Importance of Continuous Disclosure Framework for ASX Listed Companies

This report examines the continuous disclosure framework developed by the Australian Stock Exchange (ASX), emphasizing its importance for listed companies and investors. It analyzes the financial performance of Surfstitch Ltd, highlighting the impact of its acquisition strategy and the subsequent decline in revenue and profitability. The report details the significance of continuous reporting, including the legal requirements under the Corporations Act, and its role in ensuring transparency, market efficiency, and investor protection. It discusses the key elements of a continuous disclosure regime, such as policy implementation, identification of market-sensitive information, and the importance of timely information disclosure. The analysis underscores how continuous disclosure aids in understanding market trends, evaluating investment decisions, and maintaining the integrity of the financial markets. The report concludes by emphasizing the benefits of the continuous disclosure regime for businesses, investors, and the overall market stability in Australia.

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The Role of the Continuous Disclosure Framework

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Contents
Introduction................................................................................................................................3
Part 1..........................................................................................................................................3
Part II..........................................................................................................................................5
Importance of Continuous Reporting Regime...........................................................................5
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
The present report aims to demonstrate the importance and significance of continuous
disclosure framework developed by the ASX. In this regard, the report will emphasize on the
current financial position of Surfstitch Ltd through analyzing and evaluating its annual
reports. Also, it depicts the necessity of implementing a continuous reporting regime for
disclosure entities.
Part 1
Surfstitch (SRF), an online surfing retailing company has recorded huge profit and
growth in the year 2015 but profit begin to fall in the year 2016 as analyzed from its annual
reports. The massive growth recorded by the company in the year 2015 was due to its
acquisition strategy with total revenue approximately to about $144m. However, the annual
report of the year 2016 has revealed that its revenue growth has been decreased significantly
as compared to that in the year 2015. The company had recorded a net loss after tax to about
$154.7m due to failure in its aggressive acquisition strategy and its desire for increase in its
revenue without paying much emphasis on the profitability.
In year 2015, company has acquired many subsidiaries that raise the amount of
goodwill and it has impacted the cash position a lot. During the financial year 2015, company
has acquired subsidiaries such as SurfStitch Holdings Pty Limited, SurfStitch Pty Limited,
SurfStitch (Europe) Limited, SurfStitch USA, Inc., Surfdome Shop Limited, Magicseaweed
Limited, Metcentral Limited and some other. All these subsidiaries are marked as cash
generating units and at the time of acquisition of these subsidiaries goodwill has comes into
existence. Below chart shows the goodwill left after the deduction of impairment loss from
each CGU.
Amount of Goodwill for CGU at the end of FY 2015

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Amount in thousand dollars
SurfStitch Pty Limited $ 24,432.00
SurfStitch Europe Pty Limited
Surfdome Shop Limited $ 30,557.00
SurfStitch USA, Inc. $ 9,866.00
Magicseaweed Limited $ 6,997.00
Rollingyouth Pty Ltd $ 1,980.00
$ 73,832.00
There has been great change in cash and cash equivalents due to acquisitions carried
out by the company in year 2015. A sum total of 58633 thousand dollars has been used for
acquisition of subsidiaries. Company has raised the cash through issues of shares capital of
amount 125,693 thousand dollars.
Company has shown the impairment loss of 88,999 thousand dollars in the profit and
loss statement and it is due to write of complete goodwill amount that company has
recognised in previous year. The impairment in goodwill occurs due to huge reduction in
carrying value of CGU. The selling and distribution expense has increased from 44683
thousand dollars in year 2015 to 101268 thousand dollars in year 2016. After complete
analysis of the company performance in current period and previous it is highly
recommended to the clients to hold the shares for two years and give the company chance to
rise again and earns the substantial profits.

