Improvement in Financial Reporting: Reliance Worldwide Corporations Limited

The assignment content compares the annual reports of Reliance Worldwide Corporations Limited and Southern Cross Electrical Engineering's Limited, both operating in the same industry. The report highlights areas that require improvement, including remuneration reporting, intangible assets, and other comprehensive income. It also discusses the companies' financial performance, with Reliance Worldwide Corporations Limited showing a profit of $65.99 million and revenue of $769.38 million, while Southern Cross Electrical Engineering's Limited reported a profit of $8 million and revenue of $347 million. The report concludes that Reliance Worldwide Corporations Limited is worth investing in due to its good financial performance.

Accounting Theory and Issues
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Accounting theory and Issues 1
Executive Summary
An investor must make investment decisions not only based on the market news, but also on
financial evaluation. It cannot be denied that keeping inconsistent with each and every
specified norm provided in the AASB or any other corporate framework, is difficult.
However, Reliance Worldwide Corporation Limited listed on the Australian Stock Exchange
has strived to meet the requirements of the regulatory norms. Though it has failed to get
along with the framework of the AASB with regard to certain specified provisions, but the
management has endeavoured to comply with the provisions throughout the financial year
2018.

Accounting theory and Issues 2
Table of Contents
Introduction.........................................................................................................................3
Critical Analysis..................................................................................................................3
Financial Disclosure of Assets and Liabilities................................................................4
Remuneration Report......................................................................................................4
Intangible Assets.............................................................................................................4
Other Comprehensive Income........................................................................................5
Performance of the Firm.................................................................................................5
Recommendations and Conclusion.....................................................................................6

Accounting theory and Issues 3
Introduction
Reliance Worldwide Corporation Limited (RWC), publicly traded on the Australian
Stock Exchange has strived to keep its financial reports in consistent with the regulatory
norms of AASB and Corporate Act 2001, however, crucial to RWC's outlook, it has come
under some scrutiny since August 2018, when the company had issued weaker-than-expected
profit guidance for the financial year 2019. It is a global leader dealing in designing and
production of innovative water control systems and plumbing solutions for domestic,
commercial, as well as industrial applications.
Like any other company in this industry, RWC also faces a few compliance issues
with regards to its accounting as well as other regulatory standards. In addition to this,
compliance with some of the specified requirements are not sufficient on its own. The
financial data that have been reported by the company, though seems to be all compliant, as
accepted by the regulatory boards, however, there are certain issues which needs
improvement. These include adherence to the requirements of the consolidated financial
statements or the general-purpose financial statements that is prepared in keeping with the
Australian Accounting Standards (AASBs).
Critical Analysis
Adhering to the regulatory standards and complying with the accounting framework is
an ethical and statutory practice which is adopted and implemented by almost all companies
in Australia. According to the point of view of the scholars Marley and Pedersen (2015), it is an
evident fact that it is not possible that every company can ensure compliance with every
specified requirement as set by the AASB or any other standards, such as corporate rules.
The accounting theory of full disclosure embraces that an organization which is listed
over recognized stock exchange must prepare its financial reports or in other words the
annual report which is distributed to its stakeholders, particularly the investors, must include
every minute detail with regard to its financial and nonfinancial transactions. Bond et al (2016)
on the other hand, contends that if certain data and information is vital to the investors or the
creditors of the company who are using the financial statements, such data and information
must be disclosed by the company, either within the financial statement or in the notes to the
financial statement. The compliance issues pertaining to Reliance Worldwide Corporations

Accounting theory and Issues 4
Limited are not many, however, as it a newly listed company on the Australian Stock
Exchange, certain elements need to be improved so as to gain competitive edge in the
industry as other well-established organizations.
Financial Disclosure of Assets and Liabilities
Remuneration Report
According to the Corporations Act, 2001, a company listed n the Australian Stok
Exchange must follow the standard framework which is designed with reference to the
remunerations of the management and directors of the company (Commonwealth
Consolidated Acts, n.d). The Act also states that remuneration of each member of the key
management personnel as well as details of certain elements of remuneration are also
required to be reported by the company. However, Reliance Worldwide Corporation has
merely listed the remuneration of its senior executives and directors and there are no details
with regard to the remuneration of its Company secretary separately. In addition to this, the
company also do not mention any elements in respect to the remuneration which is paid to the
directors or the senior executive. Merely the amount and the percentage of total remuneration
has been reported. Therefore, the report of the company requires improvement with resect to
its adherence to the remuneration report in accordance with the Corporations Act 2001.
Comparing the annual report of RWC with that of Southern Cross Electrical
Engineering’s Limited which functions in the same industry, have reported the remuneration
for its executives, directors, auditors as well as company secretary separately (Southern Cross
Electrical engineering 2018). Thus, his area needs improvement for better presentation of the
financial reports to the stakeholders of the firms, both internal and external.
Intangible Assets
Accounting and reporting for intangible assets is entailed in AASB 138. According to
this standard, an entity is required to recognise an intangible asset if, the specified criterion is
met (Compiled AASB Standard, 2014). These specified criteria include the measurement of
the cost of a separately acquired intangible asset which usually comprises of its purchase
price, the cost of a separately acquired intangible asset as well as any directly attributable cost
of preparing the asset for its intended use. In addition to this, the Accounting Standard also
specifies the ways and methods to be adopted while measuring the carrying amount of
intangible assets and thus, it also requires specified disclosures with regard to the intangible
assets.

