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ACC3210 Analysis of Corporate Reporting: Sustainability Report

Questions:

1.

Company boards, executives, and management are investing more and more time and resources on issues of sustainability - such as carbon (greenhouse gas emissions), energy efficient technology, water use, cleantech, and biodiversity, to name just a few. An important part of the global push towards sustainability practices involves a need to account for, and report on, sustainability - sometimes referred to as environmental, social, and governance (ESG) reporting 

“Company boards, executives, and management are investing more and more time and resources on issues of sustainability - such as carbon (greenhouse gas emissions), energy efficient technology, water use, cleantech, and biodiversity, to name just a few. An important part of the global push towards sustainability practices involves a need to account for, and report on, sustainability - sometimes referred to as environmental, social, and governance (ESG) reporting (IAS Plus, 2017).

Required:

Critically discuss the above statement by outlining why do companies should provide sustainability report in the company annual report? How is the International Integrated Reporting Council (IIRC) playing an important role in developing sustainability reporting guidelines/framework for corporations throughout the world?

2. 

Laurence Ltd commences its operations on 1 July 2015. One year after the commencement of its operations (30 June 2016) the entity presents its first Statement of Comprehensive Income and Statement of Financial Position on 30 June 2016. The statements are prepared before considering taxation. The following information is available.

Laurence Ltd:

Statement of Comprehensive Income for the year ended 30 June 2016

 

           $

                $

Sales revenue

12,750,000

 

Cost of Goods Sold

6,580,000

 

Gross Profit

 

6,170,000

Expenses:

 

 

Salaries and wages

1,586,000

 

Selling expense

65,000

 

Administrative expenses

1,150,000

 

Provision for doubtful debts

287,000

 

Warranty expenses

380,000

 

Long service leave

612,000

 

Depreciation expense – Property, Plant & Equipment

840,000

 

Insurance

290,000

 

 

 

5,210,000

Accounting profit for the year

 

960,000

 

Assets and Liabilities as disclosed in the Statement of Financial Position for the year ended 30 June 2016

 

     $

                   $

Assets

 

192,000

Cash

 

1,385,000

Inventory

 

983,000

Accounts receivables (net)

 

80,000

Prepaid insurance

4,200,000

 

Property, Plant & Equipment– cost

   840,000

 

Less- Accumulated depreciation

 

3,360,000

 

 

4,400,000

Land

 

10,400,000

Total assets

 

 

Liabilities

 

 

Accounts payables

 

985,500

Provision for warranty expenses

 

170,000

Provision for long service leave

 

382,000

Debentures payable

 

2,365,000

Total liabilities

 

3,902,500

Net assets

 

6,497,500

Required:

  • Compute the taxable income or loss.
  • Complete the Taxation Worksheet on the next page in accordance with AASB 112 Income Taxes.
  • Prepare the applicable journal entries at 30 June 2016 to account for tax using the balance sheet method.

Answers:

1: Introduction

The advantage of sustainability reporting go past further than the organisation monetary risk and opportunity to execute performance along with the ESG dimension and creating authorization to work. It is worth mentioning that sustainability disclosure can act as the differentiator in competitive industries and promote the assurance of investors along with trust and employee loyalty. It is opinion that analyst have often emphasised on the sustainability disclosure of the company while assessing management quality and efficiency as sustainability reporting provides firm with better access to capital. Several researchers have noticed that sustainability disclosure is used to assist the analyst in determining the value of firm. Sustainability reporting necessitates organisations to collect data regarding process and impacts which they have not yet measured before. In relation to the better lucidity concerning performance of the organisation towards sustainability reporting, provide organisations with information that is essential to cut down the usage of natural performance.

The GRI guidelines helps in emphasising those companies must consider that environmental and social aspect that forms most si


gnificance to shareholders and possess vital impact on business. Furthermore, sustainability reporting enables firm to avoid and alleviate environmental and communal risk that may have material or monetary impact on the trade while rendering improved business, social, environmental and monetary value in establishing a virtual circle.

