Voluntary Disclosures in Australian Corporate Sector - Case Study Example

Voluntary disclosure Name of the student Name of the institution Date of submission Introduction Rampant corporate failures across the globe as into international interest on corporate governance issues, most of the reforms in corporate governance have been built around the rampant failures of major companies across the globe. Both practitioners and academicians have drawn much interest on the corporate governance and voluntary disclosure. Managers have the discretion to disclose voluntarily or not to disclose company activities. Guidry & Patten (2012) argues that companies only adopt voluntary disclosure only if the benefits of voluntary disclosure exceeds the cost of non- disclosure. Some of the costs incurred here include an agency cost which requires the company shareholders to appoint independent committee of directors and auditors to monitor manager’s behaviors and information as asymmetry costs that are incurred by managers as a result of depreciation of firm. Cho, Freedman & Patten (2012) states that companies that are listed in stock exchange and of high quality will tend to disclose more information more voluntarily compared to non listed companies and once with low quality. The listed companies disclose more information as a way of attractive both internal and external investors, hence voluntary disclose is a way of attracting the investors. This theory is called signaling theory and in support of signal theory, Guidry & Patten (2012) states that high quality corporate governance signal their management quality through voluntary disclosure. It is not easy to replicate these high quality standards by poorly managed firms. The voluntary disclosure improves firm’s value since well informed investors will always infer that companies with high corporate governances quality since they are less risky compared with companies with less corporate governance quality. This paper intends to discuss voluntary disclosure within Australia two listed companies which are Virgin Airline Company limited operating in Transport industry and Origin Energy limited operating in energy sector. The paper will compare and contrast level of disclosure between the two firms highlighting the gaps that exist and how the gaps can be corrected Virgin Australia In the year 2000, Virgin Australia Airline began operating as Virgin Blue. It was one of the most affordable airlines with low fare in Australian skies for long time. It began operating with only two aircraft, which was one route and 200 team members who had one goal and vision to revolutionize air travel in Australia. The company is credited with introduction of re-introduction of genuine guest services to the flying public along with strong commitment to being the best in the business. The company has evolved from starting entrepreneur to one of the most profitable Airline companies in Australia. In 2011, the company was named Virgin Australian Airlines. The Airline Company consists of virgin Australia, long haul international carrier V Australia and the Short haul international Airline Pacific Blue and Polynesian Blue airline one of the joint venture with the Samoan government. The Virgin group of company operates a total fleet of 89 Boeing 737- NGs, Boeing 777, Airbus A330s and Embraer E-Jet aircraft to 31 Australian and 17 international destinations (www.virginairline.com) Origin Energy (ORG) ORG is one of the integrated energy company which major on oil and gas exploration, energy retailing and power generation in Australia. Some of the major trading areas include exploration of oil and gas production, LNG operation, energy retailing and generation of power. Other subsidiaries are in New Zealand. The company serves over 4.3 million customers mostly ones living around Victoria. The company looks towards a sustainable approach in business development, while maintaining its position the leading energy company within Australia (www.org.com) Analysis of the voluntary disclosure of the two firms Company manager’s needs to understand the links between financial results and sustainability impacts as it is connected to both short term and long term business success. In order to have full understanding of this concept, the companies must identify the sustainability materials topics within their organization in order to monitor them and manage them to ensure the survival of the business (Rankin, Windsor & Wahyuni, 2011). The steps of identifying these resource management techniques are very important in ensuring sustainable reporting process as provided by the GRI’s sustainable reporting framework. GRI gives elaborate guidelines on how to identify material sustainable reporting. The four main guidelines include identification of material topics, stakeholder’s engagement and performance indicators (GRI Annual Report, 2012). The books of Virgin Airlines are audited by KPMG as the independent auditor. The company as voluntarily disclosed information on top of the financial information. The financial report on director report consists of diversity and inclusion information. The company consist of 30% of female employees are in management level giving the Australian requirement of 50% female representation in the Group executive Board. The Company voluntary disclosure