The following summary includes extracts from these articles:

Cereal and snack-maker Freedom Foods is being investigated by the corporate regulator ASIC for a series of "significant" accounting problems.1

The company restated its 2019 accounts from a profit of $11.6 million to a loss of $145.8 million. The business lost $174.5 million in the year to June 2020. The total net asset write-downs and restatements of $590 million are to cover 2020 and prior years.2 The question for shareholders is: Does Freedom Foods have a viable business? It is clear from the accounts that all of the previous profit margin disclosures were rubbish. The company was making products at a loss because of its capitalisation of expenses. 1

Freedom shares were suspended from trading.2

Freedom's board received a frosty reception from shareholders at a hastily convened webcast on Monday evening, following the news. Callers questioned company oversight and the scope of the $590 million write-down, of which $372.8 million is linked to asset values being slashed.

It was explained that Freedom has incurred enormous costs building machinery to handle its new product lines, but did not put it down as an "expense" in its books. The company also wrote down its goodwill and brands by $75.9 million. It also had to write down $60.1 million due to "out-of-date, unsaleable and obsolete inventory".1 The auditor said that after investigating the company's financial reporting process and relevant controls it "identified significant control deficiencies and determined that a substantive approach was appropriate". It was kindly pointed out by the auditor that it was the responsibility of the board of directors to ensure the accounts provided a true and fair view, that the company had internal controls necessary to enable the preparation of such accounts, and were free of material misstatements.1

"These accounting treatments contributed to decisions on new products and expansions that were based on unrealistic assessments of market opportunities and margin assumptions that were not realised," Freedom said in a statement. 2 Shareholders will be happy to know at the new-look Freedom Foods that only directly attributable expenses will be capitalised and assets will start to be depreciated when regularly producing saleable product.1

ACC3116 -Accounting & Society - Assignment - Applied Theory

Due: 11:59 pm 27th September 2021 - Marked out of 100 - weighting 35

marks

3

A class action has been launched against Freedom Foods Group Limited, and their auditors Deloitte. The class action, which was filed in the Victorian Supreme Court, is brought on behalf of shareholders who acquired securities in Freedom Foods Group between 7 December 2014 and 24 June 2020. The class action alleges shareholders suffered losses following the company's recent ASX announcements relating to material write-downs in asset valuations and restatements of prior year financial results. "The class action alleges that Freedom Foods contravened its continuous disclosure obligations by failing to keep the market informed of price-sensitive information relevant to its FY20 and historic financial performance, and further that it made statements to the market which were misleading or deceptive," Slater and Gordon practice group leader Emma Pelka-Caven said.3 The class action also alleges that auditor Deloitte engaged in misleading or deceptive conduct in making statements regarding the financial accounts of Freedom Foods throughout the claim period. Deloitte had also identified significant irregularities in the company's accounts going back a number of years as part of the 2020 financial report issued on 30 November. It is alleged Deloitte had devised an auditing strategy that treated substantial expenditures incurred by Freedom Foods as capital assets, enabling the cereal maker to report steadily growing profits instead of huge losses.3 Freedom Foods (ASX: FNP) and its auditors Deloitte have been hit with a second class action with law firm Phi Finney McDonald (PFM) alleging the company misled shareholders. Backed by litigation funder Omni Bridgeway (ASX: OBL), the class action is brought by Lester Buch on behalf of shareholders and alleges that Freedom Foods improperly capitalised certain expenses and failed to write off certain inventory. PFM claims these accounting practices, signed off by Deloitte, contravened accounting standards and resulted in FNP significantly overstating its financial position and performance in its annual and half yearly reports. Shareholders who owned securities in the snack maker between 7 December, 2014 and 24 June, 2020 are able to participate in the class action. "Mr Buch brings this action over allegations of significant disclosure failures by Freedom Foods and misleading and deceptive conduct on the part of both Freedom Foods and Deloitte," says PFM.4

Freedom Foods' Half Year Financial Report for 31/12/2020 includes the following notes:

The Group obtained a waiver from its financiers with respect to non-compliance with lending covenants at 30 June 2020 (p. 6).

Two separate class action proceedings were commenced against the Group and its auditor, Deloitte Touche Tohmatsu, alleging breaches of the Corporations Act 2001 (Cth), Australian Securities and Investments Commission Act and Australian Consumer Law. The Group has appointed Arnold Bloch Leibler to defend the actions. The class actions are at a very early stage and apart from the associated legal costs incurred as at 31 December 2020, no provision is recognised in the financial statements. (p. 11).

ACC3116 -Accounting & Society - Assignment - Applied Theory

Due: 11:59 pm 27th September 2021 - Marked out of 100 - weighting 35

marks

4

Requirements

1. It was said, "Freedom has incurred enormous costs building machinery to handle its new product lines, but did not put it down as an 'expense' in its books."

a. To what extent does this statement reflect the definition of an asset under the Conceptual Framework? 5 Marks

b. What extra information in AASB116 is crucial in deciding which costs of building machinery should be capitalised and which should be expensed?

5 Marks

c. What does this "error" illustrate about the application of accounting standards?

4 Marks

[Modules 2 and 4]

2. a. Select an accounting measurement approach under the Conceptual Framework that you believe should be used to measure the machinery in Freedom Foods' accounting records and explain why you have selected this measurement value option. 6 Marks

b. Additionally, outline any difficulties in applying the Measurement approach you have selected. 6 Marks

[Module 4]

3. Freedom Foods wrote down its goodwill and brands. Outline some of the issues that create difficulties when valuing goodwill and brands. 8 Marks

[Module 4]

4. Describe how the following theories may be used to help explain the reasons for the "errors" in Freedom Foods' accounts:

a. Legitimacy theory 10 marks

b. Institutional theory 10 marks

[Modules 5 and 6]

5. Freedom Foods is facing two class actions. Briefly explain how and why managers' (1) horizon and (2) risk aversion problems may provide an explanation of the very brief details provided about the class actions. 14 marks

[Module 5]

6. The class actions are being brought on behalf of shareholders.

a. Identify four other stakeholder groups that may be affected by the actions of Freedom Foods. 6 marks

b. Review your list of stakeholders identified under 6. a. What does stakeholder theory suggest regarding which stakeholder groups are given attention by managers?

6 marks

[Module 5]

ACC3116 -Accounting & Society - Assignment - Applied Theory

Due: 11:59 pm 27th September 2021 - Marked out of 100 - weighting 35

marks

5

7. The Freedom Foods' Half Year Financial Report for 31/12/2020 states "The Group obtained a waiver from its financiers with respect to non-compliance with lending covenants at 30 June 2020." Explain what agency theory suggests regarding how managers may respond to debt covenants. 8 Marks

[Module 5]

8. It was "pointed out by the auditor that it was the responsibility of the board of directors to ensure the accounts provided a true and fair view, that the company had internal controls necessary to enable the preparation of such accounts, and were free of material misstatements". Explain what processes the board of directors could have implemented to help ensure that accounts are true and fair with reference to the ASX Principles of Corporate Governance. 12 Marks

[Module 7]

Maximum word limit 2500 words to answer the requirements