Conceptual Framework in Financial Statements - Case Study Example

Name Course Name and Code Date Conceptual Framework in Financial Statements Conceptual framework refers to a group of principles or ideas used to decide or plan something. The conceptual framework is a normative theory, it prescribes basic principles to be adhered when preparing financial statement, it is also refers to a coherent system of concepts that are guidelines to accounting standards that are used in financial reporting. The conceptual framework is aimed at giving guidance as well as applies various decisions. An unescapable limitation of good financial reporting is the cost of providing as well as using information (Kinney & Raiborn, 2010). Optimally, advantages derived from any information need to exceed the cost related with providing as well as using it. There needs to be a balance between costs and benefits. By necessity financial statements omit information which is not quantifiable, for instance, innovation, creativity as well as capability of a firm labour are indirectly illustrated in financial statements. Correspondingly, buyer’s faithfulness, environmental responsibility, optimistic corporate values as well as other elements regarding a firm cannot be shown directly in financial statements. These statements help in portraying the impacts of transaction as well as other proceedings through putting them into wider aspects in accordance to their economic aspects (ICAA, 2012). Three aspects of a financial statement that directly relate with the establishment of financial situation include: equity, liabilities as well as assets. Assets refers to resources that are organized by enterprises that result from previous occurrences and that impending economic doles are likely to be attained in a business. Assets refer to what the firm possesses, for instance equipment as well as inventory. Liabilities, this refers to current commitments in a business that arises from previous occurrences, settlement that are likely to result from use of resources that embody economic profits. In a nutshell, this is what the firm owes, bank borrowings. Equity refers to remaining interests in the assets after responsibilities have been subtracted. Aspects of financial statements relate directly to measurements of the performance are expenses and income. Financial accounting needs to follow set accounting guidelines or standards when an organization is developing its financial statements. There are three financial statements which are prepared according to these guidelines; statement of cash flows, balance sheets and income statement. These financial statements are developed according to prescribed guidelines known as generally accepted accounting principles (GAAP). On the other hand, the non-profit field, the Financial Accounting Standards Board (FASB) or the Governmental Accounting Standards Board (GASB) establishes GAAP (Carmichael & Graham, 2012). These bodies are in charge of prescribing accounting principles for external reporting by nonprofit organizations. When financial statements are developed for nonprofit organizations on the basis other than the one which is required by the bodies as well as statements are audited by an independent certified public accountant (CPA), the auditor will not provide a “clean” opinion. CPA’s opinion has statements regarding fairness of the presentation of financial statements. An opinion has boilerplate language regarding financial statements but when material problems during an audit the issues should be shown on the CPA’s opinion. This type of opinion is referred to as qualified opinion. Such an opinion will elucidate the fact that audited financial information can be misleading. In a nutshell, financial information put restrictions on manner in which information is presented for reporting. Financial accounting also provides a method of enforcing reporting standards with auditor’s opinion. When the prescribed accounting standards are not adhered to, consistency as well as comparability of financial statement cannot be guaranteed. Financial accounting’s external orientation as well as requirements adheres to specifically prescribed practices that makes it different than managerial accounting since managerial accounting practices are oriented towards decision-making. The conceptual framework states that it is concerned with the general purpose financial reports. These are the financial reports that are aimed at meeting users’ needs who are not in position to require an entity to develop reports tailored at the specific information requirements. The general purpose financial reports deliver financial information regarding the reporting enterprise which is important to current as well as potentially investors, lenders as well as creditors when making decisions regarding offering financial resources to the organization. Some of the choices made include selling, purchasing, equity as well as debt gadgets as well as settling or giving loans as well as credit. Unethical behavior at Leighton Some of the unethical behavior among Leighton employees includes corruption (McKenzie & Baker, 2013). For instance, at one time its chief executive, Wal King as well as David Stewart, his short-term successor. There were strategies to recompense multimillion-dollar kickbacks in Iraq, Malaysia and Indonesia and elsewhere as well as other grave corporate wrongdoing. Most of the private company papers that were acquired during the six-month investigation by Fairfax Media which revealed a tradition of paying corrupt or incompetent as well as terrible corporate governance, this was the worst case that involved main Australian firm (Ricci, 2013). King is considered to be one of highly regarded chief executives and was advanced by the Communications Minister Malcom regarding taking the NBN Co position in the board (McKenzie & Baker, 2013). Leighton is one of the biggest construction firms in Australia, with a marketplace worth of about $7 billion. Leighton has developed Queensland’s Ross River dam, Sydney’s ABC studios, as well as Victorian desalination plant. Some of the very shocking discoveries in the documents include a memo which was written by the acting CEO, David Stewart, on 23rd November 2010. According to the memo, Leighton’s International managing director David Savage revealed that Mr King and him were aware of the $42 million bribe to a firm in Monaco that was selected by the Iraq officers who awarded it a contract worth $750 million (McKenzie & Baker, 2013). The acting CEO asked whether Wal K approved it and according to the memo it was approved. Around that time, Concorde Corporation, private consulting company advised it that it uncovered Asia to the accusations of unethical staff hiring, bribes, conflict of interest and so on (Baker & McKenzie, 2013). Concorde cautioned that those accusations indicated grim cessation of control, ethics and probity in Leighton’s Asian actions. The accusations coincided with the boisterous moment at the firm when King left the firm and Stewart replaced him, as well as an international takeover battle between German company and ACS, a Spanish firm. Confidential legal advice given to Leighton in 2010 indicated that the executives could be associated with the serious and corrupt activities facing the firm. Another important aspect that impends shocking revelations of corporate scandals is collapse of corporates ombudsman to carryout rigorous investigations for a period of two years after the firm alerted the detectives that it could have gone against some of the bribery regulations. The Australian Securities and Investments Commission, ASIC did not speak to any suspect or witnesses, despite some of the witnesses telling the federal police that there were some grave issues regarding corporate offences at the firm. Some of the important witnesses as well as whistleblowers including, including some of the management members reported to Fairfax Media that federal detectives did not act on the myriad of concerns that engulfed the company. The slow response from the federal police could be attributed to lack of purpose as well as resourcing issues. According to a memo by Mr. Stewart on 23rd November 2010 it states that Mr. Savages ostensibly proposed an additional $23 million illegal imbursement so that he can get $500 million contract in Iraq. That memo was not given to detectives until one year after it was written, and this was after Leighton attorneys stumbled on it fortuitously (n.a, 2013). Fairfax media made attempts to interrogate the person who write the memo regarding the corruption accusations he said that he did not know anything. Mr. King did not talk to the investigators. Some of the confidential files at Leighton disclose that King among other members of the management was emailed by the whistleblowers regarding the “payoff” to the fraudulent Leighton staff in line with the development project. There is a lot of evidence to show that the firm has been involved in various unethical acts. For instance, according to a memo written by the acting CEO, David Stewart, on 23rd November 2010. According to the memo, Leighton’s International managing director David Savage revealed that Mr. King and him were aware of the $42 million bribe to the company in Monaco that was chosen by the Iraq officers who awarded the company a $750 million contract (n.a, 2013). There is evidence that the matter was reported to the federal police but there was no action that was taken by the federal police owing to various issues that touch on availability of resources to conduct the investigations. Impression after Media Search My media search has not resulted in a different impression of ethical behavior at Leighton Ltd since the firm has riddled by unethical activities on various occasions. According to my media such I fell upon revelations regarding its bribery issues on a memo. Ethics and Ethical Behavior in Leighton’s Annual Report The firm has a principle of timely and balanced disclosure. The firm is committed towards complying with the regular disclosure obligation according to the ASX Listing Rules as well as Corporation Acts and to ensure financiers have timely and equal contact of material information concerning