Critiquing Samsung's Annual Report: A Comparative And Ethica

Critiquing Samsung's Annual Report: A Comparative and Ethical Analysis

This report provides a comprehensive critique of Samsung Electronics' annual reports from 2015 to 2017, focusing on transparency, compliance with accounting standards (AASB and IAS), corporate governance, social responsibility, and ethical practices. Drawing from multiple internal documents—Samsung Patrick, Samsung Kanchan, Samsung Phoebe, and Samsung Quan—it seeks to identify discrepancies, omissions, or misrepresentations. The report juxtaposes Samsung’s disclosures against external opinions, media reports, and relevant standards, particularly emphasizing the incidents related to the Galaxy Note 7 crisis, legal proceedings, depreciation methods, inventory practices, and social responsibilities. The aim is to rigorously evaluate whether Samsung’s annual reporting reflects a true and fair view, considering both internal evidence and external critiques, and to provide a Fair and Critical analysis based on the AASB Standards.

Table of Contents

  1. Introduction of Samsung Company
  2. Inventory
  3. Profit
  4. Contingent Liability
  5. Method of Depreciation
  6. Sales Returns Comparison
  7. Effect on Earnings Per Share
  8. Ethics in Corporate Governance
  9. Accounts Receivable & Provision for Bad/Doubtful Debts
  10. Sustainability
  11. Conclusion
  12. References

INTRODUCTION OF SAMSUNG COMPANY

Samsung Electronics, founded in 1969 in Suwon, South Korea, initially commenced as a trading company specializing in dried-fish exports. Over the decades, Samsung transitioned from a small fish trading business to a global leader in consumer electronics, telecommunications, and information technology. Its meteoric rise symbolizes South Korea’s rapid economic development, with Samsung now recognized as one of the world's largest electronics manufacturers. The company's evolution from selling fish to manufacturing smartphones, semiconductors, and appliances showcases a strategic shift towards high-value, innovative technology products. Today, Samsung’s brand represents technological innovation and consumer trust, yet it faces ongoing scrutiny regarding corporate governance, transparency, and social responsibility, especially following high-profile crises such as the Galaxy Note 7 recall and legal disputes. These incidents have cast shadows over its commitment to true and fair reporting, as external opinions suggest inconsistencies between Samsung’s disclosures and reality, raising questions regarding adherence to the accounting standards like AASB and IAS, and the ethical integrity of its corporate culture.

Inventory

Reviewing Samsung’s inventory disclosures (Samsung Phoebe Docx), the company claims to value its inventory at the lower of cost and net realizable value in accordance with IAS 2. However, external reports and the internal documentation reveal inconsistencies. During the Galaxy Note 7 recall in 2016, Samsung failed to recognize significant write-downs for returned and unsalable inventory, which is a breach of IAS 2 requirements (IAS 2, 2017). The company’s annual report mentions a low net realizable value but lacks detailed disclosures about the total write-down amount and the impairment losses incurred due to the recall. Such omissions hinder fair representation and transparency. Moreover, snapshots of inventory levels, including recalled models, appear understated, indicating that Samsung might not be fully complying with the prudence principle mandated by AASB 102. External critiques, including media investigations, suggest Samsung delayed recognizing inventory impairments, artificially inflating asset values, thus undermining true and fair presentation.

PROFIT

Samsung’s profit figures, notably in 2017, show a significant increase from $139.66 to $265.12 per share (Samsung Phoebe Docx). This rise appears consistent with enhanced revenues driven by successful product launches such as the Galaxy S8. Nonetheless, external assessments indicate that Samsung engaged in aggressive expense management, including underreporting warranty costs and delaying recognition of legal liabilities, such as the Galaxy Note 7 recall expenses. Analyzing the income statement in tandem with external news, the profit margin may be inflated, as the company failed to fully account for the costs associated with the recall, legal disputes, and potential environmental liabilities. External opinions, including analyst critiques, argue that Samsung’s reported profits overstate the true profitability and do not entirely reflect potential future liabilities (Reputation Institute, 2017). Therefore, the profit figures may lack the level of prudence and faithful representation to be deemed truly reflective of the company’s financial position.

CONTINGENT LIABILITY

According to Samsung Patrick Docx, the company did not disclose any provisions for legal contingencies or lawsuits, such as patent infringements from Apple or Huawei, which resulted in potential damages exceeding $131.6 million (Kastrenakes, 2017; Chong, 2017). Under AASB 137 and IAS 37, companies are required to recognize provisions when it is probable that an outflow of resources will occur and amounts can be reliably estimated. External sources and media reports confirm that Samsung was aware of substantial legal risks, especially in patent disputes, yet failed to make adequate provisions in its financial statements. This omission suggests non-compliance with the standards for recognizing contingent liabilities, leading to an understatement of liabilities and overstatement of net assets. Further, the conduct raises ethical concerns about transparency and faithful representation, as stakeholders are deprived of crucial legal exposure information.

METHOD OF DEPRECIATION

Samsung reports using the straight-line method for depreciation (Samsung Patrick Docx), which aligns with AASB 116's requirement for systematic allocation of the asset’s depreciable amount over its useful life. External critiques, however, question whether the useful lives assigned to assets, especially for high-tech equipment and intangible assets, accurately reflect economic realities. If Samsung applies uniform straight-line depreciation without considering technological obsolescence or diminishing utility, it may overstate asset values and profits. Furthermore, some external signals, such as rapid product cycles and technological changes, suggest a need for accelerated depreciation methods to better match consumption of economic benefits, highlighting a potential deviation from fair presentation.

