Accounting Headline 3.7 concerns about regulatory capture Chief scientist’s dual roles damaging to office, committee findsORIETTA GUERRERAThe 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.Accounting Headline 3.7 concerns 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 7.7 implications 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:

 

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

 

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

 

If a new accounting standard impacts on profits, should this impact on the value of the firm, and if so, why?

Will the impositon of a particular accounting method have implications for the efficiency of the organisation?

 

 (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