Financial Reporting Practices of Costa Group Holding Ltd

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Finance Research
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Table of Contents
Abstract......................................................................................................................................................3
Introduction...............................................................................................................................................4
Part 1..........................................................................................................................................................5
Part 2..........................................................................................................................................................8
Conclusion................................................................................................................................................11
References................................................................................................................................................12
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Abstract
The purpose of the report is to reflect on the application and use of accounting principles and
standards of Australia in various organizations. These principles are framed and guarded by a
statutory body. The report mentions how a firm named Costa Group Holding Ltd applies these
principles in their financial statements. It is a known fact that the performance of a firm is
measured through its financial statements.
It is mandatory for every organization to record their transactions as per the standardized laws.
The report dwells on the implementation of segments of Australian Standards on the company’s
fiscal statements. Following the guidelines stated by the govt. means that there is absolute
transparency in the compiling and summarizing of recorded transactions.
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Introduction
There are three main sources of regulation that are responsible for governing the accounting
policies and financial practices that are being followed in Australia. These are the government
legislation, the Australian Securities Exchange Ltd (ASX) Listing rules and the accounting
standards which are issued by the Australian Accounting Standards Board (AASB).
Every company operating its business in Australia or out of the country needs to follow the
guidelines of the accounting board. The financial transactions taking place in the companies are
set to be in a certain format. These standards are set to commemorate ease in the business
functionalities. The accounting board ensures that the companies of different countries follow a
same set of guidelines while formulating the financial reports. This lets accountants and
managers understand the financial position of the company. It is also very important and
beneficial in making key decisions for the better performance and improvement of the company.
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Part 1
The report sheds light on the accounting standards followed by Costa Group Holding Ltd. Costa
is Australia’s leading grower, packer and marketer that supplies fresh quality of fruits and
vegetables. The firm was founded in 1888 and is headquartered in Australia. It is Australia’s
largest horticultural company. It raised its IPO in 2015 and is officially listed in the Australian
Stock Exchange. The company earned revenue of $ 90.91 crores in 2018. The produce from the
company is supplied to all the major Australian supermarket Chains, certain independent grocers
and a range of food industry stakeholders. The company also exports their produce to Asia,
North America and Europe. All of this is accomplished through the help of Costa Farms and
Logistics that distributes the fresh food to the wholesale markets and other countries.
The main produce in the companies are Berries, Mushrooms, Tomatoes, Citrus, Table Grapes,
Bananas and Avocados. Costa group has a production of fruits and vegetables in more than 3,500
hectares of farms all over across Australia (Adamyk and Adamyk, 2017). There are certain fruits
that are seasonal, which means that the company employs more than 6000 employees at the time
of peak season.
Costa Group Holdings Ltd also follows the accounting standards while preparation and
presentation of the financial reports. Few of the standards applied by the company in their
statements are:
 Financial Instruments Disclosure It is a very important part of the company. A listed
company has to disclose the investments it has made with its revenue and otherwise. The
segment of Financial Instruments Disclosure reflects on the areas where the company is
investing its capital to further grow the wealth and monetary value of the company. It
mentions the detailed portfolio such as equities, holdings, infrastructure, bonds and other
financial instruments (Cohen and Karatzimas 2017). The purpose of this segment is to
show the diversification of funds that the company has opted for to increase its capital
and this also reflects their long term goals. A portfolio mainly focused on the equities
means that the business has the ability to take risks.
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 Operating Segments The accounting standards states that the company has to disclose
all the operations that the company is undertaking. It reflects the performance capacity of
the organization and how much it cost is allocating towards these operations. The annual
report of the firm includes the Operations handled by the company, the business model
under which the firm is performing and following a roadmap, the operational structure of
the firm that categorizes the production of goods. This information is very vital for the
government and the stakeholders of the firm to know that the transparency of actions of
the firm. It also includes the future plans of the firm that they have planned for the next 4-
5 years.
 Consolidated Financial Statements It is the most crucial feature of the accounting
standards. Financial Statements are considered as the Report Card of the Company.
Under the standards, the financial statements are supposed to describe the revenue
generated by the company in one fiscal year. It includes different areas like the net Profit,
Operating Expenses, Shares, EBITDA, Fair value of assets, Depreciation and
amortization, Tax Expense, Material Items, Dividends and so on (Wingard, et.al., 2016).
The report also provides the result of the previous year, through which a comparison can
be made to acknowledge the improvement. The methods of calculation applied in the
financial report are pre-defined by the Australian accounting board.
The accounting standards are framed by the government bodies to build a fair and transparent
method of collecting, recording, compiling and summarizing of the transactions that take place in
an organization. These are a common set of principles that aims at reducing the fraudulent
practices followed by various companies to save their income from taxes. They find loopholes in
the system and use it for their benefit. These can also be termed as corporate crime.
A set of accounting principles that is globally recognized and applied eases trade between the
inter-continental trades. Through these implication of principles, the transaction process becomes
very easy and complex issues like taxation.
Application of Accounting Standards in Preparing Financial Reports
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The implications of the standards are mandatory on the financial reports. To further understand
the application of them while preparation of reports, let us look at the below points:
 Appropriate information about the firm’s entity like its assets, liabilities, equities, income
and expenses, cash flows should be stated clearly.
 As per the standards, a complete set of reports should be enclosed in the financial
statements such as the Trading A/c, the income statement, the Balance Sheet, statement
of Cash Flows (Chaplin, 2017).
 These statements should also present reports like financial reviews of the performance by
the senior management, the environmental report, the corporate social responsibility
report and the value added statements.
 As per the standards, the reports should be represented fairly in terms of its transactions
and conditions in accordance with the criterion of assets, liabilities, income and expenses.
