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AHCBUS408 Operate Within A Budget Framework Assignment Sample

Instructions to Students to complete the assessment tasks.

There are 3 scenarios included in this case study. Prior to commencing the task, you must read these scenarios and complete the given 8 tasks.

Scenario 1

Case Study

Section 1 - Natural resources (climatic, soil and topographic suitability)

Section 2 - Operational considerations

Section 3 -Marketing (macro- and micro-economic conditions, proximity to markets, distribution and logistics)

Section 4 Income statements 2009/2010 and 2010/2011

Section 5 - Balance sheet 2009/2010 and 2010/2011

Section 6- Development budget for the farm

Scenario 2 Section 1

June quarter Budget

Section 2- Comparative analysis report

Section 3

Profit and loss statement – June quarter

Scenario 3 Section


Assessment Tasks to be complete by the student.

Task 1

Identify at least 2 priorities, in relation to the organisation’s vision and plans. Record these priorities.

Task 2

Identify, and record, the sources of income listed in the above financial records and at least two new sources of income.

Task 3

Reviewed the budgeted income and expenditure and compared to actuals.

Task 4

Estimate the expenditure for new initiatives and expansion. Record these estimates. Request budget variations to suit the organisational needs. Document this request.

Task 5

Compare the actual sales and expenditure figures to the enterprise budget. Provide this comparison.

Task 6

Check the financial reports to ensure the operations are within the forecast limits, adjusting the expenditure to meet the financial targets, as required. Record expenditure adjustments.

Task 7

Record and report the actual and the potential variations in the budgeted income.

Task 8

Develop, and document, recommendations to address the budget variations.


Task 1: Identification of 2 priorities associated with the business vision and plans

Organisational Vision

Acutts’ Family Farm is an Agricultural business conducted through a partnership between S.G Acutt and J.A. Acutt. The vision of the farm is to deliver organic fruits and vegetables to the people living across Australia along with the expansion of the business to other internal markets.

The micro-environmental factors indicating growing demand for wine and increasing household income of consumers indicate a good opportunity for the farm to accomplish the vision. Moreover, expanding the market in the international platform for Australian wine along with a low-interest rate offers a good opportunity for the farm for expansion (Taken from the given Case study). Therefore, Acutts’ Family Farm plans operations and production that would support the business to grow internationally along with expanding in Melbourne.

In the context of achieving the business vision, Acutts’ Family Farm needs to create and follow an effective business plan with aligned objectives and a time frame for assignment file

Objectives associated with the vision

- To increase productivity by 10% by the next 6 months
- To enhance sales margin by 10% within the upcoming 4 months
- To reduce the cost of labour by 20% within the year-end
- To increase the revenue (income) by 25% by the end of the year

Priorities associated with the business vision and plans

It can be analysed from the business that the following priorities must be planned and analysed by the firm to accomplish the objectives and continue the business plan.

- Production of fruits and vegetables should be a prime priority for the firm. This is because the production would help to increase the sale and increase more profit within the planned time. However, it is suggestible to increase the variety of fruits and vegetables in the production to attract more customers and supply the products to more retailers and wine sellers. This would help to expand the market and accomplish higher revenue.

- Secondly, the priority as per the vision is to increase the revenue and sales by Acutts’ Family Farm. Therefore, the business plan must include an effective marketing strategy after analysing the current market trends and external factors. For example, the growth of the wine market offers great scope for the firm to increase its sales and revenue along with market expansion. However, there is a large number of mandarin and grapefruits plants across the globe which increases the competition level for the family business. Therefore, focusing on the quality of the fruits and selling high-quality goods is also a priority to accomplish the vision.

Task 2: Identification of Income Sources for Acutts’ Family Farm with new income sources

The sources of income for Acutts’ Family Farm are the Citrus fruits and Grapes that are produced within the plantation. The production of Citrus fruit includes Naval, Valencia, Mandarins and Grapefruits. The three types of grapes produced and sold by the firm are Gordos, Shiraz and Sultana. The firm also produced processed foods like fruit juice contributing to the income.

Two new Income sources for the company

New income sources that can be included in the business plan are mentioned below.

- A new type of vegetables and fruits can be produced to increase the source of income. The firm can grow different types of vegetables such as lettuce, broccoli, carrots, turnips and beets along with the citrus fruits in the orchard. This would help to increase the income level.

- Increasing the variety of processed foods and beverages can also be suggestible to enhance the overall income of Acutts’ Family Farm. Currently, the firm only produces juice made of Valencia and Navels. The processed beverage type can be increased by the production of juice extracted from other fruits like Grapes and Mandarins.

Task 3: Review of expenditure and budget income to compare them with actual income

In the context of the table presenting the yearly income indicates that the farm accomplished $189530 in the year 2011/2012, which increased by $14505 in 2013. There is also an increase in the total income in the year 2013/14 when the farm accomplished $213100.The total income highly increased in 2016 reaching $239100, which is higher than the initial year by $49570. The maximum income is $250100 accomplished by the Acutt Family Farm is in 2017/2018, which increased by $11000. It can be analyzed from the development budget of the firm that the budget of income from the fruits was $240,000 in the month of April, while the actual income from this source is $96,390. Therefore, it can be analyzed that the actual income is lower compared to the budget income for the fruits in April. On the other hand, the budget income associated with the sales of vegetables at Acutt Family Farm is 116,800. There has been an increase in the actual income denoted by $119,837. Therefore, there is a variance of $3,037 indicating an increase in the revenue. The overall budget profit in the month of April is $31,607, while the actual profit gained is $34,281. A comparison of both indicates a net profit of $2677 achieved by the farm.

Task 4: Estimation of the expenditures for the new initiatives and expansion

In order to expand the operational activities, the farm needs to focus on the financials along with its existing workforce and assets. In this case, the micro-economic and macro-economic conditions are needed to be evaluated accurately which can assist in developing a highly productive operational framework (Pant, 2021). In this case, the total cost of sales for April should be $132180, for May $136265 and for June quarter $408,500. At the same time, clear consideration and focus also should be provided to some of the general expenditures such as; accounting costs, marketing expenses, insurance, and cost of motor vehicles along with the utilities. In this case, the total projected expenses for the expansion could be; $142,056 for April, $162,655 for May and$236,485 for June. Some of the estimates that can be derived from the budget are mentioned below:

- From April to May total sales revenue will increase by $18450

- In the June quarter, the Gross profit level will be $706500

- In between April, May and June, the cost of Accounting expenses will increase by $300 and then by $1300

Requesting the budgeted variations for supporting the organisational needs

It seems that the expansion of the business operations will need certain changes in the financial resources. Additional financial support is needed for accounting, equipment purchases, motor vehicle purchases and other aspects (energywatch, 2021). Financials are required for supporting the budgeted variations in communication development as $6000, for printing & stationery as $2400 along with purchasing of garden equipment of $22354. Through fulfilling the mentioned aspects organisational needs can be met within the timeframe.

Task 5: Comparison of the actual sales and expenditures to the enterprise budget

As per the income statement, it can be recognised that the total actual sales revenue of the farm is $216227 for the month of April. Although, the budgeted sales revenue was $356800 showcases a variance of $(140573). The sales revenue has been reached through the sales of vegetables and fruits only (Mora& Triana, 2018). Although, while considering the budgeted expenditures of the organisation, it seems that accounting costs, marketing expenses, bank charges, garden equipment, tool replacement, insurance and several other components have showcased negative variances due to their less expenditure. For instance, the accounting expenses were budgeted as $2700 and becomes $624 as actual. On the other hand, the marketing cost was projected as $3900 and have become $1490 as actual. Similarly, the expenses for garden equipment, insurance, utilities and tool replacement showcases lower consummation in comparison to their budgeted positions (Igonina et al., 2019). Total actual expenses are $106555 is lower than the actual sales and have a variance of $109672. It reflects that the organisation have managed to earn the intended level of net profit. But in future, the management needs to keep eye on the changes in market dynamics so that the increasing cost of materials and operational expenses can be easily dealt with.

Task 6: Analysis of the financial report for ensuring the operations are within the forecasted limits

As per the financial report, it seems that the total sales revenue for 2009/10 and 2010/11 was $189530 and $204035. According to the June quarter projection, the sales revenue will be $591000. It reflects the projected revenue of the business will be higher in future times. The total operating expenses of the farm was $129000 for 2009/10 and $136900 for 200/11. Here, the operating includes fixed expenses of $48000 and $49400 for the year ended 2009/10 and 2010/11 respectively. As per the budgeted projection, the total expenses will be $94251. Therefore, it seems along with the projected profitability rate the farm have considered the increasing cost of business operations at the same time for gaining more positive results.

Adjusting the expenditures for meeting the financial targets

In order to reach the financial targets within the timeframe, the simplest strategy would be reducing the overwhelming costs and increasing the sales volume at the same time. Some of the expenditures such as; Commission credit card, Motor vehicle expenses seems to exceed the budgeted limit for which such elements should be adjusted accordingly. The adjustments are recorded as below:

(i) The projected expenses of motor vehicles are needed to be increased up to at least $60,000

(ii) At the same time, the management needs to reduce the actual cost of the motor vehicle to $45000.

(iii) The actual cost of the credit card expenses is needed to be reduced to under $1000.

Task 7: Recording and reporting the actual and potential variations of the budgeted income

As per the budgeted report, the projected revenue and actual figures for vegetables and fruits have been provided. The report has reflected a budgeted figure of $116800 as sales revenue for vegetables and $240,000 as sales revenue for fruits. However, the actual revenue for sales revenue of vegetables is$119837 and fruits, it is $96390 showcasing a variance of $3037 for vegetables and $(143610) for Fruits. Therefore, the results clearly indicate that the sale of vegetables is not according to the plan as a huge difference in the budget and actual figures have been noted (Junita, 2018). Whereas, in terms of the sales of fruit the product seems to match the expectations accordingly by showing a positive variance of $3037.

Therefore, based on the results it can be assumed if the rate of sales revenue for vegetables continues to showcase a consistent disappointment the company might need to upgrade the product or change its selling channels. The presentation of the item in the market also needed to be checked, otherwise, it might lose its position from the portfolio list.

Task 8: Analysing budget variations for recommendations

It can be observed that the revenue budget for vegetables in April was $116,800, while the accomplished or actual revenue after selling the vegetables is $119,837. This denotes a variance of $3,037. In the sales of fruits, the revenue budget was 240,000, while the actual revenue is comparatively much lower denoted by $96,390. It indicates a variance of -143,610. The total sales revenue budget in April was $356,800, while the actual revenue is $216,227, which is comparatively lower than the revenue budget. The comparison indicates a variance of -140,573. Therefore, comparing the variance indicates the need to increase sales and revenue for fruits by the farm.

It can be observed that the revenue budget for vegetables in April was $116,800, while the accomplished or actual revenue after selling the vegetables is $119,837. This indicates a variance of $3,037. In the sales of fruits, the revenue budget was 240,000, while the actual revenue is comparatively much lower denoted by $96,390. it indicates a variance of -143,610. The total sales revenue budget in April was $356,800, while the actual revenue is $216,227, which is comparatively lower than the revenue budget. It indicates a variance of -140,573. Therefore, comparing the variance indicates the need to increase sales and revenue for fruits by the farm.

The following recommendations can be adopted by Acutt Family Firm to reduce the variance.

- The expenses can be reduced in order to increase the revenue and influence the variance between the revenue budget and actual revenue from the fruit sales. Reduction in the expenses of utilities and other miscellaneous expenses can help to increase the revenue and profit.

- Increasing the range and variety of fruits within the product would help to increase the revenue and income associated with fruits, which automatically influences the variance scale.


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BE167 Accounting and Finance for Managers Assignment Sample

Assignment Brief

(2,500 WORDS, excluding list of references)

All submissions must be presented in typescript (Word format), 12pt, 1.5 line spacing. Deadline for submission to FASER: 16 December 2022, 10:00hrs (Week 11)


This assessment aims to provide you with an opportunity to reflect on the concepts you have learnt during the course of Accounting and Finance for Managers lectures and seminars. It will assist you in developing your ability to apply concepts to practice in the light of your experience while qualifying for the master’s degree.
You are required to write a report analysing the financial performance of a selected publicly listed company (please refer to submission guidelines for the choice of the company) for the latest THREE consecutive years, as a minimum. The report should include the following:


a) Provide an introduction with a background of the business in question (e.g. strategy, prospects, competitor analysis, SWOT analysis). (20 marks)

b) Calculate at least three profitability ratios of your choice to support your analysis. Critically evaluate the profitability position of the company. (20 marks)

c) Calculate at least three efficiency ratios of your choice to support your analysis. Critically evaluate how the resources of the business are managed.

d) Calculate at least three investment ratios of your choice to support your analysis. Critically evaluate the investment position and potential opportunities of the company.

e) “Although ratios offer a quick and useful method of analysing the position and performance of a business, they suffer from problems and limitations” (Atrill and McLaney, 2019, p. 234). Do you agree with this statement? Discuss with examples from the above analysis to support your argument. Briefly indicate the alternative approaches to overcome limitations of ratio analysis.

Submission Guidelines:

This work should be presented as a report type – i.e. guiding the reader effortlessly through the arguments you present (e.g. introduction, development, final considerations – all that making use of subheadings, again, to guide the reader (shareholders, in this case). The purpose of the guideline offered below is to help you to organise your report (rather than to limit your creativity); and also, to provide you with a marking scheme. That is to say, you do not need to actually indicate the letters (a,b,c,...) when presenting the report. Consider that you are providing information to the shareholders to make financial decisions.

- Read updated literature on concepts, methods and tools for Analysis and interpretation of financial statements.

- you are expected to choose one company from the ones below in analysing financial statements:

1. Clarkson PLC https://www.clarksons.com/home/investors/

2. Marshalls PLC https://www.marshalls.co.uk/investor

3. Spirent Communications PLC https://corporate.spirent.com/investors

4. Morgan Sindall Group PLC https://www.morgansindall.com/investors/reports- and-presentations


1. Introduction

Clarksons is one of the reputed companies which provide robust solutions for shipping companies. The company's brief introduction is presented in the report along with its strategies, future prospects, competitor analysis and an internal evaluation of the company using the SWOT matrix. The report also analyses the performance and financial health of the company by utilizing several ratios. Lastly, the report discusses the limitation of these ratios and provides an alternative considering their limitations for assignment help.

1.2 Company Background

Clarksons is a firm that works across departments to ensure that everything it does is supported by data, made possible by technology, and carried out by the most capable workers in the industry (Clarksons.com, 2022). The breadth of the company's reach, the quality of its connections, and the comprehensiveness of its service offering combine to produce exceptional outcomes. As a long-term business associate, it advises customers on the best course of action throughout the shipping process (Clarksons.com, 2022).

1.3 Company Strategy

The company's strategy is to strengthen its position as a leading provider of services throughout the marine, offshore, commerce, and energy industries to provide its customers with tailored business strategies that help them make more informed choices (Clarksons.com, 2022). The company's commitment to Renewables and sustainability competence puts it in a prime position to spearhead this crucial shift as the market moves inexorably toward an increasingly sustainable future (Clarksons.com, 2022).

1.4 Future Prospects

The company's prospect is to adapt to the ever-changing needs of the global marine, offshore, commerce, and energy industries via its market-leading technologies and analytics to facilitate wiser, healthier international trade (Clarksons.com, 2022).

1.5 Competitor Analysis


Table 1: Clarksons’ Competitor Analysis
(Source: Created by author)

1.6 SWOT Analysis


Table 2: Clarksons’ SWOT Analysis
(Source: Created by author)

2. Profitability Ratio Analysis

The profitability ratio compares operating expenses, sales, and equity to illustrate Clarksons' capacity to generate profits. A greater ratio is preferable since it indicates that Clarksons is well-positioned to sustainably generate profits (Bigel, 2022). In light of the importance of profitability ratios, the following three ratios are calculated to determine Clarksons' profitability.

2.1 Gross Profit Margin

The term "gross profit margin" refers to the amount of money left over after expenses have been subtracted from sales. The number is standard and essential as a fundamental indicator of Clarksons’ financial health (Bigel, 2022).


Table 3: Clarksons’ GPM Analysis
(Source: Clarksons.com, 2022)

It can be observed from the above table that Clarksons’ revenue in FY 2020 declined, which is directly attributed to the pandemic. For example, ocean freight from Chinese ports declined by 10.1% during the pandemic. Air freight volumes declined by 19%, causing a significant halt in the logistics industry (Ifc.org, 2021). However, even with the fall in revenue during the pandemic, Clarksons maintained a consistent GPM of 96% throughout the analysis period with slight fluctuations. It, therefore, indicates that the company is in good financial health and has the capacity to maintain its profitability.

2.2 Return on Assets

Clarksons’ capacity to create profit from its assets may be measured by calculating its return on assets. In other words, Return on Assets (ROA) is a metric used to assess how effectively Clarksons’ management is able to transform its entire balance sheet assets into net income (Hilkevics and Semakina, 2019).


Table 4: Clarksons’ ROA Analysis
(Source: Clarksons.com, 2022)

It is evident from the above table that the company incurred massive losses during FY 2019 and 2020. It can be seen that in FY 2019, the company incurred a £10.9 million net loss, and in the following FY 2020, it incurred a £25.8 million loss (Clarksons.com, 2022). It can also be observed that the company’s total asset has also decreased by £46.7 million from the previous year. The fall in total assets is primarily due to the decrease in right-of-use assets Clarksons.com, 2022). Moreover, during the pandemic, container freight rates surged dramatically, which led to losses. Higher than-average prices were charged when shipping to South America and western Africa (Unctad.org, 2019). Freight rates connecting Asia and the eastern coast of North America increased by 63% between 2020 to early 2021, while prices between China and South America increased by 443% (Unctad.org, 2021). However, as the pandemic subsided, the logistics industry recovered, which is evident from the increased net income of the company and positive ROA of 8%.

2.3 Operating Profit Margin

Operational performance metrics (OPMs) measure how well Clarksons’ operations are managed. A healthy business, for instance, is one that has higher operating profit growth than sales growth (Faello, 2015).


Table 5: Clarksons’ OPM Analysis
(Source: Clarksons.com, 2022)

It is evident from the above table that the company had an operating profit of £1.4 million; however, due to the net losses, the company's OPM stood at -13% in FY 2019 (Clarksons.com, 2022). It worsened during FY 2020 when the company incurred operating losses of £14.7 million. It is due to a significant increase in administrative costs, which included data populating, research spending, and employee training (Clarksons.com, 2022). Expenses for depreciating intangible assets having limited lifetimes, such as a company's Forward Order Book on an acquisition and Trade name and non-contractual commercial relationships (Clarksons.com, 2022). However, in FY 2021, the company incurred operating profits of £70.8 million. It was primarily due to increased revenue in FY 2021, which was greater than the administrative expense, even though it increased in FY 2021.

3. Efficiency Ratio Analysis

It examines the extent to which Clarksons makes effective use of its assets and liabilities. Clarksons may use this information to gauge whether or not its investments in people and machinery are yielding satisfactory returns (Faello, 2015). In light of the importance of the efficiency ratio, the following calculations are conducted to determine Clarksons' efficiency in managing its resources to generate profits.

3.1 Inventory Turnover Ratio

The inventory turnover ratio quantifies how often Clarksons sells and restocks its goods over a certain time frame. If Clarksons has a high inventory turnover ratio, it means it efficiently moves through its stock (Bigel, 2022).


Table 6: Clarksons’ IT Analysis
(Source: Clarksons.com, 2022)

It can be observed from the above table that Clarksons' IT ratio has gradually decreased over the three FYs. From FY 2019 to FY 2021, the company's IT ratio decreased from 15.05 times to 11.79 times. It implies that the company is not efficiently moving its stock in the given period. A declining IT ratio means that the company's inventories are being held back and increasing its cost of goods sold, as observed in the above table (Hilkevics and Semakina, 2019).

3.2 Asset Turnover Ratio

The asset turnover ratio gives insight into the Clarksons’ productivity. In a nutshell, it shows how much money Clarksons is making for every dollar it has invested in its physical assets (such as land, structures, machinery, cash on hand, accounts receivable, and inventory) (Bigel, 2022).


Table 7: Clarksons’ AT Analysis
(Source: Clarksons.com, 2022)

The AT ratio of Clarksons is below the standard ratio of 1. It means that the company is able to generate only £0.57 for every £1 worth of the asset. It is a bad sign for the company as it cannot maximise its assets to generate revenue greater than £1 against its assets (Bigel, 2022). It is because the company has increased its assets over the period, which is not proportionate to its revenue growth. The primary reason for the company's total assets to increase is the increase in its accounts receivable, as observed in the financial statement. According to the financial statements, the number of accounts receivable increased due to the grouping of past dues (Clarksons.com, 2022).

3.3 Receivable turnover Ratio

It's a crucial measure of Clarksons' economic and operational health. The Receivable Turnover ratio reveals how often receivables have been collected throughout a certain accounting time frame (Faello, 2015).


Table 8: Clarksons’ RT Analysis
(Source: Clarksons.com, 2022)

As observed in the previous analysis, there is a significant increase in the account receivable of the company, which is directly attributed to the grouping of past dues (Clarksons.com, 2022). Similarly, it can be observed in the above table as the RT ratio has increased in FY 2021 to 1.21 times from 1 time in FY 2020 and FY 2019. It was also evident from the IT ratio that the company's idle inventories have increased over time which attributes to the increase in the RT ratio in FY 2021.

4. Investment Ratio Analysis

The investment ratio, often called the liquidity ratio, indicates Clarksons' capacity to pay its loans when they come due (Bigel, 2022). It means that liquidity ratios reveal how fast Clarksons can turn its existing assets into cash, allowing it to meet its obligations in a timely manner. Therefore, this ratio is significant in determining a company's creditworthiness and financial stability (Bigel, 2022).

4.1 Working Capital Ratio

Clarksons' working capital is described as the difference between its current assets and liabilities. It measures how easily the company can cover its immediate debts with money on hand.


Table 9: Clarksons’ WCR Analysis
(Source: Clarksons.com, 2022)

It is evident from the above ratio analysis table that Clarkson's current assets are more than its current liabilities. In FY 2019, 2020 and 2021, the WCR stood at 1.58, 1.59 and 1.52, respectively. It can be observed that the company has maintained a sustainable working capital ratio throughout the period (Bigel, 2022). It indicates that Clarksons have sufficient current assets to pay off its short-term liability when the due date comes. In other words, the company has £1 current assets to pay off its £0.52 short-term liabilities in FY 2021 (Bigel, 2022). Therefore the company is in good financial health.

4.2 Debt-to-Equity Ratio

The Debt-Equity Ratio is a Financial measure that determines how much debt Clarksons has in relation to its equity. This ratio is used to calculate how much of the total funding came from outside investors in the form of debt vs equity (Hilkevics and Semakina, 2019). The debt-to-equity ratio is a common measure of a company's financial health; a lower ratio is preferable. It is recommended that debt-to-equity ratios not exceed 2:1. (Hilkevics and Semakina, 2019).


Table 10: Clarksons’ DTE Analysis
(Source: Clarksons.com, 2022)

It is evident from the above analysis that the company has a good debt-to-equity ratio. A good debt-to-equity is when ratio is below 1. It means that the company has more liabilities and is funded by them. It is a good indicator of a company's financial stability as the company has an optimum level of liabilities and equity (Hilkevics and Semakina, 2019). Conversely, if the company highly depended on liabilities to fund its operations, it significantly raised the risk of bankruptcy in times of financial crisis.

4.3 Return on Equity

One way to evaluate Clarksons' ability to create returns for its shareholders is to examine its return on equity ratio. Investors may see how much cash Clarksons has stashed away after paying all its expenses by calculating the company's Return on Equity (ROE).


Table 11: Clarksons’ ROE Analysis
(Source: Clarksons.com, 2022)

The above analysis shows that the ROE in FY 2019 and FY 2020 were negative at -0.03 and -0.08, respectively. It is primarily due to losses incurred in the two FYs, as observed in the above table. It means that during the two FYs, the investors lost their investment in the company. However, in FY 2021, the company had a positive ROE of 0.15, which means that the investors earned £0.15 for every £1 invested in the company (Hilkevics and Semakina, 2019). It pimples that the company has gradually become profitable for the investors. However, the ROE is not good enough for new investors to be attracted to make an investment in the company.

5. Discussion

Both professionals and researchers in the field of accounting make substantial use of ratios calculated from a wide range of financial variables when analysing financial statements. Inaccuracies may occur while using financial ratios (Hilkevics and Semakina, 2019). Anyone who uses financial accounts, not only those studying or working in accounting, should be aware of the difficulties and cautions that come with relying on financial ratios (Bigel, 2022).

Users of financial statements may utilise financial ratios to better understand the health of a firm and spot potential issues with its operations, liquidity, debt, or profitability (Faello. 2015). Financial ratios are useful for determining the level of risk associated with a company since they allow for comparisons to be made between similar businesses and assessments of performance. In assessing Clarksons Plc's financial health, the statistics mentioned earlier proved their worth.

However, from the viewpoint of those who use financial statements, the restrictions of financial statement ratios reduce the financial outcomes of different companies from being directly compared (Bigel, 2022). For instance, if one company decides to go from the more common LIFO to the less common FIFO method of inventory valuation, it will no longer be comparable to other companies. As a result, it becomes more difficult to compare companies' inventory turnover rates (Faello, 2015). Furthermore, because readers of financial statements cannot see a company's internal accounting-related choices, alternative methods must be used to reduce the likelihood of inaccurate accounting statistics in calculating financial ratios (Faello, 2015).

The impact of outliers on statistical findings is a significant problem when dealing with financial ratios, at least from the researcher's perspective. The term "outlier" describes a data point that doesn't fit in with the rest of the sample (Hilkevics and Semakina, 2019). Financial analysts may replace ratios using regression analysis. For instance, the Capital Asset Pricing Model (CAPM) attempts to approximate the relationship between the expected return on an asset and the market risk premium (Zerbib, 2022). The research may also be used to foretell a company's future performance or the returns on various investments (Wihartati and Efendi, 2021). The study may also be used to predict how a company will do in the future or to predict the returns on a variety of assets (Wihartati and Efendi, 2021).


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TACC602 Accounting for Business Assignment Sample

Below is the summary information from the financial statements of two companies competing in the same industry:

Income Statement for the year ended 30 June 2022

Assignment Tasks

(1) Perform a vertical (common-size) analysis of the income statements and balance sheets for both companies. (Note: beginning balances are not necessary).

(2) Calculate and compare the following financial ratios/amounts for both companies for assignment help (two decimal places for all ratios EXCEPT dollar amounts and number of days with no decimal place):

(a) Liquidity

• Working capital
• Current ratio
• Quick/acid-test ratio

(b) Solvency

• Debt ratio
• Debt-to-equity ratio
• Times interest earned

(c) Efficiency

• Accounts (and notes) receivable turnover
• Days’ sales in receivables (average collection period)
• Inventory turnover
• Days’ sales in inventory
• Total asset turnover

(d) Profitability

• Gross profit margin
• Net profit margin
• Return on total assets
• Return on equity

(e) Market perspective

• Price-earnings (P/E) ratio
• Dividend yield

(3) Based on the ratio analysis in (2) above, evaluate the financial health of both companies in respect of their liquidity, solvency, efficiency, profitability, and market perspective.

(4) Based on your evaluation in (3) above, identify which company’s shares you would recommend as the better investment. Provide explanations.


1. Vertical Analysis

Common Size Balance Sheet of Bayside Company and Gamba Company as at 30th June 2022

Common Size Income Statement of Bayside Company and Gamba Company for the year ended 30th June 2022

2. Calculation of Ratios

a. Liquidity Ratios

b. Solvency Ratio

c. Efficiency Ratios

d. Profitability Ratios

e. Market perspective

3. Ratio Analysis

Liquidity Analysis

Liquidity ratio indicates the ability of the business to meet its short-term obligations. To measure the liquidity of Bayside and Gamba Company, working capital, current ratio, and Quick or Acid-test ratios have been calculated.

As can be seen from the calculations above, both the company have sufficient working capital to meet their obligations. However, compared to Gamba company, the working capital of Bayside company is higher by $36,00,000. This means that Bayside has a higher ability to meet its obligations.

The current ratio of the company also measures the ability of the company to pay its debts due within a year. A higher current ratio is always considered desirable as it represents that the company has good short-term liquidity (Lalithchandra, 2021). Therefore, investors generally look for a current ratio of 2 or 3. If a current ratio is less than 1, it is a sign that the company will either be unable to or will have difficulties in paying its short-term liabilities. According to the evaluation of the current ratio of Bayside and Gamba company, we can see that both companies have a ratio of more than 2. This indicates that the companies are sufficiently liquid and unlikely to face any issues with the payment of their obligations. If the results of both companies are to be compared, Bayside again shows a better performance than Gamba; however, the difference is only by a slight margin.

The Quick or Acid-Test ratio for both companies is also calculated to determine the availability of the most liquid assets in the company that can be used to meet its current obligations. According to the calculation, it is seen that both companies have the same Acid-test ratio of 1.20. Since a quick ratio that is higher than one usually indicates a healthy business, the ability of both companies to deploy their quick assets is similar.

Overall, both Bayside and Gamba are highly liquid, and they do not indicate any difficulty in the payment of their current debts. However, the working capital and current ratio indicate that Bayside has a better liquidity performance that Gamba, while the quick ratio indicates a similar performance in terms of liquidity.

Solvency Analysis

Solvency ratios help to understand the financial health of any business. It helps to measure the company's capability to repay its non-current liabilities. The solvency position of Bayside and Gamba Company is measured using the Debt ratio, Debt to Equity ratio, and Times Interest Earned Ratio.

The Debt Ratio of Bayside is 0.24, while that of Gamba is 0.20. Both companies have a debt ratio of lower than 0.5, which indicates that both companies are wisely managing their debts. They will be able to pay off their liabilities on time (Wijaya and Muljo, 2022). On comparing the two companies, Gamba company has an even lower debt ratio than Bayside Company. Therefore it would be safer for investors to consider Gamba Company stocks.

The debt-to-equity ratio of both companies is lower than 0.50, which means they are using more equity than debt to finance their operations. The ratio of Bayside Company is higher than Gamba Company. Thus, indicating a risky financial position. It is safer to invest in Gamba Company as the margin of safety is higher for long-term lenders.

The Times Interest Earned ratio calculates the amount of profit available to the company to pay interest obligations. Both companies have a high Times Interest Earned ratio. This means that the company can increase its borrowing. In comparison, Bayside has a higher Times Interest Earned Ratio. So for debenture holders and long-term lenders, Bayside company would be better.

Efficiency Analysis

The efficiency ratio indicates how well the assets of a company are managed. It also helps to compare the performance of multiple companies operating in the same industry. Therefore, to compare the performance of Bayside and Gamba, several efficiency ratios have been calculated. These include accounts receivable turnover, average collection period, inventory turnover, days' sales in inventory, and total asset turnover.

According to the calculations above, we see that the accounts (and notes) receivable turnover ratio of both companies indicates an almost similar performance. The accounts receivable turnover ratio determines the efficiency of the business in collecting its debts. Therefore, a higher turnover ratio is usually considered because it shows that the collection of debts is being done promptly (Quaranta, Tartufoli and Zifaro, 2018). It further indicates that the company has a higher chance to invest the money for the benefit of the business. Although the receivables turnover ratio of both companies is similar, Bayside company shows a better performance. This can also be confirmed by analyzing the days' sales in receivables which indicates the average time in days that a company takes to collect its receivables. While Gamba takes 84 days on average, Bayside takes only 75 days to convert its receivables into readily liquid assets. This again shows the higher efficiency of Bayside company.

The inventory turnover ratio measures how judiciously the inventory in the business has been used to generate sales. A good inventory turnover ratio means that the company has sufficient working capital, and it also helps the businesses in earning reasonable profits. Generally, a ratio in the range of 5 to 10 is considered optimum, but the evaluation shows that Bayside has an inventory turnover ratio of 3.03 times. This value indicates that sales are weak in Bayside. On the other hand, Gamba's evaluation shows a high stock turnover value which points to strong sales of the company's products. The results can again next confirmed through the evaluation of days sales of inventory that calculates the number of days on average taken by the businesses to sell or use up their inventories. While a higher number indicates inefficient management of stock, a lower value indicates efficient management. As per the calculation above, Bayside takes 121 days to use its inventory, while Gamba takes only 62 days. This means that compared to Bayside, Gamba is more efficient in managing its inventory and has a better sales performance.
The calculation of the total assets turnover ratio shows that Gamba has a higher ratio compared to Bayside. Since a higher asset turnover shows the efficiency of the company in generating income from the available assets, a high ratio is usually considered better. Therefore, in this aspect as well, Gamba company shows a better result than Bayside.

The overall analysis of the efficiency ratios for both companies depicts better performance by the Gamba company. Although the company takes comparatively longer to collect its receivables from the debtors, it shows its efficiency with better management of the inventory. The difference in generating sales through inventory and assets for both companies has significant difference. However, Gamba excels in this domain.

Profitability Analysis

Profitability ratios are an important measure of a company's efficiency. A higher ratio means the company has generated enough funds. These funds can be reinvested in the business for diversification or expansion (Miransyah and Dempo, 2021). The Gross Profit Margin Ratio, Net Profit Margin Ratio, Return on Total Assets Ratio, and Return on Equity Ratio have been calculated for Bayside and Gamba to understand their profitability.

The Gross Profit Ratio of Gamba Company is higher than Bayside, indicating better performance. A higher Gross Profit Ratio is always desirable as it shows the efficiently of the company's trading activities.

The Net Profit Ratio of Gamba Company is also higher than Bayside. A higher Net Profit ratio indicates efficient operational activities of the company. A high Net Profit ratio also indicates overall business efficiency. A lower ratio indicates the opposite. At the same time, both companies are profitable. The profits of Gamba company are higher than Bayside Company.

The Return to Total Assets shows how well the company uses its assets to generate profits. A higher ratio means the company is wisely using its assets to their full potential. In contrast, a lower return on equity indicates the opposite. In the given situation, Gamba Company os having a higher Return on Total Assets than Gamba Company. Therefore, Gamba is better utilizing its assets to generate profits.

A high Return on Equity indicates that the company is efficient in utilizing finance raised through Equity to generate Net Income. The Return on Equity for Gamba Company is higher than Bayside. This indicates that Gamba Company can provide better returns to its investors than Bayside.

Market Perspective Analysis

Market Perspective Ratios are used by investors to forecast income and a company's performance in the future. The Price Earnings Ratio and Dividend Yield Ratio of
Bayside and Gamba Company are analyzed.

A high PE ratio can indicate that the company's stocks are either overvalued or the company can have rapid growth in the future. The stocks with higher PE ratios are riskier. On the other hand, a low PE ratio stock indicates that less risk is involved in the company's stock (Baraja and Yosya, 2019). The PE ratio of Bayside is very high in comparison to Gamba Company. Thus, if the investor is a risk taker, he should invest in Bayside, and if the investor is risk averse, he should invest in Gamba Company.

The ideal dividend yield ratio is 2-6%. Both companies have a dividend yield ratio of 6%. Therefore, both stocks are a good source of income for investors.

4. Recommendation on Investment Decision

According to the evaluations and analysis made above, it is recommended that Gamba is a better investment.
Although Bayside shows great performance in terms of liquidity, solvency, and it's the ability to meet short-term obligations, the investment decision cannot be solely based on these criteria. The efficiency and profitability ratio indicates that Gamba is comparative more efficient in managing its assets and inventories, that further enables the company to generate higher sales. Since the dividend to be received by the investors primarily depends on the revenue generation capability of the company, it is suggested that the investment decision considers this aspect. The market perspective analysis also shows that investment in Bayside may be suitable for a risk-taking investor. However, for the safety of investments, investment in Gamba's shares will be a better choice. Therefore, the analysis of all the aspects leads to the suggesting of the investment in Gamba company.


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BUACC5930 Accounting and Finance Assignment Sample

All questions must be completed.

Question 1.

Woolworths Group Limited, a major Australian company, has extensive retail interests throughout Australia and New Zealand. It is the largest company in Australia by revenue and the second-largest in New Zealand.

The most recent financial report for the Company are found at the following site:
https://www.woolworthsgroup.com.au/page/investors/our- performance/Financial_Results

Here you will find the latest annual report (to 30 June 2021) and quarter and half yearly reports.

a. Using the 2021 annual report only, compare the financial results for assignment help of the Company between 2020 and 2021. You should use any financial information provided in the 2021 report (including ratios, and narratives) to conclude on the improvements or not in financial position and profitability. Your discussion should focus on reasons for this, and should include any impact due to the COVID- 19 pandemic.

b. Using the other financial information provided (quarter and half yearly reports for FY2022), comment on any financial changes between the annual report (ended 30 June 2021) and the FY2022 reports.

c. What other information would you need to assess the financial performance and financial position of Woolworths Group Limited?

Question 2.

The 2021 Sustainability Report for the Woolworths Group Limited is available at
https://www.woolworthsgroup.com.au/page/community-and-responsibility/group- responsibility/

This report outlines Woolworths approach to People, Planet and the Product.

Summarise the goals of the Woolworths Group Limited in relation to People, Planet and the Product.

What is your opinion of the measures that Woolworths has to achieve these goals?

Question 3: Cash Flows Question

Melbourne Ltd Income Statement for the year ended 30 June 2021


Solution 1

Financial performance analysis of Woolworths

Woolworth Group limited has been incorporated in 1924. It has its headquarter in Bella Vista Australia. It is operating in the grocery stores industry and belong to consumer defense sector. It operates as a retail store through Australia food, new Zealand food, and BIG W.

From the above, it can be observed that the Net profit of the business has been higher by 43% in 2021 which has increased the NP ratio in the current year. Gross profit has been lower by 13% while sales have also been reduced in the same context which lead to maintaining the GP ratio same in the current year. Operating profit has also been higher by 105% which has increased the ROCE of the company. Such Operating profit has also been the reason for such higher trend in the ROC ratio. Overall profitability performance of the entity has been higher and improved in the current year (Ginting, 2021).

From the above Current assets ratio of entity has been higher due to the increasing trend in the current assets by 48% while CL has just improved by 42%. QA have higher by 42%. The liquidity position of the company is strong (Rao, 2021).

Gearing ratio help to understand the capital risk and capital utilization by the company. In the above case, the company has a higher debt capital risk for the company due to a higher trend in the debt capital by 30% in the current year. It also increases the financial cost for the business. It is the reason for the higher debt-equity ratio for the business. Debt to assets has also been higher because assets have just increased by 2% while debt capital is higher by 30%. It shows that the entity has not used the debt capital for the investment of the assets in an optimum way (Nugroho, & Halik, 2021).

COVID -19 Impact on the company

Due to COVID -19 company has faced a reduction in the sale because the government has imposed the lockdown policy. It has to lead to an increase in the reduction in the net profit in 2020. Consumers were not allowed to visit the stores and due to this company was facing a reduction in sales. The cost of the business operation has been increasing as employees were not working efficiently. To improve from such a situation company has decided to provide the home delivery of the product and generate the sales through the online portal. It has given a hike in the sales of the company. The company also allows the work from home to the employees so that efficiency can be increased and the cost of operation can be reduced for the business. The liquidity position has also been compromised due to COVID but the company has managed it in 2021 (Fridson, & Alvarez, 2022).

Therefore after observation of ratio compliance it can be seen that Woolworth company has done well as compared to the previous year and successfully generated the higher profitability in the current year. It has generated value for its shareholders.

Comparing the financial data for 2022 with 2021

Woolworths Group Limited's financial performance and changes in the past years as compared to the current half-yearly statements are assessed and discussed. The company has generated revenue in the half-year 2022 of 31,894,000 US dollars and in 2021 full year the company was able to generate total revenue of 55,694,000 US dollars which means that the company has been performing better than in the past year. Expenses of the company have also been less in this quarter as compared to the year 2021 (Pizzi,& Venturelli, 2022). This means that the company can generate more sales and revenue by reducing its overheads. Earnings per share of the company have increased a lot from the previous year of the company for this quarter. It has jumped from 1.65 to 6.31 and this means that the shareholders of the company are generating returns on their investments.

The net profit ratio of the company in 2021 was 3.72% which has increased to almost 12% in the half-year ended 2022. This shows that the company is performing very well and is increasing its revenues and ultimately the ratios. However gross profit of the company has decreased this year from the year 2021 of 29.32%. The company needs to focus on improving its gross profit and generating higher margins. The current assets of the company have also improved and the company has a good liquidity position this year which shows that the company is easily able to pay off its short-term debts. However, the company has improved its sales and has shown good performance in terms of the profits in the half-year ended. This means that the company is regularly taking measures to improve its performance and implement it effectively and efficiently.

Other factors to assess financial performance

To assess the financial performance of a company only evaluating the balance sheet and related financial information would not give a complete analysis of the company's financial performance. Many non-financial factors affect the business of the company and these are also necessary to be looked at for assessing the complete financial performance of the company. These non-financial metrics are qualitative and it is difficult to express them in financial terms (ABDELRAHEEM, & HUSSIEN,2022).

Woolworths Limited should carry out a PESTEL analysis that will look at the macroeconomic factors of the company. It consists of assessing different factors naming Political, Economic, Social, Technological, Environmental, and Legal matters. This analysis will give insight into some non-financial factors that affect the company. Another method that the company can opt for is the SWOT analysis. In this analysis, the company focuses on analyzing its Strengths, Weaknesses, Opportunities, and Threats. These are all non-financial factors that the company has to assess for monitoring its performance. This helps the company in taking advantage of the available opportunities by focusing on its strengths and assessing its weaknesses by minimizing the threats that can occur. Both of these analyses are a great way of assessing the performance of the company other than using the company's financial information. This gives a different perspective to the business by looking at other non-financial segments.

The company can also consider applying the balanced scorecard for the business. This model takes into consideration both financial and non-financial indicators of the business. It considers the company's financial perspective, Learning perspective, Customer Perspective, and Internal business perspective. It also helps in gathering the data for the company's business related to the qualitative information by assessing customer and learning and innovation perspective.

Hence all these methods will provide some information for Woolworths Limited to assess the company's financial performance and financial position.

Solution 2

Sustainability Retorting

How is Woolworths Group Limited achieving its aims in the Sustainability Report?

Woolworths is the largest business organization in Australia with many operations throughout Australia and New Zealand. It is one of the second largest businesses in New Zealand with the highest income (Adams, 2019). This business organization brings new resources for sustainability. The main target of this business is people, the planet, and their prosperity or product to cover all the engagement related to the suppliers, clients, team members, and societies as well as a corporate social responsibility that directly impacts its operations. The main aim is to achieve a sustainability report of the Woolworths group limited business organization as well as deliver the best convenience, value, and quality to their customers. This firm maintains its employees with over 2 lakh team members who serve 29 billion clients across the entire world.

Woolworth’s group limited mainly focuses on sustainable clothing businesses across the entire supply chain, raw materials, and resources to make a new product and disposal of end goods or services. The sustainability framework is to focus on farming practices in the various supply chains through programs and the main aim is to reduce imports such as fertilizer, pesticides, water use, and biodiversity. It can also promote sustainability to reduce the amount of waste recycling, recyclable and materials where they can.

Woolworths business organization achieves its aim in this sustainability report through people because this business organization maintains its core values, and purpose in partnership with 10,000 team members to create a better experience for teams and customers. It is also helpful to promote gender equality only to create a culture and workplace which provides for all the team members. Some benefits, opportunities, and resources are should be identified or regularly reviewed in our systems (Nishant, Kennedy, and Corbett, 2020). This business organization is helpful for the people because the firm can provide parental leave, policies, superannuation payments, flexibility policy, family violence support policy, and impress their diversity. It can make better efforts to reflect their society, and maintain diversity as well as an inclusive workforce.

In this sustainability report, the planet is helpful for the team members and their customers because they can build a better tomorrow means protecting and repairing the future generation. It also impacts the negatively but also finding the other ways only to create a positive advantage. It is also helpful to maintain the climate changes continuously and indicate the global warming to 1.5 degrees. It is also helpful to maintain green electricity as per the sustainability report of 2025. Planet in the sustainability reports is helpful to carbon emissions by 2050 by recognizing and addressing the climate changes to our business (Raabe, Tasan, and Olivetti, 2019).

Product is helpful in the Woolworths group limited business organization to create a better tomorrow means evolving the way to impress the circular thinking. It involves many products to make it easier for the customers to choose particular goods, healthy, sustainably sourced, packaged, and so on. Healthier choices are very easier for the clients because they provide inspiration or alternatives across the online stores and offline stores to grow their healthy goods or services to the customers. To collaborate many recycled materials, sustainable sourcing, leading the future of protein, responsible service or consumption of alcohol, and gaming.

What type of measures that Woolworths have to achieve these goals?

Woolworths business organization accomplish these goals through increase the satisfaction of customers because the main aim is to provide the best range of goods or services, better quality, and value to its customer. It is also helpful in maximizing profits and gives the best shopping experience to its customers. Woolworth’s group limited maintains its strategies to accomplish the competitive advantage through excellent logistic systems and highly organized suppliers contract only to ensure the goods or services is delivered at a right time. Technology is very helpful for a business organization to manage its supply chain and stock. It is helpful to increase their brand loyalty because customers are the heart of the businesses and this business organization's main strength is the huge retail market in emerging economies.

Through people, products, and the planet, Woolworth’s business organization also accomplishes goals and objectives. In the case of people, they should encourage their diversity by targeting at least 40% of executive and senior managers. In the case of the planet, they maintain their healthy working environment toward zero food waste. In the case of prosperity, the only focus is to maintain the trusted relationship and identify how the firm engages the suppliers to measure independent supplier surveys.

Solution 3

Cash Flow statement of the Melbourne Ltd

Cash flow statement is the part of the financial position of the company that provide the all the information related to the cash inflow and outflow of the business during the current year. It classify the cash flow into three category such as operating activity, investment activity and financial activity of the business (Ali, & Hamad,2021).

Following are the CFS of the Melbourne Ltd



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ACCY902 Forensic Accounting Assignment Sample

The following must be included/followed:

- An essay of approximately 300 words on a separate page. A concise summary of the main aims, arguments, and conclusion(s) reached in the essay

- Introduction - Provide a clear and concise- introduction of the topic and how the essay will address the topic in the remainder of the content.

- Body/main evaluation - relevant and specific - discussion of the issues identified well, developed arguments, use of examples and research throughout to support arguments.

- Conclusion - strong, clear, concise summary of findings and recommendations.

- Are ference list including all references that have been used AND cited in the essay, with the heading REFERENCE LIST and presented starting on a new page. DO NOT list references that you did not cite in the essay.

- Harvard referencing must be used (both in-text referencing and a reference list)

- 12p font

- 1.5 line spacing

Explain the role of forensic accounting in preventing, detecting and overcome financial crimes such as cybercrime, money laundering, financial fraud and terrorist financing.



Forensic accounting is the application of financial and investigative abilities to settle disputes in civil and criminal cases (Akinbowale et al., 2020). In investigation, the accountants applies the principles, theories and discipline to facts to handle any kind of financial dispute but a relevant process is followed for crime detection. The essay for assignment help focuses on role of forensic accounting in financial fraud detection and prevention.


Forensic accounting includes the role of skilled auditors, accountants, and researchers of legal and financial records who are engaged by businesses to look into any potential indications of fraud or to simply stop fraud from happening (Utomwen and Danjuma, 2015). There is increasing problem of financial fraud such as money laundering, finances provided to terrorist, etc (Mc kinsey and Company, 2019). Considering example of Enron Accounting Scandal in 2001, company had biggest accounting scandal of $70. The full extent of Enron's wrongdoing was only discovered when the accountants looked beyond the inflated numbers (not like auditors going through all financial statements). In the end, Enron was accused with disguising debt agreements, manipulating stock prices and debt ratings, and making false statements about its financial position and earnings (The financial cell, 2021). Due to the fact that there will be a public jury in the fraud case, this is critical. However, internal auditors may not be able to provide the evidence required by a court or regulatory agency. Risks of consultant negligence and legal liability may arise if checklists are utilized in lieu of consulting an internal auditor (Tiwari and Debnath, 2017).

The process of forensic accounting starts with obtaining as much information as possible from customers, suppliers, stakeholders, and anybody else associated with the organisation (Enofe et al., 2015). Next to this, accountants perform a study of any background information that is been provided, as well as a review of any financial statements is been given, in order to find any flaws or faults in the reporting of those financial statements (Okpako and Atube, 2013.). The next step is to talk to employees to see if they can provide any light on where the fraud is taking place. Among the many things accountant will look at the foundational ideas of the business, employee evaluations, management styles, and the overall structure of the firm (Akinbowale et al., 2020). The forensic accountant will next attempt to draw conclusions from the data they have gathered when this stage is complete. Therefore, it is important to incorporate forensic accounting in financial operation so that future risk is avoided (Utomwen and Danjuma, 2015).


The essay concludes that to detect and prevent fraud organisation require an integration of specialized knowledge, auditing, data collection and analysis and taking a certain action. Organisation require a role of an expert accountant as it looks towards the financial operations and it regularly search for errors and it also monitors the poorly documented transactions.


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MCR004A Accounting System and Process Assignment Sample

Assessment criteria

In assessing group report consideration will be given to overall neatness, completeness and quality of report, timeliness of submission and demonstrated application of appropriate issues in financial accounting and reporting.

Report is expected to be made in a clear, concise, and understandable manner. It is required that an outline be made at the inception of the report to show introduction, body, and conclusion of the report.

Group Report Topic:

Each group will be allocated a topic from section 2.5 of the subject outline (Topics are listed below) and each group will be allocated a company from ASX 500 top listed. Group report includes: (a) Overview of the selected company and (b) explanation of the selected topic with relation to selected company. Group Company selection and topic selection should be available in Moodle in week 2.

Accounting Systems and Processes Assessment 1 Group Report T2, 2022

Group Report Topics:

(a) Conceptual Framework
(b) Accounting Regulatory Body: AASB
(c) Company Regulatory Body: ASIC
(d) Accrual accounting concept
(e) Inventories: Perpetual method and Periodic method
(f) Accounting for current assets
(g) Accounting for non-current assets



The assignment includes the analysis of the financial statement’s qualitative characteristics. The fundamental qualitative characteristics and the enhancing qualitative characteristics of the company have been discussed. The assignment also discusses the significance of the qualitative characters in decision making. It also includes a detailed analysis of the fundamental and enhanced qualitative characteristics per the reporting standards. The Financial reporting standards for assignment help prepared by the Australian accounting standards board applicable to the Australian economy's public and private sector entities have been discussed. Further, the assignment includes a detailed analysis of the qualitative characteristics of the financial information incorporated in the financial statements of the BHP group.

Overview of the company

The broken Hill proprietary company or BHP is a petroleum metal and public mining company of Australia head with its headquarters in Melbourne. It was founded in the year 1885. The company is engaged in the development to proceed in and extraction of coal, copper, oil, gas, and minerals. The company incorporates four divisions: copper, iron ore, petroleum, and coal. The sale of the company's products is across the globe in countries such as Singapore and United States. The organization's objective is to bring the individuals and utilities together in a way that creates a better world. The organization has been achieving this objective by using high-standard assets, prominent stocks, and opportunities for building long-term value and massive returns for its stakeholders (Bhp, 2022).

Overview of the topic

Recording financial information and accounting data are considered one of the most significant issues among the users, regulators, and professionals of such financial information. The misconduct in big corporations regarding the appropriate recording of financial information, such as WorldCom and Enron, has led to a significant mistrust in the significance of the financial statements being free from any misrepresentation. The capability of the financial statements in understanding the financial health of the company has also been under significant doubt; IASB has issued specific financial reporting frameworks to improvise fairness in the financial data. Understanding the company's financial position and making the financial statements useful for the investors and the management of the company is important to understand the qualitative characteristics of the BHP group. The qualitative characteristics of the financial statements of the BHP group have been divided into two parts: fundamental qualitative characteristics and enhancing qualitative characteristics.

Fundamental qualitative characteristics

The following qualitative characteristics are required to be present in the accounting information to make it useful for making decisions:

• Relevance
• representational faithfulness

Figure 1: Elements of Fundamental qualitative characteristics
(Source: Made by the Author)

1. Relevance: Relevance is the helpfulness of the data for financial decision-making. To be relevant, the accounting information must incorporate:

• Confirmatory value: It is the information from the past event. Confirmatory value is based upon the feedback of past evaluations of the events. For example, the revenue of the past year and the current year can be compared to understand the company's performance in terms of revenue.

• Predictive value: It is the power of predicting possible future events (Rathnayake Mudiyanselage, 2020, p. 45). Although the financial information itself does not predict or forecast, the financial statement users can interpret the values for their prediction. For example, any of the current years can be used as a basis for the future year’s revenue.

So, the accounting data is relevant if it provides information about the past and predicts future events so that proper action to deal with the re circumstances can be taken care of. For example, suppose a company experiences a strong quarter and improved results for the creditors. In that case, it is relevant for the creditors' decision-making process for enlarging or extending the available credit to the firm.

2. Representational faithfulness: The other name for representational unfaithfulness is reliability. It is the extent to which the data accurately depict the transaction that is obligatory claims and resources of the company (Abed et al., 2022, p. 15). The accounting data is required to incorporate the following to possess representational faithfulness:

• Complete: The financial statements must be complete and should not exclude any type of transaction.

• Neutral: The accounting information must be free from any type of bias. The accounting information cannot be completely neutral as there is an involvement of estimation and subjectivity in preparing the financial statements.

• Error-free: The accounting information must be free from any type of errors that wrongly represent the financial statements (Frank, 2020, p. 141).

Enhancing qualitative characteristics of BHP’s financial statement

Understandability: The understandability of the financial data is coherent to the knowledge about economic functions and the performance of the business. Therefore, the company's financial statement in the annual report must be able to provide ample information to the users so that the users can understand the information (Innayatulloh and Siswantoro 2019, p. 220). In the case of BHP group Ltd, the financial statement is supported by the notes to the financial statement. Therefore, users with adequate knowledge can refer to the notes and understand the economic and business aspect.

