Management Accounting

cco Management Accounting Tutorial 5 15-3. List and briefly describe 4 major influences on pricing decisions Customer Demand: the demands of customers are of paramount importance in all phases of business operations, from the design of a product to the setting of its price. Product-design issues and pricing considerations are interrelated, so they must be examined simultaneously. For example, for a higher quality product; you need higher quality materials which will affect a higher cost and needs more time and this will lead to a higher pricing on a product.

Also, a manager must not price its product out of the market price range. Actions of Competitors: companies must keep an eye on its competitors. If its competitor reduces its pricing on a product, they might have to follow suit to avoid losing its market share. However, one must not follow the actions of its competitors’ blindly as a company has to predict competitive reactions to its product-design and pricing strategy. The company must also be careful to properly define its product, such that if they increase the price of the product; will the consumers continue purchasing the product?

Costs: some prices are determined almost entirely by market forces. Industries such as agriculture; where most products are market-driven. To make a profit, farmers must produce at a cost below the market price. This is very risky as it is not always possible to produce at a price lower than the market price and this will inevitably lead to losses for the farmers. In other industries, prices are set by adding a markup to production costs so managers do have some latitude in determining the markup. Therefore, both market forces and cost considerations heavily influence prices.

No organization or industry can price its products below their production costs indefinitely. And no company’s management can set prices blindly at a cost plus a markup without keeping an eye on the market. Political, Legal and image-related issues: managers must adhere to certain laws. The law generally prohibits companies from discriminating among their customers in setting prices. It is also forbidden in collusion in price setting between major firms. Political considerations also can be relevant.

For example, if the firms in an industry are perceived by the public as reaping unfairly large profits, there may be political pressure on legislators to tax those profits differentially or to intervene in some way to regulate prices Companies also consider their public image in the price-setting process. A firm with a reputation for very high quality products may set the price of a new product high to be consistent with its image. 15-11. Write the general formula for cost-plus pricing, and briefly explain its use. Price = Cost + (Markup % * Cost) 15-12. List the 4 common cost bases used in cost-plus pricing.

How can they all result in the same price? – Variable manufacturing cost + (Markup % * Variable manufacturing cost) – Absorption manufacturing cost + (Markup % * Absorption manufacturing cost) – Total cost + (Markup % * Total cost) – Total variable cost + (Markup % * Total variable cost) Several different definitions of cost, each combined with a different markup percentage can result in the same price for a product or service. 15-13. List 4 reasons often cited for the widespread use of absorption cost as the cost base in cost-plus pricing formulas. – In the long run, the price must over all costs and a normal profit margin.

Basing the cost-plus formula on only variable costs could encourage managers to set too low a price in order to boost sales. This will not happen if managers understand that a variable cost-plus pricing formula requires a higher markup to cover fixed costs and profit. Nevertheless, many managers argue that people tend to view the costs base in a cost-plus pricing formula as the floor for setting prices. If prices are set too close to variable manufacturing cost, the firm will fail to cover its fixed costs. Ultimately, such a practice could result in the failure of the business. Absorption-cost or total-cost pricing formulas provide a justifiable price that tends to be perceived as equitable by all parties. Consumers generally understand that a company must make a profit on its product or service in order to remain in business. Justifying a price as the total cost of production, sales, and administrative activities, plus a reasonable profit margin, seems reasonable to buyers. – When a company’s competitors have similar operations and cost structure, cost-plus pricing based on full costs gives management an idea of how competitors may set prices Absorption-cost information is provided by a firm’s cost accounting system, because it is required for external financial reporting under generally accepted accounting principles. Since absorption-cost information already exists, it is cost-effective to use it for pricing. The alternative would involve preparing special product-cost data specifically for the pricing decision. In a firm with hundreds of products, such data could be expensive to product. 15-14. What is the primary disadvantage of basing the cost-plus pricing formula on absorption cost? The primary disadvantage of absorption-cost or total-cost pricing formulas is hat they obscure the cost behavior pattern of the firm. Since absorption-cost and total-cost data include allocated fixed costs, it is not clear from these data how the firm’s total costs will change as volume changes. Another way of stating this criticism is that absorption-cost data are not consistent with cost-volume-profit analysis. CVP analysis emphasizes the distinction between fixed and variable costs. This approach enables managers to predict the effects of changes in prices and sales volume on profit. Absorption-cost and total-cost information obscures the distinction between variable and fixed costs. 5-15. List 3 advantages of pricing based on variable cost – Variable-cost data do obscure the cost behavior pattern by unitizing fixed costs and making them appear variable. Thus, variable-cost information is more consistent with cost-volume profit analysis often used by managers to see the profit implications of changes in price and volume – Variable-cost data do not require allocation of common fixed costs to individual product lines. – Variable-cost data are exactly the type of information managers need when facing certain decisions, such as whether to accept a special order.

This decision often requires an analysis that separates fixed and variable costs 15-16. Explain the behavioral problem that can result when cost-plus prices are based on variable cost. If the managers perceive the variable cost of a product or service as the floor for the price, they may tend to set the price too low for the firm to cover its fixed costs. Therefore, if variable-cost data are used as the basis for cost-plus pricing, managers must understand the need for higher markups to ensure that all costs are covered. 15-17. Briefly explain the concept of return-on-investment pricing

A common approach to determine the profit margin in cost-plus pricing is to base profit on the firm’s target return on investment 15-18. Explain the phrase price-led costing. Target costing sets the target cost by first determining the price at which a product can be sold in the marketplace. Subtracting the target profit margin from this target price yields the target cost, that is, the cost at which the product must be manufactured. This simple, but strategically important, relationship can expressed in the following equation:

Target cost = Target price – Target profit 15-19. Why is a focus on the customer such a key principle of target costing? To be successful at target costing, management must listen to the company’s customers. Management needs to aggressively seek customer feedback and then the products must be designed to satisfy customer demand and be sold at a price they are willing to pay. In short, the target costing approach is market driven. 15-25. Describe the following approaches to pricing new products: skimming pricing, penetration pricing and target costing.

Skimming pricing; which the initial product price is set high, and short-term profits are reaped on the new product. The initial market will be small, due in part to the high initial price. This pricing approach often is used for unique products, where there are people who ‘must have it’ whatever the price. As the product gains acceptance and its appeal broadens, the price is lowered gradually. Eventually, the product is priced in range that appeals to several kinds of buyers. Penetration pricing; which the initial price is set relatively low. By setting a low price for a new product, the management hopes to penetrate a ew market deeply, quickly gaining a large market share. This pricing approach often is used for products that are of good quality, but do not stand out as vastly better than competing products. Target cost; where the company first uses market research to determine the price at which a new product can be sold. Given the likely sales price, management computes the cost for which the product must be manufactured in order to provide the firm with the cost for which the product must be manufactured in order to provide the firm with an acceptable profit margin.

Finally, the engineers and cost analysts work together to design a product that can be manufactured for the allowable costs. This method is used widely by companies in the development stages of new products. It is projected long-run cost that will enable a firm to enter and remain in the market for the product and compete successfully with the firm’s competitors. 15-27. Briefly explain the potential negative consequences in pricing decisions from using a traditional, volume-based product-costing system. Use of a traditional, volume-based product-costing system may result in significant cost distortion among product lines.

In many cases, high-volume and relatively simple products are overcosted while low-volume and complex products are undercosted. This results from the fact that high0volume and relatively simple products require proportionately less activity per unit for various manufacturing support activities than do low-volume and complex products, yet a traditional product-costing system, in which all overhead is assigned on the basis of a single unit-level activity like DL hours, it fails to capture the cost implications of product diversity.

1 Introduction to accounting Introduction n this opening chapter we begin by considering the role of accounting. We shall see that it can be a valuable tool for decision-making. We shall identify the main users of accounting and financial information and discuss the ways in which this information can improve the quality of decisions that those users make. We shall then go on to consider the particular role of financial accounting and the differences between financial and management accounting.

Since this book is concerned with accounting and financial decision making for private-sector businesses, we shall also examine the main forms of business enterprise and consider what are likely to be the key objectives of a business. I Learning outcomes When you have completed this chapter, you should be able to: ? explain the nature and roles of accounting; ? identify the main users of financial information and discuss their needs; ? distinguish between financial and management accounting; ? explain the purpose of a business and describe how businesses are organised and structured. 2 CHAPTER 1

INTRODUCTION TO ACCOUNTING What is accounting? ? Accounting is concerned with collecting, analysing and communicating ? nancial information. The purpose is to help people who use this information to make more informed decisions. If the ? nancial information that is communicated is not capable of improving the quality of decisions made, there would be no point in producing it. Sometimes the impression is given that the purpose of accounting is simply to prepare ? nancial reports on a regular basis. While it is true that accountants undertake this kind of work, it does not represent an end in itself.

The ultimate purpose of the accountant’s work is to give people better ? nancial information on which to base their decisions. This decision-making perspective of accounting ? ts in with the theme of this book and shapes the way in which we deal with each topic. Who are the users of accounting information? For accounting information to be useful, the accountant must be clear for whom the information is being prepared and for what purpose the information will be used. There are likely to be various groups of people (known as ‘user groups’) with an interest in a particular organisation, in the sense of needing to make decisions about it.

For the typical private-sector business, the more important of these groups are shown in Figure 1. 1. Take a look at this ? gure and then try Activity 1. 1. Figure 1. 1 Main users of financial information relating to a business Several user groups have an interest in accounting information relating to a business. The majority of these are outside the business but, nevertheless, have a stake in it. This is not meant to be an exhaustive list of potential users; however, the groups identified are normally the most important. W HO ARE THE USERS OF ACCOUNTING INFORMATION?

Activity 1. 1 Ptarmigan Insurance plc (PI) is a large motor insurance business. Taking the user groups identified in Figure 1. 1, suggest, for each group, the sorts of decisions likely to be made about PI and the factors to be taken into account when making these decisions. Your answer may be along the following lines: User group Decision Customers Whether to take further motor policies with PI. This might involve an assessment of PI’s ability to continue in business and to meet their needs, particularly in respect of any insurance claims made. Competitors

How best to compete against PI or, perhaps, whether to leave the market on the grounds that it is not possible to compete profitably with PI. This might involve competitors using PI’s performance in various aspects as a ‘benchmark’ when evaluating their own performance. They might also try to assess PI’s financial strength and to identify significant changes that may signal PI’s future actions (for example, raising funds as a prelude to market expansion). Employees Whether to continue working for PI and, if so, whether to demand higher rewards for doing so.

The future plans, profits and financial strength of the business are likely to be of particular interest when making these decisions. Government Whether PI should pay tax and, if so, how much, whether it complies with agreed pricing policies, whether financial support is needed and so on. In making these decisions an assessment of its profits, sales revenues and financial strength would be made. Community Whether to allow PI to expand its premises and/or whether to provide representatives economic support for the business.

PI’s ability to continue to provide employment for the community, the extent to which it is likely to use community resources and its likely willingness to help fund environmental improvements are likely to be considered when arriving at such decisions. Investment Whether to advise clients to invest in PI. This would involve an analysts assessment of the likely risks and future returns associated with PI. Suppliers Whether to continue to supply PI and, if so, whether to supply on credit. This would involve an assessment of PI’s ability to pay for any goods and services supplied.

Lenders Whether to lend money to PI and/or whether to require repayment of any existing loans. PI’s ability to pay the interest and to repay the principal sum would be important factors in such decisions. Managers Whether the performance of the business needs to be improved. Performance to date would be compared with earlier plans or some other ‘benchmark’ to decide whether action needs to be taken. Managers may also wish to decide whether there should be a change in PI’s future direction. This would involve looking at PI’s ability to perform and at the opportunities available to it.

Owners Whether to invest more in PI or to sell all, or part, of the investment currently held. This would involve an assessment of the likely risks and returns associated with PI. Owners may also be involved with decisions on rewarding senior managers. The financial performance of the business would normally be considered when making such a decision. Although this answer covers many of the key points, you may have identified other decisions and/or other factors to be taken into account by each group. 3 4 CHAPTER 1 INTRODUCTION TO ACCOUNTING The conflicting interests of users

We have seen above that each user group looks at a business from a different perspective and has its own particular interests. This means that there is always the risk that the interests of one group will collide with those of another group. Con? ict between user groups is most likely to occur over the way in which the wealth of the business is generated and/or distributed. A good example is the con? ict that may arise between the managers and the owners of the business. Although managers are appointed to act in the best interests of the owners, there is always a danger that they will not do so.

Instead, managers may use the wealth of the business to award themselves large pay rises, to furnish large of? ces or to buy expensive cars for their own use. Accounting information has an important role to play in reporting the extent to which various groups have bene? ted from the business. Thus, owners may rely on accounting information to check whether the pay and bene? ts of managers are in line with agreed policy. A further example is the potential con? ict of interest between lenders and owners. There is a risk that the funds loaned to a business will not be used for purposes that have been agreed.