Discussion: 

A large number of concerns involving pollution, climatic change, issues relating to human rights and economic crisis have paved the way for companies to towards the ongoing public disclosure relating to the role of business in society. Sustainability reporting is mandatory for companies to include in their annual report with the requirement for better lucidity, sustainability and accountability in business. As opinion by Ioannou and Serafeim (2016), sustainability reporting assists organisations to determine, understand and converse their economic, environmental and communal performance. Including sustainability report in annual report enables companies to set goals and monitor change more efficiently. According to Milne and Gray (2013), it is fundamental for business to build and maintain trust in order to achieve sustainable economy and world. Day to day decisions that are made by the business have direct impact on their stakeholders. This includes financial institutions, labour organisations, civil society and citizens in relation to the degree of trust, which they have with them. Such decisions not often forms the part of monetary information single-handedly as they are based on the evaluation of risk and opportunity by making use of data on wide range of instant and future issues.

As notified by Hahn and Kühnen (2013), several companies are involved in sustainability activities without the issue of reports. Organisations that prepares the report based on sustainability are ranked at higher places than those that does not report. Including sustainability in annual report though helps in improving the reputation however, it is not the primary reason that companies include sustainability in annual report. A variety of internal and external drivers influences companies to include sustainability reporting. Including sustainability, report provides executives, shareholders and investors with assurance that sustainability risk is monitored. For several firms growth in social responsibility investment forms the most compelling reason of indulging in sustainability reporting (Fonseca, McAllister and Fitzpatrick 2014). The market for responsible investment is not restricted to public or investors as mainstream analyst have also expressed their appetite for sustainability information. In several countries sustainability reporting is considered mandatory either with the help of exchange or through the help of government. Stock exchanges from more than twenty nations have strongly encouraged several companies to provide sustainability report or similar type of disclosure (Del Mar et al. 2015).

GRI it has long asserted that sustainability disclosure provides reporting organisations a wide range of intangible benefits in the areas of employee loyalty and customers benefits. In an argument put forward by Initiative (2014), value of sustainability disclosure have also extended the balance sheet of the firm. An analysis on more than two hundred independent studies have examined association of corporate social and environmental performance towards corporate financial performance have recommended that organisations have benefited from augmented communication of their good deeds.

As stated by Hahn and Lülfs (2014), providing sustainability, report might lead to the foundations of innovative and less expensive sources of the capital. By reporting the sustainability initiatives organisations are able to convince the possible sources of equity that they are competitive and lower-risk investments. In a recent study, it is suggested that investors have expressed their interest in preferably investing in transparent organisations due to the greater stakeholder-manager trust. Flower (2015), have opinion that sustainability disclosure by firms enables the investors with high amount of information than government-regulated firms. Hence, disclosure is positively related with the return on asset and cash flow from operations.

The international integrated reporting council have piloted its methodology for organisations to generate financial, environmental and governance report so that it can develop value over time. IIRC also plays an important role in developing new tools with particular interest being focused on the Sustainability Accounting Standards Board for appealing the financial market (Frias?Aceituno et al. 2013). The IIRC framework plays a key role in understanding the financial and common metrics in order to benchmark their performance. The IIRC framework enables the companies to take time through special societal impacts by building relevant associated KPI. Studies have suggested that reporting influences behaviour and IIRC plays a vital role in providing detailed description of performance than the conventional reporting. One of the central functions of IIRC is to guide organisation on communicating wider set of information that is required by the shareholders and stakeholders so that companies can assess their long-term prospects under a clear, concise and similar format (Cheng et al. 2014). IIRC framework provides those organisations, shareholders and others to create an improved long term and short-term decisions.  

Conclusion: 

Organisation that includes integrated reporting and sustainability report will not only display their stewardship in financial capital but will also in human, natural, social and other capitals that aligns with the interest of several society and interested groups. Integrated reporting provides emphasis on the stakeholder engagement, which in turn is more likely to result in greater consultation with social civilization interested group. With increasing number of companies issuing sustainability report analyst have anticipated that public and investors demand for outer assurance of sustainability report will increase in future. Hence, sustainability reporting not only helps in promoting seriousness but also promotes reliability.

