Snowy Mountains Engineering Company

Question: Discuss about the Snowy Mountains Engineering Company. Answer: Introduction The key accounting issues that often evident during the process of annual reporting need to be mitigated properly in order to meet the target of the organizations or projects. In this contemporary world, several accounting problems have raised, thus it is important to identify the ongoing issues in accounting, so as to reduce its affect on the financial reporting (CCH Incorporated, 2015). Accounting is considered as an essential language of conducting business for organizations. In this regard, transparent communication within the work domain enables smooth flow of business information that plays an important role in preparing the financial statements and comparing the performance of the business (Wiley, 1997). However, due to accounting issues, the organizations hardly have the opportunity to enhance the business efficiently. To mitigate this concern, maintaining accounting standards while preparing reports is the most suitable practice that allows business expansion and regulates t he economic system. The Australian Accounting Standards Board (AASB) helps the entity to ensure transparency in financial reports for users by setting suitable accounting standards (Commonwealth of Australia, 2015). The objective of the paper is to understand the issues regarding the scandals of Australian companies and its relation with Sri Lanka and Congo based on an article. Description of the Article Two companies of Australia namely Sundance and SMEC have involved in the bribery scandals to protect the contracts of multimillion-dollars. The issue has been reported to reach the Sri Lankan office and the Republic of the Congo presidents. The association of the companies with the bribery scandals has put a pressure on the present Australian government to make changes on the anti-corruption framework. According to the report of McKenzie et al. (2016), one of the mining companies of Australia, Sundance Resource has bribed the Republic of Congos leader to seek approval from president for its iron ore projects. After evaluation of the report by Australian Federal Police (AFP), it is found that son of Congos president was involved in the multimillion deals with the company (McKenzie, et al.2016). Investigation by Fairfax Media also disclosed the evidences of bribery issues conducted by Snowy Mountains Engineering Company (SMEC). It is alleged that the companys overseas member has bribed the officials of Sri Lanka to continue its 2.3 million-dollar project in 2011. As per the Fairfax Media examination, the email of the company has revealed that the Sri Lankan president demanded political donation from SMEC to start a project in the country. According to the article, the image of Australian companies regarding practicing clean business has been proved wrong after the exposure of scandals. However, the Sri Lankan president in his overnight statement clearly denied to have knowledge regarding the incident and assured the cooperation in the investigation in Australia as well as in Sri Lanka (McKenzie, et al., 2016). The secret deal in Congo by Sundance has also been exposed that the project of the Mbalamà ¢Ã¢â€š ¬Ã‚ Nabeba Iron Ore was settled by paying bribe to the son and nephew of the Congos president Denis Sassou Nguesso. In the similar context, the report of 2006 explains that the Sundances agent in Congo informed the company that for securing the license of mining in the Cameron boarder would need the support of president. As per the companys file, the deal was finalized by paying the one-third share in the iron ore project. The company further explained ASX in 2008 that it would issue a portion of Australian shares valued 13 million dollar to unknown share holder of Congo. The matter has been examined by the international NGO and human right authorities of France and discovered million dollars properties ownership by the family of president (McKenzie, et al., 2016). In addition, in the case of the Snowy Mountains and president of Sri Lanka the World Bank investigator sent a report on September 2013 stating companys involvement in the corruption in relation to the power plant project in Bangladesh in 2007. According to the manager of SMEC, the president was largely involved in the entire scandal, wherein the companys account revealed that 27 thousand Australian dollars have been paid to the unnamed person as bribe to continue the project (McKenzie, et al., 2016). Identification of Accounting Concept and Its Link with the Issue Corruption may be defined as misuse of the power for political and personal benefits, which has become a common practice in the contemporary world. The characters of corruption and its persistence can be seen through the article, wherein not only the organizations, but also all the systems including political entities are involved in the corruption (Abjorensen, 2014). There are many instances of corruption and fraud cases such as WorldCom and Enron among others, which clearly indicate the concern for corruption and fraud in the international market. As per the article, the bribery deal of Australian company SMEC with the Sri Lankan political leader has led to the attrition of investors and public confidence in the financial market (Abdullahi, Mansor, 2015). The major issue of Sundance is that the company did not follow the financial reporting theories or principle of accounting, which significantly suggests to set strict standards in preparing financial reports by the organizations. The company has failed to bring transparency in the financial reporting due to which the bribery scandal has