For instance, the note to revenue is given in the annual report (2021) of BHP group ltd on page 139. In the note, the segmental analysis has also been given. Other notes about the revenue have been provided that will help the users to understand the revenue generation of the firm in depth.

understand the value of land and buildings that were recorded at the beginning of the financial year 2021. Information about the depreciation recorded on the land, equipment, and many more items that are a part of the plant, property, and equipment has been recorded. Therefore, the users will be able to understand the data properly.

The company's financial statement is backed up with data in the notes to the financial statement that the users of the company can use to understand the significance of the data and accordingly use the data for benefit.

Comparability: The term comparability in terms of the financial statement refers to comparing the data presented in the financial statements of the company across time as well as different companies. In the case of BHP group ltd, the income statement and cash flow statement in the annual report present data across three years and data across two years is represented in the balance sheet.

For instance, on page 131 of the annual report (2021) of BHP group ltd, the current assets of the company in 2020 are at $21471 million, and in 2021 it is $26693 million (bhp.com 2022.). Therefore, the company's balance sheet has been able to portray data across two years, allowing the users of the annual report to compare and conclude that the increase in current assets of the company has improved the company's liquidity position. Similarly, in the income statement of the company, the net income generated by the company across three years (2019, 2020, and 2021) has been presented, allowing the users to conclude that net income declined in 2020 due to a fall in revenue and again increased in 2021 due to significant increase in revenue by approximately $18000 million.

Furthermore, comparability is being achieved in the statement of equity as well. The data across three years have been presented in the statement of equity. For instance, in 2018, the share capital of BHP group ltd was $1186 million that declined to $1111 million in 2019 (bhp.com 2022.). The presence of such data that can be compared so easily helps the users conclude that there must be some sort of setback in the company that reduced the share capital. Upon further investigation, it has been found that in 2019BHP group ltd bought back $75 million share capital and cancelled, resulting in the disappearance of the $75 million from the market and the statement of equity of the company.

Verifying: A company's financial statements must be verified so that the users can rely on the information. For an instance, if the company has recorded an inflated net income or revenue, then the actual profitability position of the company cannot be assessed or evaluated by the company. Therefore, companies confirm the verifiability by employing independent auditors who would scrutinize every information that the company has generated and then confirm the verifiability of the financial statements in the annual report. In the case of BHP, the independent auditor is Ernst & Young Australia (bhp.com 2022). In the page 203 of annual report (2021), the declaration of the independent auditor has been given. The auditor has declared and confirmed that the company has followed financial reporting framework that is the Australian Corporations Act 2001, to prepare the consolidated financial statements. Several other information provided by the independent auditors conclude that the financial statements provided by BHP group ltd are authentic and can be fully reliable.

Timeliness: The financial statement will not hold any major credibility if the shareholders and management of the company does not receive it at a proper time. Timeliness implies to the fact that the financial statements of the company should be available to the shareholders and management of the company promptly to make proper decisions. In the case of BHP group ltd, the annual report (2021) was available in the official website on 14th September 2021; therefore, it is certain that the annual report must have been available to the management of the company way before the date of publishing. Hence, it can be assumed that the annual report of BHP group ltd is being prepared on time.


As per the discussion above, it can be stated that the company has discussed and disclosed all the data in the company's financial statements very efficiently. The financial statements have been represented faithfully. The financial statements have also disclosed the information based on two to three years that will enable the annual report users to assess and evaluate the current performance with the historical performance. Users might question whether they should be believing on the authenticity of the information provided by the company? The answer to the question is a yes because the company had hired an independent auditor who had declared that the company has followed all the rules and regulations and recorded the amounts perfectly.


It can be concluded from the above analysis that qualitative characteristics play an important role in the decision-making purpose, not only for the management but also for the users of the financial statements such as the investors and the creditors. An organization uses the qualitative characteristics mechanism to determine the quality of financial reporting in terms of disclosures, transparency, and efficacy. Additionally, it can be concluded that the primary focus of the company is on the inclusion of features such as comparatively, understandability, timeliness, reliable disclosures, and relevance in the financial statements. From the analysis of the financial statement of the BHP group, it can be concluded that all the features are adequately represented in its financial statements.



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ACCT20080 Governance & Ethics Assignment Sample

Assignment Details

Weak corporate governance, creative accounting and compromised independence of statutory auditors are the three most unholy trinity for dilution of ethical practice and public trust of the corporate world.

The corporate scandal of Satyam Computer Services Limited is a classic business case where confluence all three phenomenon, weak corporate governance, creative accounting, and compromised independence of statutory auditors, can be found.

In 1992 Satyam Computer Services Limited was listed on the Bombay and Hyderabad stock exchange and in 2001, the company was listed on the New York Stock Exchange. Over the years the company projected a phenomenal growth and operated in 66 countries. Its high-profile clients include General Electric, Qantas, Nestle´ and British Petroleum. Satyam and its chairman Ramalinga Raju received awards for excellence in corporate governance, professional conduct and for the company’s corporate social responsibility.

As the business grew, the company also claimed the growth of its employees upto 53,000 and out of this inflated figure 13000 were ghost employee. These ghost employees’ salaries were used as legal deductable expenses to siphon out company’s profit. This deception was maintained more than a period of 10 years because of weak corporate governance, compromised professional conduct of auditors, and due to creative accounting.

Based on the suggested readings and other literature review write a reflective essay of 3000 words in this format covering following aspects

1. Part A Highlight conceptual understanding of corporate governance, creative accounting, and independence of statutory auditors.

2. Part B Conduct a literature review on ethical issue relating to weak corporate governance creative accounting and compromised independence of statutory auditors.

3. Part C Discuss the corporate scandal of Satyam Computer Services Limited and explain why do you believe the corporate scandal of Satyam Computer Services Limited happened due to:

a) Weak Corporate Governance, b) Creative Accounting, and c) Compromised Independence of Statutory Auditors.

4. Part D In the APES 110 Code of Ethics mention about – “ The fundamental principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour“ Explain how these fundamental principles were violated or compromised by the chairman Ramalinga Raju, the Companies’ Corporate Governance team and Statutory Auditor.

5. Part D Provide a recommendation based on literature review how corporate governance can be strengthened, how to detect creative accounting and how to strengthen the public trust of Statutory Auditors

Please note your literature review should not be limited only to suggested readings.

You must submit:

You must submit an individually written essay about ethical behaviour and ethical decision- making in the following format:

1. Title Page

2. Executive Summary (indicative only- 10% of the word limit)

3. Introduction (indicative only - 5% of the words limit)

4. Maximum of 2,000 words, consisting of Parts A, B , C , D and E (as shown above). Use headings to clearly indicate which part is being answered. Provide in text reference.

5. Recommendation & Conclusion (indicative only 500 words)

6. References


1. Executive summary

The accounting statements serve as the foundation for determining the financial health of the Organizations. The reliability, transparency, and authenticity of the financial statements positively reflect the ethical integrity of the company which helps in attracting various investors to the Company. On the contrary, poor quality of the financial statements harms the brand image of the Organizations and causes hindrances in the flourishment and prosperity of the Organizations. Corporate Governance strategies are pivotal to the success of Organizations and help in averting future risks that would otherwise harm the reputation and progress of the Organizations adversely which is evident from the Satyam scandal case. Adherence to the code of ethics in accounting helps in maintaining reliability, transparency, and fairness in the financial statements which would preserve the trust of the investors. The study has revealed the different ways in which the ethical integrity of the financial statements was harmed had triggered one of the biggest financial scandals in India. Furthermore, the study has highlighted the role of creative accounting that was adopted by the Organizations to maneuver the financial statement to acquire the trust and faith of the investors.

The case of Satyam Services revealed that the financial statements were manipulated and the acquisition of Maytas Infrastructure was initiated by the higher executives of the Company to bridge the existing gaps in the financial statements and cover the manipulation. The study has also emphasized the impact of compromising the independence of the statutory auditors that negatively influence the authenticity and reliability of the audit reports to justify the monetary health of the Organizations which triggers future risks. Furthermore, different recommendations have been provided to enhance the overall quality of corporate governance, detect creative accounting, and preserve the trust of the public in the statutory auditors.


The study aims to highlight the concept of corporate governance, creative accounting, and the role of the independence of statutory auditors for best assignment help. The study has revealed the different ethical issues budding due to weak corporate governance strategies in the Organizations, the prevalence of creative accounting, and the independence of the statutory auditors in the Organizations. Satyam Computer Services Limited was one of the most renowned Companies in India and had also received numerous awards for performing exceptionally well also the Company was the first to implement International reporting Standards into the accounting system. The study has focused on the role of weak corporate governance, the devastating impact of creative accounting, and the independence of the statutory auditors that had led to the corporate scandal of Satyam Computer Services Limited. Furthermore, the study has also emphasized how the different ethical principles were violated by the Organization. Moreover, different recommendations have been provided in the study to probe creative accounting and improve the functioning and conduct of the statutory auditors which would help in restoring the trust and faith of the public.



a. The concept of Corporate Governance

The case study of the scam of Satyam Computers serves as an eye-opener for all the Organizations of the present era to adopt suitable corporate governance initiatives to prevent the possibility of risks and frauds in the future. Satyam Computers was one the leading Organizations in India and had also won several awards but due to the misrepresentation in the financial statements, the reputation of the Company was damaged adversely. According to Rishi & Singh (2011), Organizations in the present era must prioritize the different interests and the needs of the investors by implementing suitable corporate governance strategies. Furthermore, the corporate governance strategies adopted by the Organizations would help in monitoring and modifying the different Organizational processes and strategies that would help in mitigating the possibility of future risks that are harmful to progress and growth.

Corporate Governance encompasses different rules, regulations, and principles to align the functioning of the Organizations with the various needs and requirements of the stakeholders (both internal and external stakeholders). The Corporate Governance policies and regulations are effectuated by the higher management team of the Organizations. Furthermore, good Corporate Governance strategies implemented by the Organizations help in positively reflecting the responsibility of the Organizations toward the stakeholders (Naciti, Cesaroni & Pulejo, 2022). The Corporate Governance policies are also aimed at preserving transparency and fairness in the different operations and initiatives that are undertaken by the Organization. Moreover, Organizations that are committed to Corporate Governance are also able to reduce the susceptibility to future risks that harm the brand image and reputation adversely.

b. Creative accounting

Creative accounting is the strategy of deriving benefits from the existing gaps in the accounting laws, regulations, and standards to maneuver the financial record of an Organization. The application of creative accounting makes the financial records of an Organization appear fair, transparent, and compliant with the different legal regulations and policies. Furthermore, creative accounting makes the financial statements of an Organization appear as steady through maneuvering, but in reality, the monetary health of the Organization is poor (Bhasin, 2016).

c. Independence of statutory auditors

Saha & Roy (2015) have highlighted the role of the independence of the statutory auditors which play an active role in triggering huge monetary scandals in Organizations. The study has emphasized the role of the statutory auditors in the monetary scandals that occurred in India, the U.S.A, and the U.K.
Considering the case of the monetary scandal in Satyam Computer Services, no safeguards were present, and the external evaluation of the auditing operations performed by the statutory auditors was not done properly. Furthermore, no standard framework was available to the statutory auditors who had done the auditing operations in Satyam Computer Services which had raised the independence of the auditors. Henceforth, the existing loopholes in the auditing process played an active role in the occurrence of the monetary scandal in Satyam Computer Services in India (Roy & Saha, 2016).


a. Ethical issues arising from poor Corporate Governance

According to the research study of Benson & Ganda, 2022,), a poor corporate governance system harms the overall Organizational performance which worsens the sustainability of the Organizations in the long run and worsens the relationship with the stakeholders. Furthermore, the Organizations have to disclose the reports of corporate governance and business sustainability annually, weak corporate governance policies cause a decline in the Company's performance which reflects in the financial records and sustainability reports. Henceforth, the decline in Organizational performance negatively influences the relationship with the investors and the stakeholders due to the lack of accountability and commitment of the Organizations. The Organizations also adopt various corruptive practices to maneuver the performance of the Organization which triggers corruption, and fraud, and also negatively reflects fairness and transparency in the overall Organizational functioning.

b. Ethical issues arising from creative accounting

Creative accounting makes the financial statements of an Organization appear transparent and fair despite the poor financial condition of a given Organization in reality through maneuvering. Creative accounting makes the financial statements of an Organization appear in compliance with the different legal regulations and policies but the financial statements in reality are in contravention of the different ethical standards and laws of accounting. Furthermore, creative accounting violates different accounting ethics and also increases the susceptibility of the Organizations to fraud which destroys the reputation and credibility of the
Organizations adversely.

Creative accounting also violates the different ethical principles in the field of accounting which results in the misrepresentation of the financial statements of an Organization. Firstly, when the accounting statements are maneuvered, the integrity of the financial statements is harmed which negatively impacts the relationship with the stakeholders. Secondly, creative accounting causes bias in the financial statements which harms the overall objectivity of the financial statements. Thirdly, creative accounting derives the benefits from the loopholes in the accounting laws and standards to manipulate the financial statements which are in contravention to the professionalism in the field of accounting.

c. Ethical issues due to the compromising of the independence of statutory auditors

The auditors must perform the different auditing operations independently without getting influenced which could otherwise lead to the misrepresentation of information and harm the reputation of the Organization (Threats to auditor independence, 2022).

When the auditors get influenced and are biased by the superiors of the Organization, the reliability and the fairness of the financial statements get negatively impacted which would ultimately cause a decline in the overall financial stability of the Organization. Furthermore, the superiors of the Organizations often bribe the auditors to maneuver the financial statements, and sometimes the auditor might be an employee of a given Organization due to which the flaws committed get covered due to which the ethical integrity is harmed. The good relationship of the higher executives with the auditors triggers bias due to which the auditors get coerced to apply creative accounting to falsely represent the financial statements of the Organization which is in contravention the accounting ethics.


The role of weak corporate governance, creative accounting, and compromised independence of the statutory auditors in the corporate scandal of Satyam Computer Services Limited have been discussed below-

a. Weak corporate governance

The analysis of the case of the corporate scandal of Satyam Computer Services Limited had given an idea of the role played by a lack of a positive purpose and poor evaluation strategies of the different Organizational processes and operations in the downfall of the company. Furthermore, the different observations that were made from the financial statements of Satyam Computer Services Limited included misrepresentation of the revenue generation and misrepresentation of the liabilities and the assets of the Organization. Furthermore, manipulation was also observed in the salary accounts of the Organization and the fundraising strategies adopted by the Organization. The irregularities in the financial statements of the Organization had got revealed during the acquisition of Maytas Infrastructure Limited. Poor leadership strategies, lack of authenticity and transparency of the financial statements, and poor documentation methodologies worsened the effectiveness of Corporate Governance in the given Organization (Bhasin, 2013).

Moreover, the Company lacked a suitable code of conduct and did not implement suitable policies and regulations to monitor the various processes and operations which were in contravention of the interest of the Organizational shareholders.

b. Creative accounting

The concept of creative accounting was prevalent in the case of the corporate scandal of Satyam Computer Services Limited. The financial statements were actually in contravention of the different regulations and policies of the Indian regulatory authorities. The financial statements of the Organization were manipulated using creative accounting. Furthermore, the strategy of the acquisition of Maytas Infrastructure was initiated to mitigate the existing gaps and loopholes in the financial statements of the Company (Bhasin, 2013).

c. Compromised independence of the Statutory auditors

The ethics of auditing was violated adversely by the auditors while auditing Satyam Computer Services Limited. The threats on the grounds of self-interest, familiarity, and intimidation were observed in the corporate scandal case of Satyam Computer Services Limited (Bhasin, 2013).

PricewaterhouseCoopers had conducted the auditing operations in the Organization but no irregularities in the financial statements were detected by the auditors which indicate the compromised independence of the statutory auditors. Henceforth, further investigation into the case revealed that the auditors did not verify the different suspicious financial transactions properly which had negatively reflected the code of conduct in the Company.


The violation of the various fundamental accounting principles in the Satyam scandal has been discussed briefly below-

a. Violation of integrity

The financial statements were found to be manipulated by Satyam Computer Services Ltd. which was a violation of the ethical code of integrity (Duska, Duska & Kury, 2018). Furthermore, the auditors of Satyam Computer Services Ltd. had carried out the auditing operations for nearly ten years and were unable to identify the manipulation in the financial statements.

The conduct of the organization with the investors was also deceptive due to the manipulation of financial statements that were done to make the company's financial statements appear stable which was in contravention of the ethical code of integrity in accounting.

b. Violation of objectivity

The fraud that PricewaterhouseCoopers was unable to detect (audited Satyam Computer Services for nearly 10 years) was detected by Merrill Lynch in nearly 10 days which indicates the lack of objectivity in the auditing operations (Duska, Duska & Kury, 2018).
Furthermore, the auditors might have colluded with the higher officials of Satyam Computer Services Limited due to which the financial misrepresentation was overlooked which is a violation of the ethical code of objectivity.

c. Violation of professional competence

Satyam Computer Services Ltd. was the first Indian Organization to implement International Financial Reporting standards but the monetary scandal negatively reflected the commitment to the professional competence of the Organization.
The manipulation of the financial statements and lack of detection of the creative accounting signifies the gross violation of the ethical code of professional competence by the given Organization (Duska, Duska & Kury, 2018).

d. Violation of confidentiality

The financial misrepresentation in Satyam Services indicates that the manipulation of the financial statements was done for personal advantage by the higher authorities which violated the ethical code of confidentiality (Duska, Duska & Kury, 2018).

e. Violation of the ethical code of professional behavior

The violation of the different regulatory compliances and standards (like the regulations of SEBI) of accounting was observed in the case of manipulation of the financial statements in the Satyam scandal which was in contravention of the ethical code of professional behavior.


a. Recommendations for strengthening the Corporate Governance

According to Veselovsky et al. (2018), one of the major ways in which corporate governance could be strengthened in Organizations is through the evaluation of the quality of corporate governance after regular intervals based on different parameters. Firstly, the activities and the priorities of the shareholders must be determined and checked with the existing corporate governance strategies in the Organizations and necessary modifications must be made. Secondly, the dividend and the compensation policies in the Organizations have to be evaluated and modified periodically when irregularities would be identified. The functioning of the auditors and the audit reports must be evaluated by the Organizations to make the necessary improvements in the Organization and ensure adherence to the different regulatory compliances and policies. The brand image of the Organizations in the mind of the shareholders has to be identified and the gaps and deficiencies have to be bridged adequately.

b. Recommendations for effective detection of creative accounting

As per Al-Olimat et al. (2020), creative accounting practices could be detected through the application of the cognitive capabilities of the auditors. Firstly, the recruitment board in the Organizations must evaluate the academic performance and the skillset of the auditors. Secondly, the awareness and knowledge base of the auditors on the different auditing laws and participation in various training and development programs have to be evaluated to determine the competency of the auditors in detecting creative accounting. Furthermore, the proficiency of the auditors in using the different tools and technologies used in the auditing processes must also be determined.

c. Recommendations to strengthen the public trust of statutory auditors

According to Ottaway (2013), the audit reports must be scrutinized properly by the Organizations which would help in determining the existing gaps and deficiencies in the accounting statements. The MAFR strategy that has been recommended in the given study would help in enhancing the independence of the statutory auditors in the Organizations that would help in improving the effectiveness of auditing. Furthermore, the U.K. re-tendering regime that has been highlighted in the study would also help in improving the reliability and the monitoring of the accounting statements which would help to preserve the public trust.

4. Conclusion and Recommendations

Corporate Governance serves as the foundation for reinforcing the brand image of the Organizations and ensures that the Organizations adhere to the different regulatory compliances and policies. The study helped in understanding the importance of the different educational credentials and skill sets that are needed to be evaluated for hiring auditors for Organizations. The recruitment of qualified and proficient auditors helps in identifying the various deficiencies and gaps in the accounting system of the Companies which degrades the reliability, transparency, and authenticity of the financial statements. Furthermore, the financial scandal of Satyam Computer Services Ltd. served as an eye-opener and a guiding force to the different regulatory authorities and the auditors to improve corporate governance strategies and detect creative accounting. The independence of statutory auditors plays a major role in improving the overall effectiveness of auditing operations and preserving public trust. PricewaterhouseCoopers (PwC) was the auditor for Satyam Computer Services for nearly 10 years which had lowered the independence of the statutory auditors and harmed the quality of the financial statements due to the presence of bias and involvement of higher management. Henceforth, the irregularities in the financial statements of the Organization were undetected by the auditors of PwC but Merrill Lynch was able to detect the irregularities within a tenure of 10 days. A gross violation of the various ethical codes of accounting was observed in the given corporate financial scandal of Satyam Computer Services Ltd. Moreover, the authenticity of the audit reports and compliance with the different regulatory standards forms the base of the Organizations to brighten the brand image that facilitates growth and flourishment.

The different recommendations based on the financial scandal of Satyam computer services Ltd. have been discussed below-

Firstly, the corporate governance strategies in the Organizations are needed to be evaluated periodically and the necessary improvements have to be made which would help in averting the possibility of future risks by resolving any kind of irregularities that have been identified. Furthermore, Organizations should prioritize the different needs and requirements of the stakeholders before formulating different Corporate Governance strategies.

Secondly, the Organizations must modify the recruitment strategies and criteria for hiring the auditors after regular intervals which would help in hiring the relevant candidates. Furthermore, recruiters must not only evaluate the academic credentials of the auditors but the skill sets, training, and awareness programs attended must also be evaluated which would facilitate better detection of irregularities and improve the quality standards of auditing.

Thirdly, the Organizations must ensure that the performance of the auditors is not biased by any kind of external influences and is aligned with the different fundamental accounting principles. The audit reports must be evaluated and verified by the Organizations to detect the presence of any kind of irregularities.

References list


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ACC601 Introduction To Financial Accounting Assignment Sample

Assignment Brief

Individual/Group Individual
Length 1500 words (+/- 10%)

Learning Outcomes:

The Subject Learning Outcomes demonstrated by successful completion of the task below include:

a) Articulate and implement regulatory and ethical frameworks and the use of accounting information to support business decision-making.

b) Apply the accounting cycle and double entry accounting principles to process transactions.

Assessment Task

There are two parts to this assessment. Firstly, Part A, requires you to write a business letter with suggestions on how to address the ethical issues discussed in a case scenario. Secondly, Part B requires you to process accounting transactions using Xero (cloud-based accounting software) and prepares a reflection report discussing your experience and knowledge gained from this task.


Part A – Ethics Case Scenario

University introduced a project that gives students the opportunity to gain work experience as an intern in a public accounting firm. As a participant in this project, you had an opportunity to work at JM Accounting, a public accounting firm for a month. During the internship period, you received training from several employees of JM Accounting. In particular, you had opportunities to work closely with two individuals, John Roberts and Peter Clare. John works as a trainee accountant and Peter is John’s manager who works as a senior accountant.

John is now in his first year of training within the firm. A more senior trainee has been on sick leave, and John is due to go on study leave. John has been told by Peter that he must complete some complicated reconciliation tasks before he goes on leave. The deadline suggested by Peter appears unrealistic, given the complexity of the tasks.

John feels that he is not sufficiently experienced to complete the work alone. He would need additional supervision to complete it to the required standard, and Peter appears unable to offer the necessary support. If John tries to complete the work within the proposed timeframe but fails to meet the expected quality, he could face repercussions on his return from study leave. He feels slightly intimidated by Peter, and also feels pressure to do what he can for the practice that is now going through challenging times. John is facing ethical dilemmas about what he should do.


Write a business letter in your own words, addressed to John Roberts explaining:

1. the ethical principles that will be affected if he performs the reconciliation tasks, and
2. possible courses of action that he can take in this situation.

Part B – Reflection Report

Please follow the instructions below to complete this assessment.

1. Register an account with Accounting Pod. Access to Accounting Pod will be granted via email invitation to each student’s Torrens email address from the Accounting Pod team.

2. Complete the practice set by following the instructions provided by Accounting Pod. Note: Accounting Pod will offer you immediate task feedback (i.e., one piece of feedback per Xero technical task) and interactive technical support via its educational platform (during business days and within 24 hours response time)

3. Prepare a reflection report answering the following questions on 5 topic areas. Each topic listed in the template below requires evidence to support your reflection such as including a screenshot with an example of a specific practice set question relating to that topic.


Part A: Ethics Case Scenario

JM Accounting

Date: 12th April 2022

John Roberts
Trainee Accounting
JM Accounting
884 Stanley St, East Brisbane QLD
4169 Australia.

Dear John,

I am writing this letter as I heard you are facing some ethical dilemmas regarding the reconciliation tasks allocated by Peter Clare. The prime purpose of this letter is to share my opinion regarding your confusion to maintain professional ethics before moving towards study leave.
Possible Ethical Issues for adopting the task

I get to know that the works allocated by Peter have an unrealistic expected timeframe and their completion possibility is beyond your professional experience. In such a scenario if you opt for the reconciliation then it will cause the violation of the ‘objectivity’ principle within the fundamental principles of APES 110 Code of Ethics forProfessional Accountants (Vermeesch, 2018). The objectivity principle is directed to not compromising judgements in the business and professional arena due to any sort of conflict of interest, biases, and undue pressure creation from any other irrespective of seniority. As it can deteriorate the quality of the activity and its adverse effects also can be implicated over the entire organisation.

Due to such compromise from your side, the needed integrity for the tasks would not be achieved which is also is a violation of the features of maintaining integrity in financing activities like straightforwardness and honesty as per APS 110 code (Vermeesch, 2018).

Also, Peter has not provided due supervision for the reconciliation tasks which can be dangerous for providing the required skill level and professional knowledge to ensure the competency of the tasks. Lack of competency in those tasks can hamper the expectation of the valued clients of JM Accounting which can generate negative implications for the organisation in the upcoming future. APS 110 also directs to maintain such competency in the professional activities and deliver the solution which nodes existing standards regarding technical and professional of the finance operations along with maintaining legislative regulations as well (Vermeesch, 2018).

I know you are feeling intimidated as if you turned the reconciliation then you have to face some negative issues within your professional career and this feeling also appears due to the behaviour of Peter. You should have to remember that if you optimise the reconciliation due to such a feeling then such activity can discredit the occupation desirables.

Driving by your level of expertise the quality of the reconciliation can be at stake due to such a challenging deadline which also can hamper three principles that are integrity, competency maintenance, and objectivity.
Possible Solutions regarding Ethical Issues

a. If you are opting for the reconciliation then you have to put your entire effort into the work. Any sort of half-heart action would not be correct in this regard. In that case, you have to shrink your study leave and move to leave after completing the work with quality and competence. Also, you should appeal for needed assistance to the top management of JM Accounting as by this any sort of quality concerns would not have arisen further.

b. If you do not want to act on the reconciliation without any future reputations then inform the top management regarding the entire situation including your purpose of such an application. Your application also should include your ethical dilemmas as well. If Peter receives orders from the top management only then he would not pressurise you for doing the work. Also, you can inform the violation of the professional behaviour from Peter’s side, however, for assignment help this activity should be entirely your discretion.



Part B: Reflection Report


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ACCT1081 Ethics and Accountability Assignment Sample


This is worth 10% of your marks and should not exceed 1000 words excluding appendices. You are required to work in groups of two students to search existing databases of: newspapers, periodicals, YouTube, academic articles, etc. to find a current business event that involves either ethical or unethical practice and behaviour. The business event should have occurred within the last two years.

NOTE WELL: Your choice of ethical issue has to be approved by your lecturer/instructor as we wish to avoid the same issue being presented more than once in the seminar.

You are then required to discuss the following issues:

1. What are the relevant facts of the case?

2. Who are the primary stakeholders, and why are they considered such?

3. What are the ethical issues? (This includes identifying the ethical issues associated with each of the relevant facts and ranking these or commenting on the severity of each. You should include the different perspectives of: utilitarianism, deontological ethics, and justice and fairness.



The emergence of coronavirus disease (COVID-19) and its subsequent pandemic spread has resulted in a global public health crisis with devastating health, social and economic consequences. The initial response of the different states was to impose restrictive measures and social barriers, such as the use of face masks or social distancing or mobility restrictions. In this context of pandemic chaos and after the rapid and celebrated development of several effective vaccines against COVID-19

Relevant Facts

There is no doubt that the prevention of infectious diseases through vaccination has been one of the most important advances in public health. However, it seems that scepticism towards such vaccines Thus, reluctance to the vaccine, defined as refusal, delay or acceptance with doubts about the usefulness and safety of the vaccine, can affect a significant number of the population, which may be reluctant to vaccinate for COVID- 19, despite the clear public perception of the high health risks associated with the pandemic. In such a situation, different medico-legal and ethical debates emerge, In the reluctance to COVID-19 vaccination in health professionals, we would find different values and principles in conflict. On the one hand, as mentioned above, a group of values and principles related to the protection of health, both collective and individual, are identified.

Primary Stakeholders

Given the realities of ordering coronavirus vaccinations in the working environment of stakeholders and employees, businesses must provide a stable environment to receive vaccinations, providing reassurance and support. This assignment writing for assignment help is necessary because the work environment must provide stakeholders with a credible, open and educational conversation about vaccine use. Web and other strong administrative portals to support delegates with booking arrangements and other motivational schemes. The convenience of adaptability to go to delegates and get antibody certification is important for all our critical partners to help prevent the spread of coronavirus from person to person. The report proposed by Berlinger et al. (2020), is if a state or county's overall prosperity requirements require employees to be vaccinated, the course for delegates to be vaccinated against Covid is one of the obligations companies have under occupational safety guidelines. It is a truly actionable step to consider as a department. Anyway, in conditions where there is no sensible government need to order vaccination, various organizations are logically engaging to change their work prosperity and security responsibilities against their assurance, and various responsibilities toward staff.

Fundamentally, administrators ought to continue to have regard for truth be told practicable advances they can take to deliver their responsibilities under work prosperity and security guidelines and whether that consolidates necessary vaccination will depend upon the states of every business. General prosperity should attempt to execute the most un-restrictive intercession at whatever point what is going on permits, yet inoculation orders are the most restrictive, nosy sort of counteracting agent technique (Sinclair et al. 2021). Moral conversation on vaccination orders dependably suggests that except for assuming any leftover reasonable means have failed (or are most likely going to forget) to augment immune response take-up as well as lessening disorder transmission by various means to an all-right level, orders should not be done. This anticipates that foundations should consider whether they have sought after each possible intervention and sponsorship instruments for preventing sickness even without a vaccination mediation.

Utilitarianism Approach to COVID-19 Vaccination

Utilitarianism is the laws are chosen because they bring about the best consequences. If the utilitarian course of action is not adopted, someone (often many) people will suffer or die avoidably. There may be good reasons to sacrifice well-being or lives. But such choices need to be made transparently and in full awareness of their ethical cost. Therefore, the requirement to get the jab wasn’t only in the best interest for individual but also for the countries and states Australia wide. Therefore, people of power saw this as way to adopt this to ensure that well-being of our lives was completed for good reasons to ensure the jab was mandatory. This was a major issue worldwide country wide and state-wide with the severity of this high.

Deontological Approach to COVID-19 Vaccination

Vaccine reluctance in health professionals must also be addressed from a deontological perspective. However, at present, it is important to note that studies show high efficacy figures for different types of vaccines in preventing infection in the vaccinated person, but it is not yet known whether COVID-19 vaccination prevents transmission. That is, at present, we know that a vaccinated person is more protected from the disease, but it is unknown whether a vaccinated person can transmit the disease. Therefore, at present, it is not yet established that vaccination prevents a direct risk of transmission to patients.

From a deontological point of view, a health professional's decision not to vaccinate would affect his or her own health, herd immunity and exemplarity, and is therefore highly recommended, but it is not clear that it would cause direct harm to the patient.

On the other hand, it is a deontological responsibility of the doctor, in relation to vaccination, to generate confidence in it, using evidence-based knowledge when available, avoiding the dissemination and promotion of misinformation.

This was a major issue worldwide country wide and state-wide with the severity of this high.

Justice & Fairness Approach To COVID-19 Vaccination

The COVID-19 pandemic has resulted in lockdowns, the restriction of liberties, debate about the right to refuse medical treatment and many other changes to the everyday behaviour of persons. The justice issues it raises are diverse, profound and will demand our attention for some time. The need to make the vaccine mandatory was one of the major talking points, as many saw this as a major factor of their rights as a individual being non-existent. People didn’t see this fair to them as some were not certain on getting the vaccine due to the untested vaccines and their right not to get vaccinated due to this issue. The COVID-19 pandemic is pushing ethical deliberation in new directions and many of them turn on approaching medical ethics with a greater emphasis on justice and related ethical concepts.

This was a major issue worldwide country wide and state-wide with the severity of this high.


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Thesis Writing

Stock Based Compensation Plans Assignment Sample


1.1 Background

Employees and other parties are frequently given share options by companies. Not only for directors and top executives, but for many other employees as well, stock-based compensation programmes have become a standard component of employee compensation. To compensate suppliers, such as those who provide professional services, some businesses issue shares or share options. There is currently no International Financial Reporting Standard (IFRS) on how to account for stock-based payments, despite their growing use. This lack of a worldwide standard has drawn criticism. For instance, the International Accounting Standards Committee (IASC), the predecessor organisation of the International Accounting Standards Board (IASB), should take into account the accounting treatment of stock-based compensation, according to the International Organization of Securities Commission's (IOSCO) assessment of international standards (www.iosco.org).

Few nations have guidelines in this area. This is especially concerning in Europe, where the use of stock-based compensation has grown dramatically in recent years and is still expanding, but where there is no accounting guidance. Recently, the Financial Accounting Standards Board (FASB) in the United States and the IASB has started collaborating on this issue. As of now, everyone is in agreement that every stock-based payment transaction should be recorded in the financial statements, resulting in an expense in the income statement when the goods or services are used (www.iasc.org.uk).

In 1993, FASB made an attempt to implement an accounting standard that would force businesses to include stock options in their income statements and classify them as an operational expense. Companies vehemently disagreed with this suggested declaration (www.fei.org/advocacy/download/StockOptionAccounting-OnePager.pdf). Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) was finally released by FASB in 1995 after much debate.

Companies are encouraged, but not required, to apply the same accounting method to stock-based payments to employees, and if that method is not applied, the standard requires disclosures of pro forma net income and earnings per share, as if the method had been applied (www.fasb.org). However, according to accounting assignment help, FASB is still dealing with the issue of how to treat stock-based payments with parties other than employees.

IASB proposed that the IFRS be effective for periods beginning on or after 1 January 2004 when it issued the Exposure Draft ED 2 "Share-Based Payment" on November 7, 2002. IASB invited comments on the proposals in the ED 2 by March 7, 2003. IASB will take into account the comments received on the Exposure Draft when finalizing the IFRS, which it plans to do by the end of 2003.

Although the topic of stock options raises a number of issues, which will be covered in the following section, even with the adoption of standards, the two standard-setting bodies are still working on standards controlling accounting for stock option programmes.

1.2 Problem

Initially praised for their ability to incentivize management, stock options are now blamed for encouraging management to take a variety of actions to increase company share prices and keep their option packages "in the money."2 It is now generally acknowledged that management was aided by accounting practices that did not require the cost of stock options to be treated as an expense (The Economist, November 2002, Vol. 365, Issue 8298).

When the Accounting Principles Board (APB) released Opinion No.25 (APB 25), "Accounting for Stock Issued to Employees," in 1972, it set forth the first rules for accounting for stock options. According to APB 25, options were measured at their intrinsic value, which was determined at the grant date. However, at a grant date, the market price and exercise price are typically the same, so the value of the stock options was then typically zero.

The standard-setting bodies FASB and IASB, as well as many economists, analysts, and investors, came to the unanimous conclusion that expensing stock options, i.e. deducting their costs from a company's profits, is the best course of action. In practice, however, companies tend to object to such treatment of stock options, arguing that it is unfair to employees and other stakeholders (Dakdduk, 1996).

Another concern raised with regard to stock options is how they are valued and when they should be expensed. Economists generally concur that stock options should be expensed using a fair-value method, which reflects what the options would cost to buy in the market if they were available. Both economists and IASB rule out two other methods, such as the intrinsic value and the minimum value method (The Economist, November 2002, Vol. 365, Issue 8298).

Three main questions can be derived from the debate above:

Should businesses deduct stock option costs?

• What should be the value of stock options?

• Is granting an option a one-time expense for businesses, or is it a contingent obligation, the full cost of which becomes apparent when options are exercised or expire, and whose potential cost varies with changes in the market price of businesses' shares?

We will further explore what issues raise the most controversy and what are the commonly provided answers when it comes to implementing the accounting for stock options in practise, and we will compare the answers provided by the standard-setting bodies, IASB and FASB in this thesis, and the companies.

1.3 Research Issue

Our thesis will provide a solution to the following question:

• How does the corporate community feel about depreciating stock-based compensation plans, and what are the arguments for and against?

1.4 Purpose

This thesis's four main goals are as follows:

• Describe both current and prospective regulations, specifically:

- Statement of Financial Accounting Standard No. 123's "Accounting for Stock-Based Compensation";

- Statement of Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure;"

- "Share-Based Payment," International Financial Reporting Standard Exposure Draft;

- "Accounting for Stock-Based Compensation: A Comparison of FASB Statement No. 123, Accounting for Stock-Based Compensation and Its Related Interpretations, and IASB Proposed IFRS Share-Based Payment," an invitation to comment.

• Contrast the current and planned stock option accounting regulations with how businesses actually account for stock options.

• Conduct an examination of a few different Comment Letters.
Submitted by various companies in order to determine the major topics they discussed and their opinions on how stock option programmes should be treated in financial statements.

• Outline your conclusions based on your analysis.

1.5 Delimitations

The primary existing and proposed rules regarding stock options have been chosen, but one of the proposed rules is an Exposure Draft and one is an Invitation to Comment, and the periods over which Comment Letters can be submitted on these Exposure Draft and Invitation to Comment are still open. As a result, the final version of the standards may differ from the proposed ones primarily due to time constraints.

We chose a number of Comment Letters submitted by companies with regard to the current and proposed FASB rules because it was not practical to study all submitted Comment Letters; for the IASB Exposure Draft "Share-based Payment," we will analyse the Comment Letters submitted on the Discussion Paper, which came before the Exposure Draft.

Due to the expensive expense of buying all of the available Comment Letters and the constrained time constraint, only a small subset of Comment Letters will be examined.

1.6 Thesis Outline

Chapter 2:

The research methodology, methods used to gather and evaluate the theoretical and empirical data, and evaluation of the research's quality are all covered in this chapter.

Chapter 3:

This chapter examines the idea of stock-based compensation, its impact on company performance, the current FASB and IASB rules and regulations governing employee stock-based compensation plans, whether or not a stock-based compensation plan results in a company expense, how to measure the expense and when to recognise it, and whether or not a stock-based compensation plan results in a company expense.

Chapter 4:

We review the Comment Letters submitted by various companies with regard to FASB and IASB issued standards and Exposure Draft regarding accounting for stock-based compensation plans and describe the ways in which a number of companies reflect the stock-based compensation expense in their financial statements in this chapter, which covers the empirical evidence we gathered during the course of our work.

Chapter 5:

We review the study's findings in chapter 5 and offer our thoughts.

Chapter 6:

Our study's findings and the resolution of our research question are presented in Chapter 6, where we also make recommendations for potential future studies.

2 Methodology

We explore numerous methodological techniques that can be employed when carrying out research activities in this chapter, as well as the methodologies we selected and their justifications.

2.1 Research Approach

Patel & Davidsson (1994) claim that research methodologies can have three features as mentioned below. The choice of research approach depends on the degree of accuracy with which the original research question can be formulated, and how much knowledge there is in the domain of the chosen subject.

The main goal of exploratory studies is to gather as much knowledge as possible about a study problem area, which entails that the problem is analysed from a variety of points of view. A wealth of ideas and creativity are important elements in explorative studies because these frequently aim at obtaining knowledge that can lay the groundwork for further studies (Patel & Davidson, 1994).

In a descriptive study, just the crucial features of the phenomena are examined; the descriptions of these aspects are in-depth and fundamental, and the descriptive technique is best suited to inquiries where there is already knowledge (Patel & Davidson, 1994).

When there is enough data to create new theories, the hypothesis testing approach is utilised. The researcher gathers data and formulates hypotheses that will be tested in the real world and will either be accepted or rejected (Patel & Davidson, 1994).

We read several articles and other sources related to stock-based compensation plans and accounting for them, as well as analysed some chosen Comment Letters, which present the viewpoint of the business community on the topic of accounting for stock-based compensation. This data collection provided the foundation for both the exploratory and descriptive approaches that were used in our thesis.

2.2 Research Perspective

The positivistic approach and the hermeneutic approach are the two main viewpoints that can be used in scientific inquiry (Patel & Davidson, 1994).

The positivistic approach is based to a large extent on measurement of, and logical reasoning about, reality. It is based on experiments, quantitative measurements, and logical reasoning. It is based on scientific rationality. It should be possible to empirically test the knowledge in order for it to be meaningful (Patel & Davidsson, 1994).

Under the hermeneutic approach, the researcher tries to see the big picture in a research problem. Hermeneutics is about interpreting the meaning in texts, symbols, and experiences. The hermeneutic approach uses the researcher's own knowledge, thoughts, impressions, and feelings in order to understand the study object. These attributes are an asset for the researcher and not an obstacle (Patel & Davidsson, 1994).

Our research was based on our interpretations of the phenomenon we are studying, and it is more biassed toward the hermeneutic approach in our thesis. We looked at the IASB and FASB regulations relating to stock option plans, as well as whether or not companies expense stock options in their financial statements and comment letters, which gave us an overview of the companies' perspectives on the treatment of stock option plans.

2.3 Research Design

The inductive approach is the formulation of general theories from specific observations, as opposed to the deductive approach, which is the derivation of a new logical truth from existing facts (Melville & Goddard, 1996). The deductive approach can be defined as when a theory concerning the chosen subject already exists and a hypothesis is formed from it.

The inductive and deductive procedures are combined in the abduction methodology, and from this the researcher develops an analysis of the empirical data and prior hypotheses (Alvesson & Sköldberg, 1994).

We started by gathering information and trying to condense it into a brief summary format, furthermore, we established a link between the objectives of our research and the findings we derived from the collected data. On the other hand, we can say we tested the existing theory as we tried to look into the ongoing movement. In our opinion, our thesis is a combination of both the deductive and the inductive approaches.

2.4 Research Method

The most significant distinction between these methods is that the quantitative method converts the information obtained into numbers, and from these data, a statistical analysis is carried out. Research can be undertaken using quantitative or qualitative methods, or a combination of both (Holme & Solvang, 1997).

The main goal of qualitative research is to obtain a more profound understanding than the fragmented information generated by quantitative methods; in a qualitative approach, it is the researcher's understanding or interpretation of the information that is vital. Qualitative data is often appropriate for research projects that aim to understand or describe something in more detail (Holme & Solvang, 1997).

The data that are acquired, analysed, and evaluated in our study cannot be properly described in figures because we want to get a deeper understanding of the study object and do not strive to validate the validity of our results using quantitative methods or statistical tools.

2.5 Data Collection

For the research to be relevant and the solution to the problems to be applicable, data collection is of utmost importance.

Different types of data, including primary and secondary data. Primary data is information collected and used for the first time, typically through direct examination, whereas secondary data consists of information already available, i.e. it has been collected or produced by a third party and perhaps for a different purpose (Eriksson & Wiedersheim-Paul, 1999). (Lekvall & Wahlbin, 1993)

The materials we studied for our analysis, which is based on secondary data, included books, papers, annual reports, Comment Letters, and data from the websites of the FASB, IASB, and other organisations.

It is crucial for the reader to comprehend the IASB and FASB rule-making procedure (called Due Process) and the function the Comment Letters play in that process since our study incorporates an analysis of Comment Letters.

The FASB and IASB systems of due process give interested parties the chance to voice their opinions on the proposed accounting rules, with the goal of carefully weighing those opinions to ensure that the standards meet the needs of the constituents. The first step in the due process is choosing the issue on the agenda, followed by the release of a Discussion Memorandum/Paper, an Exposure Draft, and then an accounting standard.

On the Exposure Draft to SFAS 123, there were more than 700 Comment Letters submitted (www.fei.org/advocacy/download/StockOptions-whitepaper.pdf). Due to the high cost and lack of time, it was not possible to study all the letters; therefore, we have chosen ten of them. On SFAS 148, there were 77 Comment Letters submitted; we chose Comment Letters of seven companies and two organisations.

We excluded associations of companies and professional organisations as they represent the views of a group of companies but do not use stock-based compensation expense themselves. We selected ten companies from among those whose Comment Letters we reviewed for specific investigation of how they account for stock-based compensation expense.

2.6 Quality of the Research

It is necessary to show that the research was planned and carried out in such a way that it accurately identifies and describes the phenomenon that was investigated in order to achieve a high level of credibility for the conclusions presented in this thesis. To do this, it is necessary to describe issues concerning the research project's validity and reliability (Ryan, et al., 1992).

According to Lekvall and Wahlbin (1993), validity can be divided into constructive, internal, and external validity. Constructive validity evaluates whether there is a correct relationship between theories and empirical findings. Internal validity approximates the truth about a presumption. External validity deals with the issue of whether the research actually measures the things it aims to measure.

It clarifies to what extent the findings may be duplicated when utilising the same research method, i.e., if the measurement tool would provide the same or similar results if another researcher uses the same procedure. Reliability takes into consideration the quality of measurement (Lekvall &Wahlbin, 1993).
We carefully reviewed the literature, articles, and accounting standards available to ensure the validity of our thesis, and we presented a thorough explanation of the rules governing the accounting for stock option plans and the application in practise. Based on that information, we established the main issues which raise concerns of business enterprises regarding accounting for stock-bought securities.

As we employed a qualitative research methodology, it is challenging to assess the reliability of our study; however, we can state that reliability of our study is supported by the examination of the underlying standards, Comment Letters that were available, and annual reports. Of course, the conclusions we draw in Chapter 6 are necessarily based on the limited number of companies under study.

3 Theory

This chapter discusses the idea of stock-based pay, its impact on business performance, and the FASB and IASB rules and regulations that currently apply to employee stock-based compensation schemes. In certain cases, we closely adhere to the wording of the rules themselves as we highlight the key features of the numerous restrictions. We also talk about whether a corporation incurs costs as a result of a stock-based compensation plan. The issues and challenges associated with measuring the expense and determining the timing of the expense are also covered in this chapter.

3.1 The Concept of Stock-Based Compensation

Stock options are the right to purchase a predetermined number of shares of a company's stock for a predetermined length of time at a predetermined price (referred to as the exercise or strike price) (called the option period or life of the option). Typically, businesses grant fixed options, where the number of shares and exercise price are both predetermined at the time of award. Although there are some exceptions, the exercise price is typically set to be equal to the market price of the underlying stock at the grant date and usually doesn't change over the course of the option. Employee stock options sometimes have a vesting period of several years before they become exercisable and a life of 5 to 10 years (Lynch & Perry, 2003). A "period of time over which the employee will become eligible to actually own the stock" is referred to as the vesting period (Sunkara, 2000).

Stock options are a kind of long-term compensation used by corporations. Executives and other staff are being given options as a substitute for base salary increases. (Sesil, et al., 2000) listed a few justifications for employing stock options as follows:

Employee stock options align their interests with those of shareholders. As a result, CEOs will take actions that primarily benefit shareholders.

• Options offer the chance to lower the base salary for CEOs. The significant pay disparities between executives and other workers are balanced by this.

• Options are a tax-effective method of paying employees as well.

• Options promote job growth in sectors related to knowledge.

• Options assist businesses in navigating competitive labor markets.

The sole reliance on a system of fixed wages and benefits has given way over the past 10 years to a growing role for equity.

Stakes in businesses. Companies now use stock options to organise employee compensation for larger groups of employees, expanding on the trend that was initially sparked by the explosive expansion of stock option grants to CEOs. These could replace wage rises even though they don't always go hand in hand with pay decreases (www.nceo.org/library/optionreport.html).

The tighter labour market and the meteoric rise in high technology employment and economic growth were some of the factors contributing to the increase in stock options over the past 10 years. The performance of equities has been exceptionally strong throughout that time, and there has been a rapid expansion of technological businesses, an Internet revolution, an Internet start-up boom, and significant price increases in the shares of many of these companies (Sesil, et al., 2000).

The quick spread and rapid expansion of stock option grants to CEOs marked the beginning of the move toward stock option pay. Then, mostly in high technology organisations, it spread throughout the management and professional ranks. Many businesses gradually transferred portions of future pay for larger groups of workers to stock-based compensation. 15 companies have reserved more than 25% of their weighted average number of outstanding shares for equity incentives for upper management and staff, according to a 1998 survey of the top 250 U.S. enterprises. (Weeden and others, 1998) According to this study, from 0.3% to 5% on average in the 1960s to an average of 2% in 1998, the average proportion of all shares outstanding that are allotted for remuneration has climbed.

3.2 Stock-Based Compensation Effect on Company Performance

There are numerous ideas that explain the various impacts of stock-based remuneration on business success. According to agency theory, incentive conflicts occur when top managers' objectives are at odds with those of the shareholders. Owners pay a price in the form of incentive contracts in order to better align the interests of the two parties (Jensen & Meckling, 1976).

Other ideas claim that because managers' and employees' interests are more closely aligned, stock options may reduce the cost of information in a corporation. This acknowledges that employees may have access to information that management may find useful. Employees may have the essential incentive to share or act on their superior information if there are stock-based compensation systems in place (www.nceo.org/library/optionreport.html).

An additional defence for stock option programmes comes from the efficiency wage theory, which claims that individuals who work for companies that pay above market rates may be less likely to leave and more likely to put up their best effort as a result of the higher salary rate. As a result, it's probable that employees who put in a lot of effort are drawn to businesses that provide better salaries due to broad-based stock options (www.nceo.org/library/optionreport.html).

Additionally, profit sharing theories are more likely to anticipate a favourable relationship between broad-based stock options and business performance (Kruse, 1993). Because lower level employees do in fact use stock-based compensation plans similarly to cash profit sharing plans, profit sharing theory is also pertinent to these arrangements. Thus, a more optimistic estimate is suggested by profit sharing theory. Although scholars have emphasised that it is difficult to differentiate the impacts of profit sharing from other human resource management methods, numerous microeconomic studies have revealed that profit sharing organisations are more productive than firms without profit sharing. (Kruse, 1993; Weitzman & Kruse, 1990; Ichniowski, et al., 1997).

However, some believe that stock-based pay may actually have a negative impact on business performance. Kevin J. Murphy comments on the executive stock option research tradition and claims that there is "quite scant scholarly evidence directly tying present grants to future performance" (Murphy, 1998). The claim that a company with a more extensive stock-based equity compensation scheme may achieve considerable increases in its shareholder value over time is one prominent criticism of the positive spin placed on stock options. However, if this firm is compared to the rest of its industry group, the claim that shareholders and employees profited well may be exposed as a deception if the company actually underperformed.

Due to these factors, some businesses have designed their stock option plans as follows to guarantee some form of performance beyond the norm (Sesil et al., 2000):

• Some options contain the possibility that no options will be earned and have a premium price set higher than the market price of the common stock on the date the option is granted;

• Some options won't become exercisable until the corporation meets strict performance goals;

• To ensure that the company's performance, not the performance of the market or the firm's industry group, determines the profit from the options, some options index their exercise price to a market or industry group average.

3.3 The Growth of Stock-Based Compensation

Executive and non-executive remuneration packages now often include stock options. According to a 1998 Towers Perrin research, 78% of American businesses provide stock options (Orr, 1999). It's interesting to see that non-top-five executives own the majority of stock options. 75% of stock options are given to employees who are not among the top five employees, according to a study of large companies conducted between 1994 and 1997. (Core & Guay, 2001). According to a Share Data survey conducted over a comparable time period, the percentage of companies with stock option programmes and more than 5,000 employees who issue options to all employees rose from 10 to 45%. Additionally, all of their employees receive options from 74% of businesses with less than $50 million in sales (Morgenson, 1998).

There is no reporting system that could provide accurate information on how many employees receive stock options, claims Corey Rosen, Executive Director of The National Center of Employee Ownership (NCEO). Therefore, the NCEO has created estimates based on research from the Bureau of Labor Statistics and surveys conducted by a number of significant consulting firms, including Mercer Consulting, Hewitt Associates, academics Edward Lawler, Susan Mohrman, and Gerald Ledford, as well as Segal Sibson. All of these researchers reached the same conclusions (www.nceo.org). According to these studies, between 7 and 10 million employees had stock options in the year 2000. But this does not mean that 7 to 10 million workers receive options every year, as options are frequently not awarded annually, especially in some extremely large companies with broad-based awards. Approximately three million people do that every year.

The number of Americans obtaining options is thought to have increased significantly in the 1990s; growth since 1999 is likely to have levelled off as the tech sector's development has halted. Only about one million people had choices in 1992. The expected growth through time is shown in Table 1 below (these figures reflect the number of employees who now possess options, not the number of employees who received options in a given year):

Table 1 shows the increase in US employees holding stock options. (www.nceo.org)

3.4 Stock-Based Compensation Plans – Expense or Not?

Companies are already permitted to exclude the cost of stock-based compensation from their income statements under current accounting standards. Companies can provide lucrative option packages without having an impact on their profits. Many believe that failing to expense stock-based compensation plans results in exaggerated profitability, which therefore raises share values (Sahlman, 2002).

The fair value method of accounting for stock-based compensation is preferred by FASB, and corporations are encouraged to use it in place of the intrinsic value method, which is permitted by APB 25 but often results in no expense on the income statement. Only a small percentage of businesses, meanwhile, adopt the FASB's recommendation. The debate over the accounting for stock-based compensation continues even though SFAS 123, which encourages but does not mandate the expensing of stock options, was released in 1995. A description of SFAS 123 can be found in Section 3.6.

Some businesses think that the fair value method gives investors a better understanding of the financial statements. However, some financial experts claim that since stock-based compensation is a non-cash item and is added back to net income if compensation expense is recognised using the fair value method, it will not have an impact on their valuation study (Pippolo, 2002).

