance with the Banking Act, Australian Accounting Standards, Corporations Act of 2001 and the other legal requirements (Bendigo and Adelaide Bank Limited, 2009).

As such, said the financial report needs to be prepared and has in fact been prepared in accordance with historical cost or amortized cost for loans and receivable and financial liabilities, except for investment properties, land and buildings, derivative financial instruments and available-for-sale financial assets are measured at their fair value.

This means that the company has generally applied historical cost of accounting for all of its receivable assets and financial liabilities related to its banking operation except those that are mentioned. To see however the magnitude of the exceptions, the total effect on the company must be analyzed by considering the sum of the effect of those that required the use market values as part of the it’s valuation of accounts other than the historical costs.

Due therefore to the materiality of the effects of the policies on revaluation and impairment, this paper has given focus on the said topics to accomplish the purpose of this paper.

The company has its accounting policies on plant, property and equipment, which may be material in evaluating the company’s solvency and capital adequacy, which are important to its success as a bank.

The company’s plant and equipment is measured at cost less accumulated depreciation and any impairment in value. The landd is measured at fair value. Buildings are measured at fair value less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Freehold buildings for 40 years, Leasehold improvements for 3 to 10 years, Plant and equipment for 2 to 10 years (Bendigo and Adelaide Bank Limited, 2009).

This means that the company would use market value of it land and building to affect the values presented in the value of its assets. Generally, the prices of land increase overtime to coincide with the presumed increased scarcity as business entities grow. Doing the same therefore could literally allow the value of its assets to be very high if market justifies the same in the area where these assets may be found. This would make the company to look more favourable indeed compared with other competitors in the industry who have no or less lands. The same is true may said of its building which uses is fair value compared with the latter’s carrying value which has its basis in historical cost. The recognition of related depreciation could allow the company to increase the depreciation expense in relation to the increase in revaluation of the same assets. It would be a cause of increasing expenses without actually spending any amount of money because of some economic benefit done to the company based on the accounting theories’ point of view.

Impairment in Revaluation for Company assets

Its management could recognize its impaired value for implementing its accounting policies by identifying cash generating units and applicable impairment indicators in accordance with AASB 136 on “Impairment of Assets”. In so doing, the company management first review the carrying value of plant and equipment for impairment when the events are changes in circumstances pertaining to the company would show that the carrying value might not be recoverable. Upon such indication by sufficient evidence of higher carrying values over the estimated recoverable amount, management could write down to recoverable amount of these assets impairment cost or reduction in impairment value (Bendigo and Adelaide Bank Limited, 2009).

The company based the recoverable amount of its plant and equipment on the amount of fair value and deducting from it the cost to sell or value in use which ever is greater. To compute value in use, management discount the estimated future cash flows to their present value under discount rate without considering taxes. The company considers that such discount rates would the be rates that would reflect current assessments of the time value of money and the risks specific to the asset.

The are also cases when its assets that fail to generate largely independent cash flow, where company need to determine the recoverable amount for each generating unit to which the asset belongs. From these the management would recognize impairment losses in the income statement reported by the company, unless they relate to revalued assets. The management has it impairment losses of revalued assets by effecting the change in the revaluation reserve (Bendigo and Adelaide Bank Limited, 2009). The difference in treatment may be material in affective over all solvency position of the company in terms of computing its debt to equity ratio. This latter ratio is used by decision makers in evaluation how a company looks solvent in a longer period over the long-term

Revaluations as Applied by the Bank

The company’s policy on revaluation is a material part of its policy as change in market values could sometime produce a large difference in values that could affect the reliability of the financial statements. It cannot be therefore readily accepted if the company arbitrarily to suit could do revaluation, its own needs. In ensuring reliable information, the company therefore has adopted a policy on revaluation. From the initial recognition at cost of land and building when the original acquisitions were made by the company, additionally the company would have to record their carrying value of land and building with the revalued amounts based on the fair value at the revaluation. The management then would deduct any subsequent accumulated depreciation on buildings and accumulated impairment losses.

Accounting policy related to how the company strengthen corporate governance

As part of internal control in ensuring reliable information for the organization, the company adopts certain accounting policy related to how the company could strengthen corporate governance (Whittington & Pany, 1995).

The company has it Constitution, which governs and regulates the composition as way to set rules to guide behaviour. Said Constitution provides that the number of directors be to be decided by the Board, from three to twelve. Presently, the Board has eight non-executive directors, a Managing Director and an executive director. It must be noted that not all of the boards are part of the executive function thus this policy would assure some independence among directors from their executive function, which is also needed for the success of the business (Bendigo and Adelaide Bank Limited, 2009). With the premise that non-executive directors would provide the check and balance on directors, which are part of the executive function, the relationship would work to the advantage to the whole organization for the establishment of better internal control. Better internal control would minimize the chances for possible abuse of position by the executive directors.

