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ACC5502 Accounting and Financial Management: Assignment 1 2016

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1.1 Corporate Governance

a) Although corporate governance is a hot topic in boardrooms today, it is a relatively new field of
study. Its roots can be traced back to the seminal work of Adolf Berle and Gardiner Means in the
1930s, but the field as we now know it emerged only in the 1970s. The phrase “corporate
governance” describes “the framework of rules, relationships, systems and processes within and by
which authority is exercised and controlled within corporations. It encompasses the mechanisms by
which companies, and those in control, are held to account.” The following regulators influences
the listed entities in Australia in relation to its compliance to the corporate governance.
I. Australian Stock Exchange
II. Corporations Act 2000
III. Australian Securities and Investment Commission
b) Strength of Corporate Governance
 Board consists of higher number of independent directors – This enhances the objectivity
and credibility of the decisions made by the board of directors. Moreover, it will enhance the
transparency of the financial statements, its value and the financial reporting system of the
company (Lin YT & Chang YM, 2014).
 Formation of required committees – The Company has complied with ASX in forming and
operating the basic audit, risk, nomination and remuneration committees (ASX CGC 2013).
 Competency of the directors – All the directors of Santos Limited are well qualified
academically and professionally. They also possess specific competencies in their field. It
will assist the management of the company to get an assistance when an insufficiencies

c) Weaknesses of Corporate Governance

 Absence of disclosure on internal audit functions and role – The audit and risk committee
report (p.29) is lacking with the disclosure of the role and function of the internal audit,
structure of the internal audit function and evaluation and progress of the internal audit
findings on the effectiveness of internal control system (ASX CGC 2013 & Paul JS, 2011).
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 Non-update of code of conduct (Santos AR 2014, p. 34). – It is a tool for corporate

governance. Though the company has an integrated code of conduct which elaborates about

the rules, values, guidelines and processes, it is not up to date. The code of conduct has been
reviewed and updated in 2012. The company also does not have a proper policy in place
with regard to the time line of its review and update (Elisa 2006).
 Absence of board succession planning and alternate directorship– The reports does not
reflect the company’s strategy and action plan with regard to its board of directors in case of
their death, injury or any other incidents which cause the absence of contribution and
participation of such directors. The charter of nomination committee in the corporate
governance section is silent on this.
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1.2 Triple Bottom Line Accounting

a) Triple Bottom Line accounting derived from the concept of sustainability which has been a
buzzword in the current corporate arena and an often mentioned goal of businesses, non-profits and
governments in the past decade. Measuring the degree to which an organization is being sustainable
or pursuing sustainable growth can be difficult task and question mark. John Elkington strove to
measure such a complex task by encompassing a new accounting frame work called “Triple Bottom
Line Accounting”. The phrase “Triple Bottom Line” includes environmental and social dimensions
in addition to the traditional measures of profit, return on capital or investment and shareholder
value (Timothy FS & Hall TJ).
In review of the annual report 2014 of Santos Limited in light of the above concept, the following
examples were noted in regard to the fulfilment of the Company’s accountability to be in
compliance with the TBL accounting framework.

I. Profit (economic) dimension

 The company has made an underlying profit of $533mn in financial year 2014 when
compared to the same of $504mn in the year 2013 (Santos AR 2014, p. 44).
 Company took an initiative to restore the shareholders’ value by reducing its capital
expenditure budget by 25% in 2015 and thereby driving and achieving cost reduction and
operational efficiency (Santos AR 2014, p. 52).