3.4.1 Arguments Supporting the Recognition of Expense

One of the justifications given for using the fair value technique of stock-based compensation plan accounting has to do with the recipient's and the company's tax obligations. The difference between the received amount and the option price is taxed at a rate that is significantly lower than the rate on ordinary income when stock options are sold after complying with the holding period restrictions (Shnider, 2002). However, the difference between the option price and the stock's current market value is tax-deductible for the corporation at regular corporate tax rates. certain Americans Congressmen recommended requiring businesses that offer stock options to top executives and claim tax deductions to also include stock-based compensation expense in their income statements. It is thought to be unfair to let businesses deduct options from their taxes without having to record them as an expense (Newell & Kreuze, 1997). U.S. Congressman Pete Stark describes stock options as "...a corporate tax loophole that allows companies to hide stock option expenses from their Securities and Exchange Commission earnings reports, but allows those same companies to take the deduction on their Internal Revenue Service tax filings" (www.house.gov/stark/documents/107th/stockoptions). This bill would "End the Double Standard for Stock Options Act," which Congressman Stark introduced.

Stock-based compensations do not always result in outflows of assets or incurrence of liabilities, as stated in Statement of Financial Accounting Concepts (SFAC) No. 6, "Elements of Financial Statements." Expenses are defined as "outflows or other using up of assets or incurrence of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations." However, FASB contends in SFAS 123 that stock-based compensation programmes are worthwhile rewards for employees' labour. Whether the compensation is in the form of cash, other commodities, or services, the advantages stock options offer for employees result in an expense.

Furthermore, for all organisations, stock-based remuneration might really result in large opportunity costs or financial outflows. We describe these options below. Many businesses, according to Newell and Kreuze (1997), tend to maintain a constant number of outstanding shares. Companies actually sell their shares to employees at a discount when they execute stock options. Companies then use the stock market to buy shares at a higher market price in order to maintain a set number of outstanding shares. There is a genuine cost to businesses while the stock price is rising. At such time, stock options are most expensive. For instance, Microsoft reports the following in Note 15 "Employee Stock and Savings Plans" of its Annual Report 2002: "The Company has an employee stock purchase plan for all eligible employees. Shares of the Company's common stock may be purchased under the plan at intervals of six months for 85% of the lower of the market value or the exercise price (www.microsoft.com/msft/ar). The company repurchases its common shares in the open market to provide shares for issuance to employees under stock option and stock purchase schemes, according to Note 13 "Stockholders' Equity" (www.microdoft.com/msft/ar). As can be seen, when stock options are exercised, corporations do pay more for their shares on the stock market. Unless corporations voluntarily choose to employ the fair value based technique for accounting for stock-based compensation, these options are not recognised as a cost. In the end, though, these solutions cost businesses actual money.

There is also an opportunity cost for businesses, as was already mentioned. The corporation sells its stock to employees at a discount when they execute their stock options. The difference between the exercise price and the higher market price is that discount. Even if the corporation chooses not to purchase its shares in the market, it incurs costs. The business forfeits its chance to sell these shares on the market for a higher price. Since the exercise price is lower than the greater market price, the opportunity cost is the difference (Newell & Kreuze, 1997).

3.4.2 Arguments For No Expense Recognition

Despite the numerous arguments in favour of treating stock-based remuneration as an expense, there are numerous opponents. According to Borrus et al. (2002), the primary objections to the idea of expensing stock-based compensation plans are as follows:

Why Companies incur no monetary expense as a result of stock option grants, unlike salaries or other forms of compensation. Expensing stock-based compensation programmes will only have a negative and unjustifiable impact on a company's profitability because there is no expense that can be deducted.

• No specific techniques have been devised to quantify stock-based compensation costs. All valuation techniques call for several estimations and assumptions.
Financial statements may become less accurate as a result of this circumstance, which also makes manipulation easier.

• Earnings will be decreased by the deduction of stock-based compensation expense.

• It could cause share values to decline.

• Businesses may start issuing fewer options in order to protect their profits. This will make it harder for businesses to retain talented workers and prevent them from balancing the interests of their workers and shareholders.

Finally, expensing stock-based compensation programmes won't provide any new information that isn't already there in the financial statements, according to Sahlman (2002). Instead, it can result in less information being included in the financial statements' footnotes and a more misleading image of a company's financial situation.

3.5 Methods to Measure Stock-Based Compensation Expense

This section covers numerous techniques for estimating potential costs associated with stock-based compensation programmes. Some of the suggested techniques are based on models for option pricing. We briefly define a few words used in reference to options, their pricing, and how they apply to stock-based compensation programmes to start off this section. Following these explanations, we provide a summary of the models used to price stock options along with some remarks on the challenges associated with their use.

3.5.1 Explanation of Option-Specific Terms

The preset price at which the option's writer and holder both concurred and at which the option's holder can purchase or sell an underlying asset is known as the striking price or exercise price (Ross, et al., 1996).

Regarding expiration, there are primarily two types of options: European options and American options. American options can be exercised at any time after they have vested, whereas European options cannot be exercised before the expiration date (www.e-analytics.com/optbasic).

The following factors can affect an option's price (www.e- analytics.com/optbasic):

• The underlying asset's cost
• The option's actual strike price
• The amount of time until the expiration date
• The stock's underlying volatility (in case of stock options)
• Dividends anticipated on the underlying stock
• The interest rate that is risk-free for the anticipated duration of the option.

Undoubtedly one of the most important elements is stock volatility. The propensity of the stock to experience price movements is referred to as volatility. The terms historical, predicted, and implied volatility are all explained at www.mdwoptions.com/volatility. The stock's actual price movements from the past are used to compute historical volatility. The stocks expected volatility from the date of option issuance until the expiration date, however, is more crucial to understand. Given that the time horizon lies in the future, volatility in this situation is difficult to exactly assess. Therefore, the volatility needs to be calculated. Forecast volatility refers to the anticipated future volatility. On the other hand, implied volatility refers to the option rather than the underlying stock (www.ivolatility.com/news).

Stock-based compensation plans can be valued at either intrinsic or fair value, as was previously mentioned. Under the intrinsic value based theory (see Section 1.2),approach, the cost of compensation is acknowledged as an intrinsic value at the time of grant. The intrinsic value is the difference between the underlying stock's current market price and the option's exercise price. Since the exercise price of the option on the grant date is typically equal to the fair value of the underlying stock, this strategy typically results in no expense for stock option awards (Pippolo, 2002). The compensation cost is recognised and expensed for the period that an employee provides associated services when an expense is determined using the intrinsic value technique (i.e., when the market price is not equal to the exercise price at grant date). The corporation must also provide pro forma net income and earnings per share using this methodology, just as it would have under the fair value-based methodology (Wiedman & Goldberg, 2001).

The compensation cost is calculated at the award date and recognised over the service duration, which is often the vesting period, under the fair value based method. An option pricing model is used to calculate the fair value. The grant date, the exercise price, the expected life of the option, the present price of the underlying stock, that stock's anticipated volatility, expected dividends on that stock, and the risk-free interest rate over that same estimated life are all taken into account by option pricing models. The fair value technique results in a larger expense than the intrinsic value approach because the fair value of an option includes both its intrinsic value and its time value (Wiedman & Goldberg, 2001).

3.5.2 Overview of Option Pricing Models and Their Drawbacks When Applying to Stock-Based Compensation Plans

Use of option pricing models can be used to determine the stock-based compensation's fair value. Companies have the option of assessing stock options using option pricing models, thanks to both IASB and FASB. Here, we give a succinct overview of the models that are offered.

The Black-Scholes and binominal models, which offer fairly accurate estimations of an option's value, are the most often used option pricing models (www.ei.com/publications/2001/winter1). The Black-Scholes model, co-created by Robert Merton and launched in 1973 by two financial professors, Fischer Black and Myron Scholes, is typically preferred by businesses. The Black-Scholes and binominal models are formulas that produce an expected of value stock option, which is the amount that an investor is ready to pay today for the chance to profit from the rise in value of the underlying stock during the option's lifetime (Restaino, 2001).

The following assumptions are included in option pricing models (www.bradley.bradley.edu):

• No dividends are paid for the duration of the option.
• Exercise terminology from Europe.
• Markets are productive.
• No commission fees are assessed.
• The interest rate is stable and well-known.

Publicly traded short-term investment instruments are employed in the Black-Scholes model and standard binominal models. They therefore cannot be applied to value employee stock options without being modified. In reality, according to these option pricing models, the value of employee stock options can be greatly inflated (www.ei.com/publications/2001/winter1). The Black-Scholes model is suitable for publicly traded options, but it should not be used for employee stock options, according to Alfred King, vice chairman of Valuation Research Corp. in the United States (Harrison, 2002). A number of businesses have also pointed out the shortcomings of the current option pricing models, including Wal-Mart and Commerce Bancorp Inc. The companies claimed in their annual reports that the current option pricing models do not accurately reflect the fair value of employee stock options because employee stock options differ from traded options and because option valuation methods demand a lot of subjective assumptions that can affect the valuation (Harrison, 2002).

Accountants must use their expert judgement when determining the expected stock volatility, estimated duration of the option, and projected dividends. Accountants should take dividend history into account when estimating dividends. There is a chance that the past dividend payout won't continue. Accountants must devise a new method to estimate dividends in such circumstances. The vesting time affects the expected life of options. The corporation should use the typical period of time during which comparable grants were outstanding in the past if there is any indication that options may be exercised sooner. The most difficult estimate to make is for the projected volatility. Once more, accountants should consider the stock's historical volatility (Bushong, 1996).

Employee stock options are very different from publicly traded options in that they are far longer-term, can be exercised at any time, and can be freely traded. Employee stock options often have a longer life span, can be exercised during a lengthy vesting period, and, most crucially, are not transferrable (Harrison, 2002).
A key restriction on employee stock options is their non-transferability. The assumption used by standard option pricing models is that options will be executed at or very nearly the ideal exercise price Options' transferability makes sure they won't be exercised too soon. For instance, if the option holder decides they do not want to keep the option until the right exercise date, they can sell it to another investor who will keep the option until the right time. The transferable options may be transferred but will not be exercised in advance. In the case of employee stock options, there is only one option available if the option holder wants to sell the stock: exercise the option, even if the timing is unsuitable and the value received would be subpar (www.ei.com/publications/2001/winter).

Additionally, employee stock options—which traded options do not—can have a reload feature. When original choices are exercised, a reload mechanism instantly grants a new set of options to the executive. The market price of the company's shares on the date the original options are exercised is typically the same as the exercise price of the option with a reload feature. A reload feature makes an option more useful than a standard choice. The benefit of exercising current options while still retaining options for future exercises is available to the holder of the reload option (Saly & Jagannathan, 1999).

As a result, the option pricing model that can be altered to account for the unique characteristics of employee stock options is the one that would accurately assess the value of employee stock options.

The issue of the exercise time is another issue with the measurement of stock options. Whether to measure stock options at a grant date or a vesting date is up for debate. What would be the fair value of the stock option, which the employee may exercise in five, ten, or possibly never, if the measurement date is the grant date? (1995, Cheatham). The issue of stock option measurement is made more difficult by the possibility of early exercise. Employees may decide to exercise their options before they are ready in order to reduce their risk exposure. Therefore, if the actual terms differ from those estimated, it will eventually be essential to change the estimated expense in order to eliminate measurement mistakes (Hemmer & Matsunaga, 1994). These issues are understood by FASB and IASB. Both SFAS 123 and Exposure Draft
2 mandate that the stock options be valued using their expected lifetimes rather than their contracted lives due to the likelihood of early exercise.

3.6 Accounting for Stock-Based Compensation in the United States Prior to SFAS 123

Long a contentious topic, stock-based compensation accounting should compensation expense be recorded for stock options? These are the two issues that have dominated the standard-setting process for stock-based compensations. If so, over what timeframes should it is distributed? (www.nysscpa.org/cpajournal/2001/0500/ features). The American Accounting Principles Board (the APB) published Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," in October 1972. The intrinsic value of the granted options is used by APB 25 to determine compensation. The difference between an option's exercise price and the stock's current price at any time during its life is what is known as the option's intrinsic value (Brozovsky & Kim, 1998). The amount of compensation is decided at the measurement date according to APB 25. The measuring date is the first day on which the employee will know how many shares they will get as well as the exercise price. This is typically a grant date (Brozovsky & Kim, 1998). However, the market price and exercise price are often equal at the grant date. Therefore, according to www.orgs.comm.virginia.edu/mii/education/fundamentals, firms do not record any compensation expense for stock options.

3.7 The History of SFAS 123 “Accounting for Stock-Based Compensation”

The method permitted by APB 25 did not satisfy the accounting professionals since it disregarded the potential that the stock price would one day rise above the exercise price. To create a new standard, FASB spent eleven years (1984–1995) working on it (www.fwcook.com). The corporations were compelled to measure the expense of stock options at their fair value and display it on their income statement when FASB released an Exposure Draft of a new standard in 1993. The business community, however, vehemently opposed the Exposure Draft. The Statement of Financial Accounting Standard No. 123, entitled "Accounting for Stock-based Compensation," was eventually published by FASB in October 1995 (www.online.wsj.com/article). Companies are permitted, but not required, by SFAS 123 to measure compensation expense using the fair value technique. Companies are required to calculate compensation expense using an award's value as of the date it is awarded under the fair value approach. Businesses are permitted to keep employing APB 25, but they must disclose how SFAS 123 might affect their net income and earnings per share. Because of this disclosure requirement, every business that grants employee stock options must conduct the computations outlined in SFAS 123. (Brozovsky & Kim, 1998).

Following the 2001–2002 U.S. accounting scandals, an increasing number of businesses decided to expense the cost of employee stock options. Only two of the Standard and Poor's 500 corporations were expensing the cost of stock options as of mid-July 2002. More than 90 businesses declared their intention to follow suit by the middle of September 2002. This is a blatant example of how politics and public opinion can affect company behaviour (Levinsohn, 2002).

The FASB announced its plan to carry out a limited-scope project linked to the SFAS 123 transition provision in its news release from July 31, 2002, which also emphasised the benefits of applying the standard (www.fasb.org/news/nr073102).

The Accounting for Stock-Based Compensation - Transition and Disclosure Exposure Draft, published by FASB on October 4, 2002, would change SFAS123.This revision was issued primarily for the following two reasons (www.fasb.org/news/nr100402):

• To make it possible for businesses those decide to use the fair value-based technique to immediately begin reporting the full impact of employee stock options in their financial statements;

• To give investors and other consumers of financial statements better and more frequent disclosures concerning the price of employee stock options.

The modification was published on December 31, 2002, as SFAS No. 148.

Sections 3.9 and 3.10 provide a more thorough discussion of SFAS 123 and SFAS 148, respectively.

3.8 The History of Accounting for Share-Based Compensation by IASB

On share-based compensation, there is no established International Financial Reporting Standard. The expanding number of businesses implementing share-based compensation has made this gap in the International Accounting Standards sector a major concern. The "Employee Advantages" section of International Accounting Standard (IAS) No.19 addresses equity compensation benefits in part. It only addresses the disclosure requirements, though. As a result, the International Accounting Standards Committee (the IASB's predecessor) released a Discussion Paper titled "Accounting for Share-based Payment" for feedback from the general public in July 2000. The IASB decided to continue working on the Discussion Paper in July 2001 in order to turn it into an Exposure Draft. Some IASB members were worried that preparers who opposed including stock option expensing in the income statement may criticise them for failing to follow due procedure (The Economist, November 2002, Vol. 365, Issue 8298). So, in September 2001, the IASB asked for more feedback on the Discussion Paper, which was to be sent by December 15 of the same year. The IASB released Exposure Draft 2 "Share-Based Payment" on November 7, 2002, following careful review of the feedback received and with the help of the project's Advisory Group, which was made up of people from various nations (www.iasb.co.uk). By March 7, 2003, comments on this Exposure Draft must be sent. The standard's final version is anticipated to be released in late 2003 and go into effect on January 1, 2004. In accordance with the formal draft's publication date (http://online.wsj.com/article/0SB102686178947884200.html), it would administer all options given.

3.9 Examination of FASB Statement No. 123 “Accounting for Stock-Based Compensation”

Standards for financial accounting and reporting are set forth in this Statement (published in 1995) for stock-based employee compensation programmes. The Statement applies to all agreements under which the employer incurs liabilities to its employees in amounts depending on the price of its stock or grants shares of stock or other equity instruments to employees.

The Statement also applies to business dealings in which a firm issues stock instruments to pay for goods or services from third parties who are not its employees. In these circumstances, the fair value of the payment received or the fair value of the equity instruments issued must be used to account for the goods or services (SFAS 123, par. 6).

There are various accounting methodologies available for stock transactions involving workers under SFAS 123. The fair value-based technique of accounting for stock-based compensation plans is established in this Statement. The intrinsic value based method of accounting specified by APB 25 can still be utilised to calculate the compensation costs for the plans, but it encourages organisations to choose this way of accounting in lieu of the APB 25's "Accounting for Stock Issued to Employees" provisions. Entities that choose to continue using the intrinsic value-based method must disclose net income and, if presented, earnings per share, on a pro forma basis as if the fair value-based methods were still in use.

A method of accounting had been used to calculate the cost of compensation (SFAS 123, par. 11).

A corporation should account for all of its stock-based employee pay agreements using the same accounting approach, either the fair value-based method or the intrinsic value-based method (SFAS 123, par. 14).

Typically, previous or future services are used as part of the consideration for stock instruments offered to employees. The fair value of any equity instruments provided to workers will be used to determine how much the cost of the services received in exchange will be (SFAS 123, par.16).
When employees become entitled to stock options or other equity instruments after completing the necessary service requirements and satisfying all other requirements to earn the right to benefit from the instruments, measurement is made estimating the fair value based on the stock price at the grant date of the instruments (SFAS 123, par 17).

As of the grant date, the exercise price and expected life of the option, the current price of the underlying stock and its anticipated volatility, anticipated dividends on the stock, and the risk-free interest rate for the anticipated term of the option are all factors that go into determining the fair value of a stock option (or its equivalent) granted by a public company (SFAS 123, par. 19).

A non-public firm must assess the value of its options using the same criteria as public companies, but it need not take into account the stock's anticipated volatility over the option's anticipated life (SFAS 123, par. 20).

Most stock options and other equity instruments can typically have their fair value estimated at the time of grant. Otherwise, the fair value based on the stock price and other performance factors at the first date at which it is reasonably reasonable to assess such value shall be the final measure of the compensation cost. Estimates of compensation costs for periods during which the fair value cannot be determined must be based on the award's present intrinsic worth (SFAS 123, par. 22).
The amount of instruments that eventually vest will determine the compensation cost recognised for the grant of stock-based employee pay. Awards that employees forfeiture due to failure to satisfy service requirement for vesting, such as for a fixed award, or due to the company's failure to meet a performance condition are not subject to compensation costs (SFAS 123, par. 26).

The quantity of options or other equity instruments that are anticipated to vest may be best estimated at the time of award. If additional information shows that actual forfeitures are likely to differ from early projections, the corporation may decide to update that estimate as needed. A corporation may also start incurring compensation costs as if all awarded instruments that are simply subject to a service requirement are expected to vest. The impact of actual forfeitures would then be understood as they take place (SFAS 123, par. 28).

If the award is for future services, the equity award will be credited with the equivalent amount of compensation cost, which will be recognised during the period(s) in which the linked employee services are performed. If the service period isn't specified as being sooner or shorter than that, it will be assumed to be the time from the grant date until the award becomes vested and is exercisable regardless of how long the employee continues to work for the company. The corresponding compensation cost must be recognised in the period in which the award is issued if it is for prior services (SFAS 123, par. 30).

Regardless of the chosen accounting technique, the employer must make specific disclosures about stock-based employee compensation plans in its financial statements. The plan(s) must be described by the corporation, including vesting conditions, the longest option term permissible, and the amount of shares authorised for option awards or other equity instrument grants (SFAS 123, par. 45).

3.10 Examination of FASB Statement No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure”

The FASB modified SFAS 123 by issuing an Exposure Draft on October 4, 2002, titled "Accounting for Stock-Based Compensation - Transition and Disclosure." Accounting for Stock-Based Compensation - Transition and Disclosure" was published by FASB as SFAS No. 148 on December 31, 2002 (www.fasb.org/news/nr123102.shtml). The ED is the basis for SFAS 48.

We now examine the Statement's two major components: the Amendment to Transition Provisions and the Amendment to Disclosure Provisions.

Companies who used the fair value-based method were required by SFAS 123 to apply this method prospectively for newly awarded share options. This resulted in investors and businesses were concerned about the so-called "ramp-up" effect on stated compensation costs because the results were inconsistently disclosed. FASB was worried that applying the fair value approach retroactively would cause issues for those who produce financial statements since it would be difficult to find the historical data needed to calculate the fair value of shares or options given prior to the implementation of SFAS 123. SFAS 148 offers two more transitional approaches to help businesses that want to use fair value to measure shares or options given. By immediately adding the company's stock-based compensation expenditure after adoption, both techniques eliminate the ramp-up effect. Currently, if the firm chooses to use the fair value method of accounting for share option plans, the three options listed below are permissible under the change to Transition Provisions, paragraph 52 of SFAS 123:

a. To all share options granted to workers, or share options modified or settled, following the start of the fiscal year in which this method is implemented for the first time, the corporation may apply the fair value-based method of accounting for share option programmes.

b. As of the beginning of the fiscal year in which the fair value based method of accounting for share options was first applied, the company may recognise stock-based employee compensation costs as if this method had been used to account for all employee share options granted, modified, or settled in fiscal years beginning after December 15, 1994.

c. For all employee share options granted, modified, or settled in fiscal years beginning after December 15, 1994, the firm may restate all periods that represented stock-based employee compensation expense utilising the fair value based accounting technique.

Regardless of the accounting technique adopted, SFAS 148 enhances the clarity of disclosures about the pro forma effects of using the fair value based approach of accounting for stock-based compensation for all organisations. It updates SFAS 123's paragraph 45 and mandates that all businesses explain how they accounted for stock-based employee remuneration throughout each reported quarter. If the business uses the fair value-based approach, it must explain how it reported the change in accounting standards. If the company chooses to use the intrinsic value method, it must disclose pro forma amounts and differences, if any, in the cost of stock-based employee compensation that would have been included in net income as well as any additional tax consequences if the fair value method had been chosen instead.
Additionally, the timing of disclosure has been enhanced. Companies must provide information in their annual and interim financial statements in accordance with SFAS 148.

3.11 Examination of the IASB Exposure Draft 2 “Share-Based Payment”

IASB published Exposure Draft 2 (ED) "Share-Based Payment" on November 7, 2002. The ED is divided into three sections (www.iasb.co.uk):

• Share-based Compensation

• Basis for Conclusions: Share-based Payment

• Draft Implementation Guidance for Share-Based Payment

The draught mandates that all share-based payment transactions, including those that will be settled in cash, other assets, or company equity, be disclosed in a firm's financial statements.

Three different sorts of transactions are described in ED 2, paragraph 3:

• Share-based payment transactions with an equity settlement

• Share-based payment transactions with cash settlements.

• Transactions in which the firm receives or pays for goods or services and has the option to pay for the transaction in cash, in amounts dependent on the price of the company's shares or other equity instruments, or by issuing equity instruments.

Here, we will focus on equity-settled share-based payment transactions, with a particular focus on the debate surrounding employee stock options and the issue of share options issued to employees.

When actual acquisition or purchase of the products or services covered by a share-based payment transaction occurs, the corporation must record such transactions. If the acquired items or services are not eligible for asset recognition, they must be expensed (ED 2, par.4).

The corporation must also measure equity-settled share-based transactions directly at the underlying fair value of the products or services acquired in such transactions or indirectly by reference to the fair value of the equity instruments granted, according to the established regulations. Choose either the direct or Using an indirect approach depends on how simply determinable the fair value is (ED 2, par. 7).

The corporation then has two options for the time of transaction recognition. If the fair value is calculated directly, it should be established on the day the business acquires the goods or services. If the fair value is determined indirectly, the grant date should be used to determine it (ED 2, par.8).

It is considered that the fair worth of the goods or services received for transactions with parties other than workers is simpler to ascertain because there is typically an established market for those goods and services (ED 2, par.10). However, the question of determining fair value becomes more challenging when dealing with transactions involving employees. Employees typically receive share options as a part of their compensation. As a result, it is impossible to evaluate the fair value of the services provided by a specific component of an employee's compensation directly. Therefore, since determining the fair value of equity instruments provided is easier than measuring the fair value of employee services received, the corporation should do so (ED 2, par.12).

According to ED, if the company's shares are traded openly, the fair value of the shares given should be calculated using the share price at market. In the absence of that, the business must estimate the market price (ED 2, par.19).

The market price of traded options with comparable terms and conditions should be used to determine the fair value of granted options. The terms and circumstances of granted options are different from those of traded options, hence frequently such traded options do not exist. In these situations, the business should utilise an option pricing model to determine the estimated fair value of the issued options. ED suggests using a binominal model or the Black-Scholes model.

The exercise price of the option, the duration of the option, the current value of the underlying asset, the anticipated volatility of the share price, the anticipated dividends on the shares, and the risk-free interest rate for the duration of the option should all be taken into account when using an option pricing model. (ED 2, par.20).

In ED, the difference between the option's contracted life and its expected life is made. The time between the grant date and the anticipated exercise date of an option is known as the expected life. It is preferable to utilise the option's expected life rather than its negotiated life for non-transferable options.
Given that employee share options are non-transferable, it is especially crucial in this situation (ED 2, par.21).

Expected dividends should be taken into account when the corporation calculates the fair value of options or shares awarded (ED 2, par.23).

When determining the fair value of options or shares, any unique vesting requirements that must be satisfied should also be taken into account. For instance, the granting of options or shares to employees is typically contingent upon their continued employment with the company for a predetermined period of time (ED 2, par.24).
Companies are required by ED to give thorough disclosure regarding the shares or options given. Companies are required to disclose information like the amount and weighted average exercise price of options, as well as a description of each type of share-based payment arrangement. Companies should also make information available that would help readers of financial statements understand how the fair value of given shares or options was calculated. Additionally, it is necessary to disclose how expenses related to share-based payment transactions affect the profit and loss statements of the companies (ED 2, par.45-53).

3.12 Invitation to Comment “Accounting for Stock-Based Compensation: A Comparison of FASB Statement No.123, Accounting for Stock-Based Compensation and Its Related Interpretations, and IASB Proposed IFRS Share-Based Payment”

In order to strengthen U.S. financial accounting and reporting standards and to encourage the convergence of high-quality accounting standards internationally, FASB published this Invitation to Comment in November 2002. FASB is requesting opinions on a number of problems that it will be discussing. The deadline for these comments was February 1st, 2003. The Invitation to Comment seeks perspectives on the distinctions between IASB Proposed International Financial Reporting Standard, "Share-Based Payment," and SFAS No. 123, "Accounting for Stock-Based Compensation," and its related interpretations (ED 2). Additionally, the Invitation to Comment solicits opinions on many facets of accounting for stock-based compensation at fair value based on these disparities.

Both standards are founded on various principles, as indicated in the Invitation to Comment. The basic goal of ED 2 and SFAS 123 is to measure and recognise the fair value of the products and services acquired in exchange for equity instruments in order to account for stock-based compensation. The vicinity of a modified grant-date fair measurement method is used by SFAS 123 for transactions involving employees. The grant date method is used because the fair value of the award is initially determined at that date, and the vesting date method is used because compensation costs associated with the award are adjusted for subsequent events, such as actual forfeitures and actual results of performance conditions.

As a practical expedient, ED 2 applies a variation of the grant-date fair value measuring approach to transactions involving employees. The approach of measuring by vesting date is not used. In order to account for any forfeiture brought on by failure to complete the vesting conditions, ED 2 recommends discounting the fair value of an equity instrument as determined at grant date. In order to calculate the total compensation expense, multiply the number of service units received throughout the vesting period by the discounted fair value per unit of service established at the award date. Even if the issued equity awards are forfeited, amounts recognised for employee services are not thereafter reversed. According to SFAS123, the effect of potential forfeitures owing to failure to complete the vesting conditions should not be taken into account when determining the fair value of an equity instrument at the grant date. The number of vested equity instruments multiplied by the fair value of each equity instrument as of the award date should be used to calculate aggregate compensation expenditure. If the granted equity awards are forfeited, the amounts recognised for employee services throughout the vesting period are subsequently reversed.

When it comes to stock-based compensation accounting utilising the fair value-based method, the Invitation to Comment compares and contrasts SFAS 123 and ED 2. Scope, recognition, measurement, disclosure, and transition are the five key areas used to group these similarities and differences.

Table 2 lists the most significant parallels, whereas Table 3 lists the most significant distinctions.

Table 2 lists the key commonalities between SFAS 123 and ED 2.

Table 3: The most important differences between SFAS 123 and ED 2

The Invitation to Comment summarises the key and secondary similarities and differences between SFAS 123 and ED 2, but it does not identify all of them. A review of the ED 2 was encouraged by the invitation to comment in order to advance the global convergence of superior accounting standards.

4 Empirical Findings

We give the empirical data gathered throughout our research in this chapter. We examine a number of Comment Letters on FASB SFAS 123 "Accounting for Stock-Based Compensation," FASB SFAS 148 "Accounting for Stock-Based Compensation - Transition and Disclosure," and IASB Discussion Paper on Share-Based Payments that were submitted by various businesses and professional associations (Discussion Paper). We also investigate how businesses present the cost of stock-based remuneration in their financial statements.

4.1 Review of Comment Letters Submitted to the ED for SFAS 123

We have chosen the Comment Letters from ten significant and renowned representatives of their industries - manufacturers, auditors, analysts, and high-tech companies - from more than 700 Comment Letters submitted on the Exposure Draft SFAS 123 (www.fei.org/advocacy/download/StockOptions-whitepaper.pdf). Letter dates are indicated in parenthesis.

• Deloitte & Touche, Ernst & Young, KPMG Peat Marwick, Price Waterhouse, Arthur Andersen & Co., Coopers & Lybrand (1994).
• Boston Security Analysts Society (1993).
• Company: Coca-Cola (1993).
• The company Chase Manhattan (1994)
• Merrill Lynch and Company, Inc. (1993)
• Oracle System Corp. (1994)
• The LTV Steel (1993)
• Corporation Intel (1994)
• J.P. Morgan (1994)
• BankAmerica Corp. (1993)

To describe the nature of each respondent's business, descriptions of each respondent are given.

4.1.1 Arthur Andersen & Co., Coopers & Lybrand, Deloitte & Touche, Ernst & Young, KPMG Peat Marwick, Price Waterhouse

In a single Comment Letter, the six largest auditing firms—Arthur Andersen & Co., Coopers & Lybrand, Deloitte & Touche, Ernst & Young, KPMG Peat Marwick, and Price Waterhouse—expressed their views. The Exposure Draft "Accounting for Stock-Based Compensation" was rejected by all of these auditing firms, as was stated in the vast majority of the 1700 Comment Letters.

These auditors claim that the fair value measurement approach will further damage the credibility and comparability of financial statements and that it has not been accepted to reflect the fair value of employee stock options. In light of this, using extended disclosures is the best option.

4.1.2 The Boston Security Analysts Society

Since 1946, the non-profit Boston Security Analysts Society has served as a hub for one of the most important investing communities in the world, offering a public forum for the sharing of novel viewpoints on contemporary business concerns. Boston Security Analysts Society promotes camaraderie, ethics, and professional progress among investment professionals in the Boston area through a variety of activities and training initiatives. Society gatherings are frequently hosted in Boston's financial sector, which offers accessible and distinctive opportunities to gain knowledge from colleagues, mentors, and leading professionals in the field. The Association for Investment Management & Research, which has more than 50,000 members worldwide, was founded by the Boston Security Analysts Society, which has more than 4,000 members who work in the investment industry (www.bsas.org).

The only one of the ten Comment Letters we examined that fully endorsed the proposed Statement of Financial Accounting Standard was that from the Boston Security Analysts Society on the Exposure Draft "Accounting for Stock-Based Compensation." The Boston Security Analysts Society agreed that the value should not only be stated in footnotes but also recognised in financial statements. Nevertheless, it also expressed its concern regarding "the potential significant impact on reported earnings and the earnings volatility of small companies as well as substantial concern regarding the use of volatility measures in determining employee stock option values where no liquidity exists for significant periods of time."

4.1.3 The Coca-Cola Company

The Coca-Cola Company (Coca Cola) is the top producer, marketer, and distributor of non-alcoholic beverage syrups and concentrates in the world, contributing to the creation of more than 300 beverage brands (www2.coca-cola.com).

Coca-Cola firmly disagreed with the Exposure Draft on "Accounting for Stock-Based Compensation," stating that "the proposed accounting rules would not enhance the overall usefulness and reliability of our financial statements and, in fact, would provide a result that is less meaningful to the users of financial statements than the current rules" Coca-Cola also voiced its opinion on the following three matters:

Valuation of traded stock options versus non-traded employee stock options

Due to the lack of a valid and impartial measurement method and the fact that "option pricing models were designed to value traded options," which lack features like vesting restrictions, performance requirements, and non-transfer clauses, Coca-Cola disagreed with the recognition of compensation expense.

Subjectivity of certain assumptions

Coca-Cola used the Black-Scholes options pricing model to perform preliminary estimates for the year's issue of employee stock options for the corporation in order to demonstrate the significance of such assumptions as stock volatility and dividend yield. Calculation results revealed that the range of plausible assumptions "would generate a fluctuation in value up to 33 percent" and "lower the credibility and relevance of our financial statements."

Cost-benefit considerations

The key time and effort commitments for employing the fair value measuring approach for stock-based remuneration were listed by Coca-Cola as follows:

-choosing the best factors to employ (dividend yield, stock volatility);
-informing senior management of the details of the new rule
-informing and interacting with investors;
-developing and deploying accounting systems to handle the required bookkeeping needs.

The corporation came to the conclusion that the more time-consuming and labor-intensive fair value measuring approach "would provide very subjective outcomes that can't be verified" for stock-based remuneration.

4.1.4 The Chase Manhattan Corporation

The retail financial services division of JPMorgan Chase is called The Chase Manhattan Corporation (Chase). The union of JPMorgan Chase & Co. and The Chase Manhattan Corp. Incorporated, which united one of the biggest commercial banks in the world with a reputable and significant investment banking organisation, was completed in December 2000 (http://www.jpmorganchase.com/cm/cs?pagename=Chase/Href&urlname=jpmc/about/history).

Due to the fact that "the issuance of stock options represents a capital transaction, not one that requires a charge against earnings," and also because "no reliable or consistent methods currently exist for determining the fair value of employee stock options," Chase disagreed with the Exposure Draft "Accounting for Stock-Based Compensation" proposal to recognise the compensation expense in the financial statements.

Additionally, the business commented on the following things:

Measurement Date

Chase concurred with the Exposure Draft's stance that the stock price at the award date should be used to calculate the cost of stock-based compensation.

Measurement Method

Due to the lack of a reliable method for determining the fair value of stock options, Chase opposed the idea that the fair value method should be the primary measurement method. "Determination of fair value as proposed is basically subjective and includes numerous variables, calling into question its validity, and making comparisons among entities virtually impossible," said Chase.

In addition, Chase opposed permitting multiple approaches to determining the value of employee stock options for private corporations since doing so would "just exacerbate the problem of comparability."

Chase claims that reducing the value of an employee stock option to reflect its non-transferability should be done in a non-arbitrary manner. The actual life of an employee stock option should not be used to determine its value since it will produce "further distorted results, i.e., a fall in stock price after the option's grant date lengthens the exercise period, necessitating the recognition of additional compensation expense."
Attribution Period

According to Chase, "the vesting time should be utilised to the degree that remuneration is required to be recognised."


Chase concurred that disclosure might be a better option than accounting for compensation expenses.
Effective Dates and Transition

According to Chase, the standard must have been in effect for at least a year. The company also thinks it will be useful to employ the planned three-year pro forma disclosures before the standard's recognition requirements must be enacted.

4.1.5 Merrill Lynch & Co.

With offices in 36 countries and total client assets of nearly $1.3 trillion, Merrill Lynch & Co., Inc (Merrill Lynch) is one of the top financial management and consulting firms in the world (www.ml.com/about ml.htm).

Due to the fact that "granting of stock options is a capital transaction that represents only a potential future dilution of stockholders' equity," Merrill Lynch stated that the value of employee stock options should not be recorded as compensation expense. Additionally, Merrill Lynch, like the majority of the other companies mentioned above, agreed that there is no objective method for estimation of the appropriate fair value of an employee stock option because stock option pricing mode.
The following topics were addressed in the company's opinions:

Recognition of Compensation Cost

Merrill Lynch claims that, "To achieve the best theoretical accounting result, companies should bifurcate restricted stock-based compensation awards into expense and capital components, and apply a discount (at the grant date) to the fair values (derived from option pricing models) for illiquidity," but the firm acknowledges that this would be extremely challenging to put into practise. In order to "achieve a more realistic fair value for restricted stock options, eliminate the subjective volatility factor, and promote consistency and comparability of financial statements," Merrill Lynch advises using the minimum value method to record the income statement effect of stock option grants.

Measuring Method

Instead of the Exposure Draft "Accounting for Stock-Based Compensation" recommendation to adjust compensation expenditure by documenting the difference between the projected and the actual stock options' lifetimes, Merrill Lynch advised using the option vesting period to calculate compensation expense. Because it would be "administratively cumbersome and skew the metrics of financial performance," the corporation objected to the FASB's suggested method.

4.1.6 Oracle System Corporation

The second-largest independent software firm in the world and the world's top provider of information management software is Oracle System Corporation (Oracle) (www.oracle.com).

Oracle vehemently opposed the FASB Exposure Draft "Accounting for Stock-Based Pay" proposal that would have required businesses to deduct employee stock-based compensation from earnings. The business provided three primary justifications for its position:

- Oracle's capacity to grant stock options would be adversely affected by the plan.
- It would make it harder for high-tech businesses to compete in the global market.
- Less accurate financial reporting would result.

The measurement problem exists because there is no method that could exactly estimate: Oracle was particularly concerned about the Black-Scholes model, which the company claimed would "create confusion, inconsistency, and inaccuracies in corporate financial reporting."

- The restriction on employee stock options being transferred;
- Their capacity for long-term exercise;
- The need for on-going employment in order to exercise the options;
-Future volatility in stock prices;
- Variations in vesting timelines;
- Price adjustments that are unrelated to a company's performance on the market.

In order for shareholders to decide whether this FASB Exposure Draft "Accounting for Stock-Based Compensation" should be implemented, Oracle advised FASB to include theoretical valuation under the Black-Scholes model in the footnotes to companies' financial statements.

4.1.7 LTV Steel Corporation

A manufacturer having interests in the steel and steel-related industries is the LTV Steel Corporation (LTV Steel). LTV Steel submitted voluntary petitions for relief under Chapter 11 of the U.S. together with 48 subsidiaries. Code of Bankruptcy on December 29, 2000 (www.ltvsteel.com).

The Exposure Draft "Accounting for Stock-Based Compensation" was vehemently opposed by LTV Steel, which preferred a disclosure-based strategy. LTV Steel disagreed that employee stock-based compensation costs should be reported in financial statements because "the recognition of non-cash charges of employee stock award transactions, that do not affect cash flows or net equity, does not appear to be important in assessing the financial performance or condition of an enterprise"

Valuation of Employee Stock Options

Due to significant discrepancies between traded options and non-traded employee stock options, LTV Steel claims that "current option pricing techniques are extremely subjective and do not yield a meaningful or relevant value for employee stock options." Because employee stock options "don't trade and, because the assumptions used in the models are extremely subjective and produce an amount that is never verified in an actual transaction," LTV Steel came to the conclusion that it might be impossible to develop a consistent option pricing for employee stock options.

Use of Expected Term to Determine Expense and Value Options

The suggestion in the Exposure Draft "Accounting for Stock-Based Compensation" to calculate the value of the option using the expected term on the grant date and then modify it using the actual term is opposed by LTV Steel because it produces "unnecessary complexity and improper results."

In order to inform readers of financial statements about employee stock options, the corporation presented two suitable options:

- Estimates of earnings per share that take into account the impact of incorporating options;
- The application of enhanced disclosures.

4.1.8 Intel Corporation

Chips, boards, systems, and software building blocks—the "ingredients" of computers, servers, networking, and communications products—are provided by Intel Corporation (Intel) to the computing and communications sectors. For customers to construct cutting-edge computer and communications systems, these products rely on Intel's technological leadership and proficiency in silicon design and manufacture (www.intel.com/intel/annual01/ about.htm).

The FASB proposal, which would have required taking an earnings charge for employee stock options, was strongly opposed by Intel because it "could potentially undermine the credibility and comparability of corporate financial statements" in the following ways. Intel stated that the FASB proposal "represents both improper accounting and impediment to entrepreneurism and innovation in U.S. high technology industries."

- Since the Black-Scholes method "would not fully address the non-transferability of employee options, their long-term exercisability, or the requirement of continuing employment to exercise the options," it would reduce the accuracy of financial statements.

- The proposed charge is a non-cash item that may never have the value assigned to it and will never be converted to cash. There is no way to undo the charge in the
Exposure Draft "Accounting for Stock-Based Compensation" if the value is never realised.

- Compared to the benefit, the proposed adjustments would involve a lot of implementation work.
- It would have the same effect of economic dilution as already seen in earnings per share.

The company suggests using only annual disclosure which would include the maximum value computed at the grant date of each year in a three year period. Intel claims that due to the lack of a reliable employee stock option valuation method, it would be more "appropriate to disclose a range of possible outcomes in a footnote."

4.1.9 JPMorgan Chase & Co.

A well-known provider of financial services is JPMorgan Chase & Co. (JPMorgan). Its offerings include Treasury and Securities Services, Private Equity and Investment Management, Consumer Banking, Investment Banking, and a number of other services (www.jpmorganchase.com).
According to JPMorgan, the proposed accounting changes in the Exposure Draft "Accounting for Stock-Based Compensation" would not increase the calibre or reliability of financial statements. Employee stock option valuation concerns were the main source of concern for the corporation. The company believed that a disclosure-based approach would be the most appropriate remedy because the pricing techniques utilised for trading options would not result in "a mathematically produced 'theoretical' value which could not be verified by a market transaction."

The business also provided opinions on the following matters:

Measurement Date

JPMorgan backed the suggestion in Exposure Draft "Accounting for Stock-Based Compensation" to calculate compensation costs using the stock price on the award date.

Measurement Method

The fair value is the appropriate measurement attribute for stock awards, according to JPMorgan. The business disagreed with FASB's assertion that "the use of current option-pricing models together with adjustments for forfeit ability and no transferability produce estimates of the fair value of employee options that are sufficiently reliable and relevant to justify recognition in the financial statements."

The following elements, according to the corporation, should be included in the option pricing methodology used to value employee stock options:

- Non-transferability;
- A postponed exercisability because of vesting day;
- Option forfeiture as a result of an employee leaving the company too soon vesting;
- The various borrowing/reinvestment rates that each employee stock option holder must deal with;
- Failure of employees to use dynamic hedging to unlock the time value of options; and
- The premature execution of an option, which often depends on stock price.

JPMorgan believes that all businesses should use the same measurement technique (public and non-public). The business concurred that reducing the value of an employee stock option to reflect its nontransferability is just a random process.

Attribution Period

The corporation agreed that the time between the grant date and the vesting date would be the proper window of time to record the costs associated with employee stock option compensation.


JPMorgan considered disclosures to be the appropriate method of educating users of financial statements. However, the business believed that certain information, such as the anticipated volatility factor and dividend yield, should stay hidden. Complete reliance on estimate-based disclosures may cause consumers of financial statements to understand them incorrectly. It is crucial, in JPMorgan's opinion, that the values of the information provided to those who utilise financial statements outweigh the expense of doing so.

Effective Date and Transition

JPMorgan agreed with the proposed three year pro forma disclosure period before the recognition provision of the Exposure Draft "Accounting for Stock-Based Compensation" are required to be adopted, stating that "A disclosure-based approach is the most appropriate course of action for stock-based compensation."

4.1.10 BankAmerica Corporation

One of the top financial services providers in the globe is BankAmerica Corporation (BankAmerica). BankAmerica provides services to individuals, small enterprises, corporations, and institutions both domestically and abroad (www.bankofamerica.com/investor/).

BankAmerica disagreed with "measuring employee stock options at 'fair value' for both practical and conceptual reasons" and suggested measuring all employee stock options (of public and non-public companies) at their "minimum value." BankAmerica did not support the income statement recognition or the pro forma disclosure provisions of the Exposure Draft "Accounting for Stock-Based Compensation."

In its remarks, BankAmerica addressed the following topics:

Measurement Method

The differences between employee stock options and traded stock options (the nontransferability and forfeitability of employee stock options) could be made up for by adjusting the fair value generated by traded option pricing models, according to Exposure Draft "Accounting for Stock-Based Compensation." Traded option pricing model modifications are difficult to make, according to the business, which said that the FASB proposal "underestimates its complexity."

Mostly due to practical considerations, BankAmerica recommended employing the minimal value method for employee stock option pricing. According to BankAmerica, when using the minimum value approach, "major number of changes would not be required" and "the initial calculation itself is easy, and the variables that come into computation are objective." The fair value technique cannot compare to its precision and accuracy. In comparison to the minimal value calculation, the fair value calculation involves far more judgement and complexity. As a result, the business stated that it would be "more representationally faithful" to evaluate employee stock options at minimum value (and to disclose this as the measurement basis) rather than at fair value.

Measurement Date

The proposal in Exposure Draft "Accounting for Stock-Based Compensation" to calculate compensation costs using the stock price on the award date was endorsed by the corporation.

Attribution Period

According to the Board, the right to retain and exercise the option has already been earned by the time it vests, so the company agreed with FASB that "no compelling rationale exists to prolong the attribution period beyond the vesting date."


The corporation also objected to the Exposure Draft's "Accounting for Stock-Based Compensation" suggestion that an income statement recognition period of four years would follow a three-year disclosure period. BankAmerica Corporation only agreed to the increased disclosures required. FASB should mandate "either disclosure or recognition from the effective date forward, but not one followed by another," the business added.

Effective Date and Transition

In order to provide financial statement preparers time to comprehend and execute the Exposure Draft "Accounting for Stock-Based Compensation," BankAmerica advised delaying the implementation date by at least one year from the time it is finalised.

4.2 Review of Comment Letters Submitted to the ED for SFAS 148

Since it was not possible to review every comment letter that was submitted, we have picked seven businesses and two organisations that provided feedback on the proposed Amendment that eventually led to SFAS 148. When it was feasible, we chose respondents who also wrote comment letters for the SFAS 123 exposure draught. Letter dates are indicated in parenthesis.

The chosen businesses are:

• The Coca-Cola Company (2002)
• The Software & Information Industry Association (2002)
• Anheuser-Busch (2002)
• Accounting and Valuation Group of UBS Warburg Equity Research (2002)
• JPMorgan Chase & Co. (2002)
• SunTrust Banks, Inc. (2002)
• Merrill Lynch & Co. (2002)
• Microsoft Corporation (2002)
• Credit Suisse Group (2002)

We also examine the topics that generated the most debate or concern among responders. Again, unless they were already covered, we give a brief summary of each respondent.

4.2.1 The Coca-Cola Company

As of January 1, 2002, The Coca-Cola Company (Coca-Cola) began using the SFAS 123-proposed fair value method of accounting for stock-based compensation schemes. Coca-Cola was quite interested in the specifications of the proposed statement given the company's choice to make them.

Coca-Cola emphasises the significance of the two new transition techniques described in SFAS 148, which would allow corporations to avoid the ramp-up effect, in its Comment Letter, which supports FASB's recommendation to implement the fair value method.

Upward influence However, the corporation expresses its disagreement regarding where specific necessary disclosures should be placed in financial statements. Coca-Cola believes it would be more appropriate to include such specific disclosures in a separate footnote related solely to stock-based compensation. SFAS 148 requires companies to disclose an extensive amount of information, which should be presented in the "Summary of Significant Accounting Policies."

4.2.2 The Software & Information Industry Association

The main trade organisation for the software and digital content industries is the Software & Information Industry Association (SIIA). For more than 500 top software and information organisations, SIIA offers global services in business development, corporate knowledge, and intellectual property protection. The world`s biggest and most established technology corporations, as well as smaller, more recent businesses, are all members of SIIA (www.siia.net).
In general, SIIA agrees with the criteria for better and more regular disclosure to be made to investors and supports FASB's attempt to revise SFAS 123 and give businesses that choose to adopt the fair value method of accounting for stock-based compensation programmes two more transition alternatives.
The valuation methodologies used to measure employee stock options are the main topic of concern in SIIA's Comment Letter. More freedom and transparency alone won't guarantee give investors better or more insightful information, the SIIA emphasises.

SIIA emphasises the flaws in the Black-Scholes model, which is used to calculate stock option expense. Because the predicted amount is different from what employees will actually realise, SIIA believes that the fair value estimated by option pricing models does not adequately reflect the actual expense. As a result, the financial statements will have exaggerated expenses as a result of valuation utilising modified option pricing models.

The lack of standardisation in valuation procedures is another issue raised by SIIA. Companies will start creating new strategies to determine a fair value of stock-based compensation schemes now that SFAS 123 enables the use of the Black-Scholes model or any other valuation model that incorporates six factors. Investors receive uneven and non-comparable outcomes depending on the valuation model they choose in combination with company-specific computations. Comparing the price of stock options for various businesses with various stock option plans from the perspective of investors and It will be meaningless to compare different Black-Scholes model iterations.

SIIA emphasises its steadfast opinion that the intrinsic value technique is the best way to calculate stock-based compensation expenses since it would give investors the most useful information.

4.2.3 Anheuser-Busch

Anheuser-Busch is a major player in the beer, theme parks, and packaging industries worldwide. Additionally, malt production, rice milling, real estate development, and transportation services are among its areas of interest (www.anheuser-busch.com).

According to Anheuser-Busch, all the information investors require is already accessible in firms' annual reports, and that "stock option accounting is not an issue of either transparency or complete disclosure." Anheuser-Busch believes that the FASB's suggested multiple-choice transition and disclosure strategy is unwise. Multiple adoption options will just confuse investors and have no positive impact on the disclosure's clarity.

Anheuser-Busch advises choosing just one transition technique, the complete restatement technique, as it is the most straightforward. Due to the fact that businesses have been required to submit pro forma disclosures ever since SFAS 123 was introduced, the information required to restate the prior periods is already accessible. Additionally, it equalises the playing field for any businesses that choose to expense stock options.

Anheuser-Busch believes that moving the disclosure of the impact of stock options on the income statement is a form-over-substance measure. The efficacy of disclosure won't be improved by moving this disclosure from the footnotes to the "Summary of Significant Accounting Policies" section. It will be elevated above other disclosures, though, which is unjustified. Users of financial statements, not the location of disclosure within the report, must decide the significance of various disclosures based on their unique investing criteria.

4.2.4 Accounting and Valuation Group of UBS Warburg Equity Research

UBS Warburg Equity Research's (UBS Warburg) Accounting and Valuation Group offers guidance on financial accounting and equity valuation. To stock experts at UBS Warburg Equity Research and to clients of UBS Warburg equities (www.ubswarburg.com).

According to UBS Warburg, FASB's suggestion to allow three transitional techniques would further impede the comparability and consistency of reported results. In addition to identifying whether companies have adopted the fair value based method, users of financial statements will need to know which transition mechanism these companies employed.

According to UBS Warburg, stock options satisfy the requirements for recognition, meaning there is a cost to shareholders when stock options are issued, the cost can be calculated with enough accuracy, and the information is both accurate and relevant in terms of value. So UBS Warburg advises FASB to support the fair value based method of stock option plan accounting. The corporation thinks that the fair value-based approach more accurately depicts economic realities and corporate financial health.

UBS Warburg is in favour of using just one transition strategy. Since it produces consistent and comparable outcomes, retroactive restatement is thought to be the most suitable method. UBS Warburg emphasises that the modified prospective method would be a workable compromise if FASB is unable to implement complete retroactive restatement.

4.2.5 JPMorgan Chase & Co

JPMorgan Chase & Co. (JPMorgan) supports FASB and IASB's efforts to harmonise accounting standards globally. It rejects the majority of the proposed amendment's provisions, nonetheless. JPMorgan recommends continuing to adopt SFAS 123's required prospective method of transition. Although the company is not opposed to the use of the other two alternative methods, it contends that since many businesses that adopted the fair value-based method of accounting for stock-based compensation plans have already done so, others should follow suit in order to guarantee a higher level of comparability going forward.

JPMorgan supports only revealing information in the financial statements' footnotes and not including the expense in the income statement when it comes to disclosure obligations. The firm thinks it would be adequate to demonstrate the pro forma impact of expensing stock options. Additionally, disclosure should appear in the "Summary of Significant Accounting Policies," not the footnotes.

4.2.6 SunTrust Banks, Inc.

One of the biggest commercial banking institutions in the United States is SunTrust Banks, Inc. (SunTrust). Deposit, credit, trust, and investment services are among SunTrust's main lines of business. The business offers services for capital markets, mortgage banking, insurance, and credit cards (www.suntrust.com).

The introduction of two additional transitional accounting methods to businesses who voluntarily chose to use the fair value based method of accounting for stock-based employee compensation programmes, according to SunTrust, will result in inconsistent and non-comparable financial results. It's possible that, for instance, three companies in the same industry with equivalent numbers of outstanding options each may choose for a different transition strategy and report varying levels of stock-based compensation expenditure. The fourth company in the same industry with a comparable number of outstanding options may also decide to use the intrinsic value-based technique of stock option accounting. As a result, the outcomes offered by these businesses would be completely unmatched. SunTrust highlights that unless there is only one standard transition mechanism, increased disclosure won't be helpful in and of itself. The goal of delivering comparable and consistent outcomes in financial statements will be achieved by using the method described in SFAS 123, namely prospective recognition, in combination with additional disclosure requirements.

4.2.7 Merrill Lynch & Co., Inc.

As it will address the issue of comparability of reported results, Merrill Lynch & Co., Inc. (Merrill Lynch) supports FASB's decision to offer corporations two new transition techniques. Merrill Lynch is particularly in favour of keeping up the future transition technique. If it is eliminated, it might deter some businesses from voluntarily switching to the fair value-based form of stock-based compensation accounting.

