Social Accountability in Financial Reporting
“Social accountability is considered in the (AASB Conceptual) Framework as part of the objectives of general purpose financial reports (GPFR)”
Accountability is considered as the imprecise notion. Hence, it it is recognised as separate objective, it may open up the GPFR (general purpose financial reports) to deliver all types of information like reporting for social responsibility unintentionally like reporting for social responsibility (Luke 2017). While it is acknowledged by AASB regarding the interrelations among scope and objectives, intended scope for GPFR shall be addressed directly and not defining the term inadvertently through articulating the objectives (Aasb.gov.au 2018). Based on this AASB suggests that the conceptual framework as part of GPFR objectives shall –
- Explain the decision of the users regarding the allocation of the scarce resources that includes the decision for influencing the decision making by the management of reporting company. The decision further includes the management’s decision regarding the company’s scarce resource allocation basis through lobbying or voting (Yong, Lim and Tan 2016).
- Unambiguously includes the accountability for the objectives of decision making through defining the term accountability as responsibility for proving the information that will enable the users in making informed judgements. The judgements are made with regard to the company’s performance, its financial position and the compliance with the objective of evaluating and making the decisions regarding scarce resources allocation. These will further include the judgements regarding whether the management of the company has made effective and efficient use of company’s resources (Barth 2013).
Therefore, it can be stated that social accountability is taken into consideration under the AASB conceptual framework as an important part of GPFR.
Requirement for establishing and developing AASBs for the business practices in Australia
Accounting standard those are used by the business entities in Australia for preparing and presenting their financial reports as per the Corporation law those are commonly referred as AASBs are prepared by AASB. Development of AASB in Australia is multi-step procedure that includes the process of public consultation and supplementary discussions, wherever appropriate. Australia has differential disclosure requirement under which requirement for financial reporting are set on the basis of type of the company, specifically based on public interest level in the company. Companies are classified as –
- Disclosing entities that mainly includes listed organizations and registered managed undertakings. These companies have issued the share or have listed and other securities owing to prospectus circulation (Luke 2016).
- Large proprietary and unlisted public companies those have at least 2 criteria among 3 – (i) gross operating revenue amounting to $ 10 million or more (ii) gross assets amounting to $ 5 million or more (iii) employee number 50 or more.
- Small proprietary entities
However, as per AASB all the above mentioned companies are required to maintain the records that record their accounting and financial transactions accurately. It shall further enable preparing the financial reports and auditing of these financial reports. Further, all the entities except the small proprietary entities shall prepare the financial statement on annual basis. These financial reports include profit and loss statement, balance sheet and Cash flow statement. Matters those are needed to be disclosed under financial reports are stated in the accounting standards that are issued by the AASBs. Further it has force of law as per the corporation law. Corporation law further stated that the consolidated financial report shall be prepared where preparation of these statements are required by the by accounting standard. Financial statements prepared annually shall be circulated to the members of company and shall be lodged with ASIC (Australian securities and investment commission). Apart from meeting the requirements for annual disclosures, the disclosing companies shall prepare financial statement on half-yearly basis. This half-yearly statement is the abridged version of the financial statements prepared annually. It shall be lodged with the ASIC but is not required to be distributed to the members (Palmer 2013).
Therefore, for Australian business practices it is necessary to develop and establish the AASBs to provide transparency, removing true and fair override and enhancing the disclosure requirement.
Information given in annual report of Coca – Cola Amatil
Major information provided in the annual report of Coca Cola Amatil for the year ended 2017 are as follows –
- Remuneration report
- Director’s report
- Corporate governance
- Financial and operating review
- Shareholder information
- 5 year financial summary
- Independence auditor’s report
- Financial reports including consolidated income statements, consolidated comprehensive income statement, consolidated statement for changes in the equity, consolidated balance sheet and consolidated statement for cash flows
- Notes to the financial statements (com 2018).