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Part II
Importance of Continuous Reporting Regime
Information disclosures have become an intensely significant part of an organization.
In today’s dynamic environment, it has become quite important to have accurate information
so that future goals and strategies can be planned out. Investors that are investing in the
company have their stake in the business organization (O'Brien, 2007). Thus in order to
remain up to date they follow a broad and wide spectrum of information that discloses
potentially relevant information. It is significant to know that the spectrum of information is
quite wide and it also varies from time to time. The continuous disclosure regime has become
important because it lays significant impact on the market and allocation of resources
(Continuous Disclosure: an Abridged Guide, 2017).
Australia’s business and economic environment has working in compliance with
continuous disclosure regime. The companies that are listed in the Australian Stock Exchange
are following the rules and norms in accordance to continuous disclosure process. The
Australian Stock Exchange has been adopted the continuous disclosure regime as a way to
achieve efficiency and stability in their operations (Australia’s continuous disclosure system:
clear or confused, 2013). It is quite important for listed companies to follow the procedures
according to continuous disclosure and disclose information about their earnings so that
future market trends can be forecasted. In Australia, it is quite important for a company and
its directors to have an effective continuous disclosure regime in order to avoid breach of
Corporation Act. The continuous disclosure has become a legal requirement in Australia for
companies, in addition to this it also helps in identifying the persons that have involved in
alleged infringement of commitment for continuous disclosure. This concept has also
provided defence shield to the business organization, section 674(2B) of the Corporation Act

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explains that if any person or business entity got involved in a issue which is related to
infringement can prove its innocence by ensuring that they have compiled with the norms of
continuous disclosure (Strengthening the financial reporting framework, 2017).
Hence it is important for organization to adopt a robust compliance system in order to
avoid potential infringement of continuous disclosure. In Australia, the continuous
disclosures has been set out in section 674(2) of the Corporation Act which explains that
every business organization that has been listed in Australian Stock Exchange is required to
notify their market operator about varies kind of information that has been disclosed and the
reason for not disclosing certain information (Explainer: Continuous disclosure obligations,
2013). It is also important for a business firm to disclose that the information is available at
which platform so that general public can have a look at the entities market performance. In
addition to this, the business organization is also required to disclose the value of information
in the market ad its significant impact on the price of its securities and shares (Seeto and
Howatson, 2008).
The Australian Stock Exchange is quite particular about the continuous disclosures
regime, and has serious punishments for the one who do not operate in compliance with the
same. The continuous disclosure regime is in section 674(2), failure to comply with the
section 674(2) my give rise to suit for an offence such as notice of breach by Australian
Securities and Investment Commission or civil proceedings against the guilty. The
Continuous disclosure regime is a positive change but it is quite hard to achieve because it
involve various requirements. A continuous disclosure regime consists of a continuous
disclosure policy approved by the board of the organization (Explainer: Continuous
disclosure obligations, 2013). The regime should involve a senior officer to head its
proceedings. The very first responsibility of the head of the regime is to identify the areas

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where the query for disclosure can arise so that proper strategies for the same can be planned
out.
It is important for business organization to include continuous disclosure their training
and induction program for new recruits, managers and senior officials so that any they can
easily understand the requirements of the regime the training program is required to be
organized at regular intervals so that any new trend in the regime can be analyzed properly.
Continuous disclosure regime helps in identifying information which can aid the general
public to analyze the performance and growth of the organization in relation to prevailing
trends in the market (Australia’s continuous disclosure system: clear or confused, 2013).
Apart from this it also helps the investors to analyze the future effects of information on the
shares and securities of the firm.
The Corporation Act’s section 677 refers to determine whether the information
provided is market sensitive or not so that it can be disclosed or not. The information so
disclosed aids the general individual to expect material effect on the price or value of the
shares of the company. These kinds of information also help a person to decide whether the
shares of the business organization should be acquired or to be disposed off. In continuous
disclosure regime, the information disclosure is a continuous and interdependent process;
information thus disclosed have certain kind of effect on other information that has been
disclosed earlier by the firm (Continuous Disclosure: an Abridged Guide, 2017). The
Australian Stock Exchange a maintained a time period under which the listed entities or firms
are required to disclose the information and if the business entities find that the information is
market sensitive they can resist from disclosing the same, but in such cases they have to
disclose the reason behind not providing information to the stock exchange under a given
time slot.