the Leighton. The firm has a Market Disclosure Policy which discloses measures that are supposed to be embraced by the Board to guarantee regular release obligations are observed. Also, the plan discloses its policy that relates to intervallic revelations to the ASX as well as communication with stakeholders as well as public. According to the Plan, declarations by the firm need to be realistic, material should not be omitted and it needs to be articulated in an objective and clear way which permits stakeholders to evaluate the effect of the information when they are developing investment decisions. According to the Policy, Managing Directors of the Operating Company accountable for making sure that all price-sensitive info is immediately reported to Company’s Disclosure Officers. Apart from Company’s Market Disclosure Policy, each operating firm and the firm have developed wide-ranging procedures as well as policies that will help to classify matters which have the potential of having material impact on price of securities. Even though the Board has a task of making sure the firm submits with its regular revelation obligations, the Board is surrogate to chief financial officer and chief executive officers duty for ensuring acquiescence with Company’s Market Disclosure Policy. Company Secretaries achieve communication with ASX. The Board analyses Market Disclosures Policy at suitable epochs to make sure that it is very operative and unswerving with the appropriate laws as ASX necessities. There is an Audit Committee and their terms of Reference as well as Processes control its responsibilities as well as composition requirements. The Audit Committee helps the Board in attaining its legal tasks in relation to financial reporting, risk management, as well as internal control. Structures used to Encourage Ethical Behavior at Leighton Ltd The firm has a reviewed Code of Ethics that explains standards and philosophies that all group officers as well as employees are required to comply when performing the duties. Its Code of Ethics is developed on its main ideals of integrity, discipline, success and safety. Also it offers hands-on set of duties for the firm and people. According to its Code, some groups duties include; respect the environment, be economically competitive, offer healthy working environment, act honestly, fairness and integrity, develop channels of accountability, develop and support technological and innovation leadership, respect the requirements of communities that they work in, respect the environment. The company has ethics and compliance committee. Some of the roles of Ethics and Compliance Committee entail; review as well as give recommendations to Board about ethical standards as well as practices in the Group, revising and observing Group standards as well as practices that relate to the tender endorsement scrupulousness and appraising and observing compliance with the regulations as well as regulations in the competition, safety, occupational health, environment, as well as consumer law. The Ethics and Compliance Committee reviews incidents that results from fatalities as well as where appropriate it gives approvals to the Board about the changes in the Business’s Safety Framework, practices as well as legal compliance in the Group Operating Companies. The Ethics and Compliance Committee continuously examines as well as gives the Board recommendations regarding the type of changes which are considered important to Group’s Code of Ethics as well as analyses Ethical Dimension Reporting of the firm and the Groups Operating Companies. All the Operating Companies have the established Ethics Committee that upkeep the Company’s Ethics as well as Compliance Committee when monitoring as well as enforcing the ethical policy direction as well as reporting. Actively, the Code of Ethics is upheld in the entire Group and can be accessed to novel as well as existing employees in the firm’s website. Before any employee is hired in the firm he has to ensure that he complies with the ethical part. The Group has enforced an Ethical Dimension Reporting that necessitates Company as well as key Operating Company to give four times a year reports to Ethic’s and Compliance Committee by making sure there is preservation of ethical acts in the firm as well as attainment of continuous improvement in the area. When the Code of Ethics is breached it is recounted through the process are assessed and the most suitable measure is reached and this may entail taking corrective action against the person. Each Director has an obligation of disclosing any actual or likely conflict of interest when they are making appointment and they are supposed to ensure that their disclosures are latest. When there is a conflict of interest that relates to specific issues in business being deliberated by the Board needs to be lacking themselves from Board meeting prior to commencement of the discussion topic. The Board of the firm has adopted Group Policy for Workforce Diversity which offers minimum expectation that is supposed to be met firm on the workforce diversity (Leighton Holdings, 