Organizational Culture and Social Desirability

Introduction

In the recent era, structure of organizations annual report has changed considerably. The government rules and accounting standards requires additional information within annual reports other than financial statements. In the financial report, companies require to provide non-financial along with financial information so that their stakeholders can avail all the related information (Fischer et al. 2013).

Coles Group Limited has business operation through retail stores in Australia. It offers bakery products, pantry and dairy products, international food products and liquors. The company also offers products online (ColesGrouplimited.com.au. 2015).

Woolworths Ltd is positioned among the largest Australian retail company that has its business operation in food and staples sector. Along with having business operation in primary retail activities, it has business in fertilizer, coal mining and safety goods. Revenue of the company is constantly increasing over years with around 205,000 staffs in the year 2016 (Woolworthslimited.com.au. 2015).

The objective of the report is to evaluate annual reports of both the selected companies and analyze the ways in which they have complied with the accounting standards in annual report preparation. The report will further evaluate the ways in which companies generate information related to employee compensation and benefits along with explaining the impact of culture on certain aspects.

Employee Benefit and Executive Compensation of the Companies

Employee Benefit Composition

Coles Group and Woolworths Ltd paid their executives partly in cash and the rest in shares. Both the companies have made employers contribution in superannuation fund as a fraction of their extended term benefits (Mora and Walker 2015). Employees are offered with certain non-monetary benefits and extended service leaves. As per evaluation of director’s report of Woolworths Ltd, it was gathered that the company paid 60% of yearly short duration incentives in cash and the balance in vital deferred shares (Woolworthslimited.com.au. 2015). Coles Group is also observed to follow the identical employee benefit structure for paying short duration incentives.

Executive Compensation Composition

Coles Group and Woolworths Ltd have divided their compensation structure in three segments. From the analysis of the executive compensation structure of both the companies, it is observed that both the retail organizations follow identical compensation structure to provide their executives. Considering the overall executive compensation, Woolworths Ltd has offered 40% fixed remunerations in cash, short duration incentives of 30% and long term incentives of 30% (Woolworthslimited.com.au. 2015). On the other hand, Coles Group has offered fixed cash remuneration of 42% to its executives, short duration incentives of 25% and long-term incentives of 33% (ColesGrouplimited.com.au. 2015).

Impact of Culture on Salary Structure

Incentive Scheme

Generally as per the cultural analysis, it is gathered that Australians tends to be highly performance oriented desires to be appreciated for their performance within the organization. For such reasons, the companies have encompassed incentive schemes within their executive and employee compensation structures (Gebhardt et al. 2014). This facilitates the retail companies to motivate the executives to perform better and build up a healthy co petition among the organizational employees that can further generate increased output volumes.

Increased Fixed Cash Remuneration

Australian work culture analysis indicates that employees of Coles Group and Woolworths Ltd belongs to high-class society and sustain financially strong life with high living standard. These companies also desire that their executives holding superior position within the organization should abide by a better lifestyle (Stone 2013). For this reason, these organizations made increased cash payments to the executives to make sure that they can afford costly standard of living and move into high-class societies.

Share-Based Payments

As mentioned previously, Australian employees have a culture to remain keen for being appreciated for their excellent contribution to the company (Mora and Walker 2015). Because of such reasons, when the retail organizations offer shares to their executives as a fraction of their incentive or salary and consider their equal ownership to the company, they feel motivated and proud. It generates a strong attachment between the organization and its executives that motivates them to make further contribution to the organizations superior performance (Strouhal et al. 2012).

Extended Term Benefits

For the reason that most of the civilized nations including Australia are considered to be futuristic in nature, these nations always prefer certain alternatives those can prove to be useful both in present as well as future (Densten and Sarros 2012). Considering this, as several renowned companies all over the world, Australian companies such as Woolworths Ltd and Coles Group also encompass extended term benefits for their employees in their salary structure such as superannuation funds. For the extended term benefits offer secured future in financial terms, the employees tend to work in a free manner within the organization presently by not worrying about the future (Mora and Walker 2015).

Conceptual Framework of Prudence Concept and AASB Standards

Prudence concept is relied on conservatism accounting principle which indicates that losses or expenses needs to be included at the time it is generated and the profits or incomes must be recorded at the time the items are realized (Asx.com.au. 2012). Such concept facilitates the accountants to decrease level of uncertainty and generate accurate annual report. However, several scholars and boards of accounting standards perceive that prudence concept is very conservative for it ignores the expected reporting revenues. IASB has taken an initiative to resolve such issues associated with under or over stated annual reports for making the annual reporting structures quite neutral.

For this reason, IASB and AASB have considered the relevance of prudence and are attempting to incorporate it within the conceptual framework. Coles Group and Woolworths Ltd are observed to follow IASB and AASB standards in annual report preparation. This clarifies that both the companies follows prudence concept in their annual report for complying with conceptual framework and AASB needs (ColesGrouplimited.com.au. 2015).

