Accounting

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Western Sydney University *

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200972

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Accounting

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May 22, 2024

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1.1 - What is a business transaction and how does it relate to the accounting process? Illustrate the concept of a business transaction with five examples relating to an SME such as a provider of Chinese therapeutic massages. A business transaction is an event that affects the financial position of an entity and can be reliably measured and recorded. E.g. withdrawals and purchases. Accounting is the process of identifying, measuring and communicating economic information about an entity for decision making by a variety of users. A business transaction has an effect on the accounting elements such as assets, liabilities, capital, income, and expense. 5 examples relating to an SME (small-medium size enterprises) are -Purchase of inventory -Borrowing of cash from other entities -Sale of good or services -Payment of wages and salaries -Contract with a supplier 1.2 - Differentiate between financial accounting and management accounting. Provide an example of how a management accounting report would be incorporated into financial accounting reports. Financial accounting is the preparation and presentation of financial information for all types of users to enable them to make economic decisions regarding the entity, while management accounting is a field of accounting that provides economic information for internal users. Eg. the owner and management. Management accounting reports would be incorporated into financial accounting reports in operating segment reporting. Management accounting determines the operating segments and financial accounting reports these operating segments to the various users of financial statements. A. Provide an example of the different types of activities that would be performed by a management accountant and a financial accountant for a large public company listed on the ASX. Different types of activities that would be performed by a management accountant working in a large public company listed on the ASX including the generation of reports for the various owners of the company. As it is a listed company there are many shareholders who jointly own the company who require financial reports that will be generated by managerial accountants to evaluate their investment. The managerial accountant would also provide reports for the board and executive C level employees of the business so that they can make decisions based on financial factors. A financial accountant in a large public firm would be more concerned with providing reports for government authorities like ASIC and also providing financial statements to suppliers and banks.

Week 2 1.35 http://investors.jbhifi.com.au Refer to the latest financial statements for JB Hi-Fi Ltd. For each of the following stakeholders, give an illustration of a report or a note that would be useful for decision-making purposes, state why the information is useful and give an example of how that information would be used. A. Prospective shareholders The annual report, CEO’s report and the financial report are some of the reports which prospective shareholders could use in their decision making. These reports are useful as they provide in-depth and extensive information on how JB Hi-Fi Ltd is performing year by year and what the company’s plans are for the future. Furthermore, the profits in these reports can also help in informing the prospective shareholders if there are any potential investment opportunities available for them. B. Customers JB Hi-Fi Ltd’s profit and loss statement, and their clauses such as warranties/ consumer guarantees and insurance replacement can help customers in their decision making. Information on the profit and loss statement can assist in assessing the company's productivity as this will assure consumers that JB Hi-Fi Ltd is a reliable business and can be dependable when purchasing a product from one of their stores. Clauses such as warranties/ consumer guarantees are also useful as they can allow customers to exchange a product if it is faulty, damaged or if the consumer is unsatisfied with the product. C. Employees The financial statements, specifically the income statement, will be very useful for the employees’ decision-making. By looking at JB HI-FI’s financial statements, they will be able to make a decision for whether or not it is reasonable staying as an employee or finding a new business to work for. The employees can decide by looking at the profits and the wages paid by JB HI-FI in previous years to see if they are financially able to pay their wages. In 2019, JB made over a billion dollars in profits in Australia alone. This will let all JB HI-FI employees in Australia know that the business is more than likely financially viable to pay their wages, helping with the decision-making of the employees. D. Suppliers to JB Hi-Fi Ltd The latest financial statements of JB HI-FI are extremely important for their suppliers to help with the decision-making. Suppliers need financial statements to determine whether the business they are supplying is liquid by assessing their credit score. Suppliers must know if they are going to be repaid prior to making a decision to supply goods. Overall, a supplier will use previous financial statements to identify the risks associated with supplying a business with goods. For example, Apple, a major supplier of JB HI-FI, can view and assess the credit score of JB to make a conclusion on whether JB is financially viable to stay liquid and continue to pay off any supplier fees. E. Auditors The financial half and full year reports of JB Hi Fi Ltd are very important to an auditor’s decision making. This is the case as they can help the auditors to determine if JB Hi Fi Ltd has complied with the laws and regulations, and have obeyed the generally accepted accounting principles (GAAP). When making an audit or report on a company, auditors use the financial report for decision making choices to check