II. People (social) dimension

 The company has achieved significant milestone in maintaining lost time injury rate to the
minimum level. It shows the company’s interest in health and safety of the employees. The
lost time injury rate for the year 2014 was 0.67% (Santos AR 2014, p. 58).
 Santos Limited has helped fund road improvements and communication infrastructure.
Further, it contributes millions of dollars each year in rates to shire councils (Santos AR
2014, p. 2).
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III. Planet (environment) dimension

 A detail disclosure has been made by the management with regard to company’s initiatives
to monitor and comply with the environmental regulations. Breaches of such environmental
regulations and the fines and repercussions have also been disclosed (Santos AR 2014, p.
 Having a committee for Environment, health, safety and sustainability as part of its main
board committee and reflects the company’s conscious on the environment.
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1.3 Performance measurement

a) Review of result for the financial year 2014

Despite the drop in the price of Brent crude oil, the company’s performance has improved. During
the year the company shows a negative result of $935mn (2013: profit $ 516mn). The major key
ratios such Earning per share, return on revenue, return on equity and return on capital employed
have deteriorated when compared to the last year. Further, during the year, the company’s equity has
reduced to $9.4bn from $10.2bn in 2013. These also show a negative indication of the drop in the
performance of the company. These negative indication arose purely due to the impairment of assets
which is accounting adjustments rather business or operational adjustments. Further, such unusual
adjustment is not included in the comparative results. Accordingly, when disregarding such
adjustments in the current results, it could be seen a growth in the profit which gives a result of
$628mn (Loss for the year $-935mn+ impairment losses after tax benefit $1563mn) whereas the
same result for 2013 in such a situation is $544mn ($516mn + $28mn). This is further proved when
underlying profit has grown to $533mn (2013: 504) which shows a growth of 6%. Further, increase
in oil production to 54.1 mmobe (2013: 51mmobe) resulted in the increase in top line revenue by
9% amounting to $ 63.7mn (2013: 58.5) which is a remarkable growth when considering the 50%
drop in Brent crude oil one of the major product of the company. The total asset value has grown to
$22bn (2013: 20.6bn) despite the impairment of $ 2.3bn. The cash position has improved from
$644mn in 2013 to $775mn in 2014. Moreover, with a negative net result of $935 the operating
cash flow indicates an improvement $ 215mn when compared to the year 2013. Hence, considering
the above facts, it could be justified that the company’s operational/business result has improved
rather accounting result.

b) Factors influence the performance of the company.

 Price volatility of energy products – The drop in the prices of energy product will result in
the lower generation of revenue and the decrease in the profit or increase the loss. It
evidenced through the drop in Brent crude oil.
 Growth in world population - The world is expecting population to grow the by 1.1 billion
over the next 15 years. Such growth will result in the increase of the demand for energy by
50%. Hence, this might bring a favourable result to Santos in the ensuing years.
 Fluctuations of foreign currency – Santos Limited has its significant operations outside its
home country (Australia). The major operation is Asia which involves the higher level of
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foreign currency transaction. Due to the instability in world economy and the resultant
foreign currency fluctuation, the business of the Santos limited will get affected.
 Change in the regulation – Santos Limited’s business is highly exposed to law and
regulatory requirements in multiple countries. Enforcement new laws and regulations in
these countries which apply to the way Santos Limited operates its business will have
adverse effects to the business, operation and the financial result at the end. Ex: new tax
 Changes in surroundings and environment – Number of factors exist which relates to
environment, health and safety effects arising from the operation of Santos. Events or
incidents which are harm and threat to the environment and local facilities of local
communities might cause a loss of the license of Santos Limited. This in turn will result in
delay or shut down of the operation with financial burdens.
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Brief on social media industry

Social media or networking sites such as Facebook, Twitter and Instagram are increasingly popular
among the individuals across the world. The impact of these media and networking sites in the
lifestyle of the individuals are enormous. Exchanging feelings and thoughts through images, status
and comments and remarking or remembering events and moments in the life through pictures and
photos are the salient features of these media. A love and passion on these features forced the
individuals to become users of these network sites. Nevertheless, as the content and the information
posted in these domain act as mirror image of the individual, circulation and visibility of or
accessibility to such postings without restriction raised growing concerns of the users on their
privacy and confidentiality. Instagram has been considered to analyse as to how it responds to such

