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Auditing and Assurance Service Individuals Assignment

Introduction

Assertion in the process of auditing is an important element that has different changes in auditing of financial statement that are prepared by the company. An auditor mainly use audit assertion for performing the test that are totally associated with overall policy, guidelines and internal controls of the company. In this study, key assertions that are related to inventory have been discussed along with identifying two substantive audit processes for each risk that are identified. It also includes key assertion of risk that is related to property, plant and equipment of an organisation. It also includes the requirements of ASA 701 that includes key audit matters of this particular auditing standard.

Question 1

a. Identifying and explaining two key assertion of risk in inventory

Audit assertions includes different for performing test along with companies policies and internal controls that are totally associated with the company. Financial statement of an organisation includes ledger, journal and other financial statement of the company. The case that has been mentioned includes Advanced Computer Solutions Limited, which has audited their financial statement on 30th June 2018. As per Carey (2015), risks that are associated within the company includes package that has experienced high level of returns for owing problems in their overall software. The company has expected their total inventory turnover ratio that is around 5.4 in the year 2017 and around 3.8 in the year 2018. Audit of each financial statement has been performed along with group of similar accounts using cycle approach. Moreover, account balance assertion are considered along with classes of transactions that are associated with balance sheet and accounts of income statement for a certain period of time. Risk of material misstatement has been identified for applying appropriate process that are used in overall process of auditing.

Assertion of risk in inventory includes account balances that are usually associated with balance sheet of a particular company. Advanced Computer Solutions Limited moves their closing inventory to a new warehouse, which is located at different location. According to Carson et al. (2016), the company has inventory in hand that has been represented around 26 % of total amount of sales in the financial year 2018 and around 18 % of total amount of sales in the year 2017. It includes existence of account balances that includes assets and liabilities that are associated with the company. It also includes rights, which mainly holds the control rights of the associated assets and liabilities. Account balance assertion is considered along with classes of transactions that are associated with the statement of financial position of the company. These assertions helps account balances to audit themselves in overall auditing process along with uncollectible receivables that are associated with the company and inventory which are physically present in the selected warehouse. These assertions of risk in inventory also include key audit matters that are associated with the company in overall process of auditing.

b. Identifying and describing two substantive audit procedure for performing at each risk that are identified

Substantive procedure is important for an organisation to examine their assets and other items that are totally associated with the company. It is particular process that consists of test which mainly includes creation of conclusive evidence along with disclosure of rights and valuation of inventory. Inspired from the viewpoint of Edgley et al. (2015), inventory acts as an asset in an organisation that are conducted by an auditor after a certain period of time. It mainly gives large number of inventories that are associated with an organisation in their overall audit process along with a proper reason. Cut off analysis is a type of substantive audit process in which appointed auditors of an organisation would examine the procedures of halting for further receiving of warehouse at the time of counting of physical inventory. In this scenario, items of inventory that are extraneous in nature are to be excluded from the overall process for better evaluation of inventory that are included in their normal course of business. The appointed auditors test those shipping transaction before physical count of inventory along with the transactions that are associated with the business of the company.

Classes of transactions include occurrence and completeness among which occurrence mainly analyses the transactions that has been recorded actually in a business. On other hand, completeness checks all transactions that have been occurred in the business along with some events, which are recorded in their books of accounts of an organisation. Klumpes et al. (2016) has stated that the company has inventory in hand that has been represented around 26 % of total amount of sales in the financial year 2018 and around 18 % of total amount of sales in the year 2017. Advanced Computer Solutions Limited moves their closing inventory to a new warehouse, which is located at different location. It also includes sales revenue transactions that mainly include actual shipments, which are made to real customers along with investment income that has been properly excluded for the earned revenue or sales in their normal course of business. Auditing of these risk associated procedure might includes auditing procedures which includes occurrence test of the inventory transaction that has been taken as sample addition of inventory for including them in purchase acquisition of the company.

c. Explaining the requirement of ASA 701 for communicating key audit matters for this particular auditing standard

Auditing standard of Australia mainly deals with responsibility of the appointed auditors for communicating with key audit matters in the overall audit report. It is mainly intended to address the judgement of an auditor for analysing the overall process of audit report in a particular financial report. This particular ASA 701 act as a substitute of disclosure in the financial reports that are presented by the appointed auditors of the company. In the viewpoint of Kowaleski et al. (2018), this particular financial reporting framework requires some management to address the tendency of auditing standard that are totally associated with the nature of business of an organisation. It has different requirements in which key audit matters has been determined in the overall process of auditing that helps in the process of communication which are charged with governance. It also includes those matters that are required for the overall process of auditing that has been taken into consideration for determining auditing standard that acts as a communicating key. The auditor of an organisation mainly checks the areas of risk that are associated with risk of material misstatement which are mainly identified for the ASA 315.

Judgement of auditor in a significant area which are related to the areas of financial reporting along with including it in the judgement of significant management. It also includes estimates of accounting that has been identified with high estimation of audit uncertainty. The company has expected their total inventory turnover ratio that is around 5.4 in the year 2017 and around 3.8 in the year 2018. Audit of each financial statement has been performed along with group of similar accounts using cycle approach. Lenz & Hahn (2015) has mentioned that some risks that are included with the company includes package that has experienced high level of returns for owing problems in their overall software. There are some effects that are based on the effects of significant of audit on the financial reports that are prepared for a particular period of time. The appointed auditors of the company include matters that are determined with the overall process which are according to standard of auditing along with their key audit matters.

Question 2

a. Identifying and explaining two key assertion of risk that are related to property, plant and equipment

It is important to include audit procedure as it includes each procedure that are associated with assertion tested along with audit procedures that mainly consist of major steps. Each step of audit procedures is mainly performed to examine the financial statements assertions along with identification of overall procedures. Based on the viewpoint of Seguí‐Mas et al. (2015), the prepared financial statements are mainly used by the appointed auditors along with different types of potential misstatements that might occur in their normal course of business. It includes completeness, which mainly points out the transaction that has already taken place in their business. The case that has been mentioned includes Advanced Computer Solutions Limited, which has audited their financial statement on 30th June 2018. The company has expected their total inventory turnover ratio that is around 5.4 in the year 2017 and around 3.8 in the year 2018. It also includes all assets and liabilities that are associated with the company along with equity interest and reserve capital that has been disclosed in the financial statements of the company in a particular financial year.

The occurrence and valuation of asset includes the transactions with events and others matters which has been recorded for taking part in an organisation. Valuation and allocations of plant, property and equipment has to be included in financial statements of the company, which has to be reported in a particular financial year. It also includes accuracy that relates to the amount of transactions and events that has taken place in their normal course of business. Identification of audit procedures includes some accounting procedures and techniques that are totally associated with assets of an organisations. Moreover, the market value has been appreciated that has not been recorded for significant decrease in assets, which are also known as impairment of plant, property and equipments. Sethi et al. (2017) has opined that most of the business organisation use capitalisation method that is mainly used for thresholding the evaluation process that are incurred in their overall process. It mainly includes primary property assertions, property walkthrough, primary risk of property and others. These assertions helps account balances to audit themselves in overall auditing process along with uncollectible receivables that are associated with the company and inventory which are physically present in the selected warehouse.

b. Identifying and describing two substantive audit procedure for performing at each risk that are identified

Risk that are associated with plant, property and equipment has been identified by different types of audit procedures in which inquiry process and observation process that has been encountered for describing these audit procedures. In the viewpoint of Simnett & Huggins (2015), inquiry process mainly dealt with inquiring of accountants that are associated with related management for the matters mainly found by the respective auditors. Some of the auditors inquires management in the business process along with their financial transactions that are associated with the company. The financial transaction that has taken place in their normal course of business has to be recorded for controlling major parts in a business organisation. It is also one of the most important audit procedures that are mainly used in different stages of audit procedures. Appointed auditor of an organisation might inquire management at the stage of planning as they might help in confirming the consignment at the end of the work of audit with its total amount of liabilities.

Audit procedures for plant, equipment and property includes overall process of observation that is mainly used to obtain the overall understanding along with gathering audit evidence for the real process. Some specific business has different purpose in which this particular audit procedure mainly confirms the process to the clients along with physical confirmation. It mainly used for obtaining audit evidence for making their own projections that would be used for the overall purpose of comparison. As mentioned by Soh & Martinov-Bennie (2015), the appointed auditors test those shipping transaction before physical count of plant, property and equipment along with the transactions that are associated with the business of the company. In this particular procedures, confirmation of audit procedures are not up to their clients along with the available inventories for confirming them with their particular clients. Auditing of these risk associated procedure might includes auditing procedures which includes occurrence test of the inventory transaction that has been taken as sample addition of inventory for including them in purchase acquisition of the company. It also includes counting procedures for confirming the current amount of plant, property and equipments and sometimes auditors would confirm them for counting of fixed assets that are associated with the business in their normal course of business.

c. Explaining the requirement of ASA 701 for communicating key audit matters for this particular auditing standard

This particular auditing standard mainly describes the key audit matters along with proper auditor’s report, which are prepared after a certain period of time. Some matters that are associated with professional judgement of an auditor are coined as key audit matters, which is one of the most significant items in preparation of financial reports. Based on the viewpoint of Seguí‐Mas et al. (2015), these particular matters are mainly addressed to the context of audit along with opinion of the appointed auditor for separate context in these matters. The appointed auditors of an organisation required to communicate with the matters that that helps in reporting to the appointed manager of an organisation that has been included with ASA 705 along with results of the overall matters.

Each key audit matters have to be described that includes references with related disclosures in the financial reports of the company. The appointed matters have to be considered with significance in the overall process of auditing that has to be mentioned in the total process. It also includes laws and regulation that includes disclosures about the matters of the organisation, which mainly includes report on the matters with the overall standard. According to Carson et al. (2016), it can be seen that the company has identified another risk that are associated with calculations of depreciation of buildings, plant and machinery along with fixtures fittings and equipments. Each of these assets has been depreciated with certain percent on the basis of straight line method.

Conclusion

From the study mentioned above, it might be concluded that auditing and assurance services in inventory has been discussed in this study through which key assertions that are related to inventory. Audit of each financial statement has been performed along with group of similar accounts using cycle approach. Risk of material misstatement has been identified for applying appropriate process that are used in overall process of auditing. It includes existence of account balances that includes assets and liabilities that are associated with the company. It also includes sales revenue transactions that mainly include actual shipments, which are made to real customers along with investment income that has been properly excluded for the earned revenue or sales in their normal course of business. It mainly gives large number of inventories that are associated with an organisation in their overall audit process along with a proper reason. This particular ASA 701 act as a substitute of disclosure in the financial reports that are presented by the appointed auditors of the company. There are some effects that are based on the effects of significant of audit on the financial reports that are prepared for a particular period of time.

Reference list

Carey, P. J. (2015). External accountants’ business advice and SME performance. Pacific Accounting Review27(2), 166-188. Retrieved on 6 January 2019 retrieved from http://dro.deakin.edu.au/eserv/DU:30079058/carey-externalaccout-post-2015.pdf

Carson, E., Fargher, N., & Zhang, Y. (2016). Trends in auditor reporting in Australia: a synthesis and opportunities for research. Australian Accounting Review26(3), 226-242. Retrieved on 7 January 2019 retrieved from https://eprints.qut.edu.au/89271/8/89271.pdf

Edgley, C., Jones, M. J., & Atkins, J. (2015). The adoption of the materiality concept in social and environmental reporting assurance: A field study approach. The British Accounting Review47(1), 1-18. Retrieved on 8 January 2019 retrieved from http://centaur.reading.ac.uk/38970/3/JA%20The%20Adoption%20of%20the%20Materiality%20Concept%20in%20Social%20and%20Environmental%20Reporting%20Assurance.pdf

Klumpes, P., Komarev, I., & Eleftheriou, K. (2016). The pricing of audit and non-audit services in a regulated environment: a longitudinal study of the UK life insurance industry. Accounting and Business Research46(3), 278-302. Retrieved on 9 January 2019 retrieved from http://irep.ntu.ac.uk/id/eprint/27997/1/5520_Klumpes.pdf

Kowaleski, Z. T., Mayhew, B. W., & Tegeler, A. C. (2018). The Impact of Consulting Services on Audit Quality: An Experimental Approach. Journal of Accounting Research56(2), 673-711. Retrieved on 10 January 2019 retrieved from http://iranarze.ir/wp-content/uploads/2018/12/E10297-IranArze.pdf

Lenz, R., & Hahn, U. (2015). A synthesis of empirical internal audit effectiveness literature pointing to new research opportunities. Managerial Auditing Journal30(1), 5-33. Retrieved on 11 January 2019 retrieved from https://www.researchgate.net/profile/Rainer_Lenz2/publication/260203547_A_synthesis_of_the_empirical_internal_audit_effectiveness_literature_and_new_research_opportunities/links/54881c240cf2ef34478eec2a.pdf

Seguí‐Mas, E., Bollas‐Araya, H. M., & Polo‐Garrido, F. (2015). Sustainability assurance on the biggest cooperatives of the world: an analysis of their adoption and quality. Annals of Public and Cooperative Economics86(2), 363-383. Retrieved on 12 January 2019 retrieved from https://riunet.upv.es/bitstream/handle/10251/64306/SA%20on%20the%20biggest%20cooperatives%20of%20the%20world%20%28Segu%C3%AD%20Bollas%20Polo%29.pdf?sequence=1

Sethi, S. P., Martell, T. F., & Demir, M. (2017). Enhancing the role and effectiveness of corporate social responsibility (CSR) reports: The missing element of content verification and integrity assurance. Journal of Business Ethics144(1), 59-82. Retrieved on 13 January 2019 retrieved from https://www.researchgate.net/profile/S_Sethi/publication/282393494_Enhancing_the_Role_and_Effectiveness_of_Corporate_Social_Responsibility_CSR_Reports_The_Missing_Element_of_Content_Verification_and_Integrity_Assurance/links/562944e608ae04c2aeaef677.pdf

Simnett, R., & Huggins, A. L. (2015). Integrated reporting and assurance: where can research add value?. Sustainability Accounting, Management and Policy Journal6(1), 29-53. Retrieved on 14 January 2019 retrieved from https://eprints.qut.edu.au/85015/7/85015.pdf

Soh, D. S., & Martinov-Bennie, N. (2015). Internal auditors’ perceptions of their role in environmental, social and governance assurance and consulting. Managerial Auditing Journal30(1), 80-111. Retrieved on 15 January 2019 retrieved from https://www.researchgate.net/profile/Dominic_Soh/publication/273188829_Internal_auditors%27_perceptions_of_their_role_in_environmental_Social_and_governance_assurance_and_consulting/links/5535d0a00cf218056e92a7b9.pdf

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References

Beatty, S., & Clare, S. (1883). Book-keeping. Toronto: W.J. Gage.

Bragg, S. (2013). Accounting best practices. Hoboken, N.J.: John Wiley & Sons.

International Accounting Standards Committee. (1992). Cash flow statements. London.

Gibson, C. (1998). Financial statement analysis. Cincinnati, Ohio: South-Western College Pub.

Horngren, C., & Harrison, W. (2015). ACCOUNTING. Pearson Australia Pty Ltd.

Marriott, P., Edwards, J., & Mellett, H. (2002). Introduction to accounting. London: SAGE.

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Auditing and Assurance Services Individual Assignment

Question 1

While assessing the risk of material misstatement and determining the appropriate response

with regard to the inventory of Advanced Computer Solutions Limited (Advanced Computer

Solutions) for the 30 June 2018 audit, you become aware of the following information:

(i) The best-selling computer presentation package has been experiencing a high level of

returns owing to suspected software problems

(ii) Based on closing inventory, inventory turned over an average of 5.4 times in 2017 and 3.8

times in 2018

(iii) Advanced Computer Solutions moved its inventory from a central warehouse to six new

regional warehouses in March 2018

(iv) Inventory on hand at end of year represented 26 per cent of sales in 2018 and 18 per cent

of sales in 2017

(v) Advanced Computer Solutions has recently won a tender to supply a large government

department with various products. In order to win the tender and prevent competitors

from gaining a foothold in the public sector market, Computing Solutions agreed to supply

the items at 10 per cent below their cost price. The first shipment is due to be delivered to

the government department in the middle of July 2018.

