Non-Inclusion of the Companys Reputation in Its Financial Statement - Assignment Example

LEIGHTON LIMITED STUDENT’S NAME: INSTITUTION: INSTRUCTOR’S NAME: DATE: Question one Non-inclusion of the company’s Reputation in its financial statement Introduction The financial statement of a company is always prepared on an assumption that the company is a going concern (Abeysekera, 2011), All companies are mandated to prepared their annual reported that is in compliance with the general accepted accounting standards since, the potential users of the financial statement such as the creditors, shareholders as well as the investors would wish to have an overview of the company performance. Reputation to a company is of paramount importance since, it gives positive impression about the company and its performance and it as well do not justify being included in the financial statement of the company on the following reasons 1. Recognition criteria Recognition is the procedure of including an item in the statement of financial position or the income statement it entails depiction of reputation by words as well as the monetary worth. In this regard, reliability and measurability are the main factors to be considered in ascertaining whether reputation of a company ought to be included in the financial statement or not. These factors are ascertained in detail 2. Reliable measurement An entities reputation is not included in the financial statement since, reputation is non monetary item that justify not its inclusion in the financial statement (united nation, 2008). The financial statement of an entity is always prepared on a going concern assumption and thus the business will continue into a foreseeable future thus depiction of reputation in words is difficult and thus an entity will not include reputation. The estimation of reputation should be acceptable and has either cost or value that can be quantified. In this regard, reputation cannot be quantified fully since there is no value that can be ascertained and thus it cannot be included in the financial statement of the company. 3. Probability For reputation to satisfy its inclusion in the financial statement, it should realize any economic benefit to the business in the near future since, the probability criteria is met where the occurrence is more likely to be met. Reputation does not have a value that can be quantified and also its estimation is not acceptable either in cost or value and thus its inclusion into the financial statement is not justifiable. In this regard, it is ascertained the probable occurrence of the reputation given the economic condition as well as the business situation. Also, reputation does not have monetary economic worth both at present and in the near future and thus its inclusion in the financial statement will not relevant. Question two Ethics and ethical behavior i. Board skills and capabilities assessment process The company ensures that ethics of competency and integrity is fully adhered in that; directors are given a new board skills and capability assessment process (Leighton 2011 annual report pg 46). The process entails board members filling in the questionnaires aimed at ascertaining their skills, experience capabilities as well as diversity of background that each director posses. The outcomes of the questionnaires aids in assessing the director’s diverse skills, practical know how as well as capabilities ii. Providing continuous education The company appreciates the relevance of providing continuous training to its staff members in order to enhance their knowledge of the company as well of the industry in which the company operates. During the year, the directors were provided with business trips both locally entailing off-site planning session and international as part of the ongoing development plan. Continuous training ensures that the company’s directors are fully aware of the current business trend globally and skills that ought to be relevant in the company in ensuring that the business is updated as well as guaranteeing that the company employees and pays for the right service in ensuring that the shareholders wealth maximization is the main priorities. By doing so the company is adhering to ethics and ethical behaviors iii. Director’s interest The company ensures that all directors disclose their interest at the time of their appointment and are mandated to keep this disclosure up to date and those who have a conflict of interest must absent themselves from the board meeting (Annual report 2011 pg 102). This will help in ensuring that directors execute their duties in utmost good faith as well as putting the needs of the shareholders a priority. In regard, shareholder's conflict with directors is minimized since, the directors of the company adhere to the ethical safeguard that has been in place by the company. This is a strong indication that the company adheres to ethics and corporate governance principles. iv. Timely report The company is committed to providing timely report as well as complying with its disclosures obligation under the as listing rules, as well as the corporation act, and to guarantee that shareholders and investors have mutual and timely access to material information about the company. Providing timely report that is accurate, free of error, or fraudulent misappropriation provides a sense of ethical standards adhered by the company and thus, the financial statement can be relied on by both the shareholders as well as the investors. It makes the business to comply with the financial accounting standard board as well as the Australian accounting standard board in providing an annual report B. structures Leighton Ltd uses to encourage ethical behavior in the company. 1. Standardized financial periods The company employs the standardized approach of providing their annual report in order to ensure that investors to a simple task in making an assessment in the management of different reporting entities as well as ensuring that dividend declared and paid are fully accounted for. In this regard (Leighton Ltd annual report 2011 pg 30), the ethical behavior is adhering to by the company as far as the standardized approach if followed investors as well as shareholders are of concern. 