Lenders may, therefore, rely on accounting information to check that the funds have been applied in an appropriate manner and that the terms of the loan agreement are not being broken. Activity 1. 2 Can you think of other examples where accounting information may be used to monitor potential conflicts of interest between the various user groups identified? Two possible examples that spring to mind are: ? ? employees (or their representatives) wishing to check that they are receiving a ‘fair share’ of the wealth created by the business and that agreed profit-sharing schemes are being adhered to; overnment wishing to check that the profits made from a contract that it has given to a business are not excessive. You may have thought of other examples. How useful is accounting information? No one would seriously claim that accounting information fully meets all of the needs of each of the various user groups. Accounting is still a developing subject and we still have much to learn about user needs and the ways in which these needs should be met. Nevertheless, the information contained in accounting reports should help users make decisions relating to the business.

The information should reduce uncertainty about the ? nancial position and performance of the business. It should help to answer questions concerning the availability of funds to pay owners a return, to repay loans, to reward employees and so on. Typically, there is no close substitute for the information provided by the ? nancial statements. Thus, if users cannot glean the required information from the ? nancial statements, it is often unavailable to them. Other sources of information concerning the ? nancial health of a business are normally uch less useful. HOW USEFUL IS ACCOUNTING INFORMATION? Activity 1. 3 What other sources of information might, say, an investment analayst use in an attempt to gain an impression of the financial position and performance of a business? What kind of information might be gleaned from these sources? Other sources of information available include: ? ? ? ? ? ? ? ? meetings with managers of the business; public announcements made by the business; newspaper and magazine articles; websites, including the website of the business; adio and TV reports; information-gathering agencies (for example, agencies that assess businesses’ creditworthiness or credit ratings); industry reports; economy-wide reports. These sources can provide information on various aspects of the business, such as new products or services being offered, management changes, new contracts offered or awarded, the competitive environment within which the business operates, the impact of new technology, changes in legislation, changes in interest rates and future levels of inflation.

However, the various sources of information identified are not really substitutes for accounting reports. Rather, they are best used in conjunction with the reports in order to obtain a clearer picture of the financial health of a business. Evidence on the usefulness of accounting ? There are arguments and convincing evidence that accounting information is at least perceived as being useful to users. Numerous research surveys have asked users to rank the importance of accounting information, in relation to other sources of information, for decision-making purposes.

Generally, these studies have found that users rank accounting information very highly. There is also considerable evidence that businesses choose to produce accounting information that exceeds the minimum requirements imposed by accounting regulations. (For example, businesses often produce a considerable amount of accounting information for managers, which is not required by any regulations. ) Presumably, the cost of producing this additional accounting information is justi? ed on the grounds that users ? nd it useful.

Such arguments and evidence, however, leave unanswered the question of whether the information produced is actually used for decision-making purposes, that is: does it affect people’s behaviour? It is normally very dif? cult to assess the impact of accounting on decision making. One situation arises, however, where the impact of accounting information can be observed and measured. This is where the shares (portions of ownership of a business) are traded on a stock exchange. The evidence reveals that, when a business makes an announcement concerning its accounting pro? s, the prices at which shares are traded and the volume of shares traded often change signi? cantly. This suggests that investors are changing their views about the future prospects of the business as a result of this new information becoming available to them and that this, in turn, leads them to make a decision either to buy or to sell shares in the business. Although there is evidence that accounting reports are perceived as being useful and are used for decision-making purposes, it is impossible to measure just how useful 5 6 CHAPTER 1 INTRODUCTION TO ACCOUNTING ccounting reports are to users. As a result we cannot say with certainty whether the cost of producing those reports represents value for money. Accounting information will usually represent only one input to a particular decision and so the precise weight attached to the accounting information by the decision maker and the bene? ts which ? ow as a result cannot be accurately assessed. We shall now go on to see, however, that it is at least possible to identify the kinds of qualities which accounting information must possess in order to be useful.

Where these qualities are lacking, the usefulness of the information will be diminished. Providing a service One way of viewing accounting is as a form of service. Accountants provide economic information to their ‘clients’, who are the various users identi? ed in Figure 1. 1. The quality of the service provided is determined by the extent to which the needs of the various user groups have been met. To meet these users’ needs, it can be argued that accounting information should possess certain key qualities, or characteristics: relevance, reliability, comparability and understandability. ? ? Relevance. Accounting information must have the ability to in? uence decisions. Unless this characteristic is present, there is really no point in producing the information. The information may be relevant to the prediction of future events (for example, in predicting how much pro? t is likely to be earned next year) or relevant in helping to con? rm past events (for example, in establishing how much pro? t was earned last year). The role of accounting in con? rming past events is important because users often wish to check the accuracy of earlier predictions that they have made.

The accuracy (or inaccuracy) of earlier predictions may help users to judge the accuracy of current predictions. To in? uence a decision, the information must, of course, be available when the decision is being made. Thus, relevant information must be timely. ? Reliability. Accounting should be free from signi? cant error or bias. It should be capable of being relied upon by managers to represent what it is supposed to represent. Though both relevance and reliability are very important, the problem that we often face in accounting is that information that is highly relevant may not be very reliable.

Similarly, that which is reliable may not be very relevant. Activity 1. 4 To illustrate this last point, let us assume that a manager has to sell a custom-built machine owned by their business and has recently received a bid for it. This machine is very unusual and there is no ready market for it. What information would be relevant to the manager when deciding whether to accept the bid? How reliable would that information be? The manager would probably like to know the current market value of the machine before deciding whether or not to accept the bid.

The current market value would be highly relevant to the final decision, but it might not be very reliable because the machine is unique and there is likely to be little information concerning market values. BUT … IS IT MATERIAL? When seeking to strike the right balance between relevance and reliability, the needs of users should be the overriding consideration. ? ? ? Comparability. This quality will enable users to identify changes in the business over time (for example, the trend in sales revenue over the past ? ve years).

It will also help them to evaluate the performance of the business in relation to similar businesses. Comparability is achieved by treating items that are basically the same in the same manner for accounting purposes. Comparability may also be enhanced by making clear the policies that have been adopted in measuring and presenting the information. ? Understandability. Accounting reports should be expressed as clearly as possible and should be understood by those at whom the information is aimed. Activity 1. 5 Do you think that accounting reports should be understandable to those who have not studied accounting?

It would be very useful if accounting reports could be understood by everyone. This, however, is unrealistic as complex financial events and transactions cannot normally be expressed in simple terms. It is probably best that we regard accounting reports in the same way that we regard a report written in a foreign language. To understand either of these, we need to have had some preparation. Generally speaking, accounting reports assume that the user not only has a reasonable knowledge of business and accounting but is also prepared to invest some time in studying the reports.

Despite the answer to Activity 1. 5, the onus is clearly on accountants to provide information in a way that makes it as understandable as possible to non-accountants. But . . . is it material? ? The qualities, or characteristics, that have just been described will help us to decide whether accounting information is potentially useful. If a particular piece of information has these qualities then it may be useful. However, this does not automatically mean that it should be reported to users. We also have to consider whether the information is material, or signi? cant.

This means that we should ask whether its omission or misrepresentation in the accounting reports would really alter the decisions that users make. Thus, in addition to possessing the characteristics mentioned above, accounting information must also cross the threshold of materiality. If the information is not regarded as material, it should not be included within the reports as it will merely clutter them up and, perhaps, interfere with the users’ ability to interpret the ? nancial results. The type of information and amounts involved will normally determine whether it is material. 8 CHAPTER 1 INTRODUCTION TO ACCOUNTING Weighing up the costs and benefits Having read the previous sections you may feel that, when considering a piece of accounting information, provided the four main qualities identi? ed are present and it is material it should be gathered and made available to users. Unfortunately, there is one more hurdle to jump. Something may still exclude a piece of accounting information from the reports even when it is considered to be useful. Consider Activity 1. 6. Activity 1. 6 Suppose an item of information is capable of being provided. It is relevant o a particular decision; it is also reliable, comparable, can be understood by the decision maker concerned and is material. Can you think of a reason why, in practice, you might choose not to produce the information? The reason that you may decide not to produce, or discover, the information is that you judge the cost of doing so to be greater than the potential benefit of having the information. This cost–benefit issue will limit the extent to which accounting information is provided. In theory, a particular item of accounting information should only be produced if the costs of providing it are less than the bene? s, or value, to be derived from its use. Figure 1. 2 shows the relationship between the costs and value of providing additional accounting information. Figure 1. 2 Relationship between costs and the value of providing additional accounting information The benefits of accounting information eventually decline. The cost of providing information, however, will rise with each additional piece of information. The optimal level of information provision is where the gap between the value of the information and the cost of providing it is at its greatest. WEIGHING UP THE COSTS AND BENEFITS The ? ure shows how the value of information received by the decision maker eventually begins to decline. This is, perhaps, because additional information becomes less relevant, or because of the problems that a decision maker may have in processing the sheer quantity of information provided. The costs of providing the information, however, will increase with each additional piece of information. The broken line indicates the point at which the gap between the value of information and the cost of providing that information is at its greatest. This represents the optimal amount of information that can be provided.

This theoretical model, however, poses a number of problems in practice. We shall now go on to discuss these. To illustrate the practical problems of establishing the value of information, let us assume that someone has collided with our car in a car park and dented and scraped the paint from one of the doors. We wish to have the dent taken out and the door resprayed at a local garage. We know that the nearest garage would charge ? 250 but believe that other local garages may offer to do the job for a lower price. The only way of ? nding out the prices at other garages is to visit them, so that they can see the extent of the damage.

Visiting the garages will involve using some petrol and will take up some of our time. Is it worth the cost of ? nding out the price for the job at the various local garages? The answer, as we have seen, is that if the cost of discovering the price is less than the potential bene? t, it is worth having that information. To identify the various prices for the job, there are several points to be considered, including: ? How many garages shall we visit? ? What is the cost of petrol to visit each garage? ? How long will it take to make all the garage visits? ? At what price do we value our time? The economic bene? of having the information on the price of the job is probably even harder to assess. The following points need to be considered: ? What is the cheapest price that we might be quoted for the job? ? How likely is it that we shall be quoted a price cheaper than ? 250? As we can imagine, the answers to these questions may be far from clear – remember that we have only contacted the local garage so far. When assessing the value of accounting information we are confronted with similar problems. The provision of accounting information can be very costly; however, the costs are often dif? cult to quantify.

The direct, out-of-pocket, costs such as salaries of accounting staff are not really a problem to identify, but these are only part of the total costs involved. There are also less direct costs such as the cost of the user’s time spent on analysing and interpreting the information contained in reports. The economic bene? t of having accounting information is even harder to assess. It is possible to apply some ‘science’ to the problem of weighing the costs and bene? ts, but a lot of subjective judgement is likely to be involved. No one would seriously advocate that the typical business should produce no accounting information.

At the same time, no one would advocate that every item of information that could be seen as possessing one or more of the key characteristics should be produced, irrespective of the cost of producing it. The characteristics that in? uence the usefulness of accounting information and which have been discussed in this section and the preceding section are set out in Figure 1. 3. 9 10 CHAPTER 1 INTRODUCTION TO ACCOUNTING Figure 1. 3 The characteristics that influence the usefulness of accounting information There are four main qualitative characteristics that influence the usefulness of accounting information.

In addition, however, accounting information should be material and the benefits of providing the information should outweigh the costs. Accounting as an information system ? We have already seen that accounting can be seen as the provision of a service to ‘clients’. Another way of viewing accounting is as a part of the business’s total information system. Users, both inside and outside the business, have to make decisions concerning the allocation of scarce economic resources. To ensure that these resources are ef? ciently allocated, users need economic information on which to base decisions.

It is the role of the accounting system to provide that information and this will involve information gathering and communication. The accounting information system should have certain features that are common to all valid information systems within a business. These are: ? identifying and capturing relevant information (in this case ? nancial information); ? recording the information collected in a systematic manner; ? analysing and interpreting the information collected; ? reporting the information in a manner that suits the needs of users. The relationship between these features is set out in Figure 1. . ACCOUNTING AS AN INFORMATION SYSTEM Figure 1. 4 The accounting information system There are four sequential stages of an accounting information system. The first two stages are concerned with preparation, whereas the last two stages are concerned with using the information collected. Given the decision-making emphasis of this book, we shall be concerned primarily with the ? nal two elements of the process: the analysis and reporting of accounting information. We shall consider the way in which information is used by, and is useful to, users rather than the way in which it is identi? ed and recorded. Ef? ient accounting systems are an essential ingredient of an ef? cient business. When the accounting systems fail, the results can be disastrous. Real World 1. 1 provides an example of a systems failure when two businesses combined and then attempted to integrate their respective systems. Real World 1. 1 Blaming the system FT When Sir Ken Morrison bought Safeway for ? 3. 35bn in March 2004, he almost doubled the size of his supermarket chain overnight and went from being a regional operator to a national force. His plan was simple enough. He had to sell off some Safeway stores – Morrison has to date sold off 184 stores for an estimated ? . 3bn – and convert the remaining 230 Safeway stores into Morrison’s. Sir Ken has about another 50 to sell. But, nearly fifteen months on, and the integration process is proving harder in practice than it looked on paper. Morrison, once known for its robust performance, has issued four profit warnings in the past ten months. Each time the retailer has blamed Safeway. Last July, it was because of a faster-thanexpected sales decline in Safeway stores. In March – there were two warnings that month – it was the fault of Safeway’s accounting systems, which left Morrison with lower supplier incomes.

