Role of the Continuous Disclosure Framework

Requirement

THE ROLE OF THE CONTINUOUS DISCLOSURE FRAMEWORK 

INTRODUCTION

This study focuses on the policy framework of continuous disclosure. There is the small briefing of the application of this policy in case of the Organisation Bellamy’s Australia Limited in the first part of the study. In the second part, there is the discussion on the necessity of the continuous disclosure policy framework and a small argument on behalf of the policy and law.

THE RECENT FINANCIAL PREDICAMENT FACING BELLAMY’S AUSTRALIA LIMITED

In case of Bellamy’s Australia Limited, it has been found from the annual report 2017 that the revenue has been grew in the six consecutive halves, although there is a declination of 11.7% in the 1st half of the year 2017. And thus the overall revenue has grown with a little percentage by 2.6%.
 
On the other hand, the gross profit margin for 2017 is 38.1% which is down in 5.1% from the gross profit margin 43.2% in 2016. This decrease in the gross margin of profit is due to the increased ingredient as well as the production costs which include a provision fall of $2.0 million due to the shortfall payments. This reduction in profit margin has been recovered partially in the later part of 2017 financial year for the higher price realisation. In another case, there is a large exposure for Bellamy’s in the Chinese market in the year 2017. It has been found that the failure of Bellamy’s also relates with the changes of consumer preference in case of China and there is decrease in demand for the Group’s products in china which is materially adversely impact on the Bellamy’s financial as well as the operating performance (Bellamy’s Australia Limited, 2018).

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THE 2016 GOODWILL, ACQUISITION, THE CASH POSITION

Still now it is the highest revenue achievement by Bellamy’s Australia Limited in the financial year of 2016. In case of Goodwill, Bellamy’s Australia Limited has increased the market relationship with China as well as South East Asia and eventually it is strengthening the goodwill between two international markets.
 As part of Acquisition, Bellamy’s Australia has found some good partnerships outside Australia as well as inside the home market. The manufacturing partner, Fonterra group has initiated their business with Bellamy's by investing through building up strong supply chain. In China, they found some e-commerce partners like Tmall, JD, VIP or BabyTree ( Australian Securities Exchange (ASX), 2017).   
 
As per the Revenue list, it can be observed that, the cash balances are relatively stable within the year of 2016 and that has increased by $0.3 million and it closed at $ 32.3 million.

THE 2017 PROFIT AND LOSS STATEMENT WITH PARTICULAR REFERENCE TO IMPAIRMENT TEST, SUSPENSION OF CNCA LICENCE AND ADMINISTRATIVE AND OTHER COSTS

In case of Impairment Test, Bellamy’s Australia Limited follows the IFRS accounting standard.  As per the IFRS as well as the CNCA license, Bellamy’s Australia limited has faced lot of issues in the share price during the year 2017. It is the new Camperdown facility that Bellamy’s has bought as per their new marketing strategy in China, but within a week the food and drug association has deregistered the facility within Chinese market for which Bellamy’s has to face a large amount of loss in the first half of the financial year 2017 ( Australian Securities Exchange (ASX), 2017). 

The share price of Bellamy’s is decreased significantly in 2017 as $ 3.73 than that of $14.64 in 2016 which has a great impact on the share trading in the global market as well. But soon, Bellamy’s has recovered the loss and again they are in upraised position of $6.82 per share. So, it should be recommended that it is a good opportunity for the new investors or the stakeholders to buy Bellamy’s share and for the others who already bought shares of Bellamy’s should hold the purchased shares up to the first quarter of 2018 (Chau D. , 2017).

WHY IS IT NECESSARY TO HAVE A CONTINUOUS REPORTING REGIME FOR DISCLOSURE ENTITIES AND IS IT EFFECTIVE?

