AYB311 Financial Accounting Issues

Task:

1) 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.

2) There is a substantial body of evidence linking financial reporting quality and likelihood of financial misstatement with certain characteristics of board of directors. a. Identify TWO OR THREE board characteristics that may be beneficial for a company and its shareholders, referring to academic research.

b. 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.

3) 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.

Required:

In Part B of your report:

1) Write a brief summary of the company and its industry/major competitors;

2) 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.

3) Based on your analyses, discuss whether your expectations are consistent with your findings.