Corporate Accounting: Financial Predicament, Goodwill, Expenses, Recommendations

This report discusses the financial predicament, goodwill, various expenses incurred, and recommendations for SurfStitch Limited in 2016. It also explores the importance of continuous disclosure in financial reporting.

Corporate accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1. Financial predicament........................................................................................................1
2. Goodwill in 2015................................................................................................................1
3. Various expenses incurred by company.............................................................................2
4. Recommendations on basis of outcomes............................................................................3
PART 2............................................................................................................................................3
INTRODUCTION..................................................................................................................3
ABSTRACT...........................................................................................................................3
LITERATURE REVIEW.......................................................................................................3
CONCLUSION................................................................................................................................6
REFERENCES...............................................................................................................................7

INTRODUCTION
In order to maintain sustainability in any organisation it will be required that
requirements in respect of disclosure shall be met (Faden and et. al., 2013). By this efficient
market will be achieved. All the accounting that will be done will be fair which will be helpful
for the investors as they will be able to take the important decisions on basis of it. So all the
aspects in respect of it will be discussed in report provided below.
PART 1
1. Financial predicament.
In year 2016 there were various predicament which are faced by Surfstich limited and
also some major issues are there which are dealt by it. This has been identified with the help of
annual report 2016 which has been reviewed.
In comparison to earlier periods the performance of company has worsened in 2016
which is not a good thing. The operations are carried by company in various places which will be
including Europe. Australia and USA (Ismail and Rahman, 2011). The foreign exchange gain or
loss which will be realised will be lowered by these models as they will be acting as natural
exchange hedge. In the operations company id facing translation risk in terms of currency
exchange rate. The decline was noticed by company in 2016 in the GBP: AUD FX rate which
was around 20 percent and so it can be said that there were unfavourable exchange rates in
comparison to past years.
2. Goodwill in 2015.
The company's goodwill in 2015 was amounting to 73832 and company is taken steps to
get itself listed on ASE in this year only. By this there was establishment of new company which
is Surfstitch group limited which will be treated as parent company in legal terms of SHPL. The
skills and knowledge of the staff is the main aspect by which this has happened and by the help
of it attainment of synergies will be there. This will be due to the integration which took place as
fashion and accessories and surf which are retailing firms are combined into a group which will
be known in international market and establish its position there. Because of merger all the assets
and liabilities which were help by company at fair market value are compared to purchase
consideration and the difference present among values is attributable to goodwill. All the value
which were taken for intangibles were on provisional basis.
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It has been noted that amount of goodwill has declined to 6609 in 2016. so as there is
decrease in amount which will not be considered as good because it shows that image of
company is deteriorating in market which is not a good sign. The customers will be lost as they
will not be able to trust on it and so this will be affecting the profitability of company as a whole.
3. Various expenses incurred by company.
An observation is carried out of profit and loss statement in respect of 2016 for
Surfstitich group. Some of the outcomes which were found are:
 Cost of impairment: In case the value of asset at which they are entered in books will be
increasing redeemable value then the difference among them will be treated as
impairment cost (Kifer and Machanavajjhala, 2012). This shows that value of the good is
decreased. The amount which is spend in current is higher then what is spend in earlier
period and it amounts to 88999.
 Selling and distribution expenses: there are various costs which are incurred by sales
department by which revenue will be increased and all of them are covered in this. These
will be represented in income statements which will be related to a fixed period of time.
In the earlier years the expenditure made in this respect was 44683 which increased to
101268 in current year.
 Administration expenses: The expenses which are incurred in order to manage the
business will be covered in this category. All the salaries and rent that will be paid will be
included in this. The amount which is spend by Surfstitch in this regard is 49237 in the
present period. They are expenses which will be affecting both the efficiency as well as
profitability of company.
From the above information it can be said that all the expenses which are incurred by
company are increasing as compared to last year and this will be affecting the earnings of
company in adverse manner as the total amount which will be earned is reduced due to over
expenditures that are made. So it will be required that measures shall be taken to identify the
causes by which it is happening and then steps will be taken to reduce or eliminate tjose which
are incurred in excess.
4. Recommendations on basis of outcomes.
The performance of SurfStitch in the present year is below the average which is required.
