Need for a Regulatory Framework in Accounting By Rapid Assignment Help
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The need for a regulatory framework of accounting is deemed to be essential to evaluate primary features associated with preparation and presentation of financial statements applicable for a company. The preparation and presentation of financial statements for a company predominantly consider usage and application for internal and external stakeholders and what processes are needed to be followed in order to maintain complete integrity of financial position. The need for a regulatory framework of accounting applicable to an organisation considering internal seculars should primarily focus on operational metrics which define output generated on the basis of profit composition achieved. The usage of a regulatory framework applicable for accounting is also deemed essential for a company to take strategic steps and implement financial decision making with respect to how ethical integrity of financial records should be maintained and communicated.
Additionally, the need for a regulatory framework of accounting is also deemed essential for external stakeholders to ensure accurate projection of financial performances and outcomes during a particular financial calendar. As per statements of Mesagan and Olunkwa (2022), the regulatory framework of accounting is essential for external stakeholders since it presents the favourable opportunities available for investors to track how future investments can prosper and simultaneously align with financial ethics. The need for a regulatory framework of accounting considering external stakeholders is also important for an organisation to maintain high quality record keeping attributes to favourably present the financial position achieved during an accounting year.
The international financial reporting standards or IFRS is mainly identified as an accounting regulator which proposes how accounting transactions are needed to be treated by an organisation to further lay down financial performances acquired during a yearly cycle. The influence of IFRS for companies to prepare and present the financial reports can be segregated across various factors that are individually discussed as follows.
Financial compliance is identified as the primary influence of IFRS which predominantly establishes the audit lot size contemplated by an organisation to review and examine books of accounts. As illustrated by Imhanzenobe (2022), financial compliance is an integral part of IFRS and is needed to be functionalised on regular intervals for a company to present favourable financial achievements in favour of public and stakeholder interest. The consideration to auditing processes on frequent intervals also enables an organisation to identify potential avenues through which tax benefits can be availed and profit maximisation can be obtained to boost financial and corporate sustainability in the market.
Mitigation of financial uncertainties is identified as the second influence of IFRS where non-trackable financial records and transactions are emphasised and recorded accordingly in the appropriate books of accounts. Mitigation of financial uncertainties also include an organisation's willingness to promote record keeping of monetary transactions during uncertain or contingent or unplanned events. However, as per critical views of Ren et al. (2022), mitigation of financial uncertainties is vulnerable to internal manipulations by a company's internal stakeholders which is normally facilitated to gain self benefits. Higher vulnerability of internal manipulations is likely to cause jeopardised financial and operational stability which can impact the sustainability parameters prevailing in the associated industry or market.
Promotion of liquidity and capital performances is identified as the third influence of IFRS where consideration to financial incentives and how liquidity performance can be magnified exists significantly. The liquidity performance of a company is a predominant indicator defining cash on marketable securities available to be utilised for daily usage or for a future specific event. Capital performances are predominantly induced by measuring growth and progression in leverage facilities where adequate propositions of borrowings are available and a suitable debt- equity mix is employed. However, as critically stated and idealised by Zghidi et al. (2023), promotion of liquidity and capital performances can also lead to obliterated and disoriented relationships with stakeholders to promote organisational growth and prosperity. This is because liquidity and capital growth might upset financial planning of stakeholders causing potential business disruption for a company in the distant future.
Positive opportunities for economic growth are identified as another influence of IFRS in the way companies prepare and present financial reports. Positive opportunities for economic growth predominantly indicate favourable attributes of revenue bundling and profit maximisation if proper guidelines and principles are followed by an organisation. This is mainly reflected by presenting healthy income statement figures, a stable financial position as well as strong cash flow position for a company.