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However the way through which information will be disclosed to Australian Stock
Exchange can be decided by the business entity. It can also disclose information in the form
of market announcement. Certain information is required by the Australian Stock Exchange
on immediate basis while it may take longer time in case of making market announcement
(Seeto and Howatson, 2008). The significant point is that companies are required to follow
the continuous disclosure regime and they are also required to take the procedure quite
seriously and not postponing the same for later time period. The Australian Stock Exchange
has made it mandatory for firms which are listed in the stock exchange to follow the rules and
guideline for continuous disclosure of information which can have impact on the market
value of the firm’s shares and securities (Explainer: Continuous disclosure obligations, 2013).
The continuous disclosure regime has proved beneficial for business organizations,
general public and investor as well. When an investors plans to invest in any organizations,
the process undergoes a lot of research and findings. An investor believes in a large set of
information which is available on public platform. The continuous disclosures of information
by the firm are an effective and efficient practice which helps the business entity in
increasing their goodwill in the market, which in turn attracts more investors (Strengthening
the financial reporting framework, 2017). The continuous disclosure regime makes an
organization responsible towards the general public. The Australian Stock Exchange believes
that an information should be quickly announced which can damage the value of shares and
securities of the business organization. In any circumstances in which the business
organization fails to make an announcement of information that it can request the stock
exchange in halting their trading for some time until the information is announced
(Australia’s continuous disclosure system: clear or confused, 2013).
In today’s competitive environment, information sharing has become a vital part for
organizations that are functioning internationally as well as in their domestic region.

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Investors search various kinds of information before investing in any firm. Thus continuous
disclosure has become a significant aspect in proper functioning of a business organization.
Its role has become quite vast and important that an organization cannot avoid to continuous
disclosure regime. It has direct and indirect effect on the business and its goodwill in the
market (Chan, Faff, Ho and Ramsay, 2017). The Australian Stock Exchange has regulated
the same aspect quite efficiently in their operations. They have made it a legal obligation for
all the firms that are listed in the Australian Stock Exchange to comply their operation and
functions with continuous disclosure. The Corporation Act of the country specifies its norms
and guidelines which are required to be followed by every business firm (Latimer and
Maume, 2014).
As per my opinion this procedure is quite effective in understanding the market value
and market trends for a business organization. This procedure allows business firms to
disclose information which can have an impact on the market value of the shares and
securities (Clarke, Dean and Egan, 2014). In my opinion it is important for any investor to
know the market performance of a business organization in order to make right decision as to
invest or not to invest. The Australian Stock Exchange has made the compliance process
quite flexible for the business entities. This is quite interesting to know that business
organizations if felt that the information is market sensitive they can avoid disclosing the
same to the Australian Stock Exchange. The procedure is quite effective as it is abided legally
and if not followed properly or if a firm is engaged in the infringement of law, then it can be
prosecuted for the same by the Australian securities and investment Commission (Beaton-
Wells and Fisse, 2011). Thus the continuous disclosure regime is quite effective because it
helps the business organizations to forecasts the market trends so that they can plan out their
future prospects. Apart from this, an organization that discloses information on regular basis
has improved goodwill in the market.

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Conclusion
It can be said from the overall discussion held in the report that continuous disclosure
forms an essential part of reporting standards for the Australian business entities. The
Surfstitch Company is recommended to adopt the reporting framework of continuous
disclosure to enhance their financial reporting quality and regain the goodwill in the market
position.

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References
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O'Brien, J. 2007. Private Equity, Corporate Governance and the Dynamics of Capital Market
Regulation. Imperial College Press.
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Simon and Schuster.
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[Online]. Available at: https://www.claytonutz.com/knowledge/2008/january/compliance-
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[Online]. Available at: https://archive.treasury.gov.au/documents/403/HTML/docshell.asp?
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