Reason for Reputation Exclusion from Corporate Financial Statement - Assignment Example

Ethics and ethical behavior disclosure assignment Name Course Professor’s name University name City, State Date of submission Question one a) Reason for reputation exclusion from corporate financial statement Reputation of a listed company refers to the consumer’s perception of it. It’s a qualitative characteristic of a firm which means that it cannot be quantified in quantitative terms. It can either be negative or positive. A positive perception is vital in selling the brands name which saves the company some advertising expenditure. IAS 1 states, in paragraph 31, that an entity “need not provide a specific disclosure required by an IFRS if the information is not material. (International Accounting Standards Board, May 2013, p. 15). Reputation omission from the financial statements is not material. It’s only in instances where the reputation generates economic goodwill. AASB 138/IAS38 advocates for recognition of intangible for which there exists an active market. Reputation can be categorized as an intangible, more specifically, an intellectual capital. Conceptual framework, which is a normative theory, stipulates how elements of financial statements should be valued and recognized. IAS only allows inclusion of intellectual capital that has been purchased by the corporation, in the financial statements. Reputation falls short of this attribute, consequently, it’s not included in the statements. Nevertheless, the management may choose to include it in the voluntary disclosures despite the fact that they are not audited. A good reputation maybe as a result of several qualitative factors in the organization that maybe included as complimentary notes to the overall financial statements after their recognition and measurement has been ascertained properly using proper conceptual framework. This may as a result achieve the following outcomes: a) help manage powerful shareholders b) enhance community expectations c) Increase chances of borrowing requirements and aid in win of reporting awards. Question one b) Leighton ethics and ethical behavior disclosure The incoming chairman was honest and followed the company’s code of conduct; being honest about the previous year’s loss. The report has also stated about the four fatalities that occurred during the year and hopes that they will not happen again as they reinforce safety and sustainability of Leighton. The company has an Ethics and compliance committee which consists of Non-Executive directors to enable smooth running of its operations in an ethical manner. The committee mandate is to review, monitor and present recommendations to the board. In October 2010, the company revised its code of conduct. The standards set in it are subject to be followed by all employees affiliated with the company. They are expected to with all the standards as they carry out designated duties. The groups and groups employee’s obligations regarding ethical behavior are clearly stated in the principles among them include respect, honesty and integrity. The company also sets out to protect the environment and care for the health hazards associated with its line of industry. “In 2011, the Company continued its partnership with Land care Australia as a major sponsor of the National Land care Awards, sponsoring the ‘Leighton Indigenous Land care Award’ which will be awarded in 2012. Thiess continued its sponsorship of the ‘Thiess International Riverprize’ which is awarded for excellence in river management”. (LHL Media 2011 release, 2011, p. 60) Question one c) Structures used to encourage ethical behavior a) The company has ensured that the board is comprised of Ethics and compliance committee members. They are non-executive directors to enhance implementation of non-bias codes of conduct. b) Upon induction, an incoming director is given an induction pack that includes among them a copy of the Code of Ethics and the Company’s constitution (LHL Media 2011 release, 2011, p. 38).This outlines the stipulated rules and regulations governing the group’s ethical conduct. c) Corporate governance principle number 3 reads; “promote ethical and responsible decision-making” (LHL Media 2011 release, 2011, p. 39). d) Revision of code of conduct which happened in 2010 October. The company’s management revised their code of conduct principles to ensure that emerging issues in the ethical environment were captured. e) Publishing the code of conduct on the company website for access by all employees. f) Quarterly reports made to the board by the compliance committee which is in charge of dealing with review and assessment of ethical behavior of all employees, at the same time dealing amicably with fatalities that may occur Question one d) Disclosure about ethical behavior in Leighton impression Leighton Holdings ltd has been ranked among top 10 Australian companies in the disclosure category.(ACCA, 2009.Print, p. 15) In the concise report of 2011, there was only a mention of resignation of former CEO, Wal King; former head of Leighton International, David Savage; David Stewart who replaced Wal King then left and finally Gavin Hodge, former Leighton International senior project manager. There is no mention as to the reason behind the high turnover of top executives. Both Mr. Savage and Mr. Wal King were given bonuses for their contribution towards making Leighton company an empire and a token of appreciation for their commitment for many years. This may have been perceived differently by different stakeholders. This is in accordance with organizational legitimacy contract to help the public see that they consider an employee’s contribution towards the success of the company and that they were ready to deal with information asymmetry problems of governance. In July 2012, a senior executive was also dismissed after thorough investigations were carried out on projects internal review to identify the alleged loopholes. The company also kept the investigation files confidential to let ASIC and the AFP carry out independent investigations. Question one e) Unethical behavior by the employees Russell Waugh, a top executive awarded Gavin Hodge, a senior project manager a bonus even after the allegations that he engaged in the corrupt deals with Mr.Sri Kumar stealing $500,000. A whistleblower, Allan Fenwick, stated that Mr.Sri was given a 105 kickback on certain project approved by top executives at Leighton. Mr. Savage suggested an illegal inflated payment of $23 million in order to gain favour with a $500 project in Iraq. Mr. Stewart’s note showed that Mr. Savage had inflated a Monaco bases firm Unaoil at $87million which was less than half the actual amount. ($42 million) He was awarded a $2million bonus despite of the above allegations. Confidential