The practice is also in accordance with the good principles of corporate governance and that the present Board of the Bank believes that the exercise of independent judgment by directors is such an important feature in promoting corporate governance for the company.

The desire of the Board to have the majority of directors to be independent points to an orientation for the need for more responsibility than uncalculated risk taking. Thus, it has its Board Independence Policy, which the company published to assess the independence of non-executive directors. The theory appears to give the message that by giving independence to large number of directors, it would in effect be giving a more restrained control on the managing director and executive officers. Such is good principle to avoid the consequence of agency theory where those that manager the company has have conflict of interest that would motivate them to prioritize their personal interest above the stockholders (Van Horne, 1992.

The company defines independent directors to be free from any business or other association that could materially interfere with the exercise of his or her independent judgement.

Identify the accounting standards and rules, which apply in respect of these accounting policies

The accounting standards and rules, which apply in respect of these accounting policies on revaluation and impairment, are those that are from the Accounting Standard AASB 136 and IFRS particularly under IAS 36 that those govern revaluation and impairment of property and plant equipment from related laws. For those related to regulating corporate governance as to those affect the quality of board directors, are those from Accounting Standard AASB 1031 in term of deciding quantitative materiality thresholds (Bendigo and Adelaide Bank Limited, 2009; Australian Accounting Standards Board, 2009).

Evaluate the flexibility has management available in selecting the key accounting policies.

The flexibility that management has in selecting key accounting policies can be considered liberal because the standards allow the same to happen for the company.

In particular, the basis for revaluation of its land and building could afford the company to react in relation to the market. This is rather a flexibility that is liberal compared when management would just be sticking on the use of historical cost accounting. The fact the present accounting standards allow the use of the same is a flexibility indeed in influencing the information which what the company’s believe to have its financial statements reflective what the company is really worth and to be more relevant to decision makers.

Evaluate the accounting strategy employed by management in respect of each key accounting policy and suggest/identify possible incentives behind the choice of strategy.

To evaluate accounting strategy employed by the management in respect of the of each accounting policy requires using a criteria to judge its propriety. Since the purpose of accounting is to provide information that is accurate, reliable and relevant to decision makers, this paper uses the premise that if the company’s financial information has complied with the required accounting standards, the company’s accounting strategy thorough its accounting policy may be declared to have accomplished the objective of providing accurate, reliable and relevant for decision- making.

The accounting strategy employed by management in respect of each accounting policy may be described to what lead the company’s management in the accomplishment of its objectives to have accurate, reliable and relevant information for decisions makers including management itself.

The possible incentive behind the choice of the strategy includes what will help the company to attain it overall objective of satisfying its various stakeholders in business.

The company’s financial statements may be deemed reliable, accurate and relevant if an independent party, which will assume responsibility for its attestation, will make an opinion that would show or prove compliance with accepted accounting standard for similar companies that are facing the same situation to have such a concern about its financial statements. In case of the company, its independent auditor has found conformity of company’s financial statements to generally accepted accounting principles. third party using the auditor opinion on the financial statements as shown below.

The fact of independence of the auditor or third party who assesses the company’s financial report is declaration of independence of such effect by such auditor. Said independence was base in the independence requirements of the Corporations Act 2001, a written copy of which Auditor’s Independence Declaration was given to the directors of the company and attached included in the directors’ report. However, additional engagement by the auditor may affect such independence. In this regard however, the auditor again allowed the disclosure in the notes to financial statements about such additional engagement, which the auditor declared to require no independence and that is, has not in fact impaired the auditor’s independence as far as the financial audit engagement is concerned.

In particular, the auditor’s opinion about the financial report of Bendigo and Adelaide Bank Limited as found by the auditor to be in accordance with the Corporations Act 2001, which covers giving a true and fair review of the financial position of the company, the consolidated entity in 2008, and related their performance for same period covered. Said financial report was found as well to have complied with Australian Accounting Standards and Corporate Regulations 2001 and even with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) (Bendigo and Adelaide Bank Limited, 2009).

Evaluate the quality of the disclosure made in the accounts

The quality of the disclosure made in the accounts may be considered adequate. The company management has reported in its Annual Report for 2008 that disclosure of information relating to major developments in the operations of the company and the expected results of these operations in future financial years, It was asserted that in the opinion of the directors, that such major developments will not unreasonably prejudice the interest of the company as found in the Report by Chairman and Managing Director. The purpose of disclosure is to provide additional information that would allow users to be able to understand information reported in the financial statements to judge in a more informed manner and in order to enhance completeness of the information so reported. In the assessment of this research, it is believed that purpose of disclosure has accomplished its purpose.