First of all, here is a brief discussion on the continuous disclosure policy on behalf of Australian Market. This is a law and it emphasizes on different obligations of the Organisation for keeping the market with fully informed on behalf of the Price Sensitive Information. In order to correct the specified material mistake or any misinformation in the market this law will act accordingly. As per the administrative part of the policy it should be the Board i.e. the Disclosure Committee which will determine that:
The information which is or is likely same as the Price Sensitive Information , and
The disclosure in case of information will provide the exception on the applied disclosure. 
It is also important that the document that sets out the policy as well as the procedures will be adopted through the Board or the Disclosure Committee for complying with those obligations (IPH Limited, 2017). 
As per ASX or Australia Share Exchange Limited for following reasons there is the urgent requirement of Disclosure entity:
 As the guidance of ASX, it has been found some obligations in case of disclosing Price Sensitive Information ‘immediately’. As per ASX, it does not truly means to disclose the information instantly. In this context of the continuous disclosure it is needed to be taken action to disclose the information with promptness as well as without delay.
It is also believed to act promptly and with no delay actually means to attend something as quick as possible because it depends on the circumstances and also not to deferred, postponed or put it off at the later time.
In any case the obligation to the disclose has triggered overnight or at any weekend or in case of a situation where other time as it is found the market is closed, then it is generally inefficient for the company for providing the information in case to release before the trading of the same product or services will resume. That relevant information is necessary to bring in attention in front of the CEO or the Company Secretary as fast as possible.
 It is also found that the Organisation must act with particular sense as quick as possible in correcting the false market when there is the sudden as well as the significant movement for pricing or volume in case of trading. If those information is seemed to be damaged especially or partially then it will result in the decrease in the share price of the specific Organisation (ERM Power Limited, 2017).

DO YOU AGREE? WHY OR WHY NOT?

In many cases, it has been found that, there are some financial markets which are highly opaque. The information regarding trading venues that consists of dark exchanges mostly in case of over-the-counter (OTC) markets which are enable the institutional investors for keeping the details with the orders for hiding the information from other investors at the origination. This is known as the pre-trade opacity in that financial market. As per Pagano and Volpin (2012), the asset-backed securitization, originators as well as the underwriting intermediaries are often withheld those fundamental information from the investors who may belongs to institutes or organisations or the retailers themselves (Pagano & Volpin, 2012).
It is also observed that some risk-neutral agents or originators are generating the productive assets at any cost. The assets are thus found heterogeneous in nature or quality and thus known as distribution. The investors are thus endowed with the funds so that there can be either the information can be stored safely or they can invest in the risky assets as it is created by those originators. In this case, the investors thus can have choice for becoming the expert at any cost and that means they will understand the fundamental asset information originators conveying them to the others investors. In that case, the originator’s efforts become unobservable and also at the same time the presence of the expert investors will reward to the originators in case to produce the quality assets (Monnet & Quintin, 2017).
In that context, it is also kept in mind to the fact of limiting those disclosures of the fundamental information among the investors which is strictly with welfare-enhancing. The non-expert investors are thus reluctant with the participating in the asset markets as the originators prefer the deal for good projects with the experts who will actually go to check the quality of the projects. So, in that case in hiding the fundamental information levels for playing the field within the investors that encourages the participation in case of the experts.
On the other hand, it is also true that it is difficult to implement the optimal information arrangement through the regulations as per the practical as well as the legal aspects. It is also observed that, the contracts which are assumed to be standard in the specific financial markets that also can be implemented with the desired information design. Those originators then will sell their project while the asset quality has been revealed. In those scenarios, the underwriters will act as they design the compensation so as to opt for the optimal disclosure policy and thereby, there will be a blank-check underwriting arrangement with the investors can be occurred (Boone, Floros, & Johnson, 2016). 
It is further observed that, the target of the continuous disclosure is not only to decrease the information asymmetry within organisation as well as the investors, but also among the various categories of investors. It is effective along with timely disclosure and that is the measure of the good governance. This principle in also reinforced the Principle 5 within ASX Corporate Governance Principles and Recommendations (The Conversation Media Group Ltd., 2013). 
Moreover, the infringement notices thus enable the breaches to deal with quickly as there may be any possibility for the large companies which will check the infringement notices as well as the enforceable undertakings with an easy as well as cheap manner for minimising the reputational impact.
As per the closed observation, there is a connection between the selective disclosure as well as the insider trading. The markets will thrive with flow of information, and thus it would not be so expense for the equity as well as the efficiency. It would not also hinder the confident to inform the correct one to the investors. The selective disclosure skews the loyalty of the analysts and thereby prevents those investors in gaining equal access for information which will undermine the fairness and that may damage the confidence (The Treasury, Australian Government, 2018).
Therefore, from the above discussion, as per my point of view, the policy of continuous disclosure in important and this is needed to follow in every financial market. In case of Australia, the policy has worked with very nicely and that is more needed to improve for removing the opacity of the information in trading.

