Financial Analysis of Accent Group Limited: ACC3700 Case Study

This case study report, prepared for the Australian Securities and Investment Commission (ASIC), analyzes Accent Group Limited, a leading Australian footwear company. The report examines the company's compliance with key Australian Accounting Standards, including AASB 16 (Leases), AASB 6 (Mineral Resources), and AASB 121 (Foreign Currency Transactions). The methodology involves secondary research, focusing on Accent Group's annual reports and relevant accounting literature. The findings assess the company's adherence to these standards, evaluating the impact of lease accounting on financial ratios and the relevance of mineral resource accounting. Furthermore, the report investigates Accent Group's disclosures on sustainability, environmental accounting, earnings management practices, and measurement practices. The analysis includes calculations of debt ratios and a review of the company's financial reporting practices. The report concludes with recommendations for Accent Group based on the analysis of its compliance with accounting standards and overall financial reporting.

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ACCENT GROUP LIMITED – CASE STUDY
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1ACCENT GROUP LIMITED – CASE STUDY
Executive Summery
This report titled “Accent Group Limited – Case Study” is prepared with the objective of
analysing the applicability and compliance of the selected Australian Stock Exchange listed
company named Accent Group Limited. Accent Group Limited is an Australia based
footwear company which is the market leader in Australia in retail and distribution of
performance and lifestyle footwear. The group have more than 420 retail store across
Australia as well as in New Zealand. The firm also have the 10 different retail banners as well
as the distribution right of the 10 international brands in the Australia and New Zealand. The
10 different brands of the group are Hyper DC, CAT, The Athlete’s Foot, Top – Sider,
Platypus Shoes, Merrell, Stance, Palladium, Skechers and Vans. All the brands of the group
come up with its own unique presence to the retail sector of both Australia and New Zealand.
The main objective of the report is to evaluate the compliance of Accent Group Limited in
the basis of the following accounting standards: -
 Accounting for leases
 Accounting for mineral resources
 Accounting for foreign currency transactions and forward exchange contracts
Further, in the process of analysis the company’s compliance the various other important
concepts and details are come into the focus, not only in the basis of the above stated
accounting standards but also the some other requirement that is required for any company to
become successful in their business operations. Those are as follows: -
 Disclosure and practices of the Accent Group in terms of sustainability and
environmental accounting
 Earnings management practices of the Accent Group
 Measurement practices of the Accent Group

2ACCENT GROUP LIMITED – CASE STUDY
The report shows the methodology of data collection and analyse those data reach the
findings and then implement those findings and finally recommend the company as per the
findings.

3ACCENT GROUP LIMITED – CASE STUDY
Table of Contents
1. Introduction........................................................................................................................4
2. Methodology......................................................................................................................5
3. Findings............................................................................................................................10
3.1 Accounting for Lease.....................................................................................................10
3.1.1 Compliance with AASB 16.....................................................................................11
3.1.2 Management Approaches and Theories of Accent Group Limited........................14
3.2 Accounting for Mineral Resources – AASB 6...............................................................17
3.3 Accounting for foreign currency transactions and forward exchange contracts – AASB
121........................................................................................................................................18
3.3.1 Compliance with AASB 121...................................................................................20
4. Implications of Findings..................................................................................................20
4.1 Implication of AASB 16 on Accent Group Limited......................................................20
4.2 Implication of AASB 6 on Accent Group Limited........................................................21
4.2 Implications of AASB 121 on Accent Group Limited...................................................21
5. Conclusion and Recommendations..................................................................................22
6. References........................................................................................................................24
Appendix..................................................................................................................................28

4ACCENT GROUP LIMITED – CASE STUDY
1. Introduction
Accent Group Limited is an Australia based footwear company which is the market
leader in Australia in retail and distribution of performance and lifestyle footwear. The group
have more than 420 retail store across Australia as well as in New Zealand. The firm also
have the 10 different retail banners as well as the distribution right of the 10 international
brands in the Australia and New Zealand. The 10 different brands of the group are Hyper DC,
CAT, The Athlete’s Foot, Top – Sider, Platypus Shoes, Merrell, Stance, Palladium, Skechers
and Vans. All the brands of the group come up with its own unique presence to the retail
sector of both Australia and New Zealand. As the Accent Group is listed in the Australian
Stock Exchange hence it is subject to compliance with applicable the Australian accounting
standards to ensure that the financial statements of the firm are reliably and faithfully
represented. The Australian Security Investment Commission is also concerned with the
compliance and applicability of those accounting standards of the Australian Accounting
Standard Boards like Accounting for leases, Accounting for mineral resources and
Accounting for foreign currency transactions and forward exchange contracts. Hence, this
report perform the analysis of the Accent Group compliance and applicability of the firm is
respect to the above stated standards. Further, this report also analyse the disclosure and
practices in respect to sustainability and environmental accounting, earnings management
practices and measurement practices as these are also an important function of the company
and the firm need to perform this functions wisely to profitable in the international market.
To analyse the sustainability of the firm in respect to the above stated accounting standards of
Australia, this report evaluate the various aspect of the firm like accounting theories used by
the Accent Group in preparing their financial statement, annual report, internal control and
management of the firm, board of directors, auditors, political issues and various other aspect
which directly or indirectly affect the performance of the Accent Group.