| Investment Appraisal for Project A | ||||
| Years | Cash Flows | DF @10% | Discounted Cash Flow | Cumulative Cash Flow |
| 0 | -£ 3,50,000.00 | 1.00 | -£ 3,50,000.00 | -£ 3,50,000.00 |
| 1 | £ 1,50,000.00 | 0.91 | £ 1,36,363.64 | -£ 2,00,000.00 |
| 2 | £ 1,30,000.00 | 0.83 | £ 1,07,438.02 | -£ 70,000.00 |
| 3 | £ 1,20,000.00 | 0.75 | £ 90,157.78 | £ 50,000.00 |
| 4 | £ 1,10,000.00 | 0.68 | £ 75,131.48 | £ 1,60,000.00 |
| 5 | £ 1,00,000.00 | 0.62 | £ 62,092.13 | £ 2,60,000.00 |
| Net Present Value | £ 1,21,183.04 | |||
| Accounting Rate of Return | 34.86% | |||
| Payback Period (Years) | 3.58 |
Table 1: Investment Appraisal for Project A
| Investment Appraisal for Project B | ||||
| Years | Cash Flows | DF @10% | Discounted Cash Flow | Cumulative Cash Flow |
| 0 | -£ 3,90,000.00 | 1.00 | -£ 3,90,000.00 | -£ 3,90,000.00 |
| 1 | £ 1,90,000.00 | 0.91 | £ 1,72,727.27 | -£ 2,00,000.00 |
| 2 | £ 1,30,000.00 | 0.83 | £ 1,07,438.02 | -£ 70,000.00 |
| 3 | £ 90,000.00 | 0.75 | £ 67,618.33 | £ 20,000.00 |
| 4 | £ 90,000.00 | 0.68 | £ 61,471.21 | £ 1,10,000.00 |
| 5 | £ 90,000.00 | 0.62 | £ 55,882.92 | £ 2,00,000.00 |
| Net Present Value | £ 75,137.75 | |||
| Accounting Rate of Return | 30.26% | |||
| Payback Period (Years) | 3.78 |
Table 2: Investment Appraisal for Project B
| Investment Appraisal for Project C | ||||
| Years | Cash Flows | DF @10% | Discounted Cash Flow | Cumulative Cash Flow |
| 0 | -£ 3,80,000.00 | 1.00 | -£ 3,80,000.00 | -£ 3,80,000.00 |
| 1 | £ 1,00,000.00 | 0.91 | £ 90,909.09 | -£ 2,80,000.00 |
| 2 | £ 1,20,000.00 | 0.83 | £ 99,173.55 | -£ 1,60,000.00 |
| 3 | £ 1,30,000.00 | 0.75 | £ 97,670.92 | -£ 30,000.00 |
| 4 | £ 1,32,000.00 | 0.68 | £ 90,157.78 | £ 1,02,000.00 |
| 5 | £ 1,14,000.00 | 0.62 | £ 70,785.03 | £ 2,16,000.00 |
| Net Present Value | £ 68,696.38 | |||
| Accounting Rate of Return | 31.37% | |||
| Payback Period (Years) | 4.23 |
Table 3: Investment Appraisal for Project C
As per the above table of computations for investment appraisal, net present value for projects A, B and C have been calculated as GBP 121,183.04, GBP 75,137.75 and GBP 68,696.38. The accounting rate of return includes numerical calculations of 34.86%, 30.26% and 31.37% for projects A, B and C. Payback period for the projects have been calculated as 3.58, 3.78 and 4.23 years respectively. Comparative assessment of the three projects Express superior net present value, accounting rate of return and payback period for project A in comparison to B and C. Therefore, the concerned managerial loggerhead of Convert Plc should select project A due to its higher availability and prospect of monetary and percentile returns.
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The critical discussion on investment appraisal approaches can be determined based on locating limitations and categorising investment appraisal methods adopted. The following is an individual discussion about methods of investment appraisal and what potential remedies can be incorporated to improve future approaches.
The potential demerits of the net present value method or approach predominantly include lack of consideration to incorporate percentile value of returns that can be expected from a particular project or a proposal. As critically explained by Dai et al. (2022), lack of identifying percentile values predominantly cause incomplete assessment of returns to compare them with applicable cost of capital. Additional information that might be suitable to improve net present value approach includes the consideration to add on calculation of internal rate of return. The addition of internal rate of return with net present value would allow an organisation to frame a complete overview of a particular project and decide whether it should be accepted or rejected.
