Evaluating the Effectiveness of ASX's Disclosure System: A Critical Analysis

The Australian Securities Exchange (ASX) rules on continuous disclosure aim to provide investors with accurate and timely information about a company's financial performance and decisions. However, some argue that the current rules need improvement to prevent manipulative practices by organizations. The article highlights the importance of evaluating ASX rules and exemptions, as well as continuously updating disclosures to maintain efficient market hypothesis.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:

CORPORATE ACCOUNTING 1
Table of Contents
Part I:...............................................................................................................................................2
1. Mentioning the financial predicament that is faced by Surfstitch Ltd:.......................................2
2. Mentioning about the 2015 goodwill, investment in subsidiary and cash position.....................2
3. Mentioning about the 2016 impairment costs, selling & distribution and administrative
expenses in the profit and loss statement:........................................................................................2
4. Providing relevant recommendations whether to buy, hold or sell Surfstitch Ltd shares and
why:.................................................................................................................................................3
Part II:..............................................................................................................................................4
Identifying about: Why is it necessary to have a continuous reporting regime for disclosure
entities and is it effective?................................................................................................................4
References:......................................................................................................................................9

CORPORATE ACCOUNTING 2
Part I:
1. Mentioning the financial predicament that is faced by Surfstitch Ltd:
There are certain predicament in the financial records of Surfstitch Ltd after the exit of
Justin Cameron in 2015, who was considered to be one of the founders. This forced the
management of Surfstitch Ltd to write down the assets, which directly increased its financial
losses. This increment in the overall financial losses was also conducted due to the high-end cost
of sales, and selling & distribution expenses conducted by the organisation. These irrelevant
expenses did not allow Surfstitch Ltd to generate the required revenue to support its revenue
growth. Therefore, in both 2015 and 2016 financial year the company faced major losses (Market
Index 2017).
2. Mentioning about the 2015 goodwill, investment in subsidiary and cash position
The goodwill portrayed in 2015 was of $73,832,000 in its books, while the investment in
subsidiary stood at $70,197,000. Moreover, during 2015 Surfstitch Ltd cash and cash equivalent
position stood at $40,837,000 in its annual report (Market Index 2017).
3. Mentioning about the 2016 impairment costs, selling & distribution and administrative
expenses in the profit and loss statement:
There was no impairment expense identified in annual report of 2015 fiscal year, while in
2016 the impairment costs amounted to $88,999,000. Furthermore, the selling and distribution
cost during 2016 mainly rose to $101,268,000 levels from $44,683,000 in 2015. Moreover, the
administrative expenses of the organisation increased exponentially in 2016 to the levels of

CORPORATE ACCOUNTING 3
$49,237,000 from $7,424,000 in 2015 (Market Index 2017). Therefore, it could be understood
that the organizations overall profit and loss statement depicted the loss in revenues, as the
overall expenses increased in fiscal year. However, the revenue of the organization also
increased, which was not adequate to support its rising expenses.
4. Providing relevant recommendations whether to buy, hold or sell Surfstitch Ltd shares
and why:
The evaluation of the annual report of Surfstitch Ltd mainly helps in identifying the
loopholes in the financial performance of the company. The company has not performed well in
the last 2 years, where the revenue has increased but expenses also increased exponentially. This
rising expenses mainly increased losses of the organisation, which in turn hampered its ability to
continue with the operations. The overall operational capability of the organisation declined in
2015 when its partner and co-founder opted out from the business endeavour. This mainly
increased the chances of more loss for the company, as it was not able to cope up with the
changing management.
The oral valuation of goodwill declined exponentially in 2016 as compared to 2015, as
recorded in its annual report. This mainly indicated that the organisation was using manipulative
figures to inflate the overall share value. Moreover, the administrative expenses of the
organisation have inclined rapidly during the past 2 years, where the overall income is not able to
cope up with the rising expenses. Hence, it is advisable to investors to ignore the company for
investment related decisions. The current investors of Surfstitch Ltd could sell the shares at
every instance it gets, as there is no future for this organisation.