Accounting theory and Issues 5
The directly attributable cost includes costs of employee benefits, professional fees
paid when bringing such assts in working condition, as well as cost of testing and functioning
of the intangible asset. Companies that are listed on ASX are required to follow the
applicable standard as per the AASB 138. Reliance Worldwide Corporations Limited has
reported its identified and unidentified intangible assts with the amount involved from the
year 2017. However, there is no such any other elements or discussion made with regard to
the cost of bringing such assets into functioning conditions. The intangible assets of the
company include intellectual properties, license fee, trade names product technology,
trademarks, as well as R&D. The R&D expenses have also been identified in the profit and
loss account of the company rather than being separately recognized.
Southern Cross Electrical Engineering company on the other hand has significantly
reported about its R&D expenses separately rather than reporting it within the profit and loss
aspects (Southern Cross Electrical Engineering Limited, 2018). Thus, this item too requires
improvement and the management team of the company must take into consideration of such
aspects with regard to its intangible assets.
Other Comprehensive Income
As per the requirements of the AASB 101, an organization listed on the ASX must
report its other comprehensive income separately in accordance with the norms. This
statement must be prepared once the profit and loss statement ready which entails income and
loss from the business during the financial year (AASB Standard, 2015). However, Reliance
Worldwide Corporations Limited have presented its other comprehensive income within the
profit and loss statement itself (Reliance Worldwide Corporations Limited, 2018). Therefore,
it creates a confusion among the users of financial report because other comprehensive
income determines the scope of the business towards other activities from which it generates
its income. Once again there is a scope of improvement in this regard. The company may
follow the framework of Southern Cross Electrical Engineering which has simultaneously
prepared its statement of income and other comprehensive income separately, thereby
keeping in consistent with the AASB framework (Southern Cross Electrical Engineering
Limited, 2018).
Performance of the Firm
The company has performed very well during the year 2018 with a net profit of $ 65.99
million than compared to a profit of $65.61 million in the year 2017 (Reliance Worldwide

Accounting theory and Issues 6
Corporations Limited, 2018). In addition to this, the revenues of the company have also
increased from $601.69 million in 2017 to $ 769.38 million in the current financial year
(Reliance Worldwide Corporations Limited, 2018). The ROI of the firm is 3% with ROE of
4.6% (Investsmart, 2018a). Moreover, it is also a dividend paying company which in the year
2017 paid a total sum of $ 31.5 million and $42.1 million in the year 2018 with an increase of
25% than previous year. Comparing the figures with its peer Southern Cross Electrical
Engineering, being a 40 years old entity, earned a profit of $ 8 million along with revenue of
$347 million in the year 2018, overcoming a loss of $0.3 million and increase in revenue by
40% approx. (Southern Cross Electrical Engineering Limited, 2018). Along with this, the of
the company is ROI 6% and ROE 4.6% (Investsmart, 2018b). It can be said that investing in
Reliance worldwide Communications is worth.
Recommendations and Conclusion
Reliance Worldwide Corporations Limited, being one of the leaders in the Capital Goods
industry, has though been able to adhere with the AASB framework, however, the specific
insights and requirements are sufficient enough and hence needs improvement. The
management of the company must take into consideration the key aspects of reporting
framework in accordance with AASB. It must report about its R&D expenses, remuneration
of its Company Secretary, other comprehensive income and elements of intangible assets
separately so that it does not great ambiguity for the investors to make investment decision.
On the overall outlook, backing up with a profit of $65.61 million immediately after its
listing and good rate of return, the company is worth investing.

Accounting theory and Issues 7
Reference List
AASB Standard (2015). Presentation of financial statements. Retrieved from
https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf
Bond, D., Govendir, B., & Wells, P. (2016). An evaluation of asset impairments by
Australian firms and whether they were impacted by AASB 136. Accounting &
Finance, 56(1), 259-288.
Commonwealth Consolidated Acts (n.d). Consolidated Acts.
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s300a.html
Compiled AASB Standard (2014). Intangible assets. Retrieved from
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-
04_COMPjun14_07-14.pdf
Investsmart (2018a). Reliance Worldwide Corporations Limited. Retrieved from
https://www.investsmart.com.au/shares/asx-rwc/reliance-worldwide-corporation-
limited/announcements
Investstmart (2018b). Southern Cross Electrical Engineering Ltd (SXE). Retrieved from
https://www.investsmart.com.au/shares/asx-sxe/southern-cross-electrical-engineering-
ltd/financials
Marley, S., & Pedersen, J. (2015). Accounting for Business: An Introduction. Pearson Higher
Education AU.
Reliance Worldwide Corporations Limited (2018). Annual report. Retrieved from
http://www.rwc.com/wp-content/uploads/2018/09/2018-Annual-Report-for-release-
to-ASX.pdf