Question

Perform a key stakeholder analysis for an ASX listed company. Explain how the key stakeholders would be affected if material misstatements are not properly identified, disclosed or adjusted for in the finalised financial statements. What are the key risks posed to each key stakeholder you have identified? (300 - 400 words)

Answer 1

An ASX listed company that I have considered is AIC RESOURCES LTD. (ASX Code – A1C). The company explores for and develops mineral properties throughout Australia. Its primary business is exploration for gold and base metals.

Material misstatements are that information in the financial statements that are not cent percent accurate and that remains sufficiently incorrect. AIC Resources Ltd. has different stakeholders like employees, vendors, lenders, creditors, investors, stockholders etc. The impact of material misstatements not being properly identified, disclosed or adjusted for in the finalized financial statements will mean that the stakeholders related to AIC Resources Ltd. will work with the company on the basis of incorrect information at their disposal. Hence the decisions being taken by the stakeholders will not at all be optimal and this will increase their risk exposure both in the short run as well as the long run. Different stakeholders rely on the financial statements of AIC Resources Ltd. for different purposes when making economic decisions related to the organization. If the material misstatements are not properly identified, disclosed or adjusted for in the finalized financial statements then the stakeholders will end up taking economic decisions that are not correct or that are not optimal keeping their economic interest in mind and in consideration.

The key risk for investors is the capital risk. Investors put their money in a company based on the financial statements of the company. Investors assess the financial health and determine the value of a company on the basis of its financial statements. Take an example where revenues are misstated and are stated in an inflated manner. This will mislead investors to buy more stocks of AIC. Risks for lenders and creditors will be that they will be persuaded to make wrong lending decisions. For example if a company misstates its EBIT figures (earnings before interests and taxes) then its reported ‘interest coverage ratio’ will be higher than the correct or actual ratio. This scenario will lead banks, financial institutions and creditors to extend more credit to AIC and this will lead to credit risk for these institutions as they will stand to lose their money. Risks for suppliers and vendors is that their payments can get delayed or stuck for much longer period of time than anticipated or promised by AIC.

(381 words).