This month’s warning was put down to higher-than-expected costs from running parallel store systems. At the time of the first warning last July, Simon Procter, of the stockbrokers Charles Stanley, noted that the news ‘has blown all profit forecasts out of the water and visibility is very poor from here on out’. But if it was difficult then to predict where Morrison’s profits were heading, it is impossible now. Morrison itself cannot give guidance. ‘No one envisaged this,’ says Mr Procter. ‘When I made that comment about visibility last July, I was thinking on a twelve-month time frame, not a two-year one. Morrison says the complexity of the Safeway deal has put a ‘significant strain’ on its ability to cope with managing internal accounts. ‘This is impacting the ability of the board to forecast likely trends in profitability and the directors are therefore not currently in a position to provide reliable guidance on the level of profitability as a whole,’ admits the retailer. Source: ‘Morrison in uphill battle to integrate Safeway’, Elizabeth Rigby, Financial Times, 26 May 2005. As a footnote to Real World 1. 1, though Morrison had its problems, these were quickly overcome and the Safeway takeover has proved to be a success. 1 12 CHAPTER 1 INTRODUCTION TO ACCOUNTING Management accounting and financial accounting Accounting is usually seen as having two distinct strands. These are: ? ? ? management accounting, which seeks to meet the accounting needs of managers; and ? financial accounting, which seeks to meet the accounting needs of all of the other users identi? ed earlier in the chapter (see Figure 1. 1). The difference in their targeted user groups has led to each strand of accounting developing along different lines. The main areas of difference are as follows. ? Nature of the reports produced.

Financial accounting reports tend to be general- ? ? ? ? ? purpose, that is, they contain ? nancial information that will be useful for a broad range of users and decisions rather than being speci? cally designed for the needs of a particular group or set of decisions. Management accounting reports, on the other hand, are often speci? c-purpose reports. They are designed with a particular decision in mind and/or for a particular manager. Level of detail. Financial accounting reports provide users with a broad overview of the performance and position of the business for a period.

As a result, information is aggregated and detail is often lost. Management accounting reports, however, often provide managers with considerable detail to help them with a particular operational decision. Regulations. Financial accounting reports, for many businesses, are subject to accounting regulations that try to ensure they are produced with standard content and in a standard format. The law and accounting rule makers impose these regulations. As management accounting reports are , there are no regulations from external sources concerning the form and content of the reports.

They can be designed to meet the needs of particular managers. Reporting interval. For most businesses, ? nancial accounting reports are produced on an annual basis, though some large businesses produce half-yearly reports and a few produce quarterly ones. Management accounting reports may be produced as frequently as required by managers. In many businesses, managers are provided with certain reports on a daily, weekly or monthly basis, which allows them to check progress frequently. In addition, special-purpose reports will be prepared when required (for example, to evaluate a proposal to purchase a piece of equipment).

Time orientation. Financial accounting reports re? ect the performance and position of the business for the past period. In essence, they are backward looking. Management accounting reports, on the other hand, often provide information concerning future performance as well as past performance. It is an oversimpli? cation, however, to suggest that ? nancial accounting reports never incorporate expectations concerning the future. Occasionally, businesses will release projected information to other users in an attempt to raise capital or to ? ght off unwanted takeover bids. Even preparation of the routine ? ancial accounting reports typically requires making some judgements about the future, as we shall see in Chapter 3. Range and quality of information. Financial accounting reports concentrate on information that can be quanti? ed in monetary terms. Management accounting also produces such reports, but is also more likely to produce reports that contain information of a non-? nancial nature, such as physical volume of inventories, number of sales orders received, number of new products launched, physical output per employee and so on. Financial accounting places greater emphasis on the use of objective, veri? ble evidence when preparing reports. Management accounting reports may use information that is less objective and veri? able, but nevertheless provide managers with the information they need. SCOPE OF THIS BOOK We can see from this that management accounting is less constrained than ? nancial accounting. It may draw from a variety of sources and use information that has varying degrees of reliability. The only real test to be applied when assessing the value of the information produced for managers is whether or not it improves the quality of the decisions made.

The distinctions between management and ? nancial accounting suggest that there are differences between the information needs of managers and those of other users. While differences undoubtedly exist, there is also a good deal of overlap between these needs. Activity 1. 7 Can you think of any areas of overlap between the information needs of managers and those of other users? We thought of two points: ? ? Managers will, at times, be interested in receiving a historical overview of business operations of the sort provided to other users.

Other users would be interested in receiving information relating to the future, such as the planned level of profits and non-financial information such as the state of the sales order book and the extent of product innovations. The distinction between the two areas of accounting re? ects, to some extent, the differences in access to ? nancial information. Managers have much more control over the form and content of information they receive. Other users have to rely on what managers are prepared to provide or what the ? nancial reporting regulations require to be provided. Though the scope of ? ancial accounting reports has increased over time, fears concerning loss of competitive advantage and user ignorance concerning the reliability of forecast data have led businesses to resist providing other users with the same detailed and wide-ranging information available to managers. In the past, it has been argued that accounting systems are far too geared to meeting the regulatory requirements of ? nancial accounting to be able to provide the information most helpful to managers. This is to say that ? nancial accounting requirements have been the main priority and management accounting has suffered as a result.

Recent survey evidence suggests, however, that this argument has lost its force. Modern management accounting systems tend to provide managers with information that is relevant to their needs rather than what is determined by external reporting requirements. Financial reporting cycles, however, retain some in? uence over management accounting and managers are aware of expectations of external users (see the reference at the end of the chapter). Scope of this book This book is concerned with ? nancial accounting rather than management accounting. In Chapter 2 we begin by introducing the three principal ? ancial statements: ? the statement of ? nancial position (sometimes known as the balance sheet); ? the income statement (also called the pro? t and loss account); and ? the statement of cash ? ows. 13 14 CHAPTER 1 ? INTRODUCTION TO ACCOUNTING These statements are brie? y reviewed before we go on to consider the statement of ? nancial position in more detail. We shall see that the statement of ? nancial position provides information concerning the wealth held by a business at a particular point in time and the claims against this wealth. Included in our consideration of the statement of ? ancial position will be an introduction to the conventions of accounting. Conventions are the generally accepted rules that accountants tend to follow when preparing ? nancial statements. Chapter 3 introduces the second of the major ? nancial statements, the income statement. This provides information concerning the wealth created by a business during a period. In this chapter we shall be looking at such issues as how pro? t is measured, the point in time at which we recognise that a pro? t has been made and the accounting conventions that apply to this particular statement.

In the UK and throughout much of the industrialised world, the limited company is the major form of business unit. In Chapter 4 we consider the accounting aspects of limited companies. Although there is nothing of essence that makes the accounting aspects of companies different from other types of private-sector business, there are some points of detail that we need to consider. In Chapter 5 we continue our examination of limited companies and, in particular, consider the framework of rules that must be adhered to when presenting accounting reports to owners and external users.

Chapter 6 deals with the last of the three principal ? nancial statements, the statement of cash ? ows. This ? nancial statement is important in identifying the ? nancing and investing activities of the business over a period. It sets out how cash was generated and how cash was used during a period. Reading the three statements will provide information about the performance and position of a business. It is possible, however, to gain even more helpful insights about the business by analysing the statements using ? nancial ratios and other techniques. Combining two ? ures in the ? nancial statements in a ratio and comparing this with a similar ratio for, say, another business, can often tell us much more than just reading the ? gures themselves. Chapters 7 and 8 are concerned with techniques for analysing ? nancial statements. The typical large business in the UK is a group of companies rather than just a single company. A group of companies will exist where one company controls one or more other companies. In Chapter 9 we shall see why groups exist and consider the accounting issues raised by the combination of companies into groups.

The scope of ? nancial reporting has tended to alter over the years. In Chapter 10 we shall consider where ? nancial reporting has come from and how it seems to be developing. Finally, in Chapter 11, we shall consider the way in which larger businesses are managed and how directors and other senior managers are accountable to the owners and to other groups with an interest in the business. Has accounting become too interesting? In recent years, accounting has become front-page news and has been a major talking point among those connected with the world of business.

Unfortunately, the attention that accounting has attracted has been for all the wrong reasons. We have seen that investors rely on ? nancial reports to help to keep an eye both on their investment and on the performance of the managers. What, though, if the managers provide misleading ? nancial reports to investors? Recent revelations suggest that the managers of some large businesses have been doing just this. HAS ACCOUNTING BECOME TOO INTERESTING? Two of the most notorious cases have been those of: ? Enron, an energy-trading business based in Texas, which was accused of entering into complicated ? ancial arrangements in an attempt to obscure losses and to in? ate pro? ts; and ? WorldCom, a major long-distance telephone operator in the US, which was accused of reclassifying $3. 9 billion of expenses so as to falsely in? ate the pro? t ? gures that the business reported to its owners (shareholders) and to others. In the wake of these scandals, there was much closer scrutiny by investment analysts and investors of the ? nancial reports that businesses produce. This led to further businesses, in both the US and Europe, being accused of using dubious accounting practices to bolster reported pro? ts.

Accounting scandals can have a profound effect on all those connected with the business. The Enron scandal, for example, ultimately led to the collapse of the company, which, in turn, resulted in lost jobs and large ? nancial losses for lenders, suppliers and investors. Con? dence in the world of business can be badly shaken by such events and this can pose problems for society as a whole. Not surprisingly, therefore, the relevant authorities tend to be severe on those who perpetrate such scandals. In the US, Bernie Ebbers, the former chief executive of WorldCom, received 25 years in prison for his part in the fraud.

Various reasons have been put forward to explain this spate of scandals. Some may have been caused by the pressures on managers to meet unrealistic expectations of investors for continually rising pro? ts, others by the greed of unscrupulous executives whose pay is linked to ? nancial performance. However, they may all re? ect a particular economic environment. Real World 1. 2 gives some comments suggesting that when all appears to be going well with a business, people can be quite gullible and over-trusting. Real World 1. 2 The thoughts of Warren Buffett

Warren Buffett is one of the world’s shrewdest and most successful investors. He believes that the accounting scandals mentioned above were perpetrated during the ‘new economy boom’ of the late 1990s when confidence was high and exaggerated predictions were being made concerning the future. He states that during that period You had an erosion of accounting standards. You had an erosion, to some extent, of executive behaviour. But during a period when everybody ‘believes’, people who are inclined to take advantage of other people can get away with a lot.

He believes that the worst is now over and that the ‘dirty laundry’ created during this heady period is being washed away and that the washing machine is now in the ‘rinse cycle’. Source: The Times, Business Section, 26 September 2002, p. 25. nisyndication. com. Whatever the causes, the result of these accounting scandals has been to undermine the credibility of ? nancial statements and to introduce much stricter regulations concerning the quality of ? nancial information. We shall return to this issue in later chapters when we consider the ? nancial statements. 15 16 CHAPTER 1

INTRODUCTION TO ACCOUNTING The changing face of accounting Over the past 25 years, the environment within which businesses operate has become increasingly turbulent and competitive. Various reasons have been identi? ed to explain these changes, including: ? the increasing sophistication of customers; ? the development of a global economy where national frontiers become less important; ? rapid changes in technology; ? the deregulation of domestic markets (for example, electricity, water and gas); ? increasing pressure from owners (shareholders) for competitive economic returns; ? he increasing volatility of ? nancial markets. This new, more complex, environment has brought new challenges for managers and other users of accounting information. Their needs have changed and both ? nancial accounting and management accounting have had to respond. To meet the changing needs of users there has been a radical review of the kind of information to be reported. The changing business environment has given added impetus to the search for a clear framework and principles upon which to base ? nancial accounting reports. Various attempts have been made to clarify the purpose of ? ancial accounting reports and to provide a more solid foundation for the development of accounting rules. The frameworks and principles that have been developed try to address fundamental questions such as: ? Who are the users of ? nancial accounting information? ? What kinds of ? nancial accounting reports should be prepared and what should they contain? ? How should items (such as pro? t and asset values) be measured? In response to criticisms that the ? nancial reports of some businesses are not clear enough to users, accounting rule makers have tried to improve reporting rules to ensure that the accounting policies of businesses are ore comparable and more transparent, and that they portray economic reality more faithfully. While this has had a generally bene? cial effect, the recent accounting scandals have highlighted the limitations of accounting rules in protecting investors and others. The internationalisation of businesses has created a need for accounting rules to have an international reach. It can no longer be assumed that users of accounting information relating to a particular business are based in the country in which the business operates or are familiar with the accounting rules of that country.

