Corporate Governance and Accounting Theory Report - ACC302 Analysis

This report analyzes the relationship between accounting theory and corporate governance, focusing on the practices of two ASX-listed companies, Wesfarmers and Woolworths. The report examines their corporate governance policies, including board composition, CEO and Chairman statements, and disclosure practices, referencing the ASX Principles. Part A of the report provides a comparative analysis of the two companies, addressing aspects like board structure, director independence, and executive leadership. Part B delves into the role of corporate governance in accounting, discussing its importance in ensuring transparency, accountability, and ethical financial reporting. The report explores the impact of corporate governance failures and the role of accounting standards and regulatory bodies like ASIC. It emphasizes the need for good corporate governance to maintain investor confidence and protect companies from corruption, highlighting the importance of independent committees, timely disclosure, and adherence to accounting regulations like CLERP9. The study concludes by emphasizing that companies can improve the extent of independence on board sub committees.

Running head: ACCOUNTING THEORY AND CORPORATE GOVERNANCE
Accounting Theory and Corporate Governance
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to Part A:.......................................................................................................................2
Answer to 1:...............................................................................................................................2
Answer to 2:...............................................................................................................................2
Answer A:..............................................................................................................................2
Answer B:...............................................................................................................................2
Answer C:...............................................................................................................................3
Answer to D:..........................................................................................................................3
Answer E:...............................................................................................................................4
Answer to 3:...............................................................................................................................4
Part B: Role of Corporate Governance in Accounting...............................................................6
References:...............................................................................................................................11

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Answer to Part A:
Answer to 1:
Wesfarmers board believe that the corporate governance policies and practices that
are implemented all through the reporting period of 30th June 2019 adheres with the
references given in ASX Principles (Group, 2019). Wesfarmers corporate governance
policies consist of conflict of interest, code of conduct, Whistle blower policy, market
disclosure policy and environmental policy.
While the Woolworths corporate governance is considered central to the company in
creating a sustainable growth and improving the long-term value of shareholders. The
directors and the team members of Woolworths is anticipated to act in an ethical manner and
responsibly all the time. The ambition of Woolworths goes further than the legal compliance
(Woolworthsgroup 2019). The purpose of the company is to construct a healthier experience
together for a better tomorrow with the objective of shaping the company’s commitment for
meeting the requirements of its customers, teams and key stakeholders.
Answer to 2:
Answer A:
Total number of directors for Wesfarmers and Woolworths are as follows;
Total number of directors
Wesfarmers 10
Woolworths 8

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Answer B:
No disclosure is made by Wesfarmers and Woolworths regarding the percentage of
non-executive directors in the financial statement and corporate governance report of the
respective companies.
Answer C:
No disclosure is made by Wesfarmers and Woolworths regarding the percentage of
independent directors in the financial statement and corporate governance report of the
respective companies (Francis, Hasan and Wu, 2015).
Answer to D:
The name of chairman of Woolworths is Gordon Cairns while the name of CEO is
Brad Branducci.
Summary of CEO and Chairman statement Woolworths:
CEO:
As per the CEO the company has made a pleasing progress in its transformation by
achieving a strong focus on the customer differentiation and fundamental simplification of
process. The company has completed a number of initiative that would materially reshape the
company’s support towards evolution in food and daily needs of retail ecosystem.
Chairman:
The chairman constantly supports Australia’s commitment under the Paris agreement
and would be reporting in agreement with the rules of task force on financial releases relating
to climate. Till date it has reduced its carbon emission by 18%. As per chairman, in 2019 the
company returned $1.7 billion to the shareholders.

