Social Accountability And Financial Reporting In Australian Business

Establishment of AASBs and their Role in Australian Business Practices

Social accountability is an important part of GPFR. Accounting standards used by the Australian business establishments to prepare and present their financial statement in accordance with the Corporation law are generally referred as the AASBs prepared by the AASB (Australian accounting standard board) (Aasb.gov.au 2019).

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

The term accountability is regarded as an imprecise concept. Therefore, it is considered as the separate objective that may require the GPFR (general purpose financial reports) to provide different types of the information such as reporting for social responsibility. Whereas it is already established bu AASB that there is an interrelation between the intended scope for the GPFR and objectives, it shall be directly addressed and shall not define the term inadvertently through expressing the objectives (Luke 2016). Based on the suggestions of AASB, the conceptual framework as an inseparable part of the GPFR shall –

• Include accountability of objectives unambiguously for the purpose of decision making by depicting the concept of accountability as a responsibility to deliver the information that will assist the users of financial statement to make informed decisions. the decisions are taken considering the performance of the entity, its financial position and the compliance made by it while evaluated and made  decisions regarding allocation of scarce resources. This decision will also include analysis regarding the efficiency of management with regard to usage of scarce resources (Luke 2017).
• Describe the user’s decision with regard to distribution of scarce resources including decisions regarding influence of the management’s decision making approaches. Further, the decision shall also focus into the decisions of the management with regard to distribution of scarce resources through voting system or lobby system (Huber 2017).

Hence, it is determined that the social accountability forms part of AASB conceptual framework while following the GPFR.

Requirement of establishment and development of AASBs for Australian business practices

AASB development in Australia involves numerous steps including the procedure for public consultation and accompanying discussion associated with that, wherever applicable. Different disclosure requirements are there for reporting the financial statement and the requirements vary with the types of entity those are particularly based on the level of public interest (Mazhambe 2014). The entities are segregated as follows –

• Small proprietary concerns
• Large proprietary concerns and public companies those are unlisted and fulfils at least 2 criteria from 3 as follows –
• Number of employees 50 or more than that
• Value of gross asset is $ 5 million or more
• Value of gross operating revenue $ 10 million or more
• Disclosing companies including mainly the listed entities and the managed registered undertakings. These organisations have issued share capital or have listed securities from circulation of prospectus (Newberry 2015)

In accordance with AASB all the above mentioned entities are obliged to maintain records associated with the accurate transactions related to finance and accounting. Further, it must enable the preparation of the financial statements and auditing of the statements. Except the small proprietary concerns, all other entities shall prepare financial reports on annual basis. Generally the financial statement includes cash flow statements, balance sheet, income statement and statement of changes in equity (Aasb.gov.au 2019).  Matters required to be disclosed under the financial reports are mentioned in accounting standards issued by AASBs. Apart from that, force of law is applicable on it in accordance with Corporation aw. Further, it has been mentioned in Corporation Law that the companies shall prepare the consolidated financial report wherever it is required by the accounting standard. Apart from that the reported financial statement shall be circulated to the company members and must be lodged with the ASIC (Australian securities and investment commission). Along with meeting the annual disclosure requirements, the disclosing entities shall prepare half-year financial report that is considered as the abridged version of annual financial statement. This half yearly financial report shall also be lodged with the ASIC. However, it is not required to be circulated to the members (Aasb.gov.au 2019).

Types of Information Provided in the Annual Report of Myer Holdings Ltd

Hence, for Australian business establishments it is required to establish and develop the AASB to enhance transparency, eliminating override of true and fair view and improving the requirements related to disclosures.

Information delivered through the annual report of Myer Holdings Ltd

Different information delivered through the annual report of Myer Holdings Ltd for the year closed on 25^th October 2018 are as follows –

• Chairman’s report
• Performance review
• Meet John King, CEO and Managing Director of the company
• Sustainability at Myer
• Year under review
• Director’s report
• Independence declaration of the auditor
• Remuneration report
• Financial statement including cash flow statements, balance sheet, income statement and statement of changes in equity and notes to the financial reports
• Declaration of directors
• Report of independent auditor
• Information of shareholders
• Corporate directory (myer.com.au 2019).

Further, the financial report of the entity is general purpose financial report and prepared as per the requirement of AAS and the interpretation released by AASB and Corporation Act 2001. Myer Holdings Ltd is a for profit organisation in context for preparation of the financial reports. Further, the reports are complied with the IFRS issued by AASB (Investor.myer.com.au 2019).