Thus, there has been increasing harmonisation of accounting rules across national frontiers. A more detailed review of these developments is included in Chapter 5. Management accounting has also changed by becoming more outward looking in its focus. In the past, information provided to managers has been largely restricted to that collected within the business. However, the attitude and behaviour of customers and rival businesses have now become the object of much information gathering. Increasingly, successful businesses are those that are able to secure and maintain competitive advantage over their rivals.

To obtain this advantage, businesses have become more ‘customer driven’ (that is, concerned with satisfying customer needs). This has led to management accounting information that provides details of customers and the market, such as customer evaluation of services provided and market share. In addition, information about the costs and pro? ts of rival businesses, which can be used as ‘benchmarks’ by which to gauge competitiveness, is gathered and reported. WHAT KINDS OF BUSINESS OWNERSHIP EXIST? To compete successfully, businesses must also ? d ways of managing costs. The cost base of modern businesses is under continual review and this, in turn, has led to the development of more sophisticated methods of measuring and controlling costs. What kinds of business ownership exist? The particular form of business ownership has important implications for accounting purposes and so it is useful to be clear about the main forms of ownership that can arise. There are basically three arrangements: ? sole proprietorship; ? partnership; and ? limited company. Each of these is considered below. Sole proprietorship ?

Sole proprietorship, as the name suggests, is where an individual is the sole owner of a business. This type of business is often quite small in terms of size (as measured, for example, by sales revenue generated or number of staff employed); however, the number of such businesses is very large indeed. Examples of sole-proprietor businesses can be found in most industrial sectors but particularly within the service sector. Hence, services such as electrical repairs, picture framing, photography, driving instruction, retail shops and hotels have a large proportion of sole-proprietor businesses.

The sole-proprietor business is easy to set up. No formal procedures are required and operations can often commence immediately (unless special permission is required because of the nature of the trade or service, such as running licensed premises). The owner can decide the way in which the business is to be conducted and has the ? exibility to restructure or dissolve the business whenever it suits. The law does not recognise the sole-proprietor business as being separate from the owner, so the business will cease on the death of the owner.

Although the owner must produce accounting information to satisfy the taxation authorities, there is no legal requirement to produce accounting information relating to the business for other user groups. However, some user groups may demand accounting information about the business and may be in a position to have their demands met (for example, a bank requiring accounting information on a regular basis as a condition of a loan). The sole proprietor will have unlimited liability which means that no distinction will be made between the proprietor’s personal wealth and that of the business if there are business debts that must be paid.

Partnership ? A partnership exists where at least two individuals carry on a business together with the intention of making a pro? t. Partnerships have much in common with sole-proprietor businesses. They are usually quite small in size (although some, such as partnerships of accountants and solicitors, can be large). Partnerships are also easy to set up as no formal procedures are required (and it is not even necessary to have a written agreement between the partners). The partners can agree whatever arrangements suit them concerning the ? nancial and management aspects of the business.

Similarly, the partnership can be restructured or dissolved by agreement between the partners. 17 18 CHAPTER 1 INTRODUCTION TO ACCOUNTING Partnerships are not recognised in law as separate entities and so contracts with third parties must be entered into in the name of individual partners. The partners of a business usually have unlimited liability. Activity 1. 8 What are the main advantages and disadvantages that should be considered when deciding between a sole proprietorship and a partnership? The main advantages of a partnership over a sole-proprietor business are: ? ? ? sharing the burden of ownership; he opportunity to specialise rather than cover the whole range of services (for example, in a solicitors’ practice each partner may specialise in a different aspect of the law); the ability to raise capital where this is beyond the capacity of a single individual. The main disadvantages of a partnership compared with a sole proprietorship are: ? ? the risks of sharing ownership of a business with unsuitable individuals; the limits placed on individual decision making that a partnership will impose. Limited company ? Limited companies can range in size from quite small to very large.

The number of individuals who subscribe capital and become the owners may be unlimited, which provides the opportunity to create a very large-scale business. The liability of owners, however, is limited (hence ‘limited’ company), which means that those individuals subscribing capital to the company are liable only for debts incurred by the company up to the amount that they have agreed to invest. This cap on the liability of the owners is designed to limit risk and to produce greater con? dence to invest. Without such limits on owner liability, it is dif? cult to see how a modern capitalist economy could operate.

In many cases, the owners of a limited company are not involved in the day-to-day running of the business and will, therefore, invest in a business only if there is a clear limit set on the level of investment risk. The bene? t of limited liability, however, imposes certain obligations on such companies. To start up a limited company, documents of incorporation must be prepared that set out, among other things, the objectives of the business. Furthermore, a framework of regulations exists that places obligations on limited companies concerning the way in which they conduct their affairs. Part of this regulatory framework requires annual ? ancial reports to be made available to owners and lenders and usually an annual general meeting of the owners has to be held to approve the reports. In addition, a copy of the annual ? nancial reports must be lodged with the Registrar of Companies for public inspection. In this way, the ? nancial affairs of a limited company enter the public domain. With the exception of small companies, there is also a requirement for the annual ? nancial reports to be subject to an audit. This involves an independent ? rm of accountants examining the annual reports and underlying records to see whether the reports provide a true and fair view of the ? ancial health of the company and whether they comply with the relevant accounting rules established by law and by accounting rule makers. All of the large household-name UK businesses (Marks and Spencer, Tesco, Shell, BSkyB, BA, BT, easyJet and so on) are limited companies. Limited companies are considered in more detail in Chapters 4 and 5. HOW ARE BUSINESSES ORGANISED? Activity 1. 9 What are the main advantages and disadvantages that should be considered when deciding between a partnership business and a limited liability company?

The main advantages of a partnership over a limited company are: ? ? ? ? the ease of setting up the business; the degree of flexibility concerning the way in which the business is conducted; the degree of flexibility concerning restructuring and dissolution of the business; freedom from administrative burdens imposed by law (for example, the annual general meeting and the need for an independent audit). The main disadvantage of a partnership compared with a limited company is the fact that it is not possible to limit the liability of all of the partners.

This book concentrates on the accounting aspects of limited liability companies because this type of business is by far the most important in economic terms. The early chapters will introduce accounting concepts through examples that do not draw a distinction between the different types of business. Once we have dealt with the basic accounting principles, which are the same for all three types of business, we can then go on to see how they are applied to limited companies. It must be emphasised that there are no differences in the way that these three forms of business keep their day-to-day accounting records.

In preparing their periodic ? nancial statements, there are certain differences that need to be considered. These differences are not ones of principle, however, but of detail. How are businesses organised? As we have just seen, nearly all businesses that involve more than a few owners and/or employees are set up as limited companies. This means that the ? nance will come from the owners (shareholders) both in the form of a direct cash investment to buy shares (in the ownership of the business) and through the owners allowing past pro? s, which belong to them, to be reinvested in the business. Finance will also come from lenders (banks, for example), who earn interest on their loans and from suppliers of goods and services being prepared to supply on credit, with payment occurring a month or so after the date of supply, usually on an interest-free basis. In larger limited companies, the owners (shareholders) are not involved in the daily running of the business; instead they appoint a board of directors to manage the business on their behalf. The board is charged with three major tasks: ? etting the overall direction and strategy for the business; ? monitoring and controlling its activities; and ? communicating with owners and others connected with the business. Each board has a chairman, elected by the directors, who is responsible for running the board in an ef? cient manner. In addition, each board has a chief executive of? cer (CEO), or managing director, who is responsible for running the business on a dayto-day basis. Occasionally, the roles of chairman and CEO are combined, although it is usually considered to be a good idea to eparate them in order to prevent a single individual having excessive power. We shall come back to consider the relationship between directors and shareholders in more detail in Chapter 4. 19 20 CHAPTER 1 INTRODUCTION TO ACCOUNTING The board of directors represents the most senior level of management. Below this level, managers are employed, with each manager given responsibility for a particular part of the business’s operations. What is the financial objective of a business? A business is created to enhance the wealth of its owners.

Throughout this book we shall assume that this is its main objective. This may come as a surprise, as there are other objectives that a business may pursue that are related to the needs of others associated with the business. For example, a business may seek to provide good working conditions for its employees, or it may seek to conserve the environment for the local community. While a business may pursue these objectives, it is normally set up with a view to increasing the wealth of its owners. In practice, the behaviour of businesses over time appears to be consistent with this objective.

Real World 1. 3 reveals how one well-known business has changed its focus in order to improve pro? tability. Real World 1. 3 Profiting from change It speaks volumes for the work done by Kate Swann in turning around W H Smith that when she became chief executive five years ago, the company was being spoken of in similar tems to Woolworths. Comments such as ‘You wouldn’t invent it if you were starting out today’ and ‘What is it actually for these days? ’ were typical among analysts, as they were with Woolies.

Indeed, many thought that W H Smith was beyond help and argued that the supermarkets were eating away at sales. Ms Swann has defied the sceptics, achieving an impressive turnaround. The company’s magazine and newspaper distribution division was hived off as a separate entity and new outlets were opened at airports and railway stations – so much so that sales by W H Smith’s travel unit now threaten to overtake those of its traditional high street stores. Lower-[profit-]margin lines, such as CDs and DVDs, have been cleared from the shelves to make way for higher-margin items, such as stationery.

The last plank of the strategy was in evidence again in yesterday’s update, in which Ms Swann reported that sales in the nine weeks to January 17 were down by 7 per cent in the high street stores and by 2 per cent in the travel stores, partly because W H Smith is continuing to reduce its exposure to the entertainment category. That was the bad news. The good news was that, although sales overall were down, the reduced focus on entertainment was good for profits. W H Smith made an extra 2p of profit in every ? 1 of sales, compared with the same period a year earlier, a stunning achievement given the deflation hitting the high street.

Source: ‘Business big shot’, Ian King, The Times, 27 January 2009, p. 39. nisyndication. com. Within a market economy there are strong competitive forces at work that ensure that failure to enhance owners’ wealth will not be tolerated for long. Competition for the funds provided by the owners and competition for managers’ jobs will normally mean that the owners’ interests will prevail. If the managers do not provide the expected increase in ownership wealth, the owners have the power to replace the existing management team with a new team that is more responsive to owners’ needs. WHAT IS THE FINANCIAL OBJECTIVE OF A BUSINESS?

Does this mean that the needs of other groups associated with the business (employees, customers, suppliers, the community and so on) are not really important? The answer to this question is certainly no, if the business wishes to survive and prosper over the longer term. Satisfying the needs of other groups will normally be consistent with increasing the wealth of the owners over the longer term. The importance of customers to a business cannot be overstated. Dissatis? ed customers will take their business to another supplier and this will, in turn, lead to a loss of wealth for the owners of the business losing the customers.

Real World 1. 4 provides an illustration of the way in which one business acknowledges the link between customer satisfaction and creating wealth for its owners. Real World 1. 4 Checking out Sainsbury’s objectives J Sainsbury plc is a leading food retailer that recognises the importance of customers to increasing the wealth of the owners (shareholders) as follows: Our objective is to serve customers well and thereby provide shareholders with good, sustainable financial returns. Source: Investor FAQs, www. j-sainsbury. co. uk, 8 January 2009, p. 1. A dissatis? d workforce may result in low productivity, strikes and so forth, which will in turn have an adverse effect on owners’ wealth. Similarly, a business that upsets the local community by unacceptable behaviour, such as polluting the environment, may attract bad publicity, resulting in a loss of customers and heavy ? nes. Real World 1. 5 provides an example of how two businesses responded to potentially damaging allegations. Real World 1. 5 The price of clothes FT US clothing and sportswear manufacturers Gap and Nike have many of their clothes produced in Asia where labour tends to be cheap.

However, some of the contractors that produce clothes on behalf of the two companies have been accused of unacceptable practices. Campaigners visited the factories and came up with damaging allegations. The factories were employing minors, they said, and managers were harassing female employees. Nike and Gap reacted by allowing independent inspectors into the factories. They promised to ensure their contractors obeyed minimum standards of employment. Earlier this year, Nike took the extraordinary step of publishing the names and addresses of all its contractors’ factories on the internet.