It has been noted that share price of company has declined by 66.83 percent in just one year
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which is not at all good for any business. As the price of share is below the level so this will be
suitable time for clients to make investment and purchase the shares of company as this will be
providing them with more profits.
It has been noticed that the overall performance of company has reduced in comparison
to what was there in last period (Cuijpers and Peek, 2010). There are various reasons for this
which includes decrease in goodwill and increase in amount spend. So it will be required that
they shall b reduced and steps shall be taken to enhance the value of goodwill in order to ensure
the sustainability of business.
PART 2
INTRODUCTION
Financial reporting is the main aspect which shall be taken into consideration by all the
businesses. This is required as there is need for proper disclosure in respect of all the material
transactions which are involved. They will be the one which will be affecting the important
decisions and that is why they are considered as material and need to be disclosed and same is
discussed below in detail.
ABSTRACT
Disclosure is the main requirement to be met so that all the parties who will be using the
financial statements will be able to have knowledge regarding all the relevant factors. On the
basis of then they will be able to taken various decisions such as in respect of investment. They
will be able to evaluate position of company and predict whether it will be beneficial to deal with
it or not.
LITERATURE REVIEW
According to Carlin and Finch (2010) it has been stated that in the business there are
various rules and regulations which are specified by authorities and are required to be complied
with. In the policy of continuous disclosure it is needed that all of them shall be tools to public
and also they shall be informed that whether they are followed or not whereas According to
Zechman (2010) corporate governance principles it is needed that product governance shall be
measured and for that timely disclosure is main requirement. Financial disclosure is very old
concept which is followed by all the companies in Australia. The regulations in respect of
continuous disclosures were made in 1994 and are maintained by corporation Act which are
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present in ASX rules in chapter 3. the information under this will be provided to all the managers
and also to investors so that they can take their decisions. With the help of this investors will be
secured and also market integrity will be attained.
As stated by Morris (2011) in the Australian framework the most important element is
continuous disclosure. By this it will be ensured that all the investors will be provided with
equal access in respect of all the information that is price sensitive about all securities.
Rationale of continuous disclosure: The main reason because of which this is to be maintained is
that by it confidence will be enhanced and there will be investors who will be participating in
market. By this efficiency will be increased in secondary markets. The price of securities will be
increased by which their economic values will be reflected. As all the information will be
disclosed so the volatility which will be there in respect of prices of securities will be controlled.
If there is any breach which is made in this respect them, the the enforcement options will be
used which are provided by ASIC. The penalties are specified for it which will be upto amount
of one million. The penalties will have to be implemented even though that person will have
complies with violation notice.
As per the view of Dhaliwal (2012) there are various such cases in which all of the
enforceable and notices will be taken by companies in easy manner. In this the impact will be
less in the economic ways. The disclosure regime can be judged with the help of policing
activities which are there in ASIC.
According to some of the new policies which are framed by ASIC there will be
requirement to do the checking of various companies that will be selected. It will be seen that
whether they are complying with them or not. On the contrary Spira and Page (2010) states that
all the criminal penalties can be avoided with the use of some of these policies and in this all the
punishments will be included . With the proper involvement in the process of decision making it
will be ensured that monitoring and improvement will be achieved in corporate governance.
In Australia it is required that all the disclosure shall be made in time and by this in
addition to decrease of problems between managers and investors there will also be improvement
of relation among various investors who belong to different categories. All the decisions in
respect of price and other relevant matter will be taken on time if the data will be provided when
it will be needed.
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As stated by Friesen and Gangadharan (2013) there are many such characteristics which
are to be followed so that all the aims of disclosure can be attained. The investors will be able to
judge in proper manner if proper information will be provided to them and on that basis they will
be able to set the price which is most suitable. The data which is released shall be true and there
shall be no deception in it. The main principles which are there and shall be undertaken are as
follows:
 Providing timely information: The information that will be price sensitive shall be
provided to market when it will become known to all. In order to make the corrections in
responses all the external rumours will be necessary so that it can be done when required.
This will be advantageous for all.
 Equal access to all: All the investors shall be given equal importance when the
information is released which means that same data shall be given to all and their shall be
no discrimination. The disclosure which will be important in market is selective as by this
insider trading will be created. A proper manner shall be used in this process by which
equality will be maintained.