files revealed that Mr. Wal King, the CEO then, together with other top key executives had unanimously received an email from a whistleblower in the year 2009 about an illegal payment towards an Asian project. Question one f) Outline of allegations made in the media release There were allegations that Leighton was faced with conflicts of interest, unethical staff appointment and several kickbacks floated by a consulting firm known as Concorde Corporation. Confidential legal advice provided to Leighton in late 2010 also warned that executives might be linked to corruption or serious mismanagement and that the company was facing an "extreme" risk of damage to its reputation(Fairfax Media-The Age Publication, 2013, p. para 3). Concorde Corporation had been appointed to find out if the allegations facing the company back then held any water. The allegations included the following as discussed below. Fairfax Media investigation, revealed a culture of rewarding corruption or incompetence, and abysmal corporate governance in what looms as the worst recent case of corporate corruption involving a major Australian firm.(Fairfax Media Networks-Nick Mckenzie, 2014, p. para 4). The media news also stated that the company had already informed the federal police of the possibility of a breach of foreign bribery laws. This was alleged to have taken place in Iraq.(Fairfax Media-The Age Publication, 2013). The company management in addition informed the public of temporal suspension of Iraq project activities and let the AFP investigate the matter. ASIC (Australian Securities and Investments Commission), the corporate watchdog in Australia did not conduct rigorous investigations to expose the corporate scandal of corruption. Former top executive at Leighton told Fairfax media that he knew the reason as to why ASIC and federal government failed to even question witnesses stemmed from resourcing issues. The Age publication also indicated that a senior manager, Gavin Hodge, engaged in illegal black market business with Mr. Sri Kumar who was exposed by a whistleblower.(Fairfax Media-The Age Publication, 2013) All the above allegations seem to be based on facts as shown by evidence of corruption note by Mr. Stewart after careful investigation were carried out. The company also released press statement to show that their project in Iraq was under a cloud in February 2012, two years after the note of evidence of the corruption deal was found. The consultancy firm, Concorde Corporation issued a warning that the corruption deals in the company were likely to have involved several employees. Malcom Davis who was hired to offer a second opinion did not have any different claims from those put forward by Concorde Corporation. Question one g) Media search and effect on the company’s ethical behavior impression My media search has not resulted to a different perception of the company’s ethical behavior for the following reasons. The company has tackled the issue of misconduct and breach of code of conduct seriously. The management also issued a press release categorically stating that the allegations on Fairfax media were partly misleading to the stakeholders. The media release stated that ” The facts are that the allegation relating to our international business was self-reported to the Australian Federal Police two and a half years ago, reflecting the seriousness with which we took the matter. They were not uncovered by journalists as Fairfax would like to have you believe. The AFP investigation continues and the Company is continuing to cooperate”(LHL Media release, 2014, p. 5). In October 2010, the rules governing ethical behavior were revised introducing a comprehensive business code of conduct. Corporate directors are also made aware of rules that they should abide with in order to improve the company’s corporate governance including risk management aspect. The negative publicity by media releases negatively affected the company’s reputation among its stakeholders tainting it with charges of huge corruption deals and weak internal controls. Necessary structures to ensure ethical behavior is followed by all employees regardless of their location have been implemented. The company use of media release to answer the questions Fairfax published in its news website was prudent. They have also shown that allegations of bribery were wrong as they have taken court proceedings against an ex-employee. This disclosure policy demonstrated proper utilization of legitimacy theory to enhance its image if it had already been tainted. Leighton was trying to meet expectations of the society using accounting disclosures and legitimacy information. This method is mostly used by corporations whose negative news is publicly accessible to anyone. Question one h) Conclusion on disclosure reliability To sum up, Leighton limited company has managed to maintain legitimacy among the relevant stakeholders. In one of the media release, that stated “It is important to note that no charges have been laid against any person or entity, nor has the investigation concluded” (LHL Media release, 2014, p. 5) , the chairman made it clear that most of the negative publicity available on the news website was unauthentic. Despite the allegations of unethical behavior among its employees, it has used Lindblom strategies effectively by educating the public with the facts and completely turning it codes of conduct around enhancing it. It has also tried to change its performance expectations by suspending key employees involved in corruption scandals. References ACCA, 2009.Print. Disclosure on Corporate governance, Australia & New Zealand: Netbalance Foundation. Carol A.Tilt, 2009.Print. Corporate Responsibility,Accounting and Accountants, Springer,Berlin: Flinders Business School. Fairfax Media Networks-Nick Mckenzie, R. B., 2014. "Going Rogue". [Online] [Accessed 14th August 2014]. Fairfax Media-The Age Publication, 2013. Claims Leighton rife with corruption. [Online] [Accessed 14 August 2014]. Fred H.M Gertsen, C. B. R. B., 2006. Avoiding Reputational Damage in Finacial Restatements. In: s.l.:Long range planning , pp. 1-28. International Accounting Standards Board, May 2013. Discussion forum-Finacial Reporting disclosure Feedback statement, London: IFRS Foundation. LHL Media 2011 release, 2011. 2011 Leighton Concise Annual Report, Queensland: Leighton. LHL Media 2014 Release, 2014 August. Leighton Holdings Limited-Media Release, Australia: Leighton Holdings Limited. LHL Media release, 2014. "Re:Chairman's & CEO's addresses to the shareholders-media release", Australia: Leighton limited company. LHL, 2012. Leighton Group Code of Business conduct, Australia: Leighton Holdings Limted. The Institute of Chartered Accountants, n.d. Conceptual and Regulatory Framework. England Wales: n.p. Read More