Answer 1

A In the risk management of Computing solutions in terms of assessment, for the Key assertion relating to inventory, It requires auditors for accustoming themselves to company and environment where it functions in the assessment it is fond that the there is material misstatement that can be traced to reasons that involve fraud and error mainly or, as a whole it affects financials of company related to it. (ISA 315.3) It forms basis in determining the exact scope, audit timing procedures, length intensity which are contemplated prominent in obtaining the reasonable with adequate audit in the form of evidence in curbing the risks assessed. (ISA 200.A36)

Valuation: Value of inventory is susceptible in impairment in the case here.  As per the AASB 102 for Inventories, Inventories ought to be valued by disclosing it to the tune with AASB. AT the end of year and thereafter, realizable value and their assessment becomes able to be detectable to look into the damaged items and the scrap goes possible in the case here.

As per the given fact, In the package of Computing Solutions, the best selling product is vulnerable to be retuned on account of suspected issues related to software. It sometimes, may become important to gather evidence where the valuation of the inventory is correctly done by disclosing and recording it. Here; incorporation of the relevant costs taken directly with overheads to inventory accurately and correctly is climacteric. The drop seen in inventory hich was 5.2 time in 2017 and almost 3.8 times in the year of 2018 implies conversion of inventory in slowed down sales. It may have impacted on the ground of return of afore mentioned package of inventory that need introspection. It raises the assertion of existence of inventory when the movement is done from main store house to the new six tore house in March 2018 of the year with closely valuation of inventory. Closing of Inventory seen at the end of year 2018 was 22% of total sales which was just 18% in 2017. By Implication: quotation is asserted with risk. Computing Solutions became agree in order to supply the items which would be 10% lower than cost price involved to government agency. In return, it helped in raising the assertion of quotation valuation. There may have valid case reason in providing impairment of the inventory that has made management resort in Selling below cost price. It becomes essential that costs involved are properly accounted to make it able in the ascertain of lost suffered due to contract (Wong. and Millington, 2014).

Existence of assertion arises as asset of inventory may or, may not exist with shifting of the warehouse. It may become also a fact that overstatement made on the inventory through inclusion of transactions that were found fictitious. It may relate it in the assertion of occurrence for further transactions. The inventory purchases are ensured by the cut-off procedures with sales for recording it to the correct side of the year. Departure and arrival of goods is susceptible  in the procedure of recording it incorrectly (Cohen and Simnett, 2014). 

B  Procedures of Substantive Audit with respect to risk as identified above  may help in ruling out the issues relate to material. At the time of assessment of the material misstatement and audit plan that do not include test control, procedures of Substantive Audit aid in to carry out testing in detail that may or, may not collaborate with procedures of substantive analytical in order to obtain adequate and reasonable evidence on Audit for inventory assertion with risk issues significantly at balance level and transaction level (Soh and Martinov-Bennie, 2015).

The two Audit procedures discussed above can be performed to connect it with risk as discussed.

 Regarding Valuation;  Vouching cost of the assets related to purchase invoices and in impairment calculation, help in substantiating the assertion. It becomes essential to ensure AASB 102 on inventories with their valuation at lower costs or, market of value is followed.  Costs not related to the production on account of the nature to be in indirect costs that are sought have not been involved in inventory cost. The quotation technique in valuing the inventory and cost related to it, is close to FIFO, AVCO etc. These had to be followed  in justifying the costs as such. Consistent treatment done over the freight and overall overheads costs with the comparison of the market prices in recording the costs where the samples of records, inventory testing allowance with inventory testing layers for FIFO, LIFO etc. is warranted  less in the case here.

For existence and cut off; it may be important in tracing the received goods and the note on it with despatch notes for the invoices which the inventory received earlier as to reword it correctly.  Another procedures where the auditors should resort in the examination on company and the related procedures on it halt for the receipt of items move into the ware house at the time of physical inventory count, which then helps in ensuring inventory items included in it.  Test of sampling on the few receipts and the shipping transactions done before physical count and after that will help in substantiation of assertion which are at risk for the cut off procedures (Peters and Romi, 2014).

C Rational and requirement needed for inclusion of Key Audit matters for ISA 701, which is partly on account of specified framework decision for auditors  in the report of material that matters. It has a motive to strengthen governance of the company with a proper communication on these matters. Determination and examination on the matter of warranting significant attention on the audit and selection of the most significant items needed are important in the auditing of the financials of company s required here.  It can also be provided with an exception in the determination of key matters that can be made here. Consequences on these matter may negate public interest and the benefits related to it through company’s contracts’ with competition considered commercial. The exception can be ruled out in the matter where public statements are already disclosed. ASA 701 is essential in the application of listed entities.

As per Fulop and Cordos (2015), key auditing matters is taken as the subjective decision in the auditing of entities.  They found and recommended that changes can be made in the standard as per the requirement of regulations that require confidentiality to be maintained in auditing in respect of matters of client.

Required Disclosure

 Matters mentioned above are determined as a key for given fact that product which are best selling in the market are susceptible to be returned as the issues of suspected software found. Here; including all the relevant overheads and direct costs related to inventory accurately and correctly is climacteric. It was seen that the drop in turnover of inventory was 5.2 times in financial year 2017 was decreased comparing it to 3.8 times fond in 2018. It implies that inventory conversion remained slow in the sales r, it slowed down.  It may have impacted on account of returns of afore mentioned package of inventory which needed introspection. Inventory movement from main store house to the new six store house in year 2018 in March, helped in raising the assertion for existence of inventory. Closing inventory observed at the end of year 2018 in March was total 22% of all sales and decreased by 18% in year 2017 in March in the same sales level. By implication; Quotation and valuation was asserted with risk on it. Company agreement for supply of all products with 10% below all the cost on it to government agency helps in raising assertion of valuation again on it.

It becomes essential to ensure that AASB 102 for Inventories with their valuation at lower cost and the market cost, market cost is followed for it. Costs which are not linked to production cost on account of them in being nature for indirect cost sought have not been involved in inventory cost.  Basis for valuing inventory cost which are close like FIFO, AVCO etc. have been followed to justify the costs of it as such. Consistent treatment on overall overheads and freight cost, by comparing it ot market price that can be recorded for sample with inventory tests allowance and other testing layers linked to FIFO, LIFO etc is deemed warranted in the case here (Hay, 2015). 

Review done on the management at year end may require a reduction on the cost related to inventory where it is sold below the prescribed cost. Determination linked required by the, management in judging and getting the application for assumptions. Following procedures are suggested for write down-

  •  Inventory ageing reports should be used for estimation of future saleability  in terms of slow moving product line which are new.
  • Items that are greater than one year,  Percentage Application based write down.
  • Line analysis is essential for remaining inventory in ensuring it above the conditions met.

Following procedures that were performed are mentioned here-

  • Sample on Inventory items were taken for valuation and then re-performed by comparing it to last purchase and invoices;
  • Ageing report and the sample testing on it with last invoices recorded; 
  •  Value of Net realizable and sample testing on it with selling prices done recently;
  • Management and enquiries on it  with other staff in the determination of specific write downs
  • It was found , nothing to be reported from the procedures done as such.

Question 2

  • You are the auditor of Green Machine Ltd, a manufacturer. You have obtained a summary of
  • the property, plant and equipment for the year ended 30 June 2018, which identifies cost and
  • accumulated depreciation brought forward, additions and disposals in the year and
  • depreciation charges.
  • A review of the management letter from the previous year’s audit shows that there were some
  • problems in relation to making a distinction between capital and revenue expenditure; some
  • items were capitalized when they should have been expensed and other capital items were
  • included in repairs and maintenance in the income statement.
  • Another risk identified from prior years relates to depreciation calculations: there is a range of
  • depreciation rates within categories and there has been concern that the rates applied to some
  • assets have been too low. The depreciation policy disclosed in the financial report shows:
  • • Building: 2 – 4% straight line
  • • Plant and machinery: 5 – 10% straight line
  • • Fixtures fittings and equipment: 5 – 20% straight line

Answer 2

A Two key assertion with risk by reacting it to intellectual property that re intangible asest at the time of audit of Beautiful hair Ltd., where they acquired the Shimmer Ltd. Insted of that they come forward to possess the intangible asset which arises from acquisition  according to accounting standard AASB3 was found accurate and with ownership (Brown-Liburd and Zamora, 2014).  

Ownership: Possession of ownership becomes important here as Beautiful hair Management have to ascertain whether there is a lawful claim related to intellectual property in terms of intangible asset and its secret formula to recognise it on the balance sheet. 

Accuracy:  It is important in term of accuracy assertion as Beautiful hair Management wants to ascertain that whether intellectual property that are intangible asset with secret formula can be recognised in the balance sheet with error free. Proper classification and ascertainment in terms of impairment may take place if found that it is no longer able in generating revenue which is did in the past that mostly required adjustment to carry amount on the balance sheet. When found that intangible asset on balance sheet is tend to be obsolete, a reduction in the sheet amount is required (Jans et al., 2014). 

B  Scenario found in discussion, has no details of plan that can be included for Test of Control (TOC’s) for assessment of operating performance on the control at specific and the overall level provided.  It is required to get details on performed test. It helps in the validation of auditors expectation of operating performance for the control. It may or, may not rely upon the performance done. It is essential to mention at this juncture where a result on these audit test and the related procedures  will be provided for an adequate and reasonable auditing evidence. For this, a reserved or, qualified opinion on the auditing should be issued. (ISA 330.8)

Ownership: Substantiation procedures required in the  assertion may involve examination of the title of documents with the other document that validates the proof for ownership. Review is to be done on agreements in order to correct asset and related to valuation that can be included here is also important.

Accuracy: Testing of Substantiation in the assertion involve at first the verification of acquisition transaction that take place during the year.  Documents inspection at the time of acquiring and adjusting the cost needed for appropriate policy of accounting is suited for client in required circumstances.  Meanwhile, determination, applications testing of clients accounting policy become necessary further. Determination of recorded transaction in terms of intellectual property  and their verification so that to know that this has been recorded correctly and in relevant revenue or other expense on the asset allocated needs to be corrected during the required period of time. Testing of continued asset and their suitability is also required (Junior et al., 2014). 

C Important audit matters are the key matters that area per the wisdom of auditor and that are most significant to audit of financial tat are audited on account of significant assessment with various audit risks observed that underlie among them. The matters here may get affected to great extent in the overall strategy with resources used in auditing here; also the duties are performed and assigned by the team of audit.

Rational and Requirement for inclusion of Key Audit Matters as per the ISA 701 can be partly on account of specified decision framework for auditors in  reporting matters that was done with a view to strengthen company with its governance through required communication on these matters. Determination and examination on matters that is warranting and significant in audit attention along with selection of significant items in the audit of financials of company s required here.

Required Disclosures

Matters described above  are determined as per the Key that gave fact on best selling Package for products of Computing Solutions is susceptible in being returned to suspected issue of software.  Here; Inclusion of all required direct costs with overheads to the inventory is accurately or, correctly becomes crucial. It was seen that the drop in inventory turnover was 5.2 times in year 2017 in the month of March which was more as per the decreased turn over seen in year 2018 that was approximately 3.8 times. It implies the conversion of the inventory into sales that slowed down here. It may have impacted on account of returns of aforementioned package on the inventory which needed introspection.  Inventory movement from main store house to the new six store house in year 2018 in the mo nth of march raises assertion of existence of these inventory. Closing inventory in the year 2018 was 22% of total sales and while it was just 18% of total sales in year 2017. By implication: quotation is asserted with the risks. The company agreement in supplying the products at the rate of 10% which is below the cost to government agency offered raises the asserting in the valuation again (Khlif and Samaha, 2014).

It is essential to ensure that AASB102 on the Inventories and the valuation dobe over it was lower to the cost of inventory or, the market cost s followed.  Cost which are not related to the production cost on account of tem in nature of the sought indirect cost that have been included in inventory cost. The valuation basis is done for valuing inventory Cost that are close to FIFO, AVCO etc; they have been followed in justifying cost s such. Consistent treatment done on freight and overhead costs by comparing it to market prices where sample of records along with inventory testing allowance and testing of inventory layers for FIFO, LIFO is warranted here in te case.

Management Review is needed at the end of the year that require the reduction on the cost of inventory where it was sold below the cost price.  The determination require from management in judgment and the application and assumption on it. Following are the procedures for the write down that can be suggested (Earley, 2015). 

  • Ageing reports on use of inventory which is needed in the estimation of future saleability and increase in it which has slow moving and new product line. 
  • Items that are greater than one year, percentage application is needed based on write down.
  • Analysis on Line of remaining inventory is important to ensure conditions are met above the line.

Following are the procedures that were performed here-

  • Items of Inventory with their sample were selected and the valuation was one again by comparing it to the last purchase invoices;
  •  Ageing Report on sample testing  with recorded last invoice;
  • Value on net realizable with sample testing with recent selling prices;
  • Management inquires and the other staff for determining any specific write downs;
  • During performance, no such report was found from the procedures (Alles et al., 2018).

References

Alles, M., Brennan, G., Kogan, A. and Vasarhelyi, M.A., 2018. Continuous monitoring of business process controls: A pilot implementation of a continuous auditing system at Siemens. In Continuous Auditing: Theory and Application (pp. 219-246). Emerald Publishing Limited.

Brown-Liburd, H. and Zamora, V.L., 2014. The role of corporate social responsibility (CSR) assurance in investors’ judgments when managerial pay is explicitly tied to CSR performance. Auditing: A Journal of Practice & Theory34(1), pp.75-96.

Burton, F.G., Starliper, M.W., Summers, S.L. and Wood, D.A., 2014. The effects of using the internal audit function as a management training ground or as a consulting services provider in enhancing the recruitment of internal auditors. Accounting Horizons29(1), pp.115-140.

Byrnes, P.E., Al-Awadhi, A., Gullvist, B., Brown-Liburd, H., Teeter, R., Warren Jr, J.D. and Vasarhelyi, M., 2018. Evolution of Auditing: From the Traditional Approach to the Future Audit 1. In Continuous Auditing: Theory and Application (pp. 285-297). Emerald Publishing Limited.

Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory34(1), pp.59-74.

Earley, C.E., 2015. Data analytics in auditing: Opportunities and challenges. Business Horizons58(5), pp.493-500.

Farooq, M.B. and de Villiers, C., 2017. The market for sustainability assurance services: A comprehensive literature review and future avenues for research. Pacific Accounting Review29(1), pp.79-106.

Hay, D., 2015. The frontiers of auditing research. Meditari Accountancy Research23(2), pp.158-174.

Jans, M., Alles, M.G. and Vasarhelyi, M.A., 2014. A field study on the use of process mining of event logs as an analytical procedure in auditing. The Accounting Review89(5), pp.1751-1773.

Junior, R.M., Best, P.J. and Cotter, J., 2014. Sustainability reporting and assurance: A historical analysis on a world-wide phenomenon. Journal of Business Ethics120(1), pp.1-11.

Khlif, H. and Samaha, K., 2014. Internal Control Quality, E gyptian Standards on Auditing and External Audit Delays: Evidence from the E gyptian Stock Exchange. International Journal of Auditing18(2), pp.139-154.

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.

Lynn, T., Healy, P., McClatchey, R., Morrison, J., Pahl, C. and Lee, B., 2014. The case for cloud service trustmarks and assurance-as-a-service. arXiv preprint arXiv:1402.5770.