Merrill Lynch is aware that if three transition methods are permitted, there may be a lack of comparability. According to the corporation, there is inconsistency under the current guidelines and expanding the options for transitioning will barely worsen comparability.

Merrill Lynch also directs FASB's attention to SFAS 123's permitted valuation approach. It raises concerns about the Black-Scholes option pricing model's capacity to sufficiently account for the non-transferability aspect of options and, as a result, appropriately calculate the cost. According to the corporation, FASB should update its guidelines on option pricing models and permit the use of more sophisticated methodologies.

4.2.8 Microsoft Corporation

Microsoft Corporation (Microsoft) is a pioneer in creating, producing, and offering support for software and operating systems (www.microsoft.com).
Microsoft thinks that after adopting the fair value based way of accounting for stock-based compensation expense, there should only be one transition method accessible for the sake of uniformity. The business supports the necessity to provide information about stock options in interim financial statements, but it opposes the idea to include that information in the "Summary of Significant Accounting Policies."

4.2.9 Credit Suisse Group

Leading global provider of financial services, Credit Suisse Group (CSG) counsels clients on all facets of global finance (www.credit-suisse.com).

To ensure consistent expense recognition and, consequently, comparability in the income statements of those companies who opted to implement the fair value technique in SFAS 123, CSG believes that only one transition method should be permitted. According to CSG, FASB should continue using the future transition strategy permitted by SFAS 123. Additionally highlighting the fact that option pricing models fall short of accurately capturing the true economic cost of employee stock options, CSG urges FASB to address this matter in the Exposure Draft.

Quarterly disclosure requirements are excessive, in CSG's opinion. Given that the majority of stock-based compensation awards are given annually, it would not offer valuable information to viewers of financial statements.

4.3 Review of Comment Letters Submitted on IASB Discussion Paper on Share-Based Payments

This section will provide a summary of the Comment Letters concerning the Discussion Paper on Share-Based Payments, which came before ED 2, that were delivered to the IASB. We would like to draw your attention to the fact that ED 2 does not address all of the pertinent concerns, such as whether the measuring date should be the grant date or the vesting date. However, in order to assess whether respondents' opinions actually influenced the standard-setters when publishing ED 2, we decided to take into account the opinions of businesses on these concerns.

We have chosen the comment letters from six corporations and four organisations out of the 311 comment letters that companies and organisations submitted in response to the discussion paper. Letter dates are indicated in parenthesis.

• Ericsson (2001)
• The Swedish Institute of Authorised Public Accountants (FAR) (2000)
• Merrill Lynch (2000)
• The Shell Petroleum Company (2000)
• DaimlerChrysler (2001)
• Association of German Banks (2001)
• Nokia (2001)
• Barclays Bank (2000)
• British Bankers’ Association (2000)
• European Commission (2001)

We tried to choose businesses that were involved in the same industries as those whose comment letters on the exposure draughts of SFAS 123 and SFAS 148 we had already read.

Unless otherwise stated, respondents are described so that the reader is aware of the nature of their business.

4.3.1 Ericsson

One of the biggest manufacturers of mobile systems is Ericsson. It offers comprehensive solutions that address everything from mobile phone systems and applications to services (www.ericsson.com).

According to Ericsson 1, the concern over share-based remuneration is not a top concern for the business as long as U.S. The only expense subject to disclosure under GAAP is share-based remuneration. Since Ericsson is also listed on NASDAQ, it is able to reconcile its Swedish GAAP reporting to U.S. GAAP. GAAP, although the firm adamantly urges IASB "...not to move beyond the U.S. GAAP handling

The business acknowledges that an option pricing model should be utilised to determine the fair value of stock options in the absence of an observable price for such options. Additionally, it states that the assumptions made while using the option pricing model should be disclosed. It is especially pertinent to the employee stock options non-transferability characteristic.

The Discussion Paper suggests an alternative to measuring the fair value of granted options using the vesting date, service date, or grant date. According to Ericsson, the measurement date should be the award date.

4.3.2 The Swedish Institute of Authorized Public Accountants (FAR)

The professional organisation for licenced public accountants, certified public accountants, and other accounting specialists in Sweden is called FAR. The Institute is a key player in the development of the information, education, and professional standards for Sweden's accounting and auditing professionals (www.far.se).
The FAR generally agrees that there is a pressing need for comparable accounting standards to be used globally for the recognition of stock-based compensation expenses because the current disparate handling makes it difficult to compare reported earnings.

FAR believes that the grant of stock options should be recorded in the financial accounts and result in an income statement charge. The appropriate measuring basis is the fair value of the issued options, but only if the fair value can be accurately assessed.

FAR thinks option pricing techniques should be used to determine the fair value of granted options. Option pricing models' underlying assumptions can be changed. But with regard to the adjustments made, full disclosure should be offered. FAR underlines that taking either the negotiated or expected life of the option into account is one of the most crucial decisions made when adopting an option pricing model. The contracted life should be utilised, according to FAR. If not, the explanations for not using it should be made public.

The grant date is, in FAR's view, the most appropriate date for determining the value of stock-based compensation expenditure. The transaction value should be further adjusted over the vesting period if there are more or fewer vesting options than initially anticipated.

4.3.3 Merrill Lynch & Co., Inc.

Merrill Lynch & Co., Inc. (Merrill Lynch) is disappointed that the International Accounting Standard Board (IASB) is revisiting the contentious topic of stock-based compensation expense when, in Merrill Lynch's perspective, the matter has already been discussed and settled in the United States. It highlights that having to value stock options and charge the expense to earnings would be extremely detrimental to both.

Companies those are both well-established and just starting out in sectors where stock awards are a common form of employee compensation.

Merrill Lynch thinks that by releasing SFAS 123, a successful compromise was made in the US. Disclosure regulations helped to attain the required level of transparency. Merrill Lynch believes that the pro forma impact of adopting the fair value based method to calculate stock-based compensation expense offer appropriate information to analysts and investors. As a result, it advises that the IASB proposal should take into account the current procedures that are permitted by SFAS 123.

Merrill Lynch claims that the grant date is the proper date for measuring stock-based transactions in the event that IASB maintains its mandate to use the fair value-based technique. Instead of being charged to income in full at the grant date, the amount recognised should not be spread out throughout the vesting term.

Merrill Lynch is against using option pricing models to calculate stock-based compensation costs because the predicted amount is more than what the employee can really realise. It argues that the financial statements would overestimate the expense if the valuation was done using a modified option pricing methodology.

4.3.4 The Shell Petroleum Company

Leading international energy firm The Shell Petroleum Company (Shell) explores, produces, and refines oil and gas. Additionally, it is involved in renewable energy, with expanding operations in power generation and a wide range of products in the chemicals industries (www.shell.com)

Shell supports the global harmonisation of accounting standards as a multinational corporation. Accordingly, it claims that European companies will be at a greater disadvantage if the Discussion Paper's provisions are not accepted by other standard-setting bodies (and it does not believe that FASB will mandate the mandatory adoption of the fair value-based method of accounting for stock-based compensation expense).

Although Shell acknowledges that an option problem may have an observable value that might be used to replace the value of the services rendered by employees, it also believes that the cost to the business may not always be the same as the economic value to the employee.

The business questions the capacity of option pricing techniques to deliver accurate valuations of granted stock options. Shell concludes by saying
Accrual of stock-based compensation expenditure prior to the establishment of actual option value and economic success could destroy start-up capital and lead to the collapse of viable enterprises.

4.3.5. DaimlerChrysler

One of the top corporations in the world for the automotive, transportation, and service industries is DaimlerChrysler. It makes commercial and passenger automobiles and provides financial and other services (www.daimlerchrysler.com).

DaimlerChrysler generally supports the IASB's suggestion for stock-based compensation accounting. Given stock options should be valued at fair market value and charged to net income. The corporation claims that the final clearance will hinge on whether or not its rivals in the capital markets and in their industry are required to use the same stock-based compensation accounting standards. Different measurement techniques used by businesses in the same industry will only lead to the presentation of false data.

Since the grant date is the date on which all parties agree to the contract and each party's basis for agreement is the market value at the grant date, the grant date would, in the company's opinion, more accurately reflect the value of the stock-based payments. There shouldn't be any adjustments made to the transaction value if the number of shares that actually vest turns out to be either more or less than originally anticipated, as long as these changes don't take place within the vesting period.

4.3.6 Association of German Banks

The private commercial banks in Germany are represented by the Association of German Banks. Small and large banks, international and regional banks are all members of the association (www.german- banks.com).

The proposed accounting for share-based compensation is not accepted by the Association of German Banks. Instead, it suggests delaying the recognition of stock option plans in financial statements until options have been exercised. The issuance of stock options to employees has no impact on the corporation itself; rather, it affects the shareholders alone, which is why stock option programmes are treated in this manner. Employees are not paid in cash as a result, and no real expenses are being recognised.

The recommendations made by the IASB in the Discussion Paper would put all businesses using international accounting standards at a significant disadvantage when compared to businesses who produce their financial statements in line with U.S. GAAP. In addition, it will frequently be hard to determine the fair value of granted options due to the complicated structure of employee stock option plans. The Association views the intrinsic value-based method as the only appropriate and trustworthy way to calculate the cost of stock-based remuneration.

4.3.7 Nokia

In the field of mobile communications, Nokia is the market leader. It is the top provider of mobile phones, fixed wireless networks, and broadband (www.nokia.com).

Nokia vehemently objects to the idea of allocating stock-based compensation costs in accordance with fair market value. According to the corporation, it would be "absolutely unacceptable" for businesses who prepare their financial statements in accordance with IAS to be subject to more onerous regulations than those that do so in accordance with high-quality sets of standards. Therefore, according to the firm, a disclosure strategy similar to that used in the United States would be the only workable answer.

Nokia will give its viewpoint on the key problems, nevertheless, if IASB decides to move forward with the adoption of the fair value-based technique. It thinks that the day stock-based compensation expenditure should be recorded is the grant date. Nokia agrees that when applying option pricing algorithms to estimate employee stock options, they should be changed.

4.3.8 Barclays Bank

One of the biggest financial services organizations in the UK is Barclays Bank (Barclays). With a preference for continental Western Europe, it provides both retail and business banking services inside and outside of the United Kingdom (www.barclays.com).

Barclays acknowledges the need for workers' stock options to be recorded in financial statements. The fair value of the granted options should be used as the measurement basis for such transactions. Barclays believes that using option pricing models is reasonable, but that the presumptions used should be changed to take into account the unique characteristics of employee stock options. To guarantee a uniform treatment, more instructions regarding option pricing models must to be given.

Barclays believes that the grant date should be used as the measuring date since it is at this time that the company values the services that will be rendered. Barclays believes that eventually the transaction amount should be changed to reflect the real number of vested options.

4.3.9 British Bankers’ Association

The major trade organisation in the banking and financial services sector, the British Bankers' Association (BBA), represents banks and other financial services companies in the UK. Both UK and non-UK citizens are members of the association (www.bba.org.uk/public).

BBA acknowledges that there are solid justifications for recording a charge on the income statement for the issuance of employee stock options. However, it claims that there isn't any genuine resource loss for the business. IASB should therefore give additional explanation for why this item should be included in the financial statements rather than just including it as a disclosure in the footnotes.

BBA believes it is questionable to use option pricing methods to estimate stock-based compensation costs. Such models' outputs might have a very individualized value, particularly in marketplaces where there aren't any comparable possibilities.

The use of the vesting date as a measurement date is not one that BBA endorses. The grant date should be used as an alternative. In order to balance the cost and the advantages gained, the transaction charge should therefore be spread out across the service duration.

4.3.10 European Commission

The IASB's efforts to develop an internationally accepted method of accounting for share-based payments have the full support of the European Commission (EC). But it emphasizes the potential impact on many companies' financial statements of the accounting concerns covered in the Discussion Paper. Particularly, it may significantly affect a company's capacity to pay dividends.

The Discussion Paper's main conclusions are not supported by EC. It disputes claims that the corporation incurs expenses as a result of the grant of share options to employees. It is merely an opportunity cost, and the dilution serves as a reflection of that. In actuality, this potential cost is already disclosed as required in the company's reports. Determining whether it is appropriate to recognize opportunity costs in the income statement and, if so, whether they should be limited to shares and options, as well as whether the information currently available about share-based transactions is insufficient for accounts to reflect a true and fair value, are the real issues that should be the subject of discussion, according to EC.

4.4 Review of Comment Letters Submitted on Invitation to Comment “Accounting for Stock-Based Compensation: A Comparison of FASB Statement No.123, Accounting for Stock-Based Compensation and Its Related Interpretations, and IASB Proposed IFRS Share-Based Payment”

By February 1st, 2003, comments were due in response to the invitation to comment entitled "Accounting for Stock-Based Compensation: A Comparison of FASB Statement No. 123, Accounting for Stock-Based Compensation and Its Related Interpretations, and IASB Proposed IFRS Share-Based Payment." We were only able to analyses three of the Comment Letters released by the following organizations and posted on their websites due to time and overall lack of availability of the letters. Their letters' dates are indicated in parenthesis.

• Investor Company Institute (2003)

• Organization for the Biotechnology Industry (2003)

• The Institute of Management Accountants' Financial Reporting Committee and Financial Executives International's Committee on Corporate Reporting (2003)

4.4.1The Investment Company Institute

The national organization for the American investment company sector is the Investment Company Institute (Institute). It was established in 1940 and has 8,935 mutual funds, 559 closed-end funds, and 6 sponsors of unit investment trusts among its members. More than 90 million individual shareholders are represented by its mutual fund members, who also oversee around $6.4 trillion. In terms of legislation, regulation, taxation, public information, economic and policy research, company operations, and statistics, the Investment Company Institute represents its members and their shareholders. The Institute aims to advance fund shareholders' interests, serve the public interest by encouraging adherence to the highest ethical standards by all industry segments, and improve public understanding of the operation of investment companies (www.ici.org/about ici.html).

The Institute advises FASB to continue with a review of SFAS 123. The Institute stated that accounting standards ought to:

(1) demand that issuers treat stock options issued to workers as an expense to be included on the income statement; and

(2) Make that stock options are valued consistently for this reason.

According to the Institute, obligatory expense treatment is required to provide full and equitable disclosure of issuers' financial situation and operating results. The Institute is in favor of the IASB's proposal requiring issuers adhering to IAS to expense the fair value of stock options issued to workers.

The following issues were raised by the Institute:

Issuance, Forfeitures, and Methods of Attribution

The Institute thinks that SFAS 123's approach, which excludes forfeitures from the estimate of the fair value of options granted, is preferable in response to the invitation to comment question about whether the effect of forfeitures should be incorporated into the estimate of the fair value of options granted. Issuers would be able to "manage" the fair value of the options issued and associated compensation expenditure by altering their estimates if the requirement to anticipate future forfeitures and include that estimate into the option pricing model existed. Additionally, it appears that issuers are not permitted to reduce compensation expenditure for any discrepancy between expected and actual forfeitures under the IASB methodology. These factors lead the Institute to consider that the most accurate results come from subtracting the effects of forfeitures from the estimation of the fair value of granted options and adjusting compensation expenditure in accordance with actual forfeitures. The Institute stated that analysts and investors are accustomed to the Statement 123 approach and that the adoption of the IASB approach may make it more difficult for them to predict future earnings and compensation costs (www.ici.org/02 fasb stock option.html).

4.4.2 The Biotechnology Industry Organization

More than 1,100 biotechnology businesses, academic institutions, state biotechnology centers, and allied organizations are represented in all 50 U.S. states by the Biotechnology Industry Organization (BIO), a national trade association for the biotechnology industry. Employee stock option programmes are crucial to the biotechnology sector's continued expansion, just like they are in many other economic growth areas.
These strategies are crucial now more than ever as the sector continues to commercialize its goods and seeks to hire workers from other, more established sectors (www.bio.org/tax/letters/20030131.asp).

The Invitation to Comment's usage of the Black- Scholes Value for employee stock options is BIO's main point of contention. The biotechnology sector (as well as the membership of BIO) is dominated by rising growth businesses, many of which have stocks that are very volatile and have little liquidity. Because of this, BIO opposes the income statement expenditure reporting of stock options. The Black-Scholes model, in particular, was not intended for and is improper for evaluating employee stock options. The algorithm generates values for volatile equities that, in its opinion, mislead investors and other consumers of financial statements. Additionally, the Black-Scholes model ignores the fact that employee stock options are sometimes ineligible for exercise due to blackout periods and are not openly traded. BIO is still of the opinion that the SFAS 123 reporting options currently available are effective and ought to be maintained. According to them, it would be their pleasure to give investors various examples of how the Black-Scholes Value, when used in relation to businesses in their field, can be seriously deceptive.

BIO offered its viewpoint on the following topics:

Models for Pricing Options and Valuing Employee Stock Options

The adoption of an adequate option-pricing model for footnote disclosure should be mandated by the accounting standard. The model employed, together with important assumptions and the rationale for choosing a specific model, should be made explicit in the footnotes. For businesses with very volatile or illiquid stock prices, the Black-Scholes model frequently yields false conclusions. The volatility assumption is only given limited quality guidance in the present version of SFAS 123, and value adjustments for companies with sparsely traded equities are not taken into account. In order to determine fair value more precisely, adjustments must be made for these considerations. Employee stock options also lose value because they are non-transferable and subject to forfeiture. Existing models do not take these elements into account, which causes an overestimation of value. Additionally, according to BIO, the standard should allow for the introduction of fresh, suitable option-pricing models as they emerge.

Issuance, Forfeitures, and Methods of Attribution

The method of submitting estimates for forfeitures at the time of award, which eliminates significant revisions that may take place under current U.S. law, is one that BIO believes has merit.

Standards, as a similar strategy may lead to inflated compensation costs for startups and businesses experiencing significant unplanned force reductions.

The current attribution approach in SFAS 123, in the opinion of BIO, is the mechanism that best captures the economics of stock-based compensation agreements. The "unit-of-service" idea in the proposed IASB rule, according to BIO, is unnecessarily complicated, will be challenging to track, and won't produce estimates that are more precise than the straight-line or graded vesting approaches under SFAS123.


BIO is still in favour of enhanced disclosures that are useful to investors and those who read financial statements. The current worry is that the disclosure of stock options may grow to be overly lengthy and intricate for investors and other users of financial statements. Therefore, BIO concurs with the IASB's recommendation to offer more disclosure regarding important assumptions (volatility and vesting conditions).

4.4.3 The Committee on Corporate Reporting of Financial Executives International and the Financial Reporting Committee of the Institute of Management Accountants

In response to the invitation to comment "Accounting for Stock-Based Compensation: A Comparison of FASB Statement No.123, Accounting for Stock-Based Compensation and Its Related Interpretations, and IASB Proposed IFRS Share-Based Payment," the Financial Executives International Committee on Corporate Reporting and the Institute of Management Accountants' Financial Reporting Committee (the Committees) expressed their views. (See www.fei.org/download/FEI IMA FAS123.pdf.)

The Committees expressed their views on the following issues:

Issuance, Forfeitures, and Attribution Methods

The Committees concur with the FASB's finding that an equity instrument is only issued after receiving valuable consideration. Employee stock options are distinct from almost any other equity instrument due to vesting limits and the possibility of forfeiture, which supports the viewpoint presented in SFAS 123. As a result, the Committees disagree with the units of service model suggested in the IASB ED. The conceptual underpinning of the IASB attribution model, in the Committees' opinion, is incoherent since it is not relevant to recognize an expense for options that never vest, as the IASB mandates. The Committees are also worried that costs recognized using the units of service approach would potentially be higher than the fair value of granted options. The entire model's trustworthiness is strained by these results. The Committees feel that the IASB model's guiding principles should only be used if they are clearly superior to SFAS 123.

Option Pricing Models/Valuation of Employee Stock Options

The Committees claim that there is unanimity among the members of both Committees that employee stock options are significantly overvalued under traditional option pricing models, and that modifications are required to reflect these discrepancies. The changes included in SFAS 123, it is widely agreed, do not sufficiently represent those disparities. Furthermore, since the publication of SFAS 123, there hasn't been much progress in the creation of a solid valuation model for employee stock options that would serve as a solid foundation for a prescriptive measurement strategy. The Committees observe that the majority of accounting standards only offer high-level guidance on fair value measurement. The Committees feel that it would be inappropriate to offer very prescriptive guidance in this area given the lack of a sound valuation theory for figuring out the fair value of employee stock options. If expense recognition for employee stock options is ultimately necessary in financial statements, the obligation should end at the principles level by stating that fair value should be used for measurement. Companies should be allowed to utilise professional judgement in determining their best estimate of each relevant variable in accordance with the fair value goal without FASB and IASB mandating the use of a specific option pricing model. If necessary, the standard could list many aspects to take into account when calculating fair value, such as:

• The option's exercise cost

• The underlying security's current price.

• The estimated life of the options, or the time frame during which they will actually be exercisable

• The projected risk-free interest rate for the time frame corresponding to the anticipated option term

• The underlying security's anticipated future volatility

• Dividends anticipated

• The impact of the options' non-transferability on their value

• The impact on value if there is a blackout period after the option is exercised and the stock cannot be sold.

When finding an appropriate fair value, the accuracy of the assumptions employed in option pricing models is crucial.

The Committees asked valuation experts for their opinions on the factors that ought to serve as the foundation for a fair value criterion, and they were told that in order to determine fair value, businesses should be able to:

• Rather to relying solely on an option's expected value, consider using the lifetime probability distribution calculated from past data;

• use a stochastic model for volatility that has been adjusted using data from the past;

• Use models other than the typical geometric Brownian motion to characterize the uncertainty in the temporal evolution of share prices into the future, assuming that such models are supported by actual data.

The Committees concur that it would be acceptable to disclose information that would aid investors in understanding the model that was employed and the methodology utilized for calculating the assumptions if such revisions were authorized.

4.5 Overview of Company Reporting Practices

To investigate their stock-based compensation accounting practices, we have picked ten companies. We compare the opinions people express in the Comment Letters to their actual behavior. Every business we are covering is a response under one of the Comment Letters categories. We do not include all of the companies because eleven of them are organizations (such as The Boston Security Analysts Society and The Software & Information Industry Association) that represent the opinions of their members but do not themselves engage in stock-based compensation accounting; one company (LTV Steel) went bankrupt between 1993 and 2003; or two companies merged (The Chase Manhattan Corporation and JPMorgan). We are examining the most recent annual reports of the companies that are available.

4.5.1 The Shell Petroleum Company

The goal of group managing director compensation at Shell Petroleum Company (Shell) is to draw in and keep highly skilled workers while inspiring them to provide excellent work. Therefore, the remuneration systems are created to balance the objectives of senior staff with those of the business and shareholders. A large amount of compensation packages are based in part on real performance.

A method of long-term incentives is the use of group stock option plans. In accordance with one of the Group Stock Option Plans, Shell issues stock options once a year. Executives have received ten-year stock options from Shell since 1998. 50% of the options are subject to various performance requirements, and the vesting period is typically three years long.

The shares granted through group stock option plans are existing issued shares of the firm, according to Shell's Annual Report for 2001. Therefore, there isn't any equity dilution among stockholders. The exercise price, which determines the price at which shares may be purchased, may not be less than the fair market value of the shares as of the grant date.

The stock option expenditure is not disclosed by Shell in its income statement. According to Dutch GAAP, the Group Consolidated Financial Statements are created. In their Comment Letter, Shell argued that forcing European businesses to cost employee stock options will disadvantage them more as long as the requirement is not made universal. Under Dutch GAAP, there is no duty to disclose stock-based compensation expenditure measured at fair value, hence the corporation simply makes this disclosure in the financial statements' footnotes. However, in our judgement, the corporation is losing out on some opportunities. A total of 16,000 EUR worth of options were exercised in 2001. The market price at the time of exercise was 67.26 EUR, whereas the exercise price was 48.92 EUR.

The Shell subsidiary's financial statements are prepared in the US in accordance with US GAAP. However, the corporation does not account for stock-based compensation expense using the fair value based technique. It simply offers the disclosure that SFAS 123 mandates. The pro forma impact on net income and earnings per share determined in accordance with SFAS 123 criteria is simply stated in the notes to the financial statements as not material. The company's mistrust of current stock price models may possibly be the cause of Shell's hesitation to report employee stock-based compensation expense.

4.5.2 Anheuser-Busch

According to US GAAP, Anheuser-Busch prepares its financial statements. The corporation opposes the idea of include employee stock-based compensation expense in the income statement in its Comment Letter since the notes to the financial statements already contain all the required information. Following this declaration, the company states that it accounts for employee stock option expense in accordance with APB 25 in the "Summary of the Significant Accounting Principles and Policies" of the annual report for the year 2001. Under this statement, the company does not record any expense related to employee stock options in the income statement as options are always granted at a price equal to the market price on the grant date.

In accordance with the requirements of SFAS 123, the company provides pro forma effects that the stock options would have on the income statement had the employee stock-based compensation expense been recorded using the fair value based method in Note 5 to the financial statements of the annual report for 2001. The reported net income discrepancies are rather large. While the corporation recorded stock-based compensation expenditure utilising the fair value based technique, net income would have been 1,635 million USD instead of 1,704 million USD under APB 25. Anheuser-Busch utilises the adapted Black-Scholes option pricing model to determine the fair value of granted options. The corporation underlines that it used the Black-Scholes model to determine the weighted average fair value of stock options issued for SFAS 123 disclosure purposes. However, in practise, employees cannot benefit from owning these plans until there is a gain in the market price of Anheuser-Busch shares, as the company's employee stock options are not traded on an exchange.

4.5.3 SunTrust Banks, Inc.

Financial statements for SunTrust Banks, Inc. (SunTrust) are made in line with US GAAP. Employee stock-based compensation costs are accounted for in accordance with APB 25, meaning the corporation does not record compensation cost while accounting for its stock option schemes. SunTrust discloses the pro forma effects of utilising the fair value based method to account for stock-based compensation expense as required by SFAS 123 in the notes to the financial statements. The amount of SunTrust's reported income in 2000 was USD 1,294 million. A pro forma net income of $1,281 million USD would be generated. The Black-Scholes option pricing model was updated to determine the weighted average value of the granted options.

4.5.4 Nokia

Finnish Accounting Standards are followed in the preparation of Nokia Group's financial statements. Nokia vehemently opposed the idea of incorporating employee stock-based compensation expense in the income statement in its Comment Letter. As a result, Nokia offers thorough disclosure regarding the issued stock option plans in its Annual Report 2001, which is included in the notes to the financial statements. It lists the quantity of stock options that have been awarded, how the corporation divides those options into different categories, how much stock options cost to subscribe for, and how many stock options have been granted, exercised, and forfeited. However, the firm does not disclose any pro forma effects that the stock option plans may have on the company's financial statements if they were valued at fair value and included as an expense in the income statement.

4.5.5 UBS Warburg Group

Financial statements for the UBS Warburg Group are prepared in conformity with international accounting standards (IAS). Due to the fact that UBS Warburg is also listed in the US, it details all material variations that would occur if the annual reports were prepared in line with US GAAP in the notes to the financial statements.

Despite supporting the proposal to measure employee stock-based compensation expenses at fair value in the Comment Letter, UBS Warburg tracks stock-based compensation expenses under IAS using the intrinsic value-based method. The corporation gives a thorough disclosure of the share-based compensation plans available to employees in the 2001 annual report's notes to financial statements. Included in the data are the total numbers of stock option plans granted as well as the weighted average purchase price. As was already indicated, the corporation highlights the key differences that would occur if the financial statements were prepared in accordance with US GAAP. Additionally, UBS Warburg provides the pro forma net income and profits per share as if the business had chosen to account for stock-based compensation expenditure using the fair value based method.

4.5.6 The Coca-Cola Company

The Coca-Cola Company (Coca-Cola) vehemently rejected the Exposure Draft "Accounting for Stock-Based Compensation" in 1993, citing the lack of a trustworthy and impartial approach for the assessment of compensation costs as the primary justification. Ten years later, however, Coca-Cola is one of the first businesses to begin depreciating employee stock-based compensation programmes using the fair value method.

According to US GAAP, the corporation creates its financial statements. According to the company's disclosure in Note 12 "Restricted Stock, Stock Options and Other Stock Plans" of its 2001 annual report, Coca-Cola accounts for employee stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. As a result, the company does not include any expense for employee stock options in its income statement.

Coca-Cola presents the pro forma effects that employee stock options would have on the income statement if the business had chosen to measure stock-based compensation costs using the fair value based methodology. The major discrepancy between reported net income and net income after the impact of applying SFAS 123 was $0.202 million USD as of December 31, 2001. While the corporation recorded stock-based compensation expenditure utilizing the fair value based technique, net income would have been 3,767 million USD instead of 3,969 million USD under APB 25.

Coca-Cola said in July 2002 that it would begin depreciating the cost of all stock options given by the business in the fourth quarter of 2002. Our management's decision to switch to the preferred method of accounting for employee stock options ensures that our earnings will more accurately reflect economic reality when all compensation costs are recorded in the financial statements, according to Doug Daft, chairman and chief executive officer (http://www2.coca-cola.com/presscenter/nr 20020714 atlanta_ stock_ options.html).

The corporation made the choice to use SFAS 123's fair value-based approach of documenting stock options, which is thought to be the best accounting practice for stock-based employee pay. Based on the fair value at the time the options are granted, all upcoming employee stock option grants will be expensed over the stock option vesting period. The implementation of this accounting approach is anticipated to have a negligible financial impact on the company's results in the current year. The projected impact for 2002 would be roughly $0.01 per share if the Board of Directors awards options at a level similar to that of 2001.

Coca-Cola emphasizes that putting all types of options on an equal accounting footing eliminates any potential bias toward issuing the types that do not need to be expensed, which is a significant benefit of the expensing strategy the business is implementing. With this new policy, the company will have the freedom to create the options that it thinks will best inspire employees and more closely connect their interests with those of stockholders. This will be done without taking into account how the options will affect the company's accounting. The policy also equalizes options with other forms of pay, enabling the business to create compensation plans that make the most sense possible (http://www2.coca-cola.com/presscenter/nr 20020714 atlanta stock options.html).

4.5.7 Merrill Lynch & Co., Inc.

The majority of businesses, including Merrill Lynch & Co., Inc. (Merrill Lynch), opposed the Exposure Draft "Accounting for Stock-Based Compensation" in 1993, and Merrill Lynch continues to oppose the fair value-based method of accounting for employee stock-based compensation schemes. According to the corporation, there is no impartial way to calculate the fair value of employee stock options.

Instead of using the fair value-based method in SFAS 123, Merrill Lynch accounts for employee stock-based remuneration in accordance with the intrinsic value-based method in APB 25. Merrill Lynch grants stock options having no intrinsic value, hence no compensation expenditure for stock options is recorded. Over the course of the vesting period, compensation expense associated with other stock-based compensation programmes is recorded. On the consolidated balance sheets, the unamortized component of employee stock awards made under such schemes is shown as a reduction to stockholders' equity under the heading unamortized employee stock grants.

Option grant-related pro forma compensation expenditure is recorded over the vesting period. Merrill Lynch reports the 854 million US $ discrepancy between reported net earnings (loss) and net earnings (loss) after implementing SFAS 123. While the corporation recorded stock-based compensation expenditure utilizing the fair value based technique, net earnings (loss) would have been (281) million USD instead of 573 million USD under APB 25.

4.5.8 Intel Corporation

The Exposure Draft "Accounting for Stock-Based Compensation" was contested by Intel Corporation in 1993. The alternative fair value accounting required by SFAS 123 requires the use of option valuation models that were not created for use in valuing employee stock options, so the company continues to disagree with the suggestion to expense the employee stock-based compensation plans and adheres to APB 25 in the accounting for its employee stock options. According to APB 25, no compensation expense is recorded in the firm's financial statements because the exercise price of the employee stock options granted by the company is equal to the market price of the underlying stock on the day of grant.

SFAS 123 stipulates that the corporation must provide pro forma data as if it had accounted for its employee stock options using the fair value approach. In order to give information on the fair value of options awarded in 2001, the corporation used the Black-Scholes option pricing model to estimate the value of employee stock options at the time of grant.

The estimated fair value of the options is charged to expenditure over the options' vesting periods in order to comply with pro forma disclosure requirements. The reported net income for the year 2001 was $1,291 million, however the net income after applying SFAS 123 was 254 million dollars.

The Black-Scholes option valuation model was created, emphasises Intel Corporation, to be used in determining the fair value of traded options that are completely transferable and do not have any vesting restrictions. Additionally, very arbitrary assumptions, such as the anticipated stock price volatility, must be entered into option valuation models. The existing models do not necessarily provide a reliable single measure of the fair value of employee stock options because the company's employee stock options have characteristics that are significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management.

4.5.9 JPMorgan Chase & Co

The Exposure Draft "Accounting for Stock-Based Compensation" was challenged by JPMorgan Chase & Co. in 1993 because it didn't enhance the reliability and quality of financial statements. But as of January 2003, the corporation began depreciating employee stock options.

According to APB 25, JPMorgan Chase accounts for its employee stock-based compensation schemes using the intrinsic value-based technique. Since stock options have no intrinsic value on the grant date, no expense is recorded for them. The corporation gives the pro forma effects that the stock options would have on the income statement in accordance with SFAS 123 (www.ar.jpmorganchase.com/ar2001/audited/n19.html). Employee stock-based compensation expense is reported utilising the fair value based method.

According to JPMorgan Chase, options would have been valued using the Black- Scholes model if the corporation had implemented the fair value based technique in accordance with SFAS 123. Applying SFAS 123 had a greater impact in 2001 due to the lower net income level and more alternatives offered during that year. The substantial difference between net income as reported and net income after the impact of adopting SFAS 123 was $0.622 billion USD. While the corporation recorded stock-based compensation expenditure utilising the fair value based technique, net income would have been 1,072 million USD instead of 1,694 million USD under APB 25. According to JPMorgan Chase, it valued the options issued as part of equity awards using the Black-Scholes model utilising weighted-average grant-date fair value and assumptions.

According to a JPMorgan Chase announcement, the business would begin depreciating all stock options awarded to workers in January 2003. JPMorgan Chase is one of the rare organizations that offers an options programme to practically all employees, hence the company will be impacted more than some other businesses. (JPMc/about/facts/ceo email; www.jpmorganchase.com/cm/cs?pagename=phase/ Href).

4.5.10 BankAmerica Corporation

The Exposure Draft "Accounting for Stock-Based Compensation" was not supported by BankAmerica Corporation (BankAmerica) in 1993. The corporation still refuses to expense employee stock options and accounts for its employee stock option schemes in accordance with APB 25's guidelines. According to SFAS 123, the company discloses information as if it had started using the fair value-based technique to calculate the value of outstanding employee stock options in 2001. The major discrepancy between reported net income and net income after the impact of applying SFAS 123 was $0.351 million USD as of December 31, 2001. According to APB 25, net income was $6,792 million USD, whereas $6,441 million USD would have been earned had the company recorded stock-based compensation expense using the fair value-based method (www.s1.mobular.net/ccbn/7/27/29/).

The corporation employed weighted-average grant-date fair value and assumptions to value the options using the Black-Scholes option pricing model in order to estimate the fair value of awarded employee stock options on the grant date. The fair value based method allocates compensation expenditure across the employee stock option vesting term.

BankAmerica emphasized that the Black-Scholes option pricing model was created to estimate the fair value of traded options, which differ from employee stock options in that they have different characteristics, and that changes to the model's subjective underlying assumptions can lead to materially different fair value estimates.

5 Analysis

We examine the findings of our examination of the numerous Comment Letters reported in Chapter 4 in this chapter. To more effectively condense the substantial body of empirical evidence, we offer the analysis under the following subheadings in Section 5.1: SFAS 123, SFAS 148, IASB Discussion Paper, and Invitation to Comment. We also provide an overview of key concepts and methods that are relevant to how businesses actually operate, as found in their annual reports and numerous press releases.

5.1 General

The widespread usage of stock options as a form of employee remuneration has a variety of well-founded reasons, despite the fact that not everyone agrees that employee stock-based compensation programmes have a favourable impact on businesses. It is said that stock options balance the interests of owners and employees. They make it easier to create jobs, particularly in the information technology sector, and they support businesses in navigating competitive labour markets. Due to the fact that such programmes do not result in actual cash outflows from the company, companies view stock options as a more effective method of compensating employees. A corporation may improve its performance by coordinating the interests of its two main stakeholder groups, its shareholders and employees. However, it appears that there are just as many people opposed to stock options as supporters. The widespread usage of stock options is thought to have the potential to considerably raise the company's shareholder value over time. However, other stakeholders may have an unfavourable opinion of issuing stock options if the company is performing worse than other companies in the industry.

Exposure Draft 2 was released by IASB and SFAS 123 was introduced by FASB in a natural flow of events. Despite the fact that stock option plans are becoming popular, there is no set method for accounting for them. In Europe, a standard actually doesn't exist at all (Levinsohn, 2002). When the FASB released its Exposure Draft in 1993, it made an effort to recommend an accounting approach based on fair value. Strong lobbying, however, prevented this measure from passing. Businesses saw it as a danger to the positive results shown in their financial statements. The fair value based method and the deduction of stock option compensation expenditure from income are widely opposed by the business community. Our belief is that their hesitation to use the fair value based method stems mostly from their worry that lower earnings will have a negative impact on the share price.

The problem was initially addressed by IASB when it released a Discussion Paper on Share-Based Payments in 2000. Its suggestion that share-based compensation expenses be calculated at fair value was not well embraced in Europe either. Companies are free to exclude the disclosure of any expenses associated with stock options due to the lack of regulations requiring the adoption of the fair value based method of accounting for stock-based remuneration. This is the case, for instance, with Shell, which claims that the differences between the intrinsic value and fair value are negligible but does not disclose any pro forma implications of applying the fair value based method.

5.2 Opinions on Stock-Based Compensation

5.2.1 SFAS 123

Ten comment letters on the FASB Exposure Draft "Accounting for Stock-Based Compensation" from 1993 have been examined. Nine Comment Letters, or a sizable majority, were against the Exposure Draft. Only one corporation, in its Comment Letter, endorsed the FASB Proposal in its entirety. Other businesses claimed that the proposed accounting rules would result in a result that is less significant to the readers of financial statements than the current rules and would not improve the overall usefulness and trustworthiness of the financial statements. It was claimed that the proposed standards in the Exposure Draft would make corporate financial reporting unclear, inconsistent, and inaccurate and would lessen the comparability of financial statements. In comparison to the benefit, the suggested improvements would be difficult to implement.

The following were the primary issues that were in essentially every Comment Letter we looked at:

Measurement Date

The Exposure Draft position that the stock price at the grant date should be used to measure compensation cost was backed by the majority of the firms.

Measurement Method

Due to the lack of an accurate and impartial assessment method, the majority of businesses opposed the fair value-based method and disagreed with the recognition of compensation expense. Due to significant differences between traded options and non-traded employee stock options, such as no transferability, forfeitability of employee stock options, their long-term exercisability, the need for continued employment to exercise the options, and future stock values, existing option pricing models are quite subjective and do not produce a reasonable or relevant value for employee stock options. Volatility in price, variations in vesting timelines, and price movements that are unrelated to corporate success.

For the purpose of valuing employee stock options, some businesses recommended utilising the minimum value method. This approach might significantly cut down on adjustments. The fair value technique cannot compare to its precision and accuracy. In comparison to the minimal value calculation, the fair value calculation involves far more judgement and complexity.

Attribution Period

The companies agreed that the time between the grant date and the vesting date would be the proper window of time to recognise the costs associated with employee stock option compensation.


The consensus among all the companies under study was that transparency might be a better option than recognising compensation expenses. They held that disclosures were the appropriate means of educating users of financial statements.

5.2.2 SFAS 148

The FASB made another effort to get businesses to use the fair value-based method of accounting for stock-based compensation expense by introducing SFAS 148. Companies are anticipated to benefit from the two new transition procedures described in SFAS 148 as they shift from the intrinsic to the fair value based accounting approach. However, after reading the comment letters, we understood that adding two more options for transition did not actually make the matter clearer. Six out of the nine companies who’s Comment Letters we analysed expressed worry about having a variety of transition options. They think it will just make it more difficult to compare financial results. The majority of respondents agree that only one transition technique should be used, typically the complete restatement method because all essential data is already available.

It seemed that different businesses have diverse viewpoints on the use of two new transition techniques. On the one hand, some of them see it as a way to increase the stated outcomes' comparability and transparency. On the other side, some of the responding companies argued that providing investors with a variety of transition options would simply increase investor confusion and harm comparability. Another argument made in the Comment Letters was that the comparability is already severely compromised and that having three options for transition procedures won't do any harm. Three different transitional options, though, may encourage more businesses to use the fair value approach.

None of the responding corporations agreed with FASB's suggestion to include the disclosure of stock-based compensation expense in the "Summary of Significant Accounting Policies." The consensus expressed in the comment letters was that transparency should be included in the financial statements' footnotes. One of the justifications cited was that including this disclosure in the "Summary of Significant Accounting Policies" will elevate it above other unjustified disclosures. Which disclosure should take precedence should be up to the users of financial statements to determine. It appears that while firms are working hard to hide this disclosure, FASB is making an effort to draw readers of financial statements' attention to it.

5.2.3 IASB Discussion Paper on Share-Based Payments

The following were the primary issues that were in essentially every Comment Letter we looked at:

• Choosing between the intrinsic and fair value methods to calculate stock-based compensation costs,
• How fair value should be calculated, if it is to be used;
• The most suitable date for the measurement.

The majority of businesses emphasise the demand for a unified accounting standard that addresses the reporting of stock-based compensation expenses. They are against the IASB's proposal to deduct stock-based compensation expenditure from income unless stock options are given the same treatment abroad, especially in the US. If this was mandated for all businesses in the major global markets, it appears that certain European businesses would be more inclined to use the fair value-based accounting technique for stock options. However, Merrill Lynch claims that the compromise reached in the United States is actually rather successful. As a result, it suggests that IASB consider stock option expense the same way.

There is no consensus on this topic in practise, just as there is no understandable theoretical framework for defining whether employee stock options are an expense for corporations or not. Companies that disagree with the fair value-based approach of accounting generally give the same justification: stock options solely effect shareholders and do not result in a cash outflow for the company.

In our opinion, if there were accurate ways to measure this worth, more organisations would prefer the fair value-based approach. All of the companies that responded noted the lack of a reliable method to determine the fair value of the awarded stock options. It appears that no corporation is happy with the option pricing methods that are currently in place. They believe they are improper for employee stock option valuation. It is frequently emphasised that when using the Black-Scholes and binominal option pricing models to analyse employee stock options, the assumptions utilised must be adjusted. The changes would be somewhat arbitrary and company-specific. As a result, the final outcomes would be incomparable amongst companies. It would be more clear how corporations determined stock option costs if they disclosed the assumptions they used when utilising option pricing models. The need to introduce updated, more understandable, and employee stock option-specific models to calculate stock-based compensation expense, however, persists despite even thorough disclosure.

All responding companies concurred that the grant date is the most appropriate date to measure stock-based compensation expense since it is the day on which all parties to the transaction agree on the transaction's terms and value.

5.2.4 Invitation to Comment

The following were the primary issues that were in essentially every Comment Letter we looked at:

Issuance, Forfeitures, and Methods of Attribution

Because the conceptual underpinning of the IASB attribution model was inconsistent, some businesses disagreed with the units of service model suggested in the IASB ED. The risk that expenses recognised using the units of service technique may in fact be greater than the fair value of granted options has also been a source of worry. The entire model's trustworthiness is strained by these results.

Companies considered that Statement 123's approach, which excludes forfeitures from the assessment of the fair value of options granted, is the preferable one in response to the question of whether the effect of forfeitures should be integrated into the calculation of the fair value of options granted. Issuers would be able to "manage" the fair value of the options issued and associated compensation expenditure by altering their estimates if the requirement to anticipate future forfeitures and include that estimate into the option pricing model existed. Furthermore, issuers would not be able to modify compensation expense for any discrepancy between estimated and actual forfeitures under the IASB approach. Furthermore, the new IFRS will not produce estimates that are more accurate than the straight-line or graded vested procedures under Statement 123 and is unnecessarily complex, making it challenging to track.
Option Pricing Models / Valuation of Employee Stock Options

The adoption of an adequate option-pricing model for footnote disclosure should be mandated by the accounting standard. The model employed, together with important assumptions and the rationale for choosing a specific model, should be made explicit in the footnotes. For businesses with very volatile or illiquid stock prices, the Black-Scholes model frequently yields false conclusions. According to SFAS 123, there isn't much good advice for figuring out the volatility assumption, and it doesn't take into account value adjustments for businesses with thinly traded stocks. In order to determine fair value more precisely, adjustments must be made for these considerations. Employee stock options lose value since they are non-transferable and subject to forfeiture. Existing models do not take these elements into account, which causes an overestimation of value.

Businesses stressed that FASB and IASB shouldn't require the use of a specific option pricing model and that businesses should be allowed to apply professional judgement in determining their best estimate of each relevant variable in accordance with the fair value goal.

Companies recommended using a stochastic volatility model calibrated to historical data, using the probability distribution of an option's lifetime rather than just its expected value to determine fair value, and using models other than the standard geometric Brownian motion to describe the uncertainty in the temporal evolution of share prices into the future, provided empirical evidence can support these suggestions.

The firms concur that it would be acceptable to disclose information that would aid investors in understanding the model that was utilised and the methodology used for generating the assumptions if such revisions were authorised.


Companies stated that they believed enhanced disclosures would benefit both shareholders and those who read financial statements. The current worry is that the disclosure of stock options may grow to be overly lengthy and intricate for investors and other users of financial statements. Some businesses agreed with the IASB's recommendation to disclose extra information about important assumptions (volatility and vesting conditions).

5.2.5 Practice of Accounting for Stock-Based Compensation Expense

The vast majority of corporations utilise the intrinsic value-based method to quantify stock-based compensation expenditure, according to our analysis of annual filings from companies. The actions of two companies go against the viewpoints in their Comment Letter. For instance, UBS Warburg Group completely concurred in its Comment Letter that stock options satisfy all requirements for expenditure recognition and should, thus, be deducted from income. The business suggests that FASB support making the use of the fair value-based method mandatory. It would be reasonable to believe that UBS Warburg Group values employee stock options using a fair value-based methodology. However, when we examined the company's financial reports, we discovered that it only gives pro forma results of applying the fair value based assessment and applies the intrinsic value based technique. The Coca-Cola Company fought against the Exposure Draft SFAS 123 in 1993. However, it was among the first businesses to begin writing off employee stock options.

Companies don't seem keen to embrace the fair value based strategy, despite the efforts made by FASB in the United States to urge them to do so. However, a large number of businesses, including Coca-Cola, American Express, Bank of America, Computer Associates, Washington Post, Amazon.com, and many more, have voluntarily chosen to expense stock options (www.fed.org/onlinemag/sep02/trends.htm). It may be notable that the majority of the businesses that have made their decision to expense stock options publically do not belong to those with larger, more comprehensive, and widespread stock option programmes. So, for them, choosing to spend is substantially less expensive. Companies with very sizable and widespread stock option programmes, on the other hand, have indicated a choice to stick with current policy (not to expense options).

In Europe, where there is currently no established standard for accounting for stock-based remuneration, adoption of the fair value based method is much less likely to spread (Levinsohn, 2002). The most popular approach is to merely disclose the pro forma impacts of using the method based on fair value. It appears that businesses believe it to be adequate. The level of disclosure varies from business to business. According to APB 25, American businesses must declare their pro forma income statements and earnings per share. The European businesses we looked at typically only disclose broad details on the stock option schemes they provide, such as the total number of stock options issued, exercised, and forfeited.

The number of businesses deducting or preparing to deduct employee stock option costs has quietly climbed. Only two of the corporations we analysed, JP Morgan Chase and the Coca-Cola Company, began deducting the cost of employee stock options.

The Coca-Cola Company claimed that ensuring the most accurate financial reporting was the primary driver behind this decision. Coca-Cola came to the conclusion that when those expenditures were accounted for in their financial statements, the company's earnings would more accurately represent economic reality.
The Coca-Cola Company claims that one of the challenges businesses had when switching to the fair value based system was figuring out the precise amount that needed to be recorded as an expense. Companies must establish the "fair value" of stock-based remuneration in accordance with FASB regulations. No specific model is required, despite the fact that six important factors are recognised (stock price, exercise price, risk-free interest rate, estimated duration of the option, expected stock price volatility, and projected dividends).

The benefit it offers to investors—a better portrayal of the company's economic reality (an improvement in investors' confidence in corporations)—and more comparability among companies with stock option programmes are its key benefits of expensing stock options. These advantages might make it easier for businesses to create the types of options they think will best inspire workers and more closely match their interests with those of stockholders, regardless of the accounting impact of those options.

6 Concluding Discussion

What is the corporate community's position on expensing stock-based compensation plans and what arguments are offered for and against? That is the question that this chapter seeks to address. It also summarises the evidence gathered.

6.1 Conclusions

As we stated earlier in this thesis, the topic of stock-based compensation expense measurement and recognition in the income statement has been under discussion for many years by a variety of interested parties, including the business community, which includes companies, investors, accountants, and professional associations, as well as the IASB and FASB. In order to determine what the current FASB standards require, what the IASB intended when it released Exposure Draft 2, and what the opinions of business enterprises are regarding the current and proposed standards, we concentrated our attention on the FASB and IASB's existing and proposed standards as well as the Comment Letters of various companies and organisations. Additionally, we investigated how businesses actually handle employee stock option expense recognition.

We discovered that most businesses oppose the idea of recognising employee stock-based compensation programmes as an expense on the income statement after examining Comment Letters and corporations' viewpoints on the matter. They offer several justifications for this stance, which we sum up as follows:

• Giving staff stock options doesn't actually cost the business any money. This remuneration does not qualify as an expense because there was no actual financial outlay.

• Since there are no reliable employee stock option pricing models, it is impossible to determine the fair value of stock-based remuneration. Without changing the underlying assumptions, existing option pricing models would not produce an objective result.

• Adopting the fair value-based technique of accounting for employee stock option plans will make it more difficult to compare financial performance between different organisations.

• Employee stock option expense will lower earnings, which could cause a decline in stock values.
However, a lot of businesses and professional associations are in favour of depreciating employee stock option schemes. The following are the main justifications offered for expense recognition:

• When corporations award employee stock options, even when there is no actual monetary outlay on the part of the company, the issued stock options nonetheless constitute a meaningful consideration for employees. Regardless of whether payment is made in cash, other products, or services, the advantages received by employees result in a cost.

• It would only be appropriate to disclose the stock-based compensation expenditure in the income statement given that businesses can deduct taxes from employee remuneration when options are sold after the required holding period has been met.

• If corporations repurchase shares in the market after employees exercise their stock options in order to maintain a consistent number of outstanding shares, then employee stock options may result in actual cash expense.

• By deducting the cost of stock-based compensation from income, investors would be given a more accurate view of the financial situation of the companies.
Even though the idea to expense employee stock option programmes first surfaced in 1993 with the release of the Exposure Draft that preceded SFAS 123, only two businesses in our study—the Coca-Cola Company and JPMorgan Chase & Co.—have actually begun doing so. We also came to the conclusion that if there were a global uniform standard and more accurate employee stock option pricing models produced, many of the responding corporations would switch to the fair value based way of accounting for stock-based compensation expense. However, it appears that businesses will continue the practise of just disclosing stock-based remuneration unless it becomes required to be expensed.

On September 18, 2002, FASB and IASB convened together in Norwalk, Connecticut, USA, and signed a Memorandum of Understanding. According to this Memorandum (www.fei.org/download/2002pr16.pdf), FASB and IASB agreed to adopt compatible, high-quality solutions to current and future accounting difficulties globally. Despite the Memorandum, there has not yet been much agreement on how stock-based compensation programmes should be treated. The intrinsic value-based approach of accounting, which frequently does not result in income statement expenditure, is nonetheless permitted by FASB for employee stock-based compensation expense. IASB, on the other hand, only suggests an approach based on fair value, which invariably results in an expense on the income statement. The question of whether the harmonisation effect will eliminate the current discrepancies is important to all parties involved.

6.2 Suggestions for Further Research

While developing this thesis, scholarly journals and journalists were frequently discussing the topic of expensing stock-based remuneration. The subject is important, and there are problems that this thesis did not address.

First of all, the IASB has not yet published the standard on share-based payment accounting. On March 7, 2003, the deadline for comment letters on ED 2 will pass. Studying the final standard and its consequences for businesses would be of utmost importance.

Another intriguing study may be conducted on American businesses who switched from using the fair value-based strategy to the intrinsic value-based method. There may be some intriguing and worthwhile conclusions that can be drawn from the motivations for the change, the transition strategies chosen, and the outcomes of the shift.

7. List of References:

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An Essay on Accounts Receivable Assignment Sample


"Accounting Issues: An Essay Series—Part I—Cash" [Laux, 2007] explains why this series is necessary. In that accounting assignment article, the relationship between the asset cash and the various accounting characteristics—again shown in the table on the following page—was explored. The analogy of climbing a mountain serves as the foundation for examining the difficulties in initially recording transactions, adjusting the accounts, and reporting the elements through financial statements. That is, during the daily accounting activities ("on the plains"—before the ascent up the mountain even begins), up the "foothills," and finally to the "peak," where we hope economic reality is reflected in such a way that investors and creditors find the information useful in making decisions. We continue in that same vein by discussing the ideas and problems that are most directly related to accounts receivable. You should review the aforementioned paper, paying close attention to the section under "The Conceptual Framework at a Glance," if you need a "refresher" on the hierarchy of accounting characteristics. The following part discusses the general accounting approach to receivables, while the two sections that follow focus on the conceptual relationships and measurement problems that are most obviously related to accounts receivable. The most intriguing headlines and associated articles are presented in the last section for additional research.


