AYB311 Financial Accounting Issues Assessment 2

QUEENSLAND UNIVERSITY OF TECHNOLOGY

QUT Business School

School of Accountancy
AYB311 Financial Accounting Issues
SEMESTER TWO 2021
ASSESSMENT ITEM 2: Research Paper
(Weighting Total: 30%)
Due Date and Time: Friday 24 September, by 11.59pm
Submission: Via Blackboard
Length: 1500 words +10%
Group or Individual: Individual
This assessment item assesses the following learning outcomes:
Knowledge and Technological Skills (KS)
1.1 Demonstrate and apply integrated discipline (including technical) knowledge across the broad
field of business with depth in one or more core business disciplines.
Higher Order Thinking (HO)
2.2 Exercise independent judgment and initiative in adapting and applying knowledge and skills
for effective planning, problem solving and decision making in diverse contexts.
Be professional communicators in an intercultural context (PC)
3.1 Use information literacy skills and communicate effectively and professionally in written forms
and using media appropriate for diverse purposes and contexts.
QUT late assessment policy
We will not mark assessment submitted after the due date and time without a pre-approved extension
i.e., you will receive a mark of zero. If special circumstances prevent you from meeting the
assessment submission deadline, you can apply for an extension. If you don’t have an approved
extension, you should submit the work you have completed by the submission deadline and it will
be marked against the assessment criteria.
Submission process
Submit the Research Assignment electronically on the AYB311 Blackboard site under:
Assessment/Assessment 2 Research Paper – 30%/Assessment 2: Research Paper (FINAL submission
link). You must submit two files: (1) Research Paper; and (2) Excel sheet (do NOT remove
formulas in Excel) used to calculate CARs for ANZ, Westpac and Suncorp.
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AYB311 Financial Accounting Issues Assessment 2

There is also a DRAFT submission link created for you to check references and you will be provided
a similarity report.
It is your responsibility to submit on time and you are responsible to ensure that your submission is
correctly attached to the FINAL submission link. Plan your submission timing to be well prior to
the 11:59pm deadline. Students who encounter a technical problem when making their final
submission should email their assignment before the submission deadline to ayb311@qut.edu.au.
Plagiarism
This unit uses the text matching tool in Blackboard. You can submit a draft version of your
assignment prior to submitting your final version to allow you to view your matching report and
make any corrections in relation to referencing and cited work. When you submit the final version of
your assignment, the system will generate a final text matching report for the Unit Coordinator.
Please note that this system is a software tool, and you should not rely on it to detect all plagiarism.
You are responsible for knowing what does and does not constitute plagiarism. The Unit Coordinator
will use methods in addition to this electronic means to identify plagiarism. You should be aware of
the MOPP in relation to academic dishonesty and plagiarism specifically
http://www.mopp.qut.edu.au/C/C_05_03.jsp.

Structure, format and other requirements

• The Research Paper should include a title page, a table of contents, discussions, and analyses
in appendices addressing ALL questions from Part A to C (including appendices) and a
reference list. An introduction and a conclusion are NOT required.
• Use Times New Roman/Arial/Calibri font size 12 and at least 1.5 spacing.
• You must cite at least 10 scholarly sources such as published research articles, academic
books, conference papers, and textbooks (note that published research articles rank highest
as they are peer reviewed). Non-academic sources such as news articles and business reports
etc. will help you in the analysis sections of the report, but their use is in addition to the
minimum scholarly sources. Lecture slides are not acceptable as a source. The annual report
and other company reports should be cited where necessary and included in the reference list.
• Use APA referencing. See: http://www.citewrite.qut.edu.au/cite/qutcite.jsp
• Your word count begins with the heading for Part A and ends at the end of Part C. All
headings and in-text references are included in the word count. The reference list,
appendices and attachments are excluded from your word count. However, the
appendices should only include analytical tables and necessary workings. Any
discussions included in the appendix will NOT be marked. All your discussions should
be included in Parts A-C.
• Include your overall word count on your title page. Where the word count is exceeded, the
marker will stop reading at the upper threshold and unread sections will be awarded a mark
of 0.

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Resources to assist with this assessment

• The lectures in weeks 1-6 help you to understand what content is required in the assignment.
• In the lecture in week 7, the requirements of the assessment will be discussed with an
opportunity for you to ask questions.
• Recorded Assessment Ready Sessions are included on Blackboard. Assessment/exam ready
sessions cover the following topics that are relevant to this assignment:
How to read an annual report
Tips on writing a literature review
How to do an event study
• Read the CRA carefully as it is how marks are allocated, and it will assist your understanding
of the task focus and what is required.

