Corporate Competitiveness: ofLeighton Company - Case Study Example

Accounting Theory Assignment 1: GSY Student’s Name Institution Accounting for Reputation In the course of underlining the reason behind the omission of reputation in the financial statement, it is crucial to analyze the objectives and the purpose of the conceptual framework since it is what provides the guidelines for preparing any financial statements. The conceptual framework is generally looking at the main purpose of the financial reporting of the company. This purpose includes the intention to meet the need of users that cannot get any entity to prepare a report that is specifically tailored to their financial needs. Furthermore, it states that financial reporting does not cover any special stakeholders’ purpose; hence it is needless to list the company’s reputation within the statement. Lewis (1996) states that, the value of any company’s reputation has continued to expand primarily because it has a positive impact on the completive advantage of a company. This can be viewed from the external position. A company with a good financial statement is better placed to prepare better financial report for the stakeholders. Besides, the owners of the same company value outstanding reputation for the expansion of the entity. Reputation will lead to higher sales brought about by customers and their referrals, the good relationship with the business partners and the relations of the lenders of the institution. This is one thing that when the stakeholders have realized is not good; they feel reluctant to collaborate with the concerned firm. Financial statement has the potential of reporting to the existing and any potential partner for instance, the investors, the company’s lenders, and other creditors of the company, the entities who are providing the resources for the company. In addition, it checks whether the managers have used the company’s resources effectively in their course of work. This means that it does not entirely focus on the reputation of any organization. As stated earlier, in any good financial statement, the reputation is clearly portrayed (Lewis, 2004). Financial reporting has an obligation to provide a report that is useful to potential and existing investors, the lenders such as the financial institution, the customers of the firm, the shareholders. This will determine their decision on the provision of the resources to the company. Once they have realized the company has a bad reputation they will not undertake to give any useful financial assistance to the entity hence the need for the reputation of the company to augur well with its obligation. Moreover, the general purpose reporting will also provide the information on the selling or buying or even holding the equity of the company Reputation does not fall as one of the main uses of the financial statement, neither has it been taken as the user of the statement. The main use of the financial statement is to provide the information that is useful for the users in making decisions concerning the company namely, helping to predict future of the company. Note, once financial statements are in bad shape, whether the company’s reputation is good it is does not change how stakeholders can predict the firm’s situation concerning the future. Secondly, they will constantly provide feedback on the decision that has been made by the organization that will in turn provide accountability, reliability, and stewardship for the stakeholders (Charles, 2005). According to conceptual framework, the following are the main users of the statements, the current and the future investor, the lenders of the companies who after proper analysis of the statements will conclude whether to lend the entity or otherwise, and the other creditors. In case the reputation is listed among the elements, then the information might be confusing to people since they will not understand to judge the company by its reputation or by the facts that are being portrayed in the statements of the company. It is prudent for the company to have the written and unwritten rules to guide it in the matters of reputation so as not be forced to include it in the financial statement each time, the same has been prepared. The underlying assumption of the statement has been that the entity will continue to run to the near future. While this is a good assumption, listing the reputation may reflect the entity in bad light. Robert (2002) explains that, the main characteristics of any financial reporting include the fundamental qualities and enhancing qualities. While the reputation might fall well under the fundamental quality, it might not be taken as the enhancing quality because its inclusion cannot enhance the organization good portrayal to the public. Researchers have argued that a good financial statement should be useful in decision making of the organization by having both the enhancing characteristics and the fundamental characteristics. The importance of fundamental characteristics includes the relevance it has on the company since it has the capability reporting useful information and to get rid of any information that is not useful to stakeholders. A good instance is that the employees’ behaviors are not useful to most stakeholders of the company. While it touches on the reputation of the company, it is an internal thing that should be taken as such and should not be included in the company’s statement. It is very important that what is shown in the financial statement reflect the reality that is perceived by the disgruntled elements of the company. The depiction should be neutral, without error and real. Moreover, enhancing characteristics should be verified, accounted for, compared by other parameters, and should be timeless and understandable by all the people who are involved. While reputation is good, sometimes it lacks the quality of being verified. This is why the main elements of financial statements are assets liabilities, equity, income, and expenses of the company. Davis, (2003) posits that, before incorporating any item in the statement, it is very vital that it is recognized through a laid down process. This can be done by depicting in words and