Accounts receivable are created when clients buy goods or services with the promise to pay later, as stated in the principles of accounting course. Typically, the gross or retail amount of the initial transaction is added to Accounts Receivable and Revenues to record it. The accountant must estimate how many of those receivables will likely be collected in the future at the end of the accounting period during the adjusting process in order to provide to the statement readers a "net" (collectible) amount that actually reflects an asset (an economic resource expected to benefit future periods as the dollars are collected in cash). This "net realizable value" is the difference between the gross amount in the accounts payable account and the balance in the allowance for bad debts account (a contra-asset account), a balance established during the adjusting process typically through one of three estimation approaches—as a percentage of gross accounts payable, through an ageing of accounts receivable, or as a percentage of sales. While the basic course will cover the specifics of this adjustment process, suffice it to state that (1) it includes an estimate and (2) that estimate is often based on historical data. The theoretical effects of recording gross accounts receivable and identifying uncollectible accounts at year-end are covered in the section that follows.


As seen in the graphic on the page above, the existence of both relevance and dependability for a reported item is what determines how valuable a choice is. Therefore, the reported Accounts Receivable balance (and the related Allowance for Bad Debts account) must be significant to creditors and investors, able to affect how they evaluate past economic events and/or aid in the forecasting of future cash flows. Both of these conceptual connections will be discussed individually.

The closest thing to cash for the majority of businesses is accounts receivable from customers, aside from marketable securities (which, in compared to accounts receivable, typically make up a small percentage of overall assets). It weighs heavily in crucial metrics like the current ratio, the fast (or acid-test) ratio, and accounts receivable turnover and influences creditor decisions like granting short-term loans because it is such a significant asset and component of liquidity. The absolute amount of and changes in Accounts Receivable play a significant role in future cash flow projections, scoring well on the relevance metric.

Readers of financial statements rely on net realizable value (NRV), which is calculated as Accounts Receivable at historical cost less Allowance for Bad Debts (AFBD), to predict future cash flows; however, because NRV depends on an estimate (AFBD), its accuracy is limited. As a result, there is a trade-off between relevance and reliability. Companies can adjust estimated uncollectible accounts to influence revenue, and numerous cases of fraudulent and misleading reporting have recently been reported. Other corporate income smoothing approaches have involved fiddling with this estimate, underestimating bad debts in years where income is falling short of projections, and overestimating uncollectible accounts in years where income is generally exceeding projections. If one organization employs bad debt estimations as a manner of smoothing income while another resists the temptation, this can also affect comparability over time and between companies.

In estimating uncollectible accounts, businesses must provide complete disclosure (explain to statement readers how they arrive at AFBD) and must maintain their basic methodology from year to year, creating the impression of high consistency. However, a degree of flexibility is given in determining the percentages (of gross sales, accounts receivable, or even within the percentages used in the ageing of accounts procedure) that establish the net realizable value, allowing businesses to avoid true consistency from year to year and hindering the statement reader's ability to predict future cash flows from a given year's net amount. The conceptual linkages that are related to the measurement of accounts receivable are examined in more detail in the section that follows.


Two key measuring concerns are involved in accounts receivable analysis:

• Does the level of gross receivables reflect actual economic activities or events?

• Does the Allowance for Bad Debts reflect the amount of money that won't be recouped?

The first is about recognizing revenue, while the second is about recognizing and matching expenses. The crucial phase of revenue recognition is thoroughly covered in the majority of introductory accounting courses, making it abundantly clear that both the buyer and the seller must meet certain requirements before businesses should formally measure and record revenues (and the associated account receivable) in the accounting books. However, many "beyond-GAAP" blunders have happened at this point. (The following part will provide a presentation of some of the headliners.) Here, on the plains of routine accounting, accountants may choose to do so or may feel under pressure to do so, resulting in the early, exaggerated, or even fraudulent valuation of linked revenues and receivables. Recognition indicates non-GAAP accounting, and the resulting Accounts Receivable are exaggerated, if the company has not performed its duties (fulfilling a service contract or delivering a product with a restricted right of return) and/or if a client has not made a credible promise to pay the firm. The company's financial situation has not improved, it has not acquired any new assets, and there is no guarantee of future cash flows. Accountants must reflect this economic reality because that is the current state of affairs.

Similar to this, accountants must appropriately record an amount of AFBD that reflects the dollars of receivables that will not be collected, an expense to be recognised as Bad Debts Expense. Since this is based on an estimate, there is more room for error (accountants are not expected to be 100% correct), but viewers of financial statements should be able to trust that every attempt has been made in good faith. In other words, accountants shouldn't try to slant the estimate in any direction; instead, they should use their best judgement based on the data that is already available and other facts or prognostications (such as a generally acknowledged economic rebound or recession). This idea, known as "neutrality," improves the fundamental quality of dependability. The allowance method of recording bad debts also represents an effort to follow the matching principle by recording the expense related to uncollectible accounts in the same accounting period as (and hence "matched" with") the related revenues.

A few restrictions also apply to accounts receivable accounting. If a corporation has a history of very few uncollectible accounts, it can choose not to use the recommended strategy as mentioned (estimating uncollectible amounts and creating a contra-asset account) (low bad debt expense). This is the idea of materiality, which says that if the difference in income (and/or assets, in this example) is not significant, GAAP-based procedures can be abandoned. The expense of using the allowance technique may be seen as outweighing the advantage of the increased accuracy because it necessitates more work in predicting uncollectible accounts and leads to more complex accounting. Therefore, the cost-benefit limitation is relevant. Finally, the idea of conservatism encourages accountants to report the net amount (net realisable value—NRV) at the lower end of the acceptable range when faced with a range of defendable (logical) values for assets like accounts receivable. The reported NRV should be closer to $48,000 than $49,000, for instance, if an accountant thinks that between $1,000 and $2,000 of the $50,000 in gross receivables may be uncollectible. Be aware that conservatism DOES NOT advocate underestimating the amount of receivables that should be collected. It only advises that one should move to the lower end for assets within a reasonable range. Keep in mind that the objective is to reflect economic reality, not to deceive creditors and investors into thinking the company is in worse shape than it actually is!

Naturally, the headlines all too frequently imply that companies have actually attempted the exact opposite—overstating Accounts Receivables (and/or understating AFBD) in an effort to boost the stock price, obtain necessary funding, or to meet specific ratio criteria. A few of the incidents are listed in the section that follows.


While not every sensational headline focuses on companies that have fabricated receivables, many do feature a preferred strategy for reporting fictitiously high income—overstating revenues, which is frequently coupled with too optimistic or even phantom accounts receivable. The ZZZZ Best case was among the most notable of the false accounts receivable/revenue scandal headlines. Young businessman Barry Minkow, once known as the "Wonder Boy of Wall Street," inflated the worth of his carpet cleaning company through phoney sales and receivables, valuing it at almost $350 million but ultimately selling it for less than $60,000. 1 Even though the Enron tale highlights the misuse of Special Purpose Entities and the corresponding beyond-GAAP reporting, it was also guilty of improper financial reporting in relation to both sales and receivables. It misestimated future contract values using internal models in an effort to increase compensation and the company's stock price. For example, it reported the gross amount of the energy contracts it brokered for buyers and sellers rather than the more reasonable fees earned by Enron. In Wells [2004], a Canadian company is featured, and European companies have also joined the fray, lest you think that these kinds of false comments are only made by American businesses.

It is more customary for businesses to simply speed up revenues and receivables in an effort to boost earnings and match analyst projections. For instance, Sunbeam employed a "bill and hold" method (See Spiceland, p. 330), whereby they sold products to merchants at steep discounts prior to the "season" in which such sales typically occurred, and then stored the products in third-party warehouses to be delivered at a later time. As a result, the assets and revenues were transferred to a previous quarter, which improved the reported profitability and financial condition for that time. 3 In the early 1990s, IBM employed a set of deceptive practises that were considerably worse.

When machines were simply relocated to storage facilities prior to installation, receivables would result. This might be seen as a more egregious example of revenue recognition breach because IBM's "product" contained more than simply machines and installation; it also included client training and satisfaction. IBM also offered reimbursements if prices fell within a specific time period (a likely occurrence, making the ultimate receivable much less valuable).

Last but not least, in the variety of accounts receivable systems, this asset may be misstated due to a subpar calculation of the bad debts contra account, whether intentional or not. Giving accountants the freedom to forecast future collections might lead to either too high or too low net realisable values and bad debt expense. Overstating accounts receivable (and understating bad debt expenditure) served as a stepping stone to blatant false reporting in the cases of MCI and CFS, respectively. Finance manager Walter Pavlo initially turned to crime, embezzling millions of dollars, narrowly avoiding a nervous breakdown, pleading guilty to a number of offences, and receiving a sentence of 41 months and $5.9 million in restitution. This was after initially being found guilty of hiding bad debt to temporarily boost MCI's dwindling earnings. 5 Similar to this, Commercial Financial Services (CFS), a business that specialised in purchasing past-due credit card debt, was described by Zellner [1998] as being able to recover a staggering 30 cents on every dollar invested (in an industry in which the norm is 15 to 23 cents). The chief executive officer and the rest of his board of directors resigned as a result of the discovery of this inflated asset, endangering the stability of this emerging market. Other instances exist, but this one should serve as an excellent illustration of the potential consequences of poor accounting and/or accountants.

Less frequently, empirical investigations are conducted in the field of accounts receivable. Accounts receivable and the allowance for bad debts are both taken into consideration in one fundamental study [Lev and Thiagarajan, 1993] for using accounting data to assess the quality of earnings. According to the authors, disproportionate rises in accounts receivable (compared to sales) are associated with losses in future earnings, whereas the provision for bad debts has little or no impact on how to assess earnings persistence. The majority of empirical research cover the broader subject of manipulating and managing earnings. Rosner's 2003 paper, "Earnings Manipulation in Failing Firms," and Beneish [1999] are two of the greatest of these studies. The first looks on whether failing businesses are driven to fabricate financial data in order to hide their problems. When compared to control, non-distressed enterprises, the author finds that increases in accounts receivable are considerably bigger, which raises the possibility that financial difficulty is concealed by overstating receivables. In a similar vein, Beneish finds significant overstatement of accounts receivable in a study of profits manipulation in a group of enterprises from 1982 to 1988. According to a third empirical study by McNichols and Wilson [1988], businesses on the verge of failure use this adjustment much more frequently than businesses with more stable financial standing. This study specifically examines the use of the bad debts provision for masking true earnings patterns.

What then are the solutions to the manipulation conundrum? Receivables should be recorded at market value (rather than at the face or "gross" amount), according to a guest editorial by Robert Sterling in a 2003 issue of Abacus. However, estimation would still be necessary both when the receivable is added to the books and again when the financial statement date arrives. Wells (2004) provides a useful road map for identifying fraud, but he makes no suggestions for stopping it. Sarbanes-Oxley clearly tackles the issue in a more general approach by making executives more aware of their duty to verify the correctness of the reported receivables.


This article served as the second in a series of succinct pieces created to link the theoretical ideas of the conceptual framework to the different accounting components. The post highlighted a few approachable publications that addressed the measurement concerns related to receivables, looked at some headline stories, and provided insights into the asset known as Accounts Receivable. The series' next article will examine the main issues that accountants deal with when measuring and reporting inventories, another recent source of accounting crises.


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 “An Investigation Of Funding Gap On Performance Of A Non-Profit Making Organisation. A Case Of Simukai Child Protection Programme”


1.0 Introduction

This chapter highlights the study's major emphasis, which is on examining how money affects a non-profit organization's performance. The backdrop of the study, a description of the issue, and the primary research question are all included in this accounting assignment.

1.1 Background of the Study

The Simukai Child Protection Program is being used as a research unit in the project, which aims to look at how financing affects an organization's performance that is not for profit. Timsina (2014), Trammell et al. (2012), and Mashakada (2015) all hold the same opinion that the financing gap has a substantial impact on corporate performance since it takes into account both expenditures and operational activity efficiency and effectiveness. In contrast, Adewale (2011) and Akinwale (2012) concluded that the organisation functions within its capabilities and that the budget gap has no impact on corporate performance.

The non-profit organisation Simukai Child Protection engages in a variety of operational activities, such as providing health and psychosocial support to children who live and work in the streets, assisting underprivileged students in their studies, operating vocational training facilities, and promoting economic youth empowerment. Due to a shortage of funding, the organisation has been working below capacity, and the number of kids receiving benefits from the Simukai Child Protection programme has decreased (SCP Annual Report 2016). The table below serves as the greatest example of this.

For 275 recipients, the total yearly funding received in 2014 was $758,000.00. The overall project projected cost was $760,000, while the actual project spending came to $796,000, leaving a financing gap of $36,000, or 4.7% of the total project budgeted expenditure.

The total yearly funding received in 2015 was $679,000.00 for 212 recipients, a fall of 22.9% in beneficiaries. The entire projected spending for the projects was $680,000, while the actual yearly expenditure came to $724,000, leaving a funding gap of $44,000, or 6.5% of the total anticipated expenditure for the projects.

For 143 recipients, the total yearly payments received in 2016 came to $606,000.00, representing a 32.5% drop in beneficiaries.

A deficit of $53,000.00, or 8,7% of the total annual projects' projected expenditure, resulted from the difference between the total budgeted projects' 2 expense of $610,000.00 and the actual annual project expenditure of $663,000.00.

According to the program's funding level in connection to funds received, the number of children receiving benefits fluctuates (Management Report 2016). The authorised proposal is followed while receiving money from donors. When the planned spending is less than the actual expenditure, a deficit results. The budgeted expenditure is determined via the calculation of numerous project proposals, however the donors often fall short of the budget values stated in the first proposal and provide financing that is insufficient to close the funding gap (SCP Operations Review Report 2015).

Grants from both global and regional funding partners cover the whole cost of the Simukai Child Protection Program. Grants are administered in accordance with the demands and guidelines of Donors (SCPP Memorandum of Agreements 2014-2016). Written applications with a clearly stated grant objective are used to get the funding. After the proposals are approved, budgets are then created and submitted for evaluation. The organisation has been carrying out donor-funded projects in different parts of the Manicaland Province, but due to a funding gap, some projects had to be abandoned. For example, psychosocial support activities, which cost $50,000, were abandoned in 2014, and a vocational training centre, which cost $114,000, was abandoned in 2015. (SCPP Operation Review Report 2016).

1.2 Statement of the Problem

A non-profit organization's effectiveness is negatively impacted by a financing deficit, as seen by the fewer kids participating in the programme. The Simukai Child Protection Program's performance study demonstrates an inverse link between beneficiaries and budget gap, leading to a decline in beneficiaries as the funding gap widens year after year. The study will try to determine the effects of the funding gap on corporate performance, current funding sources, and strategies to close the funding gap as well as potential funding alternative strategies for the Simukai Child Protection Program. The funding strategies are what allow business projects to be implemented successfully.

1.3 The Main Research Question

Examination of the impact of a financing shortfall on the operation of a non-profit organisation. A Simukai Child Protection Program instance.

1.4 The Sub Research Questions

? What is a non-governmental organization's fundraising strategy?

? What rules for implementing the financing policies are there at Simukai Child Protection Program?

? How many employees are needed at Simukai Child Protection Program to carry out the regulations?

? What checks and balances are in place to ensure that the Simukai Child Protection Program's policies are being followed?

? What difficulties does the Simukai Child Protection Program have implementing its policies?

? What is the most effective method for supporting non-governmental organisations?

1.5 The Research Objectives

? To determine the non-governmental groups' financing strategy.

? To determine the rules for Simukai Child Protection Program's policy execution.

? To assess the Simukai Child Protection staff's ability to put the rules into practise.

? To evaluate the safeguards in place for Simukai Child Protection Program's policy execution.

? To pinpoint issues that Simukai Child Protection Program faces while putting policies into practise.

? To develop the optimum method for supporting non-governmental groups.

1.6 Significance of the study

To the student

The study aims to fulfil the university's essential requirement for a Bachelor in Accountancy with Honors degree.

To the university

Since doing research is necessary in order to provide literature for other researchers, the study provides information and abilities in conducting research.

To the Organization

The research will provide suggestions for Simukai Child Protection Program to take into account.

1.7 Delimitations

In Mutare, the Simukai Child Protection Program was the subject of the study. The data pertains to the years 2014 through 2016.

1.8 Limitations


Some information was private and was withheld. The researcher gave a promise that it would only be utilised for educational reasons.


The investigation was constrained by the senior management's lack of availability because of their busy schedules in the past. To prevent annoyance, the researcher gave the participants questionnaires to fill out at their leisure.

1.9 Assumptions

The researcher made the assumption that the sample-based data would be trustworthy and sufficient to draw a conclusion.

1.10 Definition of Terms and Acronyms


? Beneficiaries: People who are using or benefitting from a certain organization's facilities are referred to as beneficiaries (Trammell et al., 2012).

? Grants - A grant is money given to an organisation by a third party, such as a donor or the government, with the intention of carrying out a certain project (Trammell et al., 2012).

? Project - A project is defined as a collection of business operations carried out outside the Organization's regular course of study (Adewale, 2011).


? SCPP -Simukai Child Protection Programme.

? SCP- Simukai Child Protection,

1.11 Chapter Summary

The chapter covered the study's history, statement issue, research questions, and aims, as well as its limits, presumptions, and importance. The literature review will be the main topic of the following chapter.



2.0 Introduction

The goal of a literature review is to identify gaps in the work of many writers and suggest ways to fill them. This chapter investigates pertinent literature that discusses the impact of a non-profit organization's performance funding gap. The researcher will get highlights on the gaps in past studies from the literature review, which will also serve as a roadmap for carrying out this study. This chapter summarises the convergent and divergent ideas and conclusions of several researchers on the subject. A literature review entails assessing data from other writers' past dissertations, books and journals that have been published, as well as corporate publications that have an impact on the subject.

2.1 The funding policy of a Non-Governmental Organization

The term "non-governmental organisations" refers to businesses that are not in it for the money; rather, they act as intermediaries to help different contributors' requests be fulfilled.

According to Muthupandian (2016), non-governmental organisations may get money from a variety of sources, including the government, the general population, and international development organisations. However, foreign finance is the main source of funding in Zimbabwe and other developing nations. The goals of an organisation are crucial since they affect the financing source, and governments often prohibit foreign funding for groups that promote democracy, media freedom, and human rights (Sundem et al., 2012). Zimbabwe's current economic state prevents local businesses from having the funds necessary to support programmes promoting democracy and human rights. Local non-governmental organisations are concerned about having their accreditation refused if they support democracy, human rights, and the press.

According to Madhuku (2016), local non-governmental organisations' donor money have been significantly impacted by the economic challenges and political unrest in the area. International non-governmental organisations like VSO get the majority of its financing from governments and international organisations of first-world nations. United States, United Kingdom, and European Canadian International Development Agency and the Commission. The primary funders to NCA have been Sweden, Canada, and Norway. Like other organisations, Christian Care receives financing from overseas contributors.

2.2 The personnel capacity required for effective implementation of funding policy

Personnel with the necessary skills or expertise are needed to execute financial policies in an efficient and sound manner. According to Sundem et al. (2012), personnel capacity refers to the knowledge and skills that workers have gained via training and experience. The intricacy and compatibility of the funding policy with that specific Organization are determined by the staff competence to execute funding policy (Letting and Letangule, 2012). The inability of an employee to apply a policy or a lack of expertise leads to it being described as complex and challenging to manage. When choosing which finance strategy to apply, Katunar (2013) advises management to consider the capability of the workforce. The easier it is for an organisation to implement any form of financing policy or to accept any changes in the environment related to the funding policy, the more competent the workforce is. The workforce is recognised as one of the most important factors in an organization's performance, therefore the human resource capacity affects how efficiently corporate operations run. The business environment has evolved, and for the Organization to adapt to these changes, it now needs a highly capable staff. Improvements in technology equipment, competition brought on by sharp shifts in consumer preferences, and new, more complicated financing rules are some of the developments (Jones, 2012). According to Jabbouri and Zahara (2014), a trained personnel significantly affects how well a company's accounting system functions. The effectiveness of a financing strategy is decided by employee competency, which has an effect on business performance (Al-Nuseirat and Biygautane, 2014).

From a different perspective, Khan et al. (2012) suggest that an Organization can only find skilled labour by either hiring skilled labour or retraining current personnel. Additionally, according to the study, finding competent labour is quite expensive and necessitates a solid financial foundation for the organisation. According to Farooq and Khan (2011), training programmes are expensive and go against the main goal of any organisation, which is cost control and reduction. ALDamoe et al. (2012) made the case that hiring is the best method for obtaining skilled labour.raises the likelihood of labour turnover since highly qualified workers often switch jobs in search of better opportunities.

2.3 The controls required for effective funding policy implementation

The internal controls that are implemented by an organisation define its effective financing policies (Onaolapo et al., 2012). The management's internal controls, which take the shape of processes and restrictions, regulate the financing policies. Internal controls are necessary when an organisation expands beyond the capacity of a single person because they include a variety of stakeholders, including investors, management, and workers (Ayagre et al., 2014). On the other hand, according to Matamande et al. (2012), management must utilise internal controls to make sure the Organization meets its objectives and complies with legal requirements. Internal controls are preventative procedures that aim to lessen the likelihood that exposures may occur (Mohan, n.d). According to Jenkinson (2010), efficient internal controls make sure that each employee accepts responsibility for his or her actions and tasks, which improves performance. Organizations may use a variety of internal controls to increase the effectiveness of their financing policies, including job analysis and description, budgeting, division of roles, organisational structure, and planning (Chow and Perkins, 2015).

2.3.1 Budgeting

Budgetary controls, which are highly important in the organisation as they assure the achievement of numerous objectives, enhance teamwork. The organization's objectives are predetermined in the form of a budget for a certain period of time (Onduso, 2013). The researcher continued by demonstrating how the financing strategy is created while taking into account the organisational objectives that are listed in the budgets. According to Epstein et al. (2012), the budget includes the financing strategy for the given products and services as well as financial operations, improved planning, and goal-setting for the organisation. Onduso (2013), however, emphasised that too much dependence on the budget restricts the Organization's ability to operate with flexibility. The author also described how poor management occurs because it relies too much on financial restrictions. According to an experimental research by Kimungiyi et al. (2015), effective pricing strategy and sound planning go hand in hand.

The budget is a crucial component of the organisation because it enables the achievement of several objectives in a single course of action. According to a different perspective, Kariuki (2010) said that budgeting deals with the planning and establishing of objectives for the Organization's financial operations. Effective financial procedures significantly improve organisational performance, according to Kimungiyi et al(2015) .'s findings from an empirical research on Kenyan organisations. The researcher continued by pleading with both governmental and non-governmental organisations to work toward finding means and plans to enhance budgetary management as a means of boosting business performance. According to Kariuki (2010), poor forecasting may result in frequent deviations that might have an impact on the economy owing to overall managerial performance or ineptitude.
choices made by users. The budgets will serve as a benchmark for the staff, merging all of their individual job tasks into a single organisational objective.

2.3.2 Planning

The strategic planning process is best characterised as a forecasting exercise in which management plans the future operations of organisations. According to Owolabi and Makinde (2012), pricing strategies integrated into the planning stage; as a result, managerial skill is necessary for successful policy formation. Because it may reduce the chances of failure, planning is the most important stage in putting financial strategies into action. In agreement, Mcllquham-Schmidt (2013) said that contrary to common opinion, planning really enables management to lower business risks and uncertainties. Owolabi and Makinde (2012), however, argued that since planning upholds set pricing, it has no impact on the financing strategy. At the end of the day, corporate strategy planning has no bearing whatsoever on pricing policies. Olumuyiwa et al. (2012) provide evidence to support their claim that planning has little influence on pricing strategy.

The flexibility with which an organisation can embrace new environmental changes depends on how well its planning process works (Owolabi and Makinde, 2012). For a firm to thrive and expand in a market with intense competition, erratic economic circumstances, and diverse client preferences and tastes, it is essential that its planning and decision-making processes be flexible and effective. Both Mcllquham-Schmidt (2010) and Dauda et al. (2010) believe that there is a strong correlation between an organization's success and planning strategically. An empirical study on public institutions used a hypothesis test.

According to Olumuyiwa et al. (2012), planning significantly affects productivity and fosters improvements in staff performance. Owolabi and Makinde (2012) contend that in contrast, these researchers' perspectives are predicated on profitability, market share, and working capital as
performance metrics, therefore their institutes, governmental organisations, or other non-profit institutions are not included. This was corroborated by Parnell (2013), who found that businesses with effective strategic clarity outperform those with low or moderate levels.

2.4 The challenges encountered in the course of funding policy implementation

The review of the Zimbabwean economy from 2000 to 2008 highlights deteriorating macro-economic fundamentals, which include currency shortages, a decline in national production as measured by GDP, hyperinflation, underutilization of agricultural potential, and increasing loan rates (Reserve Bank of Zimbabwe, 2011). The agricultural industry was badly impacted by insufficient resources and a failure to fully use those that were made available, which led to an economic downturn. There are a lot of factors that contribute to the financial crisis or funding gap in the agricultural sector, including corrupt practises, bad indigenization policies, public borrowing, declining tax collection by government, and declining revenue collection (Mashakada, 2015).

2.4.1 The mismanagement of funds

When organisational resources are not utilised or accounted for appropriately, either purposefully or inadvertently, it is called mismanagement of finances. According to Bawa et al. (2010), an intentional act occurs when an official misuses money for personal advantage, and these actions often entail fraud, embezzlement, nepotism, and bribery. Effective development projects have been seriously hampered by the improper handling of finances by the administration or individuals in control of these Non-Governmental Organizations. Punch (2011) contends that for an economy to expand even if its finances are secure, there must be zero tolerance for financial misconduct. Some of the personal pastimes include buying expensive cars and investing in the money market.

However, inadvertent mismanagement of cash occurs when management neglects to develop and carry out the financing policy. Regarding the Audit Report (2014).

According to data gathered by the Auditor General, the majority of exports were not properly invoiced, farmers created two invoices with different amounts and reported the one with the lower value, and the majority of export farmers externalised export revenues to offshore accounts. Due to financial issues, this has had an impact on both the economy as a whole and output. Changes have occurred in Zimbabwe as a result of the squandering of public monies, but government leaders have benefitted more from their multiple farm ownership, denying the bulk of the population access to the property (Mapfumo et al, 2012).

2.4.2 Environmental regulations

According to Collen and Leventis (2013), environmental rules may have a detrimental impact on how financial policy is implemented. Since the Non-Governmental Organization relies on contributions from both domestic and international donors, the researcher also highlighted that the environmental legislation has a direct influence on donor financing. According to Fabinger and Weyl (2013), environmental rules may be thought of as laws that limit the sorts of donations that are allowed into the nation or specify which initiatives must be executed. Political restrictions prevent certain overseas contributors from entering the nation. Politicians are the ones who publish the laws, therefore they may enact laws that make every effort to safeguard their interests (Collen and Leventis, 2013).. In other words, the political climate influences the NGO sector's actions.

The formulation and execution of the financing policies of Non-Governmental Organizations, according to Muthupandian (2016), are not significantly impacted by environmental legislation. Environmental restrictions are necessary to safeguard and support the work of these organisations, as shown by the governmental subsidies provided to NGOs (Nava, 2014). According to Collen and Leventis (2013), non-governmental organisations support and maximise public welfare as one of the goals of the government. The NGOs concentrate on offering products and services at reasonable costs or without charge. The government should create environmental regulations that may draw several NGOs and philanthropists eager to support initiatives for economic growth (Roe and Siegel 2012).

2.5 The best practice in funding the Non-Governmental Organizations

The financing gap is a problem that the non-governmental organisations are dealing with, and it has a significant impact on their performance (Da Silva, 2014). In order to demonstrate the connection between value chain financing and small- to medium-sized business access to finance, Murty (2012) conducted an empirical research on Rwanda. The study found a link between levels of profit and output and availability of value chain finance products. Since the authors proposed two models of financing access and their relationship to increased production, the producers' profit was evident. In an empirical research into the financial and decision-making involvement of non-governmental organisations, Sudha (2014) used the model of Indian groups. The researchers found that the financing policy's features had a significant impact on their ability to perform well in terms of improved savings mobilisation, donor money usage, and the value of free labour sharing.

2.5.1 The partnership between NGOs and government in services delivery.

In an effort to improve the supply of products and services, the state and Non-Governmental Organizations have many sorts of contractual agreements. (2012) Brzozowska vowed alliances are unavoidable because they offer foreign contributors power to invest in the nation. By providing subsidies, the government will take part in the organization's operations as well. The partnerships are the best method for addressing financial issues since they help provide public goods by bringing together finances from the public and private sectors (Mcgrath, 2010). In less developed nations, governments are using partnerships with non-governmental organisations to attract finance and managerial expertise from the private sector in order to fill budget gaps. Through an empirical research of Uganda, Felipe et al. (2015) found that the establishment of public and private partnership programmes resulted in improved performance and an increase in inputs. The researcher also said that more people, particularly the less fortunate, now had access to public goods and services, which led to improvements in quality and efficiency.

On the other hand, Moskalyk (2010) said that initiatives involving public and private sector partnerships are successful when corporate governance is effective. Politics has a significant impact on information on the advantages, dangers, and costs of public-private sector partnerships since the government will be engaged (Bauwens et al., 2012). Since they must operate, participate, and abide by the rules, the Non-Governmental Organizations will have a smaller voice.
restrictions imposed by the government (Colverson and Perera, 2012). But putting the agreements into action has several benefits, including closing the financial gap, reducing the political influence of outside contributors, boosting market competition, and transferring new technologies (Satch and Temple, 2015). PPPs provide a number of benefits, including the opportunity for new funding sources to boost economic growth, decreased public debt, and unambiguous responsibility of resources (Ntshakala, 2014).

2.5.2 Joint Ventures as a funding strategy to improve agriculture growth.

According to Stewart and Maugh (2012), a joint venture is when two or more parties create a commercial relationship with the goal of improving company performance. This agreement includes a risk-sharing component and equally distributes commercial profits to all participants. According to Steensam et al. (2013), joint ventures with foreign partners are used to infiltrate foreign nations; this is recognised as providing simple and quick access to the host nation. The study went on to say that international joint ventures boost market share and strength of the parties involved by using economies of scale, cost synergies, and improved marketing techniques. That collaborative venture was backed by Perkins (2011). This information and skill exchange among the joint venture's participants enhances market access, understanding of the non-resident partner, and access to distribution channels.

On the other hand, joint ventures foster relationships between non-governmental organisations, which improve information and skill-sharing initiatives and, in turn, improve the delivery of products and services, according to Lambrecht and Gellynck's (2015) empirical research. O'toole (2013) argued that although networks are seen as a key tool for innovation, some businesses lack the networking skills. According to Kuhne et al. (2013), a joint venture helps organisations overcome obstacles they encounter while working alone. The researcher goes on to say that partnerships facilitate the growth of commercial ties that emphasise innovation. They said that they had an opinion on the specific situation in which farmers were working but making only modest advances. According to Mitchell and Coles (2011) and Poole and de Frece (2010), joint ventures may capitalise on a person's skill while overcoming the weaknesses associated with that individual working alone.

2.6 Gap Analysis

According to Stewart and Maugh (2012), Ntshakala (2014), and Timsina (2014), financing policy has a significant impact on the effectiveness of non-governmental organisations because it specifies how money will be used to achieve organisational objectives. The efficacy of financing policy is also supported by Trammell et al. (2012) and Mashakada (2015), who argue that it improves operational effectiveness by regulating and restricting the distribution of cash to enable maximum use of organisational resources. Contrarily, Adewale (2011) and Akinwale (2012) suggested that the organisation runs in accordance with the budget gap's little impact on corporate performance.

Having the ability, Ineffective operations and inefficiency in the workplace were the main topics of previous studies. This study will look at variables that affect workers' behaviour and lead to inefficiency. In conclusion, financial policy serves as a guidance fort the regular business operations will be carried out. The goal of the study is to show how a non-governmental organization's success and its financing strategy are related.

2.7 Summary

Chapter II concentrated on already published information that was obtained from other researchers. The researcher's critique of the notion was aided by the literature study. The chapter examined research on how a financing policy may affect a non-governmental organization's performance. The techniques the researcher employed to gather data for the study will be the subject of Chapter III.



3.0 Introduction

This chapter provides an overview of the research methodology employed in this study as well as the methods and tactics used to gather data on the impact of funding gaps on nonprofit organisations' performance. This chapter emphasises how the descriptive research approach was utilised to gather adequate, trustworthy, and valid data on the subject under investigation.

3.1 Research Design

The study design is also known as a plan or a standard that researchers use to direct their data collecting (Cooper, 2011). The methods and strategies utilised in acquiring, presenting, and evaluating data relevant to the issue statement are included in the research design, which is a strategic strategy (Creswell, 2014). The researcher further said that since the procedure is in accordance with predetermined methodologies and norms, study design permits the dependability and validity of data. The main goal of this study is to investigate how operations management affects the performance of retailers, and the researcher found that explorative research is the best research approach. Case study, explorative, and descriptive research designs are the three categories of research designs (Kumar, 2011).

The explorative research design approach, according to Lili-Anne (2011) and Eeva-Mari, aims to analyse the phenomena or topic under investigation by data collection describing the current responses or circumstances on scenario. The adoption of an exploratory research design has various benefits, including helping researchers, fostering greater knowledge, and

concept evaluation (Croswell, 2012). The research results may be evaluated before drawing any conclusions; this process is known as idea testing. Enhanced comprehension is the researcher's

in a better position to comprehend how and why the scenario occurred. Exploratory research, on the other hand, cannot be used on a larger population of interest.

According to Woodside (2010), a case study is a kind of research that enables the researcher to look at real-world contemporary phenomena. A case study is more applicable when analysing an issue with any specific place, institution, or organisation (Cooper and Schindler, 2010).

The use of case studies has various benefits. The study may generally be effectively conducted without bias by a single researcher. Because the researcher concentrates on a particular firm, doing a case study is inexpensive. Compared to other approaches that use secondary sources, it offers more in-depth information. However, as other case studies are not scientific in nature, the information gathered cannot accurately depict the traits of a larger population. It is challenging to identify a clear cause of a scenario since the case study takes into account many demographic viewpoints.

Descriptive research design, according to Kumar (2011), is a method for coming to conclusions about a current occurrence via the collection and analysis of data and demographic traits. According to Manoharan (2010), descriptive research tries to outline changes in respondents' traits and behaviour as a manner of responding to the phenomena. The descriptive study gathers information that reflects real-world experience. However, since there is no assurance of secrecy and descriptive research is subject to prejudice and inaccuracies, respondents run the risk of giving inaccurate information as a result of excessive pressure. Since respondents often provide answers that the researcher expects to hear, the data likely to be skewed. The researcher justifies the choice of a descriptive research design as appropriate for this study given that it seeks to understand how a financial gap affects an organization's performance that is not for profit.

3.2 Mixed Research Method

According to Maruna (2010), the mixed research approach collects, analyses, and presents data from the subject area using both qualitative and quantitative methodologies. The reliability and validity of data are assured through mixed research, which incorporates methodologies, languages, approaches, and techniques from both quantitative and qualitative methods into a single study (Morse, 2010). The researcher has defended the use of a mixed methodology as the approach that is best suitable for examining how a funding gap affects the productivity of non-profit organisations. When using the strength to overcome the weaknesses associated with both quantitative and qualitative methodologies, it allows the researcher to achieve reasonable certainty.

The qualitative technique, according to Kumar (2011), aids the researcher in clarifying, illuminating, and comprehending phenomena, experiences, and behaviour of a specific group. In this study, qualitative research was used to analyse and evaluate the non-numerical and subjective data that was gathered via questionnaires and interviews. Data on financing gap topics like operational efficiency, which are seen as being judgemental in nature, data was gathered using a qualitative approach.

By assessing the consistency of the techniques, the purpose of the study, and the validity of the time period, quantitative research design assures the validity and dependability of the data produced (Manoharan, 2010). The term "prevalence in an issue" is frequently used to describe the consistency of methods and the time frame that is considered to be the "relevant valid timeframe" for the data. The information gathered is from the years 2014 to 2016, and this study is an exploratory one.

3.3 Population

A population, according to Neuman (2011), is the total number of components in the studied region. Population, according to Parker (2012), is the whole targeted group included in the research region. It is the area of study where the researcher gathers information in order to draw conclusions about the issue. Since they had information about the population size of 37, the Simukai Child Protection Programme workers, including managers, accounting staff, accountants, and procurement, were the population target in this study.

3.4 Sample

According to Saunders (2011), a sample is a subset or a portion of the target population. The researcher included a sample as a subgroup, with the findings from the sample being presumed to be representative of the total population. In support, Mertler and Charles (2010) said that findings from samples are representative of the total target population for the research. The researcher argues that employing samples is justified by time savings and a lack of funding to investigate the whole population. From the target population of 37 people, the researcher for this study selected a sample of 25 people. Data from the sample was gathered through questionnaires and interviews.

The tables above showed how the sample of 31 people was selected from the whole target population of 37 people. The sample picked will be representative of the whole population of 37. Thirty-seven people made up the sample size, and six were selected to participate in interviews.

3.5 Sampling Techniques

3.5.1 Probability sampling

Probability sampling is the method of selecting samples from the targeted population, and each member of the population has an equal chance of being chosen (Kumar, 2011).
This indicates that equal chances are provided for each component of the population under investigation to be chosen to participate in the study. The researcher makes sure that every component of the population has an equal chance of being chosen.

In order to create a sample group for this study, the researcher employed stratified random sampling approach. Stratified sampling, according to Creswell (2014), is a technique used to create a representative sample, however the sample will not be composed of homogenous groups. The researcher used this approach because it is the most suitable since the sample will include people at various position and working levels within the organisational structure. Regardless of their differences in organisational rank and level, Simukai Child Protection Program employees have an equal probability of being chosen thanks to sampling methodologies.

The study discovered a number of benefits linked to probability sampling, including convenience due to its simplicity. Higher degree of accuracy is guaranteed by the stratified sampling method of representativeness, which is equitable representation of all groups. The researcher has suggested it since it is convenient for both the researcher and the participants. However, the method has drawbacks as well, such as recurring task assignments that result in dull and redundant labour. The probability sampling approach is simple to control by the researcher, which increases the likelihood of faults due to its unpredictability

3.5.2 Non probability sampling

Non-probability sampling, according to Kothari (2012), is a sampling methodology in which the sample is gathered to meet the researcher's goals, but people in the population are not given equal odds of being chosen. As a result, the approach cannot track probability. When employing non-probability sampling, the sample is created using standards that are appropriate for the research topics. Statistics are not used to establish non-probability sampling; instead, theoretical saturation and analytical generalisation are used (Yin, 2014).

The study found that non-probability sampling takes less time since it is based on respondents' convenience. The expense of conducting a study utilising this sample strategy is considerably lower. Due to the convenience-based nature of the approach, the sample will likely be made up of unskilled people, which might be a significant drawback.

3.5.3 Purposive/Judgmental sampling

Purposive sampling, according to Yin (2014), is the process of selecting a sample based on the researcher's judgement of what is appropriate for the study. In other words, the sample is decided upon based on the researcher's assessments of the population. This method is useful for picking an area of inquiry where the researcher can be likely to find solid evidence. Additionally, the researcher employed purposive sample methods to carry out the study. Sounders (2011) said that the use of judgemental sampling is more acceptable in a research region with a dearth of qualified individuals in the problem statement.

Compared to other accessible sampling approaches, the method is simple and relatively user-friendly. Since the group chosen has experience in the investigation, the sampling strategy utilised determines the quality of the research. However, there are drawbacks to utilising this strategy that
are mistakes made by people in their judgements. Due to the sample procedures' high levels of bias, there is a poor degree of dependability.

3.6 Sources of Data

The two sources of information employed in this study were primary and secondary.

3.6.1 Primary Data

Primary data, as defined by Bethlehem and Silvia (2012), is unprocessed data that has been explicitly collected to meet research goals. From the study region, first-hand information was gathered for the research. Data was gathered on the ground via self-administered questionnaires and in-person interviews. Primary sources of information were seen by the researcher as less biassed and meaningful since they included authentic data.

Using primary data has various benefits, including maximising the authenticity and dependability of the data since it is gathered directly from the field. Primary data is superior than secondary data since it was collected directly. However, gathering primary data takes more effort and money.

3.6.2 Secondary Sources of Data

Information that already exists and was gathered for a different reason is known as secondary data (Saunders, 2011). Studies and data that have been gathered and examined by other academics and researchers make up the data in this repository. Data from complementary sources, such as secondary and primary sources, may also be utilised. As a source of secondary data, the researcher used yearly financial statements, corporate publications, and meeting minutes.

These are advantages of utilising secondary data since it may be utilised to define the current issue. Secondary data is quick to collect and time-efficient. By contrasting and comparing, it closes any gaps in primary data and is less expensive to collect. However, there is a lack of information on the data gathering methods, and the data may not be accurate for the research period.

3.7 Research Instruments

The researcher employed two different kinds of study instruments: questionnaires and interviews.

3.7.1 Questionnaires

According to Kothari (2012), a questionnaire is a collection of pertinent questions offered to a sample of the population in order to address the statement issue. The researcher may reach conclusions about the effects of operations management on performance thanks to the questionnaire's construction with questions that are characteristic to the study. Apparently, the questionnaire was referred to as a written interview by Blair and Frederick (2011). The researcher provided the sample with the questionnaires. Participants completed the surveys with help from the researcher. The data collection was completed within the allotted time since the participants were agreeable and eager to participate in the study. The data was categorised as qualitative data since the questionnaires were created to address specific study aims. When creating the surveys, closed-ended questions were employed.

By using questionnaires, the researcher is given the power to pre-test data at any moment. The use of a questionnaire ensures the confidentiality of the data, making it more credible. The time and money saved by using questionnaires over telephone interviews. Within the allotted time, the whole sample was covered. Since they are written documentation, questionnaires provide a future point of reference. There are drawbacks to using questionnaires, such as the restricted opportunity for in-depth investigation, the refusal of certain respondents to participate, and the possibility that some respondents may provide misleading information owing to improper influence.

3.7.2 Interviews

A talk or contact between two or more persons, one of whom is the interviewer and the other the interviewee, is called an interview (Blair and Frederick, 2011). The researcher asked structured questions throughout the interviews. As previously seen, the researcher asked several questions to each of the selected respondents. The interviews were conducted with professionals or knowledgeable participants who are authorities in their fields. There are two different sorts of interviews: telephone and in-person (Narli, 2010).

A face-to-face interview, according to Narli (2010), is a focused encounter between two or more people in the same physical location. This indicates that the interviewer and interviewee will meet to talk about a predetermined agenda. Face-to-face interviews provide the researcher the chance to constantly modify their phrasing to suit each responder. There is space to go into and further explain some problems being looked upon. However, since the two people are geographically apart, the cost is higher. To reach the respondents, the researcher should take transportation expenses into account.

According to Hair et al. (2011), a telephone interview is a two-way conversation between two persons conducted for research purposes. The phone interview is more practical than the in-person interview. The researcher may always get in touch with the responder there. Less information will be gathered than with other strategies since telephone costs are a barrier to completing a telephone interview.

3.8 Types of questions

3.8.1 Open-Ended Questions

The ideal way to define open-ended questions is as ones that provide respondents the freedom to express their own opinions and thoughts without restriction. According to Creswell (2014), an open-ended question is one that encourages responders to provide their own unique responses.

Since open-ended questions let respondents to express their thoughts, beliefs, and emotions, the researcher may gather in-depth data. Additionally, the potential for researcher bias brought on by human mistake is removed. This kind of inquiry improves the diversity of replies since it allows all participants to express their emotions, which enables the researcher to analyse the occurrence in various facets.

However, because of the wide range of replies, there will be a lot of data, making it challenging for the researcher to evaluate and make conclusions. Some information will be lost since some respondents may not be able to explain themselves well on paper and may not be literate. When open ended questions are used, there is an increase in investigator bias.

3.8.2 Closed Questions

According to Kumar (2011), closed questions are ones that only allow the responder to choose one option from a preset category and provide no possibility for participant input. They may also be known as structured inquiries. These questions will be constructed such that the responder must provide all of the available questionnaire-accessible feasible response closed questions are more suited in situations when participants are focused with their primary responsibilities since they demand less ingenuity and incentive to respond. Regular queries don't demand in-depth answers, so responders feel less threatened. Since the questions provide participants with instructions for responding, more relevant data is gathered. Since the answers to closed-ended questions are so simple to analyse, there is more consistency in replies.

The lack of depth and diversity in the data obtained, however, makes it impossible to discern the participants' objectives from it. The data gathered does not reflect the true nature of the issue, and the list of potential solutions shows a rise in the bias of the investigator. The questions set up a thinking environment where respondents provide replies that don't accurately represent their thoughts.

3.8.3 The Likert Scale

According to Kumar (2011), a Likert scale is a psychometric scale that researchers employ in surveys to make it easier for participants to respond to closed-ended questions. The Likert scale on a particular topic measures or specifies the degree of agreement and disagreement. The range provided illustrates how strongly they feel about a certain scenario or issue.

The responder indicates the intensity of their sentiments about a particular issue or circumstance by filling out or replying to the Likert scale. The researcher discovered that the Likert scale made data gathering simpler and quicker.

The Likert scale is the most popular method used by researchers to gather data, and it is simple to use. Mathematical analysis of a problem is made simple via computation and quantification. However, responders often avoid making extreme choices, which may be more realistic.

3.9 Reliability and Validity

Reliability, as defined by Mcburney and White (2012), is the examination or assessment of the consistency or uniformity among the instruments used for the same test. The method aims to reduce errors made during data collecting. By asking the identical questions of each responder in this research, the reliability of questionnaires was increased.

Validity goals are used to gauge the extent of the anticipated outcomes and to get results that are consistent with the research's needs (Creswell, 2013). In order to assure the validity of the data gathered, the researcher was directed by the study questions and goals while developing the questionnaire and interview guide.

3.10 Data Presentation

The two styles of data presentation are compelling and informative.

3.10.1 Informative Presentation

Eeva-Mari and Lili-Anne (2011) define informative presentation as a technique that emphasises fostering a thorough comprehension of the concept or phenomena while disseminating information. The instructive presentation avoided complex material in favour of the facts. To draw a conclusion, the data will be statistically evaluated and modal replies will be employed.

The informative presentation gives the audience a clear timeline for when an event, issue, or action should take place. Due to the fact that it offers pertinent information about the phenomena, it aids in decision-making.

However, since it just concentrates on the facts and ignores complex information, inexperienced staff may not be able to comprehend it. Only those who are familiar with the issue may be able to comprehend the data.

3.10.2 Persuasive Presentation

According to Eeva-Mari and Lili-Anne (2011), a technique of giving information that influences a change in the next person's attitude, circumstance, belief, qualities, or behaviour is known as a persuasive presentation. The researcher will concentrate on the presenting of study results gathered via questionnaires and interviews in the chapter after this. In order to show the data, the researcher employed tables, bar graphs, and pie charts.

3.11 Data Analysis

Using exploratory analysis, the researcher examined the study results. According to Manoharan (2010), exploratory research focuses on analysing data that relates to previously undiscovered links or phenomena. The strategy is more suited to characterising the phenomena or issue in the study field. With the use of data visualisation and descriptive data, exploratory analysis may help people grasp the issue at hand better.

3.12 Summary

The chapter relied on every aspect of the study approach and process. The study design, which served as the researcher's guide for data collection and analysis, is also covered in this chapter. This chapter also emphasises the data gathering tools and sampling methods required to create a sample. The study results from this chapter's research will be presented and analysed in chapter four, which will be devoted to data presentation.



4.0 Introduction

The presentation and analysis of the data acquired via surveys and interviews will be the main focus of this chapter. The Simukai Child Protection Program's sample population of 25 workers served as the source of the data. Pie charts, graphs, and tables were used to show the study results.

4.1 Questionnaires Responses Rate

SThe proportion of returned questionnaires against the total number of questionnaires sent out to the sample group is known as the response rate. The response rate was 88% when the researcher delivered 25 questionnaires, of which 22 were completed and returned. Due to the respondents' intense daily schedules, the study was unable to retrieve the other three questionnaires.

4.2 Interview analysis

Six interviews were performed on the location by the researcher. The interviews went off without a hitch and on time. According to the organisational structure of the accounting departments, the researcher conducted interviews with respondents at each level. Two supervisors, one accountant, and two employees who work in accounting are present. This was done in order to get various opinions from employees at all organisational levels.

Table 4.3 shows that out of 29 surveys that were completed, 62.1% (18 out of 22) were men and 37.9% (11 out of 22) were women. This demonstrates that there are more men than women in the Organization.

Question 2. Number of years in employment

Table 4.4 Employment duration

According to table 4.4, 6.9% (2 out of 29) had worked for the organisation for more than 11 years, 27.6% (8 out of 22) had worked there for between 6 and 10 years, 44.8% (13 out of 22) had worked there between 1 and 5, and 20.7% (6 out of 29) had done so for less than a year. The researcher came to the conclusion that respondents had sufficient experience in their professional or sector of work since the majority of respondents had one year or more of experience.

Question 3. Qualifications of respondents

Table 4.5 Qualifications

According to Table 4.5, just 13.8% (4 out of 29) had a degree, but 55.2% (16 out of 29) had a diploma or certificate. On the other hand, 9.1% of the other group (31.0%) had O and A level diplomas. The researcher came to the conclusion that the respondents were educated and competent to grasp and understand the questions asked in the questionnaire, thus reasonable assurance will be achieved. All of the respondents earned at least an O Level certificate.

As shown in table 4.6, the questionnaires were given out to the financial department.

Question 5: The funding management policies were formulated by the management.

This inquiry aims to determine if management created the funding management policies.

According to the highlighted data in table 4.7, the management created the financing management policies, with 58.6% (17 out of 29) agreeing and 34.5% (10 out of 29) strongly agreeing. 6.9% (2 of 29) were unsure. While 0% (0 out of 29) strongly disagreed and 0% (0 out of 29) disputed, respectively, that management was responsible for developing the financial management policies.

The accounting principles were developed by the Organization, according to the modal replies of 93.1% (34.5% strongly agreed and 58.6% agreed). 6.9% of respondents (2 out of 29) questioned if management had followed the funding management policies. However, 0% of respondents (0% agreed and 0% disagreed) disputed that the management had carried out the financing management policies.

The researcher came to the conclusion that the management has implemented the financing management rules after receiving a modal answer of 93.1% (21 out of 29 agreed).

Question 6: The funding policy at Simukai Child Protection Programme is documented.

According to Fig. 4.1, 51.7% (15 out of 29) and 27.5%, respectively, agreed and strongly agreed that SCPP's financing strategy is documented. 3.4% (1 out of 29) were unsure about the financing policy paperwork. While 0% (0 out of 22) strongly disagreed with the assertion that the financing policies were documented, 17.2% (5 out of 29) disagreed.

The majority of respondents, 79.2%, agreed that the financing policy was documented (27.5% strongly agreed and 51.7% agreed). 17.2% (17.2% disagreed and 0% strongly disagree) that they did not agree with the described financing policy.

The study came to the conclusion that the accounting financing rules at SCPP were recorded using the median replies of 79.2% (23 out of 29) greed.

Question 7: The funding policy was effectively communicated to the following people.

This inquiry seeks to determine if management, staff, and new hires were adequately informed of the accounting rules.

According to Fig. 4.2, 52% (15 out of 29) agreed and 41% (12 out of 29) strongly agreed that the Organization had been adequately informed of the financing policies. 7% (2 out of 29) were unsure if communications on financing policies had been made. While 0% (0 out of 29) agreed that the financing policy was conveyed to the management, 0% (0 out of 29) strongly disagreed.

Overall, 41% of respondents strongly agreed and 52% of respondents agreed that the financing rules were properly conveyed to the Organization, yielding a median answer of 93%. The financing policies, on the other hand, were not well articulated, according to 0% (0% disagreed and 0% strongly disagree).
The researcher came to the conclusion that the Organization was properly informed on financial rules to enable efficient implementation. A modal class of 93% of respondents (27 out of 29) agreed with the findings.

Question 8: The following personnel capacity is available at Simukai Child Protection Programme to implement the guidelines.

i) Employees with experience

According to Fig. 4.3, 14% (4 out of 29) strongly agreed and 72% (21 out of 29) agreed that SCPP has the experienced workers needed to guarantee the financing policy is implemented correctly. 3% of the time (1/29th) were unsure. Employees with experience were available, yet 10% (3 out of 29) disagreed with the statement, and 0% (0 out of 29) severely disagreed.

Overall, 86% of respondents (14 % strongly agreed and 72 % agreed) stated that SCPP has experienced staff who can guarantee that the financing policy is implemented correctly. 10%, however, disagreed (10% disagreed and 0% strongly disagreed).

Using modal replies of 86% (25 out of 29), the researcher came to the conclusion that the Organization had personnel with expertise who directly impacted the execution of the policy.

ii) Skilled labor

Fig 4.3 21% (6 out of 29) agreed and 7% (2 out of 29) strongly agreed that SCPP has the competent personnel needed to enable the financing policy's successful implementation. On a scale of 0 to 29, 0% were unsure. On the other side, 48% (14 out of 29) disagreed with this statement, and 4% (1 out of 29) strongly disagreed.

Overall, 28% of respondents (7% strongly agreed and 21% agreed) believed that the SCPP employed experienced labourers who were familiar with accounting principles. Contrarily, the median answers indicated that 52% of respondents (48 disagreed and 4% strongly disagreed) disputed that SCPP used skilled labour.
The researcher came to the conclusion that there was no skilled labour based on the modal replies, which were 52% (15 out of 29) disagreed.

Question 9: The following controls are being implemented at the Organisation.

i) Budgetary controls

Table 4.8 The responses on budgetary controls

According to table 4.8, 48.3% (14 out of 29) agreed and 13.8% (4 out of 29) strongly agreed that the Organization has adopted fiscal constraints. 10.3% (3 out of 29) were unsure if budgetary constraints will be implemented. While 10% (2 out of 22) strongly disagreed with the idea that quality controls were being eliminated at the organisation, 13.8% (5 out of 29) disagreed.

The majority of respondents (62.1%) agreed that the Organization has fiscal constraints in place (13.8% strongly agreed and 48.3% agreed). Out of 29 respondents, 10.3% were unsure. On the other side, 24.1% disagreed that budgetary restrictions were being applied (13.8% disagreed and 10.3% strongly disagreed).

