ASSIGNMENT ON COLES

GROUP
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Task 1
a) Summary of management bonus paid in current year
Asserting on Coles remuneration policy, in financial year 2020, they have updated their
framework of remuneration. This policy is in alignment with strategy of “Winning in our Second
Century”. Coles updated remuneration framework is more performance oriented, market
competitive and having focus on creating long term benefits for shareholders. There are simple
three elements (total fixed compensation, short term incentives and long term incentives) of the
updated structure1. Managing director and CEO have been paid 28% of total fixed compensation,
11% short term incentives in cash and same percentage in equity and 50% long term incentives 2.
On the other side, other executive directors KMP are awarded 30% in form of total fixed
compensation, 18% short term incentives in cash and 6% in equity and 46% long term
incentives3….

b) Management bonus hypothesis of positive accounting theory

In every organization, management is given bonuses and incentives. Managers are frequently
compensated via the use of accounting-based bonus schemes. These strategies are implemented
in order to match the interests of the company's management with those of the company's
shareholders. From the standpoint of efficiency, the creation of management bonus schemes may
be justified in certain cases. In accordance with the management bonus plan hypothesis,
managers who are compensated in regarding accounting numbers are more inclined to use
accounting techniques that enhance income to the degree that this would result in an increase in
the amount of the bonus. This is a purely opportunistic point of view. (The efficiency viewpoint
is concerned with the initial creation of the incentive system, while the opportunistic aspect is
concerned with the future attempts to manipulate earnings and, therefore, the reward.).
Positive Accounting Theory (PAT) predicts that procedures put in place that will match the
priorities of the management (agents) with the interests of the owners (as principals). In addition
to giving management a bonus that is linked to reported earnings, such systems will incorporate
other forms of compensation. Considering self-interest, such processes will result in a decrease
in agency costs (since they will motivate the self-interested manager to work more), and may
thus be described from an efficiency standpoint.

Task 2
a) Comments on Sustainability Accounting
Coles has involved the significant element of sustainability in their business. They have clearly
stated that sustainability reporting is essential for building trust so that long term value of
shareholders could be obtained. Company has emphasized on sustainable business practices and
the have three main pillars of their sustainability strategy. These pillars include “sustainable
communities”, “sustainable products” and “sustainable environmental practices” 4. In their
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sustainability snapshot, company have asserted that in terms of sustainable communities, Coles
have prioritized for providing fresh products to their large customer base. 96% of their fresh
products are from their own supply chain and. Apart from this, Coles has announced $3.6m in
“Coles Nurture Funds Grants” for 15 recipients in order to deal with sustainability rebuilding
after bushfires5. Coles has revealed that since 2013, more than147m meals have been distribute
to needy people. In terms of sustainable environment, there is a reduction in greenhouse gas
emissions by 35.5% 6
b) Need to produce the sustainability report
According to Australian legislation, there is no statutory need to report on sustainability. In
certain cases, however, businesses must disclose both financial as well as non-financial
information in order to comply with specific legal requirements in a variety of sectors. The
opinions of the participants on the appropriateness of the existing reporting requirements were
very contentious. Almost universally, companies and business groups felt that the existing
arrangements are sufficient, while accounting bodies, non-governmental entities, and
consultants, in general, thought that there is room to improve (aph.gov.au).
In Coles, board of governance is responsible for overseeing the overall environment of Coles.
There are governance policies that oversee sustainability risks and opportunities. In this regard,
Audit and Risk committee provide assistance in fulfilling the responsibilities. Furthermore, a
sustainability steering committee is responsible for reporting on sustainability risk including
climate change7. This have revealed that proper mechanism is available in Coles to disclose
about sustainability efforts at Coles. Organizations in Australia have been involved in producing
sustainability reports that gave plenty of benefits in term of respect, shareholder value generation
etc. (Higgins et al., 2015). Therefore, keeping in view the whole governance mechanism,
potential benefits of sustainable reporting and meeting sustainable development goals, Coles is
required to produce sustainability reports.

Task 3
a) Summary of measurement assumptions
Coles have applied the fair value measurement for measuring financial instruments. Assets and
liabilities which are measured by fair value principle are categorized by hierarchy of fair value
measurement such as level one in which quoted prices in active market are used for
measurement; level 2 in which estimation of fair value is done on the basis of inputs that are
observable for assets and liabilities; level 3 in which unobservable inputs are used for
measurement8. For inventories, lower of cost of NRV (net realizable value) is used for
measurement. NRV is termed as valuation method in which total value that an asset generates
money less estimated cost to sell. In impairment of non-current assets, the recognizable amount
of assets are measured at higher of fair value less cost to sell and value in use 9. Value in use is

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calculated by discounting back future cash flows associated with non-current assets. Regarding
share based payment valuation, it is done by an independent valuation expert10.
b) Explain, why is accounting measurement potentially controversial?
Accounting measurement is contentious because no one accounting measurement suits all
accounting items adequately. There is historical and current cost accounting. Historical cost
accounting implies steady buying power. It may be used to cost inventories. However, certain
factors, such as particular pricing increases, general price changes, and exchange rate
fluctuations, led to this supposition being incorrect. The problem of relevance arises when an
asset's present value differs from its past cost. However, current cost accounting uses present
values rather than past costs. It improves the information given by distinguishing operational
profit from holding profits and losses. However, it is argued that determining replacement cost is
complicated and that asset deployment costs may vary across companies. There is no one metric
that can be employed to effectively measure accounting elements, and all have various opinions.

References

https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial
_Services/Completed_inquiries/2004-07/corporate_responsibility/report/c07#:~:text=7.1%20In
%20Australia%2C%20there%20is,reporting%20requirements%20were%20highly%20polarised.

Higgins, C., Milne, M.J. and Van Gramberg, B., 2015. The uptake of sustainability reporting in
Australia. Journal of Business Ethics, 129(2), pp.445-468.

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