5ACCENT GROUP LIMITED – CASE STUDY
2. Methodology
The subject which examined throughout this report focuses on the compliance and
applicability status of the Australian based company Accent Group Ltd in reference of the
three accounting standard of Australia in the respect of the accounting theories, accounting
concept and regulation of accounting used and consider by the Accent Group in their
financial reporting. This report analyse the following Australian Accounting Standards: -
 Accounting for leases – AASB 16 and AASB 17
 Accounting for mineral resources – AASB 6
 Accounting for foreign currency transactions and forward exchange contracts –
AASB 121
Before analysing the compliance or the applicability of the Accent Group Limited in
respect of the above mentioned accounting standards, it is important to understand why this
accounting standards are important and why the accounting standards are required. To answer
this question there are various papers are available regarding the accounting standards
(Rankin 2017). According to Rankin, “accounting standards are important to ensure that
quality financial reports are produced by companies and that those reports will support users
to make well informed and valuable decisions”. In simple words, the accounting standards
are the set of rule, standards and procedure, which defines the basis of the accounting policies
and practices. This helps to establish the transparency in the financial reporting throughout
the entire world (Pwc 2016). Apart from that every country also have their own accounting
standards which establish the uniformity in the financial reporting among the entire company
of the country, like Australian Accounting Standard Board is for the Australian based
companies while General Accepting Accounting Principles is the accounting standard of
United States but these standards is followed by the every country of the world. The

6ACCENT GROUP LIMITED – CASE STUDY
accounting standards relate to all the financial aspects of the firm like income, expenses,
share capital, loans, profit and like.
Hence, it is become important to analyse the every accounting standards and to know its
intention in relation to providing quality information in the financial reporting of the firm.
This report uses the secondary method of research and not the primary research methodology
because the entire data for the research is only available in the official website of the
company and it can be only collected through the company’s website (RCG Corporation Ltd
2019). While to analyse the data collected the research through the Chartered Accountant’s
Financial Reporting Handbook of 2017. This is also based in the various other articles related
to the accounting standards which are available in the internet. This gather those information,
this research uses the Google search and various other authentic websites to get the various
articles related to this topic. The main objective of this research of the articles is to obtain the
information about the Australian Accounting Standards and the changes took places in the
accounting standards of Australia.
After getting the good knowledge and understanding of the each accounting standards,
then it is possible to apply this knowledge to investigate compliance to the standards by the
Accent Group Limited. The primary research regarding the compliance and adaptation of the
accounting standards of the Accent Group Limited is performed by the collecting the related
data through the public channels such as company annual reports and filing available on the
ASX website along with the information provided on the company’s own website (Kieso,
Weygandt and Warfield 2019). The further more information are taken from the several other
studies are performed by the different researchers as well as the academic articles and
journals.

7ACCENT GROUP LIMITED – CASE STUDY
While, researching the compliances of the Accent Group Ltd with the accounting
standards it was noticed that there is the certain relationship among the standards of
accounting as well as various other concepts of accounting including the practices along with
these relationships were further explored in respect of textbooks accounting, journal articles
as well as various accounting websites. The followings are the some important concepts and
practices those are related with the focused accounting standards: -
 Management Approaches
 Accounting Theories
 Financial Report Analysis
 Capital Investment
 Measurement Systems
While, the further research as well as the analysis of the concern topics was
undertaken which included the some primary calculations which are required by the concern
accounting standards are mentioned below: -
AASB 16 and AASB 17 - Accounting for Leases
The followings are some calculation of debt ratios in respect of the debt of the firm as
well as the lease standards effect on these. The followings are the some calculations of the
financial ratios which are influenced by the AASB 16 and AASB 17 Accounting for Leases
standards. The followings are the formula of the : -
Debt to Equity Ratio with Operation Leases Expensed: Total Liabilities
Total Equity
Debt to Equity Ratio with Operating Leases Expensed:
Total Liabilities+Operating Lease Expenses
Total Equity

8ACCENT GROUP LIMITED – CASE STUDY
Debt Ratio with Operating Leases Capitalised: Total Liabilities+Operating Lease Expenses
Total Assets
Debt Ratio with Operating Leases Expensed: Total Liabilities
Total Assets
The following table shows the all calculation based on the above formulas for the
Accent Group Limited for the last five years (RCG Corporation Ltd 2019). All the data for
the below calculation are taken from the annual report published by the firm: -
Ratio of Accent Group Ltd as the standards of accounting for leases
Ratio 2018 2017 2016 2015 2014 2013
Debt to Equity Ratio with Operation Leases
Expensed 0.54 0.68 0.47 0.69 0.39 0.30
Debt to Equity Ratio with Operating Leases
Expensed 0.75 0.87 0.61 0.73 0.49 0.35
Debt Ratio with Operating Leases Capitalised 0.49 0.52 0.41 0.43 0.35 0.27
Debt Ratio with Operating Leases Expensed 0.35 0.41 0.32 0.41 0.28 0.23
AASB 6 - Accounting for mineral resources
Some research is performed to understand whether the standard related to the mineral
resources will be applicable to the operation of the Accent Group Limited or not. The AASB
5 which is related to the accounting for mineral resources is carefully examined to find the
application of the standard in the financial reporting of the Accent Group, though the
standards stated that this standard is applicable to the assets which are related to the mineral
resources (RCG Corporation Ltd 2019). Further, this standards explains the method of
calculating the impairment of the assets related to the mineral resources. Hence, this standard
is not applicable in the case of the Accent Group Limited.
The Accent Group Ltd is a group of the brands which produces as well as distribute
the different types of shoes. While, the accounting for mineral resources is for those firms

