Corporate Governance Review: Lovisa's Financial Reporting Practices

This report provides an analysis of the corporate governance practices of Lovisa, examining its approach to earnings management and adherence to the ASX Corporate Governance Principles and Recommendations. The report highlights the responsibilities of the Board of Directors, including the presence of independent non-executive directors and the roles of the Remuneration and Nomination Committee, and the Audit, Business Risk and Compliance Committee. It discusses how these elements contribute to an effective corporate governance framework, designed to prevent illegal activities such as earnings management. The analysis is based on Lovisa's 2017 Annual Report and Corporate Governance Statement, providing a comprehensive review of the company's financial reporting and governance structures.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of the Student
Name of the University
Author’s Note

1CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Reviewing the Corporate Governance Statement of Lovisa......................................................2
References..................................................................................................................................4

2CONTEMPORARY ISSUES IN ACCOUNTING
Reviewing the Corporate Governance Statement of Lovisa
In the process of Earnings Management, the managements of the companies
artistically use the existing accounting policies and methods to produce financial reports that
contain improved and positive view of financial performance and position (Fang, Huang &
Karpoff, 2016). The use of this technique can be seen among the senior management to meet
the expectations of the shareholders by maximizing share price and profitability. The mostly
used earnings management tools are smoothing of income, big bath write offs, management
of real activities and others (Fang, Huang & Karpoff, 2016).
It can be seen from the 2017 Annual Report and Corporate Governance Statement of
Lovisa that the Board of Directors of Lovisa has the responsibility to maintain different
aspects of corporate governance within the business. It can be seen from these statements that
Lovisa complies with the eight principles of ASX Corporate Governance Principles and
Recommendations to develop their corporate governance framework (asx.com.au, 2019).
It can be observed that there are five members in the Board of Directors of Lovisa.
Among them, there are three independent non-executive directors. To the Board of Lovisa, a
director needs to be independent where he/she does not belong to the management of the
company and thus, he/she is free from any interest and bias that can materially affect the
judgment. It indicates that the Board of Lovisa puts major emphasis on the independent
aspect for maintaining corporate governance (cdn.shopify.com, 2019).
As a part of corporate governance, the Board of Lovisa has developed certain
committees for handling certain issues; they are Remuneration and Nomination Committee
and the Audit, Business Risk and Compliance Committee. The responsibility of the first
committee is to develop and succession planning. The responsibility of the second committee

3CONTEMPORARY ISSUES IN ACCOUNTING
is to carry out Audit, Business Risk and Compliance Committee’s accounting, auditing and
financial reporting tasks (cdn.shopify.com, 2019).
The above discussion indicates towards the crucial aspects that Lovisa has an
effective corporate governance framework that is supported by the eight principles and
recommendations of ASX. In addition, Lovisa has maintained the presence of sufficient
independent and non-executive directors for monitoring the operations of the executive
directors so that they cannot use the tools of earnings management for personal benefits. In
addition, the two committees play a pivotal role in reviewing the financial as well as non-
financial operations of Lovisa to avoid illegal activities like earnings management
(cdn.shopify.com, 2019).

4CONTEMPORARY ISSUES IN ACCOUNTING
References
Asx.com.au. (2019). Annual Report 2017. Retrieved 11 April 2019, from
https://www.asx.com.au/asxpdf/20170928/pdf/43mqfbsb14qvn0.pdf
Asx.com.au. (2019). Corporate Governance Principles and Recommendations. Retrieved 11
April 2019, from https://www.asx.com.au/documents/asx-compliance/cgc-principles-
and-recommendations-3rd-edn.pdf
Cdn.shopify.com. (2019). CORPORATE GOVERNANCE STATEMENT. Retrieved 11 April
2019, from
https://cdn.shopify.com/s/files/1/0023/1512/4788/files/Corporate_Governance_Statem
ent_2017_5.pdf?15007220070831679569
Fang, V.W., Huang, A.H. & Karpoff, J.M., (2016). Short selling and earnings management:
A controlled experiment. The Journal of Finance, 71(3), pp.1251-1294.