AASB Standard and Conceptual Framework Compliance

Coles Group has stated in the statement within the section “Notes to the financial statement” of its annual report that it has generated the report in consideration to the AASB and IFRS requirements that is issued by IASB (Jerome 2013).

Woolworths Ltd has mentioned in its annual report that preparation of its financial statements is complied with the standards provided by “Australian Standards of Accounting and Interpretations” and “International Financial Reporting Standards” (Woolworthslimited.com.au. 2015).

Prudence Concept Relevance

Accounting Standards Board has intended to offer a framework for annual reporting that can offer accurate data to its users (Goksoy and Alayoglu 2013). Government authorities, especially tax departments analyze a company’s annual report for tax ascertainment. Moreover, through observing financial statements in the annual report the organizations employees desires to assess the company’s future prospective that is deemed to ensure their future growth and income. Several companies are observed to use the accounting concepts for manipulating the information in certain ways such as by increasing their revenues for enhancing market value that would attract investors. They also falsely depict less profit in annual reports to avoid huge taxation (Mora and Walker 2015).

To eliminate such adverse financial manipulation accounting boards have decided to incorporate prudence concept that will prevent companies from incorporating profits until they are realized. Through incorporation of such concept, accounting boards can ensure that companies record anticipated expenses or losses that they might ignore in annual report generation for increasing profits (PwC. 2016).

Prudence Concept Enclosure in Annual Reporting

Based on exposure drafts and amendments under IASB in IFRS and conceptual framework for implementation of prudence concept, AASB has presented a new standard under “AASB 15: Revenue from contract based consumers” (Mora and Walker 2015). Such standard implied that revenue recognition in financial statements should be done after it is realized or anticipated to be realized with the contract between consumers and reporting organization.

Woolworths Limited has indicated in its annual report regarding IFRS 15: Revenue from consumer contract issued by IASB that will be enforced from 1 January 2018. The company stated that it would implement such standards for IASB is continuing to search and discuss regarding the standard’s implementation process with stakeholders (Woolworthslimited.com.au. 2015).

Coles Group has indicated in its recent annual report about its implementation of new standard based on prudence concept that will be efficiently incorporated by the service firm from 1 July 2017. Recently Coles Group is observing implementation impacts of this standard (ColesGrouplimited.com.au. 2015).

Conclusion

The objective of the report was to evaluate annual reports of both the selected companies namely, Coles Group Limited and Ally Fashion Pvt. Ltd and analyze the ways in which they have complied with the accounting standards in annual report preparation. It was gathered from annual report analysis of both the companies that Coles Group abides by IFRS accompanied by AASB and IASB standards and Woolworths Ltd complies with ASIC and IFRS. Moreover, the annual report of both the retail firms follows identical disclosure structure to provide financial information. From the analysis, it is clarified that if companies follow one between the two reporting standards, it will be capable of offering highly consistent and reliable financial information.

Reference List

Asx.com.au., 2012. The official list. [online] Available at: http://www.asx.com.au/asx/research/listedCompanies.do?coName=W [Accessed 25 Aug. 2016].

ColesGrouplimited.com.au., 2015. Annual Reports – Coles Group Limited. [online] Available at: file:///C:/Users/antara/Downloads/467372_coles_annual_report_2015_18.pdf [Accessed 25 Aug. 2016].

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Gebhardt, G., Mora, A. and Wagenhofer, A., 2014. Revisiting the fundamental concepts of IFRS. Abacus, 50(1), pp.107-116

Goksoy, A. and Alayoglu, N., 2013. The Impact of Perception of Performance Appraisal and Distributive Justice Fairness on Employees’ Ethical Decision Making in Paternalist Organizational Culture. Performance Improvement Quarterly, 26(1), pp.57-79.

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Mora, A. and Walker, M., 2015. The implications of research on accounting conservatism for accounting standard setting. Accounting and Business Research, 45(5), pp.620-650

PwC., 2016. Prudence returns: new IASB exposure draft reintroduces controversial term. [online] Available at: http://www.pwc.com/gx/en/services/audit-assurance/corporate-reporting/world-watch/iasb-prudence-conceptual-framework.html [Accessed 25 Aug. 2016].

Stone, R.J., 2013. Managing human resources. London: John Wiley and Sons.

Strouhal, J., Paseková, M., Blechová, B., Bonaci, C. and Andreicovici, I., 2012. Prudence principle and students’ perception on measurement in financial reporting. International Journal of Mathematical Models and Methods in Applied Sciences, 15(4), p. 67.

Woolworthslimited.com.au., 2015. Annual Reports – Woolworths Limited. [online] Available at: http://www.woolworthslimited.com.au/page/Invest_In_Us/Reports/Reports/Annual_Reports/ [Accessed 25 Aug. 2016].

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