ACC20013 Report: Market Reaction to Premier Investments Limited

This report, prepared as part of a group project by summer vacation interns, analyzes Premier Investments Limited's (Premier) accounting practices and market reactions. The report examines the concerns raised by the Australian Securities and Investment Commission (ASIC) regarding the valuation of brand name assets, specifically focusing on the $30 million write-down of casual wear brand assets. The analysis includes an examination of the market's reaction to Premier's announcements, demonstrating a decline in share price following the write-down. The report provides recommendations to Premier, emphasizing the importance of adhering to AASB 136 for valuing non-financial assets and the considerations required before impairing assets, such as materiality, expertise of management, use of external experts, and evaluation of company performance and environment. Additionally, the report highlights the need to conduct impairment tests for assets with indefinite useful lives, intangible assets not yet available for use, and goodwill. The report uses references from academic sources to support its analysis and recommendations.

Running head: COMPANY ACCOUNTING
Company Accounting
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1COMPANY ACCOUNTING
Table of Contents
1. Analysing the market reaction to the announcement to the market on 20-September 2018:......2
b. Recommendation provided to Premier, which might reduce the likelihood of it might being
subjected:.........................................................................................................................................3
References:......................................................................................................................................6

2COMPANY ACCOUNTING
1. Analysing the market reaction to the announcement to the market on 20-September
2018:
Figure 1: Price action of Premier Investments Limited on 20-September 2018
(Source: Au.finance.yahoo.com 2019)
The above figure provides information about the share price action of Premier Investment
Limited over the period of time. In addition, the share price of the organisation has mainly
declined on 20th September 2018 over the period of time. The share price of company mainly fell
from the high of 19.75 to the lows of 19.00 on 20th September 2018 after the disclosures made by
management regarding the write-down of their casual wear brand value by $30 million in their
financial report of 28th July 2018. Moreover, the one-day price action of the company continues
to next trading days, where the share price continued to decline to the levels of $13.61 in 1st Feb
2019. Therefore, it could be identified that the decisions that was made by the management of
writing down the value of their brand name by $30 million was negatively reflected on their
share price. This mainly reduced the share value of Premier Investment Limited by -31.09%,

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which resulted in lower income for the investors. Bepari, Rahman and Mollik (2014) mentioned
that overall share price of the organisation is mainly subject to the announcement and financial
performance of the company. On the other hand, Kabir and Rahman (2016) criticise that the
share price performance of the organisation is related to the emotions of investors, where the
change in their perception could directly have negative imp impact on the actual share price
movement of the company. Hence, the market reacted badly on the decisions that were made by
the management regarding the write-down of their brand name assets. The change in asset
valuation also altered the fundamental pricing of the organisation, which can be the main reason
behind the initiation of the short selling process by the investors.
b. Recommendation provided to Premier, which might reduce the likelihood of it might
being subjected:
The actions taken by Premier Investment Limited regarding the reduction in their no
financial assets was not appropriate, where Australian Securities and Investment Commission
disclosed concerns regarding the measures that were taken by the organisation. In addition, the
management of Premier Investment Limited ca use AASB 136 for valuing the non-financial
assets to be written down in the financial report. This use of AASB 136 rule would ensure the
management of Premier Investment Limited that the values derived for the non-financial assets
are according to the rules laid down by the AASB. This would in turn help in reducing the
likelihood of Australian Securities and Investment Commission future pressure on the
organisation. Abuaddous et al. (2014) mentioned that with the rule laid down by AASB the
organisations are able to improve the level of financial reporting, which ensures that adequate
information in being transferred to the investors. Bepari and Mollik (2015) argued that

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companies not following the AASB standards while preparing the financial report would
increase concerns for the investors, as actual financial performance cannot be determined by the
investors.
Moreover, the fair value of the asset can be identified with the help of impairment, which
is conducted by the management. In addition, certain considerations need to be taken into
accounts before impairing the relevant assets in the financial report. The considerations are
depicted as follows.
 Whether the assets that are used in the financial report are material in nature
 Identifying the level of expertise of the management and staff responsible for the
impairment of the assets.
 The management needs to use external experts which can eventually help in detecting the
fair value of the assets that can be implemented in the annual report.
 Evaluating the performance of the company and the environment in context with the
assets, where the recoverability of the value of assets through operating activities
(Asic.gov.au 2019).
In accordance with paragraph 12-14 of AASB, company’s need to test non-financial assets
for impairments when there are any indicators that the assets is impaired. This allows the
organisation to project accurate financial report in their financial statement. The organisation
needs to use the impartment test, if there is no presence of impairment indicators in the company.
In addition, the impairment testing is conducted on annual basis, where the impairment test of
the following needs to be conducted.
 The intangible assets identified within the organisation has indefinite useful lives

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 The intangible assets of the organisation is still not available for use
 The presence of goodwill in the company (Ato.gov.au 2019)

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References:
Abuaddous, M., Hanefah, M.M. and Laili, N.H., 2014. Accounting standards, goodwill
impairment and earnings management in Malaysia. International Journal of Economics and
Finance, 6(12), p.201.
Asic.gov.au. 2019. Impairment of non-financial assets: Materials for directors | ASIC -
Australian Securities and Investments Commission . [online] Available at:
https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/directors-and-financial-
reporting/impairment-of-non-financial-assets-materials-for-directors/ [Accessed 4 May 2019].
Ato.gov.au. 2019. Non-Financial Assets. [online] Available at: https://www.ato.gov.au/About-
ATO/Annual-report-2017-18/Part-3-Financial-statements/Notes-to-and-forming-part-of-the-
financial-statements/Non-Financial-Assets/ [Accessed 4 May 2019].
Au.finance.yahoo.com. 2019. Yahoo is now a part of Oath. [online] Available at:
https://au.finance.yahoo.com/quote/PMV.AX?p=PMV.AX [Accessed 4 May 2019].
Bepari, M.K. and Mollik, A.T., 2015. Effect of audit quality and accounting and finance
backgrounds of audit committee members on firms’ compliance with IFRS for goodwill
impairment testing. Journal of Applied Accounting Research, 16(2), pp.196-220.
Bepari, M.K., Rahman, S.F. and Mollik, A.T., 2014. Firms' compliance with the disclosure
requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and
other firm characteristics. Journal of Accounting and Organizational Change, 10(1), pp.116-149.

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Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion
under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting &
Economics, 12(3), pp.290-308.