things such as: the company’s cash flow, inventory, fixed assets, debt and expenses in their annual reports. F. Charity organisations Over the past eleven years, JB Hi-Fi has raised over $20 million for our charity partners via their “helping hands” charity foundation. This money has gone to help those who are less fortunate or struggling with illness. JB has over 6,000 staff members contributing to the program each week, which is 76% of our workforce nationally. Since 2016, the decision for the Helping Hands program has resulted poaitively for JB in that they have received six Workplace Giving awards, including Best Overall Program and Most Innovative Charity / Employer Partnership. G. Australian Taxation Office For most depreciating assets , decision makers use the ATO's determinations of effective life , published in taxation rulings. Government Authorities such as the Australian Taxation Office (ATO) will be interested in the reported profit for the year. In JB’s case the reported profit for the year 2019 totalled to $442.7 million and the associated GST paid. In order to calculate the amount of tax to be paid or refunded in a particular financial year regulatory bodies such as the Australian Securities and Investments Commission (ASIC) will seek to identify whether the business has complied with the requirements of the Corporations Act 2001 (Cwlth) for example, whether a disclosing entity has complied with the Australian Accounting Standards. 1.37: Summarise the main features of ‘Tableau Desktop’ and how it can assist accountants in their daily tasks. www.tableau.com - ‘products’ - ‘ Tableau Desktop’ Tableau is an american company which was founded in 2003 that offers software for the purpose of business analytics. The Tableau Desktop software allows the viewing of analytic data in real time. It creates graphs with an accessible interface allowing users to develop relevant data into reliable and easy to use graphs. The software allows data to be delved into in order to recognise patterns and trends. The software also has a feature that predicts future performance depending on the trends in the data. The main selling point of the software is that you can “answer questions at the speed of thought” which is achieved through the simple and easy to use interface and quick generation of graphs. Data visualisation software allows businesses to witness valuable insights into their processes in order to evaluate how the day to day running of the business is achieving its short and long term goals. It can assist accountants in the recognition of what areas of the business are less profitable. The main advantage for an accountant is that they can turn raw data into accessible visuals for other sections of the business not as versed in analysing financial data. With the data management is able to make decisions about business operations including the setting of the price of their product. The software can also assist

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shareholders decide on different potential investments assessing if they are worth the money as well as the amount of risk involved. External shareholders will also use the data displayed by the software to evaluate the performance of the management team in achieving the objectives of the business. Tableau also allows accountants to share their data easily which is helpful when a specific piece of data is required by another member of the business, especially if that person is located in a different area. The main benefit to accountants is if someone who is looking at the data doesn't particularly understand it in its current format they are able to “drag and drop” to create a whole new perspective that might resonate on a higher level to the person viewing it. Another innovative feature of the software is the built in ability to place the data on specific geographic locations. For a transnational company this is obviously a valuable tool as it simply shows what areas of the world their product is performing well in as well as where the product could be potentially lacking as far as profit and loss gos. One last innovative benefit of Tableau is that accountants can submit pre-made excel and various other spreadsheets with raw data allowing them to use older information to examine trends when compared against more recent data they have obtained since using the programme. Week 3 Group Homework CQ 2.10 What is the difference between the revised Conceptual Framework’s fundamental qualitative characteristics of relevance and faithful representation? Can you think of any trade-offs between relevance and faithful representation? Relevance implies that the information should have predictive and confirmatory value for users making and evaluating economic decisions. Faithful representation implies that the information fully represents the phenomena it purports to represent. This means that the financial information will be complete, neutral and free from error. A trade-off can occur between relevance and faithful representation. An illustration of this would be the accounting practice of estimating doubtful debt expenses. The process of estimating doubtful debts expense is relevant to the decision making process. It is necessary to determine an estimate so that revenues for the period can be appropriately matched with the expenses for the period. However, if you estimate doubtful debts expense the estimate that you use does not faithfully represent the actual amount of bad debts expense i.e. is

