Ethical Issues and Social Accountability In Accounting

Question : Groups are to research one specific issue of their choice relating to accounting related ethics and social accountibility that is prominent in today's Australian Business Environment. As a result of their research groups need to develop a report format response detailing the issue, including examples and explaining the implications for various stakeholders. The response should conclude with supported specific recommendations as to how organisations and their accounting advisors should proceed in light of the analysis. Answer : Introduction We need to report out a Comparison of two different companies form the same industry listed in Australian stock exchange. For this analysis we have chosen: Caltex Australia limited Austex Oil Limited To do the necessary comparisons, the two companies chosen are from the same industry i.e. Oil exploration. Executive Summary Caltex Australia limited is the parent company of the Caltex Australia Group. This entity is listed on the Australia Stock Exchange (ASX). Caltex is operating in Australia from more than 100 years. This Company is known in Australia for providing on-going, reliable, safe and efficient fuel supply to our customers. This group controls many other wholly owned entities and other companies including Caltex Australia Petroleum Pty Ltd, Caltex Refineries (NSW) Pty Ltd, Caltex Refineries (Qld) Pty Ltd, Caltex Petroleum Services Pty Ltd and Calstores Pty Ltd. Companies 50% of the shares of Caltex is owned by Chevron. Caltex is one of Australia's leading transport fuel suppliers and convenience retailers. Caltex decision making relies in the hand of Caltex Board and management. The employee strength of the Company extends to more than 3700 employees working all over the country with head office in Sydney. The principal activities of Caltex includes purchase, refining, distribution and marketing of petroleum products and operating convenience stores throughout the country. This Company has two oil refineries one at Kurnell refinery in Sydney and another at Lytton refinery in Brisbane. These refineries are engaged in the production of petrol, diesel and jet fuel. Along with the above products small amounts of fuel oil and specialty products, liquid Petroleum gas (LPG) and other gases are also produced by these refineries. Caltex is also involved in marketing of refined products that it buys from the open market both overseas and locally, and along with the main products that Caltex refines across retail and commercial channels. These products are reaches to the customers via a network of pipelines, terminals, depots and company-owned and contracted transport fleets. (Annual Report of Caltex Australia, 2013) On the other hand, Austex oil limited is an oil and gas producing Company with its major operations in Oklahoma and Kansas, in the mid-continent of the United States of America. This Company though its two wholly owned subsidiaries, International Energy Corporation (Oklahoma) and International Energy Corporation (Northern Oklahoma) operates lease in Oklahoma. This Company with the passage of time is in the process of raising development capital in order to quire and develop oil and gas lease in USA. At Oklahoma site the oil and gas production is expected to increase as the company continues to develop new wells with an intention of growth. At this site the Company has in total drilled 18 new Vertical production wells (not all were producing during the year) during the year and 3 new Salt Water Disposals well and production hub was completed. In Kansas site, the oil and gas project are held by International Energy Corporation (Kansas) (IEC-KS) in a joint working interest arrangement with Castle Resources LLC, which is the operator of the leases. The Company during the year was engaged in the drilling of 3 additional wells. (Annual Report of Austex Oil Limited, 2013) Discussions Both the Companies i.e. Caltex Australia limited and Austex Oil Limited are listed in the Australian Stock exchange. However, Caltex Australia limited has its major operations in Australia, the Austex Oil Limited has is operations in USA. Both these Companies belong from the same industry but there is different in the operations. Caltex limited in involved in purchase, refining, distribution and marketing of petroleum products and the operation of convenience stores means this Company through its stores deals directly with the end user that is the consumers. On the other hand the Austex limited is involved in exploring oil and gas with selling its end products to other companies. So Austex doesnt deal directly with the end users. While reviewing the accounting policies of Caltex limited, it is noticed that it complies with the environmental provisions applicable on the company. All the necessary accruals related to environment is been made and these accruals re adjusted based on further information and circumstances. If any recovery is been made from the third party same is been accounted for when it is certain that the amount will be recovered. Any cost that has been incurred in complying with the environmental regulations and on-going maintenance and monitoring are expensed as they are incurred. On the other hand in case of Austex Limited, the meeting of environmental regulations at the same time is more important being they are involved in extraction and use of natural resources. Any environmental expenditure incurred by the company that prevents any future contamination or that costs lead to any improvement in the environmental safety or increases the efficiency of the existing assets, then the cost so involved will be capitalised. If nay accrual is being booked for any environmental liabilities, the accrual will be based on estimated future expected cost. When it comes towards the corporate social responsibility, the Austex limited in its financials has not highlighted any point pertaining to its responsibility towards the society. On the other hand Caltex limited was very clear in this front. They have stated that they will work for sustainable growth and for shareholders value. They will extend their efforts towards reducing the impact of their operations towards environment. This Company has its own health and safety policy. This policy of the Company is approved by the OHS Environmental Risk Committee, and this committee requires Caltex to provide a safe and healthy workplace for all our people. This OHS Committee also motivates the Company to operate in a way that it will not adversely affect the health and safety of its neighbours, customers or the public. The Company also emphasis on health and safety measures and ensures that the same is embedded in the business planning process and entrenched in the culture of the organisation. Ethics in accounting are concerned with making