Corporate Social Responsibility And Environmental Management

Background of the companies

Discuss about the Corporate Social Responsibility and Environmental Management.

The following report presents the analysis of the financial reports of the two organizations based in Australia and listed on the Australian Securities Exchange. In order to evaluate the annual reports for the latest years the selected companies are Woolworths Limited and Wesfarmers Limited engaged in the business under retail industries being the largest companies in Australia. Both the organizations are strong competitors in the same sector specializes in the sale of food products including other diversified products. The report highlights the compliance of conceptual framework and requirements of AASB standards for preparing and presenting the financial reports for the use of stakeholders. Further, the report presents the level of prudence by addressing the disparity in Corporate Reporting for both the organizations along with the identification of differences in the disclosures financial information of the corporation. The presentation of report has been done by considering the latest annual reports and the principles of conceptual framework as well as standards of Australian Accounting Standards Board (AASB).

Woolworths Limited is the second largest retailing organization in Australia, which was founded in the year 1924 and serves New Zealand and India other than Australian region. The company is listed on the ASX and valued $30.2 billion with the operating income $1.6 billion while the employees’ strength of 202,000 operating in more than 3,800 locations in the Australian region. The organization primarily works on the division of Australian food and Petrol which represents the two third of its total revenue ($39.4 million), drinks group generating revenue around ($7.58 million), and other departmental stores and hotels including the liquor stores that generates the income of around $6.53 million (Woolworths 2016).

Wesfarmers Limited, founded in the year 1914 is a largest retailing conglomerate organization in Australia having its headquarters in Western Australia that serves the region of New Zealand, United Kingdom, Ireland and Bangladesh apart from Australia. The organization is listed on the ASX and valued $40.4 billion with the operating income $3.6 billion while the employees’ strength of 205,000 and operates in more than 4,000 locations in the Australian region. The primary business of the company constitutes full- service supermarkets earning the revenue around $36.4 million, liquor outlets ($6.58 million), hotels and stores of fuel and convenience ($8.73 million) (Wesfarmers.com.au 2016).

Conceptual framework refers to the analytical model that involves several variations and principles to prepare and present the financial information of the organization. For the Australian companies the conceptual framework is regulated by AASB in order to determine the use of financial statements for the users with respect to the nature, time and extent of the financial information (Erb and Pelger 2015). It requires the entity to recognize the financial information considering the prudence level and on accrual basis to record the expenses and incomes. Additionally, the conceptual framework requires the recognition of assets and liabilities to gather the relevant information for the reporting financial year to obtain the true and fair view on the results of the organizational performance (Biddle et al. 2015).

Compliance of conceptual framework and AASB standard requirements

The primary requirement of the conceptual framework for preparing the financial report is accrual basis and going concern basis to determine the organizational stability, sustainability and maximization of profitability (Xu and Gursoy 2015). Considering the annual report of Woolworths Limited both the requirements on accrual basis and going concern have been complied reflecting the increase in earnings in the recent financial years. The report presented the information on sales revenue as per the group business before and after corporate tax, which discloses the compliance of accounting principles. The organization recognized its revenue income stating the consolidation income in order with the standards on consolidated accounting that reflected the consolidated profit of $2,146 million (Woolworths 2016). Further, the expenses and other financial charges that have been paid during the reporting year had been recorded in the income statement while the payments not made recognized in the statement of financial position (Lang and Stice-Lawrence 2015). For instance, interim dividend paid has been recorded in the profit and loss statement while the final dividend payable has been recorded in the statement of financial position as liability (refer appendix 1 and 2).

The primary characteristic of conceptual framework include relevance, reliability and prudence level that assist in presenting true and fair financial statements. Relevance concept states recording and recognizing the relevant financial information for the users to provide useful information about the company’s business activities. Reliability is an essential characteristic by which reliable and material information on organizational performance can be determined. Further, prudence level refers the recognition of financial information in a conservative approach that the income and revenues are not overestimated while the expenses are not underestimated to present unrealistic profitability (Erb and Pelger 2015).