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Summary of Chairman statement Wesfarmers:
As per chairman the year 2019 represented a strong growth in profitability together
with major changes in the makeup of the corporation’s business portfolio. As per chairman,
repositioning of the company’s portfolio includes demerger of Coles business from group and
selling of interest in Bengalla coal mine. The net profit of the company increased from $4.3
billion to $5.5 billion out of which $3.2 billion were attributable to the demerger of profits on
sale of Bengalla.
Answer E:
Wesfarmers Total Shares Percentage held
Outstanding Shares 1131000000
M A Chaney 87,597 0.00775%
S W English 1,082 0.00010%
A J Howarth 19,960 0.00176%
W G Osborn 14,728 0.00130%
M Roche 2,000 0.00018%
R G Scott 7,51,365 0.06643%
D L Smith-Gander 12,045 0.00106%
V M Wallace 13,483 0.00119%
S L Warburton 1,036 0.00009%
J A Westacott 5,493 0.00049%
Percentage of Shares held by executive directors
Woolworths Total Shares Percentage held
Outstanding Shares 1084900000
B L Banducci 87,597 0.00807%
S J Donohue 1,082 0.00010%
D P Marr 19,960 0.00184%
C E Peters 14,728 0.00136%
C G Storrie 2,000 0.00018%
Percentage of Shares held by executive directors
Answer to 3:
The corporate governance policies mainly need companies in disclosing the sum that
the employees should be compensated for services offered by firm. Both Wesfarmers and

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Woolworths corporate governance practices involves prudence in financial statements which
assures that there should be a fair representation of financial information regarding the
company (Tricker and Tricker 2015). finally, this helps in corporate reporting and governance
for Wesfarmers and Woolworths.

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Part B: Role of Corporate Governance in Accounting
Introduction:
Corporate governance is regarded as the outline of instructions, relations,
arrangements and procedure through which power is exercised for controlled environment
within companies. Corporate Governance involves devices through which businesses and
those that are in control are held answerable (Hermalin 2014). The corporate governance act
as an influence how the purposes of a business is set and achieved, how the risks are observed
and assessed or how the performance can be optimised. Good corporate governance is
necessary in the present world by each shareholder groups.
Decline of big business firms in the last two eras has additionally strengthened its
demand. Astonishingly, in some catastrophes, accounting is considered as the main discipline
held responsible. The manner in which accounting is practiced give rise to different
treatments in the certain circumstances are some of the dark areas which may open the scope
for corrupt accountants. The author here considers that such kind of claim against accounting
is uncalled-for and unsubstantiated (Armstrong et al. 2015). The essay is based on the role of
corporate governance in accounting, its present status in Australia and how accounting
practice can protect the corporate firms from corruption by setting up governance.
Discussion:
Accounting is regarded as the procedure of compiling the evidence for reporting the
interior matters of an organization to different interested party at the end of definite interval.
It is referred as a language of business and plays a vital role in assuring and continuing with
corporate governance. In global set up, accounting activities is usually measured by the
accounting standards (Yermack 2017). As accounting has become a worldwide discipline and

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the accounting practice is coordinated allied with the numerous need of shareholders, it can
be used as the instrument for assuring good governance inside a commercial setup.
The corporate governance failure in 1970 and 1980 sets the mind of regulators and
public to improve the governance of companies. The outcome led to a plethora of good
governance code issued across the world from stock exchanges and investors association
(Edmans 2014). The main objective relating to all these committees was that good
governance needs effective functioning of board with the help of informed, empowered
subcommittees of board, independent directors and transparency in functioning of
management. The recommendations were mainly aimed at improving the objectivity,
processes and efficiency of audit groups.
As the central point of reference for the companies is to understand the stakeholder
anticipation, for promoting and maintaining the confidence of investors, ASX introduced the
“ASX Corporate Governance Council” in August 2002. The main purpose is to form
recommendations that would reflect an international good practice (Du Plessis, Hargovan and
Harris 2018). As apparent from the conversation that the occupation of accounting has got
involved either directly or indirectly with good governance. Nevertheless, the purpose of
accountants is to make sure that good corporate governance is followed by lowering the gap
amid the insiders and outsiders to a company with the aid of timely disclosure of correct
information.
Accountants have discovered ways to evade rules of accounting while investment
bankers have innovated difficult financial structures to make compulsory disclosure appear
rosier. No wonder that such type of climate has resulted in spectacular collapse of Enron in
2001 and downfall of WorldCom in 2002 (Chan, Watson and Woodliff 2014). It is projected
that scandals such as in Enron, WorldCom and others have contributed to a loss of greater