Marques, R.P., Santos, H. and Santos, C., 2016. Evaluating information systems with continuous assurance services. International Journal of Information Systems in the Service Sector (IJISSS)8(3), pp.1-15.

Peters, G.F. and Romi, A.M., 2014. The association between sustainability governance characteristics and the assurance of corporate sustainability reports. Auditing: A Journal of Practice & Theory34(1), pp.163-198.

Simnett, R. and Huggins, A.L., 2015. Integrated reporting and assurance: where can research add value?. Sustainability Accounting, Management and Policy Journal6(1), pp.29-53.

Soh, D.S. and Martinov-Bennie, N., 2015. Internal auditors’ perceptions of their role in environmental, social and governance assurance and consulting. Managerial Auditing Journal30(1), pp.80-111.

Turley, S., 2015. Developments in the framework of auditing regulation in the United Kingdom. In Auditing, Trust and Governance (pp. 223-240). Routledge.

Wong, R. and Millington, A., 2014. Corporate social disclosures: a user perspective on assurance. Accounting, Auditing & Accountability Journal27(5), pp.863-887.

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ABILITY ACCOUNTING AND CORPORATE SOCIAL RESPONSIBILITY Assignment Help

Executive Summary

This report has discussed the grasps of Corporate Social Responsibilities of Mining Industry. A comparative analysis of Alumina Ltd and BHP Billiton Ltd CSR process is stated in the report. Evaluating both companies CSR process it is clear that BHP is maintaining advance CSR progress compared to Alumina. Based on Triple Bottom Line approach an organisation can maintain a positive impact on economic, social and environmental imperatives. Alumina Ltd has increased loss of control in the management. Compared to BHP, the organisation is unable to maintain an advance Triple Bottom Line approach. In case of Triple Bottom Line approach an organisation can follow the legislation of Company Act 2006. Based on the Employment Act 2002, Health and Safety at Work Act 1974 and Environmental Protection Act 1990 CSR process can improved in the business. Additionally, an organisation can use Shareholders theory and Rational Choice Theory to reduce key issues of Corporate Social Responsibilities.

Table of Contents

1.0 Introduction 4

2.0 Findings and Analysis 4

2.1 Discussion of Corporate Social Responsibility and sustainability accounting 4

2.2 Comparative analysis of CSR and sustainability accounting of Mining Industry 6

2.3 Legislative Requirements and Financial Accounting Theories of CSR and sustainability accounting 7

3.0 Conclusion 9

Reference list 10

Appendix: Sustainability Approach of BHP 12

1.0 Introduction 

Corporate Social Responsibility (CSR) is a process that manages business process of a company to produce the overall positive impact on society. It covers social impact, sustainability and ethics. This report has discussed about Corporate Social Responsibility of Alumina Ltd and BHP Billiton Ltd. Both organisations are a part of the mining industry. Alumina Ltd is situated in Melbourne, Australia and has collected sales revenue of $25 billion in 2017 (Aluminalimited, 2018). BHP Billiton Ltd is also situated in Melbourne, Australia and has collected sales revenue of $38 billion in 2017 (Bhp, 2018). The purpose of this report is to understand the grasp of CSR. Additionally, this study has presented a comparative analysis of CSR and sustainability accounting of both companies. Finally, this report has discussed the legislative requirements and financial accounting theories of CSR. Based on the financial theories this study has presented a grasp of corporate accounting and sustainability accounting.

2.0 Findings and Analysis

2.1 Discussion of Corporate Social Responsibility and sustainability accounting 

Corporate Social Responsibility manages business process of an organisation to maintain a positive impact on the society. This has included social impact, sustainability and ethics. In other words, Corporate Social Responsibility is a continuing commitment that an organisation has to maintain to contribute to the economic development. CSR is generally understood as the process through a business achieves a balance of economic imperatives. Based on Triple Bottom Line approach an organisation can maintain a positive impact on economic, social and environmental imperatives. In the opinion of Schwartz (2017, p.8), Corporate Social Responsibilities can help to maintain high market reputation of a business. Therefore, the company can attract more customers toward their business. Additionally, an organisation can have a positive impact on their stakeholders while maintaining progress in the economic imperative. The company can be able to attract investors in the business based on their economic progress.

Figure 1: Triple Bottom Line

(Source: As influenced by Schwartz, 2017, p.8)

However, CSR has some key issues such as poor environmental management, lack of responsible sourcing and unable to maintain labour standard. This can slow the Triple Bottom Line approach and the company can face market risks in the business. Additionally, sustainability accounting of an organisation can face difficulties based on these key issues. 

Sustainability accounting is considered as a category of financial accounting. This accounting process focuses on disclosure of non-financial information of a business. Sustainability accounting directly impacts on the economic, social and environmental performance of a business. Sustainability accounting also is known as Corporate Social Responsibilities Reporting as Triple Bottom Line approach also applies to it. In accordance to Sands and Lee (2015, p.1), sustainability accounting is a tool used by the business organisation to be more sustainable in the competitive market. Maintaining the Triple Bottom Line approach can help the companies to gain competitive advantage over the rivals. However, sustainable accounting does not involve in financial management of the company. Hence, the financial progress of an organisation cannot be understood by using sustainability accounting. 

CSR can help to manage the business process and sustainability accounting present a report showing the impact of CSR. A proper sustainability accounting statement can help to understand CSR impact on Triple Bottom Line Approach. Moreover, if CSR process faces any issues then the sustainability accounting statement can help to identify it. On the contrary, Tai and Chuang (2014, p.117) argued that, a business has to maintain an authentic sustainability accounting statement to maintain business progress in the market.

2.2 Comparative analysis of CSR and sustainability accounting of Mining Industry 

In the recent year, many organisations have faced difficulties on their business progress. The companies did not maintain a relevant CSR process. Therefore, the companies received negative impact on their economic, social and environmental imperatives. The mining industry has faced such difficulties in their business regarding ethics, sustainability and social impact. Unsustainable position in the market increased loss of control for Alumina Ltd. The company management operation has reduced in the past year (Aluminalimited, 2018). Hence, the organisation can reduce their financial performance from year to year (Aluminalimited, 2018). Additionally, Alumina has reduced their shareholders as the company did not maintain Corporate Social Activities (Aluminalimited, 2018). The sustainability statement of Alumina is clearly stating that the CSR is facing various issues regarding their labour standard. As stated by McWilliams (2015, p.2), an organisation has to reduce the key issues of their CSR process to maintain sustainability in the market. However, issues regarding their labour standard have increased their market risks in the business. Customers of the company have decreased and Alumina Ltd increased negative impact on the society. 

On the contrary, the sustainability statement of BHP Billiton is clearly showing that has company has faced issues regarding responsible sourcing. Issues of responsible sourcing have increased their capital requirements in the business. However, BHP Ltd has maintained a positive impact on their Triple Bottom Line Approach. As argued by Carroll (2015), the organisation has to maintain advance Triple Bottom Line Approach to resolve the issues of CSR. Therefore, BHP can maintain the positive impact on their social, economic and environmental imperatives to reduce capital requirements [Refer to Appendix]. High capital requirements can slow their management progress and market reputation can decrease. 

Based on both companies CSR process it is clear that Alumina Ltd is unable to maintain advance business process compared to BHP. In the recent year, Alumina has decreased their sustainability process in the business. However, it is clear that BHP Ltd is able to maintain advance Triple Bottom Line Approach. Therefore, BHP can be able to reduce their CSR issues in a fast manner. On the other hand, Alumina Ltd can increase their market risk in the business. Hence, the company can reduce competitive advantage and cannot stabilize their position in the competitive market. However, BHP can improve their CSR by maintaining their current Triple Bottom Line Approach. Furthermore, the organisation can reduce their capital requirements in the future and sustain their position in the competitive market.

2.3 Legislative Requirements and Financial Accounting Theories of CSR and sustainability accounting 

As studied by Steenkamp (2017, p.209), sometimes there is an overlap concerning requirements for Corporate Social Responsibilities and for corporate governance. In case of corporate governance legislation, defined codes and regulations is highly required to maintain relevant process. On the other hand, CSR is a voluntary initiative so no such legislation requires in this process. However, Schneider (2015, p.525) argued that, if an organisation applying the Triple Bottom Line Approach then they requires relevant legislation and regulation under the rules of Companies Act 2006. This legislation is based on the Employment Act 2002, Health and Safety at Work Act 1974 and Environmental Protection Act 1990. These following acts can help to maintain positive impact on social, economic and environment of the business. Additionally, the company can understand the requirements of their stakeholders to expand their business progress in the market. The company can be able to reduce the key issues on CSR by applying the regulations in their Triple Bottom Line Approach. Applying the regulation in the CSR progress can maintain dominant progress in the competitive market. 

In the opinion of Schaltegger et al. (2017, p.113), the shareholder theory can help to understand the social impact of a company. This theory helps the organisation to understand the ethical obligations of the business. This theory lists and describes all groups and individuals can be affected by a company’s action. Based on their action the impact of society can be determined. The organisation can be able to expand their business in the market by increasing positive impact on society. Shareholders theory can improve CSR process in a business. Additionally, the company can be able to reduce the key issues of CSR based on the shareholders theory.

On the contrary, Steenkamp (2017, p.210) argued that, an organisation can apply the Rational Choice Theory to improve their CSR progress. Rational Choice Theory can reduce CSR ke issues and compared to Shareholders theory, it is more effective. Rational Choice Theory can help to improve Triple Bottom Line Approach and helps to understand economic and social behaviour of stakeholders. Applying this theory can help to maintain advance business progress in the market.

3.0 Conclusion 

Based on the above findings it can be concluded that BHP is maintaining advance CSR progress compared to Alumina. CSR has managed business progress so BHP can have a positive impact on the society. Based on Triple Bottom Line approach an organisation can maintain a positive impact on economic, social and environmental imperatives. Alumina Ltd has increased loss of control in the management. Compared to BHP, the organisation is unable to maintain an advance Triple Bottom Line approach. In case of Triple Bottom Line approach an organisation can follow the legislation of Company Act 2006. Based on the Employment Act 2002, Health and Safety at Work Act 1974 and Environmental Protection Act 1990 CSR process can improved in the business. Additionally, an organisation can use Shareholders theory and Rational Choice Theory to reduce key issues of Corporate Social Responsibilities. Rational Choice Theory is able to improve Triple Bottom Line approach.

Reference list

Aluminalimited, (2018), About Us, Available at: http://www.aluminalimited.com/ [Accessed on 23rd August, 2018]

Bhp, (2018), About Us, Available at: https://www.bhp.com/ [Accessed on 23rd August, 2018]

Carroll, A.B., (2015). Corporate social responsibility. Organizational dynamics44(2), pp.87-96. Available at: https://www.researchgate.net/profile/Archie_Carroll/publication/273399199_Corporate_Social_Responsibility/links/59db781c0f7e9b2f587ff0d4/Corporate-Social-Responsibility.pdf [Accessed on 23rd August, 2018]

McWilliams, A., (2015). Corporate social responsibility. Wiley encyclopedia of management, pp.1-4. Available at: https://onlinelibrary.wiley.com/doi/abs/10.1002/9781118785317.weom120001 [Accessed on 23rd August, 2018]

Sands, J. and Lee, K.H., (2015). Environmental and sustainability management accounting (EMA) for the development of sustainability management and accountability [Guest editorial]. Issues in Social and Environmental Accounting, 9(1), pp.1-4. Available at: https://eprints.usq.edu.au/27940/ [Accessed on 23rd August, 2018]

Schaltegger, S., Etxeberria, I.Á. and Ortas, E., (2017). Innovating corporate accounting and reporting for sustainability–attributes and challenges. Sustainable Development, 25(2), pp.113-122. Available at: https://onlinelibrary.wiley.com/doi/pdf/10.1002/sd.1666 [Accessed on 23rd August, 2018]

Schneider, A., (2015). Reflexivity in sustainability accounting and management: Transcending the economic focus of corporate sustainability. Journal of Business Ethics127(3), pp.525-536. Available at: https://www.researchgate.net/profile/Anselm_Schneider/publication/261438444_Reflexivity_in_Sustainability_Accounting_and_Management_Transcending_the_Economic_Focus_of_Corporate_Sustainability/links/00463534470b4a6c10000000/Reflexivity-in-Sustainability-Accounting-and-Management-Transcending-the-Economic-Focus-of-Corporate-Sustainability.pdf [Accessed on 23rd August, 2018]

Schwartz, M.S., (2017). Corporate social responsibility. Abingdon: Routledge. Available at: https://www.researchgate.net/profile/Archie_Carroll/publication/261827186_Corporate_Social_Responsibility_A_Three-Domain_Approach/links/54a17ab80cf267bdb902c00f.pdf [Accessed on 23rd August, 2018]

Steenkamp, J.B., (2017). Corporate Social Responsibility. In Global Brand Strategy (pp. 209-238). Palgrave Macmillan, London. Available at: https://link.springer.com/chapter/10.1057/978-1-349-94994-6_8 [Accessed on 23rd August, 2018]

Tai, F.M. and Chuang, S.H., (2014). Corporate social responsibility. Ibusiness, 6(03), p.117. Available at: http://file.scirp.org/pdf/IB_2014091916083406.pdf [Accessed on 23rd August, 2018]

Appendix: Sustainability Approach of BHP

(Source: Bhp, 2018)

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Accounting Finance ACC701 Assignment Help by Assignment Hero

Accounting Finance ACC701

Executive Summary:

There are many necessary steps which should be taken to run an organization effectively. Some key points which should be considered for running an organization are proper business plan, the structure of the organization should be choose rightly, skilled; loyal and dedicated employees should be hired and to go with the flow to make a position in the competition. An organization may face liquidation when the company faces insolvency. By insolvency it means that the company can’t pay the bills owed. And liquidation is the process that brings a business to an end by giving away all its assets to the claimants. The major reason behind the liquidation is management system. The management system holds the executive power of an organization. When the management can’t handle all kinds of pressure and find a better solution for the problems the organization may face the insolvency, that can lead the organization to liquidation. Dishonest activities by the employees and the executive members are also the reasons for the liquidation. And the main reason for liquidation is if a company fails to meet the liability when the fell due. Three renowned company ABC learning, HIH Insurance and One.Tel Phone company faced liquidation because they have not been able to meet their liabilities when they felt due. The reason they gone into liquidation was for ethics and governance system.

1. Introduction:

 The management of an organization is liable for running the organization smoothly. The major responsibilities go to the management for the maintenance of the company. When the company face any kind of problem it is all upon the management to solve the problem and find a way so that they don’t face the problem in future. For ensuring the growth of the organization the management should follow the ethics and corporate governance and they must be able to meet the liability if the company fells due.  And by this way the management of an organization can ensure the long-term growth of the organization.

  1.2 Corporate Governance

 The processes, systems and rule by which a firm is directed and controlled is called corporate      governance.

  1.3 Ethics

  Ethics is a branch of philosophy that involves to make someone’s mind to determine the       concepts of right and wrong. In business ethics refers to the proper study of business policies and act according to the policy honestly.

  1.4 Liquidity

  Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.

2. Analysing the reasons that led the following companies into liquidation:

2.1 ABC Learning:

  2.1.1 Introduction  

  ABC learning was an Australian company which provided early childhood education service. It made their name listed on the Australian Securities Exchange reaching the asset worth of A$ 2.5 billion. It was listed in the Australian Securities Exchange in the year 2006. ABC went into liquidation in the year 2008. The ABC learning was founded in the year 1998 in Queensland. The company expanded thoroughly and by the year 2001 it had 43 childcare centres. After 2005 the ABC learning had nearly 697 early childhood education centres throughout the Australia and New Zealand. It purchased the third largest childcare operator in the US in the year 2005. The name of the operator was Learning Care Group Inc. That had almost 467 centres in the USA and south-east Asia. In the year 2006 the company was announced as the second largest child care provider in the Chicago, USA. The company was a highly profitable company with a total revenue of 292.7 million dollars.

