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AYB311 Financial Accounting Issue : QUT Business School
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Evaluate the contemporary accounting issues in the annual report of an ASX-listed company- Blackmores Limited (ASX: BKL)
Part A: Accounting Policy, Corporate Governance and Remuneration (650-750 words) Required: Peruse the 2019 annual report of Blackmores Limited and in Part A of your report,
- Identify ONE accounting policy that could lead to financial misstatements (deliberate or unintentional), or opportunities for earnings management due to its application. Explain your response using the annual report and academic literature applying appropriate accounting theories.
- There is a substantial body of evidence linking financial reporting quality and likelihood of financial misstatement with certain characteristics of board of directors.
- Identify TWO OR THREE board characteristics that may be beneficial for a company and its shareholders, referring to academic research.
- Analyse the board of Blackmores Limited against these characteristics and discuss if the board meets the characteristics. The relevant pages from the company’s annual report must be cited.
- It is noted that Blackmores’ short-term incentive (STI) plan (Page 60 of Blackmore’s annual report) provides eligible executives with a reward for annual performance against certain performance targets including a few non-financial measures (i.e. safety, employee engagement and other agreed objectives). Discuss benefits and drawbacks of including non-financial performance criterial in executive’s compensation package. Your discussions should be supported by academic research and relevant theory.
Part B: Capital market research (450-550) words
On 6 December 2019, Blackmores Limited (ASX: BKL) announced that Mr Aaron Canning will transition from his current role as Chief Financial Officer next month to focus on a review of the Group’s portfolio. Mr Gunther Burghardt will join Blackmores, effective 6 January 2020, as the new Group Chief Financial Officer. The detailed announcement made by Blackmores Limited can be viewed here: https://www.asx.com.au/asxpdf/20191206/pdf/44cc1vzbbgvgwv.pdf
In Part B of your report:
- Write a brief summary of the company and its industry/major competitors;
- If you were an investor, what are your expected impacts of the announcement (the appointment of new CFO) on the share price (up or down, good news – bad news) and justify your arguments.
- Based on your analyses, discuss whether your expectations are consistent with your findings.
You must attach your analyses (supporting your expectations and discussions above) in appendices include the following:
- Appendix 1: Spreadsheet calculations (You MUST set up the excel spreadsheet using the template below)
- Appendix 2: Graphic cumulative abnormal returns
Note: these Appendices are excluded from your word count.
|Event: 6 December 2019: BLACKMORES ANNOUNCES CHIEF FINANCIAL OFFICER APPOINTMENT|
|Trading Date||All Ords Index||Return on Index||BKL share price||BKL share return||Predicted Return||Abnormal Return|
Step by step instructions for your data collection, calculation and analysis appendices are:
- Gather the following data series:a). Closing Share Price for Blackmores Limitedb). Market Index – All Ordinaries Index
- Collect a period of three weeks (15 trading days) both sides of the announcement. You can access historical share prices and All Ordinaries Index from https://www.asx.com.au/index.htm
- Using an Excel spreadsheet to calculate the return (percentage change in price P or the index M) for all data series as follows:
RetDay1 = [(P1-P0)/P0]
Mar RetDay1 = [(M1-M0)/M0]
4. Calculate abnormal returns:
a). Obtain α and β by running a ‘single index model’ regression of the firm’s returns onto the market returns during a pre-event period (e.g. you MUST use 10 days before the announcement itself to estimate α and β).
b). Take the α and β and apply it to the data from during the event period (expected returns).
c). Obtain abnormal returns as the difference between the actual return and expected return on a given day
d). Sum these abnormal returns obtained during the event period:
- From 2 days before to 2 days after the announcement
- From 5 days before to 5 days after the announcement
- From 10 days before to 10 days after the announcement
5. Graph your results (attach in Appendix 2)
Part C: Corporate Failure (250-350 words) Required:
1. Using additional ratio analysis and calculations (e.g. Altman’s Z-score) to assess the financial health of Blackmores Limited.
Note: This is to be attached as Appendix 3 (You MUST use the template below) and is not included from your word count.
|X1 (Net Working Capital/Total Assets)|
|X2 (Retained Earnings/Total Assets)|
|X3 (EBIT/Total Assets)|
|X4 (Market Value of Equity/Book Value of Total Liabilities)|
Note: The 2018 and 2019 annual reports were released on the 28 August 2018 and 15 August 2019. The shares outstanding as at annual report release date were 17,266,619 and 17,361,511 respectively. X5 (Sales/Total Assets) Z-score
Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 1.0(X5)
2. In Part C of your report, clearly state whether you believe that Blackmores Limited is ‘at risk of corporate failure’ or ‘not at risk of corporate failure’, explaining why you have come to your conclusion. Note that your comments could include, but are NOT limited to, concepts from:
- Accounting policy (Part A),
- Corporate governance (Part A) and
- Ratio analyses (Part C).
Structure, format and other requirements
- The Research Paper should include a title page, a table of contents, discussions, and analyses in appendices addressing ALL questions from Part A-C and a reference list. An introduction and a conclusion are NOT required.
- Use Times New Roman/Arial/Calibri font size 12 and at least 1.5
- You must cite at least eight scholarly sources such as published research articles, academic books, conference papers, and textbooks (note that published research articles rank highest as they are peer reviewed). Non-academic sources such as news articles and business reports will help you in the analysis sections of the report, but their use is in addition to the minimum scholarly sources. Lecture slides are not acceptable as a source. The annual report should be cited where necessary and included in the reference list.
- Use APA referencing. See: http://www.citewrite.qut.edu.au/cite/qutcite.jsp
- Your word count begins with the heading for Part A and ends at the end of Part All headings and in-text references are included in the word count. The reference list, appendices and attachments are excluded from your word count. However, the appendices should only include analytical tables, graphic results and necessary workings. Any discussions included in the appendix will NOT be marked. All your discussions should be included in Parts A-C.
- Include your overall word count on your title page.
Resources to assist with this assessment
- The lectures in weeks 1-6 help you to understand what content is required in the assignment.
- In the lecture in week 7, the requirements of the assessment will be discussed with an opportunity for you to ask questions.
- Read the CRA carefully as it is an accurate reflection of how marks are allocated, and it will assist your understanding of what is required.
Reference ID: #getanswers2001190