The potential demerit of accounting rate of return is identified with respect to lack of integrating time value of money to determine proportion of returns that can be expected from a specific project. As critically expressed by Rutkowska-Ziarko (2022), the lack of integrating time value of money further aggravates inaccurate projections and often creates doubt within an organisation to accept or reject a particular project. The accounting rate of return can be improved as a viable approach to investment appraisal and capital budgeting by cohesively involving computation of profitability index. The profitability index is identified as a suitable measure applicable for a proposal to derive profitability composition from net present value corresponding to the investment outflow.
Potential demerits associated with the payback period mainly include lack of consideration to incorporate cost of capital. This can be improved by alternatively following the discounted payback period approach instead to determine the actual discounted cash flow positioning and the time needed for a project or an investment to recover initial investment and outflow costs.
| Computation of Break Even Point and Margin of Safety for Proposal 1 | |||
| Particulars | Units | Per Unit Value | Total |
| Sales Revenue | 26400 | £ 400.00 | £ 1,05,60,000.00 |
| Total Variable Costs | 26400 | £ 324.00 | £ 85,53,600.00 |
| Contribution Margin | 26400 | £ 76.00 | £ 20,06,400.00 |
| One-Off Cost | £ 1,00,400.00 | ||
| Sales Staff Commission | £ 52,800.00 | ||
| Fixed Costs | £ 17,10,000.00 | ||
| Total Fixed Costs | £ 18,63,200.00 | ||
| Break Even Point (Units) | |||
| Fixed Costs/ Contribution Margin Per Unit | 24515.79 | ||
| Margin of Safety | |||
| (Sales- Break Even Sales)/ Sales | 7.14% | ||
| Profits | £ 1,43,200.00 |
Table 4: Calculation of Break Even Point and Margin of Safety for Proposal 1
As per the above table of calculation of break even point in units and margin of safety for proposal 1, numerical expressions obtained are considered to be 24515.79 units and 7.14%. The break even point is identified as the proportion between fixed costs and contribution margin per unit (Moins, 2022). The margin of safety is identified as the difference between sales and break even sales which is further proportionate with current sales level.
| Computation of Break Even Point and Margin of Safety for Proposal 2 | |||
| Particulars | Units | Per Unit Value | Total |
| Sales Revenue | 32000 | £ 380.00 | £ 1,21,60,000.00 |
| Total Variable Costs | 32000 | £ 320.00 | £ 1,02,40,000.00 |
| Contribution Margin | 32000 | £ 60.00 | £ 19,20,000.00 |
| Fixed Costs | £ 17,10,000.00 | ||
| Break Even Point (Units) | |||
| Fixed Costs/ Contribution Margin Per Unit | 28500.00 | ||
| Margin of Safety | |||
| (Sales- Break Even Sales)/ Sales | 10.94% | ||
| Profits | £ 2,10,000.00 |
Table 5: Calculation of Break Even Point and Margin of Safety for Proposal 2
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As per the above computation of break even point and margin of safety for proposal 2, numerical parameters that have been obtained are 28,500 units and 10.94%. From the above comparative assessment of break even point and margin of safety of proposal 2 with proposal 1, it can be derived that profitability composition available for proposal 2 is marginally superior than proposal 1. Therefore, Corinth Ltd could potentially comprehend selection of proposal 2 due to better numerical facets of margin of safety and profitability.
The calculation of break even point and margin of safety for proposal 1 predominantly indicates lower profitability and operational efficiency which can cause financial challenges and difficulties for Corinth Ltd to sustain daily production and manufacturing activities. As per critical views and explanations of Yao et al. (2022), inferior productivity and operational efficiency could implicate lower financial finances that can cause lower establishment of competitive advantage. Other factors that might be considered relevant to induce performance favourability include consideration to employ cost optimisation and budgeting techniques. The implementation of cost optimisation techniques should encourage the organisation to identify redundant costs and merge them with essential costs or filter them completely. The implementation of budgeting as a technique can also allow the concerned managerial loggerhead of Corinth Ltd to predict budgeted performance parameters and compare them with actual performance parameters. In this mannerism, the company can locate potential areas of discrepancy and take corrective courses of action accordingly.
