Australian Continuous Disclosure and Its Impact

This assignment examines the Australian continuous disclosure regime, its impact on corporate transparency and information risk. It analyzes research papers discussing factors influencing voluntary disclosures, the relationship between governance structures and disclosure practices, and the potential consequences of inadequate disclosure, such as litigation risks highlighted in case studies like Surf Stitch. Students are expected to synthesize these findings to evaluate the effectiveness of the continuous disclosure regime in promoting transparency and protecting investor interests.

ROLE OF THE CONTINUOUS DISCLOSURE FRAMEWORK
Student Name : Student
ID :
9/9/2017

EXECUTIVE SUMMARY
The title of the report is the role of continuous disclosure framework. As the title suggests,
throughout the report the importance of the continuous disclosure regime has been detailed. The
main aim of the report is to analyze the normal disclosure that is being followed by the company
as per the Corporations Act 2001 and other relevant statutes in regard to major heads of the
balance sheet and statement of profit and loss account and second major aim is to analyze the
effectiveness of the continuous reporting requirement for the disclosure entities. With these
considerations the report has been prepared in different sections and headings.

Contents
EXECUTIVE SUMMARY.................................................................................................................................2
INTRODUCTION...........................................................................................................................................4
ANALSYSIS – SURFSTICH LIMITED FINANCIAL STATEMENTS 2016 AND 2015..............................................4
FINANCIAL SITUATION.............................................................................................................................4
GOODWILL, SUBSIDIARY AND CASH POSITION – 2015............................................................................5
ANALYSIS OF PROFIT AND LOSS – 2016...................................................................................................5
RECOMMENDATION FOR INVESTORS......................................................................................................6
CONTINUOUS REPORTING REGIME.............................................................................................................6
DISCLOSURE ENTITIES..............................................................................................................................6
MEANING OF CONTINUOUS REPORTING REGIME...................................................................................6
EFFECTIVENESS OF REGIME...................................................................................................................10
CONCLUSION AND RECOMMENDATION...................................................................................................11
REFERENCES..............................................................................................................................................11

INTRODUCTION
Every company is required to disclose each and every information whether financial or non
financial depending upon the rules, procedures and regulations of the law of the country in which
the company is operating. Disclosure of the information gives an insight to the users of the
readers of the financial statements of the company regarding the financial position and the
financial performance of the company. In this report the continuous disclosure requirement has
been detailed. These have been issued by the Australian Stock Exchange and have been named
as the Listing Rules. In the first section, the annual reports of the company – Surf stitch Limited
has been discussed with reference to the major heads of the balance sheet including the goodwill,
investment in subsidiary, cash position, selling and distribution costs and other related items.
Along with the said financial analysis, an observation has been made regarding the trading of
shares of the company. The second major aim is to define as to what continuous reporting regime
is and how the same has been effective for all the companies which are listed in the Australian
Stock Exchange. The references have made from the primary and secondary sources which are
reliable for the conclusion and recommendation of the study.
ANALSYSIS – SURFSTICH LIMITED FINANCIAL STATEMENTS 2016 AND
2015
The company is engaged in the business of the online retailing of the sports lifestyle especially
for the young and the teens and the company is operating in United Kingdom, Australia and
North America. Though formed in the year of 2008, the company has been listed in the year of
2014 and since then the company has been facing financial difficulties.
FINANCIAL SITUATION
As of now, the company has been facing the class action suit of $100 million. The class action
suit has been filed by the large group of shareholders on account of the wiping out of the wealth