The company said it could not be sure all the abuse had stopped. It said that if campaigners visited its contractors’ factories and found examples of continued malpractice, it would take action. Nike and Gap said the approach made business sense. They needed society’s approval if they were to prosper. Nike said it was concerned about the reaction of potential US recruits to the campaigners’ allegations. They would not want to work for a company that was constantly in the news because of the allegedly cruel treatment of those who made its products. Source: ‘Fair shares? , Michael Skapinker, Financial Times, 11 June 2005. 21 22 CHAPTER 1 INTRODUCTION TO ACCOUNTING It is important to recognise that generating wealth for the owners is not the same as seeking to maximise the current year’s pro? t. Wealth creation is a longer-term concept, which relates not only to this year’s pro? t but to that of future years as well. In the short term, corners can be cut and risks taken that improve current pro? t at the expense of future pro? t. Real World 1. 6 gives some examples of how emphasis on short-term pro? t can be damaging. Real World 1. 6 Short-term gains, long-term problems

FT Human beings are bad at learning and changing. It takes a good crisis to drive home what may have been staring us in the face. So what in particular are the lessons for all those concerned with saving, investment, borrowing and lending? For many years, under the guise of defending capitalism, we have been allowing ourselves to degrade it. We have been poisoning the well from which we have drawn wealth. We have misunderstood the importance of values to capitalism. We have surrendered to the idea that success is pursued by making as much money as the law allowed without regard to how it was made.

Thirty years ago, retailers would b

Introduction Tesco Public Limited Company is a merchandising retailer and a grocery retailer multinational chain which has it’s headquarter in Cheshunt in the United Kingdom. Tesco as compared to its counterparts, Walmart and Carrefour, is the world’s third largest retail store with regard to the revenues that it generates. Tesco stands as the second largest retail stores of the world with regard to its profits, with Walmart being the first.

Tesco has its retail stores spread across almost 14 countries of the world of Asia, North America and Europe. Tesco public limited company is the market leader in its home country United Kingdom with a market share of almost 30%. Tesco was founded by Jack Cohen in 1919 which operated as a group of stalls in the market. After its inception today Tesco plc operates across diverse areas of clothing, electronics, furniture, books, financial services and internet services. Tesco is listed at the London Stock Exchange and is a part of the FTSE 100 index having a market capital of approximately ? 24. billion and a symbol of TSCO. Tesco has been operating with seven business segments, namely, Tesco Superstores, Tesco express, Tesco metro, Tesco extra, One stop, Tesco Homeplus, and Dobbies. The market share of Tesco as recorded in 2012 was 30. 2% which was the highest as compared to its European counterparts. Tesco has developed its marketing headline to be, “Every little helps”. The tag line is represented in all the print and TV advertisements of Tesco which represents the value that Tesco offers to its customers against the price that they pay, with the value being more than the price of the products.

Tesco not only works for company profits but also for the community at large in which it operates. Tesco has a value of contributing 1. 8% of its profits to the charitable organizations. Tesco has a culture based on its values of trust and respect. Tesco employees and management believe that the customers would come back to visit the stores for their shopping if they are satisfied with the products and the service. Tesco believes that the success of the company as a whole depends on the contribution of the employees and the customer satisfaction.

Management accounting is also used in making strategic management decisions (Dixon & Smith, 1993) . Tesco has seven core strategies on which it operates in the long run. The foremost strategy of Tesco is to grow the United Kingdom core business from where it started its operations and expanded globally. The United Kingdom being the largest business operating unit of Tesco generates the largest share of revenues and profits; therefore Tesco needs to develop this major segment of the business.

Tesco also has a goal of being the world’s largest retailer which it has been able to achieve since 1997 and has become the leading retail store in almost eight of its international retail stores. Tesco was originally a food retailer when it started operating and from then onwards it has aimed at becoming the strongest brand in the non-food items as well. Besides the growth in the United Kingdom segment Tesco has also a strategy of growing its retail stores in the other markets in which it has presence. Tesco believes in serving the community and working for its welfare so that the corporate responsibility of Tesco is fulfilled.

Tesco also aims to make high value brands at very competitive prices. Tesco aims to build brands that are highly appealing to the customers and also in providing the customers with quality products. Tesco also builds teams that are very committed to their work and has developed leaders who are dedicated and hard working. The leaders at Tesco have a major responsibility of building teams and working for the attainment of the organizational goals (Tesco, 2013). Tesco works closely with the customers and continuously collects their feedback by engaging focus groups in the feedback collection process.

The research center facilitates the identification of the research areas and the areas of concern in the profit centers. The customer feedback collected enables Tesco to make changes to the business processes so that they better meet the customer needs. Tesco also works closely with its suppliers to develop the best brands and also bring in a variety of offers for the customers. Tesco works with a number of suppliers including the FMCG companies and the local suppliers providing goods for the regional retail stores.

Management Accounting Functions at Tesco Management Accounting is distinguished from Financial Accounting as being an accounting constituent that is concerned with the measurement, analysis and the reporting of information regarding the financial and non-financial operations of the business, and taking decisions which are necessary for the attainment of goals of the organization (Bhimani & Langfield, 2007). Management accounting is concerned with the attainment of organizational goals and for serving the strategies of the organization (Durden, n. , p. 2). Hence, management accounting is concerned with the accounting information which is intended to be used within the organization and for the achievement of the goals of the organization. Management accounting is used in organizations to make decisions regarding the competitiveness of the business by the collection, processing, and the communication of the information which will hence help the management of the business in planning, controlling and evaluating the processes of the business and the strategies of the company.

The controllers in the large organizations are basically the leaders who run the management accounting function of the company and the controller then reports the accounting information to the finance heads which helps them in taking organizational wide decisions. At Tesco the management accountants are known for having a number of responsibilities including the collection of information from the different cost and profit centers, evaluation of the information, and the identification of the appropriate solutions to the problems faced by the cost or profit centers.

The management accountants have a responsibility of identifying the appropriate and the most cost efficient distribution systems. This role of management accounting in Tesco is related to the establishment and administration of effective control mechanisms. Another management accounting function of Tesco is the sales forecasting, which is related to the identification of the needs of the customers, sales volumes and the effects of seasonal fluctuations on the sales. The management accountants have also the responsibility of ordering the right quantity of supplies at the right time.

The management accountants are also responsible for developing cost, sales and profit budgets and to make capital investment plans. The management accountants also are responsible for the comparison of the plans and budgets with the benchmarks set and the identification of the discrepancies. The management accountants work towards taking the corrective measures in case of variances between the actual and the standard budgets. The task of standard costing is assigned to them which they use to take decisions which are useful for achieving the organizational goals.

The group strategy section of the financial reports shows the management roles in Tesco. The customer researches are conducted to know the extent of their satisfaction and their needs. The management accountants also plan the growth rates in the different markets across the world. The management roles are also highlighted in the capital expenditures section of the annual reports of Tesco. The capital expenditure plans are made by the management accountants. Tesco has planned for major capital expenditures which will enable it to diversify and move into expansion phases worldwide throughout all its retail chains.

The management accountants are also responsible for evaluating and critically analyzing the cash position of Tesco. The management accountants are charged with the responsibility of generating cash sources and reducing the capital expenditures of the retail stores. The working capital is reduced in 2012 which has enabled Tesco to have increased cash inflows (TESCO, 2012). Functions of Modern Management Accounting at Tesco The roles of management accountants in the modern era have increased and have been very diverse in the organizations.

The management accountants have many responsibilities including the formulation of accounting policies, statistical reports, administration of tax policies, coordination of the reports, preparation and the interpretation of the annual reports and the financial statements of organizations, audit of the accounting transactions and the records, compilation of the business costs, costing and planning of inventories, and the interpretation of the statistical reports of the organization.

At Tesco the management accountants are engaged in making budgets including annual as well as monthly budgets. The budgets prepared are used for planning the resources and the supplies required for the operations of the business. The management accountants at Tesco are responsible for looking ahead and predicting the future of the business. The management accountants prepare reports which are used within Tesco and are intended for internal use by the management rather than the outside stakeholders.

The reports prepared are kept confidential because they serve as the basis of the development of the strategies of Tesco. The management accountants have a dual reporting role within Tesco in that they are responsible for developing and managing the teams within Tesco and at the same time reporting to the chief financial officers and the financial departments. The management accountants at Tesco provide information related to the forecasts and plans, they perform variance analysis and monitor the cost centers.

Therefore they serve to be the controllers as well as the financial planners for Tesco. The management accountants gather financial information from all the department of Tesco, organize the data, analyze and interpret and then report their findings to the financial departments of Tesco. Therefore, the management accounting plays a very key role in Tesco. The management accounting over the years have also developed many management systems (Anthony & Govindarajan, 2007).

The management accountants are reported to by all the accounting departments and they are responsible for presenting their financial suggestions to the financial executives for the implementation of the plans. The management accountants at Tesco are therefore charged with the overall responsibility of managing and interpreting very large amounts of accounting information, and then reporting their findings to the chief financial officers. References Tesco PLC. (2013). Our Strategy. Retrieved from: http://www. tescoplc. com/index. asp? pageid=12 Tesco PLC. (2012).

Annual Report and Financial Statements. Retrieved from: http://www. tescoplc. com/files/reports/ar2012/files/pdf/tesco_annual_report_2012. pdf Durden, C. (n. d). The role of management accounting in organizational Control systems: preliminary evidence of an organic Approach. pp. 1-50. Retrieved from: http://www. afaanz. org/openconf/2008/modules/request. php? module=oc_proceedings&action=view. php&a=Accept+as+Paper&id=570 Anthony, R. N. , & Govindarajan, V. (2007). Management control systems. USA: Irwin/McGraw-Hill. Bhimani, A. , & Langfield-Smith, K. (2007).

Business moralss is of import in presents, as the human civilisation development. People ‘s life manner, public positions of event and the new engineering of media are non every bit same as before. All of the alterations are raising concern ethic onto a high degree importance for concern. Business in order to accomplish long-run net incomes, client relationship, it must utilize the moralss to curtail the duty ‘ ( Ferrell, Fraedrich & A ; Ferrell 2008 ) . For illustration, the recent events in Corporate America have demonstrated the destructive effects that occurs when the leading of a company does non act ethically, and concern savvy corporate professionals at Enron, Tyco, WorldCom, and Adelphia got themselves into such a large muss. The job lies in a profound deficiency of moralss.

B ) ‘An ethical issue is a job, state of affairs, or chance that requires an single, group, or organisation to take among several actions that must be evaluated as right or incorrect, ethical or unethical. ‘ ( Ferrell, Fraedrich & A ; Ferrell 2008 ) For illustration, “ Venkat as a database decision maker for a company found a memo about a co-worker acquiring sacked due to non working up to standard and holding a bad attitude. Venkat is shocked at this because this co-worker Tom is an built-in member of successful development of an object due to his working relationship with providers. And besides a best friend of Venkat, amongst general conversation Venkat finds out that Tom is about to suggest to his girlfriend and set a sedimentation on a new residential unit. ” ( Blount 2008 ) For this instance the moralss issue is Venkat ‘s unity moving candidly and being straightforward towards Tom ( trueness to Tom as a friend ) VS trueness to tauten self involvement of maintaining his occupation.

Ethical quandary ‘are a job, state of affairs, or chance that requires an single, group, or organisation to take among several incorrect or unethical actions that have no right or ethical picks, merely less unethical or illegal pick as perceived by any and all stakeholders. ‘ ( Ferrell, Fraedrich & A ; Ferrell 2008 ) it exists when two or more values are in struggle, and seek from moralss a declaration to this struggle. For the above instance the ethical quandary were:

Tell Tom that he is about to be sacked, this affects Tom as he loses his occupation, Venkat as he may lose his occupation if company financess out he breach confidentiality and the company because Tom may sell confidential info or do malicious harm to their belongings.

Keep silent, this affects Tom as he will lose occupation and be under fiscal force per unit areas, Venkat loses an built-in squad member. Company works more expeditiously and has better client dealingss.

degree Celsius ) Ferrell stated the moralss issue or quandary is evidently, when the job is approximately opprobrious or intimidating behaviour, lying, struggles of involvement, graft, corporate intelligence, favoritism, sexual torment, environmental issue, fraud, insider trading, intellectual-property rights, and privateness issue. ( Ferrell, Fraedrich & A ; Ferrell 2008 ) The ethic issues ever occur with struggles of involvements, evaluated as right or incorrect, ethical or unethical. Let the organisation to seek from moralss a declaration to this struggle. So in an organisation the values of struggles are more impetuousness the issue and quandary is more evidently.

vitamin D ) As the definition of moralss issue is a job, state of affairs, or chance. So it could non be kept inactive. Since moralss are made up of moral regulations and these regulations as different common jurisprudence, and different societies and civilizations have different set of moral codifications. “ Merely like kids civilizations are exposed to different stimulation and that produces different personality aka Morals. Over clip a stimulation may impact a section of the population in such a dramatic manner that they change as a society their moral brand. ” ( Wikipedia, 2009 ) . Now that construct is considered unethical, moral Ethic issues are alteration over clip.