unlikely to be an amount free from error. However, the process of estimating the expense is useful to the decision maker. CQ 2.23 What is an IFRS and how does it impact on standard setting in Australia? An IFRS or International Financial Reporting Standards are a set of standards and rules related to accounting which were created by the International Accounting Standards Board. Since the beginning of 2005, companies in Australia have started to follow the IFRS format, after previously adhering to accounting standards issued by the Australian Accounting Standards Board (AASB). After the adoption of the IFRS it has had a significant impact on standard setting in Australia as it has made sure that firms are complying and following the standards and principles set out. This has affected many standards with some only needing slight modifications, but others requiring vital changes in order to comply. Furthermore, the IFRS format being used in Australia has also seen various new standards be created as a result. Ex 2.32 Australian Accounting Standards There are at least 60 Australian Accounting Standards. Go to the AASB website at www.aasb.gov.au and choose one. (Hint: Go to ‘Quick Links’ and select ‘Table of Standards’.) One of the recent accounting standards is the standard on fair value measurement. Briefly describe the meaning of ‘fair value’ accounting. What is the purpose of this standard? Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same—to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (ie an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). When a price for an identical asset or liability is not observable, an entity measures fair value using another valuation technique that maximises the use of relevant observable inputs and minimises the use of unobservable inputs. Because fair value is a market-based measurement, it is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk. As a result, an entity’s intention to hold an asset or to settle or otherwise fulfil a liability is not relevant when measuring fair value. The definition of fair value focuses on assets and liabilities because they are a primary subject of accounting measurement. In addition, this Standard shall be applied to an entity’s own equity instruments measured at fair value. Ex 2.35 Professional Institutions CPA Australia and CAANZ have designated areas on their websites for technical resources and updates. Go to each of the respective bodies’ websites ( www.cpaaustralia.com.au and www.charteredaccountantsanz.com ) and summarise the resources provided. CPA Australia provides various resources for their members including a range of learning resources, publications, a weekly newsletter, tax news updates, podcasts, guidance and support services and opportunities for networking. All of these resources and news updates

are useful for members to stay informed of the recent information relevant to their field. The networking opportunities including a facebook page allows professionals in the same field to connect and form a network. CAANZ has a lot of resources exclusively provided for their members as shown on their website such as: detailed information from the CA library which can be accessed digitally, various discussion and special interest teams that members can join, tools and templates which could be used by members for completion of daily duties and access to mentoring or advisory networks. These resources provided by CAANZ can assist in helping members to excel in their jobs and to build confidence, maintain knowledge and gain sufficient advice or support if required. CAANZ also provides many updates on their website in relation to tax and superannuation and news to do with accounting, which can let the members know what has been going on in the accounting profession in recent times. Week 4 Group Homework CQ 2.18 Are ethics and corporate governance important topics in the study of accounting and the business environment? Why or why not? Ethics in terms of the business environment refers to the established principles and processes that ensure a business operates ethically in relations with stakeholders. Stakeholder theory is a theory of business sustainability that emphasises the importance of all stakeholders that are impacted, not just the maximisation of the wealth of the shareholders. This theory is deeply rooted in the idea that businesses have an ethical responsibility to everyone involved with the business. This is important in the study of accounting because there are many ethical considerations in the way an accountant conducts themselves mostly related to transparent and truthful representation of financial statistics of the business they are generating financial reports for. CQ 2.28 Outline the corporate governance principles and recommendations. There are 8 corporate governance principles and recommendations set out to companies. These include: 1. Lay solid foundations for management and oversight: This is a list that states the position of each of the board, management and employees, and indicates their weekly performance frequently. 2. Structure the board to be effective and add value: Entities that are listed should have the set skills and knowledge to operate the business effectively and increase the value of the business overall. 3. Instil a culture of acting lawfully, ethically and responsibly: Creating a safe, lawfully, ethically and responsible environment in which the company is built on. 4. Safeguard the integrity of corporate reports: Listed entities should have security measures to access all information concerning the corporate reports for the company. 5. Make timely and balanced disclosure: This principle states that public companies should disclose and publicly report any information relating to them that, in the opinion or view of a logical and sound person, would help and cause significant changes in the value of the company’s shares.