The implementation of budgetary restrictions at all Organizational levels was cited by three of the respondents. The researcher came to the conclusion that financial restrictions are being applied at all levels of the organisation based on the interviews and the modal answer of 62.1% (18 out of 29 agreed).

Table 4.9 shows that 45% (12 out of 29) and 13% (4 out of 29) highly agreed that planning controls were put in place. 5% of the time (1/29th) were unsure. On the other side, 24% (7 out of 29) disagreed with the implementation of planning controls, and 13% (4 out of 29) severely disapproved.

Overall, 58% of respondents (13% strongly agreed and 45% agreed) concurred that the Organization has adopted planning controls. While 37% of respondents questioned that the organisation had planning controls in place (24% disagreed and 13% strongly disagreed),

The researcher came to the conclusion that planning controls were being used at SCPP to guarantee the effectiveness and efficiency of the financing programme since the modal answers were 58% (16 out of 22) agreed.

Table 4.10 demonstrates 73% (20 out of 29) and 27% (9 out of 29) highly agreed that SCPP employs cost management controls. On a scale of 0 to 29, 0% were unsure. While 0% (0 out of 29) disagreed and 0% (0 out of 2*) strongly disagreed that the Organization has put in place cost management measures.

Overall, 100% of respondents (27 % strongly agreed and 73 % agreed) agreed that the organisation had adopted cost management measures and that one of its goals was to reduce costs.

No one (out of 22) was unsure. In keeping with that, nobody (0% disagreed and 0% strongly agreed) disputed the existence of cost management controls.

One response mentioned the cost constraints SCPP is enacting to guarantee the efficient use of financing policies. The researcher came to the conclusion that cost management controls are being used based on the interviews and the median answer of 100% (29 out of 29) agreed.

According to table 4.11, 81% (18 out of 29) agreed that quality controls were used at SCPP, and 27% (3 out of 29) strongly agreed. 5% of respondents (1 out of 29) lacked confidence in financial controls. While 0% (0 out of 22) disagreed and 0% strongly disagreed that the Organization has quality controls in place.
95% of respondents agreed that quality controls were implemented at the Organization to guarantee that the financing policy was effectively implemented (14% strongly agreed and 81% agreed). 7% (2 out of 29) of people were unsure if there were quality controls in place. Similarly, 0% of respondents (0% disagreed and 0% strongly disagreed) disagreed that the Organization used quality controls.

Financial controls are being used, according to every interviewee.

The researcher came to the conclusion that financial controls were being used at SCPP to guarantee the efficacy and efficiency of the financing programme based on modal replies (95%; 21 out of 22 agreed) and interviews.

Question 10: The following are challenges encountered in policy implementation at Simukai Child Protection Programme.

i) The mismanagement of funds

According to Fig. 4.4, the primary difficulty the organisation is now facing is the mishandling of finances, with 73% (20 out of 29) agreeing and 13% (6 out of 29) strongly agreeing. 5% of the time (1/29th) were unsure. While 0% (0 out of 29) strongly disagreed and 9% (2 out of 29) disputed that SCPP had mismanaged its finances.

The majority of respondents (86%, 13% strongly agreed, and 73% agreed) agreed that the organization's main difficulty is mismanaging its finances. On the other side, 9% (9% disagreed and% strongly disagreed) disputed that the organization's biggest problem is its mishandling of finances.

One responder noted that inefficient and ineffective financing policies and procedures have a detrimental impact on efficiency and effectiveness. Based on the median class of 86% (19 out of 29) agreed and interviews, the researcher came to the conclusion that the Organization was mismanaging the finances.

ii) Environmental regulations

According to table 4.12, SCPP's biggest obstacle to financing policy execution is the environmental rules, with 14% (13 out of 29) strongly agreeing and 59% (13 out of 29) agreeing. On a scale of 0 to 29, 0% were unsure. While just 9% (2 out of 29) strongly disagreed and 18% (4 out of 29) disputed that environmental rules had an impact on them.

Overall, 73% of respondents (14% strongly agreed and 59% agreed) concurred that environmental rules provide SCPP with its greatest financing difficulty. No one (out of 22) was unsure. On the other side, 27% disagreed that environmental rules had an impact on them (18% disagreed and 9% severely disagreed).

Environmental laws have an impact on SCPP, according to two respondents. The researcher draws the conclusion that SCPP is impacted by environmental rules based on the interview results and modal replies, which show that 16 out of 29 participants (73%), agreed.

Table 4.13 shows that 54% (12 out of 29) agreed and 22% (5 out of 29) strongly agreed that the Organization is experiencing a liquidity crisis. 1 of 29 samples, or 5%, were uncetain. While just 5% (1 out of 29) strongly disagreed with the assertion that the Organization is suffering from a liquidity crisis, 14% (3 out of 29) disagreed.

Overall, 76% of respondents agreed that the Organization is experiencing a liquidity problem (54% strongly agreed and 22% agreed). On the other side, 19% disputed that the Organization is experiencing a liquidity problem (5% disagreed and 14% strongly disagreed).

With 76% (17 out of 29) agreeing with the modal replies, the researcher came to the conclusion that the Organization's financial policy execution was impacted by the liquidity crisis.

According to Fig. 4.5, 13% (3 out of 29) and 5% (1 out of 29) strongly agreed that the SCPP's operational inefficiency is the main obstacle to financing policy execution. 18% (4 out of 29) were unsure. While just 9% (2 out of 29) strongly disagreed and 55% (12 out of 29) disputed that SCPP is working inefficiently.

Additionally, 18% of respondents (5% strongly agreed and 13% agreed) concurred that SCPP's operational inefficiency is its biggest obstacle to implementing its financing strategy. According to the median replies, 64% of respondents (including 55% who disagreed and 9% who strongly disagreed) disputed that SCPP is running inefficiently.

The researcher came to the conclusion that the Organization is not suffering operational inefficiencies based on the median answer of 64% (14 out of 29) disagreed.

Question 13: The following are funding policies for non-governmental organizations.

i) Invitation of donor funding

Table 4.14 Responses on Invitation of donor funding

According to table 4.14, 23% (8 out of 29 respondents) and 68% (18 out of 29 respondents) strongly agreed that inviting donor financing is an appropriate funding approach for NGOs. 9% (3 of 29) were unsure. While 0% (0 of 29) agreed and 0% (0 of 29) strongly disagreed, respectively.

The majority of respondents, 91% (68% strongly agreed and 23% agreed), believed that inviting donor financing is an appropriate way for NGOs to raise money. However, 0% (0% disagreed and 0% strongly disagreed) disagreed that asking for donations is a good way for NGOs to get money.

The accountant said that the simplest and most practical method of obtaining money to support organisational operations is by inviting international donations. Based on interview replies and modal responses with 91% (26 out of 29) in agreement, the researcher came to the conclusion that asking for donations is an appropriate fundraising approach for NGOs.

ii) Internal revenue generation

Table 4.15 Responses on internal revenue generation

According to table 4.15, internal income generation is an appropriate financing approach for NGOs, with 45% (13 out of 29) strongly agreeing to it and 55% (16 out of 29) agreeing. 0% (0/29) of the respondents were unsure. However, just 0% (0 out of 29) agreed with this statement, while only 0% (0 out of 29) strongly disagreed.

Overall, 100% of respondents (45% strongly agreed and 55%) agreed that generating internal income is a good way for NGOs to raise money. However, no one (0% disagreed and 0% strongly disagreed) disagreed that generating internal money is a good method of supporting NGOs.

Internal income generation, which is a good fundraising method for NGOs and is made simple by using marketing mix and price tactics, was noted by two accounts clerks. Based on interviews and modal replies of 100% (29/29) in favour, the researcher came to the conclusion that internal income generation is an appropriate financing approach for NGOs.

Question 14: The following are best practices in funding the non-governmental organizations.

Raw data: Responses on internal controls

i) Partnership between NGOs and government

According to Fig. 4.6, 50% (15 out of 29) agreed and 41% (12 out of 29) strongly agreed that partnering with the government to support NGOs is an excellent approach. 9% (2 out of 29) have no idea. While 0% (0 of 29) agreed and 0% (0 of 29) strongly disagreed, respectively.

The majority of respondents, 91% (41% strongly agreed and 50% agreed), believed that partnering with the government to finance NGOs is the best method. Additionally, 0% disagreed (0% disagreed and 0% strongly disagreed).
Based on the 91% (27 out of 29) agreeable modal replies, the researcher came to the conclusion that partnering with the government to support NGOs is best practise.

ii) Joint Ventures as a funding strategy with other NGOs

According to Fig. 4.6, 9% (3 out of 29) and 5% (1 out of 29) strongly agreed that joint ventures are the greatest method for supporting non-governmental organisations. One out of 29 people, or 4%, were unsure. While 13% (6 out of 29) strongly disagreed and 68% (19 out of 29) disagreed, Collectively,14% agreed that joint ventures are the greatest method for supporting non-governmental organisations (5% strongly agreed and 9% agreed). On the other side, 81% disagreed that joint ventures were the ideal method for supporting non-governmental organisations (68% disagreed and 13% strongly disagreed).
Joint ventures are the best method for supporting non-governmental organisations, the researcher found, based on the median replies of 81% (25 out of 29) agreed.

4.4 Summary

This chapter presents and analyses the study results obtained via questionnaires and interviews. These results were shown as graphs, pie charts, and tables.



5.0 Introduction

This chapter aims to provide a summary, a conclusion, and suggestions related to the issue statement. This chapter of the research was written to summarise its earlier chapters' topics. The recommendations comprise ideas and opinions that emerged from the investigation.

5.1 Summary of chapters

The examination of the impact of a financial gap on the operation of a nonprofit organisation was the main topic of Chapter 1. The primary goals of the investigation were to determine how well SCPP's financing policies worked and to evaluate the difficulties encountered in putting them into practise. The study's history and issue statement are presented in the first chapter.

In Chapter 2, the impacts of a financing gap on an organization's performance are examined using material from various writers. The literature evaluations included a number of advantages and disadvantages of implementing new financial reporting standards. According to Muthupandian (2016), non-governmental groups may get money from a variety of sources, including the government, the general population, and international development organisations. Foreign investment is the main source of finance for Zimbabwe and other developing nations. According to Sundem et al. (2012), an organization's goals are crucial and affect the financing source, and governments often obstruct foreign funding for groups that promote democracy, media freedom, and human rights.

The descriptive research methodology used to gather data was described in detail in Chapter 3. This chapter also addressed the use of qualitative and quantitative methodologies for data collecting, presentation, and analysis. The chapter listed questionnaires and interviews as two research tools used to gather primary data on-site. In this chapter, the techniques for evaluating the authenticity and dependability of data were shown.

In Chapter 4, the study findings that were gathered via the use of questionnaires and interview guide were presented and analysed. The study results were well presented in the chapter using graphs, pie charts, and tables.

5.2 Major research findings

The results of the study indicate that the SCPP's accounting department is dominated by male staff. The workforce had a lot of expertise in accounting, and everyone had at least an A/O level qualification.

The management came up with the finance policy, and it was written down. The Organization received it with good communication as well. To guarantee the financing strategy was implemented effectively, the Organization has staff members with expertise. Planning and financial controls, together with budgetary controls, were used to improve the efficiency and effectiveness of the financing policy's execution.

The Organization is dealing with improper financial management as a result of staff members' ignorance and incompetence. Environmental rules were mentioned as another difficulty impacting the success of the Organization. The difficulty SCPP was dealing with as a result of the treasury's lack of money was the liquidity crisis.

It is stated that the financing strategy most suited for non-governmental organisations is the invitation of donor funds and internal creation of profits. The greatest method for supporting non-governmental organisations is a cooperation between NGOs and the government.

5.3 Conclusion

The research study was completed effectively, and issues with the Simukai Child Protection Program's financial policy execution were noted. The researcher acquired sufficient data to address the study's research questions.

5.4 Recommendations

For the purpose of improving knowledge and skills, the organisation should implement training programmes for its staff.
In order to improve employee experience, it should also put a strong emphasis on staff retention.
Partnerships with the government should also be implemented by the Organization in order to get subsidies as a source of revenue.
To protect the financial resources, the Organization should switch to accrual accounting and improve the internal controls already in place.

5.5 Summary

Summaries of earlier chapters are included in this chapter. This chapter also included information about the study's results. The researcher came to a conclusion by making ideas and recommendations that might significantly affect the Organization's adoption of excellent accounting processes.

Reference List



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Accounting Coursework Assignment Sample

Section A

Question 1: Role of Financial Ratios

1.1. Calculation of Ten Financial Ratios
1.1.1. Calculation of Financial Ratios

Table 1: Financial Ratios of Nuttall Plc

Profitability Ratios

The ability of the company to make a profit is determined by profitability ratios. For Nuttall Plc, four different profitability ratios were computed.

The sum of money left over after deducting the cost of items is known as a company's gross profit margin (Atrill, 2000). This ratio aids in determining the company's profitability before other costs are taken into account (Atrill and McLaney, 2011). The observed good gross profit margins for Nuttall Plc in 2012 and 2013 are 40% and 42%, respectively (2011). This suggests that the business is in sound financial standing.

The ratio of earnings before interest and taxes to the difference between total assets and current liabilities is known as the return on capital employed (ROCE). ROCE is crucial since it identifies an organization's general effectiveness.

Organization and assists in determining how to employ the available cash to produce profitability (Atrill, 2009). It has been noted that the ROCE for Nuttall Plc was 10.48% in 2012 and 9.42% in 2011. As a result, it is determined that the company offers a marginal return on the capital invested.

The term "return on total assets" (ROA) is used to describe the relationship between the firm's total assets and its overall profitability (before interest and taxes). This ratio demonstrates a company's ability to make a profit before fulfilling its overall responsibilities. According to Atrill and McLaney (2011), the efficiency with which a corporation utilizes its assets increases with the level of return on total assets. The corporate assets are effectively managed at Nuttall Plc. The ROA was 7.16 percent in 2012 and 6.65 percent in 2011.

The return on shareholder funds is the profitability ratio that is ultimately calculated (ROSH). This ratio aids in calculating the entire profit generated during a specific time period and provided to the company's shareholders. This ratio assists the investor in determining a company's competitive advantage so they can turn their investments into earnings (Collier, 2009). Nuttall Plc has provided an effective return on equity, it has been noted. Overall ROSH for the business was 7.16% in 2012 and 6.65% in 2011.

Liquidity Ratios

The ability of an organization to meet its immediate obligations can be determined using liquidity ratios. This section talks about two liquidity ratios.
The current ratio which is also shown by our accounting assignment help here shows how a company's liquid assets compare to its current liabilities. Any company should aim for a 2:1 current ratio (Collier, 2009). The ratio demonstrates the company's capacity to meet its obligations. It was noted that Nuttall Plc's current ratio was 2.32, which was excellent.

212, 2.68, and 2011. This suggests that the business could have paid its debts.

On the other hand, the quick ratio is also referred to as the acid test ratio. This ratio is employed to satisfy urgent needs and aids in determining a company's short-term liquidity. The inventories are not included in this ratio because it is unknown what their exact value is or how long it will take to turn them into cash. It has been determined that a ratio of 1 and higher is necessary for healthy short-term liquidity (Atrill, 2000). A extremely favourable quick ratio of 1.11 in 2012 and 1.57 in 2011 was noted for Nuttall Plc. This shows that the business was able to fulfil its immediate responsibilities.

Operating Ratios

Operating ratios are those that show how effectively a company manages its operating costs in relation to its overall revenue. The current report examines two operating ratios.

The relationship between total turnover (i.e., sales) and the overall performance of a company is determined in part by the net asset turnover of that organization, according to Atrill (2009).

Belongings to the business. A properly balanced net asset turnover ratio is required. The corporation would have high revenues with modest investments if the ratio was too high. However, a ratio that is too low would suggest that the business has been underperforming and is not effectively managing its assets. It is noted that the company's net asset ratio was 0.66 in 2012 and 0.48 in 2011. Because of the ratio's low value, demonstrates the necessity to investigate how Nuttall Plc's assets are managed organizationally.

Interest cover is described by Collier (2009) as an organization's capacity to settle its debt. It is described as the proportion of total interest expense to earnings before interest and tax. 1.5 would be the best interest cover ratio. One may get the conclusion that the company has trouble producing enough cash flow if the ratio is less than one. Nuttall Plc has an effective interest cover ratio when measured against the net asset turnover ratio. The corporation has a high ratio, which was 5.38 in 2012 and 5.88 in 2011. This demonstrates Nuttall Plc's ability to control its interest, cost-effectively, and that even if its earnings were to temporarily decline, it would not go bankrupt.

Gearing Ratio

The gearings ratio is crucial since it clarifies an organization's financial leverage. This ratio can be used to determine how much a company's operations are directly supported by the company/owner and a creditor.

To determine the percentage of a company's equity and debt, use the debt equity ratio.

It financed the assets through debt. A high debt to equity ratio shows that the company's financing has been debt-driven (Atrill and McLaney, 2011). A recommended debt-to-equity ratio is 2:1 since the business can benefit from its ability to use financial leverage. However, if the corporation is unable to strike a balance between debt financing and operational activity, it could result in bankruptcy. It is noted that the company's debt-to-equity ratio, which was 0.31 in 2012 and 0.32 in 2011, is considered to be modest. Thus, it may be said that the business is in rather good financial health.

Investor Ratios

In the current study, two different investor ratios are addressed.

A dividend distribution is the percentage of earnings that are given to the investors in dividends (Atrill, 2000). This ratio aids in assessing the efficiency with which earnings fund dividend payout. In 2012 and 2011, the company paid out 48% of its earnings as dividends, giving it a reasonably high payout ratio.
The price-earnings ratio calculates the value of a company's current share price in relation to its earnings per share (Collier, 2009). This is frequently used as a gauge of the company's previous market performance. Over the past year, Nuttall Plc's P/E increased from 0.18 in 2011 to 0.22 in 2012.

1.1.2. Examination of Nuttall Plc Performance

The last section looked at the various ratios that can be used to gauge a company's performance. In this section, we'll contrast how these ratios, the profit and loss statement, and share data are all used to assess a company's performance.

In 2012, Nuttall Plc showed an increase in operational profit of 10% and an increase in profit after tax of 12.5%, according to an analysis of the profit and loss statements. All of this suggests that Nuttall Plc performed better in 2012 than it did in 2011. Examining share prices reveals that the cost of a share increased from 202 pence in 2011 to 277 pence in 2012.

Regarding the financial ratios, the following findings are reached. The increase/decrease in financial ratios is summarised in the table below.

It has been noted that the liquidity ratios (quick ratio 29% and current ratio 13%) have decreased overall. However, it is discovered that every profitability measure has a high value. The ROA is up 8%, and the ROCE is up 6.9%.

ROSH by 7.64%, too. Only a 4% reduction in the gross profit margin is observed. All of this suggests that the business is profitable.
Additionally, it was discovered that the entire debt-to-equity ratio has decreased by 2%, indicating that there are more firm investments and less debt financing. This is yet another sign of the company's financial prosperity.

It is additionally noted that the company is effectively using its assets as seen by the rising operational ratios (net asset turnover 16% and interest cover 10%). These ratios provide a favorable picture of the business success.

Finally, from 2011 to 2012, the corporation increased the dividend payments it made to its shareholders. In 2011, payout accounted for 45% of earnings. In comparison, the business spent 48% of its profits in 2012. Additionally, the company's overall price-to-earnings ratio rose from 0.18 to 0.22. This suggests that the company's previous performance is improving and that its future market performance will be better.

1.1.3. Importance of Cash Flow

Based on accounting principles, the profitability of a corporation can be ascertained from its income statement. It can be seen that Nuttall Plc's entire revenue, expense, and net income are determined by the corporate balance sheet and the profit and loss accounts (Collier, 2009). However, this income accounting simply offers details on when revenue or expenses occur. Comparatively, accrual accounting offers details on all revenues and costs, when business deals are made. Although this gives a more lucid view of profitability, it is crucial to remember that focusing on accrual-based profitability without recognizing cash inflow and outflow can result in a lack of transparency.

Cash accounting and cash flow statements are used to balance out income accounting and accrual accounting. The quantity of cash a corporation generates is disclosed in this statement. Actual cash inflows and outflows are tracked in the cash flow statement. There are three distinct activities that make up the cash flow operations.

1. Cash flow from operating activities: This section shows how much money the company generates from its main line of activity. This reveals how the business makes money to benefit its shareholders.

2. Cash flow from investing activities: This section displays the amount of investments made by the organisation in capital expenditures and monetary investments (the buying and selling of money market instruments) (property and equipment).

3. Cash flow from financial activities: This part details the cash flow of business dealings between the creditors and the company's owners.

Therefore, in Nuttall Plc, the provision of a cash flow statement will aid in illuminating the causes of a decline in the liquidity ratio, the foundation of the operational ratios, and other similar aspects. Therefore, both cash flow and accounting statements (P&L and balance sheet) should be considered in any financial analysis since they aid in presenting shareholders with useful information.

1.2. Importance of Statement of Financial Position

Information on the company's assets and liabilities can be found in the statement of financial position. The difference between the company's assets and liabilities identifies the net assets or equity of the business.

The assets fall into two categories: current assets and non-current assets. Within a specific accounting period, current assets are frequently transformed into cash. In contrast, non-current assets are those that are used over a long period of time (Atrill and McLaney, 2011). An organization's liabilities can be divided into current and non-current liabilities. While non-current liabilities are frequently long-term borrowings by the corporation, current liabilities are commitments that must be paid immediately. Paid-in capital and retained earnings can be used to categorise equity broadly. Paid-in capital refers to the sum of money that the shareholders have contributed. Retained earnings show the overall income (profits) the company has generated since its founding, less dividends paid to shareholders (Atrill and McLaney, 2011).

You can determine a company's financial health by looking at its statement of financial condition. Generally speaking, an organisation can be considered to be in a pretty strong position if its assets exceed its current liabilities. It cannot, however, provide precise information on a company's earnings, costs, or profit. The statement of income is necessary for this. The total revenue, net income, and earnings per share are among the details directly needed by investors that are included in this statement. It follows that the statement of financial position (balance sheet) only slightly depicts the value of a corporation.

1.3. Role of Auditor

An auditor is a designated expert who certifies that the financial statements have been prepared in conformity with the Companies Act 1985 by presenting an impartial report to a company's members (shareholders, owners, and board of directors). If the company's accounts have been presented in a genuine and fair manner, this report should state so (Cascarino, 2007).

Reporting authority: The company's directors appoint the auditor, who serves in that capacity until the conclusion of the next meeting (usually annual). The auditor, who may be internal or external, reports to the company's stakeholders (shareholders, owners, and board of directors).

Functions of the Auditor: An auditor's main responsibility is to create the audit report (Cascarino, 2007). In addition to doing this task, the internal auditor can additionally follow up on internal controls; Analyze operations and financial data; Examine the operations' economy, efficiency, and effectiveness; examine whether laws, rules, and other external requirements are being followed and Launch specialised inquiries into frauds and other matters.

Section B

Question 2: Cost Volume Profit Analysis

2.1. Comparison of Driving School Schemes

Table 3: Comparison of Driving Schemes

It is clear from the preceding table that the current scheme has a higher break-even point (8600 hours). The driving school's break-even point is the point at which there are no profits nor losses. So, at 8600 hours, the current plan reaches this position. The current design, in contrast, needs 9010.98 hours to get here. The new scheme does, however, appear to have a higher profit margin (155400 GBP) and a higher proportion of safety margin (45%). The overall increase in fixed expenses is what caused the break-even point for the new plan to climb. As a result, if the new plan is put into place, the driving school's sales would increase by 45%. Therefore, it is advised that the driving school execute the revised plan.

2.2. Comparison of Engineering Production Schemes

In the upcoming year, 8,200 of a single type of machine produced by Sue's Engineering are anticipated to be produced and sold at a cost of £550 each. The following table shows total costs over the past five years together with the output volume levels that they correspond to. The variable cost of production for various years is determined using this table.

Table 4: Variable Cost

The aforementioned table demonstrates that the variable cost of production is not constant throughout time. As a result, it is impossible to determine the variable cost related to 8,200 units directly. The business is looking at two distinct plans. In the first scheme, there will be an increase in fixed expenses of £150,000 but a decrease in the variable cost per unit of £28. The second plan will result in a £375,000 reduction in fixed expenses but a £44 increase in variable costs per unit. With this context, the researcher takes the incremental numbers as given and evaluates the efficiency of Scheme 1. When comparing the two choices (i.e., raising fixed expenses and lowering variable costs), it can be seen that the incremental profit is £65,400, break-even is at 7292 units, and the margin of safety is at 909 units. It has been found that both strategies would produce consistent results when they reach break-even (i.e., 7292 units).

Table 5: Comparison of Production Schemes

Choosing Scheme 1

Incremental between two options

The indifference point is then determined after this. The cost indifference point analysis tool identifies the cost point where two alternative solutions are equally expensive. When the manufactured units exceed the break-even mark, the circumstance with the lower variable cost should be taken into account (i.e. Scheme 1). Consider the situation with lower fixed costs if the manufactured units are smaller than the variable point (i.e. Scheme 2). Scheme 1 is favoured because there are 8200 manufactured units, which is higher than the 7200-unit threshold.

It has been determined that Sue's Engineering ought to select Scheme 1.

2.3. Weaknesses of Cost Volume Profit (CVP) Analysis

The CVP analysis has some of the following drawbacks.

There isn't much information on various product activities provided by this analysis. It is acknowledged that when many items are utilized, CVP must be completed independently for each product.

Only under the presumption that there would be no changes to the manufacturing facilities over the calculation period can this study be completed.

If input and selling prices are reasonably stable, only then will this study produce useful findings. It is challenging to employ this strategy for products when there is minimal growth and decline over brief periods of time.

The fixed expenses remain constant, but the variable costs are sometimes thought of as fluctuating throughout the course of the full period. In actuality, though, it might not come to that.

The variations between the opening and closing inventory are not taken into account. This is impossible in some circumstances.

Question 3: Capital Budgeting

3.1. Strength and Weakness of Capital Budgeting Methods: Importance of NPV

Capital budgeting is the process of estimating the future worth of assets such as new construction, machinery, and plants. This approach involves looking at a project's lifetime cash flow (both inflow and outflow). This method's objective is to ascertain whether asset returns can meet a predetermined benchmark (Mao, 2012). An organisation will explore several viable projects when the market conditions are favourable in order to boost shareholder value and boost competitive performance. However, in practise, the organisation can be constrained by a tight budget. In these circumstances, it is crucial that capital planning be done in order to comprehend the entire yield of a specific project, the time it will take for payback to be complete, as well as the time it will take to determine the optimum return on investment (Schall et al., 2012). The researcher will look at internal rate of return, net present value, discounted payback, and payback.

3.1.1. Methods of Capital Budgeting

This section will first review the definition, advantages and disadvantages of payback, NPV, and internal rate of return in order to comprehend why NPV is superior to alternative capital budgeting techniques (IRR).

Payback method: The payback method can be used to determine the exact amount of time needed to generate a given investment's return. The payback period approach can be used to calculate how long it will take an investment to pay for itself (Mao, 2012). If

A shorter payback period is favoured over a longer one if all other circumstances are equal. Additionally, it has been noted that this strategy is widely employed as a result of its simplicity. The bias in favour of liquidity that repayment has supports its adoption. Therefore, it might be viewed as the best way to monitor short-term cash flows.

The following formula can be used to determine the payback period:

Period of payback = Y+ (A/B)
Y = The overall number of years prior to the payback year.
A= The total amount still owing in order to create a cumulative cash flow 0
B = The overall repayment year's total payback amount.

Discounted payback Method: The discounted payback approach is a variant of the payback period method. This approach aids in determining the project's overall worth and calculates the payback by evaluating the time needed to cover all project costs, including a positive discounted cash flow (Frino et al., 2009).

The following formula can be used to calculate the discounted payback period:

Period of payback = Y+ (A/B)
Y = The overall number of years prior to the payback year.
A= The total amount still owing in order to create a cumulative cash flow 0
B = The overall repayment year's total payback amount.

Net present value: The second capital budgeting approach is called net present value (NPV). By utilising discounted cash flows, time- and risk-related variables, and the overall physical assets of a specific project, this approach can be helpful (Lee and Lee, 2006). By discounting back and employing time and the average cost of capital, the NPV approach, according to Frino et al. (2009), can help assess the delivery of overall cash flow to a project. The total difference between the present value of cash inflows and outflows is known as net present value, to put it simply. After taking into account variables like inflation and returns, it would be possible to determine the worth of the input capital at some future period by utilising the net present value approach. Consequently, the NPV calculation can be used to determine a project's profitability (Mao, 2012).

According to the following formula, NPV can be determined:

NPV equals Discounted Savings - Initial Cost

Internal rate of return method: The internal rate of return approach is the last technique utilised in capital planning (IRR). With the aid of this procedure, it is possible to determine the discount rate at which the net present value of all projected cash flows will be equal to zero. This strategy is used to rank several projects that the company is considering. The project's potential ability to generate a profit increases with the rate of return. Therefore, given that all other conditions are equal, the project with the highest IRR can be regarded as the best suitable one to invest in (Schall et al., 2012).

3.1.2. Disadvantages of Payback and IRR

The payback period's fundamental flaw is that it disregards the time worth of money. Neither IRR nor NPV present such restrictions. Additionally, there is no established rule for choosing a hurdle point within the repayment term. Only short-term projects can be said to benefit from the payback period; long-term projects cannot be said to benefit from it. This is due to the disregard for the cash flow that continues over the cutoff threshold. The fundamental drawback of the discounted payback approach is similar in that it ignores cash flows after a certain point. As a result, it is possible that this approach will disqualify projects that genuinely have a positive net present value (Lee and Lee, 2006). The NPV technique does not reveal these drawbacks.

There are a few issues with using the IRR approach. The IRR process's iterative calculating methodology is the first downside. As a result, finding the best IRR takes a lot of time and involves several distinct iterations (Pedro, 2001). In contrast, no such iteration is necessary for NPV.

Second, if the appropriate initial discount rate is not established, changes in the cash flow from positive to negative or vice versa may result in many IRRs or no IRRs at all. In contrast, with NPV, no such differences are seen. The usage of IRR does not offer a valid way to rank projects, to sum up. Even if this method shows the return on investment from a single project, ranking two different projects cannot be done so clearly (Mao, 2012; Lee and Lee, 2006; Frino et al., 2009).

NPV aids in demonstrating the project's direct impact on shareholder wealth. This is due to the fact that the final value obtained using this method is in the form of currency. In comparison, the payback method can only display the number of years/months while the IRR approach can display the rate of return as a percentage. Therefore, the NPV method is superior in terms of directly enhancing shareholder value. The NPV technique also clearly ranks projects that are mutually exclusive, which is a benefit (Lee and Lee, 2006).

The use of NPV is not without its drawbacks, though. The fact that NPV depends on cash flow and discount rate values is one of its main drawbacks. Since they are estimates, these numbers cannot be taken as absolutes. A comparable drawback is seen with other metrics as well, though. Additionally, NPV approaches do exhibit decreased reliability when projects of various sizes are taken into account (Frino et al., 2009).

The benefits of NPV over payback and IRR are outlined in the following table.

Table 6: Advantages of NPV

3.2. Calculation of NPV, IRR and Payback

Table 7: NPV, IRR and Payback Calculations - Project I

Project 1

Table 8: NPV, IRR and Payback Calculations - Project II

Project 2

The following table summarizes the different capital budgeting measures.

3.3. Recommendations

The following table identifies the different projects based on individual capital budgeting methods.

It is obvious from the following table that Project I is deemed to be a better investment by the payback and IRR methodologies. The NPV technique, however, is the most accurate way to measure capital budgeting, according to Section 3.1. In the aforementioned project, Project II's expected returns (£9610 as opposed to £5615) are discovered to be significantly higher than Project I's. Project size variations can be used to explain variances in the NPV and IRR results between the two projects, which are mutually exclusive. It is noted that the NPV is regarded as the key financial measure because the company's goal is to maximise profit and increase shareholder value.

Accounting Course Work - Capital Budgeting most effective capital budgeting criterion. As a result, it is advised that Project II PGD Ltd. has taken on.


Atrill, P. (2000) Financial Management for Non-specialists, 2nd ed. Harlow: Pearson Education Limited.

Atrill, P. (2009) Financial Management for Decision Makers, 5th ed. Harlow: Financial Times Prentice Hall.

Atrill, P. & McLaney, E. J. (2011) Accounting and finance for non-specialists, Pearson Education Limited.

Cascarino, R. E. (2007). Auditor's guide to information systems auditing. John Wiley & Sons.

Collier, P.M. (2009) Accounting for Managers, 3rd ed. London: John Wiley & Sons Ltd.

Frino, A., Chen, Z., & Hill, A. (2009). Introduction to corporate finance. Pearson Education Australia.

Hillier,D.J., Ross, S. A., Westerfield, R. W., Jaffe, J., & Jordan, B.D.(2010).Corporate finance: 1st European edition (No. 1st Edition). McGraw-Hill.

Lee, C. F., & Lee, A. C. (Eds.). (2006). Encyclopedia of finance. Springer.

Mao, J. C. (2012). Survey of capital budgeting: Theory and practice. The Journal of Finance, 25(2), 349-360.

Pedro, B. (Ed.). (2001). Economic analysis of investment operations: analytical tools and practical applications. World Bank-free PDF.

Schall, L. D., Sundem, G. L., & Geijsbeek, W. R. (2012). Survey and analysis of capital budgeting methods. The Journal of Finance, 33(1), 281-287

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Recognitions, Measurements & Disclosures of IAS 41 Assignment Sample



Write an accounting essay focusing on IAS 41 accounting standard, incorporating the following:

i. Examine the accounting standards' requirements for disclosures, measures, and recognitions;

ii. Talk about how the accounting standard affects the relevance and faithful depiction of information reporting, which are essential qualitative qualities;

iii. List any three practical difficulties in following the chosen accounting standard and critically examine them.



In this accounting essay, the main goal of the IAS 41 accounting standard is to control how biological assets are transformed into agricultural products. With some exclusions, such as agricultural produce at the harvest point and bearer plants, the accounting principles apply to biological assets. Intangible assets and government funding connected to agricultural pursuits or bearer plants are typically inapplicable. The requirements of the accounting standards are examined in this particular article based on their recognition, measures, and disclosures, as well as the impact of the standard on the core qualitative attributes of information reporting. In the accounting assignment, a few real-world obstacles to this standard's compliance are also mentioned and critically evaluated.

Recognition, Measurements, and Disclosures

Recognition: An accounting standard set called IAS 41 was created to help turn biological assets into agricultural production. The primary purpose of accounting standards is to account for agricultural activities based on produced goods from a company's biological assets. In the year 2000, the accounting standards were released. Biological assets or agricultural goods are recognized when an entity has control over the vents connected to previous transactions (Abdelkhalik, 2019). Future consistency in measuring the entity or fair worth is also a possibility. These requirements are seen to be essential to the acceptance of this specific accounting standard or method.

Measurement: Unless there is an estimation of the fair value at a lower selling cost, the measurement of a fair value can be done consistently. Agribusiness production is valued at fair value less the projected cost of selling at the harvest point since harvested produce is a commodity. With the exception of produce, there is no measuring dependability. All expenses incurred, including the relevant cost to the fair value of the biological assets, are those incurred other than the acquisition price of the biological assets. The only issue with measuring is that there isn't a price for biological assets on the active market that has already been quoted. Since fair value calculations are unreliable, it is necessary to evaluate assets at lower costs through reduced accumulated depreciation and impairment losses. However, if the situation changes in a major pattern, charges free from fair value are required.

Disclosure: IAS41's disclosure requirements are based on the typical loss or gain from recognizing assets and agricultural products, as well as changes in the value of sales within the given period. The requirements also somewhat depend on the entity's biological resources, as defined by the big group (Baigrie and Coetsee, 2016). The disclosure rules also apply to restricted and pledged security titles relating to information about biological assets. The disclosure obligations also cover commitments for the development and acquisition of biological assets as well as risk management plans for funding. Additional disclosures about asset depreciation, the fair value range, and the reasons for not being able to accurately determine fair value are necessary if it is not possible to do so. Along with the overall depreciation that has accrued and the amount that is carried, the depreciation methods, rates, and amounts must all be declared.

Impact of IAS41 on Fundamental Qualitative Characteristics of Information Reporting

Relevance and faithful depiction are regarded as the basic qualitative traits of information reporting. It is regarded as a notion that envisions the truthful reflection and depiction of financial statements that establish the genuine economic status of the firm. Every section of the financial statement, including the operational results, financial positions, and various cash flows, should be given a faithful portrayal (Enyi, 2019). The statements that show a fair and pertinent approach to information reporting should largely exhibit these three qualities: they should be exhaustive, objective, and error-free. To properly assess IAS41's influence on corporate financial reporting, it is necessary to identify any potential implications for the reporting entities. The fair value of the assets that must be reported is calculated using the income from unrealized gains or losses.

The recognition of unrealized gains and losses arising from assets from fair value adjustments to agricultural harvest will have a substantial impact on the businesses' income and other financial statements, ultimately increasing the volatility in reported income. Compared to private entities, the influence on governmental organizations is comparatively bigger. The two fundamental qualities that are essential to financial reporting are faithful and relevant representation. Relevance is a characteristic of information that gives users of financial information the ability to decide while making decisions. When information is utilized to predict a future outcome or to confirm previous assessments of economic events that have a confirmative value, it is said to be relevant (Filip et al., 2017). Even though IAS 41 refers to agricultural production and biological assets, these occurrences are recorded in the financial accounts of businesses.

The revenue for the following year can be predicted using information about the current year's revenue that is related to agricultural output and biological assets. This information also confirms the degree of accuracy of the predictions made in the previous year. The valuation of the user's net assets can be updated using impairment charges relating to biological or agricultural assets. Estimates may not be very accurate because the liabilities of a company dealing with biological assets are unpredictable and legal claims can be extraordinarily expensive. A firm must maintain a particular level of honesty while preparing a financial report based on agricultural output and biological assets. The most crucial deciding factor when deciding the variables of financial accounting is the fact that the amounts of produce each year are changing and not fixed in nature (Zerhan and Sultanolu, 2017). The development of appropriate financial reports for businesses that are accounted for in accordance with IAS 41 depends on the relevance and faithful portrayal of factual events and transactions.

Three Practical Challenges of IAS 41 Compliance

The implementation of IAS 41 in accordance with the accounting standards is complicated by three practical issues.

One of the main issues with biological asset compliance approaches is the lack of an active market. The corporate management must solely rely on the biological assets' assessments and judgements. To study the present economic trends and conditions that were reported on earlier dates, it is necessary to evaluate the markets and market information that are currently available. The fair worth of the biological assets might be determined using the existing prices if the economy remains stable over the long term. According to Scott, Wingard, and van Biljon (2016), a market may not have been developed if the company administration evaluates appropriate data while assets are limited or scarce.

The second issue relating to IAS 41 compliance is thought to be a lack of appropriate valuation techniques. Lack of direction from the national treasury may result in the use of different accounting rules that are based on organizations that are identical. The strategies and needs connected to the economic sector are provided by the treasuries of different countries. The absence of valuation methodologies can be ascribed to a lack of oversight. The organization is nonetheless subject to the requirements' applicability despite the event. The quality of audit departments may express their thoughts if the criteria are disregarded.

A real problem with calculating fair value is the high costs associated with biological assets' accounting for fair value. According to Baigrie and Coetsee (2016), the issue that is regarded as being most important in the case of biological assets is the exorbitant expenditures connected with the evaluation process. When hiring specialists to perform the valuation process, several criteria must be met. Before making contact with an individual, the administration must evaluate their credentials and value knowledge. Despite the fact that the professionals are handling them, the management of the organization is still responsible for how the information is presented. They should analyses the work that was completed as well as the work of the expert on the audit and other financial reporting. The department of the auditor general will audit the underlying valuations, and the administration will give auditors the necessary information on the supporting documentation.


As the management of the companies is ultimately responsible for the proper assessment and evaluation of the financial statements, the three challenges of adhering to or complying with IAS 41 are integral to the final preparation of financial reports for the company. There is a significant amount of impact created on the relevance and the faithful representation of the biological assets that are evaluated by the fair value of assets and agricultural produce. The three factors of initial recognition, measurements, and disclosure are crucial to comprehending the accounting standards intended for both appreciation and the depreciation of biological assets related to agricultural products. Therefore, it can be concluded that the cost and valuation of biological assets in relation to the market are the major determinants of the accuracy of the companies' financial reporting. This accounting standard has a considerable impact on the fundamental elements of information reporting, as evidenced in the financial reports of businesses that trade in agricultural and biological goods.


A.R. Abdel Khalik (2019). Issues in Reporting Financial Instruments: Failing Faithful Representations of Financial Statements. 676-708 in Abacus, [online] 55(4). Available at: doi/full/10.1111/abac.12176 at onlinelibrary.wiley.com [Retrieved on June 4, 2021] .

I. Baigrie and D. Coetsee (2016). An examination of South African public agriculture enterprises' financial reporting compliance. 9(3), pp. 833–853, Journal of Economic and Financial Sciences, [online]. The document is accessible at: https://core.ac.uk/download/pdf/160732061.pdf. [Retrieved on June 4, 2021] .

Enyi, P. (2019). International Journal of Business and Management Review, [online] 7(3), pp. 1–10, "ETHICAL PRINCIPLES AND FAITHFUL REPRESENTATION OF FINANCIAL REPORTS OF QUOTED COMPANIES IN NIGERIA." The document is accessible at: https://www.eajournals.org/wp-content/uploads/Odesanya-O.-S.pdf. [Retrieved on June 4, 2021] .

Huang, Jeny, A., Ca, Z., Filip, A., Hammami, A., Molson, J., Hammami@concordia, A., Magnan, M., and Moldovan, R. (2017). Review of the Literature on the Impact of IFRS 13 Fair Value Measurement. [on the web]. It is possible to get this document at: https://www.ifrs.org/content/dam/ifrs/meetings/2018/january/iasb/ap7c-ifrs-13-literature-review.pdf [Retrieved on June 4, 2021] .

Y. zerhan and B. Sultanolu (2017). Fair Value Accounting for M2M. www.intechopen.com [online]. IntechOpen. Easily accessed at: https://www.intechopen.com/books/accounting-and-corporate-reporting-today-and-tomorrow/m2m-fair-value-accounting [Retrieved on June 4, 2021].

D. Scott, C. Wingard, and M. van Biljon (2016). issues with South African public agencies' financial reporting of biological assets. 139–149 are included in South African Journal of Economic and Management Sciences, 19(1), [online]. Available at: S2222-34362016000100009 (www.scielo.org.za/scielo.php?script=sci arttext). [Retrieved on June 4, 2021].

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ACC2CRE Financial Accounting and Reporting Assignment Sample

1. This assignment is compulsory and is worth 20% of the marks of the subject. There are two questions in the assignment worth 40 marks and students acquired marks will be converted into 20%.

2. The assignment must be submitted via Turnitin.

3. Students must provide their names and ID numbers in cover page of the assignment.

4. You must keep a copy of your assignment until you receive the marked original back.

5. The assignment must be in MS word format, double-spacing and 12-pt Times New Roman font.

6. Submissions must be properly referenced and students are required to use either an APA or Harvard referencing style

7. Word limit: 700 words excluding references. The total word number for Question 1 is 200. The number of words can be 10% more or less without penalty.

8. Plagiarism is a serious academic misconduct. Students involved in plagiarism will be referred to the University’s appropriate authority.

Questions for Assignment Help

Question 1

A newly appointed accountant, Mr Max of Bulla Ltd told to his team members that financial
statements will be more comparable when our entity will use AASB/IFRS standards to
prepare a set of financial statements consistent with other reporting entities.


(a) Do you agree with this statement or otherwise? Explain the above statement with four examples (Hint: AASB 116 requires that PPE must be valued at historical cost or fair value).

(b) If Bulla Ltd changes its accounting policies in the current year explain whether such changes need to be disclosed in the financial statement. If so, how?

Question 2

On 1 July 2020, Rina Ltd acquired all the share capital of Tina Ltd for $944,000. At that date, Tina Ltd’s equity consisted of: Share capital $300,000, General Reserve $192,000 and Retained earnings $112,000.

At 1 July 2020, all the identifiable assets and liabilities of Tina Ltd were recorded at fair value. Both companies employ the perpetual inventory system.

Financial information for Rina and Tina Ltd for the year ended 30 June 2021 is presented below:

Additional information:

(a) On 1 January 2021, Tina Ltd sold inventory costing $60,000 to Rina Ltd for $100,000. Half of this inventory was still on hand with Rina Ltd at 30 June 2021.

(b) On 31 March 2021, Rina Ltd sold equipment to Tina Ltd for $12,000 which was $2,000 below its carrying amount to Rina Ltd at that date. Tina Ltd charged deprecation at the rate of 10% p.a. on this time.

(c) In the 2021 period, Rina Ltd sold a block of land to Tina Ltd at $40,000 above cost. The land is still held by Tina Ltd.

(d) There was a profit in the beginning inventory of Rina Ltd of $12,000 on goods acquired from Tina Ltd in the previous period.

(e) The tax is 30 per cent.


(a) Calculate goodwill on the date of acquisition;
(b) Prepare journal entries for consolidation worksheet;
(c) Using excel spreadsheet prepare consolidation worksheet for Rina Ltd for the year ended 30 June 2021.
(d) Using excel spreadsheet prepare consolidated financial statements for the year ended 30 June 2021.


Answer to question 1

(a) Agreement with the statement

The above statement suggested by the newly appointed accountant regarding the applicability of financial standards such as IFRS and AASB holds true. The primary purpose of the accounting standard is to provide common accounting policies and regulations to be managed and followed by the organisation to prepare the financial statements. The management is only responsible for selecting accounting policy; however, it should be Limited with the appropriate accounting standards (Commenced, 2018). For a better understanding of the applicability of various accounting standards, the following examples can be considered:

(b) Disclosure of the changes

As per AASB 8, the accounting policies and the principles can only be changed by the management if there are reliable indications that it will improve the overall financial reporting of the organization, change in statute, or change in relevant accounting standards. According to paragraph 5 of AASB 8, the company will be required to present the current accounting policies followed by the management and any changes in the accounting policies made in the current financial year. According to pa para 5 of the said accounting standard, retrospective change because of the change in accounting policy will also be included, and it will be required to present in detail (Aasb.gov.au. 2022).

Answer to Question 2:

(a) Goodwill

(b) Consolidation of journal Entries

(c) Consolidation worksheet

(d) Consolidated financial statement


Aasb.gov.au. 2022. [online] Available at: <https://aasb.gov.au/pronouncements/accounting-standards/> [Accessed 27 April 2022]. https://aasb.gov.au/pronouncements/accounting-standards

Aasb.gov.au. 2022. [online] Available at: <https://www.aasb.gov.au/admin/file/content105/c9/AASB108_08-15.pdf> [Accessed 27 April 2022]. https://www.aasb.gov.au/admin/file/content105/c9/AASB108_08-15.pdf

Commenced, D., 2018. 2.5 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES. Policy. https://www.coomalie.nt.gov.au/images/Documents/All/2.5%20Statement%20of%20Significant%20Accounting%20Policies%202017.pdf

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ACG508 Accounting Standards, Application and Disclosure Assignment Sample

Length: Multiple Xero Reports and 800 words

Group Assessment: No

Submission method options: Alternative submission method


Assessment conditions: This is an individual assessment task (not a group assessment task).
This assignment requires you to use Xero accounting .

You must complete your assignment within this prescribed period. As Xero is a cloud-based accounting system, you will need an internet connection to use the system.

The assignment has been designed to enable you to complete the assessment within the 30 day period. You are urged to set up your date.

Part A: Xero

You are the accountant for HOSS, a company that commenced in 2020 to provide home office styling solutions for employees working from home. Clients include individuals and Corporates wishing to provide safe and secure home office solutions. While the initial demand for the services stemmed from the requirement to work from home during the pandemic demand for the service has not declined with many businesses offering flexible employment options post pandemic. Up to this time, the accounting work has been completed using a manual system based on spreadsheets. However, with the future looking bright and more clients enquiring about the service, in particular the systems security and occupational health and safety services provided as part of the service to clients you have investigated other options. Your recommendation is that HOSS transition from their existing manual accounting system to a cloud based computerised accounting system for the financial year ended 30 June 2022 to achieve
better management and growth of the business.

It is now June 2022 and you are transitioning HOSS’s existing accounting records from their manual accounting system to Xero and recording the June transactions so that the financials for the year ended 30 June 2022 can be prepared using the computerised system. Additional information required for the completion of your assessment task will be provided to you in yourInteract Site under Assessment Resources / Assessment Item 2. This includes details for each part of the assessment including; set up instructions; the opening trial balance at 31 May 2022; June transactions; and any year-end adjustments. You will be required to export the Balance Sheet, Profit and Loss and the General ledger accounts at 30 June 2022 which you have prepared in Xero and amalgamate into a single Excel file. Failure to download and submit material from Xero will be counted as a non-submission for that component of the task. It is your responsibility to ensure all required components have been extracted from the Xero cloud computing system and submitted as part of your assessment.

Part B:

Based on the reports you generated in Part A above, prepare a report (maximum of 800 words) to HOSS providing a high-level analysis of the financial position, financial performance, and overall financial health of the business. Your report should include justification for the accounting treatment you have chosen for the property, plant and equipment purchased in the current financial year and all calculations you have performed. You are encouraged to draw upon your knowledge from prior subjects regarding financial statement analysis and financial statement ratios.


This assessment task will assess the following learning outcome/s:

• be able to apply professional judgement in the preparation of financial statements for reporting entities in accordance with relevant ethical, professional and statutory reporting requirements.

• be able to apply and analyse generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.

• be able to critically analyse and communicate clearly and concisely the relevant principles and accounting standards to a diverse audience. The report to your client needs to be professionally presented, at a level appropriate to send to a paying client. This includes:

• The reports generated from Xero need to be presented in a consistent manner and easy to read.

• Headings and subheadings must be used for your recommendations and each of the Xero reports you have generated.

• Use of a standard font, such as Times New Roman, Calibri or Arial font, with a font size 11 or more.

• Suitable margins for your recommendation, being a minimum of 2cm from all sides (left, right, top and bottom).

Requirements for Assignment Help

APA must be used to reference all the sources you have used for your assignment. The CSU Library site provides an online guide to APA (7th ed.) referencing. This is the referencing style adopted by the School of Accounting and Finance. The guide can be found at: http://student.csu.edu.au/study/referencing-at-csu.

Review the rules regarding plagiarism, and if you are not sure contact your lecturer or student learning skills advisor for advice. There is no excuse for presenting the work of others as your own; this includes cutting and pasting material from the web without properly referencing the source.



The aim of this report is to evaluate the performance of 11712399-Jency rameshbhai patel, over the time frame 1st June 2022 to 30th June 2022. The analyst has considered financial statements such as balance sheet and income statement to evaluate their performance. Accounting ratio represents relations that exist between various items appearing in record books such as balance sheet and profit and loss account. Here, the analyst has used ratio analysis method to evaluate the performance of the company.

Part A: Analysis

Part B: Discussion

The gross profit margin on income of a company is represented by the gross profit ratio. A larger gross profit % indicates that the company's financial situation is steady, and they can easily cover their operating expenditures. The Gross Profit Ratio is computed by taking gross profit by operating sales and multiplying the quantity by 100. A proportion illustrates the connection between gross profit and net earnings from operations. This percentage indicates the enterprise's price strategy and effectiveness in direct trade operations. The gross profit is 94.625 percent, indicating that the company is doing well in terms of gross profit.

The net profit margin on sales is represented by the net profit ratio. It is a percentage that illustrates the ratio between net profit and net sales. A bigger profit margin shows that a company's operations are more profitable and efficient. We may deduce from this ratio how firms set their expenditures and pricing to maximise profit. The net profit is 41.39 percent in this case, indicating that the company is doing well.

The amount of an organization's yearly return or net income divided by the sum of the entire shareholders' equity stated in percentage is called return on equity (ROE). It is one of the most important factors that prospective investors consider when deciding whether or not to invest in a business. ROE may be used to determine if a company has the capacity to transform its shareholders' money into profit.

The operating return on capital (ORC) is a metric that quantifies how much money an organisation makes on its capital. To make money, one might look at how successfully the organisation generates cash flow. Divide the Net Operating Margin by the invested capital to get the Operational Return on Capital Employed (Zavadskas, et al., 2018). The return on capital employed (ROCE) of a corporation reveals if it is doing a good job of producing profits from its capital. The ideal ratio is ideally equal to or more than 2%. If the rate is less than 2%, investors will be discouraged.


It can be concluded from the income statement and balance sheet of 11713299- Jency rameshbhai patel that the firm performed well in June 2022. They have also provided proof of 100% accounts receivable for the prior month. The current ratio was also found to be 1.25, indicating that the company has enough liquid cash to cover its short-term commitments.

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ACCT6003 Financial Accounting Processes Assignment Sample

Learning Outcomes

Apply accounting principles and standards when accounting for non-current assets, revenue and liabilities and recognize the judgements required in a range of diverse business contexts.
Differentiate between shares and debentures and apply appropriate accounting procedures.

Submission - By 11:55pm AEST/AEDT Sunday of week 8
Weighting - 25%
Total Marks - 100 marks
Learning Outcomes


This assessment will cover the learning objectives from the topics covered in weeks 3, 4, 5 and 6 and applying them to real cases. These include accounting for shares and debentures and accounting for non-current assets, including impairment and asset revaluation.

Part A: This assessment is designed to demonstrate your understanding of the accounting process to account for the above topics.

Please use the supplied templates for assignment help to design your answer in the correct General Journal format and combine all answers into one assessment document covering all tasks. Please follow the submission instructions on Blackboard. Submit the assessment file in a word or PDF format including cover sheet. JPEG files cannot be opened and will not be marked.

Part A:

• Using the templates provided. Design your own General Journal templates.
• Type your answers into the General journal, remembering to leave a blank line after each entry and include a narration and date for every entry.
• Where required, please provide clear workings of your calculations in your answers.
• Do not rewrite the question in your assignment.