been occurred, as the resources have been used in corruption and bribery. Thus, it is observed that the companies lack ethical behavior within the work process that involve in making correct and fair means in the decision making process. The companies have not considered ethical behavior while dealing with political leaders of different countries in matter of bribery (Elliott, Elliott, 2011). On the other hand, auditing and accounting standards helps in ensuring transparency in generating financial information and mitigating the risks of illegality and unethical issues within the organization. However, the undisclosed transaction elaborated in the ar ticle between son and nephew of Congos president and Sundance clearly displays the unethical and corruption practices. Thus, it is stated that a key reason for keeping the transaction secret is to indulge in the corruption, which need to be mitigated to ensure expansion or business development in long run (Malagueno, 2011). Underlying Assumptions of Conceptual Framework of Financial Reporting There are some underlying assumptions of financial statements under the framework of financial reporting among which providing required information regarding important issues or probable risks for decision making process is not included in the financial statements. Thus, it is assumed that the financial statement requirements have limited scope for the use of management due to which organizations might not be able to acquire competitive advantages in long run. The use of mixed value in the financial statements creates confusion to evaluate and determine the meaning of different figures due to which it cannot be considered as a future predictor. These factors clearly indicate the significance of adopting changes in the financial reporting process, wherein all the details of transactions and other information will be provided to monitor the potential of the companies in this competitive market (Becker Educational Development Corp, 2014). The companies such as Sundance and SMEC of Australia have not able to maintain the set accounting standards. The case of corruption and bribery has made lose the reputation of the companies in the market. The AFP has identified several aspects of the SMEC and its relation with the office of the Sri Lankan president based on which it is investigating the matter. The uncovering facts about the bribe deals between Sundance and the Presidents family of Congo have disclosed the corporate corruption culture in Australia due to which several other companies face problem in surviving in the market with higher profitability. Thus, in this regard, it can be stated that with the support of the investigation process of AFP, the entire case is expected to uncover and further implement changes in the financial reporting accordingly. Introduction of the Major Issues in New Accounting Standards The exposure draft, which has been published in the International Accounting Standards Board (IASB), includes a proposal of the amendment in IFRS 4 Insurance Contracts. The proposed amendments are intended to deal with the concern shown by some of the interested parties regarding IFRS 9 Financial instruments, date of effectiveness and the proposed insurance contracts. Certain companies have also expressed their perceptions about the rising accounting volatility in the profit and loss with the need new financial instruments and its application (IFRS, 2015). The issues that will be addressed through the draft are as follow: Overlay approach: IASB would propose an alternative, which will permit the entities to introduce contracts within the scope of FRS 4. Reclassification from profit and loss to other inclusive income or expenditures occurring from selected financial assets is stated in the approach (International Accounting Standards Board, 2015) Deferral approach: Option of temporary exemption is obtained from IFRS 9 application for the entities that are engaged in principal activity of issuing contracts within the capacity of the IFRS 4. The purpose of the exemption is to identify the entities that are affected for the operation date of IFRS 9 new insurance contract standards. The reason for targeting these entities is due to the engagement in activities, which results in contract as per the IFRS 4 (International Accounting Standards Board, 2015) General Views of the Commenting Parties on Comment Letters From the comment letter, the feedbacks of four entities have been selected. The first respondent commented on the draft is Allianz group, Germany, which is a global company functioning in the area of insurance and management of asset. The company has provided support on both the dimensions proposed by the IASB and acknowledge the board for introducing these issues in order to mitigate the problems in insurance sector. The company further believes that only deferral approach would be helpful in addressing the overall issues of the insurance sector. According to the perception presented by the Allianz group, it can be stated that the overlay approach would not be able to mitigate the extra accounting mismatch and temporary volatility evolving from the incorrect arrangement of the effective dates. Thus, the company supports the proposed application of the IASB as it provides the effective solution for the insurance companies (Sauer, Fichtl, 2015). The second respondent is Ernst Young Global Limited, who agreed with the IASB proposal. The company supports the overlay approach in which the entities are allowed to eliminate accounting mismatch with the support of appropriate measures. However, there is a concern shown by the company regarding lack of clarity evident in the definition