2012). In 2010, the firm made amendments on the Principles as well as Recommendations that entailed changes that sought to address diversity issues, especially underrepresentation of women in senior management and on boards. The Board embraced Group Policy for Workforce Diversity that offers minimum expectations that the Company and Group Operating Companies are supposed to meet on their workforce diversity (Leighton Holdings, 2012). The company has a policy of becoming a global organization with leadership as well as workforce which reflects diversity of wider communities that the Group operates. The firm requires that all its employees as well as business partners to act with integrity, fairness and integrity according with the Leighton Group Code of Ethics as well as core values. The firm also requires that its business partners and employees to adhere to “Leighton Rules” that comprise of Leighton Group Governance System, all policies, procedures as well as standards enforced by the LH; or relevant Group Operating Company for it respective staff as well as adhere to all the applicable laws in where they conduct their operations. Leighton’s business framework entails three basic concepts; prevention, monitoring and detection as well as response. The most appropriate solution to ethics as well compliance issue is to prevent them before they take place. This is attained by having a strong culture of ethical leadership as well as equipping employees with training, information and tools so that they can understand the potential risks and the acceptable character. This Code helps in preventing issues that are likely to arise. Monitoring and detection, the firm has monitoring as well as detection process that helps in identifying breaches of the Code so that the cause of the breach can be determined and enforcement of timely and apposite action. The process entails a culture which encourages reporting of the suspected breaches of the Code. Leighton offers various channels that allow reporting, implementation of regular risk assessment as well as compliance reviews. The firm has a quarterly process of reporting. In case a suspected breach is reported it is promptly investigated and if it is substantiated, timely actions and suitable action will be addressed to the specific issue and measures are instituted (Leighton Holdings, 2012). The firm has a Code that guides its decision making process. The Code has a decision making guideline that since it establishes principles as well as values which guide decision and actions. The main aim of the framework is to encourage an organizational culture which enables employees to situations and be more accountable when they make decisions. The Code does not explain each situation or law or rules that are supposed to be applied. The Code offers an approach of a guideline but the employees are supposed to show good judgment for any decisions that they make. Impression from Leighton Ethical Behavior Evidently, the company has been marred by cases of unethical practices and this has prompted the development of code of ethics that guides its activities. Development of ethics has helped in addressing most ethical issues that are likely to arise in the company and therefore this has helped in avoiding occurrence of problems in the company. Initially, the firm was dogged by many cases that border on integrity issues, for instance, giving bribes so that they can get contracts in Iraq. References Baker, R & McKenzie, N. (October, 2013). Building giant Leighton at centre of bribery scandal. The Sydney Morning Herald. Retrieved from http://www.smh.com.au/business/building-giant-leighton-at-centre-of-bribery-scandal-20131002-2usvp.html Carmichael, D & Graham, L. (2012). Accountants’ handbook, special industries and special topics. New York: John Wiley & Sons. ICAA (2012). Chartered accountants financial reporting handbook 2012. New York: John Wiley & Sons. Kinney, M & Raiborn, C. (2010). Cost accounting: Foundations and evolutions. Belmont, Cengage Learning. Leighton Holdings (2012). Leighton Group Code of Business Conduct. Retrieved from http://www.thiess.com.au/files/files/LeightonGroupCodeofBusinessConduct.pdf Leighton Holdings (2012). Corporate Governance statement-Leighton Holdings. Retrieved from http://www.leighton.com.au/__data/assets/pdf_file/0019/18604/CorporateGovernanceStatement2012.pdf McKenzie, N & Baker, R. (October, 2013). Building giant Leighton rife with corruption claims. The Sydney Morning Herald. Retrieved from http://www.smh.com.au/business/building-giant-leighton-rife-with-corruption-claims-20131002-2ut2e.html\ n.a (2013). Wal King ‘approved Iraq bribe’. Financial Review. Retrieved from http://www.afr.com/p/national/wal_king_approved_iraq_bribe_7A7XodY9Jtfu9Hki4guAIO n.a (2013). Former Leighton executives quit. Business spectator. Retrieved from http://www.businessspectator.com.au/news/2013/10/8/former-leighton-executives-quit Ricci, C. (October, 2013). The cost of doing business. The Sydney Morning Herald. Retrieved from http://www.smh.com.au/national/education/the-costs-of-doing-business-20131018-2vr1q.html Read More