Disclosure requirements for incentives

For the specified directors and specified executives disclosures are required as follows –

• Total remuneration amount for the reporting period. Remuneration generally includes salaries, bonus, fees, allowances, perquisites, personal benefits, equity investments and personal benefits. However, it does not include the expenses carried out by the employee on behalf of the entity or the subsidiary of the entity. Further, the remuneration must be measured in compliance with AASB 1028 on employee benefits. However, if any particular item is not included under the AASB 1028, the entity shall measure it on the basis of the expenses incurred by it for providing the benefit (Aasb.gov.au 2019).
• Aggregate or total individual remuneration and aggregate for each of the component must be disclosed with regard to –
• Specific directors
• Specific executives
• Disclosure of comparative value for the previous reporting period is not required for individuals who were not categorized as specific for the concerned period. However, disclosure for comparative amount is required for aggregate components and total remuneration
• Further details regarding remuneration to specified directors and specified executives –
• How and whether principle relation is linked between remuneration paid and performance of the company
• Principle used to determine the remuneration nature and amount (Aasb.gov.au 2019).
• For each of the service contract between specified directors and specified executives and the reporting entity explanations shall be there regarding how the remuneration amount is determined. Further, it determines how the terms of contract have an impact on the future period remuneration.
• Terms and condition for granting cash bonus, performance related bonus and share based payment as compensation and impact of the grant on future period remuneration. It includes (i) grant date (ii) nature of remuneration granted (iii)   performance criteria and service criteria used to determine amount of remuneration (iv)alteration of terms and conditions regarding date, impact, grand date, grant amount with all details of alteration, if any (Yong, Lim and Tan 2016).
• Apart from above additional terms and conditions required to be  disclosed are – (i) if shareholder’s approval are required (ii) whether benefits are payable on annual basis or during performance period or at end of grant period (ii) restriction on transfer of equity instrument after vesting, if any.

Remuneration details for Myer Holding Ltd are as follows

Investor’s reaction regarding the disclosures of annual report

On the basis of the information presented in the financial reports the investors take various decisions regarding the liquidity, profitability and solvency. From the financial report of Myer Holdings Ltd, following information generated

It can be identified from the above that the profitability position of the entity has been deteriorated and the company was not able to generate any profit for the year 2018. Hence, the entity’s profit earning ability has been worsened over the years. Looking into the current ratio of the entity it can be stated that the liquidity position of the company has been improved as the current ratio has been increased to 1.46 in 2018 from 1.35 in 2017. Hence, the ability of the company to meet its short term obligation has been improved (Penman 2015). If the solvency aspect is considered, it can be stated that the entity became more dependent on debt as compared to previous year. It is noticed that the debt equity ratio has been increased to 1.32 in 2018 as compared to 0.75 in 2017. Hence, the company has become more leveraged that will threat its long term sustainability (Boyas and Teeter 2017). Hence, looking at overall performance of the entity it can be stated that it is not a good company from investor’s perspective. Therefore, it is determined that the securities market or the investors react on the disclosures made by the company regarding its performances in its annual report.

Conclusion 

Financial reports represent the financial position and performance of the entity for the specific period of time. On the basis of the information presented in the financial reports the investors take various decisions regarding the liquidity, profitability and solvency. Hence, social accountability forms an important part of GPFR and Australian business shall follow accounting standards while preparing their financial reports.

Reference

Aasb.gov.au. 2019. [online] Available at: https://www.aasb.gov.au/admin/file/content102/c3/AASB1046_01-04.pdf [Accessed 5 Feb. 2019].

Boyas, E. and Teeter, R., 2017. Teaching Financial Ratio Analysis using XBRL. In Developments in Business Simulation and Experiential Learning: Proceedings of the Annual ABSEL conference (Vol. 44, No. 1).

Huber, W., 2017. Irreconcilable differences? The FASB’s conceptual framework and the public interest. International Journal of Critical Accounting, 9(5/6), pp.514-523.

Investor.myer.com.au., 2019. Myer Investor Relations. [online] Available at: https://investor.myer.com.au/Investor-Centre/ [Accessed 5 Feb. 2019].

Luke, B., 2016. Measuring and reporting on social performance: from numbers and narratives to a useful reporting framework for social enterprises. Social and Environmental Accountability Journal, 36(2), pp.103-123.

Luke, B., 2017. Statement of social performance: Opportunities and barriers to adoption. Social and Environmental Accountability Journal, 37(2), pp.118-136.

Mazhambe, Z., 2014. Review of International Accounting Standards Board (IASB) Proposed New Conceptual Framework: Discussion Paper (DP/2013/1). Journal of Modern Accounting and Auditing, 10(8).

Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), pp.371-376.

Penman, S.H., 2015. Financial Ratios and Equity Valuation. Wiley Encyclopedia of Management, pp.1-7.

Yong, K.O., Lim, C.Y. and Tan, P., 2016. Theory and practice of the proposed conceptual framework: Evidence from the field. Advances in accounting, 35, pp.62-74.