The calculation of break even point as well as margin of safety for proposal 2 constitutes superior financial credentials when measured alongside financial measurements of proposal 1. However, proposal 2 is also vulnerable towards certain marginal costing attributes that mainly include lowering of selling price per unit to accommodate higher sales units’ production. Bhargava (2022), critically narrated and idealised that this phenomenon could lead to higher operational and manufacturing requirements that can escalate daily operational costs. Escalation of daily operational costs can further block effective fund utilisation and can have a domino effect impacting profit maximisation opportunities. In order to mitigate potential discrepancies towards reduction in unit selling price, consideration to market surveys and additional sources of revenue needed to be identified by the concerned management of Corinth Ltd. Market surveys should encourage proper identification of pricing and demand trends with specific products. Additional sources of revenue such as advertising revenue or other operating on non-operating income can be duly incorporated to magnify profitability composition (Chen et al. 2022).
Cash conversion cycle is identified as the timeframe for a company in which it will be deprived of cash or liquid financial resources and is mostly associated with being an integral part of management accounting. As per illustrations and explanations of Abdesslem et al. (2022), the cash conversion cycle is predominantly examined as a liquidity risk applicable for a company in which potential blockage of sales revenues is gambled with holding higher inventory levels. The cash conversion cycle is also deemed to be the overall timeframe in which collection of receivables from credit customers and payment to creditors is determined for an organisation considering inventory level held. Accounting formulation of cash conversion cycle can be determined based on considering the sum of days inventory and receivables outstanding and differentiating the result with days payable outstanding.
Therefore, the identified elements include days inventory outstanding, days sales outstanding and days payables outstanding which form an integral composition of ascertaining efficiency or turnover ratios. The cash conversion cycle is also considered to be an important feature available for an organisation to contemplate strategic merit and priority on how daily operational and financial targets can be achieved given the existing availability of resources.
The importance of effective management applicable for trade receivables is considered to be a highly proactive scenario where primary focus of an organisation is offered towards facilitating faster collection as well as maintaining positive customer relationships. The following measures and techniques can be adopted by a company to manage trade receivables to facilitate faster collection of money and maintain a healthy cash flow positioning.
Consideration to adopt electronic invoicing is identified as the primary measure that might help a company manage trade receivables sufficiently and keep pace with daily operational requirements and necessities. The electronic invoicing should prescribe delivery date of commodities for customers and should also prescribe the due date in which a particular invoice is needed to be settled off. The electronic invoicing measure is also deemed beneficial for a company to keep proper track of credit records drawn in favour of customers and take corrective courses of action in case of dispute or discrepancies. Electronic invoicing is also deemed to be beneficial since it is largely automated and outstanding customer amounts are obtained individually which can be necessitated for further operational functions.
Setting necessary protocols and key performance indicators is identified as the second measure that can be adopted by an organisation to manage its trade receivables or debtors. The setting of necessary protocols should lay out the upper ceiling limit of financial credit that can be offered to a customer and what mode of payment can be contemplated by a customer to clear debts. The key performance indicators should ideally establish the upper ceiling limit of credit period offered which should ideally be 30 to 45 days. However, as per critical narrations and opinions of Nurjanah et al. (2022), the upper ceiling limit of credit period is often kept flexible by companies to maintain superior working relations with customers. Moreover, it can impact the operational stability and fund flow management of a company that can lead to obliterated business sustainability opportunities available in the existing industry or market.
