Discussion Of Reconstructing To Gather New Product Ideas: Financial Analysis And Compliance With Continuous Disclosure Obligations

Overview of Company Restructuring and Product Ideas

Question:

Discuss About The Reconstruct So Gather New Products Ideas?

The company went under the wings of a new leader. Under his leadership, the company went on to spread its wings in other operations and also, began to restructure itself and also reconstruct so as to gather new products ideas. The company had been doing so that it could improve the cash flows and also reduce in the operating losses that it has been suffering from.

The company’s amount of the goodwill has reduced. This could be due to the loss in the operating profits of the company. There is also a decrease in the amount of the investment in the subsidiary. The decrease is at least by 50%. The cash position of the company has again reduced. The company has earned losses in all the 3 segments of the cash flow statement. The first being the cash flows from operating activities, second being the cash flows from investing activities and the third being the cash flows from financing activities.

The above table shows that there has been a major increase in the amount of the selling and distribution expenses. The company has also increased the amount that it spent towards the administration expenses. The company had 0 impairment during the year 2015 and now, it has the impairment loss of about $90,000 thousand. The rise in the expenses is mainly due to the increase in the amount of the revenue as well. The revenue of the company increased to up to 3 times.

Any investor would like to have an investment that is able to give him profit when he sells his investment along with a regular return on his investment. But as the annual report of the year 2016 states , the company was not able to comply with its targets that were set earlier and also went on to restructure itself and reprogram itself. This shows that the company is still inventing and in the course of hit and trial method. Hence, the investment in this company is not recommended.

As per the listing rule 3.1, each company is duty bound to disclose the information which could affect any prudent investor from making an investment in the company.

• Any information that would result in the change in the activities or on the transactions of the company
• Any information that is mineral or hydrocarbon discovery
• Any information which is related with the material acquisition or the disposals of any asset
• Any information which is related with the granting or withdrawal of any material license
• Any information which pertains to the variation or the termination of any material agreement
• Any information which is related to the plaintiff or defendant in any case pending in court
• Any information which would affect the share price of the company in the market
• Any information which would lead to a change in the expectations in the market
• Any information which relates with the appointment of any liquidator etc. of the company
• Any information related with the event of default under or in an event which entitles the financier to terminate or any material which affects the material financial facility
• Any information which is related to the subscription of the securities or with the issue of the securities
• Giving or receiving of the notice which intends to make a takeover of the company
• Any rating that would be applied by the rating agency to the entity or its securities
• Change information which pertains to the stated change in the rating given by the agency to the company

The investors are prone to some information which relates with the issue of securities. There is a broad set information which is available at the disposal of the investors. Such is the information which varies all across the dimensions of the business and its characteristics which includes in the timeliness, quality, routine etc. There are many pieces of information which are of an utmost importance for the investors. The example include the record of the past earnings of the company, forecasts of the earnings etc. another is the example of the voluntary earnings of the company which have been estimated by the management. These are the issues that are of interest for the investors. There is an improved disclosure of the activities due to the implications for the efficiency in the capital market and due to the subsequent allocation of the resources in the economy. The increased and the timely disclosure of the information would lead to lesser insider trading of the information available with the management.

Financial Analysis: Changes in Cash Flow, Expenses, and Earnings

It puts pressure on the boards that requires in the bold and clear regulatory response. This is the current uncertainty which merely means that the country is having an increased balanced approach when it comes to following of these rules and is also transparent market when the same is at stake.

Even when the intention of the ASX is the relaxation of the disclosure obligations which allows the listed companies to meet the commercial objectives, changes to this rule is required and hence, must be same. Rather it would be good if the country could adopted the periodic disclosure approach which is being followed currently in the country of the United States. The main reason for the launch of this rule was the fact that after the year 2000, there were many of the legislative changes along with an increased enforcement action by the ASIC that led to the increased disclosure of the forecasts of the management’s earnings which were non routine in nature. In respect of the routine forecasts, there was a significant increase in the disclosure of the forecast which has been observed. This is just in line with the finding that there is an increased disclosure which serves as the bad news for the non-routine forecasts.