Overview of the issue

Instagram, an instant photo sharing social media site gained popularity in the social media world
soon after its merge with Facebook, a giant in social media industry. This caused a tremendous
increase in its users and followers subsequently. An embarrassment came into play when the
company announced its modification in terms of conditions of the user enrolment policy. This
deprived the users’ rights over their content posted in the site. The company’s further decision of
selling those contents to third parties without the consent of users raised a dilemma. The perception
of the users was that the Instagram was breaching the privacy, confidentiality and trust. An ethical
practice question was raised on such action or decision of Instagram’s policy change and the
outcome there on (Birt et al, 2014). Such case has been analysed in light of two basic theories of
ethics Consequentialism (Teleology) and Ethical idealism (Deontology).
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Analysis of the case using ethical theories

1. Application of Utilitarianism theory
Unfortunately the global economy is governed by the result based approach rather activity based
approach. Researches revealed that the prime objective or motive of the decision made by the
owners of Instagram was to maximize the profit through the sale of its contents or photos to
advertising firms who use them for campaigns. The righteousness or goodness, in the case of
Instagram’s decision to change the terms of privacy policy is determined by its consequences.
Consequentialism explains that an action or decision is considered or deemed to be an ethical based
on the consequences arise from the decisions or the actions (Tanner et al, 2007). Such consequences
are measured in terms of the happiness of the individuals or major stakeholders in the system.
Utilitarianism which is a major part of teleological theory covers this aspect. It says an action or
decision is considered to be right or wrong only if the consequences are of such significant and
produces greatest benefits or burdens to the society as a whole. In evaluating the case with regard to
the above theory, it was noted that the Instagram’s decision of modification to enrolment policy did
not bring a positive result to its users. The users were the major stakeholders of this social media
site. The users had their postings in the network site which gives resemblance of themselves. The
change resulted in a virtually threat of publicizing their privacy which further created threat of
abusing the content posted. Hostile situation was built among the users where the utility was
lowered. It proved that the users were. Maximizing the happiness of the society as a whole which is
principal goal of utilitarianism theory was not achieved and the consequence of the actions or
decision did not bring a significant benefits to its user who are major stakeholders which represent
the society, Instagram’s decision to modify the privacy policy was considered to be an unethical and
immoral action (Rodgers, E & Chris, D).

2. Application of Kantianism theory

In contrast to the above theory of Consequentialism, The German Philosopher Immanuel Kant came
up with a theory of Kantianism. This theory explains that the actions themselves by its nature
should be moral and ethical. In other words, the people should do what is right in order to be
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considered morally ethical (Tanner et al, 2007). In applying such theory of Kantianism to the above
case analysis, it is the duty of the company/Instagram to act in an ethical as well as moral manner.
The users do the posting of photos with a trust on the social media operator. When it deprived the
rights of the users over their contents posted through the manipulation of terms and condition or
policies with regard to the privacy with a view of transacting with adverting firms to generate
revenue and make profits, the users perceived it as dishonest and lose the trust on the media and its
operators. The motivation to the profit forced the company to modify the policies where it
recognised such changes for the best interest of the company while disregarding the best interest of
the user in large. This act raised a question on company’s practices in maintaining and safeguarding
the privacy, dignity and respect of the users of Instagram. It proved that the act was biased and
partial as the Instagram failed to consider the best interest of the users. This resulted in the sharp
drop in the users accounts which ultimately brought a financially a detrimental to the company. In
the revised or updated terms of use, the company was using high level complex legal jargons or
wording for the ordinary users of Instagram. It revealed that the company was trying to exploit the
lack of understanding of users where the act itself was an immoral or unethical. Depend on the
circumstances, the owners of Instagram were showing manipulative behaviours where the terms and
condition were changed in such a way benefitting to the company. The company was adopting
immoral and unethical ways to fulfil its duty and obligation towards the users of the accounts.

