What are the theories related to these three articles? Please explain them separately.

ASIC expectation gap on new revenue requirements in AASB 15

715 words

Nikole Gyles, Michael Davern and Brad Potter (**), In the Black online, 18 Jun 2018

The Australian Securities and Investments Commission (ASIC) has outlined its focus areas for 30 June 2018 financial reports. Although preparers have had extended time to implement the new requirements, many will not be able to adequately communicate the extent of the impact of the new revenue standard in their financial statements.

The new revenue requirements in AASB 15Revenue from Contracts with Customerswill potentially significantly impact the amount, timing and disclosure of revenue, as well as firm-wide processes, data, debt agreements, managerial compensation and bonus calculations.

In its release of itsAreas of Focus for year-end reporting, ASIC has, once again, highlighted an expectation that the extent of the impact of the new revenue requirements be disclosed in the financial statements -with quantification of the impact expected.

The reality of whether companies are able to make disclosure of the extent of the impact of the new revenue requirements is another matter.

Recent research undertaken by theUniversity of Melbourne (Professor Michael Davern, Nikole Gyles, Associate Professor Brad Potter and Victor Chang) examined the implementation of AASB 15. The results indicate that ASIC's expectations are unlikely to be met by most companies.

The survey of 143 preparers conducted in late 2017 found that many entities had not started the implementation process for the new revenue requirements, with over 40 per cent of entities still only in the early stages of developing a high-level impact assessment, or not having started at all.

Only 11 per cent had completed a high-level impact assessment, and only six per cent had completed a detailed impact assessment.

Further, more than half of entities were still in the early stages of considering reporting and disclosure, or had not yet started at all. This indicates that, unless there have been significant recent developments, many entities will not be able to provide the disclosure expected by ASIC at year-end - and certainly will not be able to quantify the impact.

This lack of implementation progress is not due to a lack of understanding by preparers of the potential impact of the new requirements. In fact, 63 per cent indicated that the effects on the whole organisation were at least somewhat concerning, and these effects potentially impact multiple areas beyond the accounting function.

So why have companies been so slow to start the implementation process?

First, it seems that many companies are at a loss to know how to execute an efficient and effective implementation. Over 35 per cent of survey respondents were uncertain how to translate AASB 15 into practice. More than half of the respondents were uncertain as to how much data they would need to compile and integrate as part of complying with AASB 15.

It is unsurprising, therefore, that over two-thirds of respondents expected to have at least moderate reliance on externalaccountingadvisory services in their implementation efforts, with nearly 10 per cent indicating they would have complete reliance on external consultants to implement the new requirements.

Further, uncertainty about data requirements, which contributes to the reliance on external advisory sources, is also problematic. Together with the impending time pressure of the effective date, the existence of uncertainty will allow professional services firms to extract a premium in pricing their advice.

Second, compliance is not viewed as an absolute concept. Rather, entities viewed compliance as relative - with more than half of respondents agreeing that compliance was something assessed by benchmarking to competitors -what matters is not absolute compliance, provided they had complied as least as well as the other players in the industry in which they operate.

Although preparers have had an extended timeframe to implement the new requirements, it seems that in delaying the implementation efforts, many companies will not be able to adequately communicate the extent of the impact of the new revenue standard in their financial statements.

ASIC is likely to be disappointed, and perhaps more importantly, many companies will have missed an opportunity for potential business improvement.

** Nikole Gyles Enterprise Fellow, University of Melbourne; Michael Davern, Professor, University of Melbourne; Brad Potter, Associate Professor, University of Melbourne.

Heinz to pay $2.25m for 'misleading and deceptive' marketing of sugar-heavy food

655 words

By court reporterRebecca Opie, ABC News Online, 24 August, 2018

Food giant Heinz has been fined $2.25 million for misleading the public by claiming a range of toddler snacks were healthy, when they contained more than 60 per cent sugar. Earlier this year the Federal Court found Heinz had deliberately misled the public about thenutritional content of its Little Kids Shredzrange through claims on the packaging.

The legal action was launched by the Australian Competition and Consumer Commission (ACCC) following a complaint by the Obesity Policy Coalition (OPC) about products that are made from mostly fruit juice concentrates and pastes. Justice Richard White ordered Heinz pay $2.25 million to the Commonwealth within 30 days for breaching Australian Consumer Law, as well as ACCC's legal costs. He also ordered the food giant to establish a Consumer Protection Law Compliance program within three months.

At trial, the ACCC argued that the sticky snacks were higher in sugar than some confectionary but were marketed as being beneficial for young children. Justice White upheld the ACCC's claim that the representations on the boxes, which included images of fruit and vegetables and the words "99 per cent fruit and veg", falsely implied that the products were beneficial to toddlers. "Heinz ought to have known that it was making the healthy food representation in relation to each product and that that representation was false or misleading," he said.