CONCLUSION

Therefore, from the discussion of first part, it has been found that Bellamy’s Australia should have the knowledge of continuous disclosure in the Chinese market so as to prevent its loss in the year 2017.
Also, from the discussion of second part, it can be concluded that the continuous disclosure laws in Australia has held fairly well although there are some regulators in the markets and they will balance the books and thus think creatively. This law is the mixture of both persuasion as well as punishment. So those information briefings made by the analysts should need a third pillar-participation. It is also clear that the corporate governance should need to be properly monitored along with improved when the regulators also participate in this processes.  

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REFERENCE

  • Australian Securities Exchange (ASX). (2017). Annual Report 2015-16. Retrieved from http://www.annualreports.com: http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BAL_2016.pdf

  • Bellamy’s Australia Limited. (2018). Annual Report 2017. Retrieved from http://investors.bellamysorganic.com.au: http://investors.bellamysorganic.com.au/FormBuilder/_Resource/_module/hwGxZyb3NkyBtC5tw1kqzQ/docs/reports/Bellamys_Annual_Report_2017.pdf

  • Boone, A., Floros, I., & Johnson, S. (2016). Redacting information at the initial public offering. Journal of Financial Economics, 102-123.

  • Chau, D. (2017, 08 09). Bellamy's share price surges after China lifts export licence suspension. Retrieved from http://www.abc.net.au/: http://www.abc.net.au/news/2017-08-09/china-lifts-bellamys-export-licence-suspension/8789500

  • Chau, D. (2017, 07 07). Bellamy's suffers blow as China suspends export licence of new canning facility. Retrieved from http://www.abc.net.au/: http://www.abc.net.au/news/2017-07-07/china-suspends-export-licence-of-bellamys-new-canning-facility/8687168

  • ERM Power Limited. (2017, 04 06). Continuous Disclosure Policy. Retrieved from https://www.ermpower.com.au/: https://www.ermpower.com.au/wp-content/uploads/2017/04/170406-Continuous-Disclosure-Policy-V2.pdf

  • InvestSMART Publishing Pty Ltd. (2018, 01 12). Bellamy's Australia Limited (BAL). Retrieved from https://www.intelligentinvestor.com.au/: https://www.intelligentinvestor.com.au/company/bellamy%27s-australia-limited-13809/key-financials

  • IPH Limited. (2017). Continuous Disclosure and Investor Relations Policy . Retrieved from http://www.iphltd.com.au/: http://www.iphltd.com.au/wp-content/uploads/2014/10/Continuous-Disclosure-and-Investor-Relations-Policy.pdf

  • Monnet, C., & Quintin, E. (2017). Limited disclosure and hidden orders in asset markets. Journal of Financial Economics, 602-616.

  • Pagano, M., & Volpin, P. (2012). Securitization, disclosure, and liquidity. Review of Financial Studies, 2417-2453.

  • The Conversation Media Group Ltd. (2013, 08 20). Explainer: Continuous disclosure obligations. Retrieved from http://theconversation.com: http://theconversation.com/explainer-continuous-disclosure-obligations-16894

  • The Treasury, Australian Government. (2018). Strengthening the financial reporting framework. Retrieved from https://archive.treasury.gov.au: https://archive.treasury.gov.au/documents/403/HTML/docshell.asp?URL=Ch8.asp

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