of the shareholders of the company with in the span of two years (Hatch, 2017). The class action
has been filed for an on behalf of the shareholders of the company who mainly have purchased
the shares between the periods from 27th of August of 2015 to 9th of June 2016. The basic
premise on which the class action has been filed is that the company has not been able to follow
the continuous disclosure norms as laid down by the Australian Stock Exchange and further the
company has not fulfill the forecasts that the company has made over the last two years to have
the improved Earnings before Interest Tax Depreciation and Amortization (EBITDA) and the
Profit After Tax. For instance in the financial year ending 30th of June 2016 the company has
made the forecasts that the company will have the EBITDA between the $15 million to $18
million but in actual the company has received the EBITDA of negative $18.8 million which is
200 percent less of the forecast made by the company (Loughlin, 2017).
GOODWILL, SUBSIDIARY AND CASH POSITION – 2015
As per the annual report of the company for the year ending 30th of June 2015, the following has
been analysed:
- Goodwill – As on 30th of June 2015, the company has recorded the goodwill of $73832
thousands. The goodwill has been recognized on the acquisition made by the company
$93534 thousands less the impairment of $19702 thousands. The impairment has made
for the Surf stitch brand of Europe which has been closed.
- Investment In Subsidiary - The Company has invested $58633 thousands in acquisition of
subsidiaries which is net of cash during the year.
- Cash Position – As on 30th of June 2015, the company has the cash position of $40837
thousands. This is the actual cash position as on that date as the company has neither an
obligation towards the long term debt or short term debts or the company has
commitment towards its subsidiaries.
ANALYSIS OF PROFIT AND LOSS – 2016
As per the annual report of the company for the year ending 30th of June 2016, the following has
been analysed:

- Impairment Costs – As per Note 17 and 18 of the Annual Report, The company has
recorded the impairment costs of $88999 thousands
- Selling and Distribution Expense – The Company has recorded the expense of $101268
thousands.
- Administrative Expense - The Company has recorded the expense of $49237 thousands.
RECOMMENDATION FOR INVESTORS
No, shall not be recommended for the client to buy the shares before the share price decline. It is
because the company has been seen as fast in expansion of its business despite of the costs, the
company is incurring. Second reason is the incorrect forecast made by the company for the
consecutive period of two years.
CONTINUOUS REPORTING REGIME
DISCLOSURE ENTITIES
Entities are the companies working in the industry and the Disclosure entities are those who are
required to comply with the continuous disclosure framework as provided by the Australian
Stock Exchange. In Australia, first company is required to be registered as per the Corporations
Act, 2001 and then in case it wants to go for listing then the company has to apply for listing in
Australian Stock Exchange. Thus, disclosure entities means those companies which are listed in
the recognized stock exchange of Australia and are required to comply with the guidelines and
the rules on the mandatorily basis. As the company has been listed in the year of 2014 and since
then the company has been following the disclosure reporting framework as the listing rules
prescribed by the Australian Stock Exchange. As the company has not followed the same
correctly and has received the class action for the large group of shareholders who has purchased
shares during August 2015 to June 2016.
MEANING OF CONTINUOUS REPORTING REGIME
The continuous reporting regime is the scheme which entails that every company which falls
under the ambit of the governing law have to comply with the requirements and is required to

report to the authorities on the continuous basis. The governing law is the listing rules that have
been prescribed by the Australian Stock Exchange (Australian Government ,2017). The basic
premise of the listing rules has been mentioned in Listing Rule 3.1 which states that the in case
any disclosure entity comes to know or becomes aware of the fact that if for the want of any kind
of information, it may be financial or non financial, any reasonable person expects to have the
effect on the share price of the company in future, then such disclosure entity is required to
disclose that information immediately to the Australian Stock Exchange (Field, 2005). The term
immediately does not mean that the information shall be furnished without delay but it depicts
that the information shall be furnished promptly and in active manner. Listing Rule 3.1 A has
prescribed the exceptions as to the situations under which the requirement of the Listing Rule 3.1
does not apply (Lewis, 2013). These situations are:
- By disclosing the information, the disclosure entity will breach or violates the law. It
means that the information will be in the nature which is in prohibition of the law.
- The information which the company plans to disclose is incomplete or under proposal or
negotiation. It means that the information the company wants to disclose is not proper,
incomplete and will not serve any purpose in case it is disclosed.
- The information itself requires warrant as whether it is required to be disclosed or not. It
means when the information itself wants corroborative evidence whether the company is
required to disclose the said information or not. This evidence is related to the reference
to the governing law or the written announcements, notification or circular issued by the
department of the government.
- The information that has been considered is for the internal purpose of the company.
There are many instances where the information is generated by the company and that too
only for the purpose of the company’s internal communication and management. For
instance the management information system (MIS) reports that is generated on regular
intervals – monthly or quarterly basis, internal audit report issued by the internal
department of the company or the outside consultancy firm, etc (Matolcsy, Tyler and
Wells, 2012).
- The information is purely the secret of the business of the company which the company
operates. The secret of the company’s way of doing the business is the premise on which