Laying out of fixed credit terms and conditions is identified as a suitable technique that might help a business or company to collect money from debtors at a rapid pace. The fixed credit terms should specify punitive courses of action that can be exercised by a company if a customer fails to pay within the stipulated due date. This is needed to be initiated by an organisation to maintain operational productivity and energise financial credibility to maintain a dominant market positioning. However, as critically illustrated by Purwaningsih et al. (2023), fixed credit terms and conditions are often stretched by organisations to enable generation of higher sales values which can lead to higher proportion of bad debts or insolvent customers.
Discounting is identified as an additional technique that might be beneficial for a business organisation to enable faster collection of payments from customers or debtors. The discounting feature should be made available by an organisation in a strategic manner where a customer is eligible for discounting if payment of outstanding is facilitated prior to the due date. Ideally, a 2 to 5% discounting can be offered for sales in favour of customers which would allow a company to fasttrack cash collections and maintain a strong liquidity position. However, as per critical expressions of Ibrahim et al. (2022), the discounting feature made available in favour of customers is often manipulated and payment is also delayed which affects working relations as well as cash management of a company.
References
Abdesslem, R.B., Chkir, I. and Dabbou, H., 2022. Is managerial ability a moderator? The effect of credit risk and liquidity risk on the likelihood of bank default. International Review of Financial Analysis, 80, p.102044.
Bhargava, H.K., 2022. The creator economy: Managing ecosystem supply, revenue sharing, and platform design. Management Science, 68(7), pp.5233-5251.
Chen, C.H., Choy, S.K. and Tan, Y., 2022. The cash conversion cycle spread: International evidence. Journal of Banking & Finance, 140, p.106517.
Dai, H., Li, N., Wang, Y. and Zhao, X., 2022, March. The Analysis of Three Main Investment Criteria: NPV IRR and Payback Period. In 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022) (pp. 185-189). Atlantis Press.
Ibrahim, M.A., Hussein, A.A. and Alkader, N.M.A., 2022. The impact of financial crises on the market value of the claim rights during moratorium on bankruptcy in Russian market. Tikrit Journal of Administrative and Economic Sciences, 18(60, 1), pp.376-390.
Imhanzenobe, J., 2022. Value relevance and changes in accounting standards: A review of the IFRS adoption literature. Cogent Business & Management, 9(1), p.2039057.
Mesagan, E.P. and Olunkwa, C.N., 2022. Heterogeneous analysis of energy consumption, financial development, and pollution in Africa: the relevance of regulatory quality. Utilities Policy, 74, p.101328.
Moins, B., Hernando, D., Buyle, M., France, C. and Audenaert, A., 2022. On the road again! An economic and environmental break-even and hotspot analysis of reclaimed asphalt pavement and rejuvenators. Resources, Conservation and Recycling, 177, p.106014.
Nurjanah, S., Ansari, T.S. and Daru, B., 2022. Legal Protection of Creditors in Credit Agreements with Liability Guarantee. Legal Brief, 11(2), pp.445-453.
Purwaningsih, S.B., Hariasih, M., Susilowati, I.F. and Taniyev, A., 2023, May. Credit Rescue: Ensuring Business Continuity and Financial Stability Amidst a Pandemic. In International Conference on Intellectuals’ Global Responsibility (ICIGR 2022) (pp. 619-628). Atlantis Press.
Ren, X., Zhong, Y. and Gozgor, G., 2022. The impact of trade policy uncertainty on stock price crash risk of listed tourism companies: Evidence from China. Journal of Policy Research in Tourism, Leisure and Events, pp.1-21.
Rutkowska-Ziarko, A., 2022. Market and accounting measures of risk: The case of the Frankfurt Stock Exchange. Risks, 10(1), p.14.
Yao, X., Almatooq, N., Askin, R.G. and Gruber, G., 2022. Capacity planning and production scheduling integration: improving operational efficiency via detailed modelling. International Journal of Production Research, 60(24), pp.7239-7261.
Zghidi, N., Bousnina, R. and Mokni, S., 2023. American Corporate Sustainability and Extra-Financial Performance: Is There an Inverted-U Relationship. Journal of Risk and Financial Management, 16(10), p.435.
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