Question

CASE

JB Hi-Fi unapologetic on profit downgrade

By Eli Breenblat 8 May 2018

Consumer electronics giant JB Hi-Fi is sticking by its reasoning for releasing a profit downgrade buried deep within a presentation to analysts last week, rather than make a stand-alone statement to the stock exchange. This follows being hit with a “please explain” by the ASX (Australian Stock Exchange) in the wake of the earnings warning that sent its shares plummeting.

JB Hi-Fi yesterday issued its response to detailed questioning from the ASX and the presentation by chief executive Richard Murray at the Macquarie Australia Conference, where during a lengthy talk on the retailer he handed out a 3 per cent revision to its full-year net profit guidance.

The profit warning was contained on page 4 of a 14-page presentation to the conference, and when it was lodged with the ASX on the day it was titled Macquarie Australia Conference Presentation, with no reference to the profit warning.

Shares in JB Hi-Fi sank 10 per cent after the consumer electronics giant cut its profit forecast for fiscal 2018 at the conference, marking the stock’s biggest single-day fall since 2011. The ASX issued JB Hi-Fi with a series of questions over its communication of the downgrade to the market, pushing the retailer to explain why it wasn’t released as a stand-alone statement.

“The company’s revised net profit after tax guidance was a decrease of 3 per cent from the midpoint of the company’s previous NPAT guidance,’’ JB Hi-Fi said in its response to the ASX.

“JBH notes guidance in section 7.3 of Guidance Note 8 issued by the ASX which suggests that companies should treat an expected variation in earnings compared to its published guidance equal to or less than 5 per cent as not being material and presume that its guidance therefore does not need updating.

“JB Hi-Fi did not consider that the information contained in the fiscal year 2018 outlook slide would have a material effect on the price or value of the entity’s securities,” the statement said.

Bruce Smith, principal at Alphinity Investment Management, said he was “surprised” by the ASX’s query of JB Hi-Fi. “I’m surprised by it considering the announcement on earnings fell short of the ASX’s own definition of materiality,” he said. “While the share price move was a little greater than the downgrade, that was something that could not be known by the company in advance.”

Question 5: Some academics have criticised the accounting profession for acting to legitimise the capitalist system (supposedly by supporting the “haves” against the “have nots”. Indicate whether the case study supports the critical view of accounting, or whether it doesn’t. Use the case study to support your answer.

Answer 1

Answer:

Some academics have criticized the accounting profession for acting to legitimize the capitalist system (supposedly by supporting the “haves” against the “have nots”).

Yes, the case study supports the critical view of accounting with the scenario mentioned in the given case study. The case study shows how the in-appropriate accounting approaches are used by a large electronic business player for showing their earned revenue and profits. The firm does not show their earned figures properly and they have misused the accounting principles.   

Accounting should be used in a genuine sense so that the real picture of the financial business can be presented to the out world and the shareholders. But many businesses they uses the inappropriate approaches in the accounting processes and the outcomes they are showing to the market is not the genuine and real picture of the business. It is manipulated picture of the accounting processes. The key reason for this is that every business wants to explore the best of laws and rules for their best possible benefits. Thus they try to explore accounting process in an extreme condition so that they can generate highest benefits for the business and shows the lowest taxes and other penalties to the government or their share holders.

In the above case JB Hi Fi Electronic business releases a profit downgrade statement for their firm. For that action, they get a reply from ASX to explain their reporting systematically. Then in reply to ASX, they have revision for 3% for their full year net profit. But this change they have reflect post query from ASX. Thus it is an inappropriate approach of the business and ASX had query over that approach. This resulted in 10% decrease in share prices. Thus this case study shows that the JB Hi Fi have not reported proper accounting and have not reflected the right report and against that the ASX had many question and they had asked the JB Hi FI to reply against their question on the report they have submitted. This shows that the case study shows the critical view of accounting in the case study between ASX and JB Hi Fi business group.