Question 2

The four factors of ethical decision-making model are ethical issue strength, single factors, organisational factors and chance. ( Ferrell, Fraedrich & A ; Ferrell, 2010, p.122 ) . Ethical-issue strength can be defined as the perceptual experiences about ethical issue for single or group. It seems like Jim had realize do non describe the bad waste goes into the river is unethical behaviour, because Jim was thought the factory ‘s waste disposal into the river did non exceeded Environmental Protection Agency ( EPA ) guideline, but when he knows the truth, he was amazed. As a director of Cinco, Jim has duty to maintain the works running ethically, environment pollution and payoff are ever serious ethical issues, non merely for Jim besides for Cinco Corporation. If factory was shutdown, many people in the town will lose their occupations, even a whole household, because in facts, the works boasts about employees whose male parent and grampss have besides worked at that place. This ethical issue is really of import to both Cinco and Jim. In a word, ethical-issue strength should be the indispensable factor in the ethical decision-making procedure ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) .

Individual factors include instruction, nationality, age and venue of control ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) . Individual factors have more consequence on person ‘s behaviour, doing the difference among different persons. For Jim, he merely finishing the preparation plan, there is a lactiferous calling for him in the hereafter. What ‘s more, all of his predecessor wage for Ralph, and nil happened. Jim face both fire, but he have to take one.

Ethical civilization displays whether the administration has an ethical scruples ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 p127 ) . Organizational factors conclude corporate civilization, obeisance to authorization and ethical civilization ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) . The organisation ‘s policy gives directors excessively much infinite and opportunity to things unethically, in another words-lack of control.

As a consequence, it creates a hole in the company ‘s system so that Jim ‘s predecessor can utilize it to accomplish excess benefits, many other employees in the company besides have got benefit by making unethical behaviour, it reflects the corporate civilization.

The last 1 is chance. It means the state of affairs in administrations that limit or permit ethical or unethical behavior ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010, p127 ) . Cinco Corporation merely focuses on public presentation and deficiency of supervising on procedure control. These features are in which create chance for directors to take unethical behavior. As a effect, Jim can make this without fright due to any regulations or penalties.

Question 3

a ) The organisations like PETCO faced with several ethical issues, such as 1 ) PETA think they sell or use animate beings for commercial intent, 2 ) mistreatment of animate beings, 3 ) clients found ill finches, a mouldy dead polo-neck, dead birds, and a frog “ cooked to decease ” and soaking clients on sale points, 4 ) sexual and other types of torment, drug maltreatment, plus protection and force, 5 ) struggle of involvement, 6 ) the credence of gifts and amusement

B ) The definition of primary stakeholder could be who has direct influence with house ‘s endurance, which can be employees, clients, investors, and stockholders, besides include authoritiess and communities that provide necessary substructure ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) . For secondary stakeholder, it has non direct relationship with the house and has non critical effects on the house that include media, trade associations and special-interest groups ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) . PETA, as a special-interest group, it was focused on big animate beings, nevertheless, carnal gross revenues merely got 5 % of PETCO ‘ s gross, so PETA ‘ s unfavorable judgment had non indispensable for its endurance, what ‘s more, PETA besides did n’t affect in PETCO ‘ s dealing. All of above shows PETA is a secondary stakeholder of PETCO.

degree Celsius ) ‘Shareholder theoretical account of corporate administration is founded in authoritative economic principles, including the end of maximising wealth for investors and proprietors. ‘ ( Ferrell, Fraedrich & A ; Ferrell 2008 ) For keeping intent of public presentation answerability between top direction and the house ‘s stockholders, publically traded houses, corporate administration focuses on developing and bettering the formal.

Stakeholder theoretical account of corporate administration ‘adopts a broader position of the intent of concern, although a company has a duty for economic success and viability to fulfill its shareholders, it besides must reply to other stakeholder, including employees, providers, authorities regulators, communities and particular involvement groups with which it interacts ‘ ( Ferrell, Fraedrich & A ; Ferrell 2008 ) .

Comparer the two theoretical accounts, the truth is that the stockholder theoretical account is a more restrictive precursor to the stakeholder orientation. In this instance, PETOC is more focal point on stakeholder relationship development, so stakeholder theoretical account is better represented.

vitamin D ) Social duty means organisation ought to maximise its positive consequence on stockholders and acquire the negative impact in lower limit, which besides includes four stairss, viz. , economic, legal, ethical and philanthropic ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) . The first measure is economic ; it is common sense that about organisations have a mark in the economic, doing the maximized net income. They have duty for their stakeholders who invest money on the organisation. Merely if the organisation makes great return for the stakeholders, they would wish to put more money. On other manus, economic besides includes support occupations in society and contribute goods and service to the economic system ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) . PETCO chose 12,000- to 15,000-square-foot shop that close local vicinity shopping finish as the chief format ; as a consequence, well locations will make big figure of net income. Besides, PETCO has 16,900 employees, 9,000 of which are full clip, assisting many people to work out their working job. What ‘s more, PETCO build up PETCO Foundation and other plans, like “ Round up ” , “ Think Adoption First ” . They donate in-kind goods and service to heighten the relationship between people and pets for valuable organisations. The 2nd measure is legal which means organisation should obey all Torahs and authorities ordinance ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) . PETCO besides fulfill this measure, for illustration, it encourage all associates should follow the accounting Torahs include the Sarbanes-Oxley Act and the by and large accepted accounting rules. The 3rd measure is ethical, which support rules and criterions to steer behaviour in the organisation ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) . In the PETCO, it has several ethical plans to standard employees and stakeholders ‘ behaviours. For illustration, it avoids struggles of involvement among associates and has the codification of ethical to turn to the credence of gifts and amusement. The highest measure is beneficent. In this measure, organisation is encouraged to do part to the society by their ain determination ( Ferrell, OC, Fraedrich, J & A ; Ferrell, L, 2010 ) . PETCO does good in this facet through set uping foundations and plans. PETCO Foundation is one of the foundations to progress charitable, educational, and other philanthropic activities for the betterment of animate beings everyplace. The “ Round Up ” Program already raised $ 817,000 for local animal-welfare organisations in 2004. Beside them, PETCO besides has other plan contribute to philanthropic, such as, “ Think Adoption First ” , “ Jumping a Pet ” , “ Tree of Hope ” , “ National Pet Adoption Days ” and “ Kind News ” . Above all, PETCO already met the four degree of societal duty.

Question 4

In this inquiry, I would take ANZ bank from the Connect 4 Database to be analyzed as follows. It is stress on concern unity and professionalism, in order to run into the highest degrees of revelation and conformity. Through analyzing of the one-year study, it is could give a better of understanding how this company to obey the rules with ASX Governance. What will be concentrated on are Principle 2 and 4.

The 2 rule is construction the board to add a value. Companies should hold a board of an effectual composing, size and committedness to adequately dispatch its duties and responsibilities. ( JIM PSAROS, 2009, p9 ) . This rule is aimed to set up a board in sensible construction so that the board is able to carry on their responsibilities efficaciously. ANZ used to finish the rule with

Recommendation 2.1 A bulk of the board should be independent managers ( ASX Corporate Governance Council 2007, p10 ) . During the one-year study we can establish there are 10 managers in the board. Nine of them are independent managers, it besides stated that under appropriate state of affairss the managers, the board and the board commission are allowed to happen outside professional advice. It entree in appropriate fortunes to independent professional advice ( ANZ one-year study, 2009 )

Recommendation2.2. The chair should be an independent manager ( ASX Corporate Governance Council 2007, p17 the president of ANZ is a independent manager. He is besides a no-executive manager as good. He is responsible for leading of the board and for the efficient administration and behavior of the board ‘s operation. As the function in chair should ease the effectual part of all managers and advance constructive and respectful dealingss between managers and between board and direction. In the managers study of one-year study in ANZ it besides motioned they strict followed the function. ( ANZ one-year study, 2009 )

Recommendation 2.3 The function of chair and main executive officer should non be exercised by the same person ( ASX Corporate Governance Council 2007, p17 ) . During the one-year study, it province that the company divide the function of the president and the executive, The division of duties between the chair and the main executive officer should be agreed by the board and set out in a statement of place or authorization. They have different duty. ( ANZ one-year study, 2009 )

Recommendation 2.4 The board should set up a nomination commission ( ASX Corporate Governance Council 2007, p18 ) The board of ANZ besides delegate several commission such as administration commission, Human resources commission, hazard commission, audit commission and engineering commission. The board commission will hold a self-assessment to look into the completion of the responsibilities, ends and aims. They besides need to put the hereafter mark. ( ANZ one-year study, 2009, pp62-63 ) .

Recommendation 2.5 Companies should unwrap the procedure for measuring the public presentation of the board, its commissions and single managers ( ASX Corporate Governance Council 2007, p19 ) . ANZ have public presentation ratings to look into the operation of the board, commissions and managers. This helps to guarantee the stockholders are able to maintain their value stable. ANZ present the ways that they evaluate assorted parties. In footings the rating of the non-executive managers. ANZ bank has an one-year reappraisal base to look into the completion of the responsibilities of managers. The president would keep a meeting with every single manager to look into the conformity of codification of behavior /ethics. The president will describe the item of the rating to the board or Governance commission. When the non- executive manager confront the re-selection. They will be given a opportunity to supply unwritten or written statement to bespeak the ground of rhenium -selection. Without the non-executive manager, the Sus scrofas so will evaluation the statement harmonizing to the demand of public presentation to make up one’s mind whether to hold the re-selection.

In respect of the rating of the president of the board, the president of administration commission will confer with the managers to look into the public presentation of the president of the board harmonizing to the functions of the president of the board. Then, the president of administration commission will fix an overview study to the administration commission and the board. The president of board will have a study as a feedback.

Recommendation 2.6 Companies should supply the information indicated in the Guide to describing on Principle 2 ( ASX Corporate Governance Council 2007, p20 ) .The board will be measure around 3 old ages. ANZ will ask for external facilitator to look into the public presentation of them so that the issues of the operation will be found. As an indicant of the rule, the ANZ-09-annual study reveals the experience, headers, former directorships, and the related item of the managers. The study besides indicates the attacks of the appraisal of the managers, commissions, board and presidents. The functions of presidents and the managers are besides explained in the study. Furthermore, the responsibilities and the policy of assorted commissions are shown in the study. ( ANZ one-year study, 2009 )

The rule 4 is to set up a construction to safeguard and scrutinize the unity of the fiscal coverage independently ( ASX Corporate Governance Council,2 vitamin E vitamin D n. ) The undertakings related to this rule are

Recommendation 4.1: The board should set up an audit commission ( ASX Corporate Governance Council 2007, p25 ) The ANZ bank establishes an audit commission. The major responsibility of the commission is to scrutinize the fiscal coverage and scrutinizing rating. The commission makes assignment for the external audit party every bit good. The president of the commission is an expert in the fiscal country. He leads the operation of the commission, nevertheless, he does non hold any other add-on duty comparing to other members. ( ANZ one-year study, 2009 )

Recommendation 4.2: The audit commission should be structured so that it: consists merely of non-executive managers, consists of a bulk of independent managers, is chaired by an independent chair, who is non chair of the board 4 ) has at least three members ( ASX Corporate Governance Council 2007, p25 ) The construction of the audit commission have several cardinal characteristic. It consists of four members. All of them are independent, non-executive managers. Chairman, Mr. I J Macfarlane, is non the president of the board. ( ANZ one-year study, 2009 )

Recommendation 4.3: The audit commission should hold a formal charter ( ASX Corporate Governance Council 2007, p26 ) . The ANZ bank has a formal charter for the audit commission. For case, this charter requires that the member of the company must be financially liberated. They must non hold the nature to derive benefit from pull stringsing the fiscal study. The president of the company is an expert in fiscal. But he does non hold the power beyond other members of the commission.

Recommendation 4.4: Companies should supply the information indicated in the Guide to describing on Principle 4 ( ASX Corporate Governance Council 2007, p27 ) . The duty and the manner of conductivity of audit commission are good reported in the one-year study. The members of the commission and their experience, including the limitation of the commission and president are good indicated in the study. However, the study merely mentioned that ANZ bank had a charter of the audit commission and several illustrations of it. There is no full tabular array of charter for the readers. ( ANZ one-year study, 2009 )

B ) Transparency means openness, communicating and answerability in general account. However, in concern, transparence could be described as revelations of related studies or executive procedures so that the direction of a company could be oversighted and governed by internal and external users or stakeholders in the concern group ( Hermalin & A ; Weisbach 2007 ) . As we know that a company dedicates to heighten its corporate administration, increasing transparence could be adopted, such as increasing unwraping demands particularly the fiscal revelation statements. Because corporate administration of a company is the system and procedures exercised and controlled by the corporation, like managers and direction, and besides trades with the relationship among stakeholders of the company, doing executive procedures or decision-making processs for the company transparent could heighten the administration of the corporation ( Hermalin & A ; Weisbach 2007 ) . There is existent illustration to demo that in order to manage the corporate dirts occurred in celebrated and large companies increasing disclosing demands has been one of the alterations to heighten the corporate administration advocated by authorities. For illustration, in US, the celebrated Enron dirts, Sarbanes-Oxley ( sox ) was adopted in response to the dirt and other administration failures and requires unwraping, “ elaborate off-balance sheet funding and particular purpose entities ” . So there exists positive relationship between transparence and corporate administration and transparence is increased for the object to heightening corporate administration.