Further it has been stated in the company’s annual report that the general purpose financial report of the company has been prepared in compliance with the AAS (Australian accounting standards) and various other authoritative pronouncements of AASB and Corporation Act 2001. The financial reports of the company further complied with the IFRS issued by IASB.
With regard to each specified executive and specified director below mentioned details shall be disclosed –
- Total amount of remuneration covering the reporting period. Remuneration includes bonuses, salaries, fees, expenses allowance, personal benefits, perquisites, post employment benefits and equity investment. However, it excludes the reimbursement with regard to the expenses incurred for entity’s benefit or the benefit of its subsidiary. The remuneration shall be measured as per the requirement of AASB 1028 on employee benefits. However, if the standard does not prescribe any requirement for measurement for any particular amount of remuneration, it shall be measured depending on the cost to the company for providing the item (com.au 2018).
- Aggregate for total remuneration of individual and aggregate for each component shall be disclosed for each of following groups –
- Specifies executives
- Specified directors
- Disclosure of the comparative amounts for previous reporting period is not necessary for the individuals who were not been specified in that period. Disclosing the comparative amounts for that period is necessary for each category of entire remuneration and aggregate of the components.
- It is not required to separate the disclosure for remuneration of specified executives into economic entity and parent entity on the basis of which the entity employs its employees.
- Below mentioned details with regard to the remuneration shall be disclosed for specified executive and specified directors –
- Principle used for determining the amount and nature of remuneration
- Whether and how relationship principle established among the remuneration and the company’s performance
- For each service contract among specified executive or specified executives and disclosing entity explanations those are required for providing the understanding regarding how remuneration amount in current period of reporting was determined. It further determines the way in which the contract terms impacted the remuneration for future period (com.au 2018).
- For each of the grant of cash bonus, share based compensation benefit payment or bonus related to performance, conditions and terms for each grant that has an impact on the remuneration in current or future accounting period. it includes – (i) date of grant (ii) nature of granted remuneration (iii) Performance and service criteria used for determining the remuneration amount (iv) in case of any alteration of conditions and terms of grant since the date of grant, the date, effect and details of each of the alteration.
- Further the additional conditions and terms required to be disclosed are – (i) whether approval from the shareholder required (ii) whether any other benefits are payable during performance period on annual basis or at the end of the grant period (iii) restrictions, if any on transfer of the equity instrument after the vesting (Mazhambe 2014).
Reaction of investors on annual report disclosures
Financial statement is considered as the financial information with regard to the financial performance and position of the company. Based on the financial information the investors take various decisions regarding the profitability, liquidity and leverage position of the company. For instance, it can be found from the annual report of Coca Cola Amatil for the year ended 2017 that the net profit of the company has been increased to $ 461 million as compared to $ 257.3 million in 2016 (Appendix 1). It is indicating that the profitability position of the company has been improved (Newberry 2015). Looking into the balance sheet of the company for the same period it is found that amount of total current liabilities are $ 2799.6 million whereas the amount of current liabilities was $ 1838.8 million (Appendix 2). Therefore, the short term assets of the company are sufficient to pay off the short term obligation of the company. It is indicating that the liquidity position of the company strong (Ccamatil.com 2018). Therefore, it can be decided that the company is good in investment aspect. Hence, it can be stated that investors or the securities market react on disclosure of the information provided in annual report.
Reference
Aasb.gov.au. (2018). [online] Available at: https://www.aasb.gov.au/admin/file/content102/c3/AASB1046_01-04.pdf [Accessed 20 Sep. 2018].
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.
Ccamatil.com. (2018). [online] Available at: https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2018/Annual-Report-2017.ashx [Accessed 20 Sep. 2018].
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.
Palmer, P.D., 2013. Exploring attitudes to financial reporting in the Australian not?for?profit sector. Accounting & Finance, 53(1), pp.217-241.
Pwc.com.au. (2018). [online] Available at: https://www.pwc.com.au/assurance/ifrs/assets/kmp-remuneration-disclosures-apr14.pdf [Accessed 20 Sep. 2018].
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.
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