Evaluating Financial Information In ASX Listed Organizations' Annual Report: Incorporating Social Accountability (Essay)

“Social accountability is considered in the (AASB Conceptual) Framework as part of the objectives of general purpose financial reports (GPFR).”

In this report, you should address the points outlined below:

1) Provide your comments regarding the aforementioned statement. Explain.

2) Based on the analysis of Australian financial regulatory framework, explain why   it is necessary to establish and develop AASBs in Australian business practices.

3) Examine what types of information are provided in the annual report of your chosen company.

4) Explain what the incentives are for the managers to disclose certain types of information in the annual report.

5) In your opinion, from the perspective of the investors and securities market, discuss how the investors or securities markets will react to the disclosures of certain information provided in the annual report, which are discussed in item 3), or in other sources. Provide appropriate evidence to demonstrate your arguments.

6) Demonstration effective communication and presentation

The quality of the report will be assessed based on the following four areas:

1) Demonstrate and identify the accounting concepts applied.

2) Use paragraphs from related Australian Accounting Standards as guidelines to   support your discussion.

3) Provide examples or evidence from the annual report or other sources to illustrate   the concept(s) or principle(s) discussed.

4) Demonstrate effective communication, referencing, logical presentation and integrated evaluation.

The Importance of Social Accountability in GPFR

The current report intends to investigate the inclusion of social accountability in the conceptual framework of AASB as a portion of the objectives mentioned in general purpose financial reports (GPFR). The second section would lay stress on developing and establishing AASBs in the business practices of Australia. The next section would emphasise on evaluating the financial information disclosed in the annual report of an ASX listed organisation. For this reason, Coles Group Limited is taken into consideration, which is a subsidiary of Wesfarmers Limited operating numerous retail chains in Australia (Coles.com.au 2019). After this, evaluation would be made regarding the incentives of the managers in disclosing various kinds of information in the annual report of the chosen organisation. Finally, the report would shed light on the viewpoints of the investors and securities market to the disclosures of certain information in the annual report of the organisation.

Social accounting includes communication of the impact of an organisation in terms of both economic and social aspects to a specific group of stakeholders and the overall society. The main reason that social accountability is included in GPFR is that the organisation pool inputs and resources from the society; therefore, influencing the community welfare surrounding it. With the help of social accountability, it becomes possible to assure that the organisations meet their social responsibilities to the community. This would assist the management team of an organisation in devising out strategies conforming to the public society (Barker 2015).

Secondly, it reduces the possibility of scandals owing to unethical behaviours for benefitting different stakeholder groups. In other words, social accountability assures that the products provided to the public are safe and prices are fair. Besides, it ensures equal treatment to the staffs along with upholding their rights while complying with the stakeholder interests. This would showcase favourable brand image of an organisation due to the commitments shown on its parts (Davidson, Dey and Smith 2015). By combining all these aspects, social accountability is incorporated in the AASB conceptual framework as a part of the GPFR objectives.

The general purpose financial statements that adhere to the AASB accounting standards need to present fairly the financial performance, financial position and cash flows associated with an Australian organisation. Such development would be beneficial to the investors, owners, analysts, staffs, creditors, regulators and others to undertake and analyse decisions regarding the allocation of scarce economic resources (Dichev 2017). At the time corporations as well as other organisations adhere to the accounting standards, it becomes easy to compare the general purpose financial statements. As a result, the investors and other users of the financial reports could conduct better comparison of the organisations.

Developing and Establishing AASBs in Australian Business Practices

The financial statements provide a way with the help of which the management as well as the governing body of an organisation are responsible to the ones providing resources to the organisation. The provision related to information for accountability purposes is a significant aspect of financial reporting by public sector firms and non-profit entities in the private sector (Gebhardt, Mora and Wagenhofer 2014). Thus, it is necessary to develop and establish AASBs in the Australian business practices.  

After the analysis of the annual report of Coles in 2018, it has been observed that the organisation has made fair presentation and compliance with the necessary accounting standards. As mentioned in “Paragraph 16 of AASB 101”, an organisation is required to undertake unreserved and explicit statement of compliance with IFRS, AASB, IASB and Corporations Act 2001 (Aasb.gov.au 2019). Coles has adhered to this aspect effectively, which could be found from “Page 103 of the Annual Report under About this report section” (Refer to Appendix, Figure 1). The same disclosure is made by the organisation in its past-year annual reports as well.

According to “Paragraph 25 of AASB 101”, at the time of preparing financial reports, the management is required to analyse the ability of its organisation of operating as a going concern (Aasb.gov.au 2019). From the independent auditor’s report of the annual report of the organisation, it has been found that Coles has disclosed this information, which could be found from “Page 150 of the Annual Report” (Refer to Appendix, Figure 2).