of the employment composition increases the investors’ confidence (GRI Annual Report, 2012). The financial disclosure includes risk the can affect the performance of the company and includes Aviation fuel prices, transit and landing fees and cost that ensures traffic security are well mentioned in the financial report. Global economic and geopolitical conditions as well as epidemics are well elaborated in the report hence bother internal and external investors are able to evaluate the kind of investment they want to venture into. When the company management board has the financial risks, they are able to plan for the growth and development of the company ensuring for sustainable development and growth. The dividends payout procedures, like in 2014 there were no declared dividends and paid dividends. The capital structure, which is a key focus for the board of directors are well elaborated in the financial report for the year ending 2014 for Virgin group of companies (Guidry & Patten, 2012) The report further elaborates of the major steps in ensuring environmental management approach according to GRI’s management guidelines. The companies work hand in hand with green house department to ensure the reduction of emission of C02. The operations department designed policies and implement environmental sustainability policies which are latter accounted for at the end of any financial statement. In the financial year ending 2014, the company has reporting major steps in dealing with the environmental challenges and overall improvement creating departments specifically handling that (Guidry & Patten, 2012) Origin ltd (ORG) financial statements start with the environment management disclosure before elaborating more on financial statement. In order for the company to be sustainable, and here for the long term, the company has listed understanding the customer and stakeholder’s diversity as the key elements which can enable them to have sustainable growth and development. This helps in giving guidelines on sustainable development. The company believes that they must demonstrate how they can meet the needs and expectations of those interested or potential investors (Rankin, Windsor, & Wahyuni, 2011). ORG states in their policy that sustainability provides a virtual savings at an early stage and can mostly be made real when well integrated with finance. The financial disclosure includes risk the can affect the performance of the company and includes Aviation fuel prices, transit and landing fees and cost that ensures traffic security are well mentioned in the financial report. Global economic and geopolitical conditions as well as epidemics are well elaborated in the report hence bother internal and external investors are able to evaluate the kind of investment they want to venture into. When the company management board has the financial risks, they are able to plan for the growth and development of the company ensuring for sustainable development and growth. The dividends payout procedures, like in 2014 there were no declared dividends and paid dividends. The capital structure, which is a key focus for the board of directors are well elaborated in the financial report for the year ending 2014 for ORG group of companies (GRI Annual Report, 2012). The Company further explains the Corporate Social responsibility (CSR) which they have initiated in line with good governance policies outlines by GRI. This is a huge step towards achieving sustainable development and growth. Huge amount of money are invested in corporate social responsibility and the companies should take full accountability of such finances and the board of directors must report that in the financial report (Rankin, Windsor, & Wahyuni, 2011). Conclusion and Gap analysis The report highlights the information deficit between the two companies and their stakeholders as the available information cannot be subjected to prove, hence the stakeholders merely relies on the information given by the management. The degree of the stakeholder’s impacts varies from one to another. In order to close the gap, there is need to adopted the value based accounting, one which is championed by FASBs and AICPA’s. The sixth category of financial reporting enriched the framework. They include proper documentation of financial data, management analysis of data, forward looking information and proper management of shareholders. In summary, proper accounting system should ensure sustainable reporting practices that can attract investors both internally and externally. Voluntary disclosure as required by IAS, GAAP and AICPA is essential for accountability and proper management of business. Reference Cho, C., Freedman, M., & Patten, D. (2012). Corporate disclosure of environmental capital expenditures: A test of alternative theories. Accounting, Auditing & Accountability Journal, 25(3), 486-507. Guidry, R., & Patten, D. (2012). Voluntary disclosure theory and financial control variables: An assessment of recent environmental disclosure research. In Accounting Forum (Vol. 36, No. 2, pp. 81-90). Elsevier. Rankin, M., Windsor, C., & Wahyuni, D. (2011). An investigation of voluntary corporate greenhouse gas emissions reporting in a market governance system: Australian evidence. Accounting, Auditing & Accountability Journal, 24(8), 1037-1070. Read More