SALES RETURNS COMPARISON

Samsung’s annual report conspicuously lacks detailed disclosures on sales returns, especially following the 2016 Galaxy S7 recall due to battery explosions (Dolcourt, 2017). External reports indicate that sales returns and warranty costs spiked significantly, yet these figures are either omitted or understated in the financial disclosures. Such lack of transparency hampers users’ ability to assess true profitability and operational performance, contravening IAS 18’s requirement to disclose revenue-related contingencies. The omission suggests that Samsung might be deliberately obscuring the impact of product recalls and warranty claims, thereby misrepresenting the true financial health of the company.

EFFECT ON THE EARNINGS PER SHARE (EPS)

Despite significant product recalls, legal issues, and social criticisms, Samsung reported an increase in EPS from $139.66 in 2016 to $265.12 in 2017. External analysis indicates that the rise may partly result from cost management strategies, such as delaying expense recognition and underreporting recall expenses. These practices distort the economic reality, contravening the principles of faithful representation and prudence in financial reporting. Analysts and external commentators assert that the inflated EPS figures do not reflect the actual earnings capacity, especially considering potential future liabilities stemming from legal suits and environmental issues.

ETHICS IN CORPORATE GOVERNANCE

Samsung’s history encompasses significant ethical challenges, notably the 2016 bribery scandal involving former President Park and its leadership (Samsung Quan Docx). External watchdogs and media reports criticize the company for inadequate transparency, corporate governance lapses, and unethical practices that prioritize short-term gains over stakeholder interests. Despite publicly committed corporate social responsibility initiatives, internal practices such as delayed provision for legal liabilities, non-disclosure of sales returns and inventory impairments, and involvement in bribery scandals, suggest misalignment between reported disclosures and actual practices. This misconduct undermines trust and the essential trustworthiness of the annual reports, raising questions about whether Samsung adheres to the ethical standards required for fair reporting.

ACCOUNT RECEIVABLE & PROVISION FOR BAD/DOUBTFUL DEBTS

Samsung’s receivables and provisions for doubtful debts lack detailed disclosures and aged analysis, as indicated in internal documents. External critiques suggest the company is overly optimistic in its provisioning, potentially underestimating uncollectible receivables. During 2016–2017, Samsung’s credit risk management appeared lax, especially in regions heavily impacted by economic downturns. The provision for doubtful debts is not thoroughly disclosed, which contravenes AASB 136, and could lead to an overstatement of current assets and profitability. External opinions warn that understated provisions undermine stakeholders’ ability to accurately assess the company's liquidity and credit risk.

SUSTAINABILITY

According to Samsung Kanchan Docx, the company claims robustness in its sustainability reporting, emphasizing eco-friendly manufacturing, recycling efforts, and social responsibility. Nonetheless, external evaluations, including Greenpeace and environmental NGOs, criticize Samsung for insufficient recycling and waste management plans especially post-Note 7. The company’s recycling estimates for rare earth minerals are optimistic; real recovery rates remain questionable, and actual disposal practices cast doubt on environmental claims (Greenpeace, 2017). External assessments also highlight the environmental impact of waste generated by recalls and manufacturing, which Samsung’s public reports tend to minimize or omit. This discrepancy reveals a gap between corporate claims and environmental performance, indicating a potential lack of genuine sustainability.

CONCLUSION

Based on the comprehensive analysis, Samsung’s annual reports from 2015 to 2017 demonstrate several areas of concern regarding true and fair presentation. While the company generally complies with basic AASB and IAS standards in some aspects, notable discrepancies and omissions—such as underreporting of inventory impairments, legal liabilities, and sales returns; inflated profits and EPS; and inadequate environmental disclosures—call into question the full transparency and faithful representation of its financial position. External critiques, legal scandals, and environmental assessments suggest that Samsung’s reporting may be driven by a desire to present a more favorable image, potentially violating the core principles of integrity and honesty in financial disclosures. Therefore, despite some compliance, the overall annual reporting lacks full authenticity, and a cautious, critical approach reveals an illustrative picture of selective transparency and potential misstatement, thereby jeopardizing stakeholders' trust.

References

  • Chong, Z. (2017). Samsung to pay Huawei $11M for patent violations, court rules. Available at: https://www.theverge.com/2017/4/19/15367682/samsung-huawei-patent-royalty-lawsuit
  • Dolcourt, J. (2017). Samsung Galaxy Note 7 recall: Here's what happens now. Available at: https://www.cnet.com/tech/mobile/samsung-galaxy-note-7-recall-what-happens-now
  • Kastrenakes, J. (2017). Apple has finally won $120 million from Samsung in slide-to-unlock patent battle. Available at: https://www.theverge.com/2017/3/24/15052000/apple-samsung-patent-lawsuit-settlement
  • Samsung Annual Report. (2017). Consolidated Financial Statements. Available at: https://images.samsung.com/is/content/samsung/p5/global/ir/reports/2017/Samsung_Electronics_FS2017.pdf
  • Greenpeace International. (2017). Samsung’s Recycling and Waste Management Practices. Available at: https://www.greenpeace.org/international/blog/samsung-e-waste
  • IAS 2 Inventories (2017). International Accounting Standards Board. Available at: https://www.ifrs.org/issued-standards/list-of-standards/ias-2-inventories
  • AASB 136 Impairment of Assets (2010). Australian Accounting Standards Board. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB136_07-4_COMPjun10.pdf
  • Reputation Institute. (2017). Corporate Social Responsibility Ranking. Available at: https://www.reputationinstitute.com/research/CSR-ranking
  • Choi, S. (2016). South Korea’s Samsung bribery scandal and corporate governance. Journal of Business Ethics, 138(2), 361–375.
  • iFixit. (2017). Rare Earth Mineral Recycling Rates and Product Disassembly. Available at: https://www.ifixit.com

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