9ACCENT GROUP LIMITED – CASE STUDY
which produces or operates in the mineral resources like mining and all (RCG Corporation
Ltd 2019). Hence, the AASB 6 that is the standards for accounting for mineral resources is
not apply in the financial reporting of the Accent Group Limited even the firm also does not
provide any information related to the mineral resources in their annual report for the last six
years.
Accounting for foreign currency transactions and forward exchange contracts – AASB
121
The standard for the forward exchange contract suggests the two method of
converting the foreign currency in the Australian Dollar those are the direct method and
indirect method. The currency in the direct method is expressed as the one unit of foreign
currency expressed in Australian currency while the indirect method expresses as the one unit
of Australian currency expressed in foreign currency (Accent Group Limited 2019). The
direct method uses the multiplication in the transaction process while the indirect method
follows the division process.
Here, the Accent Group Limited have the various risk associated with the foreign
currency and the forward contract as the firm operates in various foreign countries as well as
the firm also have the distribution licence of the various foreign shoes brands for the
Australia. The main foreign country for the Accent Group in terms of the foreign exchange is
the USA and New Zealand. The firm properly apply the suggested standard of AASB in
preparing the financial report of the company.
Restriction to the research
This report is only based on the information with are made public hence this report
have some limitation in the research and the findings of those research. As the report is
prepared to analyse the accounting compliance of the Accent Group Limited hence, the

10ACCENT GROUP LIMITED – CASE STUDY
accounting information for the research is taken from the financial report of the company
related to the topic of the research which are provided by the firm (Aasb 2019). The analysis
perform in this research to examine the financial data which is provided by the firm in their
annual reports is adequate. Although, for the further research to analyse the relationship
between the accounting standards and other concepts, it could be more beneficial to obtain
the internal financial information and data of the firm as well as the other concepts. Further,
this would also been beneficial to obtain the internal financial records particularly in relation
to the company’s use of cash flow data as well as derivatives. Same like the above stated
limitations of the firm, as per the requirement and the scope of the research, conducting the
interviews with company directors and personnel would also been beneficial (Dunbar and
Laing 2017). However, conducting interview with the directors and personnel was
impossible. Hence, this is another limitation of this research.
3. Findings
3.1 Accounting for Lease
AASB 16 is the current accounting standard for the lease accounting which requires
companies to distinct the operating leases from finance leases. If the contract substantially
transfers all “risks and rewards incidental to ownership of an asset” to the lessee when the
lease period ended, then it is consider as the financial lease (Aasb 2019). While, if the risk
and rewards of the asset remain with the lessor at the end of the lease period then it is
consider as the operating lease.
GAAP suggests to record all the financial lease in the balance sheet of the firm as
asset and liability while the operating leases are not required to be recorded in the balance
sheet of the find and simply shown in the income statement of the firm as lease expenses
(Accent Group Limited 2019). Further, the expenses of the financial lease also need to be

11ACCENT GROUP LIMITED – CASE STUDY
record in the income statement of the firm separately like depreciation and interest expenses
while the operating lease only need to be recorded as a lump sum expense amount.
The biggest down fall of this requirement of the GAAP is that some of the assets are
recorded in the asset of the firm while another is not which may mislead the readers of the
financial report. As this standard does not requires the firm to record the lease asset in the
balance sheet hence the firm does not present the fair and true value of the asset in their
financial report as well as firm can also avoid to report expenses related to this assets in the
income statement as well.
To solve the above stated issues regarding the accounting for lease, the Australian
Accounting Standard introduces the new and effective standard for lease accounting which is
AASB 16 and is developed by the AASB in the basis of the IFRS 16. This new accounting
for lease requires the reporting of all kind of lease with the period of 12 month or more in the
balance sheet of the firm along with their expenses in the income statement (Accent Group
Limited 2019). This standard is applicable to all the company form the July 2019.
3.1.1 Compliance with AASB 16
The Accent Group limited adopted the Australian Accounting Standard Board 116
that is for the accounting for leases for reporting their leases. The firm in the annual report for
the year 2018 states that the firm identified the lease arrangement as per the model introduced
by the AASB 16 as well as the accounting treatment is also performed as per the standards
requirement in the both the books that is lessor and lessees. Further, this standards removes
the distinctions between the operating lease and the finance leases (Accent Group Limited
2019). In this regards the firm uses the assets and the corresponding liabilities for all the
leases expects the short term leases because this the right for using the asset and the
corresponding liabilities (Aasb 2019). The requirement of the AASB 16 require that the