   2.1.2 Reasons of liquidation

   ABC learning was a highly profitable company. The company expanded rapidly and they were also the company who bought many big companies to expand their organization. But the company in the year 2008 announced that they would sell the 60% of the American childcare business to Morgan Stanley. This decision was taken to pay the debt. The company was liquidated in the year 2008. The company was voluntarily liquidated. The reason behind the liquidation was the improper business plan, accounting issues and aggressive capital expenditure. There is criticism that the company earned the most of the profit by inequitable low stuff wages and cost-cutting. The quality of education was also questioned. Ethical and morale issue was also aroused against the company. The company expended the majority of the capital gained by the business in buying more companies expand their business. And this resulted to the weak cash flow. The company had no proper business plan. The company used the capital to expand their business and by this way they took the risk of earning more profit. Because of this weak management decision, the company had suffered a lot. The suffering resulted to the voluntary liquidation.

 2.2 HIH Insurance:

    2.2.1 Introduction

    Among the largest insurance company, the HIH Insurance company was the second. In the year 1968 Ray William and Micheal Payne founded the HIH Insurance company. The HIH Insurance company acquired a large number of companies within the year 1997-1998. The companies include Colonial Ltd General Insurance, Solarta, Great State Insurance etc. They had the companies all over the globe including Australia, New Zealand, Argentina and USA. The notable achievement of HIH Insurance company was they acquired the largest Insurance company in Australia named FAI Insurance. They also bought the 51% share of Winterthur Swiss. The reason they gone into liquidation was they had some ethics issues among the main executives. Some criminal charges were brought against them for not following the and manipulating the stock market, dishonesty and many other reasons.

   2.2.2 Reasons of liquidation  

   Within the year 1968-2000 the HIH Insurance company had their growth rapidly. The HIH Insurance company gained success in their business. But in the year 2001 the company gone into liquidation. The financial report of the company shows that the company was held the second largest insurance firm in Australia with an asset worth of 8 billion dollar. But after deducting their asset with debts the company had assets of only 133 million dollars on paper. It is said that the HIH Insurance company lost around 8000 million dollars over six months to the end of the year 2000. The liquidator of HIH Insurance company predicted that the company collapsed with a loss of total 5.3 billion dollars.

The reasons behind the collapse of the company was the corporate governance issue, board structure, accounting issue and some ethical issue among the founding members. The HIH Insurance Group refocused the controversial issue of the independence of the auditor from the client. In October 2000 the HIH’s financial report shows that the company had the asset worth of 8.32 billion dollar against the liabilities of 7.38 billion dollar. In retrospect, certain items on HIH Insurance Group’s balance sheet requires further scrutiny. Shareholders’ funds in the 2000 annual report were estimated to be $939 million, but the supporting was of suspect value. In the 2000 annual report HIH’s assets included intangibles of approximately $500 million, the bulk of which represented goodwill for FAI. On the liabilities side, there was approximately $500 million in borrowings. The substantial amount of debt carried by HIH is troubling. An insurance company’s investment portfolio holds the premiums the company collects from its policy holders and generates investment income as an internal source of capital. Thus, there is little reason for an insurance company to seek external debt except for one-time purposes such as a takeover. Compared with the previous year, HIH’s debt had risen by $170 million in 1999-2000 (a nearly 50% increase). According to its cash flow statements, HIH’s premium income dropped 15%, or $486 million.

Besides the company had some ethical issues among the founding member of the board. Adler was charged with the stock market manipulation after an investigation. Adler was also charged for disseminating false information. Adler was also charged with the crime of intentionally acting dishonesty. In October 2000 a company named Business Thinking System was in financial trouble. Adler wanted the HIH company to invest 2 million dollars for the Business Thinking System. Later he told the chief of the Business Thinking System company that the HIH interested on investing about 2.5 million dollars for their company. Which was totally fake. The HIH board discussed about the investment and approved an investment of 2 million dollars. Adler attended the meeting and he failed to solve his financial interest on business. Former HIH Insurance chief executive Ray Williams was also sentenced nine months imprisonment for their illegal activities in the HIH Insurance company.  

  2.3 One.Tel Phone

     2.3.1 Introduction

     One.Tel was a telecommunication company established by Jodee Rich and Brad Keeling. It was established in 1995. This was an Australian company. The main focus of One.Tel was to sell its phone to the youths along with the internet services. The company also provided national and international long-distance telephone services. Before collapsing in 2001 it was the 4th largest company in Australia. The company operated throughout the world including Australasia, Europe, USA and South East Asia. The reason behind the liquidation was the company’s meteoric rise and fall, weakness in internal control, financial reporting, quality of audit and some conflicts in the managements.

      2.3.2 Reasons of liquitation

      The One.Tel company was founded in 1995. And they continued their business till the 2001. During its existence, the company occupied the fourth rank of Australian telecommunication companies. The notoriety that it gained probably exceeded its position in the market place. The company had a number of high profile directors and was always known for promoting itself very effectively. One.Tel was declared insolvent in June 2001 and has since been liquidated. Much has been written in the press about the reasons for One.Tel’s rapid descent into insolvency. Most of the material has focused upon the apparent failings of the company’s high profile joint managing directors, Jodee Rich and Bradley Keeling (and the involvement of the sons of the media tycoons Rupert Murdoch and Kerry Packer). As Barry (2002) and others have made clear, there can be little doubt that a number of management decisions were made which now appear seriously misguided. However, IT problems, especially those associated with the billing system, were a part cause of the demise of the company.

A complete history of One.Tel Limited is available in Barry (2002). An analysis of the IT failure and the contribution of the failure of the billing system to the eventual collapse of One.Tel itself is available in Avison and Wilson, 2002.

One.Tel used to pride itself upon its enlightened management techniques. The company operated a flat non-bureaucratic organisational structure and was organised into small functional teams. Each team was regularly measured against a set of key performance indicators, and bonuses were paid on achieving them. The directors worked in hands-on mode, and there was almost no middle management (One.Tel Annual Report, 2000). This organisational approach served two main purposes. It was a major differentiator compared to the competing telecommunications companies, and it was also designed to maximise staff productivity at minimum cost. All offices were open-plan and brightly painted to provide a cheerful motivational atmosphere. One.Tel tried very hard to build a “can-do” mentality, where teams were encouraged to work outrageously hard to achieve desired results. There is evidence that in the early years this approach met with considerable success. Within the IT group for example, a number of quite sophisticated systems for such a young company were developed in an unusually short time frame.

3. Conclusion and Recommendation:

The article is all about the liquidation the three renowned company of Australia. Which are One.Tel Phone company, HIH Insurance and ABC Learning. These companies were the most profitable and largest company in Australia. But still these companies were liquidated. The reason behind the liquidation of the company were a lot. But the main reasons were improper business plan, weak management system, accounting issues and most important ethical and morale lapse among the member of the management and founding members. Because of the management system the company faced a lot of failure in the business and which resulted the liquidation. Besides the morale and ethics lapse in the founding member and board of management also make the company to collapse despite of being the largest companies in the Australia. Though these companies ruled globally but still they failed because of the improper governance system and ethics lapse.

Recommendations for the companies are:

  • The company should start a business with a very smart management system. The management takes the decision for the company which they think is good for the company. So, the management should be very smart in taking any decision.
  • The board of the organization should be honest. The member of the board should follow ethics and morale. If any lapse in the ethics and morale among the board member is found the company should take actions immediately.
  • The organization should be very careful about the expenditure of capital. For expanding the business, the organization should not expense its capital thoroughly.
  • The organization should have a very honest and skilled audit team to support the organization team by giving valuable suggestion for the welfare of the company.

Reference:

One.Tel collapse anger magnets. BBC Online News. 30 May 2001

Paul Barry (8 April 2002).“The Great One.Tel giveaway”. The Age.

Anne Lamp (15 October 2005) “One.Tel quiz looms for Packer”. Sydney Morning Herald.

“One.Tel auditor was linked to Packer”. Sydney Morning Herald. 26 October 2005

“HIH Fraudster Walks Free”. The Sydney Morning Herald. 30 October 2010

“HIH founder released from prison”. News limited. Herald Sun. 14 January 2008

“White collar criminals urged to heed Cooper sentence”. News Online. Australian Broadcasting Corporation. 23 June 2006

“Brad Cooper, Last of the HIH three, free today”. The Sydney Morning Herald. 30 October 2010

ABC learning Centres Limited 2005 Annual Report

Smith, T& Fenner, R. (6 November 2008) ABC Learning Names Ferrier Hodgson Outside Manager. Bloomberg.

Hills, Ben (11 March 2006). “Cradle Snatcher” The Sydney Morning Herald.

Ambler, Emma (16 march 2006). “It’s all ABC on Kids Campus”. Melbourne: FaifaxDigital.

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Foundations in Accounting Assignment Help

Introduction

   This paper revolves around Brazil mini disaster which occurred in the Fiscal year 2015 and how sit has impacted the environment as well as the organization. It explains as for how the corporate for social responsibility in their published report of sustainability have published. On the more, this paper defines the count on the aspect of being legitimacy theory and its impact on the status and goodwill of the organization.

Fact of the Case

Incident: – A dam in the town of Bento Rodrigues has fallen down which led to 600 persons homeless and eleven persons are killed and fifteen are not found and are still missing. On the more on statistical grounds, the dam is spread across four hundred and forty kilometres leaving a large public without water supply and damaging the health of general people and agricultural loss.    

Cause: – As per the research the blamed is stated on the mining organizations BHP Billiton’s and Vale. It was floated that the failure on each and every count to fulfil their duties on account of due diligence as according to the OCED guidelines laid for multinationals enterprises. Moreover, it is clearly stated in reports that it, not an accident and the same was expressly declared by the prosecutor of Minas Gerais state environmental as in the report for the year 2013 expressed clearly that the tailings dam’s integrity was followed as per law and hence, it should disapprove the license or renewal of BHP Billiton (Ong, 2016). The suggestion was ignored leading to turn the situation into such a big disaster

Blame: – BHP Billiton was clearly blamed on account of throwing complete ignorance with respect to storage of the mining materials in the dam. No reason on account of increased production expenses, a reduction in commodity prices and pressure to attain approvals license.  

As per the agreements BHP has to take all the obligations on account with environmental losses and any impact on human and their rights especially on account with supplies and any business relationships.

OECD guidelines for multinational enterprises

OECD guidelines are applicable across nations and Australian and Brazilian governments are a part of such guidelines as they have signed on following such rules. Primarily these guidelines state that if any Australian organization dealing in mining have their projects established across world border then it is the duty of such company to ensure the sight operations with utmost due diligence so that no loss and harm is suffered by anyone. Principles of OECD clearly states that corporate prime responsibilities are to perform activities for the good and betterment of universe and later the rest must follow.

Features include that corporate social responsibility is a crucial element which must not be ignored by the corporate and corporate officials. There should be the level of transparency occurring with the nature of transactions formulated in current as well as future scenarios. The Disclosure on each and every activity of the mining industry in the books of account in very crucial whether being related to the financial statement or non-financial analysis (Golob, & Bartlett, 2007). None the less, such guidelines which help in acting and reacting in a lawful manner with respect to any mis happening caused by such industry. Thus, acting as a preamble for the private organization to actively respond and behave in benefit and profit of social, the economic benefit of the environmental and it better good rather than aiming at their profits only.  

CSR Theory

Corporate Social Responsibility deals with various elements which deal with attaining sustainable growth of delivering best to the environment surrounding. It is a self-evaluation approach which the corporates maintain to understand their compliance in relation to monitoring lawful and ethical environment managed. Corporate social reporting deals with reporting on three elements which are the people, profit, and planet generally known as the 3Ps of the company. On the more, the report is based on the four pillars which being the legal front which deals with the understanding the legal aspect and ensuring that the working of the organization is done under lawful compliances (Golob, & Bartlett, 2007). The economic front explains that the company working does not hamper the economic growth of the industry and ensures that it takes necessary steps to improve the economy. Looking at the ethical front it maintains the parameters that the organization has wholly and solely running on an ethical ground and doing business with no intention of malice and unlawful stands, the feeling must not be based on the forgery. The philanthropic front is the final pillar which deals with the voluntary services provided to the society which is basically not even asked by the society. It acts as an additional help or an extra privileged provided by the organization to the society.

Corporate Legitimacy

This concern is an ever-growing topic for the multinational organization and as the era is moving towards globalization and multinational platform the company must attain the level of legal functioning. In fact, the Australian government is ensuring that the company deals with the phenomenon of a progressive approach which primarily indulgences into the massive research and employing methodology as per current trends and ideas which ensure that the multinationals are working for the betterment of the economy. In fact, the government and the compliances team have sincerely worked towards the advancement of ensuring a desirable format in which the organization aims to report in their annual report the various social disclosures (Pellegrino, & Lodhia, 2010).

   Especially, with respect to the mining industry and its manufacturing segments, Australian government maintains a strict pattern of reporting the same in the annual reports. Many Australian researchers have made a detailed study provided legitimate theory and framework to ensure that the strategies, as well as symbolic activities, are tested and hence disclosed appropriately in the reports.

Legitimacy Theory and Test: –  It is a social unsaid agreement which defines the parameters of the society and the organization. It defines the magnitude level which the operations of the business must sustain in level with the social ideology of acceptance. It defines the methods, values and the desirable outcomes degrees which the environment can overlook on behalf of the company working (Pellegrino, & Lodhia, 2010). Mining industry requires a social license to operate, on the more such industry on a regular basis understand and monitor the ever-changing political and environmental. This industry must aim at providing more than desired information along with keeping transparency in actions as their prime level of importance. The aptitude towards reporting has also taken a step advancement as now the company aims to provide not only a report in a traditional format called the annual reports.  

As per new laws and compliances, the Australian listed companies and especially the mining industry has to provide an annual sustainability and environmental information. This segment specially defines in detail about the occurrences of the transactions in a detail format hence providing an extra dimension to the scenario as a whole, basically because the companies especially the BHP Billiton and the Trio are scrutinised and annual basis on account of their effort to disclose the various schemes with reflection to the pollutants counts with respect to the environment (Pellegrino, & Lodhia, 2010). Along with necessary reporting done with respect to necessary changes and surrounding impacts.

BHP Billiton Reports

   The sustainability reports published by the organisation keeping in mind for corporate social responsibility and the mini-disaster of the dam in Brazil for the fiscal year 2016 and fiscal year 2017 point the following elements the company has made a sincere effort to disclose all the events with respect to dam failures in detail format, the organisation as especially reported a six-page report on Samarco and its failures along with all the possible details related to the same. CEO of the company in its reports provides that the immediately take various initiatives to put life back in action. The advancement of the geotechnical and disaster team for relief. On the more, they have established a permanent presence with a team of 35 experts which are on recorded monitoring the situation to provide better relief to the general public (BHP, 2016).

   The organization has ensured to maintain parameters on social economic actions like infrastructural building, building the education system and health care system of the groups by providing necessary aids and requirements on financial as well as the non-financial background. The company has taken serious actions on the environmental front as to rebuild the water quality, living standards, ensuring better on stronger standards of preservation and environmental safety. Samarco operations as on date are suspended for the fiscal year 2016 (BHP, 2016). The company is studying and seeking help by understanding Canadian dam association standards and rules and embodying them as the best in their standards, rules as well as regulations. Efforts are made to centralize all the mineral dam management by the minerals operating group.   

   Report for the year 2017 does not provide such strong backing on the Samarco as the details are provided on page twelve of the report on the more just providing a short insight and describing the efforts taken in the fiscal year 2016. It only focuses on the lesson learned for near future on account of risk management process in terms of framework and structural improvements as well as accountability in terms such disaster management (BHP, 2017).         

BHP Billiton has ensured to pay off the government of Brazil a lump sum amount of $ 2.3 billion for the damages caused along in addition to the recovery program of US$ 500 million for the fiscal year 2016 and US$300 million each for fiscal year 2017 and 2018 (Ong, 2016). The same are not going to stop here as the budgeted expense on contribution for the fiscal year 2019 to 2021 aims to be US $ 200 to 400 million (Ong, 2016). The company in detail analysis has mentioned in detail the performance analysis which deals in providing as how the company treats its employee its health concerns, illness causes and various action taken for the betterment of the organization as a whole.    

Findings and Conclusion

   Comparing the sustainability reports for the fiscal year 2016 and 2017 and the legal terms maintained on the corporate legitimacy and the standards expressed on the corporate social reporting. On account of transparency and disclosures of activities, a company has failed or actually excluded to mention the real cause or the main reason for such failures. Moreover, in both the reports company have summarized such segments by simply stating that they have started the investigation. Agree to support such investigations and all on humanitarian grounds agree to help on compensation and contributions. The company has agreed and is making sincere efforts on paying off debts on account of financial losses as well as non-financial losses. But still does not takes the blame on the shoulder as nowhere the company in its reports mention the real cause of such big disaster of the falling off the tailing dam. Non the company mentions in detail the role of action taken as well as steps. Along with various process involved in storing the minerals in the dam. In fact, the company in his report has completely ignored the finding mentioned in the financial year 2013 in relation to the integrity of dam and renewal of license.             

     Henceforth, the above paper clearly expresses that the company has incidents may have eroded the legitimacy on account of the corporate theory and CSR reporting in the sustainability report.     

References

BHP. (2016). Sustainability Report. BHP Billiton. Retrieved From

https://www.bhp.com/media/bhp/documents/investors/annualreports/2016/bhpbillitonsustainabilityreport2016.pdf

BHP. (2017). Sustainability Report. BHP Billiton. Retrieved From

https://www.bhp.com/media/documents/investors/annualreports/2017/bhpsustainabilityreport2017.pdf

Golob, U., & Bartlett, J. L. (2007). Communicating about corporate social responsibility: A comparative study of CSR reporting in Australia and Slovenia. Public Relations Review33(1), 1-9.

Pellegrino, C., & Lodhia, S. (2010). Disclosures by key bodies in the Australian mining industry on climate change: a test of legitimacy theory.

Ong, T. (2016, March 03). BHP Billiton-owned mining company agrees to pay $3.2bn to Brazil Government over 2015 dam collapse. ABC News Online. Retrieved From

http://www.abc.net.au/news/2016-03-03/samarco-agrees-to-pay-brazil-government-for-dam-collapse/7216164

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Case Study: CQU Printers

Case Study: CQU Printers   

Name

Course

Tutor

University

City/State

Date

Table of Contents

Introduction. 3

a) Initial investment, operating cash inflows, and terminal cash flow.. 3

Initial Investment 3

Operating Cash Inflows. 4

Terminal Cash Flow.. 4

b) Cash Flow Stream.. 4

Proposal A.. 4

Proposal B.. 5

c) Application and explanation of Decision Techniques. 5

Payback Period. 5

Net Present Value (NPV) 6

Internal Rate of Return (IRR) 7

d) NPV vs. IRR.. 9

e) Conflicting Rankings (NPV vs. IRR) 10

e) Recommendation. 10

1. Unlimited funds. 11

2. Capital rationing. 11

f) Impact of risk factor on Recommendation. 12

Conclusion. 12

References. 13

 

Introduction

Managerial accounting is sometime termed as “internal accounting” as it is mainly used for internal purposes. The terms managerial accounting is also covered in managerial finance. Managerial accounting is used by managers or management to take decisions at organisational level (Besley, 2008). Overall, managerial accounting is consisted on process of preparation of management accounts and reports that provide timely and accurate statistical and financial information to management to support them in making short-term as well as long-term decisions. Basically, it assists in forecasting future; buy-or-make decisions; cash flow forecasting; understanding performance variances; analysing rate of return; as well as making mutually exclusive investment decisions like in case study of CQU Printers (Brewer, 2009). There are two mutually exclusive investment options for the firm. The two options have different purchase price, installation cost, as well as salvage value.

This report is divided into different sections. In the first section initial investment, operating cash inflows, and terminal cash flow for both investment options is given. Relevant cash flow stream of both options is given under second section while in the third section different decision techniques like; payback period, net present value (NPV), and internal rate of return (IRR) have been applied to both investment options in the third section. IRR and NPV profiles of the two options are graphed in next section while there is discussion about conflicting rankings, if any, of the two on the basis of NPV and IRR in next section, sixth section. It is followed by recommendations for investment on the basis of unlimited funds and capital rationing. There is also analysis of effect of risk on the recommendations. At the end of the report the analysis has been summarised under conclusion section.

a) Initial investment, operating cash inflows, and terminal cash flow

Initial Investment

Particulars Proposal A Proposal B
 Purchase price   $            830,000  $             640,000
 Installation cost  $              40,000  $                20,000
 Total Initial Investment   $            870,000  $             660,000

Operating Cash Inflows

Year Proposal A Proposal B
1  $                 250,000  $                210,000
2  $                 270,000  $                210,000
3  $                 300,000  $                210,000
4  $                 330,000  $                210,000
5  $                 370,000  $                210,000

Terminal Cash Flow

Particulars Proposal A Proposal B
 Terminal cash flow  $            400,000  $             330,000

b) Cash Flow Stream

Proposal A

S. No  Particulars Cash Outflow Cash Inflow Balance
1  Purchase Price  $               830,000    $     (830,000)
2  Installation cost  $                 40,000    $     (870,000)
3  PBDT Year 1    $       250,000  $     (620,000)
4  PBDT Year 2    $       270,000  $     (350,000)
5  PBDT Year 3    $       300,000  $       (50,000)
6  PBDT Year 4    $       330,000  $       280,000
7  PBDT Year 5    $       370,000  $       650,000
8  Terminal cash flow    $       400,000  $    1,050,000

Proposal B

S. No  Particulars Cash Outflow Cash Inflow Balance
1  Purchase Price  $               640,000    $     (640,000)
2  Installation cost  $                 20,000    $     (660,000)
3  PBDT Year 1    $       210,000  $     (450,000)
4  PBDT Year 2    $       210,000  $     (240,000)
5  PBDT Year 3    $       210,000  $       (30,000)
6  PBDT Year 4    $       210,000  $       180,000
7  PBDT Year 5    $       210,000  $       390,000
8  Terminal cash flow    $       400,000  $       790,000

c) Application and explanation of Decision Techniques

Payback Period

Payback Period is a useful technique in terms of deciding whether to accept an investment proposal or not. The technique measures how much time it would be required to cover initial investment (Berk, 2014). The investment proposal which has smallest payback period is accepted. Calculations for the two proposal of purchase of a printer have been given below:

Proposal A

S. No.  Year  Particulars Cash flow Balance/(Investment Recoverable)
1 0  Initial investment   $       870,000  $     (870,000)
2 1  PBDT Year 1  $       250,000  $     (620,000)
3 2  PBDT Year 2  $       270,000  $     (350,000)
4 3  PBDT Year 3  $       300,000  $       (50,000)
5 4  PBDT Year 4  $       330,000  
6 5  PBDT Year 5  $       370,000  

Proposal B

S. No.  Year  Particulars Cash flow Balance/(Investment Recoverable)
1 0  Initial investment   $       660,000  $     (660,000)
2 1  PBDT Year 1  $       210,000  $     (450,000)
3 2  PBDT Year 2  $       210,000  $     (240,000)
4 3  PBDT Year 3  $       210,000  $       (30,000)
5 4  PBDT Year 4  $       210,000  
6 5  PBDT Year 5  $       210,000  

According to above calculations both proposal would be able to recover initial investments in fourth year. If both projects are compared precisely then both proposals would take about 3 years and two months. However, proposal A would require 3 years and 2.03 months while proposal B would cover its initial investment in 3 years and 1.74 months which seems marginally less than the payback period of proposal A. If, recommendation is made on the basis of Payback period then Proposal B should be preferred (Brealey, 2012).

Net Present Value (NPV)

NPV helps in measuring present value of all present and future cash flows of an investment proposal. An NPV value of “Zero” reflects that a particular proposal would have no benefits for a firm (Brewer, 2009). NPV for both proposal for CQU Printers is given below:

Proposal A

Year Cash Outflow Cash Inflow Discounting factor           @ 14% Present Value
0  $    (870,000)  $             –   1.00  $ (870,000)
1  $                  –    $  250,000 1.14  $   219,298
2  $                  –    $  270,000 1.30  $   207,756
3  $                  –    $  300,000 1.48  $   202,491
4  $                  –    $  330,000 1.69  $   195,386
5  $                  –    $  770,000 1.93  $   399,914
NPV  $   354,846

Proposal B

Year Cash Outflow Cash Inflow Discounting factor           @ 14% Present Value
0  $   (660,000)  $              –   1.00  $ (660,000)
1  $                 –    $  210,000 1.14  $   184,211
2  $                 –    $  210,000 1.30  $   161,588
3  $                   0  $  210,000 1.48  $   141,744
4  $                 –    $  210,000 1.69  $   124,337
5  $                 –    $  540,000 1.93  $   280,459
NPV  $   232,339

The calculations given above clearly state that proposal A is much more beneficial for the firm as it would return a net cash inflow of over 0.3 million dollars while the proposal B would return only above 0.2 million dollars (Fischer, 2015).

Internal Rate of Return (IRR)

The IRR is used to measure profitability of a proposed investment. Technically, it is discount rate that makes all cash flows’ NPV equal to zero. If, IRR of an investment proposal is greater than cost of capital of a firm then it can be acceptable. A proposal with higher IRR is preferred (Garrison, 2004). IRR for CQU Printer’s proposals is calculated below:

Proposal A

Year Cash Flow
0  $           (870,000)
1  $              250,000
2  $              270,000
3  $              300,000
4  $              330,000
5  $              370,000

Following formula will be used to calculate IRR:

Where;
a is lower of two rates of return used
b is higher of two rates of return used
NPVa is NPV obtained using rate a
NPVb is NPV obtained using rate b (Besley, 2008)
Year Cash Flow DF (20%) Present value DF (21%) Present Value
0  $           (870,000) 1.0  $                    (870,000) 1.0  $           (870,000)
1  $              250,000 1.2  $                      208,333 1.2  $             206,612
2  $              270,000 1.4  $                      187,500 1.5  $             184,414
3  $              300,000 1.7  $                      173,611 1.8  $             169,342
4  $              330,000 2.1  $                      159,144 2.1  $             153,947
5  $              370,000 2.5  $                      148,695 2.6  $             142,651
NPV  $                           7,283  $             (13,034)
IRR= 20%  

Proposal B

Year Cash Flow
0  $           (660,000)
1  $              210,000
2  $              210,000
3  $              210,000
4  $              210,000
5  $              210,000
Year Cash Flow DF (20%) Present value DF (21%) Present Value
0  $           (660,000) 1.0  $                    (660,000) 1.0  $           (660,000)
1  $              210,000 1.2  $                      179,487 1.2  $             177,966
2  $              210,000 1.4  $                      153,408 1.4  $             150,819
3  $              210,000 1.6  $                      131,118 1.6  $             127,812
4  $              210,000 1.9  $                      112,067 1.9  $             108,316
5  $              210,000 2.2  $                         95,783 2.3  $                91,793
NPV  $                         11,863  $                (3,294)
IRR= 18%  

According to IRR both proposals have ability to cover cost of capital of the firm which is 14%. However, project A is more beneficial as it has IRR of 20% in comparison to 18% of proposal B (Berk, 2014).

d) NPV vs. IRR

It is very difficult to graph and compare figures with percentage. For comparison purpose there is need to standardize the variable like it is done in trend analysis, horizontal analysis and vertical analysis. For standardization purpose there are two options either to convert IRR to number or covert NPV to percentage (Brealey, 2012). The IRR has been converted to numbers by multiplying with initial investment of respective proposal.

e) Conflicting Rankings (NPV vs. IRR)

A graph comparing NPV and IRR has been given in previous section while its true figures are given below:

Proposal  NPV IRR
 A  $            354,846 20%
 B  $            232,339 18%

According to above analysis there is no difference in using two different techniques like NPV and IRR in order to make final decision about investment proposal. Both techniques NPV and IRR are in favour of proposal A as proposal A has NPV seriously greater than proposal B. Same is the case with IRR where proposal A has greater value than the B. However, IRR reflects that there is not much serious difference as NPV technique suggests. If there were any conflicting rankings then both techniques would have been compared in order to reach to a conclusion for selection of a particular proposal. However, both techniques are ranking proposal A higher than the proposal B therefore, it would be irrelevant and un-necessary to discuss their pros and cons (Berk, 2014).

e) Recommendation

There are three main techniques used for ranking purpose of the two proposals. Two of the techniques NPV and IRR are clearly in favour of proposal A. On the other hand, both are almost equal according to Payback Period as proposal B is marginally better than the A. Overall, it is recommended that CQU Printer must go with proposal A. However, factors like Unlimited Funds and Capital Rationing have ability to effect the recommendation. Let’s analyse how these can affect the recommendation (Brewer, 2009).

1. Unlimited funds

If, the firm has unlimited funds then the firm will prefer the project which has higher potential for profitability irrespective of initial investment or funds required for the proposal and the time period required to recover initial investment. From the previous analysis in this report it has been found that there are only two potential problems with proposal A that makes proposal B more attractive. One is higher initial investment and second one is payback period while on the basis of other factors whether it is NPV or IRR the proposal A is more attractive. If, the firm has unlimited funds then the two factors initial investment and payback period would become irrelevant and the firm clearly will have to go with proposal A (Garrison, 2004).

2. Capital rationing

Capital rationing has two implications. First, the firm would restrict amount of investment. Second, the firm will be looking for proposal that has greater potential profitability. Under first implications, proposal B should be preferred as proposal A requires significantly higher initial investment however, according to figures provided below proposal A will be able to increase net working capital that can offset negative implications of higher initial investment (Jeter, 2010).

Current Account Amount
Cash  $       25,400
Accounts Receivable  $    120,000
Inventories  $       20,000
Accounts payable  $    (35,000)
Effect on Net Working Capital  $    130,400

Under second implications the firm will be looking for investment proposal with higher profitability. It has been found through IRR that the proposal A has higher rate of return therefore, under this scenario also the firm should prefer and accept proposal A (Berk, 2014).

f) Impact of risk factor on Recommendation

Even though, operating cash inflows associated with printer A are riskier than of printer B the firm must go with printer A purchase if the firm is looking for higher profits. It is strongly stated that higher risks are linked with higher profits. In other words, an individual or corporate investor will have to bear higher risks if they have to earn higher profits. Yet in other words, as the level of profitability increases the level of risk also increases (Brealey, 2012). So, if the firm is looking for higher profits then the firm must go with printer A purchase. However, if CQU Printer does not want to face or bear riskier operating cash inflows and don’t want to invest higher amount initially then the firm must go with proposal B and purchase of printer B (Berk, 2014).

Conclusion

There are two mutually exclusive investment options for CQU Printer The two options have different purchase price, installation cost, as well as salvage value. If, recommendation is made on the basis of Payback period then Proposal B should be preferred. However, on the basis of NPV proposal A is much more beneficial for the firm. Moreover, project A is more beneficial on the basis of IRR as it has IRR of 20% in comparison to 18% of proposal B. Both techniques NPV and IRR are in favour of proposal A as proposal A has NPV seriously greater than proposal B. Same is the case with IRR where proposal A has greater value than the B.

If the firm has unlimited funds then the two drawbacks of proposal A, initial investment and payback period would become irrelevant and the firm clearly will have to go with proposal A. On the other hand, it has been found through IRR that the proposal A has higher rate of return therefore, under capital rationing scenario also the firm should prefer and accept proposal A.