CORPORATE ACCOUNTING 4
Part II:
Identifying about: Why is it necessary to have a continuous reporting regime for disclosure
entities and is it effective?
The statement mainly indicates that it is necessary to have a continuous reporting resume
for disclosure entities as it helps in reducing any kind of manipulation that could be conducted by
organisation. The evaluation of 2007 financial crisis, mainly portray that many companies have
been manipulating with their financial records to inflate the share price. This was mainly due to
the non disclosure regime followed by the Australian government. This non disclosure regime
was the main reason where investors were not able to identify what was that is management
planning and conducting with their money (Ahmed et al. 2016). Identifying the decisions that is
being made Surfstitch Ltd mainly indicated the wrong disclosures that were conducted by the
management to inflate their share price. However, the annual report depicted all the relevant
losses that were entered by the company, which directly impact it on its share price and reduced
to the cents from dollars. Due to the continuous disclosure measures the company was able to
portray wrong information to the investors for increasing the share price in short duration. This
disclosure measure mainly backfired on the investors and Australian authorities, where it was not
able to stop the inflation of share price. However, the manipulative being used by the
management was punished by a lawsuit from investors demanding the lost money, which was
conducted due to wrong valuation (Ahmed et al. 2017).
The research paper mainly indicates the disclosure measures that need to be used by the
organisation on both the annual report and ASX website. However, the research paper directly
discloses that the disclosure measure before 2000 was not adequate, where organisation were not

CORPORATE ACCOUNTING 5
making adequate assumptions regarding the future revenue of the organisation (Chapple, Prasad
and Xiong 2016). The non relevance of the overall future annual projections of the overall
revenues and expenditure mainly limited the investor’s capability to evaluate the future price of
an organisation. In the paper directly specifies that look before 2000 organisations were not
making any kind of development on the annual report the adequate projections of the future
performance needs to be conducted. Chapple and Truong (2015) mentioned that the use of
continuous disclosure measure mainly allows the organization to portray any kind of changes in
the revenue generation capacity and expenditure, which directly affect its ability to generate the
required profitability.
Implementation of the continuous disclosure measure would eventually allow the
organisation to portray rightful projections of the annual progress, which would eventually allow
investors to make adequate investment decisions. However, the article does not comply with the
current disclosure measures that are conducted by the organisations, as it states that organisations
were not conducting adequate measures in projecting the future cash flow. The article also
portrays that if adequate measures are taken then the continuous disclosure measures could allow
investors to make adequate investment decisions based on actual news or information portrayed
by the organisation (Di 2014). Therefore, relevant authorities with the help of can disclosure
measures are able to detect viability of the operations conducted by an organisation. Moreover,
ASX aims in evaluating the actual share price of an organisation by portraying the relevant
information to the shareholders at relevant time.
There is a relevant article about new continuous disclosure measure, where confusion
related to be disclosure measure is detected. The article “Australia’s continuous disclosure
system: clear or confused?”, directly indicates that there is relevant loopholes in the disclosure

CORPORATE ACCOUNTING 6
system, which could be used by the organisation to inflate the share price. The article indicates
that there are relevant systems and ways in which organisations could use the disclosure
measures to float relevant news in the market (Feigin et al. 2016). There are different types of
unethical measures, which could be used by the organisation with the help of disclosure
measures and manipulate decisions of the shareholders. In the article, David Jones established
the overall weakness of the disclosure measures, where relevant news that was not true could be
floated in the market. Furthermore, David Jones directly indicated that there could be different
types of unethical measures that could be used by organisations to float wrong information in the
market. David Jones directly disclosed and that there was a takeover bid, which helped in
improving demand for the shares of the company. In this context, Gopalan and Hogan (2014)
mentioned that companies with the help of disclosure measures were able to present news to the
investors without any monitoring and evaluation.
This takeover bid was mainly was not confirmed whereas the news was floated indicating
that an international investor is bidding for the company's shares. The article also pinpointed the
relevant listing rules laid down by ASX, which did not restrict any kind of disclosure measures
that has not been confirmed (Harford and Powell 2015). According to the ASX disclosure
measures, any kind of news or information that could affect share price of the organisation needs
to be disclosed through the website. The news related to the takeover bid was also a adequate
information, which could directly affect share price of the organisation. However, the news was
not confirmed there no relevant buyers were present at that time. This mainly portrayed the
loopholes in the disclosure system that is currently being used by ASX. On the contrary, Hempel
(2015) argued that the current rules laid down by the ASX needs to the improved and modified,
as it might help in reducing the relevant unethical measures that could be used by organisations.

CORPORATE ACCOUNTING 7
The evaluation of the ASX rules of disclosure also needs to be evaluated, which could
directly help in depicting the relevant information to the investors (Lewis 2015). The rules were
information could be withheld that needs to be evaluated by organisations before the disclosure
of information are depicted as follows.
 Information regarding trade secret to the organisation is withheld from any kind of disclosure
 Any kind of breach of law that could be conducted from the disclosure of the information
needs to be withheld by the organisation
 Any kind of incomplete information or negotiation needs to be with help from any kind of
disclosures conducted by organisation
 Any kind information that is internal and needs to be conducted internally can be avoided
from the public disclosures (Mayorga and Trotman 2016).
The above depicted measures that are used by ASX providing relevant exemptions for the
disclosure measure mainly states the information that is provided by organisation. These
exceptions mainly help in supporting the organisations with the decisions for disclosure of
relevant information to the investors. However, the exemption rule does not have all the relevant
information regarding different types of disclosure that could be conducted by organisations.
Hence, improvement in the disclosure measures and exemptions could eventually help in
reducing any kind of manipulative measures that could be used by organisation. As depicted in
the article, David Jones used the disclosure measures to manipulate the share price, which
directly reflected the loopholes in disclosure measure (Ramsay 2015).
ASX mainly provides relevant information to the investors regarding decisions conducted by
companies. This measure mainly helps in improving the relevant information that is portrayed by
organisation to their shareholders. The evaluation of the articles, ASX disclosure measures and