 There is an implication that there should be no unattended entries of previous year or any
unjustified rectification in the transactions (Apostolou, et.al., 2017).
 There are various provisions and amendments that are made in the sections of the
accounting standards, these are used to extract the current value of the firm.
 The standards implies that the compliance are duly met by the firm in the proposed time
frame. The companies failing to do so are liable for penalties that are fixed.
 The accounting needs to be done on the accrual basis as it provide a clear indication of
the amount that is circulating the firm and will be impacting the revenue or expenditure
for the next year.
 The information declared in the financial reports should not be concealed by aggravation
of facts and figures, immaterial data, and materiality contemplations as this spoils the
image of the firm in the market and can lead to various malignant consequences.
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Part 2
Legitimacy theory
It is a mechanism that helps a company for the implementation. It further helps in the
development of the voluntary environmental and social disclosure which further helps in the
fulfillment of their social contracts. It is vital for the company to take care of the needs of the
society and provide them more than what the firm has taken from them. This theory posits a
company to continue to make sure that they should operate within the norms and bonds of the
respective society (Deegan, 2019).
The social contract in context with Legitimacy
This is model or theory which originated from the age of enlightenment and worries about the
legitimacy of the authority of state over an individual. The social contract involves the
suggestion that an individual has agreed to surrender some of their freedom and submit it to the
authority in exchange for the protection or maintenance of social order. Theory of social contract
states that people of the society should live together on the basis of the agreement which
implements the political and the moral rules of behavior. Social contracts can be many such as
raising of hand by student in a class to speak something. One of the examples can be of the
government in which the people of a particular company choose to work in that company and
governed by the political and moral obligation stated in the company’s social contracts
(Nbete,2012).
The response of the Costa group holding towards the legitimacy theory and the social
contracts
There can be a generation of the legitimacy gap when the performance of the company does not
match with the expectations of the stakeholders. The same situation was faced by the Costa
group holding and their response were in the following ways:
 They made changes in their goals, methods and the output for matching with the
expectations of the public or stakeholders and they informed these changes to the general
public.
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 Some of the outputs or method could not be changed so they described the
appropriateness of their output or method by giving proper information and also with the
help of education.
 They have associated themselves with the symbol of the high legitimate status in order to
make changes in the perception of the people.
 They have tried to make changes in the expectations of the society by connecting them
with the goal of the organization and various other methods.
So, it is very important for the companies to make follow the above strategies for the
implementation of the legitimacy in the company. Which further involves the addressing of the
values, norms, beliefs of the relevant publics. The multiplicity of legitimacy has affected the
management team of the costa group holding. It creates considerable latitude for the managers to
make movement strategically within their working environments. Since a company alone cannot
satisfy the audiences and even no manager can completely step himself out of the belief system
but at the margin initiative of the managers can make many differences, through which the
activities of the companies are directed in a desirable, appropriate and the proper manner within
the given context. So, legitimacy theory and social contact have a huge impact on the costa group
holding company (Mousa and Hasan, 2015).
Every organization makes plans for implementing different plans and strategies to enhance the
productivity and performance of their company. There is a well-known approach that is
commonly known for aiding the corporations in implementation of such plans which will lead
them to achieve their short term and long term goals. It is called Legitimacy (Bamber and
McMeeking, 2016).
Under this theory the company has to take care of all the societal norms that are surrounding the
company and has an impact from its production. Costa Group associates with the production and
delivery of fruits and vegetables to various parts of the country as well as inter-continents. It has
certain social obligations that are very necessary for them to follow.
The firm has received various awards for providing best quality services to its customers. As per
its Annual Report,
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 Costa was awarded the Award for Business Excellence in the field of Agriculture, Food
& Beverage in May 2018. It was awarded at the prestigious 25th Annual AustCham
WestPac Australia-China, Business Awards.
This award helps the company to be recognized for their efforts in the agro economic sector and
it has been appreciated by china. To strengthen its core practices, Costa introduced the world
new methods of Blueberry and substrate growing methods. These are big achievements for the
company. These have open doors for new opportunities and bringing tremendous change in the
fruit industry.
There are various areas that the company is trying to indulge in. The main objective of the firm is
to provide healthy food to the people and build a strong brand that is known for its unparalled
services (Font, et.al., 2016). In today’s times, when there is lot of changes in the environment
due to the climate changes, it is becoming very difficult for the consumers to feed on
unadulterated food. These changes describe the responses of Costa to Legitimacy.
It is important for the company to develop strategies that are liable in creating a roadmap to
reach the goals. An organization has several competitors that keeps introducing new things in the
market to retain their position and to provide an edge to the existing market. To deal with such
kind of competitors, costa focuses on delivering and producing fruits. They are best known for
their logistics management. A well-framed logistics department aids the firm in reducing
unnecessary costs and enhance its productivity. This also helps in controlling the costs incurring
in the overall supply chain segment. It sets them apart from other firms.
Various firms are in awe of the social contract that generates worries for the future. Under this
contract there is immense fight between the companies to reach their best position. Companies
are bringing changes in their methods deployed to enhance the productivity.
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Conclusion
The report presents the importance of accounting standards that are followed by the companies
while framing the financial statements. It is mandatory for every company to follow the set
standards so that there is absolute transparency in the process they are following. It is also
beneficial in easing the trade between two companies. The report provides information about
how a company Costa Group Holding Ltd applies the Australian accounting standards while
framing and presentation of the fiscal statements. It reflects the pellucidity in the accounts of the
firm. Following the guidelines makes it easier in the audit process as well. There are several
types of accounting standards that are incorporated in the AASB.
The report also includes information about the Legitimacy theory and how it impacts the
performance of the company. It also presents the response of Costa Group towards dealing with
the Legitimacy. It also encounters about the Social Contract that is an integral part of the theory.
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References
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