 Maintenance of confidentiality: the information which will be in control of investors I
respect of price shall be kept in very confidential manner. The information will be
provided to all consultants and business partners and others and it shall be noted that they
shall not carry out any business in legal documents as there will be information that will
not be available to investors in easy manner. Some situations arise in which the
confidence is broken and all the information is leaked. So in that case investors shall be
informed about it on timely basis. There are various decisions which are made according
to law and for that it will be ensured that all the matters which will be affecting price
shall be told to investors.
 Commercial interests: In this material price sensitive information is protected and entity
is disclosed all the interests. These are important but in case confidentiality is given more
importance then it will be used.
 Remedies and enforcements: There shall be proper backup in form of enforcement for
the disclosure. In relation to it there will be proper and consistent guidance which shall be
provided so that it can be carried out in proper manner. Penalties are imposed at various
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levels and that shall be included so that they can be helpful and also it will be possible to
safeguard them.
Proper remedies shall be provided which can be used in case of improper disclosures.
The losses which are made by the persons due to it shall be reverted to them and for this proper
system shall be there.
I am in agreement with the statement that continuous reporting regime shall be there for
disclosures as by the help of it investors will be protected and integrity will be achieved in
market. By this it will be made possible that they will be able to take appropriate decisions in
respect of price as all the required information will be provided to them on the timely basis. Also
if any loss is faced by them then it will also be recovered and this will be commercial interest for
them. Investors will be given equal amount of information and this will create confidence so they
will work with full potential and this will be improving position of company. No comments will
be needed to be made in respect of market speculation under this. So all of these are some of the
points by which it can be said that it is very important that disclosure shall be made so that its
benefit can be achieved.
CONCLUSION
From the above mentioned report it can be concluded that proper information will be
required so that decisions will be made in respect of price and for that continuous disclosure will
be required. Investors will be the one who will be benefited by the information that will be
provided by company and they will be able to move forward by this. By this the performance
will be improved and this will be major benefit.
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REFERENCES
Books and Journals:
Carlin, T.M. and Finch, N., 2010. Resisting compliance with IFRS goodwill accounting and
reporting disclosures: Evidence from Australia. Journal of Accounting &
Organizational Change. 6(2). pp.260-280.
Cuijpers, R. and Peek, E., 2010. Reporting frequency, information precision and private
information acquisition. Journal of Business Finance & Accounting. 37(1‐2). pp.27-59.
Dhaliwal and et. al., 2012. Nonfinancial disclosure and analyst forecast accuracy: International
evidence on corporate social responsibility disclosure. The Accounting Review. 87(3).
pp.723-759.
Faden, R.R. and et. al., 2013. An ethics framework for a learning health care system: a departure
from traditional research ethics and clinical ethics. Hastings Center Report.43(s1).
Friesen, L. and Gangadharan, L., 2013. Designing self-reporting regimes to encourage truth
telling: An experimental study. Journal of Economic Behavior & Organization. 94.
pp.90-102.
Ismail, R. and Rahman, R.A., 2011. Institutional investors and board of directors' monitoring role
on risk management disclosure level in Malaysia. IUP Journal of Corporate
Governance.10(2). p.37.
Kifer, D. and Machanavajjhala, A., 2012, May. A rigorous and customizable framework for
privacy. In Proceedings of the 31st ACM SIGMOD-SIGACT-SIGAI symposium on
Principles of Database Systems (pp. 77-88). ACM.
Morris, J.J., 2011. The impact of enterprise resource planning (ERP) systems on the effectiveness
of internal controls over financial reporting. Journal of Information Systems. 25(1).
pp.129-157.
Spira, L.F. and Page, M., 2010. Regulation by disclosure: the case of internal control. Journal of
Management & Governance. 14(4). pp.409-433.
Willenborg, L. and De Waal, T., 2012. Elements of statistical disclosure control (Vol. 155).
Springer Science & Business Media.
Zechman, S.L., 2010. The relation between voluntary disclosure and financial reporting:
Evidence from synthetic leases. Journal of Accounting Research. 48(3). pp.725-765.
Online
Administrative Expenses. 2017. [Online]. Available through:
<https://www.readyratios.com/reference/accounting/administrative_expenses.html> .
[Accessed on 9th September 2017].
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