Company was 'misleading' and 'deceptive'

Justice White said the products were not beneficial to children aged one to three due to their high sugar content and sticky texture. He found the company engaged in "misleading or deceptive" conduct that breached Australian Consumer Law. "Each of the Heinz nutritionists ought to have known that a representation that a product containing approximately two thirds sugar was beneficial to the health of children aged one to three years was misleading," he said. "Each ought to have known that consumption of a product with that level of sugar may have the effects which underpin the [World Health Organisation] guidelines."

In March, Heinz managing director Bruno Lino said the company was disappointed with the court's findings.

During a submissions hearing in August, counsel for the ACCC Tom Duggan said the Australian arm of Heinz should beforced to pay a $10 million penalty, describing the food giant's conduct as reckless. "The consumer is being diverted from other products which may be healthy," Mr Duggan said. "If [the penalty] is not big enough ... in the end it simply doesn't represent a sufficient deterrent," he said.

Michael O'Brien for Heinz called for the penalty to be in the range of $400,000 which was the total gross profit of the Shredz range.

Penalties need to be bigger: ACCC

ACCC chairman Rod Sims said the fine fell well short of the $10 million penalty the watchdog called on the court to impose. "Heinz is one of the largest food companies in the world, we really do think that penalties need to be big enough so that the boards and senior management take notice of them," he said.

Mr Sims said changes to penalties for consumer breaches, which were settled in Parliament this week, will see fines increased from $1.1 million per breach up to what could be 10 per cent of turnover. "Now in the case of Heinz that would be up to a maximum of $43 million per breach," he said. "So it's 40 times higher than the maximum penalties used for this judgment." He said the new penalties will better reflect the seriousness of making misleading claims. "[The new regime] is going to mean penalties that companies really will be forced to take notice of so that this sort of behaviour is effectively deterred in future."

In a statement, Heinz managing director Bruno Lino said the company respectsthe decision that had been made.

Rebuilding trust through integrated reporting

1615 words

Tony Kaye, In the Black online, 1 August 2018

Engendering trust among stakeholders - internal and external - is the key challenge for boards around the world. Can Integrated Reporting (IR) help? Financial misconduct has been widely exposed after a series of bombshells, causing many to question the ethics of big institutions. Can IR restore trust?

Scandals have rocked Australia's corporate landscape throughout 2018, seriously shaking the confidence of many investors. Revelations of widespread corporate law breaches, fraud and other unconscionable behaviour by theFinancial Services Royal Commissionhave been prominent. There has also been plenty of other high-profile cases outside the financial arena concerning breaches ofAustralian Securities Exchangelisting rules and continuous disclosure regulations under corporations law.

The breaches have not only triggered sharp share price falls and, in some cases, director resignations, but led to an explosion of shareholder activist campaigns and a record number of class actions initiated by legal firms backed by litigation funders. Investor trust has been severely eroded, despite the best efforts of governments, regulators and other bodies to further strengthen regulatory frameworks designed explicitly to instil investor confidence in capital markets.

Australia is not alone, of course. The trends are worldwide and the pressure is well and truly on. Corporations and directors are under greater investor scrutiny than ever before; not just in terms of their financial scorecard, but records around setting and practising strong environmental, social and corporate governance policies.

Investors at all levels - from fund managers to "mum and dad" shareholders - are demanding greater corporate transparency to assess a company's current position and to better understand its long-term vision and investment value proposition. The world's two largest asset management firms, BlackRock and Vanguard, for example, have even created investment stewardship teams to engage directly with company boards to ensure they adhere to the highest corporate governance standards and make decisions accordingly.

Integrated reporting (IR) gains traction

Engendering trust among stakeholders - internal and external - is the key challenge for boards around the world. It is also facilitating global efforts to encourage more public and private corporations to transition to a fully integrated reporting (sometimes called IR) structure. The international framework for IR was launched in December 2013 with the objective of changing the communications mindset within organisations so they can better explain to financial capital providers how they plan to create value moving forward.

Integrated reporting goes beyond traditional company financial reporting requirements to the extent that they need to provide insights into the resources and relationships that impact creating value over the short, medium, and long-term.

The framework encompasses six different elements of capital value that will effectively define the activities and outputs of corporations. These capitals are financial (funds available to an organisation), manufactured (plant and equipment), intellectual (systems, patents and licences), human (capabilities, experience and values), social and relationship (community and stakeholder linkages), and natural (renewable and non-renewable environmental resources).

Factoring in various capitals to its broader reporting will necessarily provide greater clarity around an organisation's value creation processes and objectives, and importantly, build trust.

"More and more companies around the world are embracing the concepts of integrated thinking and reporting, because they fully understand the wider benefits of doing so," says London-basedInternational Integrated Reporting Council(IIRC) chief executive Richard Howitt. "When we first published theInternational Integrated Reporting Frameworkin 2013, we had 160 companies on board," Howitt reveals. "Today we have 10 times that number, 1600 companies in 62 countries, including 20 of the 28 European Union countries. There's still a long way to go, of course. We wouldn't pretend otherwise, but definitely there's positive movement. Investors are asking for it, and in some cases regulators are asking for it, including in Australia."

