ACCOUNTING-Chief scientist’s dual roles damaging to office, committee finds ORIETTA GUERRERA

Accounting
Headline 3.7concerns about regulatory capture

Chief scientist’s dual roles damaging to office,
committee finds
ORIETTA GUERRERA

The position of the Federal
Government’s chief scientist should be full-time, a Senate committee has
recommended after it found there was a conflict between Robin Batterham’s
duties in the role and his role as chief technologist for mining giant Rio Tinto.

The committee, which has been
investigating the potential for a conflict between Dr Batterham’s two part-time
positions, said the public’s faith in the office had been eroded because of his
dual roles.
However, it concluded there was no
evidence that Dr Batterham “had behaved inappropriately or
improperly”.

The committee initiated the inquiry
after the Government did not allow Dr Batterham to appear before a Senate
Estimates Committee to answer conflict of interest allegations.

Greens leader Bob Brown has raised
concerns about Dr Batterham’s advice on the largely untested process of burying
greenhouse gas emissions, which is favoured by the coal mining industry.
Yesterday Senator Brown called for Dr Batterham’s resignation – which the
report did not recommend.

The majority report, supported by
Labor, the Democrats and Greens, made four recommendations, including that the
position be made full-time and that it be subject to the same accountability
measures as other senior public servant offices.

The committee said that “potential
and apparent conflicts of interests” which arose from Dr Batterham’s dual
roles were as damaging to the Office of Chief Scientist as “any real
conflict of interest”. However, in a dissenting report, Government
senators rejected that there was a conflict.

Accounting
Headline 7.7implications of
the release of new accounting standards

Foster’s: less goodwill, higher earnings
ANTHONY HUGHES

The challenges facing investors seeking
a true picture of a company’s earnings during the impending profit reporting
season were underlined again on Friday when Foster’s flagged it would report a
$1.2 billion reduction in net assets under new accounting standards.

The transition to international
financial reporting standards (IFRS) means Foster’s net assets will fall from
$4.6 billion to $3.37 billion based on its last reported balance sheet, mainly
as a result of the internally generated goodwill on brand names not being
recognised.

The other major contributor to the
reduction is the requirement to allow for deferred tax liabilities based on
difference between the carrying value of assets and their cost base.

Despite scepticism about the likely
success of Foster’s recent $3 billion acquisition of winemaker Southcorp and
Foster’s ability extract sufficient merger synergies, the changes to the
reported accounts do not relate to any issues with that acquisition. The
brewing and winemaking group told analysts the balance sheet adjustments
wouldn’t affect its cash flows or ability to pay dividends.

But reported profits will be higher
than they otherwise would be because of the removal of goodwill amortisation
charges.

Under the standards, goodwill is
instead subject to an annual ‘impairment test’, with the elimination of
amortisation expenses boosting reported profits. If the new standards were
applied to Foster’s half-year accounts to December 31, 2004, the company would
have made a net profit of $783.2 million versus the $757 million reported.

The reduced asset base reported by
companies such as Foster’s will also mean they will report more favourable
returns on these written-down asset values.

The transition to new standards has raised
concerns that companies will announce potentially misleading profit numbers and
will be reluctant to predict future profits because of the uncertainty around
some aspects of the standards. There is also concern about how credit ratings
agencies will react to such wild swings in balance sheet values.

But the adoption of the standards will
make it easier for investment analyst to compare companies to their global
peers. In Foster’s case, this means investment analysts will be able to better
discern whether it is outperforming or underperforming global wine and brewing
peers such as Diageo and Pernod Ricard.

ABN Amro Asset Management’s Mark Nathan
said: ‘It differs by company and industry. There will be some concern over
whether the new standards result in a less realistic portrayal of what’s
happening than the current Australian standards, but by and large it’s an
improvement.’

However, Goldman Sachs JBWere said in a
note to clients that given the shortened period in which companies must now
report their results, the new standards ‘would only add to the data overload
during the last two to three weeks of August’. Foster’s closed 2¢ higher at
$5.46.

QUESTIONS:

1. (500 words) Read accounting headline 3.7, and explain the
Senate committee’s concern from a capture theory perspective.

2. (500 words) Read accounting headline 7.7 and, adopting a
Positive Accounting Theory perspective, consider the following issues:

a)
If a new accounting standard impacts on
profits, should this impact on the value of the firm, and if so, why?
b)
Will the impositon of a particular
accounting method have implications for the efficiency of the organisation?

3. (500 words) Critically
analyse and evaluate the arguments for, and against, for each of the case
studies. Which arguments do you consider to be more compelling? (In other
words, what is your opinion?)

Note:
·
book used FINANCIAL ACCOUNTING THEORY 3RD
EDITION BY CRAIG DEEGAN
·
you may use other
sources to support your view, properly referencing

 

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