2. Statement of compliance with international financial reporting standards. The directors of the company provide and assurance to the public of the company compliance with international financial reporting standards. This statement provides that the company provides a report that is free from material misstatement and that the report gives a true and fair view of the company financial position as well as complying with Australian accounting standards and corporation regulation 2001 (united nation, 2008).This disclosures by Leighton limited is a good indication that the company is observing ethical behavior in providing an annual report to the public that is not misleading and depicts the company as a going concern which is going to clear its debt as and when they fall due for payable. The company provides an overview of what to expect in the annual report as well as providing the corporate governance report and the degree to which such standards have been met by the company as far as corporate social responsibilities is of concern (Abeysekera, 2011). The director's report is providing fairness of the remuneration to its employees in order to encourage motivation at place of work as well as providing timely and concise annual report that is readily available to the shareholders and potential investors. In this regard, the company will have complied with ethical standards as well as the IASB and FASB reporting disclosures. The structure followed in presenting the financial statement that is fully mandated by the general accepted accounting principle, as well as the international Australian accounting standard board, is fully adhered to by Leighton company is as follows i. Assets These are company’s resource in which they expect to reap the economic benefit in the near future. The company asset depicts the liquidity position of the company and how well a business is going to fiancé its daily operation using the working capital (Deakin, 2006). It can be depicted that the asset of Leighton limited is much strong and that the company is much aiming a good position to finance its daily operation using the working capital management and thus the liquidity position of the company is ideal. ii. Liabilities They are present obligation of Leighton limited emerging from previous events and thus its settlement will lead to cash outflow. The company ensures that its liabilities do not supersede the current asset and hence from the financial statement of Leighton limited; it is eminent that that company ensures that its liabilities is minimized in order to minimize the liquidity risks. Leighton limited, therefore, is fully adhering to ethical behavior and strive to ensure that the company desired result is shareholder's wealth maximization and building the reputation of the company in order to encourage more investors into the business. iii. Equity This is the residual asset of Leighton limited after deducting all their liabilities. The company is having a strong equity and thus the need for extra capital is not going to be a problem to the business, it is, therefore, a strong indication that the company has sufficient funds to expand its investment in the future. C. impression about the attitude to ethical behavior in the company The annual report of 2011 cannot be fully relied upon in making investment decision since; the company did not make full disclosure concerning its operation. It is eminent that the company is having allegation against the nature of investment it executed. The company did not disclosure such nature of investment and its legitimacy to the public via the annual report and thus investors and shareholders will rely on the media house search (Ball, 2006). This in return will negatively affect the operation of the business, and thus, the profitability and capital base will be negatively affected hence reducing business operation and performance. The company is fully adhering to ethical standards as per the 2012 annual report in that, the general presentation of the annual report as well as the director’s report on remuneration and report on compliance with corporate social responsibilities is quite satisfactory and follows the general accepted accounting principles as well as the Australian accounting standard boards. There is no alteration of the company’s information such as change depreciation approach or method of stock recording and thus the companies do not perpetrate any frauds and thus strictly adheres to ethics and ethical standard in reporting its financial statement (Ronald W. Melicher, 2011). This will, as a result, leads to more investors into the business well as increasing shareholders confidence in the business and reducing legal reputation of non-compliance with legal entity requirements. The auditor’s report provides assurance on the annual report generated and gives assurance to potential investors and shareholders of the company’s performance. Audited financial statement sis a statutory requirement for all registered companies and thus an independent auditor should audit the company financial statement and gives an assurance about the level of risk and materiality and whether the company is a going concern. Leighton limited is fully adhering to ethical behavior of including the auditor’s report in their annual report. This ensures that the financial statement of the company is fully reliable in making investment decision and thus the managers cannot be held accountable for any loss suffered by any investors or shareholder after relying on the audited result of the company. Question three A. the allegation against Leighton Ltd The company is accused of bribery, and the situation affects the company reputation and its corporate governance (Nik McKenzie, 2013).The the allegation is not based on the fact since, revelation linking Leighton to the intermediary organization to facilitate contract with foreign national against UN sanctions caused a huge reaction that may affect the company’s profile. This revelation is not justifiable and for it to be concluded as act of bribery and thus, the company defended itself against the allegation via an ASX statement and the media. The financial statement of Leighton limited does not depict such inclusion of allegation and thus the company performance is viewed as a going concern (Ronald W. Melicher, 2011). Where the allegation is against the company is orchestrated and broadcasted by the media house before the final verdict from the court, the company reputation will be affected since, investor will shy away from investing g in the business, shareholders and creditors will have doubt over the