every business functions. In case it is made available in the market to everyone then there
will be a case where all will be at the same level and there will be no competitors else
there will be a group following one technique of business and other following other
technique. Thus, the secret of the business is not required to disclose as per the listing
rule.
If any of the above situations applies, then the disclosure entity is exempted from the disclosure
of the required information. Apart from the above situation, two more exceptions are there:
- The information that the company wants to disclose is purely confidential in nature and
the Australian Stock Exchange has not in any way for the opinion that the information so
discussed is ceased to be confidential in nature.
- The reasonable person on the basis of whom the listing rule 3.1 has been formed does not
consider the information as valuable to be disclosed (ASX, 2017).
Listing rules have prescribed the procedure which each entity shall follow while disclosing the
information. It details that the disclosure entity is required to consider the following scenarios
and is required to work accordingly:
- If the information is not like which can affect the share price on the basis of the
expectation of the reasonable person, then it is not required to be disclosed. If the
information is like then it shall be disclosed immediately as per the listing rule.
- If the information does not falls under the category of the exceptions, then the same shall
be disclosed immediately as per the listing rule.
- The information cannot be disclosed straight away if the trading is currently working. At
first the trading halt is required to be made and thereafter the information is required to be
disclosed.
- In all the other cases, the disclosure entity is required to be disclosed at the Australian
Stock Exchange market announcements platform as quickly as the disclosure entity can.
As per the listing rules, there are seven features for continuous disclosure:
- Informed Market – It entails that the market consisting mainly of the investors shall be
informed properly. The word properly exhibits that the clear and true and fair information

shall be provided in the market and it shall not in any case be misleading or contains
misstatement which can lead to making of wrong decision by the users of the information
relating to the company (White, 2007).
- Timely Release – The information that the company is required to provide shall be timely
released. If the information is not released in time then it will not serve any purpose. The
information is very market sensitive and if it is not provided in time then the usefulness
of the same will decline.
- Available for All – The information so provided by the company shall be available to all
the investors. It means it shall not be for the benefit for the particular community and the
particular group of people.
- Pre Time Disclosure – The information shall not be disclosed before the time. It is
because the information that is required to be disclosed is very price sensitive and the
premature access of the information can lead to the speculation and other trading
activities. This can lead to emergence of fall market also.
- Interests – The interests of the company shall be saved while disclosing the information
and there shall be the correct balance between the timely disclosure and interest of the
companies.
- Confidential – The market sensitive information shall be kept confidential until and
unless it is disclosed to the investors. The company shall not inform the information to
the advertisers and similar agencies.
- Penalties and Remedies – The Company shall be informed about the areas where
penalties can be imposed and the enforcement procedures can be taken where any default
has been made (Debreceny, 2005).
Apart from the above characteristics an entity is required disclose the following information:
- Information which is very sensitive to the market like material acquisition or disposal
(HSU, 2009); on becoming plaintiff or defendant in the major suit like Surf Stitch has
received as the Class Action suit.
- Any other like market sensitive information.

EFFECTIVENESS OF REGIME
The continuous disclosure regime is required in almost every spheres of the World where there is
the great opportunity of doing business. As the country of Australia, is the hub for every
business, the law is required which can govern that the companies which are operating and
listing in Australia or only listed in Australia shall disclose the information which for the
investors in the market is very useful. Through this information they usually take the very well
informed and communicated decision regarding the investment or the acquisition or the merger,
etc (Gray, 2009).
In response to the continuous disclosure, the regimes had been very effective since its beginning.
Every company which is listed in the Australian Stock Exchange is required to disclose the
market sensitive information as quickly as possible. If the regime was not there then the
companies would not have been able to disclose all the information on the timely basis. There
has been major collapse of many companies due to non disclosure of the relevant information
like Lehman Brothers and HIH Insurance (Beekes and Brown, 2006; Aitken, 2008). There would
have been the chances of the insider trading. But in the given case, the wrong disclosure has
made the non compliance provisions of the Listing rules active due to which the company has
faced the very worst situation. The whole management of the team has been considerably
changed within the period of two years (HO and Wong, 2007).
In the given case, the company I Surf Stitch Limited has been facing financial loss since the last
two years ending 30th of June 2015 and 30th of June 2016. As per the annual report of the
company for the year ending 30th of June 2016, the company has incurred the loss of $154.70
million and has fell very less of the projections. Therefore, the financial health of the company is
not good though also not in the situation of insolvency or bankruptcy (Olson, 2017). Surf Stitch
has also not made the correct disclosure of the forecasts due to which the dissenting shareholders
have filed the class action due to decreased share price (Chan, Faff, Ho and Ramsay, 2007).