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6. Respect the rights of security holders: Public companies are advised to give people who hold securities or shares in a company the relevant information they need in order for them to be able to utilise and take advantage of their entitlements. 7. Recognise and manage risk: This principle states that a structure or process in relation to managing risks should be created and implemented by public companies and then monitored on a regular basis in order to determine how effective the process is. 8. Remunerate fairly and responsibly: Public companies are recommended to pay salaries and wages which are high enough and reasonable in order to recruit and keep the best quality directors. This principle also states that firms should construct an approach in relation to reasonable pay for executives in the company in order to either lure, keep or satisfy high-ranked executives who are of good quality. Prob 1.31 BHP Group Ltd includes a sustainability report in its annual report. What key performance indicators (KPIs) are included in this report? Explain the different stakeholders that would be interested in this information. As stated in their report under the subheading ‘Climate change as a priority governance issue’, reducing the use of operational emissions is a key performance indicator for BHP Group Ltd. Water consumption as well as waste output are also key performance indicators. BHP assists in improving climate change by minimising greenhouse gas emissions which is also an indicator in which they utilise. These KPIs assist BHP Group Ltd in keeping track of the performance of various areas within the business, keeping the stakeholders pleased and interested. Stakeholders involved and interested:  Investors  Policy makers  Peer companies  Non-governmental organisations Prob 2.52 Erle Smith is a financial controller with Accounting Success Ltd, an entity that sells software products to accounting firms and small businesses. At present, Erle is analysing a number of software packages that focus on job costing. He needs to pick one package that he can recommend to his clients. Each software vendor is keen to have their software selected, as it would result in significant increase in sales for their company. Anita Loh is a salesperson for software company Catta Ltd. She has told Erle that he should go to Tokyo to analyse her company’s software package properly, because the programming experts there could give him a thorough demonstration. Anitah has also suggested that he take his family, so that he feels relaxed in a foreign country and is in the right frame of mind to undertake his analysis. She says that Disneyland is worth visiting. Catta Ltd would pick up the expenses for the trip. a) Do you think Erle should take the trip? Outline any ethical concerns involved.

Yes – Erle as a financial controller or manager, should take a teleological approach as this approach is concerned with the consequence of the decision. As described above Anita Loh is a salesperson for software company Catta Ltd. She has told Erle that he should go to Tokyo to analyse her company’s software package properly, because the programming experts there could give him a thorough demonstration. This opportunity presented by Anita Loh would optimise the greatest possible good for the greatest number of people especially seeing as Erle is analysing a number of software packages where he needs to pick one that he can recommend to his clients. However, an ethical concern with the teleological approach could be that Erle makes the decision to take the trip purely based on the fact that him and his family would get an all-expense paid trip doing so for himself. This concern is an example of ethical egoism, where the individual or decision maker decides what is best for him or herself. b) Do you think the management of Accounting Success Ltd should allow Erle to go on the trip? Management of Accounting Success LTD should let Erle attend the trip if the management believes that the trip will successfully and ethically achieve the business’s objective of providing and recommending software packages to its customers. c) Do you think that Accounting Success Ltd should have a code of conduct? What would be the advantages and disadvantages to Accounting Success Ltd of having a code of conduct? Accounting Success LTD should implement a code of conduct in order to achieve the company objectives ethically and successfully on a day to day basis.This has advantages such as:  Improving or providing a business’s core values, beliefs and culture thus building a good reputation for itself within the market  Stops the company and its employees from breaking any laws and/or regulations  Clears the lines between ethical and unethical practices which inturn helps to grow an environment of trust and ethical behaviour within the business The disadvantages Unethical Corporate behaviour - companies may create code of conducts that either engages in unethical practices or prevents employees from speaking out against the company Week 5 Business Name: Smith’s Lawns and Gardening Industry business in: Landscape services Structure: Sole Trader Advantages  Low start up Cost : Cost for starting up Smith’s Lawn and Gardening will be little or no cost.  Easy to set up : Easy to set up compared to a corporation.  Privacy : As a sole trader of a lawn mowing business, you don’t have to register all details about your company publicly, allowing Smith’s lawns to be kept private.

 All profits are kept : All profits earned after tax by Smith’s Lawns and gardening is kept by the sole trader.  Total control over business structure and policies: As owner of ‘Smith’s Lawns’ you are able to structure and apply policies to your sole business as you see fit. You will also be able to increase or decrease prices for the business. Disadvantages  Financial liability: for example if when mowing the lawn a mailbox is damaged this is the responsibility of the owner and solely the owner.  Demands on the owner: the owner of a landscaping company will more than likely need to be on site if they are a sole trader but they will also be responsible for the bookwork and other business activities.  Limited managerial perspective: the owner may know a lot about landscaping but possibly lack in the bookkeeping function of the business.  Resource limitations: due to the capital all coming from the owner it will be difficult to obtain new equipment which will either involve a loan or the owner's savings.  No employee benefits for the owner: the owner will not be entitled to sick pay or leave if they are a sole trader of this service and if they wish to take leave the business will more than likely cease operations. Regulatory Sources  Australian Taxation Office (ATO): The ATO collects taxes (e.g. income and GST) and has a number of other responsibilities, such as overseeing all self-managed superannuation funds.

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