In the statements of ASX CGPR, most rules would turn to transparence. For illustration, in principle1, revelation of procedure for measuring public presentation of senior executives has been required and this would increase the transparence of the assessing processes to the populace. In priciple2, ASX addresses the transparence through unwraping the procedures for measuring the public presentation of the board, commissions and single managers, and elaborate information would be presented in the corporate administration subdivision of an one-year study, such as in the corporate administration statements portion of one-year study for Blackmores Ltd. And in rule 3 of ASX CGPR, the transparence is addressed during the process of showing the publicity of ethical and responsible decision-making. In other rules of ASX statements, transparence is besides presented by the demand for unwraping related exercise or executing procedures. For case in rule 5, 7 and 8, in order to do confidence for the conformity to related demands or ordinances, the letter writer company constabularies should be published and crystalline to internal and external users. Harmonizing to the old analysis, transparence is addressed throughout the conformity to the rules of ASX CGPR.

Introduction

This report is based on the relevance of standard costing in Modern Britain, the report will include so fact and evidence that standard costing is relevant or not relevant for a 21st century Britain. To clarify more on this topic and to support my argument and discussion it will be necessary to use empirical evidence such as case studies from social scientist and scholars specialised in the subject. The assignment will focus on how standard costing is relevant in the UK compare to Germany and Japan.

The aim of this report will be to present an argument for and against standard -costing. My findings will determine what evidence to use so that, the report will be unbiased and well presented according to the assessment task. Lastly there will be difference between standard price and standard cost, this will be made clear and explain further. My research will be done through Internet source textbooks. Standard Cost “Standard cost is usually associated with a Manufacturing Company’s cost of material and direct labour and manufacturing overhead”.

Standard cost is different from Actual cost because standard cost is an estimate put together, Standard costing is a reliable technique used to manage and improve the performance of an organisation, standard costing can be seen to the same or similar to Activity based costing (ABC) but has often been criticized to be outdates and lost relevance but it was also suggested that the best techniques for controlling cost and performance management is to use ABC and standard costing

Standard costing is a management tool used to estimate the over cost of production assume normal operations in other words, the estimate cost of material, labour overheads and other cost for each unit of production or purchase in a given accounts period. The basic concept of standard costing should be discuss clearly because it form the bases of the argument s to weather standing is relevant or not in the recent times. The charted institute of management Accounting, London, defines standard costing as “the preparation of standard cost and analysing cost the causes of variation with a view to maintain maximum efficiency in production.

From the above definition, there are some key words that needs to be noted and explain for clarity of this report, one of which is standard cost – which is defined by the institute of cost and work Accountants as standard cost are prepared and used to clarify the final result of a business particularly by measurement of variations of actual cost from standard cost and the analysis of causes of variation for the purpose of maintaining efficiency of executive action.

History of Standard Costing

For over 100 years, standard costing has been used for valuing stock and work in progress “some historians say the origins of costing go back even further and have found evidence it was used in American Civil war by quarter master as a means of controlling cost. It doesn’t really matter when the technique was invented what is more important is that it is still in use today” “In 1989 a survey showed that standard costing was being used by more than 75% of British Industries e. g. brewing, textile, electronics and Pharmaceuticals.

Disadvantage of Standard Cost

There are many article and books that criticise standard costing as a technique that’s in appropriate as capital intensive industries with high level of fixed overheads. Some Journals articles from the US in recent years indicate in use and although a 100 years old has definitely survived the test of time. It can be used effectively to those industries which are producing standardised product and are repetitive in nature , examples are transport for London, Salt industries etc. Standard costing is not suitable in situations where a variety of different ind of tasks are being done e. g. this is one of the weakness of standard costing it does not include overheads Standard cost variance report is usually prepared on monthly bases and often is released days even week after the end of month. As a consequence the information in the report may be so stale that it is almost useless. Timely frequent report that are very precise but out of date by the time they are release some companies are now reporting variances and other key operating data daily or even more frequently.

If managers are intensive and use variances report as a club, morale may suffer, employees should receive positive reinforcement for work well. Increase in Labour doesn’t necessarily mean production will increase because output is depended on processing speed of machine. “(George Brown 2000) mentions that they can be improvements and changes which may be aided though the monitoring of variance trends though time. Trends may be monitored in order to establish whether the situation is deemed to be in control with variance fluctuating within acceptable limits.

Alternatively, the variance trend may indicate an out of control situation which must be investigated with a view to improving and changing product design, production methods. Etc” “Many candidates are unable to carry out necessary computational aspects of an examination question. This is likely caused, at least in part because of a lack of understanding of physical situation which the data is intended to represent. A further problem is lack of ability to relate the physical information that has been calculated and the discussion about it relevance as a business tool in planning, control etc. Advantage and benefits of Standard Costing The benefits of using standard costing is that it can be used by management and managers as marks against which the performance of an organisation or of a department can be measured, it’s a good control tool for every activity it is not only a cost control tool but also help in help in production planning and decision making policy formulation and allows management by exception. “(George Brown,2000 ) states that it’s a useful part in management accounting tool kit which has also been increasingly questioned.

The extent to which standards have a role to play in modern business is linked to the adaptation of progress, market and policies in changing business environment. “ The rate of change in product type and design due to technological improvements, customer requirements and increased competition has led rapid to change in how business operate. The need to respond to customer demands for speedy availability of products, shortening product life cycles and higher quality standards has contributed to a number of changes in the way in which business operate.

These include: Just in time system allied to flexible manufacturing systems aimed to ensure that customers demand may be satisfied on a pull though basis. Stock and work in progress Will be minimised and the business operating cycle tailored to cater for the specific customer requirements. Total quality programmes aim at continuous improvement, with the identification and elimination of non value added activities and the effective provision of added activities.

Great emphasis on the value chain, from close link with suppliers of input materials and services to identification of customer needs in respect of quality, deliver and changing requirements though time. cost control standard costing system help to improve cost control and cost reduction, This involve the whole process of setting the standards second is a routine comparison and analysis of performance and expenditure against these standards and lastly is the ability to express and study the variations in monetary terms and implement corrective measure. (George Brow, 2000) asks what of standards in modern business? Can planning and decision making be accomplished in an effective manner without reference to some standard or based and without recourse to some measurement though time of achievements of, progress towards or variation from such standard or base? What elements of traditional stand cost will still have some relevance?

This question has been raised and discussed in a number of areas in which standards may feature:” Right decision making – It provides information to the operational staff, accountant and the management about the expected utilisation of production lines, machines, vehicles, cost, of all activities and raw material & standard processing time. Performance management the target of different individuals, are fixed if the performance is according to predetermined standards.

This standard can be used by managers as yardstick against which the performance of an organisation or department can be measured with this the management has no worries, the responsibilities are fixed and everybody tries to achieve his or her target and with hoe the are appraised Benchmarking standard costs are good yard stick for comparison between different plants at different locations standard develop for a production line in manufacturing company A can be compare with standard develop in another manufacturing company of the same production line.

Budgeting and planning It helps the management to prepare forecast for the rest of the year and sometimes more year’s e. g 5 years etc. The relevance of standard in Brittan and rest of the world Standard costing is arguably less relevant according to authors and professional in the accounting world this method is out dated and should be replace with more up to date method such as JIT TQM and ABC. The use of standard costing is relevant to an extends however the more current method are prefer and are widely used in most manufacturing company’s. Dr. Reef Lawson, IMA vice president of research and Professor-in-Residence; Jiliang Yang, retired professor from Hong Kong University of Science and Technology; and Pinzhun Ding, IMA senior China advisor, formerly of the PRC Ministry of Finance and the Chinese Institute of Certified Public Accountants (CICPA). These are the researchers that worked on the evolution of the finance and accounting (F&A) function in Chinese companies and management accounting technique (costing practice) they use.

The study found significant differences between the costing practices followed by most Western companies and those followed by Chinese companies. It has been claimed that the use of standard costing is less expensive than an actual or normal costing system (Hilton et al. , 2003). Accordingly, standard costing has been widely used for both cost control and product costing purposes as well as to evaluate performance. Overhead Standard costing techniques do not include any overheads because standard costing always include elements for fixed overhead due to a larger percentage or the total cost of a product in manufacturing plants.

In this case, there are two ways of approaching overheads treatment when using standard costing in management reporting. “Whelden (1932) in the first edition of cost Accounting and actual overhead costing methods, simply record the over or under applied overhead as the difference between actual overhead cost and a standard charge to work in progress. ” In 1950 W Coutts Donald (CA,FCWA) used the innovation of calendar variance as part of the overhead volume variance.

The calendar variance was a self adjusting variance that allowed for the under or over absorption of fixed overhead cost due to the varying number of working hours or days in any given accounting period. Where the budgeted fixed overhead was broken down into twelve equal parts, the calendar variance was in effect and used to flex the fixed overhead budget. In this case on a later date it was analysed into expenditure and volume variance. The volume variance was then subdivided into capacity and efficiency or productivity variance.

Separate sets of overheads variances for fixed and variable overheads were also calculated. As mentioned earlier, the calculation of a calendar as part of fixed overhead capacity variance was probably the least understood of all variance. The Puxty and Lyall and Drury surveys show that 60% and 89% of respondents respectively, reported an overhead expenditure variance. Much lower numbers (28% and 41 %) reported an overhead volume variance. This could indicate a high level of use of a contribution approach in reporting system.

Or assumed to be fully absorbed by some cost drivers, these are the activities that consumes resources such as machine labour hours the mileage or the truck fleet etc. Conclusion The evidence showed that standard costing is less relevant in Britain because the country is more relying on service rather than manufacturing, The way standard costing as lasted over time also suggest how useful it has been and the alternative option such as TQM,JITand ABC could not replace the standard costing in the near at the moment.

It is well known among the social scientist that this process is less common and even less in the United Kingdom because of the lack of manufacturing output in all the sectors compare to other countries such as USA, China, Japan and Germany. The way the report set out it support the argument that standard costing is relevant but the threat of it being extinct is something that need to be considered, even though it as survived many years, it is inevitable that the other method will come into practice more often for the newer generation.

STRATEGIC MANAGEMENT ACCOUNTING This report will attempt to explain what Strategic Management Accounting (SMA) is, how it developed, why Traditional Management Accounting (TMA) is not sufficient to provide information for strategic decisions and the difference between SMA and TMA. It will further outline some of the essential analytical tools or techniques in SMA such as Activity Based Costing (ABC) and the Balanced Scorecard (BSC). SMA is an extremely broad concept, so in order to give a bird’s eye view of the subject this report mainly focus on comparing SMA to TMA and finally describes the importance and criticisms of SMA.

What is Strategic Management Accounting? “A form of management accounting in which emphasis is placed on information which relates to factors external to the firm, as well as non-financial information and internally generated information. ” (CIMA Official Terminology) “Strategic management accounting is a crucially important activity because it is outward-looking. It focuses specifically on the market, hence its common description as market-driven accounting. The main data it produces is on customers, products and competitors.

This is softer in form than the hard numbers associated with financial reporting, but it forms a part of the inclusive strategy process that is linked to the pursuit of competitive advantage. ” (Roslender and Hart, 2006) As mentioned above, SMA emphasis on information external to the firm, such as information about competitors and customers, and non-financial information such as product quality and customer satisfaction, along with emphasising on firm’s internal factors such as information regarding company’s overheads and management of raw materials.

The professional strategic management accountant engages with the organization’s top management team and contributes to strategy development and implementation with the aim of creating customer value and a strong competitive position for the organisation. The business environment has undergone significant changes due to globalisation and developments in information and production technologies (Burgstahler et al. 2007). Trading on a global stage with exponentially advancement in technology has indirectly and radically ffected the traditional management system. These sudden changes have generated the need for Traditional Management Accounting, which is preoccupied with numbers and accounting measures to shift to the next level, which is to focus on value addition and integration within a company. Strategic Management Accounting VS Traditional Management Accounting The three main limitations of Traditional Management Accounting (TMA) are, first, TMA information was acquired from the existing financial accounting information systems.

As a result the focus generally remained on annual periodical targets and internal accounting systems thus failing in providing accurate and holistic information that mirrors the technology, products, and complexity of the operational processes on the one hand and on the other hand failing in integrating these for operating in a highly competitive environment (Baines and Langfield-Smith, 2003). Second, its aggregated form renders it less useful for a manager who wants information to be customised according to the specific managerial needs.

Third, the window dressing applied by financial accountants to make it look good to the external users makes it less reliable for managerial decision making. Just as TMA was developed and introduced as a recipe for the shortcomings of the traditional cost accounting textbooks, SMA has, arguably, been launched by the accounting scholars as the new state of the art discipline. It has been claimed that the development of the field of SMA would render the old fashioned TMA extinct as the newer version focuses not only on the internal financial information, but also upon the external aspects of the business operations (Smith 2005).