CONCLUSION AND RECOMMENDATION
To conclude with the report, the continuous disclosure regime is very important for all the
company listed in stock exchange so as to facilitate the fair trade and fair availability of
information.
It is recommended to have the true and correct information and on timely basis so that the
investors can take relevant action on timely manner.
REFERENCES
Aitken, M.J., (2008). Short sales are almost instantaneously bad news: Evidence from the
Australian Stock Exchange. The Journal of Finance, 53(6), pp.2205-2223.
Australian Government , (2017), “ Part 8: Continuous Disclosure”, available at
https://archive.treasury.gov.au/documents/403/HTML/docshell.asp?URL=Ch8.asp accessed on
09/09/2017
ASX, (2017), “ ASX Listing Rules – Guidance Note 8”, available at
http://www.asx.com.au/documents/about/guidance-note-8-clean-copy.pdf accessed on
09/09/2017.
Beekes, W. and Brown, P., (2006). Do Better Governed Australian Firms Make More
Informative Disclosures?. Journal of Business Finance & Accounting, 33(34), pp.422-450.
Chan, H., Faff, R., Ho, Y.K. and Ramsay, A., (2007). Management earnings forecasts in a
continuous disclosure environment. Pacific Accounting Review, 19(1), pp.5-30.
Debreceny, R., (2005). Firm-specific determinants of continuous corporate disclosures. The
International Journal of Accounting, 40(3), pp.249-278.
Field, L., (2005), “Does disclosure deter or trigger litigation?”, Journal of
Accounting and Economics, Vol. 39, pp. 490-499.
Gray, P, (2009). Accruals quality, information risk and cost of capital: Evidence from
Australia. Journal of Business Finance & Accounting, 36(12), pp.51-72.

Hatch P, (2017), “Surf Stitch faces $100 m class action over share Wipeout” available at
http://www.smh.com.au/business/retail/surfstitch-faces-100m-class-action-over-share-wipe-out-
20170522-gwatsh.html accessed on 09/09/2017.
HSU,(2009). Impact of earnings performance on price sensitive disclosures under the Australian
continuous disclosure regime. Accounting & Finance, 49(2), pp.317-339.
Ho, S.S. and Wong, K.S., 2001. A study of the relationship between corporate governance
structures and the extent of voluntary disclosure. Journal of International Accounting, Auditing
and Taxation, 10(2), pp.139-156.
Lewis K, (2013), “Continuous Disclosure”, available at
http://www.asx.com.au/documents/rules/gn-8-presentation.pdf accessed on 09/09/2017
Loughlin W, (2017), “The Rise and Fall of Surf Stitch” available at
https://www.rivkin.com.au/news/investing/2016/08/30/the-rise-and-fall-of-surfstitch-84051.aspx
accessed on 09/09/2017
Matolcsy, Z., Tyler, J. and Wells, P., (2012). Is continuous disclosure associated with board
independence?. Australian Journal of Management, 37(1), pp.99-124.
Olson F, (2017), “Surf Stitch Limited – Financial Strength Analysis” available at
https://simplywall.st/news/2017/03/01/surfstitch-group-limited-asxsrf-financial-strength-
analysis/ accessed on 09/09/2017.
White, G, (2007). Drivers of voluntary intellectual capital disclosure in listed biotechnology
companies. Journal of intellectual capital, 8(3), pp.517-537.