administration of the company and, as a result, the market price of the company’s security in the stock market will decline to make the company to a further face liquidity problem. In this regard, Leighton limited should minimize such allegation by taking immediate course of action and even ensuring that public confidence is regained back in order to rescuer the business operation from collapsing (Nik McKenzie, 2013). The management of Leighton ought to observe ethical behavior in every aspect of the decision they undertake by considering the consequence that it will bring to the business since, their investment decision is perceived in a different dimension by different stakeholders and thus public as well. B. media search result on impression of the ethical behavior of Leighton Ltd Yes, the media search has made the company to be seen as not following ethical behavior in its daily operation and in providing an annual report (united nation, 2008). This is because; media gives the report of the company’s unethical behavior to the public without waiting for the court final decision on the matter since, it is eminent that the allegation against the company has been defended by the company in that the company state it is complying the ASX and thus it has not made any unethical behavior. This information cannot be concluded by the public as ethical . Instead, they would rely on the media house for information concerning the company and thus the reputation of the company will be negatively affected (Abeysekera, 2011). The public perceives this as a bad impression from the board of directors and managers controlling the business before the allegation can be concluded by the court order. The company as already defended itself and thus the final verdict rest upon the court but before the company, the company’s reputation is negatively affected courtesy of the media publication concerning the company’s allegations. The media search should, therefore, ensure that the information it provides to the general public is fully reliable since, it affect the business operation in court. The allegation that is made against the company and is still in court procession should not be made public but instead the media should wait for final court verdict concerning the allegation and consequently made the court decision public (Ronald W. Melicher, 2011). In this regard, the company’s reputation will be negatively affected at their peril and the media will not be liable for any decision that shareholders or investors are going to make against the company since, the information is fully reliable both from the media house and the courts final decision concerning the unethical behavior of the managers. Question four Conclusions drawn about the reliability of the disclosures about ethics in the Leighton Ltd 2011 annual report The disclosures about ethics in Leighton limited is not fully reliable since, it can be depicted that the company had some allegation that queries its corporate governance. The company provided its 2011 annual report and indicated that the business is fully adhering to all the accounting and reporting safeguards as well the sustainability report. This information is not fully reliable since it can be depicted that that the company did not disclosure the allegation it is facing and that the media house disclosed such ethical allegation against the company that may turn out to be true or false. This thus affect the reputation of the company as well put its corporate governance in doubt (Ronald W. Melicher, 2011). Annual report that is not fully reliable may discourage investors since; the directors might be hiding material information to shareholders or investor for their benefit. Question five Annual report for Leighton Ltd 2012 The annual report of Leighton 2012 depicts a reliable financial statement since, the company documented al its transaction pertaining acquisition and disposal of subsidiaries as well as performing reconciliation on carrying values of the property plant and equipment in order to ascertain the accuracy of the investment (Nik McKenzie, 2013). In this regard, the company is complying with ethical behavior and thus the financial statement provide assurance to the investors and shareholders of the company and thus the financial statement can be fully reliable in making ethical investment decision. The company has fully documented and explained the procedure of acquiring a subsidiary as well as the procedure of disposing of a subsidiary using the relevant accounting policy by considering their value adjustment (Deakin, 2006). This procedure is meant to provide accountability and assures investors and shareholders of the legitimacy of the transaction they undertakes in ensuring that ethical behavior is fully adhered to. The changes that Leighton limited intend to execute will lead to ethical behavior since, practitioner will fully be made aware to comply with reporting guideline and disclosure (Ball, 2006). This minimizes the allegation that will be made against them in that; investors will be able to fully access material information of the company and conclude on the company performance and legibility of investment it takes, investors will as well ascertain the company performance and be in a position to make ethical investment decision to invest on the company and to increase its capital base leading to improved company performance. It can, therefore, be concluded that, ethical behavior is relevant in a reporting entity since it determines the company future performance in that investors and shareholders will make the investment decision based on the information provided in the annual report of the company and therefore its legal for a practitioner to provide unethical behavior in ensuring that the annual report is accessed by individual or firms interested in the firm since, unethical behavior affects the reputation of the company in that; media will pronounce the unethical behavior that the administration execute in order to satisfy their interest. This will be perceived negatively investors either before a financial verdict is given by court concern the gross misconduct. In return, the reputation of the company will be negatively affected and thus the performance of the company will decline leading to reduced earnings per share as well as the profitability ratio and liquidity position is put at risk. 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