Strengthening corporate governance

In the context of diminished investor trust in corporations globally, Howitt agrees that one of the major impetuses for company boards to reach out to capital stakeholders should be to proactively harness the international integrated reporting framework. "We say integrated reporting is a cornerstone in 21st century corporate governance, and an explicit part of integrated reporting is now going into corporate governance codes around the world," Howitt says.

This includes a new recommendation to amend existingASX Corporate Governance Principlesby including the clause: "A listed company should have and disclose its process to validate that its annual directors' report and any other corporate reports it releases to the market are accurate, balanced and understandable and provide investors with appropriate information to make informed investment decisions."

Howitt says the ASX amendment directly points to the broader adoption of integrated reporting in Australia and is in line with moves to embed integrated reporting into corporative governance codes in other countries, including New Zealand, Netherlands, Philippines, South Africa, Japan, Malaysia and Brazil.

"It's also part of the global principles for corporate governance, which are promoted by theInternational Corporate Governance Network[ICGN]. So, corporate governance and integrated reporting go together, and we're seeing more evidence of that across the world."

Why? "Because boards naturally want to have a connective, holistic view of their business," Howitt insists."Board members are concerned about the long-term as well as the short-term. Where there are concerns about failures in corporate governance, only in a very small number of cases does that involve deliberate acts at the top of the company. Typically these involve practices which are hidden or shielded away, and if there was full transparency within the company and a connected view within the company, it wouldn't have happened. Therefore, integrated reporting is a very good, preventative measure against failures in corporate governance."

Directors and officers liability

CPA Australia'sPolicy Adviser for Environmental, Social and Corporate Governance, Dr John Purcell, says one of the main impediments to the rapid adoption of integrated reporting in Australia has been "a fairly strong view, particularly among the company director fraternity, that integrated reporting presents litigation risks and challenges".

Purcell says the concern is mainly around those parts of IR which are future-oriented, with some directors of a view that making forecasts on a company's business model and its long-term sustainability potentially exposes them to director liability risks.

TheAustralian Institute of Company Directors(AICD) last year submitted to the IIRC that, because of this, it did not support forcing those charged with governance of an organisation having to include a statement around their responsibility and decision-making in preparing an integrated report.

"If you look at integrated reporting and the framework itself, particularly its content elements, they are quite distinguishable from other forms of corporate reporting requiring company directors to make statements about prospects and outlooks for the particular entity," Purcell says. "It's probably fair to say that the concerns among directors have been overstated. But, nevertheless, it has clouded willingness among many companies to experiment with integrated reporting."

However, Purcell notes that "the level of uptake is less than what we would have wished for" and points to a number of heavyweight corporate champions of integrated reporting in Australia, including Stockland, NAB and BHP. Other adopters include Lendlease, Australia Post, Macquarie Group, Bank Australia and industrysuperannuationfunds such as Cbus.

"None of those blue chip listed companies have shied away from engaging in the journey [towards] integrated reporting," Purcell maintains."But I'd also say that many of the companies in Australia that have led the charge have a long history of doing stuff like sustainability reporting. So, they're comfortable with the practices of giving non-financial disclosures to the wider market."

Balancing the cost of IR with efficiency gains

Purcell concedes that while implementing integrated reporting has been easier for some organisations because of their existing reporting systems and protocols, for others the process will be more extensive and costly.

"Particularly given the fact that it's built around looking at the connectivity between different parts of the business, different components of what makes up the capitals of the company, and that it is directed around business model reporting there will be, invariably, some incremental costs associated with setting up the process for doing an integrated report," he says.

"Nevertheless, once established, the process of integrated reporting can actually lead to more efficient and less costly reporting. We continue arguing that there is a business case for doing integrated reporting that both improves the quality of the reporting and indeed leads to better corporate governance. Certainly some of the research done internationally, and research done by ourselves [CPA Australia], would indicate that this type of reporting can lead to a lower capital cost. There are distinct benefits which outweigh the incremental cost of putting it in place."

Moving IR to the next level

Howitt says that while integrated reporting is focused on external reporting - showing transparency and accountability to stakeholders outside the business - it is also about transparency and taking a holistic view within the business. "That's probably the biggest guarantor of good corporate governance," Howitt declares.

The IIRC is already progressing to the next stage of integrated reporting by extending its framework to incorporate intangible company assets such as corporate reputation and staff engagement.

"It goes right back to the trust agenda," Howitt says. "It is going to make the link between multi-capitalism and the strictures and traditions and disciplines of financial reporting and financial capitalism, which will make sure those things need to be respected and taken into the new era. For [them] to become centre stage there has to be a shift in thinking at the level of governments, financial markets regulators and [also] at an economic level. It's about sketching out a powerful way on how we move from traditional financial capitalism, as it's seen today and yesterday, into a new era of multicapitalism. Very exciting stuff."