Simmonds (1981), who is credited with phrasing SMA, differentiates it from TMA on the basis of its greater focus on the comparison of the business with its competitors. Bromwich, (1990) contends that SMA enables the management to have a bird’s eye view of the competitors’ procedure and business techniques business and to take decisions accordingly. In this way a major hallmark of SMA is its inclusion of non-financial aspects for the purpose of decision making. Lords (1996) identifies the following functions which are commonly associated with SMA: 1.

Collecting information related to the competitors. 2. Using accounting for strategic decisions. 3. Cutting costs on the basis of strategic decisions. 4. And, gaining competitive advantage through it. Wilson and Chua (1993) tabulate ten key differences between MA and SMA as following: | Traditional MA| Strategic MA| 1| Historical| Prospective| 2| Single entity| Relative| 3| Introspective| Out-ward looking| 4| Manufacturing focus| Competitive focus| 5| Existing activities| Possibilities| 6| Reactive| Proactive| | Programmed| Un-programmed| 8| Data orientation| Information oriented| 9| Based on existing systems| Unconstrained by existing systems| 10| Built on conventions| Ignores conventions| Critics have regularly complained that TMA focuses too much on internal business functions of accounting in order to meet the requirements of the internal managers. Some argues that while special attention is given to the internal affairs of the business sight is lost of the external opportunities and potential business threats.

The underlying assumption of this discipline is that it improves upon the traditional management accounting by enlarging its scope and realigning it more tightly with other disciplines such as strategy and marketing. Some of the analytical tools which were developed in the fields of strategy and marketing, which are now considered an essential part of SMA toolbox, are: Attribute Costing: In this costing system the attributes of a product are emphasised, including the products features, certain purchase agreements, or after-sale services.

The information inspected, however, has to be relevant to current or future competitors. Competitor Cost Assessment: Taking advantage of the increasing trend of readily accessing available information, the competitors’ costs (production, labour, raw materials) are keenly analysed. Bromwich (1990) stresses the need for studying competitor’s costs as understanding them helps in managing a business’s own costs. Competitor Appraisal Based on Financial Statements: It is another effective oncept as it permits comparison and benchmarking, information contained in financial statements can be strategically used with the help of ratio analysis. The Balanced Scorecard (BSC): The BSC was proposed by Kaplan and Norton (1992) in which financial and non-financial measures were integrated for strategic performance management purpose. It aimed to create a balance by linking vision and strategy of the business with multi-dimensional perspective of customers, internal business processes, learning and growth, and financial position.

Strategic Costing: A further concept of relevance as costs are broken down to measure them for strategic relevance, such as matching the amount competitors spend on areas such as marketing and pricing. Valuing Customers as Assets: It is a concept that illustrates the importance of a customer or particular group of customers, Guilding and McManus (2002) state that it can be assessed through a method where the present values of estimated profits are discounted from the trading correlation of particular customers.

Value Chain Costing: The technique has been developed from value chain analysis proposed by Porter (1985) for gaining competitive advantage. In this analysis all value-creating activities related to the development of a product or service is linked in the form of a chain. Those activities which are vital for adding value are given more importance. Activity Based Costing (ABC): The ABC is a costing system in which manufacturing overhead costs are assigning to products through a cogent approach, as opposed to allocating the costs on the basis of a predetermined rate.

It initially assigns costs to an activity that is directly linked to overheads; and subsequently assigns the costs to those products that require the production activities. Disadvantages of Strategic Management Accounting Some argue that Management accountants do not have a set of policies and procedures to follow, as financial accountants follow accounting procedures and principles outlined by IFRS committee or GAAP. Strategic accountants form their own standards and therefore information cannot be compared from company to company as in financial accounting.

Another form of criticism is that strategic accountants focus mainly on quantitative information, and quantitative information obtained are very rational. The drawback with focusing mainly at rational information is that other relevant and crucial information may be ignored. For example, they might determine a new office should be built at a specific location because wage and taxes are lower; however they might have failed to look at the bigger picture by only focusing on quantitative information.

Since there is no standard procedure or principle to follow, strategic accountants add their own personal beliefs and feelings into making decisions. Free of bias is next to impossible but even if there is one, requires individuals that can focus on the entire job at hand and take all factors into consideration. Expensive Conclusion: Strategic Management Accounting involves major decisions, business choices, and actions of organisation by using both financial and non-financial information with a greater focus on the comparison of the business with its competitors.

Implementation of SMA tools provides a sustainable competitive advantage for the company to build a stable economic position within the industry. TMA focuses too much on internal business functions and that result in lost of the external opportunities and potential business threats. Despite the disadvantages mentioned above, it can be concluded that SMA improves upon the traditional management accounting by enlarging its scope with other disciplines such as strategy and marketing. Bibliography: 1. Baines, A. And Langfield-Smith, K. 2003), ‘Antecedents to management accounting change: a structural equation approach’. Accounting Organizations and Society, 28 (7-8). 2. Burgstahler, D. , Horngren, C. T. , Schatzberg, J. , Stratton, W. O. And Sundem, G. L. (2007), Introduction to management accounting, 14th ed. , Pearson/Prentice Hall, Upper Saddle River, NJ. 3. Smith, M (2005), Performance measurement and management: a strategic approach to management accounting, SAGE, London. 4. Simmonds K, (1981), ‘Strategic Management Accounting’, Management Accounting, 59(4), 26-29. 5. Bromwich, M. (1990).

The case for strategic management accounting: The role of accounting information for strategy in competitive markets. Accounting, Organisation and Society. 15 (1-2), 27-46. 6. Lord, R. (1996). Strategic Management Accounting: The Emperor’s New Clothes? , Management Accounting Research, 7 (3). 7. Wilson, R. M. S. And Chua, W. F. (1993) Managerial accounting : method and meaning/Richard M. S. Wilson, Wai Fong Chua ;series edited by Richard M. S Wilson Chapman &Hall, London ; New York: 8. Kaplan, R and Norton, D (2002). The balanced scorecard. USA: Harvard Business Press. 92-225. 9. Guilding, C. , and McManus, L. , (2002), The Incidence, perceived merit and antecedents of customer accounting: an exploratory note, Accounting, Organization and Society, 27, 45-59. 10. Ehow. The disadvantages of strategic management accounting http://www. ehow. com/list_6793416_disadvantages-strategic-management-accounting. html 11. Robin Roslender, Susan J. Hart, (2006) “Interfunctional cooperation in progressing accounting for brands: The case for brand management accounting”, Journal of Accounting & Organizational Change, Vol. 2 Iss: 3, pp. 229 – 247

Institute of Management Accounting’s (IMA) mission is to provide a forum for research, practice development, education, knowledge sharing, and the advocacy of the highest ethical and best business practices in management accounting and finance. The IMA has strongly enforced ethics since it’s inception. Their ethics committee was one of the first committees established in 1919, at their very first meeting. It was call ‘The Standard of Ethical Conduct for Management Accountants. This shows that the IMA is extremely serious when it comes to the professionalism required by it’s members.

This guideline has been revised twice, once in 1979 and then again in 2005. Upon the last revision, the code of ethical conduct became the IMA Statement of Ethical Professional Practice. All members must take an oath and adhere to the Institute of Management Accounting (IMA) Standards of Ethical Professional Practice. The are four main principles of this code of ethical conduct. They are: I. Honesty II. Fairness III. Objectivity IV. Responsibility It is the responsibility of every accountant to comply with these standards to avoid any type of disciplinarian action. According to the IMA each member must be professional.

Many of the areas of professionalism to be maintained includes a commitment to education. This is the section of the IMA Statement of Ethical Professional Practice that requires all accountant members to stay abreast of the many laws, regulations and technical standards. Due to our everyday landscape and the continual changes in accounting, taxes, etc. , the IMA has a continuing education (CE) requirement. All accountants must take a certain amount of CE classes so that they’ll be able to provide sound advice to their clients. This does not only keep them knowledgeable, it also keeps them aware of their professional limitations.

Another part of an accountant’s responsibility is to respect the confidentiality of their clients. They must maintain a high level of scrutiny to make sure that not only do they always perform ethically and within the law, but they must also make sure that all of the activities of their subordinates are legal. This requires a great deal of integrity. To have integrity. The official definition of integrity is: Steadfast adherence to a strict moral or ethical code. This is the basis of IMA’s existence. Aristotle once said, ‘We do not act rightly because we have virtue or excellence, but rather we have those because we have acted rightly.

It is obvious that there is no room for error when it come to the IMA’s code of ethical conduct. An accountant must be ethical when discussing any financial reporting, including advice and recommendations. He needs to assess the financial state of the company to the best of his ability. It is his duty and responsibility to be forthcoming with ALL revenues, expenses, assets and liabilities and let the chips fall where they may. In essence, they must be fair and objective. The IMA’s ethics guidelines have been used by other companies and organizations in some shape, form or fashion for many years.

This tells you that this ethical guideline, in particular, is something that crosses all lines. It is very easy to live your life with these principles. As a matter of fact, the IMA expects their members to behave in their personal life and community with the ethical professionalism that is required in their profession. As a student, I can, have and will continue to use every single one of these principles. It is quite obvious that there are many ways to access information with the advent of the internet. Therefore, students today have access to many things that were not available 30 or even 20 years ago.

It now takes a great deal of commitment to honesty to maintain one’s integrity. As a student, I too, must maintain that sense of integrity. I believe integrity is the basis of the entire IMA’s Statement of Profession Ethical Conduct. Let’s see how this can is relevant to me as a student. To remain honest in this society is becoming more rare that the norm. It is imperative that I maintain my sense of honesty throughout my education. As a student, there are a variety of ethical decisions to be made at any given time. I will have to make an ethical choices every single day.

By being honest and accountable with my decisions, I will actually take away a higher and more thorough learning experience. As a student there are many opportunities for fraudulent behavior up to and including plagiarism. There are many students who are motivated by the consequences of their dishonesty and others who are only motivated by the end result. In other words, they would do it, if they knew for sure that they wouldn’t get caught. Those are the students that are lacking in integrity. Personally, my motivation is the consequence of losing out on the education of a lifetime.

I’m a Clarity Coach. I help people see their life with clarity. In doing so, I expect to be true to myself. If I can’t see things clearly, and I can only do that by being honest with myself, then how do I expect to help others get to the next level in their life. I am motivated by my passion for knowledge. I want to know more and I want to learn more. I can only do these by adhering to my personal code of ethics. To be competent is to be knowledgeable. One gains a sense of knowledge by learning. The only way to learn is to perform as a student.

As a student, there are certain guidelines that you must adhere to. Every university has their own set of rules and regulations. One obvious rule is to enroll and perform in classes. This must be done to continue to develop my knowledge and skills. If that doesn’t happen, either party (you or the university) can decide look at other options. You can make the choice to leave or your school can make that choice for you. In reference to me, I must do everything possible to learn what’s put before me to successfully perform in the business program, in other words, I must be competent.

There are several reasons to maintain a sense of confidentiality. By revealing privileged information, we can have a substantial impact on other individuals. Anything that precludes another individual from gaining the perceived level of education from taking a course, is quite frankly, unethical and illegal in respect to the inferred rule that everyone is allowed an education. There are several advantages of maintaining confidentiality, the most important one is promoting the opportunity to learn. There is an inherent sense of confidentiality that I must observe hen it comes to the sharing of curriculum assignments, research papers, and a host personal information.

In a class environment, you may find out personal information just by the nature of classroom interaction, as well as group projects. Again, it is imperative not to disclose any confidential information acquired during these interactions unless expressly authorized to do so. It is also a huge part of the learning experience for the instructor to maintain a sense of confidentiality to their students. A breech could impact that students interaction, absorption of the information and prevent them from seeking assistance when/if needed.

If a professor is confidential with a students information and/or private dealings, they actually strengthen that relationship and foster continued learning and trust in that student. I’m sure it could have a huge impact on my classroom performance. I have to maintain a sense of fairness and objectivity at all times, when it comes to responding to my classmates, group members and professors. I need to be mindful that everyone is entitled to their own opinion, including myself. However, I need to express it in a fair and balanced manner.

When we consider the challenges that have been faced by many of our major corporations and accounting firms, along with the S&L catastrophe from years ago, we quickly see how ‘creative’ financial managers can put us all at risk of losing what we’ve worked so hard for, at any given time. If only these companies were committed to the guidelines of the IMA, we could have quite possibly had a very different ‘corporate climate’ all together. It’s quite possible that major ‘financial disasters like Enron and WorldCom would have been unthinkable and therefore non-existent.

It is also quite obvious that the IMA’s Statement of Ethical Professional Practice is relevant for so many corporations, organizations and even individuals like me. Today, with the advent of the internet, there are so many ways to compromise your integrity. Students today have access to many things that were not available 30 or even 20 years ago. I can honestly say that it takes a great deal of commitment to honesty to maintain one’s integrity. As a student, every day I make the choice to live my life with integrity.