Corporate Accounting Report: Coles, Woolworths Wage Underpayment

This report provides an analysis of corporate accounting practices in Australia, specifically focusing on the wage underpayment scandals involving Coles and Woolworths. The report examines the impact of these issues on financial reporting quality and earnings quality, referencing the Australian Accounting Standards Board (AASB) framework and its requirements for reliable, understandable, and comparable financial statements. It discusses the adverse implications of wage underpayment on the companies' financial performance, including reduced profit margins and negative impacts on share prices. The report also explores the role of the AASB in enforcing financial reporting accuracy and the disciplinary measures that may be imposed. Furthermore, it provides a comparative overview of the wage underpayment incidents at Coles and Woolworths, detailing the number of affected employees, the amounts underpaid, and the responses from regulatory bodies and stakeholders. The report concludes by emphasizing the importance of proper payroll verification and the role of labor unions in preventing future discrepancies.

Running head: CORPORATE ACCOUNTING
CORPORATE ACCOUNTING
Name of the Student
Name of the University
Author Note

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Solution to answer no. 1
Coles and Woolworth is considered as the giants in the supermarket business in
Australia controlling the majority of the market share and is fierce competitors of one
another. However, in recent times both giant firms have been in the Centre point of
discussion relating to under payment of wages to their employees (Kaine, Josserand and
Boersma 2017). Woolworth has a scandal of over $300 million underpayment over a period
of more than nine years while Coles scandal points out a wage under payment scam of $20
million relating to more than six years.
Financial reporting quality and earnings quality relating to disclosures in financial
statements for all Companies operating within Australia is governed and over watched as per
the mandate of Australian Accounting Standards Board (AASB) framework which is adopted
from the International Financial Reporting Standards and the International Accounting
Standards Board (Aasb.gov.au 2019). AASB requires that all companies should maintain the
quality of its financial statements in terms of its reliability, understandability and
comparability and this underpayment scandal of both the mammoth super market firms have
failed to comply with the standard. The above mentioned wage underpayment issue relating
to both the companies will have adverse impact on the quality of their individual financial
reporting as well as on individual earnings quality as well. Previously, both the companies
had huge profits over the years which easily overshoot its last year’s profit margin and
turnover as the expenses were shown in lesser amounts as compared to income. For instance,
Coles had shown its first-half retail earnings to be $725 million which easily overshoot its
last year’s expectations and earning of $690 million.
The implications of repayment of past wages will have adverse impact on both the
companies concerned. The repayment of wages will involve huge payments out of the current

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earnings of both the companies which will greatly impact their profit margin as well as on its
share market operation creating a negative impact on its share prices (Researchgate.net 2020).
For instance, Woolworth have to take into account a remediation cost of around $35 million
to $45 million which will greatly impact its supermarket business. The above incident
followed with a fall in its share price by 3.2 percent with more and more shareholders trying
to withdraw their money out of the company and a similar trend was also seen in Coles’ share
prices as well with a fall of 0.35% to $16.85.
Solution to answer no. 2
The discipline which will impose the discipline the accuracy of financial reporting in
Australian companies in the coming future is the Australian Accounting Standards Board
(AASB). It has been adopted in Australia in 2004 implementing the provisions and
recommendations stated in the International Financial Reporting Standards (IFRS). AASB
mandates that all companies operating within the territory of Australia to comply with its
requirements relating to accuracy, reliability, understandability and comparability of financial
statements especially relating to disclosures (Aasb.gov.au 2015). Relevance and accuracy is
the essence of the financial statements as per the AASB. AASB (para 31 and para 32) in its
mandates’ stipulates that the disclosure of financial statements should be accurate, relevant
and fair in the best interest of the shareholders and other users of such statements.
Solution to answer no. 3
Coles is considered among the top supermarket chain companies involved in this
retail, business since 1914 headquartered in Hawthorn East, Victoria and Woolworths which
is considered as its biggest competitor in retail business operating in Australian Supermarket
industry since 1924 headquartered in Bella Vista, New South Wales. Both the supermarket
giants have been recently accused of wage underpayment to its employees. Coles had

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underpaid its employees by $20 million for a period more than six years (Thornthwaite
2017). The number of employees that was involved in such a shameful wage underpayment
scandal was around 1100 people that comprises about 1% of total work force working in
Coles. The majority of the underpaid employees were the managers working in Coles’ liquor
division and supermarkets who were paid below the general “Retail Industry Award.” On the
other hand, Coles’ closest competitor Woolworths had a wage underpayment scandal
amounting to $300 million relating to more than 5700 employees for a period more than nine
years.
The wage underpayment scandals were a shock for many important people of the
administration. One such people was Sandra Parker, the “Fair Work Ombudsman” was
shocked to have found Woolworth among the list of alleged companies like the Michael Hill
Jewellers, Qantas, Wesfarmers, Commonwealth Bank and many more (Smh.com.au 2020).
Tony Bourke, the “Labor’s Employment” spokesperson requested for a parliamentary level
enquiry as well to bring such shameful event in broad day light and give justice to the ones
affected by this scandal. Christian Porter, “The Industrial Relations Minister” soon after the
discovery of Coles’ underpayment scandal released discussion paper to find options to hold
this grave crime. The discussion paper raised inherent options like employers admitting its
mistake to its underpaid employees by issuance of a formal notice and disqualification of
directors that failed to prevent such grave mistake.
Thus, from the above discussion it is clear that both the companies have made grave
mistakes in terms of proper verification of its payrolls on time and opening of the old avenue
of inspection of the payrolls to the labor unions like the “Shop Distributive and Allied
(SDA)” also stated by its Secretary, Gerard Dwyer, could act as a good measure to combat
such discrepancies in future and also help the firms accused to safeguard its image, restrict

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the high labor turnover and win back the confidence of its shareholders again thereby gaining
its old market standing and fame.

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References
Aasb.gov.au, 2015. Presentation Of Financial Statements. [ebook] Australian Accounting
Standards Board. Available at:
<https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf> [Accessed 2
April 2020].
Aasb.gov.au, 2019. Conceptual Framework For Financial Reporting. [ebook] Australian
Accounting Standards Board. Available at:
<https://www.aasb.gov.au/admin/file/content105/c9/Conceptual_Framework_05-19.pdf>
[Accessed 2 April 2020].
Kaine, S., Josserand, E. and Boersma, M., 2017. How to stop businesses stealing from their
employees. The Conversation.
Researchgate.net, 2020. An Historical Review Of Quality In financial Reporting In Australia.
[online] Researchgate.net. Available at:
<https://www.researchgate.net/publication/235285049_An_historical_review_of_quality_in_
financial_reporting_in_Australia> [Accessed 2 April 2020].
Smh.com.au, 2020. Investors Want Heads To Roll As Woolies' Underpayments Rise To
$315M. [online] The Sydney Morning Herald. Available at:
<https://www.smh.com.au/business/companies/woolworths-profits-hit-as-wage-
underpayments-blow-out-to-315m-20200225-p5446l.html> [Accessed 2 April 2020].
Thornthwaite, L., 2017. The living wage crisis in Australian industrial relations. Labour &
Industry: a journal of the social and economic relations of work, 27(4), pp.261-269.