the monetary value it has on the balance sheet. Contrary to this, reputation cannot be depicted either in words or in monetary value it has on the company, however, it is an intangible thing but with a great impact on the organization. For any element to be reorganized and finally listed in balance sheet it has to be determined. The element must have some future financial benefit that can flow in or out of the entity. Moreover, there is a lot of probability that the element is likely to occur than not to occur at all. This element should have some costs that can be, measured reliably, and estimated well but this is not the case with the reputation. That is why in most cases it has not been listed in the company’s balance sheet or any other financial institution. Lastly, it is argued that once reputation has been listed, as one of the items in the balance sheet conceptual framework might come up with such benefit as the technical, political and the professional benefits. The technical benefits include processes such as providing the basis for specific answers that the users of the financial statements can derive from the books. The political benefit is to prevent any political interference on rules of accounting and protecting the professionalism of accounting (Jackson, 2004). Question 2 Leighton Disclosures According to Leighton report (2011), it has been noted that reputation of the company is one of the things that should be held in the highest. The company has committed to promote the highest ethical standards in all its undertaking. Once the company has undertaken this all the plans it has of promoting the best returns to its shareholders. The company has adopted some revised code of ethics which all the stakeholders are expected to respond to. These beliefs have been built on the good values and principles. The second disclosure is that the company has reviewed all the issues that can result in challenges of operations. The board will make recommendations to the company on the changes that ought to be made. The groups own companies also have laid down ethics committees that supports the company is ethics throughout. This code of ethics is highly promoted and is easily introduced to any new employee of the company upon arriving at the organization. When it has been realized that somebody has token any code of ethics then appropriate action will be taken on them. Moreover, they can be disciplined by the organization. Conflicts; the Company is of the opinion that if any conflict comes up then the directors are supposed to disclose it. For instance, if there is an issue of conflict of interest in the organization then disclosure is warranted. Besides, if a director has an issue that is conflicting with some of the aspects, which are on the agenda of the organization, then they ought to have absented themselves so that they cannot make this to happen Diversity- Some of the changes that the company has made is to ensure that they amend diversity issues so that the company’s rules are adhered to. The main issue has been the underestimation of women in board’s representation of the company. The company’s board has adopted some policy issues in line with the company’s rules to make sure that women are well represented in every tenet of the company. Any woman being mistreated has an opportunity or an avenue where these can be addressed. The company aspires to be the number one organization that respects all the aspirations of women. Furthermore, they also respect the broader community. These issues could cause problems to the organization. The board exemplified this by appointing two women as the directors of the company. In diversity, they have incorporated gender-based skills that involve both men and women. This was done since these groups of people have different skills. Policies have also been streamlined to deal with the company’s security. All employees who have any information that is sensitive to the company have been prevented from dealing in the company’s security. The company also discourages them from passing that information to another person. These include their friends and even family members. Structures to Encourage Ethical Behavior According to Leighton Report (2011), some of the structures that the company has used to ensure that the ethical behavior is encouraged within the organization are the groups’ obligation, the employees’ obligation, and the board’s obligation. The groups’ obligation- The groups’ obligation is to be competitive, to provide a safe working place, to act with honesty and a lot of fairness at all times, to be accountable for everything, to preserve and respect the environment, to continuously respect the community they are operating in and to support the technological innovation. The company ensures that all these obligations are met so that they are as per other competitors (Leighton Report, 2011). Employees’ obligations- The employees of the company are to work towards the interests of the company, to work harmoniously and respect the environment, to be honest and to act with a lot of fairness, to speak with their employers especially when they feel there is an issue that is being handled well, to continuously assume personal responsibility for their work Boards obligation- The board have taken it upon themselves to increase the number of women who are participating in the organization. The senior management to ensure that the there is equity within the entity, to increase the number of women representation in the board by 2 to ensure that there are enough women in management to undertake any review and make any appropriate change. Attitude about Ethical Behavior The company has adopted a positive attitude towards ethical behavior since there are proper rules and guidelines designed specifically for this. For instance, if you are found to have violated any ethical rule, the company will immediately act by suspending or punishing you. This is done irrespective of your title in the company. Question 3 Allegations Made Against Leighton According to Nick (2013), one of the major allegations against the construction giant Leighton has been bribery. According to the media, the company has been engulfed in outright