Substantial Reporting in Accounting

Question: Discuss about the Substantial Reporting in Accounting. Answer: Introduction: Organization needs to make an increasingly explicit assessment of its environmental and social impacts to add more value to shareholders. However, it is still contentious that whether the success of the business is gained at the expense of social and environmental degradation or whether, indeed, social well-being and the natural environment are actually benefitted by the contribution of the business activities (Bebbington, Unerman and O'Dwyer 2014). Interestingly, majority of companies are aware about the importance of the social and environmental audits and its importance on stakeholders for ensuring the sustainability of the business. The field of accounting, auditing and reporting is showing the first signs of response to the raised demands for environmental and social responsibility and accountability (Ioannou and Serafeim 2014). Thus, the purpose of the report is to bring current social issues, particularly, in the field of accounting and assess its impact on various stakeholder s. For this, an explicit literature about the sustainability reporting in accounting will be discussed with explaining its implications for several stakeholders in relation to financial decision making. The source of information will be gathered from the annual report of Qantas Airlines (Qantas.com.au 2017). Critical and analytical sustainability review of Qantas Airlines: For the group of Qantas, sustainability is all about making a sound decision to ensure business resilience and establish a long term value for the organization and its stakeholders. In the year 2015-16, an initiative has been taken by Qantas to deliver record growth and unlocked value of the stakeholders. Under the financial framework of Qantas, the group has returned more than $1billion to shareholders over the past one year, with the help of the figure of $505 million return on capital and $500 million on market share buy-back. By the effective two capital market efforts, the group has made an impact on reduce shares on issue prices by 12.6 percent. The main highlighting fact of the sustainability report is the record domestic earnings in 2015-16 with ensuring the increased demand in Asia-Pacific markets. A planned investment in product and service continuously secured optimum level of satisfaction from customers. More interestingly, the Loyalty business of Qantas is also positivel y sourcing a new ventures and diversified revenue streams. By giving more emphasis on improving net free cash flow, return on investment capital, the group has secured their optimal capital position throughout 2015-16. There were two benchmark of the sustainability approach of Qantas in the current fiscal year such as accountability and forecasting. By the application of the Positive Accounting Theory (PAT), Qantas has made a good prediction or forecasting in concentrating three key pillars of the financial framework continuously. Maintenance of an optimal structure for capital allocation to minimize the cost of capital of the group Accomplish the target of return on investment capital above 10 percent through the cycle since its planned 2014-15 (Qantas.com.au 2017) Enhance invested capital with planned investment and ensure the highest return and surplus to shareholders Implication of PAT With the assumption of the doubled growing demand of air travels over the next 20 years, the group has ensured their ability for leading the aviation industry at the time of unpredictable global challenges like increasing price of fuel, inadequate water consumption, rising electricity charges and many others (Hahn and Khnen 2013). In this context, the company has followed debt covenant hypothesis of PAT. This is assumed that managers are more likely to select procedures of accounting by shifting reported earnings from the future to the current. The inner meaning of the hypothesis is to increase earnings of the current period by less violating debt covenants. In this way, the company will be able to reduce its constraints in running the company. The same approach has been taken by the financial management of the company in 2016 by focusing the debt reduction costs disciplined capital allocation and transparency in distributions by growing invested capital (Ball, Grubnic and Birchall 2 014.). The group has maintained a finest capital structure throughout the fiscal year with the net debt at year-end of $5.6 billion. It has already met the target which was previously ranged at $4.8 billion to $6 billion. Furthermore, credit metrics remain substantially better over the investment-grade metrics as per specified in the target. By the service expansion, the company has successfully followed strategies to maintain short term liquidity of $3 billion along with cash of $2billion. This factor helps the group in creation of the substantial base of the asset, with the totals over US$3.9 billion. This has helped to manage constraints which are associated with the company. This further indicates that the company is financially able to the make payments to their suppliers on time. On the other hand, Qantas has accomplished their commitments by improving the return on investment capital. According to the Sustainability Report 2014-15, this aviation company was committed to improve ROIC from the percentage of 16 per cent which was successfully up by 23 per cent. On the operational perspectives, this ROIC has positioned above 10 percent through the cycle and continuously reduced the cost of the capital. In this way, the sustainability report of Qantas has disclosed quantified measures of performance. In short, the report clearly measured the group performances. The corporate report clearly identified the landmarks of the accounting performances of Qantas such as perfect allocation of capital, optimized utilization of the fleet and to achieve maximum contribution by the efforts of business transformation (Qantas.com.au 2017). Thus, the corporate financial reporting clearly disclosed forecasted financial events and potentially translated them to accounting transact ions. All these financial transformations help to achieve strong returns to their shareholders. The company has further mentioned with clear disclosure that there is surplus