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AYB311 Financial Accounting Issues Assessment 2

Assessment Task
Investigate and critically evaluate contemporary accounting issues in the annual
report of ASX-listed company: AMP Limited (ASX: AMP)

Peruse the 2020 annual report of AMP Limited and answer the following questions:

Part A: Corporate Governance and executive compensation (approx. 800 words)

The primary role of the ASX Corporate Governance Council is to develop and issue principles-based
recommendations on the corporate governance practices to be adopted by ASX listed entities. The
recommendations are intended to promote investor confidence and to assist listed entities to meet
stakeholder expectations in relation to their governance.
The current version of the Council's Corporate Governance Principles and Recommendations (the
Fourth Edition) was released on 27 February 2019 and takes effect for a listed entity's first full
financial year commencing on or after 1 January 2020.
The global financial crisis (GFC) brought the executive pay debate into much sharper relief than ever.
ASX Corporate Governance Principles and Recommendations Principle 8 identifies three specific
recommendations (8.1, 8.2 and 8.3) for practice aimed at ‘attracting, retaining and motivating high
quality senior executives and in line with the entity’s values, culture and risk appetite in the short-,
medium- and longer-term’.

Required:
(a) Review the AMP’s 2020 corporate governance statement and relevant sections of its
annual report. Determine and report if AMP’s governance arrangements and practices
regarding executive compensations are in line with ASX Corporate Governance
Principles and Recommendations Principle 8 by completing the Appendix 1 (template
attached on page 8 of this document). (Note: Appendix 1 is excluded from your word count).

Further, Australia introduced new legislation, Corporations Amendment (Improving Accountability

on Director and Executive Remuneration) Act 2011 (effective 1 July 2011) with the aim to increase
transparency and accountability in executive compensation matters. At the heart of the legislation is
the ‘two-strike rule’. Two-strike rule is applicable to Australian listed companies, and it allows
shareholders to vote on the compensation paid to the company’s executives.

In May 2020, it was reported that more than 67 per cent of shareholders attending the online meeting
voted against the AMP's executive remuneration report, representing a first strike against the
board1. This year, AMP avoided second strike with almost 24 per cent of shareholders voting against

1
https://www.smh.com.au/business/banking-and-finance/shareholders-hit-amp-with-first-strike-against-executive-pay-
packets-20200508-p54r6f.html
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AMP’s remuneration report - just shy of the 25 per cent needed for the second strike that would
trigger a vote to spill the board2.

Picture: AMP chairman David Murray said he was disappointed by shareholder disapproval of the remuneration report.

Required:
(b) Write a short literature review that covers the following three topics. You must cite at
least eight (8) academic journal articles in your literature review section. (Suggested
word count: 600 words)

• Does research suggest an association between executive compensation and firm

performance?
• Does research identify any corporate governance mechanisms that influence the pay-
performance link or pay-performance sensitivity?
• Does research provide initial evidence on the effect of two-strike rules (also called
‘say-on-pay’ laws in the US) on the pay-performance link?

(c) Critically analyse whether the updated remuneration principles disclosed in AMP’s
2020 annual report help resolve agency conflicts between the executives (e.g., CEO) and
shareholders. Support your position and discussion with reference to relevant
accounting theories and academic research you discussed in part (b). (Suggested word
count: 200 words)

Part B: Accounting choice and quality (approx. 400 words)

AMP reported (p.6 of the annual report) that:
‘Business performance in 2020 remained resilient despite the market volatility and COVID-
19 impacts on clients and asset performance. Our underlying net profit after tax (NPAT) was
down 33% to $295 million’.

2
https://www.smh.com.au/business/banking-and-finance/amp-avoids-second-strike-despite-disappointing-year-
20210430-p57ns3.html
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It is expected that managers have greater incentives to use accounting techniques to improve the
financial position and performance of firms during a pandemic such as the coronavirus (COVID-19)
pandemic.
Required:
Review AMP’s accounting policies. Identify TWO relevant balance sheet and/or income
statement items that could be used for earnings management due to their application. One of
your identified items should involve an accounting judgement, the other should offer
opportunities for real earnings management. Explain your response using academic literature
and applying appropriate accounting theories.

Part C: Capital Market Research (approx. 300 words)

On 1st April 2021, AMP Limited announced it appointed Alexis George as its new group Chief
Executive Officer (CEO), to take over from Francesco De Ferrari who will retire from the role as the
company completes its portfolio review.
Ms George, pictured, will join AMP from ANZ where she has served as Deputy Chief Executive
Officer, as well as Group Executive Wealth Australia, overseeing the sale of that business in 2018.
She will join AMP Limited as CEO in Q3 this year, subject to required regulatory approvals.
Mr De Ferrari will continue to lead AMP during the interim period and ensure a smooth handover to
Ms George. He will continue to work in partnership with the Board and lead AMP’s key strategic
initiatives, including discussions on the proposed transaction for AMP Capital’s private markets
business with Ares Management Corporation.
A full copy of the announcement can be accessed here:
https://corporate.amp.com.au/newsroom/2021/April/Alexis_George_appointed_as_AMP_Limited_
Chief_Executive_Francesco_De_Ferrari_to_retire_from_AMP

