Kế toán, kiểm toán - Chapter 9: Governance and other information

CHAPTER 9Governance and Other Information1Discuss the significance of corporate governance.Discuss different types of corporate governance issues.Explain the meaning and content of the Independent auditor’s report.Explain the different types of reporting requirements.Describe how the explanatory notes are an integral part of the financial statements.Describe the nature and content of disclosures relating to accounting changes and events subsequent to the balance sheet date.Describe what is included in the five-year summary of financial information,Learning Objectives2Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynWhat is Corporate governance?What was the HIH Royal Commission about?What are the ASX principles of good corporate governance?What is CLERP and what changes has it introduced? Overview3Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCorporate GovernanceAbility of a company to: Self-controlSelf-regulateFully disclose information to the market place and to investors.The strategies, behaviours and actions of a company, its directors, its managers and its employees that affect the success or otherwise of a business.4Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCorporate GovernanceRecent focus on corporate governance due to high level of corporate collapses in the late 1980s, 1990s and again in the early 2000s.Recent corporatecollapses in Australia:HIHHarris ScarfeOne.TelAnsett Airlines5Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCorporate GovernanceFailure of corporate governance in recent years has led to a series of government and non- government reports and legislation.HIH Royal CommissionCLERPASX Principles of Good Corporate GovernanceIn USSarbanes-Oxley Act (SOX)6Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCorporate GovernanceFocus on behavioural issues relating to the management of the organisation and boardroom culture,Did not recommend legislative changes (imposition of governance systems or structures is fraught with danger).HIH Royal Commission7Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCorporate GovernanceAfter a lengthy inquiry, report released in April 2003. The collapse of HIH was not only due to a series of corporate mistakes and errors of judgement but also due to the overall mismanagement by HIH directors which exposed an unsound management culture.Report focused on the role of boards and organisational culture.HIH Royal Commission8Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCorporate GovernanceASX took a proactive stance and issued guidelines in January 2003 for publicly listed companies for best practice in governance and stewardship.More regulated and focused on disclosure of actual governance against a framework of governance practices.Compliance not mandatory but top 500 companies must report on the extent of their compliance with the recommendations and must show the reasons for not adopting any particular recommendation.ASX Principles of Good Corporate Governance9Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCorporate GovernanceLay solid foundations for management and oversight.Structure the board to add value.Promote ethical and responsible decision-making.Safeguard integrity in financial reporting.Make timely and balanced disclosure of all material matters.ASX Principles of Good Corporate Governance10Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCorporate GovernanceRespect the rights of shareholders.Recognise and manage risk.Encourage enhanced performance.Remunerate fairly and responsibly.Recognise the legitimate interests of stakeholders.ASX Principles of Good Corporate Governance11Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCorporate GovernanceCorporate Law Economic Reform ProgramLegislative changes were not significant.CLERP 9 gives ASIC (Australian Securities and Investments Commission) the power to penalise and fine companies (to $100,000) for breaches of the disclosure rules.CLERP12Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynFinancial Reporting MisstatementsWhat is going on?Seven financial shenanigans- H Schilit:Recording revenue too soon or with questionable quality.Recording bogus (not real) revenue.Boosting income with one-time gains.Shifting current expenses to a later or earlier period.Failing to record or improperly reducing liabilities.Shifting current revenue to a later period.Shifting future expenses to the current period as a special charge.Behaviours contrary to GAAPS13Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynOther Information- for Financial AssuranceTo provide full disclosure about companiesIndependent auditor’s report.Explanatory notes to the financial statements.Management discussion and analysis.Five-year summary of financial data.14Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynIndependent Auditor’s ReportAddressed to members of the company.Confirms fair presentation of the financial statements.One component that can be relied upon to provide unbiased information to shareholders.Three elements:15Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynIndependent Auditor’s Report1. Identity of reports being audited:Income statementBalance sheetThe cash flow statementAnnual report explanatory notesDirector’s declarationRemuneration disclosure in the director’s report.16Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynIndependent Auditor’s Report2. Scope: nature and extent of auditor’s work. Audit Report must specifically state that the auditor is independent. Reasonable assurance on whether the financial statements are free from material misstatements. No guarantee (responsibility of management) that they are free from fraudulent transactions or from the affects of errors. Audit work involves tests (sampling). 17Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynIndependent Auditor’s Report3. Opinion:That the financial statements are presented fairly and are in accordance with accounting standards and other mandatory professional reporting and statutory requirements.18Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynReporting RequirementsThe requirement to prepare financial reports and disclose information through the content of financial reports is determined by the classification of the company.PROPRIETARY COMPANYLarge Pty CompanySmall Pty CompanyPUBLIC COMPANY(Mostly) listed on the stock exchange19Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynReporting RequirementsSmall Pty CompanyA proprietary company is small if it satisfies at least two of the following criteria:1. Consolidated gross revenue for the financial year is less than $10 million.2. Consolidated gross assets at the end of the financial year are less than $5 million.3. The consolidated group has fewer than the equivalent of 50 full-time employees at the end of the financial year.20Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynReporting RequirementsSmall Pty CompanyDraft legislation before parliament in 2007 proposes some changes to these limits:1. Consolidated gross revenue for the financial year is less than $25 million.2. Consolidated gross assets at the end of the financial year are less than $12.5 million.21Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynReporting RequirementsSmall Pty CompanyFewer reporting requirements:Does not have to prepare an annual financial report or have it audited in accordance with the Corporations Act 2001.If the proprietary company is not a small company then it will be classified as large.22Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynReporting RequirementsPublic CompanyLarge Pty CompanyMust prepare an annual financial report, have itaudited, and lodge it with the Australian Securities and Investments Commission (ASIC).Other documents must be lodged with ASIC.The complete financial report, a full financial report and a concise report,The directors’ report, andThe auditor’s report on the financial report.andmust also comply with reporting requirements of the ASX.23Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAnnual reportReporting RequirementsFull financial reportAn income statementA balance sheet A statement of cash flows The director’s report A statement by the auditorA statement that the report is a concise report.Concise financial reportmust contain:sometimes called:24Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExplanatory Notes to the Financial Statements Important for a better understanding and interpretation of the financial statements Disclose details of specific financial statement items Presented in the same sequence as in the financial statements.25Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExplanatory NotesSignificant accounting policies: Disclosure of the specific practices being followed by the firm.To ensure information is comparable and understandable.Reference to accounting standards or other pronouncements.26Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExplanatory NotesShare options and share purchase plans: Plans whereby officers and key employees are given an option to buy shares in the company at some time in the future, at a price equal to the market price of the shares when the option is granted.Provides incentives to these officers and key employees to increase the profitability of the firm so that the share price will rise.Details must now be disclosed in notes.27Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExplanatory NotesChanges to accounting principles:Changes that have a material affect on the comparability of the current period financial statements with those of prior periods.From 1 January 2005 all companies had to comply with International Financial Reporting Standards (IFRS). For some companies this was a significant change and for all reporting entities it required a restatement of comparative figures.28Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExplanatory NotesBusiness combinations:Mergers, acquisitions, dispositions or de-mergers.Description of transaction and affect on financial statements.29Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExplanatory NotesContingencies and commitments:Most of these will have a negative impact on the financial statements if they materialise.Results not known and so firm is not definitively committed yet.Full disclosure required in notes in some cases (e.g. pending legal action, firm acts as a guarantor of the indebtedness of another entity or where firm has made commitments to purchase a significant amount of plant).30Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExplanatory NotesEvents subsequent to balance sheet date:If subsequent to the balance sheet date, a significant event occurs that will have a material impact on the balance sheet or income statement, an explanation must be provided in the notes (e.g. sale of a significant part of the company’s assets).31Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExplanatory NotesSegment information:Segments may reflect different lines of business or different geographical areas.Disclosure of business segments and related information permits judgements about the impact of factors that might influence specific sectors or geographic areas.32Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynManagement Discussion and AnalysisMany annual reports include a narrative section by management.Description of the firm’s activities for the year.Comments about the firm’s financial condition and results of operations.Not included in the scope of the independent auditor’s report.33Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynFive-year Summary of Financial DataProvided for at least 5 most recent years:Key income statement data.Significant ratios.Earnings and dividends per share.Average number of shares outstanding.Other operating statistics.Year end data from balance sheet.Year end market price of ordinary shares.This summary is not included in the scope of the independent auditor’s report.34Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn