ACCT 20051/20077: Academic Learning Centre - Essay Writing Assessment Answers

August 07, 2017
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Solution Code: 1BDB

Question: Essay Writing Assignment

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The assignment must be completed as an individual assignment. There is no specific writing style required such as a report or an essay for answering the questions.

Assignment questions

  1. Discuss the purpose of a double-entry bookkeeping system.
  2. Differentiate between financial and management accounting. Give an example of how management accounting reports would be incorporated into financial accounting reports.
  3. BHP Billiton Ltd includes a sustainability report in its annual report. What key performance indicators are included in this report? Explain the different stakeholders that would be interested in this information.
  4. ‘Complying with the law will always mean that you are acting ethically.’ Discuss this statement.
  5. Comment on the following situations in relation to the ASXCGC corporate governance principles and recommendations.
  6. A member of a board of directors insists on being involved in the employment of personnel.
  7. The auditor of a company is the brother-in-law of one of the company’s directors.

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Solution:

  1. The purpose of a double-entry bookkeeping system is to systematically record the transactions related to the business entity in a chronological manner with proper narration such that both aspects of the transaction are accurately covered i.e. for every debit there is a corresponding credit. This not only ensures arithmetical accuracy of the books but also helps the business to prepare its income statement and balance sheet in order to assess the profit or loss made and the financial position at the end of the period. The system also aids cost control and decision making. The system aids in the preparation of the cash flow statement which gives an idea of the cash generated and used for the operating, investing and financing activities of the entity. The double entry system, thus serves the business by catering into the financial and accounting propriety, completeness and correctness of its books of account. This also helps the business to abide by the taxation, legal, corporate and other requirements which are binding on the business depending on the area where the business is located. All said and done, the system’s purpose is to keep the business running and growing. (Book-keeping, 2016)
  2. Financial accounting is concentrated on the preparation of the financial statements of the business i.e. the balance sheet, income statement, cash flow statement and statement of changes in stockholders' equity which form a part of the annual report of the company that is distributed to the shareholders at the end of the period. The Financial Accountant follows the rules set forth in this respect by the premier accounting bodies like the accounting standards and the generally accepted accountingprinciples.

    Management accounting on the other hand, concentrates on the provision of information to the internal management of the company so as to enable it to take decisions more effectively.  Management accounting focuses on areas like costs , budgets , opportunity costs , rate of return , net present value , break-even point, , capital budgeting and  activity based costing, and standard costing.

A classic example of the incorporation of the management accounting report in the financial accounting report is when the cost of the product manufactured by the business is used in the income statement to arrive at the profitability of operations of the business. This cost report is normally in the form of a detailed cost sheet. (AccountingCoach.com, 2016)

  1. The sustainability report of BHP Billiton Ltd. Forming a part of  its annual report will normally include the following performance indicators

  • Economic performance indicators in terms of revenue, income generated, return and other indicators based on the accounting aspects of the company which can be measured in monetary terms.
  • Social performance indicators in terms of human resource management, compliance with the labour law in the area of operation of the business, quality updates affecting the consumers and other indicators indicating the company’s performance in terms of its contribution to society,
  • Environmental performance indicators in terms of the greenhouse gas emissions, consumption of scarce resources like water, hazards involved in the manufacturing process followed by the company. (Pre-sustainability.com, 2016)

The different stakeholders that would be interested in this information include:

  • Customers and prospective customers of the company,
  • Financial institutions involved or prospectively looking to provide finance to the company,
  • Society and community in terms of the reputation and contribution of the company to the social good,
  • Labour Organizations in terms of the fair practices adopted by the company towards its labour force.
  • Shareholders and Prospective shareholders  of the company,

  1. ‘Complying with the law will always mean that you are acting ethically”. The statement in the light of a business organization that is law abiding is true to a considerable extent. So, where a  successful corporate abides by the corporate , local , taxations , GST and other laws applicable to it; it enjoys not only a great reputation and social standing but is perceived to be an ethical organization in all aspects.

Where the same organization breaks or circumvents the law in terms of tax evasion or avoidance, manipulation of the accounts to inflate profits and attract prospective capital; it no longer remains an ethical organization in the eyes of the community and society. This rule holds good, no matter what the ruling of the court may state later on.

But the statement is partly debatable in instances where the so called lawful and ethical organization decides to locate its plant in a location that it is lawfully allowed to do even though the decision will impact the local community decision to build a school in the same location. Here, the company’s decision may not be completely ethical as warranted by the circumstances of the situation.

  1. principle 1 (Solid foundation for management and oversight) comes into operation, whereby a clear distinction ought to be maintained vis-à-vis the responsibilities of the board and management. Employment of personnel is clearly the prerogative of the management and not the board.
  2. Principle 4 ( Safeguard integrity in financial reporting) is invoked in this scenario, whereby the integrity of the financial reporting system will be affected if the auditor is not independent. Due to the personal interest involved, the audit report will to be credible.
  3. Where the XYZ company ensures that as much information as possible about the operations and financial affairs of the company is made available on the company website; Principle 5 (Timely and balanced disclosure) is invoked that provides for timely and balanced disclosure of the company focussing on quality rather than the quantity of information.
  4. Where the chairman of the board puts forward a proposal to remunerate the CEO.Principle 8 (remunerate fairly and responsibly) is invoked that provides for fair and reasonable remuneration commensurate with performance.

e. Where the board member who is a major shareholder leaves the meeting room while the tenders are being discussed, Principle 2 is invoked which states such that the board ought to be independent and objective.

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