bribery in its overseas operations. They have been accused of constantly giving Iraqi officials kickbacks to gain big contracts from the government. According to several newspapers articles, these allegations are just but a few that has dodged the company for many years. Even though the allegations have been strong and even published in the media, a long time CEO of the company has strongly dismissed them, saying that they have been falsified. Effects of the Allegations The allegations against the company has obviously changed the way the company is perceived as one that really respects the rule of law and cannot involve itself in any act of corruption. In their reports, they indicated clearly that in case an employee is involved or is suspected of any form of unethical behavior the company will definitely do away with such an employ. This has not been able to support sustainability reporting in that what they gave out in their report could not be able to be sustained by the company. Some of the benefits of sustainability reporting includes, having sound forms of governance and ethical behavior through all the levels of reporting, the company improving the systems of managements, enhancing and making sure that all forms of communication by the stakeholders are sustained, attracting and retaining staff members who are competent, having proper ethical management and ethical funds to help the company in the management (Nick, 2013). Question 4 Conclusion That Can Be Drawn In conclusion, it can be drawn are that the company never got involved in sustainable reporting whenever they were presenting their report, otherwise the company tried very much to put all the mechanisms in place to deter such occurrence. These can be seen in their actions after the allegations such as, a) The company has very good systems that can help it to solve problem so long as a breach of the company’s code of conduct has been noticed. b) The company still kept the whole issue very confidential so that it does not leak before proper investigation has done. c) they had the enough structures to investigat4e since they conducted immediate interview on the project d) The company has shareholders’ goodwill since it has made every effort not to interfere with the police investigation that is going on. e) They have taken some court actions towards the employee who was also involved in the same breach of conduct before f) The company is out to do everything to ensure that its reputation is protected.(Leighton Report,2012) Question 5 Disclosures That Relates To the Information Leighton Report (2012) outlined that, some of the disclosures include the code of ethics, the code of business ethics, putting in place ethics and compliance committee. The company has stated that its code of ethics has been built according to the company’s values. Each company embraces these while at the same time having their own unique rules that guide the company in these. The company further adopted code of business ethics that governs the way the business is operated and run. This was put in place to determine the business decision-making framework to continuously guide it in every way. These rules clearly stipulate the responsibilities of those working within the country or outside. The code outlines things such as people and safety, the environment, the community and ethical business practices to prevent bribery and corruption. All the employees are allowed to raise a concern without being victimized by the organization at all. This code will be effective among everybody working for the business as employees, contractors, or even the shareholders of the company. All the employees’ of the business has an independent reporting line so that in case of anything, they may not have any fear of victimization at all. Measures Leighton Has Put In Place 1) The company has established the code of conduct and ethics committee to continuously look into all the issues concerning the ethics. Its main work is to monitor all ethical standards of the company to ensure that all the stakeholders comply with this. 2) All the employees have been provided with an independent reporting service where they can report any occurrence within company without any worry or fear of being victimized. In the past, most people feared reporting. 3) Each company is to provide their quarterly report to the ethics and compliance committee to ensure that any problem is nabbed before it has taken toll of the company’s behavior 4) The code of conduct and the code of business conduct and ethics are promoted in the company to ensure that each employ whether new or old are aware about them. 5) The committee regularity reports to the board to ensure that all these have been followed. Impacts of These Actions These actions by the company will have a lot of impact since there are well-established channels of reporting which are independent from the mainstream running of the company. Secondly, all employees of the company can now report any incidence without any fear of victimization by the organization. Thirdly, the code of ethics and the rules are well known all over the organization, employees can understand them as soon as they join the organization and finally a board has been established to ensure that all the concerns of the ethics committee are addressed (Leighton Report, 2012) References Alsop, R, (2004), 18 Immovable Laws of Corporate Reputation, Free Press. Charles, F (19960 Reputation Unveiled. Routledge Publishers Davis, G (2003) Corporate Competitiveness. Routledge London Garies, R (2005) CEOs Capital. Oxford University Press. Jackson, K (2004) Building Reputational Capital. Oxford University Press Lewis, S. (1996) Measuring Corporate Reputation. Templeton London Linue, V (2004) Asia Corporate Reputation. Journal of Communication and Management 8(3) pp 233-245 Leighton Holdings (2011), Leighton Holding Annual Report. Leighton Holding Leighton Holdings (2012), Leighton Holding Annual Report. Leighton Holding Lesue, R (2005), Corporate Reputation. Oxford University Press Nick, M. (2013), Company Reputation, Sunday Morning Herald. 9(2), 89-102 Roberts, P. (1996), Corporate Reputation. Strategic Management Journal 23(1) pp 1077-1093. Read More