Similarly, the annual report of the Wesfarmers Limited’s annual report had been prepared by following the requirements of conceptual framework on recognizing the financial information. The organization recognized its income and expenses by following the prudence level on accrual basis while the assets and liabilities at fair value (refer appendix 3). The company had prepared its annual reports based on the standards of consolidation as per AASB considering the same reporting period for subsidiaries. Further, the accounting of the subsidiaries related to foreign currency had been translated to Australian currency to indicate the equivalent value for the benefit of users (refer appendix 4). In order to present, the disclosure on future events that are material to the performance of the current reporting period had been presented by following the estimates of group’s accounting policies (Wesfarmers.com.au 2016). The organization also presented the segment information as per the requirements of AASB on disclosures of segmentation information, which represents the compliance of accounting conceptual framework (refer appendix 5).

Prudence level addressing the disparity in Corporate Reporting

The level of prudence for preparing and presenting the financial statements of the organizations refer to the application of reasonable estimates for recognizing the incomes and expenses and probable losses. According to the accounting policies and principles the incomes or revenues should not be overestimated and the expenses or losses should not be underestimated to reflect the maximum profitability (Guerreiro, Rodrigues and Craig 2015). Moreover, corporate reporting refers to the recognition and disclosure of financial information in the areas of integrated reporting, financial reporting, corporate governance and corporate responsibility statements. For the purpose of presenting the organizational information in the reporting statements the management of the companies is required to follow the prudence concept along with the compliance of other regulations (Martínez?Ferrero, Garcia?Sanchez and Cuadrado?Ballesteros 2015).

For presenting the report on corporate governance, it is essential to present the contribution of directors of the company, effective performance of the management as well as compliance of relevant regulations. It further discloses the relationship strength of the company with that of the consumers, stakeholders and community (Ortas, Gallego?Alvarez and Álvarez Etxeberria 2015). Accordingly, the corporate governance statement of Woolworths Limited represents the information on number of shareholding of equities along with the details of shareholding by top 20 largest shareholders (refer appendix 6). However, the Wesfarmers Limited presents the overview on corporate governance for maintain the business values for investors and shareholders, framework of which had been formed by the Board of Wesfarmers. The organization duly reported on the managing the use of water as well as maintaining the recycling process to reduce the product wastes that resulted in increase in production (refer appendix 7).

Further, compliance of conceptual framework should be revised to recognize and represent the provisional expenses and losses during the reporting period. There must be standard rates and limits in the value of recognizing such provisions based on the benchmark income of the organization to eliminate the disparity in corporate reporting (Francis et al. 2015). For instance, the provisions of Woolworths had been estimated for employee benefits, self-insurance and restructuring based on the 12 months for annual leave and long service leave and the discounting rates that is not mentioned (Woolworths 2016). On the contrary, provisions of Wesfarmers Limited had been recognized based on amount of services provided by the employees until the reporting date and cost rates (Wesfarmers.com.au 2016). For recognizing the provisions on leases, the organization considered the estimates based on the future inflation, return on investment, development in claim and expenses on administration (refer appendix 8 and 9). Additionally, the conceptual framework principles can be revised for recognizing the value of fixed assets to recover the disparity in Corporate Reporting along with the compliance of prudence basis. Certain organizations report the value of fixed assets as per the historical price while certain organizations measures the reporting value according to the fair value or written down value (Preiato, Brown and Tarca 2015). Therefore, in order to eliminate the disparity in Corporate Reporting the requirements of the conceptual framework should be revised to present the financial information in identical manner based on the prudence level (Franco et al. 2015).

