Disclosing entities are regulated by the Corporations Act (2001), Accounting Standards and ASX requirements. The continuous disclosure requirements in ASX LR 3.1 require timely reporting to the ASX of significant events and financial information that is likely to impact the price of the entity’s securities. ASX LR 3.1 contains an overriding general requirement to disclose information that a reasonable person would expect to have a material effect on price, however the rule includes the following exceptions:

• It would breach the law to disclose information
• The information relates to an incomplete proposal or negotiation
• The information comprises matters of supposition or is insufficiently definite to warrant disclosure
• Information is generated for internal management of the company
• Information is a trade secret
• A reasonable person would not expect the information to be disclosed
• The information is confidential and ASX has not formed a view that has ceased to be confidential.

Immediate notification to the ASX is required when particular instances occur (these are listed in LR 3.1) and includes:

• The fact that the entity’s earnings will be materially different from market expectations.

Part I (guide 500 words)

Using the consolidated financial statements of Surfstitch Ltd, comparing the 2015 and 2016 Annual Reports comment on:

1. The recent financial predicament facing Surfstitch Ltd (1 paragraph).
2. The 2015 Goodwill, The Investment in Subsidiary, the cash position and
3. The 2016 Profit and Loss Statement with particular reference to Impairment costs, Selling & Distribution and Administrative expenses.
4. Based on your analysis, and BEFORE knowledge of the recent share price decline and share trading halt, would you have recommended to your clients to buy, hold or sell Surfstitch shares? Why?

Part II (guide 1500 words)

After reading the attached documents, newspaper articles and research papers, answer the following question:

Why is it necessary to have a continuous reporting regime for disclosure entities and is it effective?

Do you agree? Why or why not?

Note, there is not one correct answer to this question.  You will need to commence your research using the above three articles, and then supplement that with your own research. Check the marking scheme for further guidance.