of financial assets of the insurance contracts. Contribution of the needless application diversity has been apparent in the overlay approach by the company. In this regard, the company agreed to the deferral approach, as this approach provides certain insurance companies to postpone the IFRS 9 effective date. Hence, the company has urged the IASB to improve IFRS 4 in shortly (Ernst Young Global Limited, 2015). In accordance, the next respondent is Belfius, a Belgian bank-insurer, which provides the banking and the insurance services to the customers. The company agrees with the overlay approach and it is a useful instrument to lessen the time factor between IFRS 9 and new insurance contract. The financial statements comparability of the approach has been supported by the company. However, as per the feedback provided by the company, it is observed that the company does not support the application of deferral approach and stated that this approach would not add any solution to the company, as it involves the complex operational consequences and extra cost. Temporary exemption would not help in providing the alternative workable solution and there are least possibilities for the company to apply this approach. Thus, it is assumed that the overlay approach would provide consistency in the financial statements, as compared to the other approach (Flandre, Vankelecom, 2015). The fourth respondent on the proposed draft is Grant Thornton International Limited, which has largely agreed with the introduction of two different approaches in the draft. As per the company, these approaches would help in addressing the diverse concerns to various extents starting from financial reporting process to strategic implementation of the organization, as it also depends on the capabilities of the company. Both the approaches of draft are supported by the company, wherein the company stated that the temporary exemption would serve comparatively better solution for the problems of the insurance companies that might be raised during the work process. The deferral approach would also contribute towards the improvement in financial instruments in accounting. The company considered the overlay approach as an advantage in avoiding the implementation of IFRS 9. The company also acknowledged the challenges in designing majority test based on the income and expenditure (Sharp, K, 2015). Assumptions of Private and Public Interest The amendments in IFRS 4 Insurance Contracts supports the financial guarantee to meet the definition of the contract in the public sector companies, wherein the amendment would benefit the companies in applying accounting principles in the insurance contract. As per the HM treasury, the overlay approach would not add any kind of benefits for the public interest, as this approach would not able to make implications on the public sector. The draft proposed by the IASB would become effective, if the amendments get excluded based on the draft, whereas the public sector entities would be facilitated with consistent accounting policies, if the amendments are omitted from the draft (HM Treasury, 2016). According to the theory of public interest, the regulation of firms and other economic players help in contributing towards promoting the public interest. The public interest can be regarded as the most suitable share of scare resources among the individual and society (Hertog, 2010). The new proposed draft of the amendments in IFRS 4 Insurance Contracts is expected to provide better and consistent comparability of financial performances of the insurances entities. Thus, it is observed that the conceptual framework of the amendment would further help in introducing the financial transaction in more efficient manner (European Commission, 2016). On the other hand, the approaches used in the draft would permit private entities to manage the accounting mismatch. The reclassification of the profit loss and other comprehensive income and expenses would be possible with the utilization of the overlay approach for companies in the private sector. The amendments in IFRS 4 Insurance Contracts would help in setting the standards in the insurance contract. The deferral approach would be beneficial for maintaining time gap of effective date of IFRS 9. The financial instrument of the private insurance companies would be transparent with the application of the both the approaches of the proposed draft of the amendment (Deloitte Global Services Limited, 2016). From this perspective, private interest theory suggests that the regulation serves individual interest, wherein all the private sectors are rational and self-interested in forming the contents of the process of regulation (Soobaroyen, 2011). The private sector would able to decide the qualifying financial assets of insurance companies. Concerning private interest in the proposed draft on IFRS 4, it is observed that the draft would help in defining the asset backing liabilities and the idea of the overlay approach that is required to track the reporting date. The development of new accounting regulation can further help in maintaining the financial statements (FASB, 2016). Different organizations adopt various types of accounting standards and methods for the transaction in financial statements. With the development of economic standards, several entities such as International Accounting Standards Board (IASB) have been setting new standards for preparing the financial statements. In this regard, it can therefore be stated that amendments in IFRS 4 Insurance Contracts help in exploring the accounting standards in insurance entities. 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