the preparation, presentation and disclosure of financial information better in all regards. The financial statements of the Companies are important for the various stakeholders such as shareholders, money lenders, Banks, financial institutions and many others. So ethics in accounting will make the financial information in the statement better in all regards for these people, as these people rely on this statement before taking any financial decisions. Most financial accounting activities seem too concerned with matters like maximising shareholders wealth, helping distant and remote financial market and many others. The financial accounting has no obvious social and environmental interest. When comparing both companies financially, it came across that in terms of sales revenue Caltex ($24.6m) is way ahead of Austex ($16.9m). But this is not the correct factor to judge the performance of the Company. The Gross profit ratio of Austex limited comes at around 70% whereas the Gross profit ratio of Caltex just not stands near the Austex, it is around 7%. (Approx. 10 times of Austex GP ratio). There is difference in the primary activities of the Companies. Considering this factor, the expenses of Austex limited will be on a higher side as compared to Caltex limited being Austex is involved in exploring natural oil and gases. Considering the above factors when the net profit of both the companies are compared, it is found Austex limited went into losses amounting to $ 1.1m, whereas Caltex was having some profits amounting to $528K. The Austex limited is expected to increase its oil and natural gas exploration as the company continues to develop new wells with an intention of growth. Considering this vision of the Company, it has acquired more capital from the public during the year. ISO stands for International Organisation for Standardisation. This is the organisation that provides tools for managing and tackling the global challenges of todays modern world. (Website of ISO) ISO works for sustainable development that is providing the resources for meeting the present requirements without compromising the ability of future generations to meet their own needs. ISO 14000 forces on environmental management systems. This ISO provides tools to the companies that will help them to improve their environmental performance and control their environment impact. This ISO provides framework to the companies to set up an effective environmental management system. Management, employees as well as external stakeholders can rely on this ISO for ensuring that the environmental impact is being measured and improved. The benefits of using ISO 14001 can include: Reduced cost of waste management. Savings in consumption of energy and materials Lower distribution costs Improved corporate image among regulators, customers and the public. Caltex Australia limited follows that ISO 14001. The Companys annual report is printed on an environmental responsible paper manufactured under the environmental management system. (ISO, 2014) ISO 26000 provides all the necessary guidelines to the companies so that they can operate effectively in the socially responsible way. By following the guidelines, the companies in todays world can act ethical and transparent way. By doing so, the company can contribute to the health and wealth of the society. Caltex being a company works to deliver sustainable growth and shareholders value. This company works in such way so as to ensure maximum growth for the investors and minimise its impact on the environment. (ISO, 2014) The conventional financial accounting is designed in such a way that it more likely to cause harm to society and to the environment. The profits of the companies are growing at the inevitable expense of social and environmental damage. Caltex Limited has tried to stop the above practise. Caltex limited has participated in the Commonwealth Energy Efficiency Opportunities Scheme and reported under the National Greenhouse and Energy Reporting Scheme and under the Carbon Disclosure Project. This kind of participation is important for the companies who wanted to address social responsibility. ISO 50001 stands for Energy management This ISO helps the organisation to save money by becoming energy efficient. This ISO provides different guidelines to conserve the resources and tackling the climate change. This ISO through various energy management systems tend to supports organisations in all sectors to become more energy efficient. ISO 50001 provides a framework of requirements for organizations to: Develop a policy for ensuring more efficient use of energy. Fix targets and objectives to meet out the policy. Use the data better in order to understand and make decisions about energy use. Measure the results. Review how well the policy so designed above works, and Continually improve energy management tool. As we all are aware in todays competitive world every organisation is planning to reduce is expenditure and energy is one of the major source which is being used by mostly all the companies to convert their raw material into finished goods. Through these energy management systems, the companies can plan to curtail its energy expenses. This is beneficial from financial as well as important for social prospective as it will help the companies to conserve the resources and tackle the climate change. Conclusion Considering the above points of discussions and looking at the financials state of both the companies and the ISO standards applications, The Caltex Australia Limited stands far better than Austex Limited. Caltex Limited has a strong background; this company is established in Australia from past more than 100 years. This Company through its convenience stores has reached to the ultimate customer and basis to their needs they have made necessary changes within its policies. Caltex limited is flowing ISO14001 and is meeting its corporate social responsibility with high stands. Caltex limited is profit wise more solid than with Austex limited, its strength is quite visible from its financials. References Annual Report of Caltex Australia, 2013; Available at: https://www.caltex.com.au/InvestorCentre/Documents/2013/2013%20Annual%20Report.pdf Annual Report of Austex Oil Limited, 2013; Available at: https://www.austexoil.com/irm/content/pdf/AusTex-2013-Annual-Report.pdf Official Website of ISO; Available at: https://www.iso.org/iso/home.html ISO 14000 Environmental Management; Available at: https://www.iso.org/iso/home/standards/management-standards/iso14000.htm ISO 26000 Social Responsibility; Available at: https://www.iso.org/iso/home/standards/iso26000.htm ISO 50001 Energy Management; Available at: https://www.iso.org/iso/home/standards/management-standards/iso50001.htm ISO Standards in action; Available at: https://www.iso.org/iso/home/news_index/iso-in-action.htm