Corporate Social Responsibility

The presentation of annual reports of the both the organizations Woolworths and Wesfarmers are almost identical though there are certain differences in the recognition and representing the business information. The annual report of Woolworths Limited presents a separate report on Material Business Risk while in case of annual report of Wesfarmers Limited, there is no such report had been presented. Further, the annual report of Wesfarmers presents the financial history for five years, which is not presented by the Woolworths separately however, the Woolworths organization presented plans on capital management and space rollout (Woolworths 2016). Further, estimates and judgments to measure the financial value of the incomes, expenses, assets and liabilities Woolworths followed the estimates based on historical experience and current market conditions. On the other hand, estimates and judgments for preparing financial statements of Wesfarmers considered on the basis of future events with respect to the valuation of inventories, fixed assets, income, provisions and other relevant financial information. The annual report of Wesfarmers represented the details on capital management, activities of funding with respect to proceeds and repayments of borrowings, acquisition and information on discontinued operations (Wesfarmers.com.au 2016). Moreover, such details are not present in the annual report of Woolworths separately that assists in analyzing the organizational efficiency in managing the capital funds, amount of borrowings and details on operations including the acquisition information.

Presentation of segmentation reporting was also different for both these organizations though the disclosure had been done as per the principles and standards of AASB. Segment disclosure for Woolworths Limited had been presented based on the operating segment and geographical information by elaborating each of the material information (Woolworths 2016). Besides, the segment disclosure of Wesfarmers Limited presented a brief description with respect to the product information and geographical information. In addition to this, measurement and recognition of employee benefits expenditure, operating leases, rental payments, depreciation and capitalization of borrowing costs of Woolworths Limited and Wesfarmers Limited are different. Management of Woolworths Limited measured the expenses and contingent provisions based on the fair value method while Wesfarmers considered the measurement on the basis of historical experience and results. Presentation of dividend amount of Woolworths Limited differs from that of Wesfarmers indicating the interim dividend paid and final dividend payable to the shareholders for the reporting year. Woolworths Limited presented the total payment of dividend in the reporting year with respect to the current year’s interim dividend and previous year’s final dividend due amount (Woolworths 2016). Further, payments of dividend during the reporting year in terms of ordinary shares, shares under DRP and Treasury had been represented separately (refer appendix 10). On the contrary, information of dividend payment and due to be paid for Wesfarmers had been presented as payments, proposed dividend and franking credit balance for the reporting period (refer appendix 11).

Environmental Management

In view of the above discussions and analysis of preparation and presentation of annual report of the both the selected organizations, it can be suggested that there should be appropriate disclosure of business information. However, both the companies, Woolworths and Wesfarmers complied the requirements of conceptual framework and AASB it is recommended to follow a benchmark format for presenting the financial information and relevant disclosures. There are certain business information that have been presented clearly in the financial report of Woolworths while it is not presented by Wesfarmers. Accordingly, it is recommended that there must be mandatory requirements on presenting the information on business risk that are material, details on capital management and details on borrowing funds. Such information assists the users and investors to evaluate the organizational performance and position during the reporting period. In addition to this, Wesfarmers Limited is suggested to present the segment disclosure by elaborating the clear information on geographical information, product segmentation and business operation information. In case of estimates and judgments, Woolworths followed historical experience, which might not reflect fair valuation due to the inflation or other change in economy. Therefore, the organization is recommended to follow reasonable future events to measure the financial information based on the estimates and judgments.    

Conclusion

Considering the analysis and evaluation of preparation and presentation of annual report of Woolworths and Wesfarmers Limited, it can be concluded that the organizations had duly met the requirements of accounting principles. It had been noticed that Woolworths and Wesfarmers complied the requirements of conceptual framework and the standards of AASB for recognizing the financial information and material disclosures. Further, the organizations presented the relevant corporate social responsibility report and corporate governance report to disclose the compliance of legal regulations for the welfare of society and community. In order to record and recognize the financial information to present the true and fair view it is significant to follow the accrual basis, going concern and prudence level. It had been observed that Woolworths and Wesfarmers had complied the significant principles of accounting to represent the financial data and business information for the reporting period. Such presentation provides the users to analyze the organizational performance during the year, which assists in taking business and investment decisions along with the evaluation of financial position during the year.

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