Identify potential questionable accounting numbers

The potential questionable accounting numbers may be on the amount, which included the decision to make estimates about the future. Since nobody can be sure about the future is was just best to measure things based on estimates.

Attempt where possible to undo distortions in the numbers provided using footnote disclosures and other information in the annual report

The possible areas where it is possible to undo distortions in the numbers provided using footnote disclosures and other information in the annual report may those that can in fact affect the estimates of figures as reported in the financial statements. The company having explained that the discount rates are use in getting the fair values, should warn users that discount rates could vary from one company to another and even one industry to another.

Summarize any financial press discussion of the company’s performance and accounting numbers.

The company was found to be still performing well despite the dip in earnings for 2008. Such assessment of better performance as against competitors may be deemed to have shown that the company is more resilient than the rest of the players in the Australian bank industry in the light of the slowing down of the economy in the latter part of 2008. The better result of performance that had had caused Bendigo and Adelaide Bank to remain as the regional leader in navigating the tougher banking market, despite the increased hedging charges and several soured commercial property loans that had cause 15 per cent fall in the of its earnings, was attributed by its managing director Rob Hunt to better competitive position of smaller banks compared with larger banks (Invest Smart, 2009). Mr Hunt who has announced retirement in middle of the year, found the company to have its competitive landscape with differentiated approach compared with Big Four Banks of Australia who had to tighten their grip last years because of financial crisis that has affected not only Australia but many parts of the world (Invest Smart, 2009).

As for the accounting numbers affecting the company, an increase in bad debt charges from $3.7 to $25.5 million last year was reported due to the increased provisions across four commercial property plans that had soured during the said period. It may be asserted that provisions for bad debt involve an estimate of figures because of justifiable events that must be reflected as required by accounting standards. Another clear effect of the accounting rules interpretation and implementation by the company is treatment of hedging position during mergers, which had wiped out $43.7 million from earnings (Bendigo and Adelaide Bank Limited, 2009). In other words, the merger has produced reduced earnings in terms of accounting numbers, which need not be actual cash figures.


It can be concluded that Bendigo and Adelaide Bank was found to have affected its accounting strategy in accordance with requires the use of Australian Accounting standards and other laws affecting the company. It has done the same with proper and responsive accounting policies. That fact that company was issued an unqualified opinion for 2008 by its independent auditor, would point to a presumed accuracy, reliability and relevant of its financial report for decision-making. There may be estimates used by the company in preparation of reported numbers but the same was still those allowed by the generally acceptable accounting standard. This has shown an evidence of the company’s flexibility in the management in matters of accounting policies and the employment accounting strategy employed to affect such accounting policy. Although the company may have to be motivated to have the choice of accounting strategy that would go with wealth maximization objective (Bernstein, 1993; Brigham, and Houston, 2002; Byars, 1991), external standards of accounting and other laws are imposed to regulate such flexibility. This paper has also determined the quality of company’s disclosure of information made in the accounts which adequate. Questionable accounting numbers appears implied to come from those that required the use of estimated but an attempt to undo possible distortions in the numbers provided by management by using a footnote disclosures and other information in the annual report could no longer be done since present disclosure was found adequate. A summary about any financial press discussion of the company’s performance and accounting numbers were shown were basically the company has done well in the industry although with lower earning and the merger has cause effect on accounting numbers by lowering the earnings.


  1. Australian Accounting Standards Board (2009) AASB 1031, {www documents}
  2. Bendigo and Adelaide Bank Limited (2009) 2008 Annual Report {www documents}
  3. Bernstein, J. (1993) Financial Statement Analysis, IRWIN, Sydney, Australia
  4. Brigham, E. and Houston, J. (2002) Fundamentals of Financial Management, Thomson South-Western, London, UK
  5. Byars, L. (1991) Strategic Management, Formulation and Implementation – Concepts and Cases, New York: HarperCollins
  6. Invest Smart (2009) , Bendigo OK despite dip in earnings,{www document}
  7. Meigs, R,. Meigs, W., & Meigs, M. (1995) Financial Accounting, McGraw-Hill, London, UK
  8. Ross et. al (1996) Essentials of Corporate Finance ,IRWIN, London, UK
  9. Van Horne, J.C. (1992), Financial Management Policy, Prentice-Hall, Inc., London, UK
  10. Whittington & Pany (1995) Principles of Auditing , IRWIN, London, UK

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