The reason behind this was not only reducing the amount of the information which is available between the managers and the investors but also, between the difference categories of the investors. An effective and a timely disclosure serves as a good measure of the good governance and also reinforces in the principles 5 which relates with the principles and the recommendations of corporate governance. When a company breaches this rule, then the company would be exposed to civil penalty proceedings and has a maximum fine of $ 1 million accompanied by the penalty proceedings and the enforceable undertakings and with the use of the infringement notices that were introduced in the year 2004. Even if the company complies with the infringement notice, even then the ASIC would go against the company to levy the penalty as against the company but this penalty would never affect the right of the third parties that would have been affected by the conduct of the company. This is as per section 1317 HA (the conversation, 2017).

The primary motive for this is to gain an understanding and the confidence, and the participation by the investors in the securities market. This is further expected to improve in depth, liquidity and the efficiency of these markets. This rule would make sure that the share price of the securities in the market indicates the correct underlying economic value of the same. It would reduce in the volatility of the prices of the securities since the investors have an access to an increased amount of information all about disclosing in the performance and the prospects of the entity and the information could be rapidly be factored into the prices of the securities of the company. This affects the information which is price sensitive. The following of this rule would minimise in the risk of any information which is not available in the market from being used by the investors so as to achieve a windfall gain. Also, there are some of the other forms of market abuses that could result in the withholding of the disclosing of the materially sensitive information.

Compliance with Continuous Disclosure Obligations and Importance of Robust Compliance Systems

This information is of an utmost importance and this information must not be made available to any person or any third party unless and until it is made available for the use by the general public. There are some of the exceptions to this rule: the first being the information that is not permitted by rules and the regulations in the environment in which the company operates. These exceptions have the limited allowance for the communications between the rating agencies and the advisers in the normal course of the business (Thomson reuters, 2017). There is a communication with the person with whom the company has been negotiate. Or even intends to negotiate. In all of the above cases, the people in possession of this information have to keep in the information confidential and to themselves (FSA, 2017).

The exceptions to this rule are termed as the safe harbour rules. These are the provisions or the rules that permit the disallowance of the formation form being available to the public in case, certain conditions are met. These conditions are as follows:

• Any information would not be made available to the people when any person is not expected to possess the same
• Any information would not be made available to the people which relates to the breach of any rule or regulation of law (NZX,2017).

The compliance of this rule is very necessary. And also vital for each and every ASC listed company. The company in addition to following up of this rule has to have a strong compliance system which would help in raising the dense of the people that are involved in the contravention of these obligations.

Section 674 (2B) of the Corporations Act, 2001 states the fact that the due diligence defence could take place when any reasonable person had exercised a reasonable care and carried on his duty so as to not make such of the information public. He ensured the compliance by helping the company in complying with this obligation and believed on a reasonable ground that the company complied with such obligation.

When a company has a robust compliance system, then that shows that it took all reasonable precautions and had all the procedures in place so as to avoid any breaches of this rule (Claytonutz, 2017).

In the nutshell, the introduction of this rule is good for the company because each investor plays with his own brain. Each investor is exposed to the same quality of the information as each one does. Exposing one to limited information about the company and exposing the other to immense information about the company would give an undue advantage to the investor that has limited amount of information. Hence, this is not good and though this rule is now. But I am confident that this new rule would serve the purpose for which the same has been introduced.

References:

Compliance with continuous disclosure obligations – Knowledge – Clayton Utz. (2017). Claytonutz.com. Retrieved 13 September 2017, from https://www.claytonutz.com/knowledge/2008/january/compliance-with-continuous-disclosure-obligations

Continuous Disclosure. (2014). nzx.com. Retrieved 13 September 2017, from https://nzx.com/files/static/cms-documents/Final%20Continuous%20Disclosure%20Guidance%20Note%2019%20December%202014%20(1).pdf

Explainer: Continuous disclosure obligations. (2017). The Conversation. Management 13 September 2017, from https://theconversation.com/explainer-continuous-disclosure-obligations-16894

North, G. (2017). A call for bold and effective disclosure framework. sites.thomsonreuters.com.au. Retrieved 13 September 2017, from https://sites.thomsonreuters.com.au/journals/files/2010/10/j04_v028_CSLJ_pt05_north.pdf

Part 8. (2017). Archive.treasury.gov.au. Retrieved 13 September 2017, from https://archive.treasury.gov.au/documents/403/HTML/docshell.asp?URL=Ch8.asp

Principles for Ongoing Disclosure and Material Development Reporting by Listed accounting. (2017). www.fsa.go.jp. Retrieved 13 September 2017, from https://www.fsa.go.jp/inter/ios/press05.pdf