Round all amounts to the nearest dollar.

Part A: Written report (40 marks)

Question 1: Impairment of assets (9 Marks)

Flights Ltd has determined that its aviation division is a cash–generating unit (CGU). Information as at 30th June 2020 is as follows:

Additional information:

• Buildings - Accumulated depreciation as at 30 June 2020: $100,000
• Equipment - Accumulated depreciation as at 30 June 2020: $200,000
• Flights Ltd calculated the value in use for the division to be $600,000


a) Calculate the impairment loss as at 30 June 2020: (2 Marks)
b) Prepare a table as provided below to allocate the above impairment loss: (2 Marks)

c) Prepare a general journal (as per template below) to record the above impairment loss for the year ended 30 June 2020. Include a narration. (5 Marks)

General Journal template:

Question 2: Revaluation of Non-current assets (13 Marks)

The Balance sheet for Saturn Ltd disclosed the following information:
Saturn Ltd

Balance Sheet (extract) 30th June 2019

Additional information:

• The company has adopted fair value for the valuation of non-current assets. This has resulted in the recognition in previous periods of an asset revaluation surplus/reserve for the plant of $120,000.

• The plant has a useful life of 10 years and a zero-residual value.

• On 31st December 2019, it was decided to revalue this amount to its fair value of $400,000.


a) Record the journal entries (as per template below) as at 31 December 2019, relating to the revaluation of this plant. Include narrations. (7 Marks)
b) Record the closing journal entries (as per the template below) for any gain or loss on revaluation only, as at 30th June 2020. Include narrations. (6 Marks)

Ignore any tax effects.

General Journal template:

 Question 3: Share issue (18 Marks)

Cobra Ltd was incorporated on 1 July 2019 and issued a prospectus inviting applications for 100,000 ordinary shares at an issue price of $10.

The shares are payable as follows:

• $5 payable on application
• $2 payable on allotment
• $3 payable on call to be made 30th September 2019
• Share issue costs were $1,500 and legal costs were $500

The transactions for the period were as follows:

Additional information:

The company’s constitution states that any forfeited shares must be refunded to the shareholders.


Prepare the general journal entries (as per template below) in the books of Cobra Ltd to record the above transactions. Provide narrations for all your entries.

General Journal template:


Question 1:

Part A:

The Impairment loss of the cash generating unit is amounting to be $900000 (Hassine and Jilani, 2017)

Part b:

As per the procedure of impairment loss allocation the losses are to be adjusted with each asset based on its proportionate share on the carrying value.

Part c:

Question 2:

Part a:


Part b:

Question 3: Journal Entries

The Journal Entries in the books of Cobra is as follows

Journal entries


Hassine, N.M. and Jilani, F., 2017. Earnings management behavior with respect to goodwill impairment losses under IAS 36: The French Case. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2), pp.177-196.

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ACCT6007 Financial Accounting Theory and Practice Assignment Sample

Assignment Brief

Length - 1500 words +/- 10%

Learning Outcomes

a) Explain the relationship between accounting theory, the accounting conceptual framework and accounting standards.

b) Work individually and in groups to identify and apply appropriate accounting standards to a range of authentic accounting scenarios.

Submission - Week 9 Sunday midnight (AEST)

Weighting - 25%
Total Marks - 100 marks


This assignment develops research and critical thinking abilities. It is a critical analysis/review of an academic article. Changes in technology are impacting accounting and how accountants perform their jobs. This activity will provide students information on new trends in accounting field.


Download and critically analyze an academic article written by Jun Dai and Miklos. A. Vasarhelyi. This article can be found in the Torrens University library using the following citation:

Dai, J. & Vasarhelyi, M.A. (2017 Toward Block Chain-Based Accounting and Assurance. Journal of
Information Systems Vol. 31 No. 3, p5-21,
You may use an essay format or any other acceptable academic format for critical review. Use APA 7
referencing style guide. Use minimum 10 academic references.

Answer the following questions for assignment help during your analysis.

1. Discuss the three phases of block chain technology? What is the potential use of block chain technology in accounting?

2. The author discusses Triple Entry Accounting. What is your understanding of the concept?

3. Do you agree or disagree with any arguments made by the author? Explain your point of view and provide evidence in support of your point of views from other academic resources.

4. Critically review any potential issues or problems with block chain technology being used in accounting.

To answer all the above questions: Review the article provided and search for related academic journal articles. Use minimum 10 academic references.

Academic skills resources: Analyzing the Brief, Essay Writing, and Critical Thinking

These resources can be downloaded from LASU - Learning and Academic Skills Unit on Blackboard
following the link: https://laureate-au.blackboard.com/webapps/blackboard/content/listContent.jsp course_id=_20163_1&content_id=_2498849_1



In the prevailing study, the new technology of block chain for accounting and assurance is been critically evaluated. The relationship between the accounting conceptual framework, accounting theory, and accounting standards is been done. The three phases of block chain technology, potential uses of same, potential issues and challenges of block chain and also argument regarding its challenges is provided in the below study. Further the triple entry system of accounting is been critically evaluated below. The reason why it was introduced, its application in the current system and interconnectedness with the block chain technology is provided. Also the research is done in context of this new technology impact on the current accounting and assurance system.

Main Analysis

Three phases of block chain technology

Since 2009 the evolution of block chain technology gone through three stages. Firstly, block chain 1.0, which purely focused on the crypto currency trading. The function of remittance, digital money transfers also its comprised internet of money- a new payment ecosystem. Secondly, block chain 2.0 which also involves same trading but this time with the broader scope of financial applications. These applications include smart property, derivatives and digital asset ownership etc. (Banafa, 2020) This phase expanded the simple digital currency platform into the platform of wide variety of digital products with the help of new application that is smart contracts. These smart contracts automatically execute, verify and enforce the terms of the contracts operating on block chain. The terms and conditions agreed by various trading parties are encoded through the smart contracts. Further these smart contracts execute the tasks which were pre- specified automatically and settle the contract by examining the changes in conditions with relation to the contracts’ embedded rules. The last phase, block chain 3.0 was the further expansion of block chain2.0 system. This expansion was beyond the business and financial applications. This includes voting system, products related to cloud storage, attestation services, even the government administration transformation (Umarovich, et al, 2017). Through this version the administration of government could also be dramatically transformed into the decentralized monitoring tools and self-management.

Potential uses of block chain

• The first and foremost potential of use of the block chain is that, it could be used in transformation of auditing process into more precise and timely automatic assurance system.

• The block chain technology for accounting could re- conceive corporate accounting

• It is considered as a new kind of data base which has the potential to play role in ERP as accounting module.

• Also could be used as conjunction for the existing accounting system

Triple entry accounting

The concept of triple entry account is been observed and discussed by various professionals and academics since years (Ravi, 2020). The primitive mechanism was of single entry book keeping transaction under which there were high chances of risks and fraud apart from being simple and effective, it was difficult to get repaired and track. In order to overcome these issues double entry system was introduced. This system was quite efficient and rapidly enables the conformation that whether the transaction recorded is correctly or not. This introduction helped in minimizing the human transactional errors but was unable to provide sufficient assurance to the high level companies regarding their financial statements. Therefore, in order to overcome this issue of assurance the triple entry accounting system was introduced. It was proposed to get utilize as independent paradigm also a secure one. This helped in improving the reliability of various companies on their financial statements (Zhang et al, 2020). Originally this system included or it could be said that it requires the neutral intermediary in its transaction recording process with each of the party. So there was involvement of three parties those are two of the parties which are involved in the transaction and one intermediary, this resulted in total three entries. However, the intermediary required under this triple entry system must be reliable and independent in order to verify each party transaction (Block, 2020). In addition to this the entries stored by the middle person are highly exposed to risk, or unauthorized changes due to cyber-attack. But the new launched technology of black chain has the potential to mitigate these cyber-attack risks and improve the mechanism of triple entry system. This technology could play the role of intermediary by automating and distributing the storage, providing secure platform for transaction, verifying the entire process and prevent the transaction from getting tampered.

Disagreeing on the argument

That block chain-based assurance and accounting methodology would provide verifiable information disclosure, real-time, and progressively automated assurance

Undoubtedly the above argument is true but is not acceptable as the block chain technology comes with various limitations and drawbacks though. The goal of the author was to discuss regarding the impact of block chain technology on accounting and assurance profession, but it has although many drawbacks. This technology is rapidly getting developed and emerged due to which various new approaches and algorithms are been introduced in the application of accounting and assurance. So these algorithms are needed to be expanded due to the rapid growth of such technology and are required to be reconsidered. Further the author has only discussed about the impact and role of such technology on the profession of accounting and assurance which it plays. The challenges such as in the areas of government auditing, corporate auditing need further identification and re-thinking. As the regulatory frame work of block is is decentralized, which means there’s no one power to enforce law and order in the network no leaders, no moderators (ALI, 2021). Also the concept of triple entry system under this is not acceptable in such a rapidly changing world; the adaption of such might just be an adaption to the advanced world. Unfortunately, the operation of this new tech technology needs computation resources and sufficient storage. The placing of such a lengthy corporate data would be extremely expensive and potentially demanding for the computation of current commercials (Schifrin, 2019). Such requirements of the technology could eventually impede the popularization of this technology especially for the medium and small term firms. Even also the large enterprises might refuse the usage of such technology if they had significant issues from the performance and efficiency of current system operations. Thereby I disagree with the argument of author on the benefits of this block chain technology as it has several drawbacks and would most probably rejected from being used.

Potential issues with block chain technology in accounting are-

Security and transparency related issues are the potential problems associated with the block chain technology (Tochen, 2019). The block chain technology is secure as secure the weakest links are. For instance, if one party wants to access the data within the block chain they could only access one node of it. That means the block chain is easiest to hack, hence there is huge threat to the entries embedded in it. That is not the only risk with it, but also it is possible to get exposed in fraudulent practices for the approved transactions. The poof of identity, proof of stake both are at risk, as anyone could easily get access in the block chains. The existing accounting standard in the technology could further be adapted increasingly for more transparent and verifiable accounting ecosystem (Hastig & Sodhi, 2020). The role of auditors also in the new accounting system is required to be re-through and the reengineering of currents audit paradigm is required.
In addition to this, one important issue that is worth careful consideration is the scope of participants in the block chain based accounting ecosystem. This especially occurs in the case when the verification of transactions or creation and validation of smart contract is there. The black chain technology for the accounting system is a permission block chain in which only the transaction of the companies can be submitted into the block chain ledger, with the verification function being restricted to accountants, management, and auditors (Orcutt, 2018). Also substantial security and cyber-attacks knowledge is highly required by the block chain technology algorithms and its operating paradigms. For such challenges the managers and accountants are required to get the training from the IT professionals, which is necessary to use such technology effectively and correctly. Further to participate in the implementation and designing of the smart contracts the training is required by these parties.


From the above study of critical evaluation on the block chain technology it could be concluded that the technology has several potential uses and merits. Such as, it could be used for re- conceiving corporate accounting, could make the present accounting system more precise and accurate. Further it could be noticed that the technology was evolved through three major phases and also the introduction and concept of triple entry system is understood briefly above. But apart from these potential uses, this technology also contains various limitations or drawbacks with it application. Such as it requires sufficient space, it is quite expensive; also some of the shortcomings are noticed in terms of cyber security and transparency of this technology. Thereby, it could be said that the technology has more shortcomings than the uses.


Ali, F., 2021 (Online) The Top 5 Problems with Block chain Technology. Retrieved from <https://www.makeuseof.com/problems-with-blockchain-technology/> .

Banafa, A. (2020). Block chain technology and applications (Ser. River publishers series in security and digital forensics). River. Retrieved November 13, 2021, https://lesa.on.worldcat.org/v2/oclc/1224527152

Block, D. A. (2020). Output management technology: the missing link in the information delivery chain. Computer Technology Review, 40-43, 40–43.https://lesa.on.worldcat.org/v2/oclc/5321867264

Dai, J. & Vasarhelyi, M.A. (2017 Toward Block chain-Based Accounting and Assurance. Journal of Information Systems Vol. 31 No. 3, p5-21, https://lesa.on.worldcat.org/v2/oclc/7286844609

Hastig, G. M., & Sodhi, M. M. S. (2020). Block chain for supply chain traceability: business requirements and critical success factors. Production and Operations Management, 29(4), 935–954. https://doi.org/10.1111/poms.13147

Orcutt, M. (2018). Block chain. Mit Technology Review, 121(3), 18.https://lesa.on.worldcat.org/v2/oclc/7613275795

Ravi, S. (2020). Block chain technology &amp; its use in banking sector. Business World, (oct 26, 2020). https://lesa.on.worldcat.org/v2/oclc/8685801874

Schifrin, M. (2019). Block chain 50. Forbes, 202(3), 86–86. https://lesa.on.worldcat.org/v2/oclc/8094358989

Tochen, D. (2019). Block chain technology: a solution in search of a problem-or a revolution? The Brief, 49(1), 50–56. https://lesa.on.worldcat.org/v2/oclc/8531105397

Umarovich, A. A., Gennadyevna, V. N., Vladimirovna, A. O., &amp; Alexandrovich, S. R. (2017). Block chain and financial controlling in the system of technological provision of large corporations' economic security. European Research Studies, 20(3b), 3–12. https://lesa.on.worldcat.org/v2/oclc/7146245319

Zhang, L., Xie, Y., Zheng, Y., Xue, W., Zheng, X., & Xu, X. (2020). The challenges and countermeasures of blockchain in finance and economics. Systems Research and Behavioral Science, 37(4), 691–698. https://doi.org/10.1002/sres.2710

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HI6025 Accounting Theory and Current Issues Assignment Sample

Assignment Brief

Purpose of the assessment (with ULO Mapping)

This is a group assignment. Students are required to conduct research and analysis of a theoretical financial reporting issue and present their findings in a written report. Students will have to do research on relevant literature and demonstrate understanding and critical evaluation of key disclosure issues relating to the application of specific accounting standards

Weight - 40 % of the total assessments
Total Marks - 40
Word limit - 3,000 words ± 500 words
Assignment submission: Final Submission of Group Assignment: Week 10,
Wednesday, May 26th 2021, at 11:59 pm
Late submission incurs penalties of five (5) % of the assessment per calendar day unless Student Services of your campus have granted an extension and/or special consideration before the assessment deadline. Submission Guidelines All work must be submitted on Blackboard by the due date, along with a completed
The assignment must be in MS Word format, with no spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.

Reference sources must be cited in the text of the report and listed appropriately at the end in a reference list using Harvard referencing style.

Assignment Specifications for assignment help

Part A

The corporate disclosure practice will help all the stakeholders to understand and measure business operation. Annual financial statement and particularly income statement is one of the most important ones. However, a company's reported profits will be impacted by different factors, including when particular transactions and events are recognized and how such transactions and events are measured.

1) Using earning management concept, discuss why the timing of recognizing events that impact income, revenue or profit or expenses are important for managers?
"Maximum 1000 words."

Part B

ABC Ltd has incorporated a bonus plan that rewards the board of directors (executive members) by providing a bonus of 3 per cent of reported profits. This is an Accounting-based incentive that has the advantage which the accounting results may be based on subunit or divisional performance.
"A well-informed labour market will motivate management to work to maximize the value of its firm. Underperformance might lead to dismissal and, if the labour market is efficient in disseminating data, a 'failed' manager might have difficulty attracting a position with comparable pay elsewhere." (Deegan, 2020)


1) Using Positive Accounting Theory (PAT), discuss the bonus theme in general and why the bonus plan (Accounting-based) was put in place in ABC Ltd?
2) Explain whether the board of directors could be motivated to try to inflate reported profits.
3) Use the opportunistic perspective of PAT to explain the potential for managers to manipulate corporate disclosure.

"Maximum 2000 words."
Assignment Structure:
Assignment Cover page clearly stating your name(s) and student number(s)
Group's Assignment Task Allocation table (except for Solo group members)
Table of Content
Body of the assignment with appropriate section headings
List of references 




This report would be focused on the assessment of earning management concept using which the importance of recognizing the events that impacts revenue would be assessed. It would also discuss the bonus theme in general and why bonus plan was put in place in ABC ltd. It would further explain whether the board of directors could be motivated to inflate the reported profits. The opportunistic perspective of PAT would also be explained through this report. It would end with a conclusion summarizing the findings of the report.

Part A

Why the timing of recognising events that impact income, revenue or profit or expenses.

Earnings management is a technique used by businesses in order to produce a positive financial statement of business through assessment of financial position. Many accounting principles and rules requires the management to male decision based on the financial positioning of business. It takes advantage of the guidelines produced by businesses in order to create financial statement and inflate smooth earnings of the company (Rachmawati, 2019, pp.133-142(4)).

So, in accounting earnings management refers to the manipulation of financial statement in order to make it appear good in the eyes of investors. It is especially used by the companies in order to make the financial position appear smooth functioning. One of the most popular way to tamper the financial record is to use an accounting policy that creates short term earnings for the business.

Revenue recognition principle is an important part of the events management technique which helps in recording the timing in which the revenue of the company is generated and recognized in the financial statement of business. Theoretically, there are several times within a year in which revenue can be recognized. Technically, the earlier a revenue is recorded, the more valuable it is considered for the business (Aladwan, 2019, pp.691-707(2)).

In accounting, revenue recognition is one of the many areas that remains vulnerable to internal manipulation and bias. In fact, it has been estimated that many of accounting fraud taking place within the company arises from issues in revenue recognition, given the low amount of judgement involved in the process. Hence, it is critical for management to understand the different techniques of revenue recognition while analysing the financial statement. There are several criterions for recognizing the revenue of business some of which are as follows:

• There remains an inevitable risk of transfer an ownership reward
• The seller ultimately loses control from the managerial accounting of the sold
• The revenue amount can be effectively quantified
• The payment collection period is assured reasonably
• The incurred cost can be effectively measured (Hatane et al., pp. 196(5)).

Revenue recognition After and Before Delivery

In case of goods sales, IFRS does not allow the company to recognize the revenue until the delivery has taken place. It does allow to record the revenue after the delivery has taken place. There may be situation that makes it uncertain to determine the cost relating to future costs which in turn violates the fifth aspect of revenue recognition stated above.

For instance, if a company fails to project the future cost of the product, the above criteria would not be met. When the fifth criteria are satisfied, the company can effectively recognize the revenue. There are other reasons as well which requires the company to recognize the revenue after delivery. Once such reason includes the inability of company to reasonably estimate the amount of income and unassured collectability of accounts receivable and ownership risks with the sellers (Kaya, 2017, pp -140(2)).

Revenue Recognition for Service Provision

One is which needs special focus while determining the accounting treatment includes the contract of construction. These contracts are especially designed for asset construction or a combination of assets such as large ship and building that is usually used for several years to come. When the business is required to document revenue obtained from service, IFRS usually directs that the business must document in accordance with the rate of completion and the method of computing the completion method (Schroeder, Clark and Cathey, 2019, pp -230(7)).

Then contracts are usually of two times which are cost plus and fixed price contracts.

In case of fixed price contracts, the contractor usually agrees on paying the price before the actual beginning of construction activity. In this way, all risks are transferred to the contractor. On the other hand, in case of cost-plus contracts, the actual price depends on the hours being spent on completion of contract plus the margin of income. For businesses operating under ASPE, the completed contract method can also be used in the place. Unlike the method of completion, completed contract method would only be recognized when the contract actually is complete.

Further, the expense recognition period is another way using which the company can follow guidelines to record their financial items. As per the principle, the companies are only directly to document expense at the same time as the revenue. If this method is not followed, then expense would end up getting recognized when it is incurred which might end by being fore the actual recognition of revenue (Scott and Scott, 2015, pp -49(5)).

This principal also impacts the income tax timing. However, there are some expenses which are difficult to be related with the revenue some of which are rent, salaries and utilities. These rents are usually referred to as period cost and are generally recognized in the period in which they are incurred.

The method of expense recognition is a primary process in accrual basis of accounting which states that revenue can only be incurred when they are earned, and expenses are recognized when they are consumed. If a business practices recognizing expense during the period it pays to the supplier, then it is termed as cash basis of accounting.

So, how we can understand how the concept of timing is critical when it comes to recognizing the income and expenses. It provides a systematic approach which can be used by the business to record its financial items in the most accurate and systematic way thereby reducing the chances of incurring loss through operation and successfully gaining the confidence of the stakeholders on the performance of the business (Zhou, 2019, pp.115(2)).

Bart B

Positive Accounting Theory

PAT tries to make good prediction of real-world events and translate them into accounting transaction. While other accounting theory would usually direct as to what should be done, PAT tries to evaluate and predict those transactions. PAT helps in determining as to which accounting policy must be chosen by a firm and how would it react to the newly implemented accounting standards. The overall intention of PAT theory is to determine the impact of the accounting theory that has been implemented within the company and how it differs in every firm. It recognizes that economic consequences exist. Under this system, firms usually want to ensure that they survive for the longest period of time and can effectively create long term value in the process. Firms are often seen as a collection of contracts that they have gotten into. When it comes to PAT, because firms want to be highly efficient, they would always look out for ways to reduce cost while maximizing income in the process. Hence, in this target, they would always try to adopt an accounting policy that would help in cost minimization. PAT understands that with changing market circumstance, companies also need to be flexible with their accounting standard (Suleiman, 2017, pp.1-3(1)).

With this in mind, an optimal set of accounting theory lays between contract costs and providing flexibility in times of changing circumstances. There are currently three hypotheses of Positive accounting theory.
Bonus Plan Hypothesis: Managers of firms operating with bonus plan would usually try to shift their reported earnings from future period to the current period. By doing so, they can generate more bonus for themselves.
Debt Covenant Hypothesis: The closer a firm is to breaching the accounting base covenants of debt, the higher would be the chances of managers trying to shift the reported earnings from future to current period. This is due to the fact, that by increasing the current earnings, the company is less likely to violate the rule of covenants of debts and management can then minimize their constraints in running the company.

Political Hypothesis: The higher the cost faced by the firm, the more likely would be the manager in choosing an accounting process that would shift the earning revenue from current to future period. Further, high profitability can often lead to political conflict within the country, and which can lead to higher tax payments (Ward and James, 2015, p.143(2)).

Bonus is the pay that the company pays to its employees in addition to the base salary. This strategy is used by several organization as a way to acknowledge the hard work and dedication of the employees and their contribution to the company. It is also used to boost the morale of employees. When a company attaches bonus with the base pay of employee, it encourages them to work harder to reach its objectives and ensure that the business is taking all the right action in order to reach objectives and take the company to new heights of success. There are several benefits of paying bonus to the employee some of which are as follows:

• Boosting morale of employees
• Making the workforce reach objectives within a specified deadline.
• Enabling the company to increase their chances of generating higher revenue
• Reducing staff turnover rate (Roden, Cox and Kim, 2016, pp.80 (3)).
• Ensuring maximum work satisfaction.

As can be noted from the task case study in the assignment, ABC limited has adopted a bonus strategy as per which all the board of directors would be paid within 3% of the reported profit.

The general question that should arise here is whether a bonus plan is really that effective in encouraging the employees to work hard within the company. The straight answer to this question would be when the company makes the right investment strategy, it automatically leads to healthy working environment, which in turn enables the firm to generate higher income for the future. Recent studies have shown that companies working with bonus has higher chances of success compared to those without any effective bonus plan in place (Ausloos, Cerqueti and Mir, 2017, pp.238(6)).

So, based on these assumptions, ABC ltd have adopted the strategy in order to ensure that the directors are working productively and are able to generate significant wealth over time which can be utilized by the company in order to expand brand image and ensure that the company is following a strict protocol. In order to understand the efficiency of a bonus system it is critical that the business is able to compare the performance of the firm with the time it did not have any effective bonus strategy in place.
There are several advantages of having a bonus plan in place and hence ABC ltd is encourage to utilize the strategy in the upcoming years as well (Lin, 2016, p.1253(1)).

Can Board of Director inflate the Revenue

Earning manipulation is easy when directors hold too much power over the business. In order to increase bonus payment, directors would want to inflate the net income of the business. Additionally, the net income would also be boosted when they want to attract higher stakeholders within the business. These inflated earnings would make the business look more profitable while in reality the picture would be much different. First, let’s analyses the ways in which board can inflate the earnings of business:

• Accruing fictitious income from year-to-year income.

• Documenting the sales of the products that have not been shipped.

• Selling the product at inflated price to related parties

• Documenting the revenue in present year that would be generated in the next year.

• Documenting shipments to resellers that are not profitable and hence not a viable income option.

• Accruing projected sales that have not really taken place (Shakeel and Srivastava., pp.110(2)0.

• Intentionally tampering with allowance of receivables.

In an attempt to boost the bonus, pay, board of director can take several measures including:

• Playing around with Expenses: Board would deliberately try to high the expenses in order to inflate the income of the business or

• When they record the expenses in the income statement, they would try to convince to the readers, that even though they have incurred expense, but it would not impact the overall profit of business (Yisha, 2020, pp.125 (8)).

• There are often instances where the board of director have shown profit in the business when they are actually incurring huge amount of loss. In some cases, companies reflect profit when they are generating no profit. In some cases, investors have shown profit on investment even when investors cannot make any sense of that profit. In some cases, companies reflected profit in P/L but were able to convince that even when there are losses, the income statement does not get affected.

• In some cases, directors have also chosen the way of reflecting loss at the last resort when there is no option left.

• They can also not spend on areas that needs immediate attention in order to preserve the capital and inflate the performance of business in return.

• They also change accounting profit whenever necessary in order to inflate the income of business (Sa Vinhas and Heide, 2015, pp.165(2)).

The directors cannot inflate the profit of business in order to suit their best interest and ensure that the company is generating significant amount of profit. Directors can manipulate the data only when they have their best interest in mind and when they hold significant decision-making power over the business. Additionally, the income of the business cannot be manipulated by directors unless stated by the owner of the company or when it is done in the best interest of the company. If under any circumstance, the business fails to identify the manipulation taking place within the organization, it would then have to take legal action against such practices

This is a major disadvantage of having bonus attached to the business. The business would also need to ensure that the company is free from such practices in order to generate maximum benefit and produce reliable result which can be used to generate wealth overtime. The company would also need to understand how these manipulations can harm the brand value in the long run. So, even though bonus is a great way to improve efficiency, it can also result in increased manipulation of data in order to get higher bonus and in turn the directors would try to show inflated profit in the financial statement even in reality the performance is much different. Hence, directors are never given the power to change the statement of the financial statement and work in their best interest (Coutinho, Sancovschi and dos Santos, 2019, pp.250-381(3)).

Use the opportunistic perspective of PAT

The opportunities perspective suggests that when a manager works for a business, he would always have his best interest in mind and would therefore try to manipulate data in a way that would increase his gain in the process. They only adopt accounting policies that allow them to maximize their gains when the firm also gains. There are different types of hypothesis in existence such as bonus plan, political cots and debt hypothesis that show motives makes manager choose an accounting method over another (Yisha, 2020, pp.271(5)).

There are several ways in which the manager can manipulate the data of business. One major reason that leads to manipulation is the increased conflict between the accounting firm and the audit them. Manipulation would always involve steps that would make the manager takes steps that would go against the wish of the company. This in turn would impact the brand value and in turn would also make the company vulnerable to market risk.

Discussed below are some ways in which the accounting data is manipulated by managers to suit their best interest.

• Recording the revenue before suppling the goods and services to the customers.

• Reporting income from investment while using that income to cover for the loan.

• Capitalizing the business expenses, thus shifting them from income statement to the balance sheet (Rachmawati, 2019, pp.133-142(1)).

• Inaccurately reporting the liability or neglecting them all together.

Most common way of manipulating the data is by inflating the value of asset with false count. For instance, a company may have ordinary account of inventory but add 100 items to each count. Hence, investors are advised to cushion themselves from such fraudulence activity and would protect the company from bias. The best way to protect against such manipulation would be to obtain effective financial education. The investors must understand how to read and interpret three aspects of financial statement including income statement, cash flow statement and balance sheet of the company. The company would also need to continue using the company to come up with effective strategy that would prevent its employees from manipulating the data and ensuring that the business is always moving forward in the right direction. Also, it is critical to understand that managers would commit to suit their best interest in the company and would only be productive if only it has some selfish motive attached with it. It would also ensure that the company would be using the company’s financial report in order to come up with the most reliable report which can be used to make investment decision (Aladwan, 2019, pp.691-707(2)).

Financial statement can never be fully protected from manipulation and hence there are effective legal action in place to effectively punish the companies taking part in such practices and putting the reputation of brand at stakes. The company would also need to understand that the manipulation of financial statement is an inevitable part of financial statement and hence the owners need to be more more careful while making decision. This is a major reason why companies choose to get their financial statement prepared by third party auditors who do not only ensure lowest possible error but also increases the reliability on the operations (Hatane et al., pp. 197(3)).


To conclude, earning management is a tool which companies uses to manipulate the data of company to make it look more appealing to the investors. The investors become victim of false information and can incur huge loss as the managers of business work on their best interest and thinking about shareholder’s wealth maximization becomes their last priority. Further, the bonus hypnosis indicates that the managers would always try to shift future revenue to current period in order to generate higher revenue.


Aladwan, M., (2019). Accrual Based and Real Earning Management Association with Dividends Policy “The Case of Jordan”. Italian Journal of Pure and Applied Mathematics, pp.691-707.

Ausloos, M., Cerqueti, R. and Mir, T.A., (2017). Data science for assessing possible tax income manipulation: The case of Italy. Chaos, Solitons & Fractals, 104, pp.238-256.

Coutinho, A.H., Sancovschi, M. and dos Santos, A.G.C., 2019. The opportunistic approach of the Positive Accounting Theory (PAT) fails to explain choices made at OGX: An anomalous situation? Revista de Contabilidade e Organizações, 13, pp. e164412-e164412.

Hatane, S.E., Pranoto, A.N., Tarigan, J., Susilo, J.A. and Christianto, A.J., (2021). The CSR Performance and Earning Management Practice on the Market Value of Conventional Banks in Indonesia. In Global Challenges and Strategic Disruptors in Asian Businesses and Economies (pp. 196-213). IGI Global.

Kaya, ?., (2017). Accounting choices in corporate financial reporting: A literature review of positive accounting theory. Accounting and Corporate Reporting-Today and Tomorrow.
Lin, T.C., (2016). The new market manipulation. Emory LJ, 66, p.1253.

Rachmawati, S., 2019. Company Size Moderates the Effect of Real Earning Management and Accrual Earning Management on Value Relevance. Ethics: Journal of Economics, 18(1), pp.133-142.

Roden, D.M., Cox, S.R. and Kim, J.Y., (2016). The fraud triangle as a predictor of corporate fraud. Academy of Accounting and Financial Studies Journal, 20(1), p.80.

Sa Vinhas, A. and Heide, J.B., (2015). Forms of competition and outcomes in dual distribution channels: The distributor’s perspective. Marketing Science, 34(1), pp.160-175.

Schroeder, R.G., Clark, M.W. and Cathey, J.M., (2019). Financial accounting theory and analysis: text and cases. John Wiley & Sons.

Scott, W.R. and Scott, W.R., (2015). Financial accounting theory. Pearson Canada Inc.

Shakeel, M. and Srivastava, B., A Study on High-Frequency Financial Data Manipulation and Visualisation.

Suleiman, S., (2017). Debt Contracting and Conditional Accounting Conservatism. International Journal of Accounting Research, 5(1), pp.1-3.

Ward, T.J. and James, K.L., (2015). Student participation and performance in a graduate accounting theory class. Academy of Educational Leadership Journal, 19(2), p.143.

Yisha, M., 2020. Analysis on Efficiency and Opportunistic Perspective under the Pat. The Frontiers of Society, Science and Technology, 2(17).

Zhou, Y., 2019. A Concept Tree of Accounting Theory:(Re) Design for the Curriculum Development. Education Sciences, 9(2), p.111.

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Case Study

STAT6003 Statistics for Financial Decisions Assignment Sample

Task 1:

Selecting your Random Sample and Creating your Sample Data File ( 8 Marks)

In order to select the sample data that will form the basis of your assignment you will need to make use of the random number table provided with this assignment help. The provided table of random numbers is, as the title suggests, a sequence of randomly generated numerical digits (0 to 9). These digits are arranged in a table with one hundred rows numbered 01 to 00 and twenty columns spread over two pages. The entries in each column of each row consist of five single digits.

The property data from which you will select your sample data consists of 400 IDs each with an identifying property number (PN) ranging from 1 (or 001) to 400.

Your first task is to select 50 three digit random (property) numbers ranging from 001 to 400 from the provided table of random numbers. We will ask you to select 50 numbers, to begin with, just to cover the distinct possibility that you may select the same three digit number more than once. The type of simple random sampling that we will be engaged in here is termed “without replacement” because we specifically do not want to allow a property identification number to be selected more than once.

In order to select your 50 random property identification numbers you will need to first go to a starting position row and column in the random number table. Defined by the last three digits of your Torrens University student identification number. The last two digits of your Torrens ID number identifies the row and the third last digit identifies the column of your (relatively) “unique” starting position. For the demonstration last three digits of 312, reading across row 12 from left to right starting at column 3 as instructed, you would encounter the following three digit numbers; 293 313 381 349 656 985 295

You need to record these first three acceptable ID numbers, 293, 313, 381 and 349 into the first column of an Excel spread-sheet and then continue this process until fifty valid three-digit personal identification numbers selected.

Task 2:

1. Provide the complete summary statistics for Market Price ($000) and Age of house (years). (5 Marks)

2. Describe the shape of the distributions for Market Price ($000) and Age of house (years). (5 Marks)

3. Test whether the population’s average Market Price ($000) is different from 777. (5 Marks)

4. Construct a 95% confidence interval for the Market Price ($000), also Interpret the confidence interval. (4 Marks)

5. Provide an introduction section on the rationale of your model , sample size, and the dependent and independent variables (including their unit of measurement) in this model. (4 Marks)

6. Plotthe dependent variable against each independent variable using scatter plot/dotfunction in Excel. Examine these scatter plots and correctly assess the strength and the nature of the
relationship between the dependent and the independent variables? (6 Marks)

7. Present the multiple regression model with complete regression summary output in your assignment. (6 Marks)

8. Provide the simple linear regression data analysis for the market price as the response variable and the Land size in Square meters as the explanatory variable. Write down the least square regression equation and correctly interpret the equation. (6 Marks)

9. Write a clear interpretation of the slope of the regression line from question 8. You must refer to the variables of interest. (4 Marks)

10. What is the value of the coefficient of determination for the relationship between the dependent and independent variable from question 8. Interpret this value accurately and ina meaningful way. (4 Marks)

11. State the 95% confidence interval for the slope coefficient and interpret this interval from question 8. (5 Marks)

12. Compare the multiple regression model (question 7) and simple linear regression model (question 8) and evaluate the goodness of fit between these two modelling techniques.(8 Marks)

13. Predict the market price of a house (in $) with a building area of 300 square meters. Explain why your answer is valid.(4 Marks)

14. By performing an appropriate hypothesis test what decision and conclusion would you draw about the hypothesis that the Land size in Square meters useful in predicting the market price of a house (in $)? Use the data provided to justify your answer, as appropriate.When answering this research question. (8 Marks)

15. For statistical analysis involving hypothesis testing in this assignment, you are required to:
• Formulate the null and alternative hypotheses for full model.
• State your statistical decision using significant value (α) of 5% for this test.
• State your conclusion in this context.


Summary statistics is used to summarise data and get information from it. The summary statistics table comprises the values of central tendency which are obtained in the form of mean, median and mode along with measures of dispersion is obtained in the form of standard deviation and sample variance. In addition to this, distribution of data can be understood by calculating skewness, kurtosis and range (Cooksey 2020). Hence, from this table one can understand where the mean lies and how data is distributed around the mean value. The summary statistics of market price ($000) is shown in table 1. Similarly, the summary statistics of age of house that is measured in years is shown in table 2.

Table 1: Summary Statistics of Market Price ($000):

From the table, it is observed that average market price is $772.19 (‘000). Moreover, the standard deviation is 70.61 which implies that market prices of houses do not deviate largely from the mean value. The minimum market price of house in the collected sample file is $599.39 (‘000). Moreover, the maximum market price of house in the collected sample file is $ 892.71(‘000).

Table 2: Summary Statistics of Age of house (years)

From the table, it is observed that average age of house is 18.63 years. Moreover, the standard deviation is 12.03 which implies that age of houses deviates largely from the mean value. The minimum age of house in the collected sample file is 0.5 year. Moreover, the maximum age of house in the collected sample file is 53.12 years.


In statistics, skewness measures how a data set is distributed. A data set can be either symmetric or symmetric in nature. The main reason of measuring skewness is that it informs whether ata has larger extreme values or lower extreme values. As per the “Rule of Thumbs”, the skewness varies between -0.5 to 0.5 is known as symmetrical (Orcan 2020). The skewness of Market Price ($000) is -0.46 which lies within the boundary. Hence, it indicates that the distributions for this variable is almost symmetric. The shape of the distribution is also called a bimodal distribution.

On the other side, the skewness of Age of house (years) is 0.67 which lies between 0.5 and 1. Hence, it indicates that the distribution of data is moderately skewed towards the right direction. In other words, the distribution is positively skewed where mean value is higher than median.
The distributions of Market Price ($000) data as well as the same for Age of house (years) are demonstrated below by histograms.


Figure 1: Distribution of Market Price ($000)

Figure 2: Distribution of Age of house (years)


To understand if the average Market Price ($’000) of target population differs from 777 or not, one sample t-test (two-tailed) is conducted. Here, n is 50. However, population standard deviation is unknown. Hence, z-test cannot be applied.

Here, average Market Price ($ ‘000) is µ

Therefore, the null hypothesis is:

H0: the average Market Price ($’000) of the population is equal to 777
µ = 777
The alternative hypothesis is:
H1: the average Market Price ($’000) of target population is different from 777
µ ≠ 777
The outcome obtained from MS Excel is:

Table 3: One sample t-test (two-tailed test)

Here, the t statistics is 77.32 which is higher than t Critical two-tail value, which is 2. Hence, here, the null hypothesis is rejected. Moreover, the P-value in two-tail test is 0.00 which is less than 0.05 at 5% significance level (Xu et al. 2017). Hence, again the null-hypothesis is rejected. Thus, it implies that average Market Price ($’000) of the target population is not equal to 777.


As per the outcome obtained from Excel, the value of Confidence Level at 95% is 20.07
Thus, the lower interval is (mean – confidence level) = 752.12
the upper interval is (mean + confidence level) = 792.26
Here, confidence interval represents actual upper and lower values. It implies that the 95% of the time, the researcher can expect that the real mean will fall between 752.12 and 792.26.


The model of regression analysis is selected to forecast the dependent variable by independent variable(s). The regression model is categorised depending on the number of independent variables. Hence, to determine dependent variable with one independent variable, linear regression model is applied. Moreover, to determine dependent variable with more than one independent variable, multiple regression model is applied (Montgomery, Peck and Vining 2021). The sample size in this study is 50, which are selected by applying simple random sampling technique without replacement. The four variables are market price ($000), Sydney price Index, total number of square meters and age of house (years). In regression model, market price ($000) is considered as dependent variable while others are considered as independent variables. The scatter plots are also made to measure the strength of association between independent and dependent variable.


A scatter plot is a form of statistical diagram that shows values for two variables and measure a relationship between them. Hence, this plot is used to show the relationship visually to understand the strength type of the relationship between these two variables. In general, this plot is of 3 types, which are positive, negative and no correlation (Akoglu 2018). The relationship of the dependent variable with each independent variable is shown by scatter plots.

Figure 3: Scatter Plot Diagram between Sydney Price Index and Market Price ($000)

Figure 3 represents a scatter plot diagram to show relationship between independent variable Sydney Price Index and dependent variable Market Price ($000). From the figure, it is seen that these two variables do not have any relationship with each other. In other words, the diagram indicates that Sydney Price Index does not relate with Market Price ($000). Hence, variation in Sydney Price Index cannot tend the Market price to variation in same or opposite direction specifically.

Figure 4: Scatter Plot Diagram between Total number of square meters and Market Price ($000)

Figure 4 represents a scatter plot diagram to show relationship between independent variable Total number of square meters and dependent variable Market Price ($000). From the figure, it is seen that these two variables have strong and positive correlation. In other words, the diagram indicates that there if Sydney Price Index increases, Market Price ($000) price also increases and vice versa.

Figure 5: Scatter Plot Diagram between Age of house (years) and Market Price ($000)

Figure 5 represents a scatter plot diagram to show relationship between independent variable Age of house (years) and dependent variable Market Price ($000). From the figure, it is seen that these two variables do not have any relationship with each other. In other words, the diagram indicates that there is no relationship between Age of house (years) and Market Price ($000). Hence, age of house cannot tend the Market price to change in same or opposite direction specifically.


The following table represents summary outcome of multiple regression model:

Table 4: Calculation of Multiple Regression

From table 4, the following equation of multiple regression is obtained:
Market Price ($000) = 406.38 + 0.02 Sydney Price Index + 1.75 Total number of square meters + 0.1 Age of house (years)

In this equation, 406.38 is the intercept of regression equation. Moreover, 0.02, 1.75 and 0.1 are beta coefficients. Beta coefficient of an independent variable implies the magnitude of change in the dependent variable when this independent variable changes by 1 unit.

If Sydney price index increases by 1%, the market price of houses will increase by $ 0.02 (‘000). If total number of land size increases by 1,75 square meters, then market price of house will increase by $1.75 (‘000). If age of houses increases by 1year, then market price of that house will increase by $0.1 (‘000). Hence, from the equation, it is seen that each independent variable has positive influence on the market price of house.


Table 5: Calculation of Simple Linear Regression

The obtained Simple linear regression equation is:
Market Price ($000) = 410.42 + 1.75 total number of square meters
According to the above equation, market price of a house can be high even if land size in square meters of the house is unavailable.


From the multiple regression equation of question 8, the slopes are described below.
The slope of the regression line is the beta coefficient of total number of square meters. It implies that if land size increases by 1 square meters, the market price will increase by $1.75 (‘000).


The value of R-square is 0.99 which means independent variable can define 99% of variation of the dependent variable.


At 95% confidence interval, the slope coefficients are: lower limit: 1.712 and upper limit: 1.789. For intercept, the lower limit is 402.392 and upper limit is 418.456.


The value of R-square in question 7 is 0.99 while that in question 8 is 0.9 as well. Hence, it is observed that the value of R-square in both models are almost equal to 1. Moreover, the value of the coefficient of determination or adjusted R-square for the association between dependent and autonomous variables is 0.99 as per table 4. It implies that independent variables can predict almost 99% of variation of the dependent variable. Hence, it indicates a strong and positive correlation between dependent and independent variables.
Hence, models fit the data perfectly.


From simple linear regression equation, obtained in question 8, the market price of house (in $) can be obtained when a building is given as 300 square meters.

Market Price ($) = 410.42 + 1.75 * 300
Market Price ($) = 410.42 + 525
Market Price ($) = 935.42

Here, the answer is valid as the obtained relationship is statistically significant as significance F value of the equation is 0.00 at 5% significant level and hence it is less than 0.05.


The null hypothesis states no association between market price and land size which is measured in terms of square meters:

H0: b1 ≠ 0

The alternative hypothesis states an association between market price and land size which is measured in terms of square meters:

H1: b1 = 0

The hypothesis is tested at 95% significant level when α = 0.05

At 5% significant level, p-value is 0.00, which is lower than 0.05. Hence it implies that the alternative hypothesis is true and the equation is statistically significant. In other words, it can be said that there is a positive linear relationship between market price ($000) and land size in square meters.


The full model is the multiple regression model.

In this model, the null hypothesis is:

H0: Each independent variable is statistically insignificant

The alternative hypothesis is:

H1: At least one of the autonomous variables is statistically significant

The hypothesis is tested at 95% significant level when α = 0.05

In table 4, the p-value for Sydney price index and age of house (years) are 0.48 and 0.14 which are greater than 0.05 at 95% confidence interval. This means the null hypothesis is true which means these two autonomous variables are not important in explaining market price of the houses in thousand dollars.

On the other side, the p-value for total number of square meters and age if house (years) is 0.00 which is less than 0.05 at 95% confidence interval. This means the null hypothesis is rejected as the independent variable is significant in measuring and predicting market price of the houses in thousand dollars.

Moreover, the significance F is 0.00 which is less than 0.05 at 5% significant level. It accepts the alternative hypothesis that at least one of the autonomous variables is significant.

In conclusion, it can be said that market price of houses can be determined properly by land size of houses in square meters. On the contrary, Sydney price index and age of house (years) cannot measure market price of houses correctly. Thus, to determine market price of house, it is better to consider land size of it in terms of square meters. The significant relationship between autonomous variable and dependent variable is understood by the linear regression model. The P-value is used to determine whether the relationship is significant or not.


Akoglu, H., 2018. User's guide to correlation coefficients. Turkish journal of emergency medicine, 18(3), pp.91-93.

Cooksey, R.W., 2020. Descriptive Statistics for Summarising Data. In Illustrating Statistical Procedures: Finding Meaning in Quantitative Data (pp. 61-139). Springer, Singapore.

Montgomery, D.C., Peck, E.A. and Vining, G.G., 2021. Introduction to linear regression analysis. John Wiley & Sons.

Orcan, F., 2020. Parametric or non-parametric: Skewness to test normality for mean comparison. International Journal of Assessment Tools in Education, 7(2), pp.255-265.

Xu, M., Fralick, D., Zheng, J.Z., Wang, B., Tu, X.M. and Feng, C., 2017. The differences and similarities between two-sample t-test and paired t-test. Shanghai archives of psychiatry, 29(3), p.184.

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HI5017 Managerial Accounting Assignment Sample

Assignment Brief

Purpose of the assessment (with ULO Mapping)

Students are required to develop their understanding of the types of management accounting information that assists managers in organizational planning and control purposes. You are to critically evaluate the literature (using journal articles) to analyses the practical use of management accounting information by contemporary organizations, and their relevance to decision- making by managers and achievement of business goals. (ULO 1 & 4)

Weight - 30% of the total assessments
Total Marks - 30

Word limit Not more than 3,000 words. Please use "word count" and include it in the assignment.

Adapted Harvard Referencing

Submission Guidelines for assignment help

• All work must be submitted on Blackboard by the due date, along with a completed Assignment Cover Page.

• The assignment must be in MS Word format, with no spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.

• Reference sources must be cited in the assignment's text and listed appropriately at the end in a reference list using Adapted Harvard referencing style.

• It is the student's responsibility to submit the work to ensure that the work is her/his work. Incorporating another's work or ideas into one's work without appropriate acknowledgement is an academic offence. Students should submit all assignments for plagiarism checking on Blackboard before final submission in the subject. For further details, please refer to the Unit Outline and Student Handbook. 

Individual Assignment Specifications

Assignment Task: You are required to conduct a literature search for this assignment, cite your source(s) and provide a full reference list (as per the Holmes Adapted Harvard Referencing guidelines on pg. 1-2).

Part A (15 marks)

Management Accountants are seen as the "value-creators" amongst the accountants. They are much more interested in forward looking and taking decisions that will affect the future of the organization, than in the historical recording and compliance (scorekeeping) aspects of the profession (Institute of Certified Management Accountants, 2017).

a) Discuss the pros and cons of the above statement. (4 marks)
b) Explain the relevance of the value chain concept to management accountants today. (3 marks)
c) Assume you are the management accountant of BHP Group, a leading mining company in Australia. Provide examples of how you can create value for the company to support the manager make:

i) strategic decisions (2 examples); and
ii) operational decisions (2 examples). (8 marks)

"Maximum 1500 words."

Part B (12 marks)

a) What distinguishes the successful implementations of ABC costing method from those that have not succeeded? Include real-life examples from the literature to support your answer. (10 marks)

b) Based on your literature findings in (a), state two key lessons that stood out for you, about the ABC costing method as a planning and decision-making tool that would benefit contemporary organizations. (2 marks) "Maximum 1500 words."

Assignment Structure:

The assignment should include the following components:

a. Assignment cover page clearly stating your name and student number
b. Abstract (one paragraph)
c. Table of contents
d. A brief introduction or overview of what the assignment is about.
e. Body of the assignment with appropriate section headings
f. Conclusion
g. List of References (follow the Holmes Adapted Harvard Referencing guidelines.



Present study is based on management accounting information that helps managers in taking planning and controlling decisions. It contained critical analysis of the practical application of management accounting information by the modern organizations, and their significance in decision making and achievement of business objectives. Apart from this, discussion of the ABC costing method is also given and how it uses as a planning and decision-making technique that provide benefit to the company.


Part A

Answer a)

According to the Institute of Certified Management Accountants, management accountants are considered as value creators amongst the accountant as they are significantly involved in forward looking and taking decision that create impact on the future performance of company as compared to the historical recording and compliance elements of the company. Considering this, pros and cons of above statement are as follows –

Pros of management accountants:

Better decision making: Management accountant provide support in effective decision making for entities. It is because, they help in supplying of all information in the form of tables, forecasting, and charts, which leads towards detailed analysis and better decision making. Additionally, management accountants also apply scientific tools and techniques for evaluation of performance of business and consequently identify deviations and issues. In order to remove such deviations and issues, management accountants take actions accordingly (Mahdavikhou, 2018, p. 245(2)). Therefore, it can be said that, primary aim of management accountants is to mend the overall efficiency of the organization.

Enhancement in performance: Management accountant helps in increasing the profitability of the organization. It is because; they are mainly involved in taking decisions that affects future performance of the organization. They give emphasis on reduction in extra expenses of business activities by application of capital budgeting analysis and budgetary control measures (Ibrahim, El Sibai, and El Din, 2021, p. 53(1)). It enables the organizations to decrease cost of production and generate better returns.

Cons of management accountants:

Lack of specific process: It should be noted that, management accountant does not comply with any particular rules and regulations. Therefore, in the absence of any norms, they may provide inaccurate information.

Dependency: In this aspect, management accountant mainly obtains information from the financial and cost accounting for numerous data. Therefore, the reliability of the information offered by management accountants are primarily depends on the accuracy of records maintained through cost and financial accounting (Omar Fikrat, and Ozyapici, 2019, p. 82(3)). additionally, management accountants provides information and planning for the future activities of the company, as there is no certainty that in the future period activities may take place as per management accountant’s opinion and due to this, they may not provide effective outcomes.

Answer b)

Value chain analysis is a business model that explains the whole extent of activities required to create goods or services. For entities that are engaged in manufacturing of goods, value chain activities are comprised with bringing goods from conception to distribution, as well as each and every element in between like producing raw material, marketing, manufacturing activities. It should be noted that, value chain plays important role for the management accountants as it provides a number of important information like it helps in understanding of points in the value chain and connection between distinct points. By conducting value chain analysis, management accountant could identify elements that build or hinder cost efficiency in the business activities (Brouard et al. 2017, p. 235(1)). In addition to this, in the present environment, there is significant competition in the industries in the context of unbeatable prices, unique goods, and consumer loyalty; therefore it is essential for the management accountant to evaluate the value they build by which competitive advantages can be obtained. In this aspect, value chain analysis provide support to management accountant to discern areas of its organization that are unproductive, and consequently implement strategies and planning that would leads towards optimization of its process for maximum profitability and efficiency as well. The same aspect can be observed in the Nestle Cocoa Plan, in which company has implemented value chain analysis for identification of the areas of significant opportunity for joint value optimization with community, which helps the company to obtain competitive benefits (Value chain analysis, 2013).

On the basis of this, it can be said that, value chain analysis provides significant information to the management accountant and it is highly relevant as it supports in enhancement in business efficiency by which companies could offer the maximum value for the probable cost.

Answer c)

i) Role of management accountant of BHP Group for creation of value for the company to help managers make strategic decision

Management accountants involved in taking management decision, arrangement of plans to performance management system, and offering expertise in financial controlling and reporting for creation and implementation of the organizational strategies. Notably, management accountants observe at a number of aspects that occur within and in relation to business at the time of taking into account the requirements of business (Egan, and Tweedie, 2018, p. 1750(2)). After the completion of data and estimation surface, such estimates and data bring by cost accountant into knowledge that ultimately applied as guidelines of the decision making. In addition to this, in the managerial accounting, collected information is used by the management accountants to obtain better understanding of information prior any decisions are implemented within organization. Subsequent to the formulation of strategies and planning, the main task of management accountant is to confirm that all plans are implemented as per pre-determined strategies and in case of any requirement, such plans should be modified. It is regarded as one of the most critical task of management. It can be said that, managerial accountant engaged in offering essential information to the entities by the manner of offering decision assessment for the near term, application of appropriate combination of product, ascertainment of make or buy decision, termination of products, and many more (Christoph, and Rouven, 2020, p. 322(2)). For example, management accountant could provide support in that five forces analysis model should be related to the strategies of company and does not get out of the track. They could audit the accessibility and use of data within the risk management activities of the company. They could also approve that; there should be involvement of resources of risk mitigation. Furthermore, management accountant by the provision of financial analysis helps in strategies decision making (Mack, and Goretzki, 2017, p. 325(2)). For example, management accountant help is strategies risk management process for identification, assessment, and management of risk and uncertainties that can inhibit the ability of company to reach its strategic objectives. By considering the enhanced expectations of shareholders of BHP, regulators, and other stakeholders, strategic risk management could prove to be one of the essential aspect for creation and protection of value. By all such aspects, it can be said that, management accountant can create value by providing support in strategic decision in effective manner.

ii) Role of management accountant of BHP Group for creation of value for the company to help managers make operational decision

Operational decisions are those which are made for short term process in order to accomplish the task of strategic decisions or long term process. Management accountant of the company helps in directing and controlling the process which results in the transformation of final product. There are various decisions under this operational activity such as decision regarding to the inventory, sales management, employment management, customer engagement and logistic decisions. These all decisions are narrow in nature as they are made weekly or daily basis in order to accomplish the task planned under strategic management process (Dada, 2018). Management accountants are usually engaged in relevant cost analysis for ascertainment of the existing expenses as well as provide advice for the future activities. For example, the motive of the company is to increase its profitability by making increment in the sales, then in such case, management accountant can provide suggestion of 30% of discount in the form of barcodes, promo codes, online coupons which could be used by the customer on shops as well as while online shopping, and the customer could use these coupons several times for a specific period. From this there would be an increase demand the product on sale for that certain period of time, so the purpose of increasing sale for short term period could be fulfilled. Along with this, management accountants use operational information to build sense of the situations rapidly (Pasch, 2019, p. 214(2)). For example, they could apply budgetary techniques to take short term operational decisions. The role of management accountant in this is to evaluate earlier activities and avail opportunities for the further activities.