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than $7 trillion in market capital which is biggest in capitalism history. Australian firms such
as HIH and ABC Learning failed mainly due to the domination of poor management and
governance by joint creator of the company. There is also an extensive criticism in the report
that concerned the accounting practices within the group. On the other hand, the governance
of One Tel was mainly poor (Edmans 2014). There were huge gaps in the reporting of its
information regarding the director’s shareholdings and three of its committees, namely the
audit committees, remuneration and corporate governance that consist of similar two board
members with none being an independent director.
The doctrine that companies are separate legal entity was existent well before the
registered companies and applied to common law corporations. The proposition that directors
owe their duties towards company has attained growth over the time on the basis that they are
the proprietors of the company that have risked their capital in the anticipation of gain.
According to the central principle of company law directors is obliged to fulfil their duties
towards their company as a whole (Jiang and Kim 2015). The directors and the board is held
answerable for management of company. Nevertheless, the constitution of the company
might permit the board to delegate this authority. Typically, the board may delegate the daily
management duties of the company to the management team.
The extent of matters that are reserved to the board and those that are delegated to the
management is dependent on the size, complexity and structure of ownership within the
entity is influenced by its history and company culture. This might change over the time as
the company evolves (Larcker and Tayan 2015). The board is regularly required to review the
division of functions among the board and management to make sure that it should be
appropriate with the needs of the company.

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The directors on the other hand are accountable to exercise their duty with care and
diligence. The director is also responsible with the duty of acting in the good faith in the best
interest of the firm and for a reasonable purpose. The duty of directors also relies on not
improperly using the position or information and should not be in the position of conflict of
interest (De Haan and Vlahu 2016). The director also holds the responsibility of disclosing
the material personal interest and should execute their duties to exercise the discretion.
The ASIC on the other hand is regarded as Australia’s combined corporate,
marketplaces, financial services and customer credit regulatory. It is a self-governing
government body of Australia and mainly performs majority of its work under the
Corporation Act. The main role of ASCI is to facilitate, maintain and develop the overall
performance of the financial system and entities in it. The ASIC also plays a dynamic role in
promoting confidence and informs the participation by investors and consumers within the
financial system for better corporate governance (Sapra, Subramanian and Subramanian
2014). It administrates the law efficiently and with lowest amount of procedural requirements
for information regarding the companies and other bodies which is accessible to public as
soon as it becomes practicable.
While CLERP9 in an effort to promote corporate governance makes sure that business
regulations are constant with endorsing a strong and vibrant economy. It also offers an
outline which helps the business in adapting to the change. CLERP9 plays a vital role in
developing the controlling and judicial framework which is reliable, elastic, adaptable and
cost effective (Cai et al. 2015). CLERP9 also helps in creating an appropriate balance among
the government and industry regulation and plays a pivotal role in improving the
harmonisation among the regulatory frameworks of Australia with those that are applying in
the major financial markets.

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A commitment towards good corporate governance is regarded as a simple term of
say, well-defined rights of shareholders, strong controlled environment, higher level of
transparency and disclosure etc. makes the company highly attractive towards investors and
lenders that are more profitable. Shareholders generally look forward for this which attracts
premium valuation in each aspect (Armstrong et al. 2014). Since accounting is internationally
mentioned as the vehicle for assuring good corporate governance, it is thought that the world
must accept the universal international accounting standard and it has already been done. The
journey has been in progress long before and this move would make it easy to relate the
performance of the companies within the industry and across the countries.
The study clearly shows that companies can improve the extent of independence on
board sub committees (Yermack 2017). The significance of independence differs from every
committee. For example, the nomination committee should be independent in order to assure
that correct person with correct skills set is elected to board instead of someone who is
selected by CEO to carry out their job as instructed. It will also help in assuring that a
transparent nomination and director’s evaluations helps in effective succession planning.
Conclusions:
Corporate governance is very much important in the present multifaceted and active
business background to make sure long-term sustainability. As a result, it must be cultivated
and practiced on a regular basis inside the present business structure. Companies should learn
lessons from Enron, WorldCom and ABC Learning, as companies may fail to recover the
trust of public which is very much indispensable to the long-term success and survival of the
business. Companies that genuinely identify and embrace the principles of good governance
would obtain higher benefits, availability and lower cost of capital along with the ability of
attracting business partners. Undoubtedly, accounting helps in showing the way forward to

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proceed with the corporate governance where bad governance usually arises from financial
discontent and over use of power.