Conclusion and recommendation

Based on the above case analysis, it reveals that the decision of the company resulted in negative
consequences in the user group in large while itself following immoral activities to fulfil the duties
on such group. Therefore, anyone could articulate that it is immoral and unethical decision or action
to change the terms and conditions in relation to privacy policies on the contents of the users’
accounts with a view to make profit. In order to achieve its prime objective of making money and
generating profit, the company could adopt following strategies.
1. Introduce premium account with additional fee
In this case, the company introduces a new membership service to its users with an additional fee or
charges. It facilitates the users to obtain premium service with some sophisticated features
(Example: LinkedIn).
2. Develop on-site adverting or marketing.
The company could launch the advertisement in its Instagram web page itself where corporate
would publish its general marketing and promotion. The content of such advertising are written by
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the client itself where the company would earning income for each click or views of those
3. Act as intermediary in sale of the content
The company could notify its users regarding the options available to sale or give the exclusive
right to use their contents to third parties thereby earn commission or any other income from the
users while making sure that the users paid for it. The company should also make sure that such
activity does not promote sexuality, gender inequality, religious ethnicity or any other social
disruptive activities.
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Transaction Effect on accounting equation Reason


i - Increase freehold property or The event of purchasing the asset has

building (NCA) by $176,000. already occurred/passed. In other words,
the asset has been already exchanged
- Increase (NCL) mortgage by $ between the parties.

- Decrease cash (CA) by $


ii The value of Inventory (CA) Inventory is measured at the lower of cost

remains to be $16 000 (no and net realisable value,
effect on Inventory)

iii No effect to the balance sheet Since the resources (delivery van and
due to this transaction. cash) were exchanged on a later date, the
transaction was deemed to be at the
negotiation stage on the reporting date

iv Increase in fittings (NCA) by Assets are recorded at its historical cost

$3,000 and decrease in cash convention base. i.e. on its cost of
(CA) by $3,000 acquisition.

v a) Ford Falcon bought in Nov- This purchase is unrelated to the

20x1 operation of the business as it was meant
for owner’s wife’s use.
Decrease the equity (OEQ) of
the owner by $7,000.

b) Ford Falcon bought in Sep- This purchase is considered to be related

20x1 to the operation of the business as it was
meant exclusively for delivery.
Increase the motor vehicle
(NCA) asset of the company by

vi Decrease in cash (CA)by $400 This is an expenses where the resource of

and decrease in profit/equity
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(OEQ) by $400 cash is flowing out

vii Decrease in cash (CA) by The asset (office equipment) is controlled

$1,200 and increase in office by the entity through past purchase and it
equipment (NCA) by $1,200 is expected to generate economic benefits
in the future which has economic life
more than a year.

viii Increase in cash (CA) by Draw creates an obligation to settle in the

$13,000 and short term loan future which result in an outflow of
liability (CL) will increase by economic resource.

ix No effect to the business It is understood that the seat belts were

bought by the owner by himself. It is not
related to the operation or business of the
entity. Hence it is considered as personal

x Increase in accrued taxes (CL) The service has already been consumed
by $120 and decrease in equity as a result the obligation has arisen.
(OEQ) by $120

- NCA – Non-current assets
- NCL – Non-current liabilities
- CA – Current assets
- CL – Current liabilities
- OEQ - Owner’s equity
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List of References

Annual report 2014, Santos Limited, Australia.

Birt, J, Chalmers, K, Maloney, S, Brook, A & Olive, J 2014, Accounting: Business reporting for
Decision Making, 5th edn, Wiley, Australia.

ASX Corporate Governance Council 2013, Corporate Governance principles and recommendation,
3 edn. Australia.

Elisa, A 2006, Code of conduct and corporate governance, Symphonya: Emerging issues in
Management, n.1, p.93-109.

Lin YT & Chang YM 2014, Impact of an independent director system on board of directors and the
system’s relation to corporate performance. Case study of listed companies in Taiwan, Investment
management and financial innovations, v. 111, no.1.

Paul JS 2011, Internal auditing’s role in risk management, The institute of internal auditors
research foundation.

Rodgers, E & Chris, D, Ethics of Social Media Behaviour: Act versus Rule Utilitarianism.

Subramanian, G 2015, Corporate Governance 2.0, Harvard Business Review, Viewed on 2 April
2016, <>

Tanner, C, Medin, DL, Iliev, R 2007, Influence of deontological versus consequentialist orientations
on act choices and framing effects: When principles are more important than consequences,
European journal of social psychology.

Timothy, FS & Hall, TJ, The Triple Bottom Line: What is it and How does it work?, Indiana
Business Review, Viewed on 2 April 2016,