If the firm is looking for higher profits then the firm must go with printer A purchase. However, if CQU Printer does not want to face or bear riskier operating cash inflows and don’t want to invest higher amount initially then the firm must go with proposal B and purchase of printer B.

References

Angelakis, G. e. (2010). Adoption and benefits of management accounting practices: Evidence from Greece and Finland. Advances in Accounting, incorporating Advances in International Accounting, 26(1), 87-96.

Artiacha, T., Leea, D., Nelsonb, D., & Walkera, J. (2010). The determinants of corporate sustainability performance. Accounting and Finance, 31-51.

Beneish, M. (2011). Earnings management: A perspective. Managerial Finance, 3-17.

Berk, J. D. (2014). Fundamentals of corporate finance.

Besley, S. &. (2008). Essentials of managerial finance. Thomson South-Western.

Brealey, R. A. (2012). Principles of corporate finance. Tata McGraw-Hill Education.

Brewer, P. G. (2009). Managerial Accounting (14 ed.). McGraw-Hill.

DeFond, M. &. (2014). A review of archival auditing research. Journal of Accounting and Economics, 275-326.

Diana Weekes-Marshall, P. (2011). An Exploratory Study of Management Accounting Practices in Manufacturing Companies in Barbados. International Journal of Business and Social Science.

Fischer, P. T. (2015). Advanced accounting. Cengage Learning.

Forde, E. B. (2005). A pilot study on management accounting practices by Caribbean business. Working paper, University of the West Indies, Jamaica.

France, A. (2005). An alternative approach to surveying management accounting practices. . Working paper, Waikato Institute of Technology, New Zealand.

Garrison, R. a. (2004). Managerial Accounting (13 ed.). USA: McGraw-Hill .

Helgesen. (2007). Customer accounting and customer profitability analysis for the order handling industry—A managerial accounting approach. Industrial marketing management, 757-769.

Jeter, D. C. (2010). Advanced accounting. Issues in Accounting Education, 25(2), 348-349.

Levi, M. D. (2007). International Finance: Contemporary Issues. Routledge.

Parrino, R. K. (2009). Fundamentals of corporate finance. John Wiley & Sons.

Porwal, L. S. (2001`). Accounting Theory. Tata McGraw-Hill Education.

Riahi-Belkaoui, A. (2004). Accounting theory. Cengage Learning EMEA.

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INTRODUCTION TO ACCOUNTING AND FINANCE ASSIGNMENT HELP

INTRODUCTION TO ACCOUNTING AND FINANCE

Table of Contents

Introduction. 4

(I) Debt   Valuation. 4

1. What are the   short-term and long-term debts used by the firm?. 4

2. Is the company’s   debt structure consistent with the industry?. 4

3. How does the   industry the company operates in influence the proportion of short-term to   long-term debts of the company?. 4

4. What is the   company’s the cost of debt?. 5

(II) Share   Valuation. 5

1. What is the   company’s cost of equity?. 5

2. Evaluate and   discuss a company’s revenue, earnings, EPS, dividends and growth expectations. 5

3. Value the   company’s stock using comparables approach (ie. P/E) and constant 6

4. Which of the   values in question 3 appear most reasonable compared to the market price of the   company’s stock?. 6

5. What   additional data and information would you prefer for valuing the company’s stocks?   Explain the reason(s) 6

(III) Cost of   Capital 7

1. Calculate the   weighted average cost of capital (WACC) of the company?. 7

2. Explain the   company’s tax rate in the calculation of WACC?. 7

3. Why is there a   difference in the cost of debt and the cost of equity?. 8

4. Should current   liabilities be included in the cost of capital calculation? What are the pros   and cons?  8

5. What is the   major value of the WACC calculation for the company and how is it applied in   investment decision-making?. 8

6. Provide   examples of how the company might have recently used WACC in its investment   decision-making with reference to two projects recently undertaken by the company. 8

7. Define and   explain capital structure of the company. Discuss whether it is consistent with   the industry and why or why not. 9

8. What is the   optimal capital structure and what economic circumstances will likely cause a   change in it?  9

(IV) Market   Analysis. 9

1. Comment on the   chosen company’s financial performance relative to its industry. 9

2. Conduct a   literature search on the company. Summarize and explain how the company is being viewed   by financial analysts and others in the press. Do you agree with the comments? Why/why not? Explain. 9

3. Comment on any other item that is important or different about the company 80. 10

Conclusion. 10

Reference List 11

Introduction

Calculation of the debt and interest of the debt for a construction company is very much important to calculate long term and the short-term debt it made in a particular financial year. In the study, the cost of capital and share valuation of a construction company Simonds group is done. In addition, the cost of debt and the market analysis of the performance of the company are also evaluated in the study. The study also consist the calculation of weighted average cost of capital.

(I) Debt   Valuation

1. What are the   short-term and long-term debts used by the firm?

Simonds group has taken amended debt facility from commonwealth bank of Australia amounting $8.210 million market rate loan having company credit card facility and amount of $ 24.500 million multi option facility incorporating a market loan having facilities of overdraft and bank guarantee (simondsgroup.com.au 2017). In addition, Simonds have taken assets leased and a fixed rate of 6.76% interest is payable annually on the leased assets.

2. Is the company’s   debt structure consistent with the industry?

Simonds group debt structure is not consistent in the recent years (Easton & Monahan, 2016). As per the annual reports, the borrowing of Simonds have vastly exceeded on and after 2016. The amount of borrowings on 30.06.2015 was $187000 whereas the debt of 30.06.2016 has resulted in $9500000 (simondsgroup.com.au 2017). Therefore from this figures, it is clear that the debt amount of Simonds have increased much in one year and thus are not consistent is respect to the construction industry.

3. How does the   industry the company operates in influence the proportion of short-term to   long-term debts of the company?

In the construction industry, the requirement of long-term debt is more than that of the short-term debt. Huge capital of investment is required in the construction industry. Thus, the long-term debt is required more in the time of investing. However, the short term, debt also affects or gets utilized in the day to day monetary requirement in the construction industry. Weekly payment of labor and other expenses are done by the help of the short term debt.

4. What is the   company’s the cost of debt?

As per Easton & Monahan (2016), the average overall rate of debts that a company has is said to be the cost of debt. The debt is mainly consists of bond and bank loans. In the respect of Simond group, the cost of debt is 6.76% as mentioned in the annual report of the company. This percentage of cost of debt covers the overall average rate of borrowings that it made from the Commonwealth Bank.

(II) Share   Valuation

1. What is the   company’s cost of equity?

The medium that measures the returns that the shareowners of the company demands for taking the risk of the company is the cost of debt. Cost of debt is a part of capital structure of the company. In the context of Construction Company Simonds group, the cost of equity is 19.71 %.

2. Evaluate and   discuss a company’s revenue, earnings, EPS, dividends and growth expectations

The company’s revenue refers to the earning that the company gains in a particular financial year. In the Simond’s group, the revenue for the year 2017 is $587.37 m (simondsgroup.com.au, 2017). Based on the investment it made in the year, the revenue is comparatively low. However the revenue in 2016 and 2015 is more than this year’s revenue. The reasons behind the decrease of the revenue happened due to the excessive increase in the borrowings of the company. In the end of the previous financial year, it is found that the company has made a huge amount of loan more than that of the previous year and thus the increase in the debt has resulted decrease in the revenue of the company. The Earnings of the company is 2.08% in the current financial year (simondsgroup.com.au, 2017). The percentage of the earning is low as because the increase in the debt of the company has overvalued the liabilities of the company. Thus, the earnings are low for Simonds Group. The EPS is 2.7 in the current year, growth is 192.73 (). According to Goeminne et al. (2014), the Earning per share and growth depends on the revenue of the company. Therefore, the decrease in value of the revenue of the company has affected the EPS and the growth of the company.

3. Value the   company’s stock using comparables approach (ie. P/E) and constant

dividend growth   rate model. What are the factors that influence the company’s stock price and how are they captured in these models?

According to the P/E approach the value of stock is 13.4%.

Stock value as per P/E Approach=Market Value per Share / Earnings per Share

Dividend Discount Model (DDM)

The value of stock according to the dividend growth model is 13.95%

The factors that mainly affected the stock valuation are likely, the new earnings and profits, and also the future estimation of the earnings are important for the calculation of stock valuation. The dividend amounts and the dividend growth are required to calculate the stock valuation of Simonds Group. Other than this the earning per share and the market value per share are relevant for the stock valuation.

4. Which of the   values in question 3 appear most reasonable compared to the market price of the   company’s stock?

Among the two calculation made on the stock valuation, the most reasonable result came out from the dividend growth rate model. The dividend growth rate model amounted more than that of the value of the stock in P/E approach. Easton & Monahan (2016) states, the main advantages that a company can earn from the dividend growth model are, the calculation makes easy to the shareholders to understand the stock value and the share price of the company. Again, the stock valuation in the valuation of the growth ate model are done not considering the market value of the stock. The exact value of the stock are thus calculated properly.

5. What   additional data and information would you prefer for valuing the company’s stocks?   Explain the reason(s)

Price earning to growth ratio- Price earning to growth ratio is also important for the stock valuation as because this uses the price, stock and the price earning on the stock for the valuation of the Stock.

Return on invested capital- Return on invested capital is also an important data that are utilized in the stock valuation as because this calculation involves the valuation of money that the company earns against the invested capital.

Return on asset-  The calculation of return on asset are also required as because this calculation involves the amount of earning a company earned against the utilization of the asset in the company.

(III) Cost of   Capital

1. Calculate the   weighted average cost of capital (WACC) of the company?

The weighted average cost of capital of Simonds Group is 11.9% ().

The formula of Weighted average cost of capital is

WACC = ((E/V) * Re) + [((D/V) * Rd)*(1-T)]

E = Company Equity Market Value

D = Company Debt’s market value

V = Company’s Total Market Value (E + D)

Re = Equity Cost

Rd = Debt Cost

T= Rate of Tax

2. Explain the   company’s tax rate in the calculation of WACC?

The construction company’s tax rate is 10% in Australia and thus the tax rate of Simond’s is also 10% (ato.gov.au, 2017). The tax is based on the item sold and consumed and the services used and provided in Australia.

3. Why is there a   difference in the cost of debt and the cost of equity?

The cost of debt is the cost of the borrowings that a company makes in a particular financial year for investing in the business. The cost of Equity is the cost of the equities por the shares that the company sold to the shareholders for investing in the company.

4. Should current   liabilities be included in the cost of capital calculation? What are the pros   and cons?

Current liabilities should not be included in the Cost of Capital as because the current liabilities consists other liabilities like short term, provisions in the balance sheet. The cost of capital only values the cost of the invested money for the business. Therefore, current liabilities cannot get involved in the calculation of the cost of capital.

5. What is the   major value of the WACC calculation for the company and how is it applied in   investment decision-making?

Evaluation of project with same risks- The evaluation of the risks that are associated with the investment in a new project is possible by the evaluation of the weighted average cost of capital.

Calculation of Economic value added- The average cost of capital calculation involves the addition of the economic value by adding the new market value of the capital and thus this gives the exact cost of capital.

6. Provide   examples of how the company might have recently used WACC in its investment   decision-making with reference to two projects recently undertaken by the company.   

The recent two examples are, Simonds have taken loan from the Commonwealth bank ofamounting $8.210 million market loan with the credit card facility. Again, it has taken an amount of $ 24.500 million multi option facility incorporating a market loan having facilities of overdraft and bank guarantee (simondsgroup.com.au, 2017).

7. Define and   explain capital structure of the company. Discuss whether it is consistent with   the industry and why or why not.

Capital Structure of the company is the structure that is designed for getting a successful return on investment (Hidayat & MUHTAROM, 2017). Capital structure is not consistent to each and every company because the structure of capital is determined according to the level of investment that it makes in the business and therefore stays inconsistent.

8. What is the   optimal capital structure and what economic circumstances will likely cause a   change in it?

An optimal capital structure is the best debt-to-equity ratio for a firm that maximizes its value. The Optimal capital structure for a company is one that offers a balance between the ideal debt-to-equity ranges and minimizes the firm’s cost of capital (Hidayat & MUHTAROM, 2017). The change in the invested amount and changes in the valuation of assets that are also invested causes changes in the optimal capital structure.

 (IV) Market   Analysis

1. Comment on the   chosen company’s financial performance relative to its industry.

The financial performance of the chosen construction company Simonds Group are evaluated and the different value like Earning per share, growth of dividend, WACC are found out and it is also found that the debt or the borrowings of the company has exceeded much in this financial year. For this profit or the revenue of the company has been decreased. The loan from the bank has covered much of the liabilities of the company and the company is currently highly based on the long-term borrowings.

2. Conduct a   literature search on the company. Summarize and explain how financial analysts and others are viewing the company in the press. Do you agree with the comments? Why/why not? Explain.

The company Simonds Group is found to be a growing construction company and the news that emerging is quite satisfactory for the growth of the company. It is found from the financial statement that the amount of the debt that the company recently took from the commonwealth bank is relevant for the growth of the company. The investment that unit made is required for the better return in the future. The company is also increasing the share numbers so that more capital can be learned from the share and also the list of the shareholders exceed. Presently, the number of shareholders is more than 1000 (simondsgroup.com.au, 2017).

3. Comment on any other item that is important or different about the company

In discussing about the different thing, that Simonds emphasizes is it takes loan on long-term basis. Simond’s debt is mainly based on the long-term basis and the management of the Simonds group focuses in gaining more capital than to earn more profit. This is a very successful way of developing because more investment in a business makes the business works better and thus automatically the increment in the profit will occur.

Conclusion

In the study the different value of the different financial position of the company are found out. The study includes the cost of equity and the cost of capital including the best approach in valuation of stock. Valuation of WACC or weighted average cost of capital is done in the study and also the comments on the business performance of the company are mentioned in the study. The significant matters that are present in Simonds group are also explained in the study.

Reference List

ato.gov.au  (2017) Australian Tax  [Retrieved from: https://www.ato.gov.au/Business/GST/ accessed on 4Oct2017]

Easton, P. D., & Monahan, S. J. (2016). Review of Recent Research on Improving Earnings

Forecasts and Evaluating Accounting‐based Estimates of the Expected Rate of Return on Equity

Capital. Abacus52(1), 35-58.

Goeminne, P. C., Nawrot, T. S., Ruttens, D., Seys, S., & Dupont, L. J. (2014). Mortality in non

cystic fibrosis bronchiectasis: a prospective cohort analysis. Respiratory medicine108(2), 287

296.

Gruber, M., Kavan, S., & Stockert, P. (2017). What drives Austrian banking subsidiaries’ return

on equity in CESEE and how does it compare to their cost of equity?. Financial Stability Report,

(33), 78-87.

Hidayat, D. R. R. N., & MUHTAROM, M. (2017). Pengaruh Debt To Equity Ratio (DER),

Current Ratio (CR), Net Profit Margin (NPM), Return On Equity (ROE), Dan Return On Asset

(ROA) Terhadap Return Saham Syariah Yang Terdaftar Di Jakarta Islamic Index (JII)(Periode

2013-2015) (Doctoral dissertation, Universitas Muhammadiyah Surakarta).

simondsgroup.com.au (2017) Simonds group Ltd [Retrieved from:

http: //simondsgroup.com.au/reports  accessed on 9Sept 2017]

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ACCOUNTING INFORMATION SYSTEMS RESOURCES, EVENTS AND AGENTS (REA) DATA BASE MODEL

ACCOUNTING INFORMATION SYSTEMS RESOURCES, EVENTS AND AGENTS (REA) DATA BASE MODEL

Table of Contents

Introduction. 3

Question 1: REA diagram adhering by basic cardinalities for Joe’s Revenue cycle. 3

Question 2: REA diagram adhered by cardinalities for Expenditure cycle. 4

Question 3: Combined REA model 7

Question 4: key attributes. 9

Question 5: Query about account receivable from integrated REA model (DBMS) 12

Question 6: Query about account receivable from specific customers as stated REA model (DBMS) 13

Conclusion. 13

Reference list 14

Introduction

REA (Resources, Events and Agents) is an exchange procedure showing speculation, closer to the exchange reality than some unique well-known choice. Not under any condition like every unique framework, has REA demonstrated reveals why business shapes happen and suits full traceability of all business trades. In light of its exchange level covering business space, REA theory is to an exceptional degree satisfying in show driven approach of programming. Joe’s is a little dessert shop composed close to the zone school’s baseball field. Joe’s serves stroll around clients as it’s been said

Question 1: REA diagram adhering by basic cardinalities for Joe’s Revenue cycle

The shop passes on 26 kinds of frozen yogurt. Clients can purchase shakes, cones and sundaes. Right when a client pays for an individual buy, business exchanges more a huge piece of the time than denies only a solitary thing. Right when a client pays for a family or get-together buy, notwithstanding, a solitary techniques exchange joins a far reaching course of action of things. All outlines must be paid for at the time the set up frozen yogurt is served. Joe’s keeps up a couple of managing a record accounts yet stores all business receipts into its central cash related records.

1:N relationship between the occasions and clients delineated in below image would apply to each relationship, since it is consistently indispensable to relate a request, plan and receipt of money with a particular client (Haislip et al. 2016). The 1:N relationship among those occasions and operators would likely apply to most affiliations, yet there could be conditions in which relationship would be M:N. For instance, a land firm may need to part commission for a course of action between posting overseer and the purchaser’s power.

M:N relationship among stock and take client request and plan occasions are conventional for retail affiliations that strategy in mass-made stock. Those affiliations would bend up recognizably 1:N, regardless, for relationship, for example, workmanship appears, that offer extraordinary things.

1:N relationship among money and the get money occasion would apply all around, reflecting sound inside control over money. The cardinalities of relationship between the occasions, regardless, would vary transversely completed affiliations relying upon their business approaches. For instance, if a connection did not allow allocate, by then the most exceptional cardinality from course of action occasion to the get money occasion would be one, not a lot of.

Figure 1: Revenue Cycle for Joe’s cardinalities

(Source: self developed)

Question 2: REA diagram adhered by cardinalities for Expenditure cycle

A REA diagram exhibits a model of affiliation’s database. Intertwined into model is a delineation of broad number of tables contained in database and furthermore a large portion of the affiliations that exist between tables inside the database (Uyar et al. 2017). These tables and affiliations mirror business system and business occasions of affiliation. Thusly, an evaluator can utilize a REA outline to get a handle on which occasions affect the alliance’s points of interest and which stars share in them. The data about cardinalities in a REA chart gives pleasing data around a connection’s business rehearses, for example, paying little regard to whether it blessings clients to make segment divides (Marshall and Steinbart, 2003). Hence, screens can utilize REA layouts to design the review.

Figure 2: Expenditure Cycle for Joe’s cardinalities

(Source: self developed)

There are resource orders recorded on an affiliation accounting report that would not be appeared as favourable position on a REA plot. The most noticeable is Accounts Receivable. Records Receivable is basically separation between add up to that an affiliation has sold to a client and the aggregate client has paid for those plans, and, in this manner, require not be unequivocally appeared as an advantage.

There are in like way two or three advantages in a REA exhibit that don’t show up on an alliance’s cash related record as breathing space (Tarigan and Kraus, 2017). A basic blueprint is worker aptitudes. The aptitudes controlled by pros are in all probability a cash related asset for an association. As we will find in portion 19, these aptitudes would be recorded in a database to help productive association, expect future getting and arranging needs, and so forth. As appeared by sound accounting rules, notwithstanding, worker limits are not recorded as inclination in monetary elucidations. This does not deduce that they require cash related respect; when in doubt, offer trading structure seems to put immense weight on intangibles like worker information while picking the market estimation of an affiliation. Records payable is not tended to on a REA graph. Records payable has a tendency to purchases for which affiliation has not yet paid supplier. In this way, at whatever point, propel chief liabilities can be learned by isolating two events: purchases and cash partition for those purchases. Regardless, this ability must be recorded in real money related enlightenments as a commitment at a particular point in time. Since the payable recorded in money related proclamations is a remainder of sorting out circumstances, it is not leverage, event, nor a head. Subsequently, it won’t appear on a REA diagram. There are asset orders recorded on an alliance bookkeeping report that would not be showed up as ideal position on a REA plot (Sun, 2017). The most recognizable is Accounts Receivable. Records Receivable is fundamentally the division between signify that an association has sold to a customer and total customer has paid for those plans, and, in this way, require not be unequivocally showed up as preference.  This does not deduce that they require cash related respect; when in doubt, the offer trading structure seems to put immense weight on intangibles like worker information while picking market estimation of an affiliation. Records payable is not tended to on a REA graph.

Question 3: Combined REA model  

In order to formulate a combined integrated REA model, one has to comprehend about the norms about dual REA formulation.

First and foremost, redundant resource embodiments are efficiently merged for essential formulation of dual (both expenditure and revenue cycle) cycle. The commonly witnessed resources are placed in between the accurate events which impart substantial impact on these determined resources. Furthermore, this particular aspect augments the concept of “economic duality” which explains cash resources’ connection to at least one event that elevates the resource and another event that may decrease its potential. Moreover, inventory resources provide essential linkage between revenue and expenditure cycle as it increases expenditure cycle and decreases revenue cycle. However, cash resources are enhanced with definite enhancement of revenue cycle and with simultaneous decrease in expenditure cycle (Ab Rahman et al. 2016).

Redundant event embodiments are merged as some events may occur (disturb cash) for multiple times in a cycle. This particular aspect increases major legibility of dual REA formulation.  Further, difference in merging of events and merging of resources is identified which efficiently do not impart and stringent affect on major cardinalities.

Wang and Yao (2017) opine that merging unwanted events modified minimum degree of cardinalities which are associated with major events. These major events are further related to merge events. Hence, cardinalities witnessed in between inventories and each of the 4 events (to which they are essentially related) is similar to its existing pattern. Fallon and Polovina (2013) counter argued and stated that cardinalities existing between disbursement cash events and other major related events (which are linked) exhibit significant variance.

Figure 3: Combined REA model

(Source: self developed)

From the above exhibited diagram. It is clear that the co-ordinates of basic cardinalities between cash (disbursed) and inventory received is (o, n) instead of (1, n) in the above exhibited expenditure cycle (Perez‐Polo et al. 2016).  Furthermore, cardinality coordinates of disbursed cash and worked record hours is (o, n) instead of (1, n) in the above exhibited pay roll cycle. Many experts opine that the reason for such may lie in its basic semantics which exhibit multiple resource relationships with respective and linked events. For an instance, in the above given diagram, Joe’s inventory is linked with inventory received event and within the diagram’s determined expenditure cycle. Furthermore, major sale events are connected to sale procedures in revenue cycle as exhibited in above formulated dual REA model.  Another instance that is model exhibits is events of cash disbursement which may occur as a result for payroll obligation of acquiring inventories. However, this model definitely differentiates such cash outflow through its basic semantics consideration (Trkov et al. 2015).

Question 4: key attributes

Table Primary key Other attribute(as recognized from the given set of REA model)
 Overall Employee domain that essentially includes major vendors, inventory that is ordered and inventory received Employee (#) Secondary key Nationality Employee’s insurance Foreign key Name of the employee date during which the employee was hired, salary of the employee  position of employment of the respective employee
Vendors Vendor# Secondary key Customer identification number as discussed during vendor selection Number that determined term identification Secondary key Determining only the latest domain of each product’s stock number   Name of the determined vendors as described in Joe’s case Address of the vendors during cases of extreme emergencies or for any shortfalls Vendors’ initial account balance
Order Inventory as exhibited in REA model Purchase Order# (which Joe should determine) Date Vendor# Employee#
Receive Inventory as exhibited in the REA model Acquired Receiving Report# Date Vendor (major information)# Employee (major and address and other personal details)# Purchase # Order # Check #
Disburse Cash as exhibited in the model during major instances Check# Secondary keys Vendor# Employee# GLA account# Vendor (major information)# Employee (major and address and other personal details)# GLA account # Amount as determined
Inventory  which will be determined adhering by ordered amount Item# Secondary keys Employee#, Vendor# Receiving Report# Description of the inventory Initial quantity that this entity may acquire in hand Major list price and other constructive pricing details
Cash both in hand and acquired during selling procedures GLA account# Account Name which should be initially identified beginning balance of the account  
Sales or overall turnover as determined Invoice as determined# Date on which selling process occurs Customers or consumers # Amount Determined employees #  
Receive Cash in the given REA model Remittance as witnessed# Date on which selling procedures occur Customers or consumers # Amount Determined employees GLAaccount # (both determined)    
Inventory as observed Item# Description of the inventory Inventory  quantity acquired in hand Quantity of reorder Point of reorder
Inventory (Order Inventory as determined from REA model) Purchase Order witnessed # Item# Quantity of the reorder inventory Unit Cost of one inventory
Inventory (Received Inventory as determined from REA model) Receiving Report#, Item# Quantity of the inventory which is to be received Condition of the inventory received
Sales-Inventory (selling procedures of major inventory) Invoice# Item# Quantity of the inventory Unit Price of each inventory

Table 1: primary keys and other attributes

(Source: self developed)

Question 5: Query about account receivable from integrated REA model (DBMS)

The query for determining overall account receivable from Joe’s integrated data base model is exhibited in the following form

  • Calculation of initial accounts which is payable by adding the initial balance attribute mentioned in customer table from integrated model(1)
  • Calculation of overall new sales revenue during recent fiscal year by adding the quantity of product which is sold X times of sales unit price. It is particularly demonstrated in sales: inventory linking table (2)
  • Computation of overall cash acquired from integrated model by adding the amount acquired column in received cash table (3)
  • Overall account receivable = Query 1 + Query 2 – Query C

Question 6: Query about account receivable from specific customers as stated REA model (DBMS)

The query for determining overall account receivable from Joe’s integrated data base model is exhibited in the following form

  • Essential calculation of initial or beginning accounts  which is receivable by summation of initial balance attributes existing on customer table for basic interested customers (1)
  • Vital selection of only particular rows in sales table which represents selling procedures to major interested customers. Further, rows in the customer table that holds the value in determined Customer # in secondary key column is similar to customers # exhibited in customer of interest column (2)
  • Fiscal period’s overall sale is computed by essential summation of quantity of products which is sold x times of sale’s unit price. This is obtained from Sales: inventory linkage table for only rows exhibiting invoice number
    (from query b) (3)
  • Calculation of overall cash received from customers is ascertained by adding the overall amount acquired column in received cash table. However, rows which exhibit values in Customer secondary key column are similar to Customer # exhibited in interested customer table (4)
  • Hence, overall account receivable = Query1 + Query 3 – Query 4

Conclusion

Examination of a REA outline would uncover whether the connection stretches out credit to its clients, which would then require studies of records receivable, or just benefits deals. An investigator can utilize a REA outline to test a customer’s business outlines for consistence with different controls that the customer has made. For instance, the assessor would setup have the capacity to questions partner various workers to various occasions recalling a definitive goal to overview whether there is satisfactory separation of duties.

Reference list

Ab Rahman, A., Fauzi, A.A.M. and Thoarlim, A., 2016. The Development Of An Intergrated Model For Amil Zakat In Malaysia. International Journal of Islamic Business Ethics1(2), pp.131-142.

Fallon, R. and Polovina, S., 2013. REA analysis of SAP HCM; some initial findings.

Haislip, J.Z., Peters, G.F. and Richardson, V.J., 2016. International Journal of Accounting Information Systems. International Journal of Accounting Information Systems20, pp.1-15.

Marshall, R.B. and Steinbart, P.J., 2003. Accounting Information System.

Perez‐Polo, J.R., Rea, H.C., Johnson, K.M., Parsley, M.A., Unabia, G.C., Xu, G.Y., Prough, D., DeWitt, D.S., Paulucci‐Holthauzen, A.A., Werrbach‐Perez, K. and Hulsebosch, C.E., 2016. Inflammatory cytokine receptor blockade in a rodent model of mild traumatic brain injury. Journal of neuroscience research94(1), pp.27-38.

Sun, W., 2017, March. A study on XBRL based value chain accounting information processing. In Industrial Technology and Management (ICITM), International Conference on (pp. 171-175). IEEE.

Tarigan, J. and Kraus, W.A., 2017. The Impact of Strategic Leadership Program as ODI on the Usage Accounting Information System and Financial Performance. Journal of Progressive Research in Social Sciences6(1), pp.410-421.

Trkov, M., Han, H., Yi, J. and Liu, Y., 2015, October. Stick-slip interactions of the soft-solid contact: An intergrated LuGre/beam network model approach. In Proceedings of the ASME 2015 Dynamic Systems and Control Conference, Columbus, OH, USA(pp. 28-30).

Uyar, A., Gungormus, A.H. and Kuzey, C., 2017. Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies. Australasian Accounting Business & Finance Journal11(1), p.9.

Wang, B. and Yao, M., 2017. Examination of Drying Behavior of Mung Bean in Laboratory and the Establishment of the Corresponding Rea Model. Journal of Food Processing and Preservation41(3).

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Principles of Financial Markets Group Assignment

Principles of Financial Markets Group Assignment  

Name

Course

Tutor

University

City/State

Date

1. Executive Summary

The report concludes two companies i.e. Beega Cheese Limited and Blackmores Limited linked to the Consumer Staples Industry. Both companies are listed on Austalian Stock Exchange ASX. The report contains the brief introduction of all mentioned concepts with historical detail of both companies and financial overview of Consumer Staples Industry.

Report demonstrates the list of micro and macro factors that affect the share price of company. Along with this, report absorbs the discussion that how the changing forecasted economic factors affect the performance of businesses. And the key financial measures and financial ratios affecting the business performance is also included in the report. 

Table of Contents

1. Executive Summary. 2

2. Introduction. 4

4. Change in Forecasting of Economic Factors and it’s Affects on Companies Performance (Top Down Analysis) 5

5. Financial Analysis of Companies (Bottom Up Analysis) 8

6. Conclusion and Recommendations. 13

7. References. 14

2. Introduction

– Industry and Companies Targetted

– Industry Targetted

Consumer staples industry is being targetted to perform fundamental financial analysis. Consumer Staples Industry has been selected considering it a better choice for analysis as it is related to crucial needs of humans.

* Consumer Staples Industry

Consumer staples are those necessity goods that are crucial to cut down from the list of consumers beyond their financial condition. The goods related to this sector is always in demand. It absorbs food, beverages, tobacco and other household products.

Consumer staples industry is group of industries and busnisses that deal with necessity goods. All the producers and distributors of food, drugs, beverages, tobacco and non durable household goods and personal products along with retailers companies have been assembled under this sector.

* Overview of Financial Situation of Consumer Staples Industry

Price earning ratio             24.00

Enterprise value                $146.47

EPS                                   $3.47

Growth of EPS                  22.21%

Growth in Revenue           7.30%

Return on Equity               27.96%

Return on Investment        14.65%

Debt/Equity                       141.79

Dividend Yield                  2.71%

Market Capitalization        3.87 Trillion

Market Weight                   8.72%

– Companies Targetted

COMPANY                  INDUSTRY             MRKT CAPT.             WEIGHT

– Bega Cheese Limited           Consumer Staples       1,275,030,000             0.08

– Blackmores Limited             Consumer Staples       1,946,430,000             0.12

The companies are selected on the base of market value of shares of companies and their weightage on the Australian Stock Exchange ASX.

– Company Introduction

1. Bega Cheese Limited

Bega Cheese Limited Company is an Australian based dairy company located in town of Bega. It was founded as an agricultural cooperative. It became public in 2011 after being listed on ASX.

* History

Founded in 1850’s, and later became a cooperative company in 1899. Original factory opened in 1900. Bega cheese built processing and packaging facility in 1997 that serve as a value addes in cheese in Australia . After that in 2007,  company acquired 70% interest in Tatura Milk which is used to produce dairy products. With this, Bega cheese broadened their product range with cream cheesw, mikk powder and infant formula.

2. Blackmores Limited

An Australian based company founded in 1930s by Naturopath Maurice Blackmore, which provides with health supplements. Company first started with health store and now the operations of company have been spread over 250 product lines of vitamin, mineral and herbal supplements. Having 843 employees, company is selling it’s products across 17 different markets of world.

* History

Company made it’s initial activities in 1930 anf followed the opening of health food store in 1938. After that in 1960, initiated the laboratory business used to develop celloid therapy through help of naturopathic clinics. Became a private company in 1962, start following the code of production in 1972, achieved sales volume of $1 million in 1976 along with spreading the business activities in Malaysia and Singapore, accquired Vita Glow pvt. ltd in 1982, became a public company with new name in 1985 with being listed on ASX and initiated employee share plan in 1987.

* Mission Statement

Determined to deliver natural healthcare products and services with highest quality standards and according to the expectations of customers.

3. Change in Forecasting of Economic Factors and it’s Affects on Companies Performance (Top down Analysis)

– Economic Forecasting

Economic forecasting is a procedure to make predictions and anticipations about the economic condition of country. Economic factors include in the process of forecasting are GDP, inflation, unemployment, fiscal deficit and frim specific factors.

– Purpose of Economic Forecasting

Governments and business firms approach the economic forecast process for developing the strategies, budgets and plans for future. Stock Market forecasting is to determine the future value of company and it’s stock.

– Economic Forecast change and Business Performance

Forecast change in Economic factors affect the performance of the Companies in following manner.

* Confidence of Consumer

Consumers who are confident tend to buy the products more than the consumers who always lack confidence about the products of business. Buying and selling of consumers give business and opportunities to Bega Co. and Blackmore Co. towards growth and ultimately it affects the economy. Any change in this factor forecasting will impose  the impacts accordingly.

* Employment

One of the most crucial factor of economy is employment. With employment, purchasing power of people grow and Bega Co. and Blackmore Co. can earn more profits but it’s not possible in the time of recession of business where employee layoff is done. Any forecast change in employment will directly affect the profits of business. Due to low inflation of 1.5% in Australia, unemployment fall down by 20% in 15 months.

* Interest Rates

Interest rate on loans and borrowing is important part of almost all the businesses. Any forecast change in this respect will affect the profits of Bega Co. and Blackmore Co.  and even can force  the organization to liquidate. It also affects the purchasing power of person and thus demand of products. Interest rate impose bad effects on the share price of company and ultimately affect the profits of business badly (Al-Qenae, 2002).

* Inflation

Inflation is the rate at which the prices of goods and services of an economy is charged. Any increase in the inflation will decrease the profits of Bega Co. and Blackmore Co. business and decrease in profits will affect the share price also. Demand of goods decrease as people can’t buy them so it affects the profits of busienss ultimately. Large business respond fast to information related to inflation increase or decrease (Wang, 2009).

Australia has a problem with falling inflation and it has impacts on all from workers,  who cannot get a good pay to businesses, who cannot charge high prices for goods,  so rely on low profits. Australian economy’s monetary policy was calibrated for higher rates, because inflation was higher, will likely be cheering at a 2% cash rate.

* Economic outlook

If it is forecasted that economy will expand, then it will put good influence on the profits of Bega Co. and Blackmore Co. business and share price also. Increase in share price will also result in high profits of company.

* Deflation

Deflation in an economy is always dangerous and upsetting. Fall in prices will result in lower profits, low stock price, reduction in purchasing power of people, decresae  in investment and reduction in opportunities to expand for Bega Co. and Blackmore Co. .

* Political Issues

Political issues mostly worsen the economic condition of country and thus affect the business activities of country badly. It reduces the profits, investments, share price, opportunities to grow and many more for Bega Co. and Blackmore Co. and It is somewhat unforecasted but can be anticipated at a level.

* Gross Domestic Production

GDP is an economic measure to analyze the situation of the economy. Change in GDP  

has woderful impacts on the economy. And effects on economy always pass on the business of Bega Co. and Blackmore Co.and  Impcts can be good or bad according to change in GDP. Australian GDP fall dwon to AUD 1400 from AUD 1500 in 2015 and had bad impacts on economy like cut in jobs, low wages payout and firm hesitate to invest.

* Economic shock

Changes in any corner of the world has impacts on the economy of all the countries. It can be forecasted at some level as it can impose hilarious impacts on the economy and Bega Co. and Blackmore Co. businesses of country. Like rise in oil prices in Saudi Arabia will effect all the countries and will shake their economies and economies shake the businesses. The developed economies are more efficient and have more power to affect the other emerging economies that are less efficient and not capable to refrain the effects of developed economies change (Rahman, 2006).

The fall in prices of houses by 10% in year 2015 that cause the biggest recession in Australia since 1930s was one of the most important economic shock of Australia. The impact of recession on Australia were low growth, low inflation and negative environment for next many years.

* Economic Policy change

Sudden change in the economic policies always have hilarious affects on the Bega Co. and Blackmore Co. businesses of country. It mostly happens due to change in the political governing body. And these changes can be forecasted before upto a level. It is crucial to forecast as change in policy affect the local business as well as foreign direct investments in the country.

* Exchange rate

Businesses who mostly deal with imports and exports are highly influenced by the change in the exchange rates. Bega Co. and Blackmore Co. already consider this as a burden and any change specially increase in the exchange rates tend to increase the costs of businesses and low down their profits. National Australian Bank anticipated a fall of 20% in AUD in year 2015. The weakness in the AUD implied following impacts:

– the weakness in Australian economy and its major trading partner (China)

– the differential outlook for interest rates between the US (raising rates) and Australia (falling rates)

– lower commodity prices.

* Recession

Economic recession affect the purchasing power of people, demand of goods and profits of business. With decrease in the purchasing power of people, the demand of goods decrease and thus the profits ofBega Co. and Blackmore Co. also decrease. The prices of houses fell by 10% in year 2015 that cause the biggest recession in Australia since 1930s. The impact of recession on Australia were low growth, low inflation and negative environment for next many years.

4. Financial Analysis of Companies (Bottom Up Analysis)

Financial analysis of companies will be done by considering financial ratios and key financial measures of companies.

– Performance Measures and Accounting Ratios

Financial Ratio analysis and Performance measures are used to evaluate the relationship of Financial Statement items. Financial Statement Ratio Analysis absorbs three points  of business:

* Liquidity

Liquidity ratio describes the relationship of organization’s liquid assets and liabilities.

Current Ratio: The current ratio is a liquidity ratio that is used to measure  the company’s ability to pay short-term and long-term obligations. To measure this ratio, the current ratio considers the current total assets of a company relative to that company’s current total liabilities. Acceptable current ratio is between 1.5% and 3% for healthy business for both companies.

1. Bega Co. current ratio is decreasing from 2015 to 2016 due to burden of more short term liabilities in 2016.

2. Blackmore Co. current ratio is also decreasing from 2015 to 2016 due to burden of more short term liabilities in 2016.

3. Bega Co. and Blackmore Co. current ratio comparison with industry average ratio shows higher result than industry average in both years and that is good for boyh companies individually.

Quick Ratio: The quick ratio is a measure to know how well a company can meet its short-term financial liabilities. It is also known as the acid-test ratio. It can be calculated as follows: (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities.Quick ratio of 1.o show that a company is able to settle down all of  its current liabilities.

1. Bega Co. quick ratio remain same in both years due to no significant change in the liquid assets and liquid liabilities of company. Company ratio in both years is below 1 that shows unhealthy settling down of current liabilities.

2. Bkackmore Co. quick ratio is decreasing in 2016 from last year that show increase in liquid liabilities of company in 2016. Company ratio in  year 2016 is below 1 that shows unhealthy settling down of current liabilities.

3. Industry average of liquid ratio in comparison with both companies show that it’s higher in year 2015 but lower in year 2016 from the companies. But still itself it’s lower in both years from 1 that show bad situation of industry in terms of settling down the current liabilities.

* Profitability

Profitability ratio describes the ability of business to generate earnings in comparison with the expenses and other costs occured within a specofic time period.

Gross Profit Ratio: Gross profit margin is a financial measure to calculate the company’s financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). Higher Gross profit margin is suitable for business.

1. Gross profit ratio of Bega co. is increasing in 2016 showing more profits with less expenses.

2. Gross profit ratio of Bkackmore Co. is also increasing in 2016 showing more profits and earnings with less expenses.

3. Industry average of gross profit ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 and 2016 both. But overall a good industry ratio show their favourable situation.

Operating Profit Ratio: The operating profit margin ratio measures profit a company makes after paying off variable costs of production such as wages, raw materials, etc. It is expressed as a percentage of sales and shows the efficiency of a company controlling the costs and expenses associated with business operations.Operating profit margin of approximately 25% or higher is considered that company is managing it’s cost properly.

1. Operating profit ratio of Bega co. is increasing in 2016 showing more revenues with less operating expenses.

2. Operating profit ratio of Bkackmore Co. is also increasing in 2016 showing more operating earnings with less expenses.

3. Industry average of operating profit ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 and 2016 both. But overall a good industry ratio show their favourable situation of profits.

Return on Assets: Return on assets (ROA) shows the percentage of profit a company earns in relation to its overall resources. It is commonly defined as net income divided by total assets. Net income is derived from the income statement of the company and is the profit after taxes. Higher ROA is a sign of solid financial and operational performance of company.

1.Return on assets ratio of Bega co. is increasing in 2016 showing more revenues being earned through assets used in business.

2. Return on assets ratio of Bkackmore Co. is also increasing in 2016 showing more earnings with busness assets.

3. Industry average of return on assets ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 but in 2016, less than  Bega co. and higher than Bkackmore co. But overall a good industry ratio show their favourable situation of earnings from assets.

Retrun on Equity: Return on equity (ROE) is used to  calculate how many dollars of profit a company generates with each dollar of shareholders’ equity. ROE = Net Income/Shareholders’ Equity. A return on equity of 17% or 18% is considered very good and shows that company is using shareholders’ money efficiently.

1.Return on equity ratio of Bega co. is increasing in 2016 showing more revenues being earned through capital accquired by the shareholders.

2. Return on equity ratio of Bkackmore Co. is also increasing in 2016 showing more  returns being earned through capital accquired by the shareholders.

3. Industry average of return on equity ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 and 2016 both, showing efficient use of capital accquired by the shareholders is being done. But overall a good industry ratio show their favourable situation of earnings through capital injection in the industry.

* Solvency

Solvency Ratios are measure to describe the company’s ability to payoff it’s long term expenses.

Debt Ratio:A financial ratio that measures the company’s debt. The debt ratio is absorbs all the debts of company. It is interpreted as the proportion of a company’s assets that are financed by debt. Ratio of 15% or lower is healthy for business.

1. Debt ratio of Bega co. is decreasing in 2016 showing less debt being accquired by the company in 2016 that is quite favourable for the company.

2. Debt ratio of Blackmore Co. is also decreasing in 2016 showing less debt being accquired by the company in 2016 that is quite favourable for the company.

3. Industry average of debt ratio in compariosn with both companies is quite lower than Bega co. but higher than Blackmore co. in 2015 and higher than both companies in 2016 showing the level of debt being circulatee in the industry. But overall a good industry ratio show their favourable situation of businesses of industry as  low level of debt is accquired by the industry.  

Debt to equity Ratio: Debt/Equity Ratio is calculated by dividing a company’s total liabilities by its stockholders’ equity. The D/E ratio indicates how much debt a company is using to finance its assets in relation to the amount of value represented in shareholders’ equity. Lower debt ratio i.e. 0.4 or lower is considered healthy for business.

1. Debt to equity ratio of Bega co. is decreasing in 2016 showing minimization in  the volume of debt accquired in relation to equity of company. Minimizing the debt to equity ratio is quite favourable for the company.

2. Debt to equity ratio of Blackmore Co. is also decreasing in 2016 showing minimization in  the volume of debt accquired in relation to equity of company. Minimizing the debt to equity ratio is quite favourable for the company.

3. Industry average of debt to equity ratio in compariosn with both companies is quite higher than Bega co. and Blackmore co. in 2015 and in 2016, it’s higher than Bega co. but lower than Blackmore Co. showing the level of debt being circulated in the industry in relation to equity accquired. But overall a good industry ratio show their favourable situation of businesses of industry as low level of debt is accquired by the industry.  

Time Interest Earned Ratio:Times interest earned ratio or interest coverage ratio is a measure of a company’s ability to honor its debt payments. It may be calculated as either EBIT or EBITDA divided by the total interest payable. A higher times interest earned ratio is favorable for business. It means that company is managing to pay off   debts efficiently. But ratio that is far above the industry average shows the misappropriation of earnings by the companies.

1. Time interest earned ratio of Bega co. is increasing with quite good figure in 2016 showing maximization in the capacity of company to pay off it’s debts. Maximization in the ratio is quite favourable for the company as it increase the capability to pay off.

2. Time earned intetest ratio of Blackmore Co. is also increasing immensely in 2016 showing showing maximization in the capacity of company to pay off it’s debts. Maximization in the ratio is quite favourable for the company as it increase the capability to pay off.

3. Industry average ratio of time interest earned ratio in compariosn with both companies is quite higher than Bega co. but lower than Blackmore co. in 2015 as well  as in 2016 showing the industry’s capability to pay off the debts efficiently. But overall a good industry ratio show their favourable situation of businesses of industry with good capacity to pay off debts effectively.   

5. Conclusion and Recommendations

The report concludes two companies i.e. Beega Cheese Limited and Blackmores Limited linked to the Consumer Staples Industry. Both companies are listed on Austalian Stock Exchange ASX. The report contains the brief introduction of all mentioned concepts with historical detail of both companies and financial overview of Consumer Staples Industry. Report demonstrates the list of micro and macro factors that affect the share price of company. Along with this, report absorbs the discussion that how the changing forecasted economic factors affect the performance of businesses. And the key financial measures and financial ratios affecting the business performance is also included in the report.  Bega Cheese Limited Company is performing quite well in terms of financial position and other relevant operations. Company is expanding the operations widely along maintenance of quality. Having good financial position and growing well. But company need to decrease the debt ratio in order to obtain more profits and  increase the acid test ratio as it is very low , it must be minimum 1.  The ROA and ROE of company is also not too much high along with time interest earned ratio. These ratios also need to be increased. Bkackmores Limited company is also a widespread company having it’s operations in many geographical areas with maintained quality. Company is enjoying good financial health along with satisfaction of shareholders and refine corporate social responsibility towards society. Company needs to increse it’s acid test ratio upto 1 and maintain the working capital wiyh high figures. Company need to increase the return on assets as it is a source of earning of company.

6. References

Kurihara, U. (2006). The Relationship between Exchange Rate and Stock Prices during the Quantitative Easing Policy in Japan. International Journal of Business ,  11(4), 375-386.

Docking, S. (2005). Sensitivity of Investor Reaction to Market Direction and Volatility: Dividend Change Announcements. Journal of Financial Research, 28 (1), 21-41.

Al-Qenae, (2002).The Information Co Earnings on Stock Prices: The Kuwait Stock Exchange. Multinational Finance Journal , 6(3&4),197-221.

Ilyas, S. (2014). Macroeconomic factors do influencing stock price: A case study on Karachi Stock Exchange . Journal of Economics and Sustainable Development , 5(7).

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https://www.asx200list.com
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https://www.blackmores.com.au/about-us/company-information/about-blackmores
http://yourbusiness.azcentral.com/economic-factors-affecting-businesses-4557.html
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