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ACCT71-303 Accounting Theory And Application

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The aim of the assignment is for students to:
(i) Investigate a contemporary reporting issue and apply the theories from the subject to interpret current reporting practice and reporting options (Empirical Analysis and Report)
(ii) Develop a research proposal for a potential research topic.



Treasury Wine Estates Ltd (TWE) demerged from Foster’s Group in 2011 and became a global wine company based in Australia. Being within the top five wine producers throughout the world it is the owner of a portfolio that is inclusive of Pinfold’s & Wolf Bass, 19 Crimes, Maison de Grand Esprit as well as US wines like St Jean and Sterling. The company owns a treasury with nearby 13000 planted hectares having over 130 wineries. It remained on track through hitting a 25 % operating income growth by the end of the fiscal year 2017. On the other hand Tassel Group Limited (TGR) has its engagement in farming, hatching and marketing of Tasmanian grown smoked, frozen and canned Atlantic salmon where it integrated the seafood processor and salmon growers along with marketers and bottom line sellers. It produces almost 10 million smelt per year through its operation over 3 hatcheries. 15.4 kilograms of final products are produced per minute which added up to 3050 tons on average every year.


Treasury Wine Estates (TWE) & Tassel Group Limited (TGR) Data Analysis

The data represented below provides the changes in the GAAP and Non-GAAP earnings of the company and based on the market beta, the respective abnormal returns are shown as follows: 

Through the event study method significant aspects are found in case of changes in the GAAP earnings and the non-GAAP earnings for 0 day after announcement, 1 day after the announcement and 2 day after annocement. For the 0th day after announcement significance is being found in 19/08/2015, 18/02/2015 and 18/08/2016. For the 1st day after announcement on   16/02/2011, 28/02/2013 and 13/02/2017, the changes in case of 17/02/2011, 01/03/2013 and 14/02/2017, the value of GAAP and Non – GAAP earnings are found to be positive except 14/02/2017. It is been found that 2nd day after  announcement is done on 16/02/2012, 28/02/2013,  for which the market reacted significantly upon the information on 18/02/2012, 02/03/2016. In all the cases the GAAP and Non – GAAP earnings are positive. However, the change in the GAAP earnings which is the net profit bor statutary profits are positive while the changes in the Non- GAAP earnings the values are negative. Thus is is been seen that even when the chages in the GAAP earnnings found to get increased, the Non-GAAP earnings have decreased significantly. The market found to react upon this financial information significantly at 5 % level

It is  been found that in this period the annoucement that is being made helped it in th challenging economy. The income statement reveals that the company had EBITS of 210.2 million in this periiod which ensured its strong perofrmance within the period of 2011-2012 financial year. Apart from that it strategized its buisness endeavors by excluding it from UK & Ireland where volumes declined by 1.6 millions due to its inability to make financial sense out of its investments. The change in 2016 in TWE took place due to its acquisition of Diageo’s Wine potfolio while tye cchange in 2-011 w, 2012 as well as 2013 impacted the market price after their announcement of demergeer with Foster Wine. Tassal group on the other hand have its merger formation where retailers supported sales and non-current inventory raised by 84 % which improved the NSR by 1.6 %. The rise in EPS is 14.8 % per share which contributed  for a ful year dividend of 13 %. Moreover, net debt was down by 34.4 million due to its operational and strategic flexibility. The volatility in the European economy was thus surpassed though maintaining an increase in GAAP earnings by 17.3 % million (Clinch et al., 2018). Thus the financial decisions where freed from its oerational performance or tax environments. Howevrer, the true performance of the company are being revealed by the Non – GAAP earnings which included cash earnings, adjusted EPS, operating earnings and adjusted operating income of Treasury Wine Estates (TWE). Moreover, in case of Tassel Group Limited (TGR) the non GAAP earnings have a positive change in few periods where the non GAAP values have risen. However, in those periods the GAAP earnings have and the net profit after tax has confronted a minute declination. This shows that the operating expenses and profit actually reverses the GAAP accounting distortion across the companies on a consistent basis.

It can be concluded based on the analysis that the Non-GAAP earnings are the measurements of profit for both the companies in actual terms and for this reason this ar not always included in the financial disclosure. The GAAP earnings are reflects of net profit or statutory profits. However, Non-GAAP earnings reflects the best possible figures and the actual financial health of a company towards its investors. Based on the GAAP rules, the quarterly financial reports provides investors a composite representation of the company’s cash flow and other financial transactions. Whereas the non-GAAP earnings includes more credible results which excludes the impact of the large non-recurring events as for example the sales or purchase of major assets. The non-GAAP earnings provides a way of evaluation of the operational performance of the companies under consideration which are not dependent upon its financial decisions.



The GAAP earnings are utilized to provide an overview of any company’s financial performance. In this process the financial statements renders information based on the existing financial health of the company and being abided by the GAAP rules (Venter et al., 2014). However, the non GAAP earnings are the parametric factor which help investors to delve into the depth of the financial state of any company (Isidro & Marques, 2015). In the present case the companies undertaken are Treasury Wine Estates (TWE) & Tassel Group Limited (TGR).  Through the GAAP and Non-GAAP earnings the obtained information provides sufficient details to the investors regarding the operational performance of the company which are not influenced by the financial decisions undertaken by TWE & TGR.   In order to investigate on the relationship between operational aspects of the company which are latent. However, the financial decisions are revealed due to non-GAAP earnings. Research needs to conduct over the relationship between non-GAAP earnings and how the operational performance becomes latent due to financial decision making which is the objective of the research.

The research questions for the study can be incorporated as follows:

Does the operating profit reverses the GAAP accounting distortion across the companies on a consistent basis?