capital in the future which indicates the groups capabilities to distribute the shareholders in the form of ordinary dividend. The company has made a strong progress in reducing the comprehensive impact on environment in the business. To maintain the accountability, the company has faced the biggest challenge in the form of fuel combustion emissions (Bebbington and Fraser 2014). Currently, the company has bear near around 98 percent of the companys total 12 million tone annual CO2 footprint. To reduce this figure, Qantas follows a number of independent reporting programs such as National Greenhouse and Energy Reporting for the record the figure of domestic emissions, Carbon disclosure and sustainability reporting for recording yearly emissions footprint and many others. This emission management plan has taken many initiatives for reducing fuel use and greenhouse gas emissions. For instance, investment has been made in a fuel efficient fleet such as Boeing 787, and Airbus A380 in 2016. Interestingly, the company has made collaborative impacts by believing their stakeholders in offsetting environmental impacts . The company offset all business travel of their employees and ground fuel emission. Various practices of Qantas for outside investors To improve the operational integrity by adding values towards employees, Qantas has made an effort to advance the groups corruption control framework by the Corporate Business Integrity Council. This council, initiated by the groups, is made up of compliance and ethics practitioners from renowned Australian companies. On the broader perspectives, the company has added values to society by responsibly respond on energy, emission and the groups supply chain for reducing costs and play a favorable role across the communities. In 2015-16, the company has still followed stable industrial relations climate by negotiating 36 enterprise agreements since the year 2011. Efforts made to ensure that workplace agreements do not constrain productivity or business (Vourvachis et al. 2016). Building more competitive wages positive, Qantas reduced the groups wage costs and ensure growth in the aviation industry as well. All outside major unions have settled to policy in at least one collective agreem ent. Disclosure of contingent liabilities By recording underlying EBIT and increased the groups operating margin, Qantas have potentially diversified their operations and reduced volatility the portfolio strategies and gives a stable economic cycle. To ensure the sustainable business operations and reduce the probabilities of future sacrifice of economic benefits, the sustainability information related to contingent liabilities have disclosed the following matters: To secure self-insurance license under the Safety, Rehabilitation and Compensation Act 1988, Qantas has entered into guarantees for showing support the commitments regarding the non-aircraft operating lease. To concern for the future aircraft financing for the acquisition of aircraft, the group has provided a guarantee and indemnities to several lenders and equity participants for leveraging lease transactions There are several defenses made by Qantas for third party class actions related to its passengers and freight. Conclusion The above findings clearly indicate that Qantas has maintained clear strategic priorities to meet both short term and long term goals under the financial framework. This framework has helps the group to create maximum value to their shareholders. After identifying sustainable performance of the company, it has been found that the company has almost doubled the earnings per share to reach 49 cents and further it has been anticipated that the company will ensure same growth opportunities for their shareholders in 2016/17 by providing ordinary dividend and on money market buy back shares as well. With the application of potential capital management initiatives the shareholders are also looking for anticipated capital returns and special dividends as well. On the other hand, Qantas has ensured continuous efforts to invest for their customers and strengthening their brand values by taking various initiatives like reviewing the fleet, infrastructure, fleet and technology. Focusing more on to the social arena, the company has engaged skill workforce and creates great jobs for the people; making positive impacts on the community and environment along with providing world class services for the customers as well. Recommendations The accounting advisors of Qantas should follow the recommended steps for ensuring the sustainability in long run: More concentration needs to be provided to reduce electricity and water consumptions to restrict the economic degradation. For this, the financial framework of Qantas should play an active role in planning and monitoring future initiatives. The group needs to facilitate a sustainable aviation fuel industry by improve more efficiency into their internal management activities such as investing in more fuel efficient fleet, providing efficient group power units, weight reduction measures and many others. The company needs to make accounting provision for purchasing lower noise footprint for reducing aircraft noise and ensure the economic benefits. References: Ball, A., Grubnic, S. and Birchall, J., 2014. 11 Sustainability accounting and accountability in the public sector.Sustainability accounting and accountability, p.176. Bebbington, J. and Fraser, M., 2014. Organizational change and sustainability accounting.Sustainability Accounting and Accountability, pp.189-204. Bebbington, J., Unerman, J. and O'Dwyer, B., 2014.Sustainability accounting and accountability. Routledge. Hahn, R. and Khnen, M., 2013. Determinants of sustainability reporting: a review of results, trends, theory, and opportunities in an expanding field of research.Journal of Cleaner Production,59, pp.5-21. Ioannou, I. and Serafeim, G., 2014. The consequences of mandatory corporate sustainability reporting: evidence from four countries.Harvard Business School Research Working Paper, (11-100). Qantas.com.au. (2017). [online] Available at: https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf [Accessed 8 Jan. 2017]. Vourvachis, P., Woodward, T., Woodward, D. and Patten, D., 2016. Disclosure reactions to major accidents: insights from the aviation industry.