CORPORATE ACCOUNTING 8
research paper mainly helps in identifying the relevant need for continuous disclosure measure
for the companies in Australia. Therefore, it could be understood that with the help of disclosure
measure organisations are able to portray all the relevant information to the investors. However,
adequate measures needs to be used by ASX for reducing any kind of unethical measures that
could influence share price of an organisation. Relevant disclosure guides needs to be altered
where, any kind of agreement that is not made and is conducted verbally cannot be disclosed in
the disclosure measures. This overall disclosure measures mainly needs to reduce any kind of
problems that might interfere with the justifiable disclosure that needs to be conducted by
organisation (Rayson 2016).
Thus, use of disclosure measures with relevant adjustment could eventually help in reducing
any kind of unethical measures that could be used by organisation. Furthermore, the continuous
disclosure measure relevantly helps in reducing any kind of Manipulations in the annual report
that could be conducted by organisation. This continuous disclosure mainly states that
organisations need to portray all the relevant decision that is being conducted by the management
(Russell 2015). These decisions need to be evaluated by the investors and determine whether the
share value will increase or decrease. the main aim of ASX is to maintain Efficient market
hypothesis, where stocks are promptly evaluated on the basis of relevant information.

CORPORATE ACCOUNTING 9
References:
Ahmed, A., Delaney, D. and Ng, C., 2016, January. Does gender diversity influence the
frequency and the quality of continuous disclosure?. In Academy of Management
Proceedings (Vol. 2016, No. 1, p. 11096). Academy of Management.
Ahmed, A., Monem, R.M., Delaney, D. and Ng, C., 2017. Gender diversity in corporate boards
and continuous disclosure: Evidence from Australia. Journal of Contemporary Accounting &
Economics.
Chapple, L. and Truong, T.P., 2015. Continuous disclosure compliance: does corporate
governance matter?. Accounting & Finance, 55(4), pp.965-988.
Chapple, L.J., Prasad, A. and Xiong, F., 2016. Financial reporting on social media (including
Twitter)-reviewing the challenges.
Di Lernia, C., 2014. Empirical Research in Continuous Disclosure. Australian Accounting
Review, 24(4), pp.402-405.
Feigin, A., Feigin, A., Ferguson, A., Ferguson, A., Grosse, M., Grosse, M., Scott, T. and Scott,
T., 2016. Evidence on why firms use different disclosure outlets: Purchased analyst research,
investor presentations and Open Briefings. Accounting Research Journal, 29(3), pp.274-291.
Gopalan, S. and Hogan, K., 2014. Ethical Transnational Corporate Activity At Home And
Abroad: A proposal for reforming continuous disclosure obligations in Australia and the United
States. Colum. Hum. Rts. L. Rev., 46, p.1.

CORPORATE ACCOUNTING 10
Harford, J. and Powell, R., 2015. Measuring the Effectiveness of Australia's Statutory-Backed
Continuous Disclosure Policy on ‘Innovative’Investment Disclosures
Hempel, S., 2015. Is my company listed on Chi-X? Technically no, but. Governance
Directions, 67(5), p.267.
Lewis, K., 2015. ASX consults on changes to continuous disclosure guidance note. Governance
Directions, 67(4), p.201.
Lewis, K., 2015. Changes to Continuous Disclosure Guidance Note 8. Governance
Directions, 67(10), p.584.
Market Index. (2017). Surfstitch Group Limited. [online] Available at:
http://www.marketindex.com.au/asx/srf [Accessed 8 Sep. 2017].
Mayorga, D. and Trotman, K.T., 2016. The effects of a reasonable investor perspective and
firm's prior disclosure policy on managers' disclosure judgments. Accounting, Organizations and
Society, 53, pp.50-62.
Ramsay, I., 2015. Enforcement of Continuous Disclosure Laws by the Australian Securities and
Investments Commission.
Rayson, J., 2016. Directors banned and fined for breaches of continuous disclosure
obligations. Governance Directions, 68(10), p.621.
Russell, M., 2015. Continuous disclosure and information asymmetry. Accounting Research
Journal, 28(2), pp.195-224.