Research Hypothesis

The null hypothesis can be reflected as follows:

H0 = Operating profit reverses the GAAP accounting distortion across the companies on a consistent basis

The alternative hypothesis can be incorporated as follows:

H1 = Operating profit does not reverses the GAAP accounting distortion across the companies on a consistent basis.


Review of Literature

According to Ciesielski & Henry (2017) the real estate companies requires extensive use of representing their adjusted earnings which do not highlight the true scenario of the organizational financial performance. GAAP earnings maintains a uniformity within companies regarding their financial reports. On the other hand the non-GAAP earnings provides a high quality information as it excludes the impact of one-time items or unusual items. The paper basically incorporates the fundamental aspects of the income statement where in case the non-GAAP earnings plays a better role than only the GAAP earnings.

According to Charitou et al., (2018) non GAAP earnings provides privilege to the company based on their local authoritarian needs of preparing financial statements or for incorporating local regulations or for adding new management perspectives for betterment of the company. Since non-recurring items like restructuring charges, one-off gains or losses in major assets, goodwill impairments, etc. are excluded in the non-GAAP earnings hence it provides a better reliable and comparable financial information.

In accordance with Black et al., (2017) from conceptual perspective of the financial information it is a fact that the non-GAAP earnings provide a better information regarding the financial state of some companies though it lacks in merit for providing a clearly understandable reporting once  it becomes more frequent or regular in use. The GAAP provides a uniform financial information in this respect that is acceptable and understandable from all respect. Moreover, the non-GAAP earnings across companies lacks in providing standard definitions that are consistent throughout all companies.

According to Bhattacharya et al., (2015) investors are found to give more focus upon the non-GAAP measure rather than the GAAP figures which makes the less – sophisticated investors to become at more risk to get misled. It was also reflected in the study that the true motivation of the mangers for reporting certain numbers in financial terms are understood for their desire to beat the expectations of the analysts as well as for avoiding decreases in earnings. The paper revealed that the non-GAAP earnings help the investors to communicate better with the financial state of the companies though it lacks in keeping a uniformity across the industry.


Materials & Methods

The data collection procedure based on quantitative research design can be utilized as an effective way to conduct the research. Information from different secondary sources may be utilized followed by annual reports of companies. The secondary data and information thus obtained will be further analyzed with the help of statistical tools to understand the nature of relationship that exists between the operational performances and financial decision making of the companies that uses GAAP rules for revealing financial information.

Limitations of the Research

The research paper also needs to examine that whether the true profitability is better understood by the investors through the non-GAAP earnings measurements and whether the non-GAAP earnings use rules by inflating the reports of growth and profitability of any organization. These are not thoroughly reflected through this study but further research is needed on this aspect (Leung & Veenman, 2018).

Future of the Research

The research will provide scope on understanding the flaws and fortes of the non-GAAP earnings and how it can help the investors to understand the financial condition of organization that behaves in similar manner due to uniformity of the GAAP rules implemented upon them for financial understanding of information regarding the company’s financial health. This paper will reflect will rejuvenate the existing relationship between operational health and financial health of the companies and will reveal the true financial state that becomes latent due to implementation of GAAP rules in their financial statements.

Gantt chart


Week 1

Week 2

Week 3

Week 4

Week 5

Week 6

Week 7

Introduction of the Research








Literature Review








Research methodology








Data analysis








Data collection








Conclusion and Recommendations








Final Submission











Bhattacharya, N., Christensen, T., Liao, Q., & Ouyang, B. (2015). Can Short Sellers Constrain Opportunistic Non-GAAP Earnings Reporting?

Black, D. E., Christensen, T. E., Ciesielski, J. T., & Whipple, B. C. (2017). Non-GAAP Earnings: A Consistency and Comparability Crisis?

Black, D. E., Christensen, T. E., Ciesielski, J. T., & Whipple, B. C. (2018). Non?GAAP reporting: Evidence from academia and current practice. Journal of Business Finance & Accounting, 45(3-4), 259-294.

Black, E. L., Christensen, T. E., Kiosse, P. V., & Steffen, T. D. (2017). Has the Regulation of Non-GAAP Disclosures Influenced Managers’ Use of Aggressive Earnings Exclusions?. Journal of Accounting, Auditing & Finance, 32(2), 209-240.

Black, E. L., Christensen, T. E., Taylor Joo, T., & Schmardebeck, R. (2017). The relation between earnings management and non?GAAP reporting. Contemporary Accounting Research, 34(2), 750-782.

Charitou, A., Floropoulos, N., Karamanou, I., & Loizides, G. (2018). Non-GAAP Earnings Disclosures on the Face of the Income Statement by UK Firms: The Effect on Market Liquidity. The International Journal of Accounting, 53(3), 183-202.

Ciesielski, J. T., & Henry, E. (2017). Accounting’s Tower of Babel: Key Considerations in Assessing Non-GAAP Earnings. Financial Analysts Journal, 73(2), 34-50.

Clinch, G., Tarca, A., & Wee, M. (2018). The value relevance of IFRS earnings totals and subtotals and non-GAAP performance measures.

Isidro, H., & Marques, A. (2015). The role of institutional and economic factors in the strategic use of non-GAAP disclosures to beat earnings benchmarks. European Accounting Review, 24(1), 95-128.

Kothari, S. P. (2017). High Non-GAAP Earnings Predict Abnormally High CEO Pay.

Leung, E., & Veenman, D. (2018). Non?GAAP earnings disclosure in loss firms. Journal of Accounting Research, 56(4), 1083-1137.

Venter, E. R., Emanuel, D., & Cahan, S. F. (2014). The value relevance of mandatory non?GAAP earnings. Abacus, 50(1), 1-24.


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