Overall, it can be said that, data precision as well as accuracy plays significant role in the success of companies. Without any informative data, it becomes very typical to analyse the present state of affairs or planning for future business. In such type of situation, role of management accountant is vital as it helps in taking operational decisions, which is intended to increment in the operational efficiency of company.

Part B

Answer a)

Activity-based-costing method could be used to determine or examine various aspects of the organizational activities such as it explain the profit margins clearly of those activity whose profitability cannot be easily determined, to examine the costing system of unrealistically levels of pricing, low prices offerings from the suppliers etc.

Benefits of the successful implementations of ABC costing method to the entities from those that have not succeeded in its implementation are:

Improvement in performance: ABC method helps for improvement in the productivity, efficiency and the overall performance of the organization by providing them accurate cost information. It helps the firm to eliminate the unnecessary cost from the production and also helps in the implementation of various performance improvement techniques which are to be applied by the organization such as TQM (total quality management), Business process reengineering (BPR), lean methodology. ABC method provide management with the expenditures of each activity and helps to compare it with their value addition, the activity which exceeds its expenditure firm its value that must be eliminated immediately by the firms to reduce their unnecessary cost and increase their efficiency by focusing on the activity which are more profitable instead of the activities whose value addition is less than its expenditure. Other costing methods only believes in following the accounting rules and regulation based on traditional practices, they do not help in the reduction of the unnecessary cost but only ABC methods helps the firm to reduce its cost or eliminate the unnecessary one (Balstad, and Berg, 2020, p. 378(1)).

Downsizing and cost management: ABC method clearly define each and every activity which further helps in making a right decision that which activity is to be eliminated or on which activity one must focus the most or it can be said that it helps management to identify the most profitable and least profitable activity of the firm. If the company is not satisfied with its financial position it must follow this method to clearly identify the weakness and the available opportunities where it could reduce the cost of activity and improve the overall financial position of the firm in the market (Lepistö, and Eeva 2018, p. 108(3)). At last it can be said that, this method provides useful information about the cost of every activity and helps in making a right decision or can say a productive decision. However the traditional costing method or other costing methods focuses more on the volume information that is volume of production instead of identifying the highly productive activity based on its cost which must be focused more (Adams, and Larrinaga, 2019, p. 2385(1)).

Clear allocation of various costs: ABC method helps an organisation with the identification of various cost other than manufacturing cost, as now the non- manufacturing cost cannot be neglected anymore they too play a crucial role in the determination of pricing process of a product such as advertisement cost, marketing cost etc. These costs could be quickly identified by this method, which means through this method management can clearly classify the various costs incurred by the company while performing the activity and through that they can easily determine the cost of final product or service (Tarzibashi, and Ozyapici, 2019, p. 85(1)). But the other costing methods which are volume based does not helps to identify these costs and also could not be applied on the firm which is non-volume based, whereas the ABC method could be applied in any type of the organisation.

Pricing of the product and services: It provides relevant information of the cost of the product furthermore identifies and helps in implementation of effective pricing policy. Additionally, it also helps the organisation to achieve its desired profit goals stated at the planning level by setting an appropriate pricing for the product and services (Jansen, 2018, p. 1505(3)). While the other methods like traditional costing methods does not provide such information in their analyse process they only identifies the cost for the volume of production and rest of the key pointers are ignored which in turn causes difficulty for the firm to identify where they are losing their profit or where they could achieve some more.

Make or buy decision: This is the decision under which the company has to decide whether it will conduct the activity itself or hired some other agency which is subcontractors to perform the activity. The decision of giving the activity to subcontractor depends on the cost incurred; if the cost incurred by the firm is more than that of subcontractor then the company should get the activity done by them and vice versa. But under other costing methods, they do not allow to the company to let the activity done by some outsiders, it performs all of its activity on their own, even if the cost incurred by them is high, which results in the high cost generation by the firm (Jeong, 2016, p. 1638(1)).

Transfer pricing: There are various departments in an organisation so when the activity of department A is completed it transfers it to the department B. As ABC method provide is with the information of the cost incurred by every activity in the organisation, so this helps us to determine the performance of both the departments by providing relevant information of the cost of each activity performed by them individually and collectively (Christoph, and Rouven, 2020, p. 328(1)). While the other costing methods does not provide the deep analysis of each department rather it focuses on the overall cost incurred by the firm to produce the product or service at the end of the process when the finished goods are ready.

Distribution channel: ABC costing is a significant competitive advantage of even analyzing the most appropriate and profitable distribution channel for company which is to be selected. The ABC costing methods determines the cost incurred by each distributing channel, and the performance of these alternative channels. Through this the firm could easily analyse its most profitable channel which incurred the less cost and perform better in the market. While the other methods do not provide you these analyses for the distribution channels (Patten, and Shin, 2019, p. 28(2)).

NESTLE is real life example for the above literature which implemented the ABC costing method. Nestle deals with two types of product that are custom products and standard product. It more focuses on the production of standard product as compare to the custom product. ABC helps nestle to assign its overhead activity cost of the firm to the product it produces or delivers (Smyth, 2019). According to nestle the ABC method is much better than the traditional costing method as it focus more on the relation between the product and its cost and overhead activities. Another example is COCA COLA which uses the ABC method. Coca- Cola deals in various product lines and involves the usage of huge amount of inventory. In order to keep a check on its each and every operation and to determine its speciality or it can be said that the most profitable sector, the company decided to use this method of costing (Real life example for ABC method 2019).

Answer b)

Activity based costing method helps an organisation to reduce its cost, combine various production activities to reduce the time and helps in better decision making process. It is not only used for the purpose of profit maximization or reduce cost, but also for managing proper time and completion of the activity in less time by combining various production activities together.

ABC method is a useful tool for the planning and decision making process as:

1. It is used for making strategic decisions of an organization, by identifying the financial and non – financial activities or which activities are to be reduced in order to reduce the cost of production, which activities are to be combined in order to reduce the time of production of products and services.

2. ABC technique provides us with the accurate information of the expenses and the cost incurred by each and every activity which in turn helps to identify and prioritise the activities which are more beneficial for the company. It also helps management to focus on that activity or product or customer which is more profitable for entity.


Above analysis reflects that, although, management accountants are value creator of companies as they help in better decision making and increment in profitability, but there are also some loopholes in their workings such as they are dependent on data of financial and cost accountants and does not comply with any particular rules and guidelines. Activity- based- costing method is an efficient tool for the planning and decision making process of an organisation, as it helps in the planning process by evaluating all the information and analyzing them, at last making a successful decision that what has to be reduced or focused on more.


Adams, C.A. & Larrinaga, C. (2019), “Progress: engaging with organisations in pursuit of improved sustainability accounting and performance", Accounting, Auditing & Accountability Journal, vol. 32, no. 8, pp. 2367-2394. https://www.proquest.com/docview/2315478099/908B8567623F41B9PQ/1?accountid=30552

Balstad, M.T. & Berg, T. (2020), "A long-term bibliometric analysis of journals influencing management accounting and control research", Journal of Management Control, vol. 30, no. 4, pp. 357-380. https://www.proquest.com/docview/2263761947/C168419DCEDF424EPQ/1?accountid=30552

Brouard, F., Bujaki, M., Durocher, S. & Neilson, L.C. (2017), Professional Accountants' Identity Formation: An Integrative Framework: JBE, Journal of Business Ethics, 142 (2), pp. 225-238. https://www.proquest.com/docview/1899808925/5CF20FBC61D94D44PQ/1?accountid=30552

Christoph, E. & Rouven, T. (2020), "Ethical Implications of Management Accounting and Control: A Systematic Review of the Contributions from the JBE", Journal of Business Ethics, vol. 163, no. 2, pp. 309-328. https://www.proquest.com/docview/2117644502/D80857DDB37C4525PQ/1?accountid=30552

Christoph, E. & Rouven, T. (2020), Ethical Implications of Management Accounting and Control: A Systematic Review of the Contributions, Journal of Business Ethics, 163(2), pp. 309-328. https://www.proquest.com/docview/2117644502/6B619CE79CA54BF6PQ/1?accountid=30552

Dada, G. (2018), Example for operational decision .Available through <https://www.quora.com/What-are-the-examples-of-strategic-operational-and-tactical-decisions> [Accessed on 30th August 2021].

Egan, M. & Tweedie, D. (2018), A “green” accountant is difficult to find: Can accountants contribute to sustainability management initiatives? Accounting, Auditing & Accountability Journal, 31 (6), https://www.proquest.com/docview/2101855822/308768B629D4B80PQ/1?accountid=30552

Ibrahim, S.M., El Sibai, I., M. & El Din, B.B. (2021), "Contextualizing cost system design: A literature review", Accounting and Management Information Systems, vol. 20, no. 1, pp. 28-55. https://www.proquest.com/docview/2547620467/7CAA746D24E1405APQ/1?accountid=30552

Jansen, E.P. (2018), "Bridging the gap between theory and practice in management accounting: Reviewing the literature to shape interventions", Accounting, Auditing & Accountability Journal, vol. 31, no. 5, pp. 1486-1509. https://www.proquest.com/docview/2056772482/7E74FC39D91248C7PQ/1?accountid=30552

Jeong, K. (2016), "The Reaction of Analysts to Management Disclosures and Firm Characteristics: Conservatism and Corporate Governance", Journal of Applied Business Research, vol. 32, no. 6, pp. 1629-1648 https://www.proquest.com/docview/1923981409/AB070520A72A4B45PQ/1?accountid=30552

Lepistö, L. & Eeva-M. (2018), Understanding the recruitment and selection processes of management accountants: An explorative study, Qualitative Research in Accounting and Management, 15 (1), pp. 104-123. https://www.proquest.com/docview/2042229348/45D19D3C42AC4342PQ/1?accountid=30552

Mack, S. & Goretzki, L. (2017), How management accountants exert influence on managers - a micro-level analysis of management accountants' influence tactics in budgetary control meetings, Qualitative Research in Accounting and Management, 14 (3), pp. 328-362. https://www.proquest.com/docview/1929000888/404C42DD978459CPQ/1?accountid=30552

Mahdavikhou, M. (2018), "Exploring Accounting Research in "Emerald's Accounting Journals" Using Content Analysis Approach", Journal of Accounting, Finance and Auditing Studies, vol. 4, no. 4, pp. 243-259. https://www.proquest.com/docview/2118758626/79B6FD882FB345FAPQ/1?accountid=30552

Omar Fikrat, F.T. & Ozyapici, H. (2019), The Impact of the Magnitude of Overhead Costs on the Difference Between ABC and TDABC Systems, Foundations of Management, 11(1), pp. 81-92. https://www.proquest.com/docview/2230172954/8FDD91FF3B484AD1PQ/1?accountid=30552

Pasch, T. (2019), Strategy and innovation: the mediating role of management accountants and management accounting systems’ use, Journal of Management Control, 30 (2), pp. 213-246. https://www.proquest.com/docview/2258055552/36A47A23A6E146D3PQ/1?accountid=30552

Patten, D.M. & Shin, H. (2019), Sustainability Accounting, Management and Policy Journal’s contributions to corporate social responsibility disclosure research: A review and assessment, Sustainability Accounting, Management and Policy Journal,10 (1), pp. 26-40. https://www.proquest.com/docview/2188872963/D4A9A9B49F46446APQ/1?accountid=30552

Real life example for ABC method (2019), Available through <https://embapro.com/frontpage/abccostingco/20280-nestle> [Accessed on 30th August 2021].

Smyth, D. (2019), Real life Example for ABC method. Available through<https://bizfluent.com/info-12105073-types-businesses-activitybased-costing.html> [Accessed on 30th August 2021].

Tarzibashi, O. F. F., and Ozyapici, H. (2019), The Impact of the Magnitude of Overhead Costs on the Difference Between ABC and TDABC Systems. Foundations of Management, 11(1), pp. 81–92. https://www.proquest.com/docview/2230172954/288E15F621D143B5PQ/1?accountid=30552
Value chain analysis, (2013), (Online). Available through <https://www.cgma.org/resources/tools/essential-tools/value-chain-analysis.html>[Accessed on 30th August 2021]

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Case Study

ACCT6004 Management Accounting Assessment 2 Sample

Assignment Brief

Length - (1,800 words +/- 10%)

Learning Outcomes

a) Identify and analyses ethical and organizational issues confronting contemporary management accountants.

b) Categories and identify the nature of various types of costs, cost objects and cost behaviours and use cost estimation techniques to develop cost functions.

c) Apply cost accounting techniques to calculate the cost of a range of cost objects, as well as analyse costs.

d) Apply cost information to planning, control and decision-making.

e) Critically evaluate the relevance of both quantitative and qualitative costing information to management decision making.

Submission - by 11:55pm AEST/AEDT Sunday of Module 5.1 (week 9)
Weighting - 30%
Total Marks -100 marks 


The purpose of this assessment is to establish the skills needed in the workplace for costing products and services using the appropriate processes and tools and applying analytical processes to construct accounting systems and models using workplace tools. Each question uses realistic data and the professional practices
similar to that found in workplaces.

Submission Instruction

Due Date/Time: 11:55pm Sydney time (AEST/AEDT) on Sunday 18th April 2021 Please aim to complete this assignment a few days prior to the due date to allow for any unforeseen circumstances such as illness, holidays, family issues, work commitments etc. You may submit the assignment early if you have other commitments around the due date.

All times listed are local (Sydney) times. For assignment help Please ensure you factor in any time difference between Sydney and your location when submitting your assignment, to avoid incurring any late submission penalties.

Please note the following important instructions relating to the assignment format and Submission:

• Note that this is an individual piece of assessment. You will need to work individually to prepare a response to ALL of the questions listed in the assessment.

• You must submit your assessment in one Excel file. Any submissions in any other file formats will not be accepted.

• Each question (including all sub-questions) should be presented in a single worksheet. As there are 5 questions in this assessment, your Excel file should contain 5 worksheets in total.

• You cannot scan handwritten responses and submit. All answers must be typed in Excel.

• Your assessment needs to be submitted though the submission links available on the Blackboard. Assignments submitted via e-mail (or any other method) will NOT be accepted.

• Make sure that you upload the correct file. If you discover (after the due date) that you have uploaded a draft version or the wrong file completely, you will not be allowed to submit a second file.

- The typo in Question 2-part C has been rectified in this version.

Question 1: Support Department cost allocation

Diamond Trust Bank has two support departments: The Human Resources Department and the Computing Department. The bank also has two operation departments that service customers directly: The Deposits Department and the Loan Department. The usage of the two support departments' output is provided below:



The costs in the support departments and operation departments for the is presented below:




a) Report the total costs of operation departments (the Deposits Department and the Loan Department) after the support departments' (the Human Resources Department and the Computing Departments) costs have been allocated using each of the following methods:

i) Direct Method
ii) Step Down Method (The bank allocates the costs of the Human Resources Department first.)
iii) Reciprocal Method

b) Diamond Trust Bank evaluates the performance of the operation department managers on the basis of how well they manage their total costs, including allocated costs. As the manager of the Loan Department, which allocation method would you prefer? Why?

Question 2: Job Costing

ACT Manufacturing Ltd. is highly automated company that uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:



The company’s cost records revealed the following actual cost and operating data for the year:




a) What is ACT Manufacturing Ltd.’s predetermined overhead rate for the year?

b) Calculate the company’s under applied or over applied overhead for the year.

c) Assume that overapplied or underapplied overhead allocated on a pro rata basis to the ending balances in work in process, finished goods and cost of sales. The ending balance of these accounts are reported below. Prepare journal entries to show the allocation.


d) How much higher or lower will net operating income be for the year if the underapplied or overapplied overhead is allocated on a pro rata basis rather than closed directly to Cost of Goods Sold? Explain the reason for this difference.

Question 3: Process Costing System

Techsafe Company manufactures car seats. Each car seat passes through the assembly department and testing department. When the assembly department finishes work on each car seat, it is immediately transferred to testing department. The process-costing system at Techsafe Company has a single direct-cost category (direct materials) and a single indirect-cost category (conversion costs). Direct materials are added at the beginning of the process. Conversion costs are added evenly during the process.

The table below shows the relevant data for the assembly department for July 2020.

Physical Units
(Car Seats)
Direct Material Costs
Conversion Costs
Work in process, 1July2020(*)

(*) Degree of completion: 100% for direct materials and 60% for conversion cost (**) Degree of completion: 100% for direct materials and 70% for conversion cost


a) Determine the cost per equivalent unit for the Techsafe Company’s direct materials and conversion costs, and the total unit cost for the current period, under the FIFO method. Show all workings.

Determine the cost per equivalent unit for the Techsafe Company’s direct materials and conversion costs, and the total unit cost for the current period, under the Weighted Average method. Show all workings

Question 4: Cost Volume and Profit (CVP) analysis

Veritas Software is a leading Australian based accounting software manufacturer. It develops software packages for accounting firms located in Australia and overseas. Veritas is planning to release an upgraded version of their software soon. The company divides its clients into two groups: Local firms (those firms that operate in Australia) and Global firms (those firms that operate in overseas). Although the same physical product is provided to each client group, significant differences exist in selling prices and variable marketing costs: 


The fixed costs of Veritas Software are $16,500,000. The planned sales mix for the upgraded software in units is 60% Local firms and 40% Global firms.


a) What is the break-even point in units for Veritas Software’s upgraded software if the planned sales mix is attained?
b) If the planned sales mix is attained, what will be the operating income when 180,000 units are sold?
c) If Veritas Software wants to generate operating income of 5,500,000, how many units do they need to sell to Local and Global firms each? Assume that the planned sales mix is attained.

Question 5 Activity Based Costing

MaxPak is a designer of high-quality backpacks and purses. Each design is made in small batches. Each summer, MaxPak comes out with new designs for the backpack and for the purse. The company uses these designs for a year, and then moves on to the next trend. The bags are all made on the same fabrication equipment that is expected to operate at capacity. The equipment must be switched over to a new design and set up to prepare for the production of each new batch of products. When completed, each batch of products is immediately shipped to a wholesaler. Shipping costs vary with the number of shipments. Budgeted information for the year is as follows:

Budget forcostsandActivities
For theYearEnded30June2020

 Other Budget information follows:



a) Identify the cost hierarchy level for each cost category.
b) Identify the most appropriate cost driver for each cost category. Explain briefly your choice of cost driver.
c) Calculate the budgeted cost per unit of cost driver for each cost category.
d) Calculate the budgeted total costs and cost per unit for each product line.
e) Explain how you could use the information in requirement 4 to reduce costs.


Answer 1

Part a

ii) Step down method
In step down method the cost of Human resource department shall be allocated first to
Cost of Human resource department is $ 72000

After allocation of Human resource then the second will be computing department
Cost of Computing department= 120000+14400 = $ 1,34,400.00

Part iii

In Reciprocal method the cost of computing allocated to Human resource shall be distribute again So, in this case $26880 allocated to Human resource from computing will be distributed again till it reduces to zero.

Part B

As a Manager we would always choose that method which provides most accurate measure of cost. Thus by evaluating all the three methods above it can be seen that Reciprocal method gives the most accurate evaluation of cost and thus will provide the most accurate performance evaluation

Answer 2

Part a

Part b

Part c

Part d

The company profit has got reduced due to over applied overhead. The cost of goods sold will increase and thus the profit margin will get reduce, thus the company should ignore over application of overhead cost

Answer 3


Answer 4

Part a

Part b

Part c

Answer 5


Part a

he cost hierarchy level of each cost category:
Direct Material
Direct Manufacturing cost
Plant Utilities and administrative

Part b

Part c

Part d


Part e

Use of ABC activity based costing gives the true view of cost allocation on the basis of cost driver and thus it eliminated traditional approach of cost allocation


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HI5020 Corporate Accounting Assignment Sample

Assessment Brief of Accounting for Corporate Income Tax - Theory and Applications

Purpose of the assessment:

This assignment aims at developing an understanding of students on different concepts of Accounting for Income tax and the application of those concepts in the practical financial setting.

In addition to answering theoretical questions on different concepts on accounting for income tax, students will need to analyses the tax related disclosures made by an ASX listed company in its financial statements and the associated notes to the financial statements. (ULO 1, 3, 4, 5).

Weight - 35 % of the total assessments (35 marks)
Total Marks - 35 % in written report
Word limit - 3000 words ±500 words

Due Date - Assignment submission: Final Submission of individual Assignment: Wednesday, Week 10, 11:59 pm Late submission incurs penalties of five (5) % of the assessment value per calendar day unless an extension and/or special consideration has been granted by the lecturer prior to the assessment deadline.

Submission Guidelines and Referencing

• All work must be submitted on Blackboard by the due date along with a completed Assignment Cover Page.

• The assignment must be in MS Word format, no spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.

• Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using Harvard referencing style. The following guidelines apply for assignment help

1. Reference sources in assignments are limited to sources which provide full text access to the source’s content for lecturers and markers.

2. The Reference list should be located on a separate page at the end of the essay and titled: References.

3. It should include the details of all the in-text citations, arranged alphabetically A-Z by author surname. In addition, it MUST include a hyperlink to the full text of the cited reference source.

For example:

P Hawking, B McCarthy, A Stein (2004), Second Wave ERP Education, Journal of Information Systems Education, Fall, http://jise.org/Volume15/n3/JISEv15n3p327.pdf

4. All assignments will require additional in-text reference details which will consist of the surname of the author/authors or name of the authoring body, year of publication, page number of content, paragraph where the content can be found.

For example:

“The company decided to implement an enterprise wide data warehouse business intelligence strategies (Hawking et al, 2004, p3(4)).”

Non Adherence to Referencing Guidelines

Where students do not follow the above guidelines:

1. Students who submit assignments which do not comply with the guidelines will be asked to resubmit their assignments.

2. Late penalties will apply, as per the Student Handbook each day, after the student/s have been notified of the resubmission requirements.

3. Students who comply with guidelines and the citations are “fake” will be reported for academic misconduct.

Assignment Specifications


This assignment aims at developing an understanding of students on different concepts of Accounting for Income tax and the application of those concepts in the practical financial setting. In addition to answering theoretical questions on different concepts on accounting for income tax, students will need to analyses the tax related disclosures made by an ASX listed company in its financial statements and the associated notes to the financial statements.

Assessment task:

Please answer the following questions relating to Accounting for Corporate Income Tax.

Question 1: Why do deferred tax assets or deferred tax liabilities arise? Explain your answer with suitable example.

Question 2: Will the existence of unused tax losses always lead to the recognition of a deferred tax assets? Explain your answer with suitable example.

Question 3: Do the liabilities and assets that are generated by using the 'balance sheet method' of accounting for tax appear to be consistent with the definition and recognition criteria of assets and liabilities promulgated within the Conceptual Framework?

Question 4: Under what condition deferred tax assets can be offset against deferred tax liabilities?

Question 5: Critically examine the disclosures made by an Australian Securities Exchange (ASX) listed company in its latest financial statements and associated notes regarding income tax issues. While every company will have unique tax matters and position, your discussion should highlight the following:

(i) Identify the income tax expense (income) shown in the income statement. On what basis this amount has been calculated?

(ii) Deferred tax assets/liabilities shown in the balance sheet

(iii) A detailed explanation of what has been disclosed for Income tax in the Note associated with the financial statement.

(iv) Under what basis/assumptions deferred tax assets deferred tax liabilities have been recognized?

(v) What portion of the deferred tax assets or deferred tax liabilities have originated in the current year, and what portion relate to prior years?

(vi) Summarize the accounting policies and approaches used by the company in its accounting for Income Tax.
(You can select the company at your discretion. The company must be listed in the ASX)

Assignment Structure should be as the following:

Abstract - One paragraph

List of Content
Body of the assignment with detailed answer on each of the required tasks
List of references





This assignment is all about Deferred Tax Asset and Deferred Tax Liabilities, how they arise, how they are set off and on what basis is the calculation done.

It also, states about the accounting policies basis which an ASX Limited company takes up its Accounting of Income Taxes.

Question 1

An organisation prepares its books of accounts on the basis of various accounting standards (as may be applicable to it). While the same organisation prepares itself for tax computation, the same books of accounts need to be modified in line with the Tax laws applicable i.e. as per Income Tax Assessment Act 1986.

Many a times, situation arises wherein the carrying amount (i.e. amount in the books as per Accounting) of assets or liabilities do not match (i.e. are different) with its tax base (i.e. values appearing as per Taxation Laws), thereby amounting to differences. (Finley, Ribal ,2019, p 2, 86)

These differences may be temporary or other than temporary (also referred as permanent). The temporary differences lead to creation of deferred tax assets and/or liabilities. The difference which are other than temporary do not create any deferred tax asset/liability (DTA/DTL).

When talking about temporary differences, which are responsible for creation of deferred tax assets/liabilities, these differences are further classified into Taxable Temporary Difference and Deductible Temporary Difference.

Taxable temporary differences as the name suggests are the differences which ultimately result in additional taxable amounts in the coming years. These lead to creation of Deferred Tax Liabilities.

Deductible temporary differences are the differences which would result in reduction of taxable amounts in the future years. These lead to creation of Deferred Tax Assets. (Finley, Ribal, 2019, p 2, 86)
The same be explained further with the help of example that follows-

A company XYZ Limited has a plant (fixed asset) which has a cost of $10,000. The company writes off depreciation on the same @20% on SLM and the rate of tax as per Tax Laws is 25% SLM. Now we will see how it leads to creation of DTA/DTL. The applicable tax rate is 30%.

The differences in taxes from Year 1 to Year 4 is $150.00 each which appears to be tax saving bur actually is nothing but tax deferment as in Year 5 an amount of $600.00 is to be paid in excess (as per Tax Laws), that is we have created Deferred Tax Liabilities in the initial years.

As per Income Tax Assessment Act 1986, when we are paying fewer taxes (i.e. taxes as per Tax Laws are lower as compared to taxes as per Books) or we can see that value of an underlying asset has a carrying amount more than its tax base, it will lead to creation of deferred tax liability.

Question 2

The existence of unused tax losses does not necessarily need for recognition of deferred tax assets as per Income Tax Assessment Act 1986,.

DTA can be recognised in the same manner for unused tax losses as is done in DTA being recognised from deductible temporary differences. The main conditions which need to be checked before recognising DTA from unused tax losses are:

1. The entity willing to recognise DTA from some unused tax losses, is convinced

2. Also among other things, the period up to which unused tax losses can be carried forward is to be noted.

For example, let’s talk about a start-up which is HNL Limited, an organisation willing to penetrate the logistics market. Now, we take up some figures of profit and losses for the organisation

In the initial years i.e. up to Year 5, the company has incurred losses, a cumulative amount of $1100 M.
We will consider the following cases

Case 1: Unused tax losses can be carried forward for 3 years.

In this case, the loss incurred in Year 1 will be carried up to the 4th year, in year 2 up to the 5th Year and so on. Now the loss incurred in Year 1 and Year 2 will not create any DTA as the company does not have sufficient profits. However, for the next year i.e. Year 3 the unused loss of $500 will create DTA up to an extent of $100 as the probable profit in Year 6 is S100.

The balance $400 will lapse.

Case 2: Unused tax losses can be carried forward for 6 years.
In this case, the loss incurred in Year 1 will be carried up to the 7th year, in year 2 up to the 8th Year and so on. Therefore, the loss of $100 will create DTA of full amount as the company has sufficient profit within the time lines available for carrying of the unused losses.

Therefore, we can say that unused tax losses which can be carried forward to the future years and can result in tax saving in the future years will lead to creation of Deferred Tax Assets (DTA). But not all unused tax losses will lead to DTA creation.

Question 3

Conceptual framework is the process in which logical reasons have been taken into consideration for the purpose of detailed and complete understanding with respect to the selected areas. In the current scenario the selected area is deferred tax and the computation of the same. To compute deferred tax is a complex process and hence step by step need to go to arrive at the final payment of deferred tax. This process has been used in almost every field thereby giving a sense of satisfaction. It is necessary that the assets and liabilities which have been generated by using the balance sheet method for the purpose of tax accounting need to be consistent as per the definition and recognition criteria promulgated within the Conceptual framework. Further, deferred tax would be considered as an asset when the same has been paid in advance and deferred tax would be considered as a liability when the same has not been paid at per specified due date thereby creating liability for the organization (Sulistianingsih, 2019, p2, 80).

As per Income Tax Assessment Act 1986, deferred tax arises due to the existence of timing difference which means there is the difference of accounting with respect to taxation purpose and accounting purpose. For example, on the purchase of any asset the tax attracts 50% in the first and second year. However, while computing in the accounting the tax rate is different at the rate of 30% which is less than the above tax leads to which difference arise in the ultimate payment of tax. As per the taxation policy the company has paid 50% tax in the first year and for the same the company would be entitled to receive benefits in future year as a deferred tax asset. Such treatment of tax reduces the burden to pay tax from the company point of view. This process has given the option to the company to set off their tax which has been paid in advance as per the taxation policy. (Sulistianingsih, 2019, p2, 80) As the company has paid extra tax in the initial period the benefit of the same would be delivered in the future period accordingly. The same rule applies for the deferred tax liability also. However, the company has to follow ultimately the tax policy instead of accounting policy as the ultimate payment of tax has been computed as per the taxation norms which has been issued by the government of Australia. 

Question 4

Deferred tax assets can be used to set off from the deferred tax liabilities of any particular entity. However, there are certain limitations that have to meet an entity to claim the same exemption. The limitations are as follows:

1. The DTA and DTL are related to taxes which are levied by a single authority of taxation. (Watson, 2018, p 2,83)

2. The DTA and DTL relate to taxes which are levied on the same taxable entity/organisation. The same can be allowed for different entities/organisations if they have an intention to set off their DTA and DTL on a net basis in the coming future period. (Watson, 2018, p 2,83)

For example, an organisation say RTG Limited, has recognised a deferred tax asset of $5000 and also a deferred tax liability is recognised amounting to $4750, both under the same Tax Laws. IN such a case, the company has a right to set off both DTA and DTL, thereby presenting a net amount i.e. $250 as deferred tax assets. “With the issuance of ASU No. 2015-17, the FASB (2015c) by its own admission abandoned the definition of current and noncurrent assets and liabilities in the authoritative literature and changed the proper presentation of those deferred tax items on the classified balance sheet.”(Morris,2017, p3, 2158)

Also, if there is a DTA recognised by RTG Limited under some tax laws amounting to $4500 and a subsidiary of RTG Limited named SUH Limited under the same tax laws has a DTL amounting to $5000. The holding company has the authority to offset DTA and DTL of the current period, as per Income Tax Assessment Act 1986.

Since, the DTA and DTL are related to same tax authority under same tax laws but do not relate to same taxable entity, it is the management which has to think and decide whether the DTA and DTL is to be settles by netting them or by realisation of both DTA and DTL concurrently.

Question 5

The company chosen here is Iluka Resources Limited. It is an international mineral sands company that deal in various activities such as exploration, project development, mining, processing, marketing and rehabilitation. The major focus of this company is to maximize shareholder’s wealth.

(i) The income tax expense of this company in the year 2020 is $95.5 m.

The calculation of current tax for the accounting period is done using the tax rates applicable and tax laws of the land as on the reporting date in the nations where the company operates and generates income that is taxable.

The income tax expense is the tax payable for the current year’s taxable income based on the applicable income tax rate for each jurisdiction which is first adjusted for changes in deferred tax assets and liabilities and to unused tax losses.

(ii) The net deferred tax asset for the year here is $28.4 m.

For the year 2020, Gross DTA is $191.6 m and the Gross DTL correspondingly is $163.2 m. The difference therefore, amounts to $28.4 m that is excess of Gross DTA over DTL.

(iii) In the notes to financial statement (Note 12) Income Tax, it is clearly states as to how the income tax expense has been calculated.IT mentions the rate at which IT has been calculated and also gives a comprehensive list of amounts not deductible while calculating the taxable income thus arriving at the Income tax expense, as per Income Tax Assessment Act 1986. As per the note, current year tax expense is $98.4m and deferred tax is ($3.1m), therefore, IT expense is $98.5 m after adjusting for under providing for $0.2m. The income tax expense can also be bifurcated based on profit from continuing and discontinued operation as $74.8 m and $20.7m totalling to $98.5m.

(iv) As mentioned in the notes, the carrying amount of DTA is reviewed at each balance sheet date and then adjusted by reducing to the extent which is not expected to be allowed to be utilised based on profit availability.

(v) The net deferred tax asset has seen an increase of $6.3 m amounting to $28.4 m in the year 2020 as compared to $22.1 m in the previous year. While we look further, we understand that the gross deferred tax assets have seen a surge of $15.9m due to an increase in temporary differences of employee provisions, other provisions and other factors, whereas lease liabilities and hedge reserve pulled down the DTA (Iluka Resources, p17(1)).

On the other hand, the gross deferred tax liabilities have also witnessed a growth of $9.6 m due to increase in temporary differences of property, plant and equipment, while the differences on account of inventory, receivables and other assets have dragged the growth of DTL.

(vi) The accounting policies and approaches that Iluka Resources Limited have used in preparation of its financial statements include the Australian Accounting Standards and Interpretations issued by Australian Accounting Standards Board. It has also considered International Financial Reporting Standards (IFRS), as and where applicable. The basic preparation has been done as per Historical Cost Convention. However, as required by Law, valuation has been done at fair value for the financial liabilities and assets, wherever applicable.


Here, in this assignment, the taxes, accounting of taxes and practical treatment of the DTA, DTL and income tax is taken up. The ASX company Iluka has all the conditions that were mentioned in the question that helped to check, learn and understand the practical application. 


A Bakke, T R. Kubick, and M S. Wilkins (2020), Deferred Tax Asset Valuation Allowances and Auditors’ Going Concern Evaluations.https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3622505

A Edwards (2018), The Deferred Tax Asset valuation Allowance and Firm Creditworthiness, Journal of the American Taxation Association (2018) 40 (1): 57–80, https://meridian.allenpress.com/jata/article-abstract/40/1/57/60498/The-Deferred-Tax-Asset-Valuation-Allowance-and

A Finley, A Ribal (2019), The information content from Releases of the Deferred Tax Valuation Allowance, Journal of the American Taxation Association (2019) 41 (2): 83–101, https://meridian.allenpress.com/jata/article-abstract/41/2/83/10464/The-Information-Content-from-Releases-of-the

H Russ (2020), New Evidence on Investors’ Valuation of Deferred Tax Liabilities, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3304846

I A Nwaorgu, M C Abiahu, & J A Iormbagah (2019), Deferred Tax Accounting and Financial Performance: The Listed Agricultural Firms’ Perspective in Nigeria. In Dandago, K.I., Salawu, R.O., Akintoye, R.I. &Oyedokun,

G.E. (Eds.)https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3474769

Iluka Resouces Limited (2020), Annual Report, https://iluka.com/

J L Morris (2017), Classification of deferred tax assets and deferred tax liabilities: An evaluation of FASB’s Attempt at Standard Simplification. Journal of Accounting and Finance.17 (8), 2158-3625, http://www.na-businesspress.com/JAF/JAF17-8/MorrisJL_17_8_.pdf

L Watson, (2018), The Deferred Tax Asset Valuation Allowance and Firm creditworthiness, Journal of the American Taxation Association (2018) 40 (1): 81–85, https://meridian.allenpress.com/jata/article-abstract/40/1/81/60466/The-Deferred-Tax-Asset-Valuation-Allowance-and

R D P. Sulistianingsih (2019), How the effect of deferred tax expenses and tax planning on earning management? International Journal of Scientific and Technology Research, 8(2), 78-83,https://scholar.ui.ac.id/en/publications/how-the-effect-of-deferred-tax-expenses-and-tax-planning-on-earni

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Case Study

ACCT6005 Company Accounting Assessment 3 Case Study

Part A: This case study assignment help is designed to assess your understanding and application of knowledge using a practical case study to analyse and prepare relevant worksheet entries and financial statements for a Group.

Submission Instructions: Part A: • Submit Part A of the assessment document in a Word format and excel (see assessment question) including a coversheet. JPEG files or similar cannot be opened and will not be marked. • Submit via the Assessment link in the main navigation menu in ACCT6005 Company Accounting.



ACCT6005 Company accounting Assessment 3 Case study Part A

Assignment instructions: This assignment is to be completed using Microsoft word for the evaluation report (part a) and Excel for the entries, worksheet and Group financial statements (part b, c, d). Please use a separate sheet in excel for each separate part b, c and d.

Please ensure that your file name contains your student ID and your full name. Please ensure that you use the ‘Ref’ column in the worksheet to identify each separate consolidation entry. 

Case study:

PART A (100 Marks)

Grape Ltd acquired all the issued shares of Duck Ltd for $940 000 cash on 1 July 2020.

The following information is available at this acquisition date:

The equity of Duck Ltd is provided below:

Share capital

$495 000 00000

Retained earnings

280 000

General reserve

125 000


All the identifiable assets and liabilities of Duck Ltd were recorded at fair value in the statement of financial position. The company income tax rate is 30%.

The following transactions and events occurred during the year ended 30 June 2021:

1. During the year Grape Ltd sold inventory to Duck Ltd for $55,000 at cost plus 20%. Duck Ltd has sold 10% of these items externally as at 30 June 2021.

2. On 1 April 2021, Duck Ltd sold an item of inventory to Grape Ltd for $28,000. This inventory had cost Duck Ltd $20,000. Grape Ltd treated the item as plant and will depreciate it at 20% p.a.

3. Grape Ltd sold land to Duck Ltd for $25,000 which had originally cost $32,000.

4. Dividends: Duck Ltd paid $18 000 interim dividends in September 2020, and Grape Ltd declared $26 000 dividends in May 2021 (to be paid in October 2021).

5. On 1 July 2020, Grape Ltd provided an office for Duck Ltd’s administrative staff to use. Grape Ltd charges $700 per month. The last rental receipt received by Grape Ltd was on 30 April 2021.


Part (a) (36 marks)

Analyse the completed worksheet attached for the Grape group. Using the information provided in the worksheet, prepare an evaluation report in word, detailing each omission and error. For each error:

1. List the accounts and amounts, which are incorrect for each consolidation adjustment.

2. Explain WHY the entry is incorrect. Include formulas where possible in your explanation.



Part (b) Prepare the consolidation entries as at 30 June 2021 in excel using the template below. Include narrations for each entry: (28 marks)


















Part (c): Worksheet (24 marks)

Using excel, prepare the consolidation worksheet as at 30 June 2021, showing all entries including the corrected entries discussed in Part (a). Each entry needs to be entered as a separate amount and not entered as subtotals in the worksheet. Round your answers to zero decimal places. The worksheet template is provided below.

Part (d): Group financial statements (12 marks)

Using excel, prepare the Statement of Financial position for Grape Ltd as at 30 June 2021.


Part (a)

An acquisition can be defined as the difference between the price paid by the acquirer for purchasing another company and the original cost of the assets of the target company (Janice 2013).
Following entries or transaction is incorrect

Reference 1:

Adjustment in Share capital, general reserve, retained earning & BCVR is incorrect and not required.

Reference 2:

Sales revenue- The amount of $25,000 debited in the sales account and $ 22,000 credited in the cost of sales account is incorrect- because for unsold stock with Duck Ltd, to eliminate the unrealised profit of Grape Ltd. the sales should have been debited with $8250 and Inventories should have been credited with $8250

Reference 3:

Adjustment entry done in Proceeds from sales of equipment and carrying amount of sold equipment, the related depreciation & entry done in equipment ledger in asset side is incorrect. Since Duck has treated Inventory and sold to Grape for $28,000 which cost Duck ltd $20,000 Therefore, the sales account of Duck should have been debited to a tune of $8000 and Depreciation account needs to be credited by $8000*20%= $1600 (which is excess on account of group sales) and the carrying amount of the equipment plant) needs to be reduced by net $6400 to eliminate the effect of the sales.

Reference 4:

All the adjustment relating to reference 4 needs to be removed since the dividend entry has already been correctly recorded no further adjustment required. Since Duke ltd (subsidiary of Grape Limited) pays interim dividend so its post-acquisition profit so it should be recorded in the profit and loss of Grape Limited and the same has been correctly recorded (AASB 2021)

Reference 5:

The adjustment for service expenses of $90,000 is incorrect as we need to just eliminate the outstanding and payable rent expenses which are for 2 months @$700 per month. Thus the correct adjustment should be debiting other payables account and crediting other receivables account to the tune of $1400

Reference 6:

Sales of land by Grape Ltd to Duck Ltd. for $25,000 cost $32,000. Thus, the unrealised loss of $7000 needs to be eliminated.

Herein the application of AASB 10 is observed because it develops the principles for preparation, as well as presentation of the consolidated financial statement when the entity has a control over one or more than one entities (AASB 2021)

Part b)

Part c)


Part d)

 Consolidated Financial Statement of Duck Ltd


AASB. (2021) AASB Standard. Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf

Janice, L. (2013). Understanding Australian Accounting Standards. Milton, Qld.: John Wiley and Sons. Retrieved from https://lesa.on.worldcat.org/oclc/807180288

Potter, B., Howieson, B., & Chapple, E. (2019). Accounting standards setting. Emerald Publishing Limited. Retrieved from https://lesa.on.worldcat.org/oclc/1113886538

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 ACCT6001 Accounting Information Systems Sample



Good Group Pty Ltd is a small firm located in Sydney. The company specialises in providing its customers with low-cost homewares. The firm was established 2 years ago and has recently experienced operational inefficiencies and accounting errors. You have been hired to evaluate Good Group’s business processes which are described in the following paragraphs.

Business Processes

At Good Group, the revenue processes are conducted by employees including sales staff, warehouse staff, an accountant, and collection clerk. A description of their duties are as follows:

  • Sales staff receive customer orders by email and prepare a four-copy sales order form. One copy is filed, one copy goes to the warehouse staff, one copy goes to the accountant, and one copy is posted to the customer.
  • After receiving sales orders, warehouse staff prepare a packing slip, take the proper items from the warehouse, and ship them with the packing slip enclosed. The sales order is stamped with the ship date, and the shipping log is updated. The sales order is filed by customer number. If the ordered goods are not in stock, the customer is notified and the sale does not proceed. When sales cannot proceed because there is no stock, the warehouse staff will order the items to replenish stock to their desired levels.
  • After receiving the sales order from sales staff, the accountant reviews the customer records and either approves or disapproves customer credit. If the customer’s credit is approved, the sales order is stamped “approved”. The accountant then prints two copies of the invoice. One copy is posted to the customer and one copy goes to the collection clerk. Finally, the accountant matches the approved sales order to the invoice and files these by customer number.
  • After receiving a copy of the invoice, the collection clerk posts the sale to the sales journal and the accounts receivable subsidiary ledger. Daily totals from the sales journal are sent to the accountant who posts these sales summaries to the general ledger.
  • If the customer pays by cheque, the collection clerk stamps the cheque “For Deposit Only” and records it in the accounts receivable subsidiary ledger. The cheque is also recorded in the cash receipts journal by the collection clerk. Once this information is entered into the ledgers, the collection clerk deposits cheques in the bank account weekly. For invoices paid using electronic banking, receipts are entered into the accounts receivable and cash book ledgers at the end of each week.
  • The accountant receives a monthly summary of cash receipts from the collection clerk. The accountant records these summaries in the general ledger. The accounts receivable ledger is reviewed monthly by the accountant and phone calls are made to customers that have not paid their invoices within three months.


1. Draw a business process map to reflect the processes at Good Group Ltd (include swimlanes in your diagram).
2. Identify strengths and weaknesses in the existing system including the internal controls used
3. Research and report on ways to improve the business processes (include references to support your suggestions).
4. Draw a new business process model that outlines your suggested improvements
5. Include in the Appendix of your report, minutes of meetings held between group members (Include a list of actionable tasks, team members responsible for those tasks, deadlines, and progress towards completing tasks).



The business process map has helped to understand the steps of organizational procedure regarding the completion of several tasks such as ordering a product, hiring employees, and employee engagement. This report has described efficient business process map based of the activities of good group pvt ltd. and the strengths and weakness of this company. Additionally, improving ways and new business models has been evaluated for developing suggested improvements.
Business process map

According to business process mapping, good groups can identify who, what, how, when, and where and analyse the structure by why. With the help of business process mapping, the nation can create easy flow charts and diagrams by defining the factors with several symbols such as circles and arrows, diamonds, and rectangles according to business activities. Based on Mejri, Ghannouchi & Martinho (2016), business process management has focused on enhancing flexibility, variability and developing the growth of access to the opportunity superiorly. According to business process mapping, good group private limited has included sales top warehouse collection clerk and accountant and described the duties accordingly. The cell stops will receive orders from plants with the help of a digital platform and prepare different copies of sales forms.

Sales form copies will be sent to the warehouse staff accountant and collection clerk. After receiving the sales form, the sales staff has focused on packaging and sitting structure with proper items from the warehouse and enclosed the packing procedure. The sales order will be filled by the consumer number. The consumers have been notified if the product is not in stock from the warehouse staff section. According to private limits the warehouse stops are not able to proceed with the sales as there is no particular stock of products, stops will reorder plenty of items for replenishing stocks based on their desired level. As opined by AbdEllatif, Farhan & Shehata (2018), business process mapping has helped to evaluate the factors regarding business development and represent the important solutions regarding organizational development. After that the same staff shift sales order form and has completed a review with the help of an accountant based on customer records and approved by the customer credit points.

Customer credits have approved the sales order and developed two copies of invoices for the customer and collection clerk. After matching the approved sales order, the accountant has filed the consumer number based on their products. The collection clerk has contacted the sales journal after receiving the copy of the invoice based on consumers' orders and posted the sales to accounts receivable ledgers. Besides that, the regular number of cells in the sales journal has been sent to the accountant who has posted the summary of sales to the general ledger. Moreover, the consumer can't pay the number of products by cheque and it has been collected by the collection clerk.

The checking forms from the consumer's section are only collected if those are only for deposit and create records in the accounts receivable ledgers. As per the view of Fleac? & Fleac? (2016), business process mapping structure has helped to analyse organizational development approaches and completed the overview of business growth. The amount of cheque has been recorded in the cash received journal by the collection clerk and the entered information has been deposited through cheque in the bank within a week. The invoices have been paid through electronic banking and receipt has been sent into account receivable and cashbook letters at the end of each week. After summarizing account receivables of a month, ships have been collected from the collection clerk. Chords of the accountant have been summarized by general Ledgers. The account receivables ledgers have been reviewed by accounts in a month and calls have been made to the consumers if the payment of invoices has not been received within three months.

Strengths and weaknesses of the existing system


Good group pty ltd has become specialist in developing low-cost home application and maintain a good consumer relationship. In the initial 2 periods, they have experienced sufficient operational inefficiencies and critical accounting errors. They have included sales tab warehouse staff accountant and collection clerk to mitigate conflicts regarding accounting errors in their business organization. By segmenting the entire accounting section and in sales staff warehouse staff accountant and collection card it has become a beneficial perspective for this organization for processing its revenue in each financial year. Cell stop can prepare full copies of the sales order form which has helped to understand the requirements from transaction to the warehouse staff accountant and understand the reliability of organization by consumers. With the help of those sales orders, warehouse staff can usually prepare packing slips with proper items from the stock of the warehouse and shift the items to consumers in a limited time period.

Although if the stock is unable to fulfill the requirements of the consumer section the warehouse staff can notify the consumer through email and sales order as well as replenish the stock according to their desired level. On the other hand, accountant 10 reviews the record of consumers according to the sales order form and approves or disapproves the credit of consumers. The accountant review collection clerk can approve the sales order according to the invoices to the consumer number. Additionally, after obtaining the entire payment through cheque, the collection clerk can deposit the amount of cheque through electronic banking and electronic receipts into the account receivables. Moreover, the accountant has received the summarization of cash receipt of a month from the collection flag which has helped them to understand and review 2 on clarity of payment and they can make phone calls to the consumers for unpaid products within 3 months.


There are sufficient strengths for good group private limited in the allocation of employees in their internal accounting section. Allocation of employees in sales staff warehouse staff and accountant and collection clerk can create conflicts in their responsibilities due to the obstacles in accounting errors. According to sales staff, it has become a hard task to prepare copies of cells from forms and send them to warehouse staff, accountants and customers regularly. Moreover, the staff can create challenges for the organization as they can take products from the stock and provide a review of blank stocks. Additionally, the approval of sales orders can create biasing errors as the accountant has reviewed the customer records and approved the products. Without properly reviewing customer records there are higher chances of biasing issues in approval of customer care needs and their products. Decide that if the collection clerk is unable to provide sales journals to account receivable ledgers there can be a delay in summarizing sales amount to the general ledger. On the other hand, payment through cheque can create critical challenges for the good group as the failure of a cheque can be a sufficient delay in obtaining products amount after the definition of consumer requirements. Apart from this, there are several types of consumers, some of them are not willing to pay the payment of their products immediately and there is a chance of inefficient summarizing of Cancer by an accountant and they have to make phone calls to the consumers who had not paid the amount of invoice within 3 months of product celebration.

Ways to improve business process

It is essential to improve the business process by streamlining task factors for improving the efficiency of the organization. Good group private limited has gone through several organizational steps in order to generate a business report for resolving consumer complaints including new clients and developing new products. The process should focus on formal and informal procedures and well-established steps to develop receiving and submitting invoices by developing good relationships with clients. As opined by Sjödin et al. (2021), inclusion of artificial intelligence technique can be highly helpful for transformation of business development and develop new business model capabilities. Improvement of business processes is essential for mitigating numerous problems such as the frustration of colleague duplication of work practice, increment of cost of products, wastage of resources, development of bottlenecks, and complaints from consumer sections regarding product quality and good services. As cited by Estevão, Lopes & Penela (2022), the development of a favourable business environment can be a reason for improving risk factors due to higher chances of error occurrence. For improving the organizational procedure good group private limited should focus on business processing for improving documentation of flowchart and swim lane diagram.

Besides that, swim lane diagrams have developed complexity and superiority regarding the involvement of people. It is essential for a good group to include detailed information of sub-steps by consulting organizational executives properly without overlooking any minor factors. According to Vemuri et al. (2021), with the help of IoT technology, business organizations can enhance the impact of the business environment by analysing the business procedures good group private limited can understand the reason for frustration from the consumer section and which factors of an organization can efficiently create bottlenecks. As reported by Li, Voorneveld & de Koster (2021), forecasting model based on technology development and changes in social perspective has helped business organization during Covid pandemic situation. Moreover, they can understand the reason for the increment of the cost of products and by which steps they can reduce critical problems. Following root cause analysis, causes effect analysis and five wise analyses can be utilized in order to trace the particular problems from the depth of organizational activities and develop fixing problems by analysing the symptoms.

  Additionally redesigning the entire business process, they can use new approaches by changing early stages. Identifying brainstorming they can note down the changes and cost factors involved with business understanding. As stated by Chen et al. (2018), information system analysis can be helpful for mitigating risk compliance and developing the factors regarding fundamental benefits. Moreover, risk analysis and impact analysis can be utilized for understanding the failures, and by considering customer experience in mapping the organization can focus on consumer engagement. With the help of acquiring resources and proper resource management, they can develop the communication between HR management and the IT section based on a beneficial perspective. According to Huang et al. (2021), business mapping model of emotional intelligence has become an important weapon for modern developed E-commerce operational activities. Implementation and communication changes in business organizations can be beneficial for the development of organizational growth. Utilizing the change curve and Kotter's 8 step change model can be beneficial for overcoming the resistance regarding implementation and communication changes. Reviewing small improvements regularly can reduce frustrating factors from the consumer section and in monitoring procedure in order to fix critical problems.

New business process model

The organization can develop sustainable business reports in order to resolve complaints from the consumer section and include new clients by developing new products based on the requirements of clients. With the help of formal and informal procedures, they can easily mitigate challenges and conflicts in accounting errors and duplication of work practices. In the new business model, they can maintain a sustainable price for low-cost products in order to maintain a good relationship and develop consumer engagement.

By utilizing organizational flowchart and swim lane diagrams good group private limited can document the organization procedure and reduce the occurrence of accounting error sufficiently. In the new business model, good group private limited can use a risk analysis and impact analysis for understanding the failures and understand the customer experience by developing process mapping. With the help of SWOT analysis and Kotter's analysis, they can understand the changes strengths, and opportunities for organizational growth and reduce the weaknesses and threats from the business practices.


The new business process model has helped organizations to understand and optimize the work practices by developing a visual representation of fruitful business procedures. Its cab be concluded that by evaluating the factors of suggested improvement, good group put ltd cab easily create a new business model for their business growth.  


AbdEllatif, M., Farhan, M. S., & Shehata, N. S. (2018). Overcoming business process reengineering obstacles using ontology-based knowledge map methodology. Future Computing and Informatics Journal, 3(1), 7-28.https://doi.org/10.1016/j.fcij.2017.10.006

Chen, T., Wang, W., Indulska, M., & Sadiq, S. (2018, September). Business process and rule integration approaches-an empirical analysis. In International Conference on Business Process Management (pp. 37-52). Springer, Cham.https://doi.org/10.1016/j.is.2021.101901

Estevão, J., Lopes, J. D., & Penela, D. (2022). The importance of the business environment for the informal economy: Evidence from the Doing Business ranking. Technological Forecasting and Social Change, 174, 121288.https://doi.org/10.1016/j.techfore.2021.121288

Fleac?, E., & Fleac?, B. (2016). The business process management map–an effective means for managing the enterprise value chain. Procedia Technology, 22, 954-960.https://doi.org/10.1016/j.protcy.2016.01.096

Huang, H., Kaigang, Y. I., Kumar, R. L., & Praveena, V. (2021). Category theory-based emotional intelligence mapping model for consumer-E-business to improve E-commerce. Aggression and Violent Behavior, 101631.https://doi.org/10.1016/j.avb.2021.101631

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