Required:
(a) An event study is a statistical method to assess the impact of an event on the value of a
company. In other words, event studies can reveal important information about how a security
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is likely to react to a given event. Using the historical data, the Cumulative Abnormal Returns-
CAR 1, CAR 2 and CAR 5 of AMP surrounding the announcement date (1st April) are
calculated as -0.71%, -0.76% and -0.56%. Referring to academic research, how do you
explain the market’s reaction to AMP’s CEO appointment announcement? (Suggested
word count: 150 words)

(b) Aside from AMP’s own results, it is useful to consider how AMP’s peers and competitors
react to AMP’s CEO appointment announcement. Such reactions provide useful industry
context in evaluating how much AMP shares are worth.

Calculate the Cumulative Abnormal Returns (CAR) of ANZ, Westpac and Suncorp
during the event period (attach as Appendix 2):
o From 2 days before to 2 days after the announcement (CAR2)
o From 5 days before to 5 days after the announcement (CAR5)
o From 10 days before to 10 days after the announcement (CAR10)
Use the step-by-step instructions for analysis in Appendix 2, on the page 9 of this document.
After completing the above calculations and analyses (and attaching the results in
Appendix 2), briefly explain the price reaction of ANZ, Westpac and Suncorp to AMP’s
announcement. (Suggested word count: 150 words)

Note: All appendices are excluded from your word count, however, the
information forms the basis of your analysis.
You can copy the appendices from this task sheet to your research paper and format in your
submission. Each Appendix should be on a new page using the page/section break feature.

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Appendix 1: Remuneration arrangements and practices

Corporate Governance Statement
/annual report page reference
Recommendation 8.1
The board of a listed entity should:
(a) have a remuneration committee which:
1) has at least three members, a majority of whom are ☐Yes ☐No ☐N/A
independent directors.
2) is chaired by an independent director. ☐Yes ☐No ☐N/A
3) disclose the charter of the committee. ☐Yes ☐No ☐N/A
4) disclose the members of the committee. ☐Yes ☐No ☐N/A
5) as at the end of each reporting period, disclose the number ☐Yes ☐No ☐N/A
of times the committee met throughout the period and the
individual attendances of the members at those meetings.

(b) if it does not have a remuneration committee, disclose that fact

and the processes it employs for setting the level and ☐Yes ☐No ☐N/A
composition of remuneration for directors and senior executives
and ensuring that such remuneration is appropriate and not
excessive.
Recommendation 8.2
A listed entity should separately disclose its policies and practices ☐Yes ☐No ☐N/A
regarding the remuneration of non-executive directors and the
remuneration of executive directors and other senior executives.

Recommendation 8.3
A listed entity which has an equity-based remuneration scheme
should:
(a) have a policy on whether participants are permitted to enter into ☐Yes ☐No ☐N/A
transactions (whether through the use of derivatives or otherwise)
which limit the economic risk of participating in the scheme; and
(b) disclose that policy or a summary of it. ☐Yes ☐No ☐N/A

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Appendix 2: Cumulative abnormal returns

The step-by-step instructions for your data collection, calculation and analysis appendices are:
1) Gather the following data series:

a. Closing Share Price for ANZ, Westpac and Suncorp.

b. Market Index – All Ordinaries Index

2) Collect a period of three weeks (15 trading days) both sides of the announcement. You can access
historical share prices (closing prices) and All Ordinaries Index (closing index) from
https://au.finance.yahoo.com/

3) Using an Excel spreadsheet to calculate the return (percentage change in price P or the index M) for all
data series as follows:

RetDay1 = [(P1-P0)/P0]
And
Mar RetDay1 = [(M1-M0)/M0]
4) Calculate abnormal returns:

a. Obtain α and β by running a ‘single index model’ regression of the firm’s returns onto the market
returns during a pre-event period (e.g., you MUST use 15 days before the announcement itself
to estimate α and β).

b. Take the α and β and apply it to the data from during the event period (expected returns).

c. Obtain abnormal returns as the difference between the actual return and expected return on a
given day.

d. Sum these abnormal returns obtained during the event period:

• From 2 days before to 2 days after the announcement

• From 5 days before to 5 days after the announcement
• From 10 days before to 10 days after the announcement

Use rounding to 2 decimal places for all calculations (Return on Index, stock returns, Alpha, Beta, CAR2,
CAR5 and CAR10) in the Excel spreadsheet.
Attach your output table (see the template below) into this Appendix 2. Also, you need to submit your Excel
worksheet (do NOT remove formulas in Excel) used to calculate CARs for ANZ, Westpac and Suncorp.

Company Name CAR2 CAR5 CAR10

ANZ
Westpac
Suncorp