2: 

A: 

Computation of Taxable Income

Particulars

Amt ($)

Amt ($)

Net Profit before tax

 

960000

Add: Asset Revaluation

 

900000

Depreciation machinery in accounts

 

840000

Transfer to long service leave provision

 

382000

Prepaid Insurance

 

80000

Warranty Expenditure

 

210000

 

 

3372000

Less: Long service leave paid and charged to provision

230000

 

Depreciation Mechinery for tax purpose

1050000

1280000

Taxable Income

 

2092000

 
B:

Items

Carrying Value

Tax Base

Deductible Temporary Differences

Taxable temporary Differences

Tax Expense

Revaluation Surplus

Tax Payable

Assets

 

 

 

 

 

 

 

Cash

192000

192000

 

 

 

 

 

Inventory

1385000

1385000

 

 

 

 

 

Accounts Receivable

983000

983000

 

 

 

 

 

Prepaid Insurance

80000

80000

 

 

 

 

 

Property, Plant and Equipment

4200000

4200000

 

 

45600

 

 

Less: Depreciation

840000

1050000

210000

 

 

 

 

 

3360000

3150000

 

 

 

270000

 

Land

4400000

440000

 

 

 

900000

 

Total Assets

10400000

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Accounts Payable

985500

 

 

 

 

 

 

Provision for Warranties expenses

170000

 

 

 

 

 

 

Privision for long term services

382000

 

 

69000

 

 

 

Debentures payable

2365000

 

 

 

 

 

 

Total Liabilities

3902500

 

 

 

 

 

 

Net Assets

6497500

 

 

 

 

 

 

Temporary Difference for the year

 

 

210000

69000

45600

1170000

 

Loss Carried forward

 

 

 

 

 

 

 

Movement for the period

 

 

210000

69000

45600

1170000

 

Tax effected rate at 30%

 

 

63000

20700

13680

351000

 

Tax on Taxable Income

 

 

 

 

-288000

 

-288000

Income Tax Adjustment

 

 

63000

20700

-274320

351000

-288000

 

C:

Journal Entries

Particulars

Debit  ($)

Credit ($)

Income Tax Expenditure A/c......Dr (2092000 x $0.30)

627600

 

To Tax Payable A/c

 

627600

Income Tax expenses A/c........Dr (230000 x $0.30)

69000

 

Deferred Tax Liability A/c

 

69000

Deferred Tax Asset A/c............Dr (382000-230000)

45600

 

To Income Tax Expense A/c

 

45600

Land A/c..................................Dr

900000

 

To Asset Revaluation Reserve A/c

 

900000

Asset Revaluation Reserve A/c.....Dr

270000

 

To Deferred tax liability A/c

 

270000

References:                  

Abeysekera, I., 2013. A template for integrated reporting. Journal of Intellectual Capital, 14(2), pp.227-245.

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119.

del Mar Alonso-Almeida, M., Marimon, F., Casani, F. and Rodriguez-Pomeda, J., 2015. Diffusion of sustainability reporting in universities: current situation and future perspectives. Journal of cleaner production, 106, pp.144-154.

Flower, J., 2015. The international integrated reporting council: a story of failure. Critical Perspectives on Accounting, 27, pp.1-17.

Fonseca, A., McAllister, M.L. and Fitzpatrick, P., 2014. Sustainability reporting among mining corporations: a constructive critique of the GRI approach. Journal of Cleaner Production, 84, pp.70-83.

Frias?Aceituno, J.V., Rodriguez?Ariza, L. and Garcia?Sanchez, I.M., 2013. The role of the board in the dissemination of integrated corporate social reporting. Corporate Social Responsibility and Environmental Management, 20(4), pp.219-233.

Hahn, R. and Kühnen, M., 2013. Determinants of sustainability reporting: a review of results, trends, theory, and opportunities in an expanding field of research. Journal of Cleaner Production, 59, pp.5-21.

Hahn, R. and Lülfs, R., 2014. Legitimizing negative aspects in GRI-oriented sustainability reporting: A qualitative analysis of corporate disclosure strategies. Journal of Business Ethics, 123(3), pp.401-420.

Initiative, G.R., 2014. Sustainability Reporting Guidelines [Online] Available: https://www. globalreporting. org/resourcelibrary. GRIG4-Part1-Reporting-Principles-and-Standard-Disclosures. pdf Accessed, 20.

Ioannou, I. and Serafeim, G., 2016. The consequences of mandatory corporate sustainability reporting: evidence from four countries.

Milne, M.J. and Gray, R., 2013. W (h) ither ecology? The triple bottom line, the global reporting initiative, and corporate sustainability reporting. Journal of business ethics, 118(1), pp.13-29.

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