Centro Case Study
Group assignment
Part A
Centro Retail Group (CER) is an Australian public company and listed on Australia share market (ASX), its main operating activity is property investment (iStockList.com, 2012). In 2007, CER failed to disclose material information. Specifically, the 2007 annual report of CER classified $500 million short-term liabilities as non-current liabilities (BDO Australia, 2011). This classification did not satisfy the requirement of AASB, as according to AASB 101 Presentation of financial statement paragraph 60, an entity should separate current and non-current liabilities in its financial statement. Moreover, under AASB 101 paragraph 66, obviously, short-term liability is expired, settled within twelve months after reporting period, therefore, it satisfies the recognition of current liability. And AASB 101 paragraph 73 also states that the entity could classify a short-term loan facility as non-current liability only when it has refinancing or rolling over discretion. Apparently, in CER case, it does not have the discretion. Thus short-term loan should be shown in the current liability portion of financial statement. The second financial report issue is that Centro Property Group (CNP), which is a previous fund of CER, failed to disclose US $1.75 million guarantees of short-term liabilities of an associated company (BDO Australia, 2011). This issue violates AASB 110 Event after reporting period. Based on AASB 110 paragraph 21 and 22, the entity should disclose contingent liability after reporting period. Therefore, guarantees as contingent liability should be disclosed.
In terms of Conceptual Framework, the first issue, the incorrect classification, unsatisfied one of the qualitative characteristics of financial statement - reliability. Framework paragraph 32 states that ‘Information might unreliable in nature or representation that its recognition may be potentially misleading’. The CER recognized short-term liability as non-current
Part A
Centro Retail Group (CER) is an Australian public company and listed on Australia share market (ASX), its main operating activity is property investment (iStockList.com, 2012). In 2007, CER failed to disclose material information. Specifically, the 2007 annual report of CER classified $500 million short-term liabilities as non-current liabilities (BDO Australia, 2011). This classification did not satisfy the requirement of AASB, as according to AASB 101 Presentation of financial statement paragraph 60, an entity should separate current and non-current liabilities in its financial statement. Moreover, under AASB 101 paragraph 66, obviously, short-term liability is expired, settled within twelve months after reporting period, therefore, it satisfies the recognition of current liability. And AASB 101 paragraph 73 also states that the entity could classify a short-term loan facility as non-current liability only when it has refinancing or rolling over discretion. Apparently, in CER case, it does not have the discretion. Thus short-term loan should be shown in the current liability portion of financial statement. The second financial report issue is that Centro Property Group (CNP), which is a previous fund of CER, failed to disclose US $1.75 million guarantees of short-term liabilities of an associated company (BDO Australia, 2011). This issue violates AASB 110 Event after reporting period. Based on AASB 110 paragraph 21 and 22, the entity should disclose contingent liability after reporting period. Therefore, guarantees as contingent liability should be disclosed.
In terms of Conceptual Framework, the first issue, the incorrect classification, unsatisfied one of the qualitative characteristics of financial statement - reliability. Framework paragraph 32 states that ‘Information might unreliable in nature or representation that its recognition may be potentially misleading’. The CER recognized short-term liability as non-current