“Paragraph 10A of AASB 101” requires the Australian organisations to represent a single statement of comprehensive income and other comprehensive income or two different sections for the two statements (Aasb.gov.au 2019). It has been identified that the organisation has disclosed these two statements separately in its annual report, which could be found in “Pages 98 and 99 of its Annual Report” (Refer to Appendix, Figure 3).

In accordance with “Paragraphs 54-76 of AASB 101”, it is necessary for the ASX listed organisations to include certain line items in its statement of financial position, while its assets and liabilities should be segregated into current and non-current sections (Aasb.gov.au 2019). Coles has adhered to this guideline by disclosing its balance sheet statement according to the prescribed format, which could be found from “Page 100 of its Annual Report” (Refer to Appendix, Figure 4).

Along with this, the organisation has disclosed various line items in its financial statements in the form of notes to financial statements from note 1 to note 14 in its latest annual report. Finally, it has disclosed information related to each operating segment, which could be found from “Pages 106 and 107 of its Annual Report” (Refer to Appendix, Figure 5). Hence, by considering all these aspects, it could be said that Coles Group Limited has disclosed all its relevant financial information in its annual reports by making adequate compliance with the necessary Australian accounting standards.  

Evaluating Financial Information in the Annual Report of ASX Listed Organizations - Coles Group Limited

There are certain incentives for the managers in disclosing various types of information in the annual report, which are represented briefly as follows:

• Competitive forces within the sector, which include other organisations operating in the sector voluntarily publishing information regarding customer turnover, order backlogs and other significant performance indicators (Lin 2015)
• Demands made from the end of the financial analysts for increased or expanded firm disclosure
• Demands made on the part of the activist groups of the shareholders
• Demands created by various debt rating agencies like Standard & Poor’s and Moody’s
• Pressure from external regulatory bodies like Australian Securities and Investments Commission, in which the managers might believe that publishing certain voluntary information might restrict the commission from providing additional disclosures in future (Wahlen, Baginski and Bradshaw 2014)

In case of the managers of Coles Group Limited, they could disclosure pressure release items, which could be published voluntarily. The primary advantage of releasing such information via press releases is that the managers could ensure the availability of the news to the external parties on timely manner in opposition to the disclosures made in annual or quarterly financial statements (Van Mourik and Katsuo 2014). With the help of such press releases, the managers of Coles could have the opportunity of assisting in shaping the ways through which the facts are interpreted.

It has been identified that the investors and securities market need accurate and timely disclosure of financial information in the annual report. More precisely, they want the financial information to be free from errors along with providing accurate picture of the financial condition of the concerned organisation (Whittington 2014). In case of Coles Group Limited, the organisation has presented all its disclosures adequately by complying with the necessary guidelines laid down in AASB, IFRS, IASB and Corporations Act 2001. This ensures that the disclosed financial information of the organisation is free from errors and material misstatements.

The financial statements of Coles are prepared in accordance with “AASB 101 Presentation of Financial Statements”. These include appropriate segregation of relevant income, expenses, assets, liabilities and equity in its financial statement so that the investors could obtain a fair overview of its current standing in the market (Zhang and Andrew 2014). As a result, they could undertake sound investment decisions that would maximise their overall return on investment. Therefore, the investors and the securities market would have positive perception on the financial disclosures made by Coles Group Limited.

Conclusion:

Based on the above discussion, it could be stated that social accountability reduces the possibility of scandals owing to unethical behaviours for benefitting different stakeholder groups. In other words, social accountability assures that the products provided to the public are safe and prices are fair. Moreover, it has been found that the financial statements provide a way with the help of which the management as well as the governing body of an organisation are responsible to the ones providing resources to the organisation. Finally, it has been analysed that Coles Group Limited has made adequate financial disclosures in its annual reports, which would assist the investors and other stakeholder groups in undertaking sound decisions.

References:

Aasb.gov.au., 2019. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf [Accessed 4 Feb. 2019].

Barker, R., 2015. Conservatism, prudence and the IASB's conceptual framework. Accounting and Business Research, 45(4), pp.514-538.

Coles.com.au., 2019. Coles Supermarkets. [online] Available at: https://www.coles.com.au/ [Accessed 4 Feb. 2019].

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Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education.

Wesfarmers.com.au., 2019. [online] Available at: https://www.wesfarmers.com.au/docs/default-source/reports/wes18-044-2018-annual-report.pdf?sfvrsn=4 [Accessed 4 Feb. 2019].

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Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.