A consideration of the reporting boundary at Brucester & Co. Imagine that there is a large Australian organisation called Brucester & Co. that imports various surfing-related goods from companies located in Indonesia and Vietnam. It stores the imported products in its large warehouses in Torquay, Victoria, until the goods are transported to various retailers by a company that is a fully owned subsidiary of Brucester & Co. Brucester & Co. employs approximately 100 people in Torquay. It has a policy of employing, where possible, people with various disabilities who might not easily gain employment elsewhere. The organisation also tries to contribute positively to local communities, and it currently sponsors a number of sporting clubs. Surfing is, by nature, a relatively risky sport, and Brucester & Co. has also taken action to design surfing products to reduce the risks to customers. The organisation has outsourced the manufacturing of its products to developing countries because it can get good-quality products at much lower costs. However, various issues have been raised about the treatment and health and safety of employees in these developing countries, which is of concern to the managers of Brucester & Co.

Setting an appropriate reporting boundary The organisation necessarily needs to do some accounting, but it needs to consider its reporting boundary. Using the simple diagram in Figure 2.1 that outlines how far Brucester & Co.’s reporting boundaries could be extended, we can consider if Brucester & Co should only consider accounting for its own financial performance and position (the innermost circle), or whether it should extend its financial reporting to include its fully owned subsidiary (the two innermost circles). This would generally be the full extent of the reporting boundary for financial reporting purposes.

Figure 2.1

Determining where to set the reporting boundary is clearly not always a straightforward exercise. This decision will link back to the question about why an organisation is reporting. Think back to the accountability model we introduced in Chapter 1 and its four related phases:

• Why report?

• To whom to report?

• What to report?

• How to report?

If an organisation is only reporting because managers want to provide information to owners, and if these owners prioritise financial performance, then managers might restrict the reporting boundary to the first or second innermost circles and the reporting itself to financial reports. However, if the reason that managers are collecting the information is because they want to monitor and improve the broader impacts of their operations on stakeholders across the supply chain, then the focus of the accounting might extend to the outer circles of Figure 2.1. What this means is that the more the managers of an organisation widen their responsibilities and accountabilities (for example, to local communities and perhaps to employees in overseas supply factories), the more information they will ultimately collect, analyse and report.