* Unexplained changes in accounting, especially when performance is poor | A reduction in CBA’s impairment provision The current level of provisions reflects: * Lower commercial and bankwest individual assessed provisions * A reduction in bankwest collective provisions * A reduction in management overlay Collective provisions and management overlay are subject to judgmental and subject to management discretion.A reduction in impairment provisions means less adverse impact on the profit and loss. * | * Increasing gap between reported income and cash flow from operating activities | reported income of operating cash flow there are many item that reconciles . let’s just say it’s largely driven by the following:Net decrease in asset at fair value through profit and loss Which is offset against decrease in liabilities at fair value through profit and loss and change in operating assets and liabilities arising from cash flow movement | * Unexpected large asset write-offs | On the Group performance analysis,Loan impairment expense:Loan impairment expense in FY12 was $1.1b which is 15% lower than the impairment expense in FY11. Which is driven by: * A substantial decrease in loan impairment expense for the institutional banking and market divisions * A reduction in Bankwest’s loan impairment expense as higher risk business loans continued to run-off * Higher retail bank loan impairment expense due to increased write-off in the unsecured retail portfolio. * | * Increasing gap between accounting income and tax liability | . Effective tax rate of 27.8% which is closed to statutory tax rate of 30% and matained stable effective tax rate between 27.8% and 29.6%.Taxation ExpenseThe corporate tax expense was $2,736 million, representing an effective tax rate of 27.7%. The effective tax rate is below the Australian company tax rate of 30% primarily as a result of the profit earned by the offshore banking unit and in offshore jurisdictions that have lower corporate tax rates. |

Example

5. Questionable accounting numbers (Red Flags)
In Macquarie Bank’s consolidated income statement for the financial year ended 31 March 2006, the significant questionable part is its failure to sufficiently explain the profit which was acquired from its associates and joint ventures and also the profit which is generated by Macquarie bank. The profit attributed to ordinary equity holders of MBL has increased by $104M from 2005 to 2006, whereas the share of net profits of associates and joint venture has increased by $155M from $17M in 2005 to $172M in 2006 business dominate the profit provided to shareholder which means that there are negative profits from