Frameworks For Scaling Business Organizations

Stakeholder Analysis

Discuss About The Frameworks For Scale Business Organisations.

 Stakeholders refers to as an individual, an assembly or an organization that has common concern or inters in the organisation. They can influence or get influenced by the actions, objectives and policies of the organization. The stakeholders may include shareholders, creditors, employees, directors, government, unions, suppliers, and other sources from which the business draws its resources (Alhumoudi 2016). The actions taken by any business impact those individual who are related with them. In the given company of Almarai, the basic kinds of stakeholders are:

Primary Stakeholders – The stakeholders who are primary refers to the internal stakeholders who are internally busy in the economic transactions with the organisation. They are stockholders, customers, suppliers, creditors, and employees.

Secondary Stakeholders –The secondary stakeholders include the stakeholders who are external who are not engaged in direct economic exchange with the business. However, they are influenced by or can get affected by the operations of the business. They include the general public, activist groups, communities, business support groups, and the media.

Excluded Stakeholders – Every company has a group of stakeholders who are known as the disinterested public as they do not have economic impact on business and they are not impact by any operations of the business. They are excluded from the stakeholders list.

 In the chosen company of Almarai, the highest shareholders are SAVOLA group of companies with 36.5% ownership and HH Prince Sultan Bin Mohammed Bin Saud Kabeer with 23.7% ownership (AlZahrani 2014).

The PEST analysis refers to evaluation of the political, economic, socio cultural and technological factors that affect an organisation. It is a process in which the external environmental factors of Almarai are strategically analysed in order to understand the market growth decline position and the potential. Almarai was established in Riyadh in the Saudi Arabia in the year 1977 and was established as a partnership between the Irish agri-foods pioneer Alastair McGuckian, his brother Paddy and Prince Sultan bin Mohammed bin Saud Al Kabeer. At present, Almarai is the largest dairy product company in the Middle East (Bodnar 2014).

According to the annual report of the Almarai, the external factors that influence the company are analysed. The PEST analysis of the Almarai Company are shown below:

Political: The political factors include the ongoing tension in the Gulf region that started in the June 2017 that has resulted in the loss of revenue for all the Saudi based company. Another factor price control of the government, any change in the pricing will have to be in sync with the existing government pricing (Sarker 2014).

PEST Analysis

Economical: The economic factors refers to the implication of the exchange rate fluctuation in the market and the negative trend in the consumer spending in the area.

Social: the social factors that impact the company refers to the health conscious consumers and the rise in the demands of the milk product in the festive season.

Technological: the technological factor that impacts the Almarai is the high investment in technology. The Almarai has invested a great amount in the factories to improvise the production process and make innovations to ensure smooth flow of products.

AS 16 Property, Plant and Equipment outlines the accounting treatment for most types of property, plant and equipment. Property, plant and equipment is initially measured at its cost, subsequently measured either using a cost or revaluation model, and depreciated so that its depreciable amount is allocated on a systematic basis over its useful life.

 The IAS 16 Property, Plant and Equipment plans the treatment of accounting for most types of property, plant and equipment. Property, plant and equipment is initially measured at its cost, subsequently measured both using a cost or revaluation model, and depreciated so that its amount that is depreciable is allocated on a basis that is more systematic over its useful life.  The principal issues are the assets recognition, carrying amounts determination, and the charges  of depreciation and impairment losses to be recognised in relation to them. The two accounting models in this standard IAS 16 includes the

• Cost model: In this case the asset is accepted at cost after deducting the accumulated depreciation and impairment.
• Revaluation model: In this model the asset is taken at a value at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably.

In the given company of Almarai, according to the annual report of 2016, the company uses the reducing balance method. The depreciable amount or the cost less residual value is allocated on a systematic basis over the asset’s useful life (Gashgari 2017). The residual value and the useful life of an asset is reviewed at least at each financial year-end.

The Generally Accepted Accounting Principles is a set of standards of accounting that is used by organizations to organize their information related to finance and summarize the accounting records into financial statements. An accounting estimates that has been identified in the Alamrai is  IAS 8 Accounting Policies, that reflects the Changes in Accounting Estimates and Errors that is  applied in selecting and applying accounting policies, accounting for changes in estimates and reflecting corrections of prior period errors (Hodgkinson 2017).

The capital expenditures are the expenditures that are incurred for the fixed assets that are expected to be productive assets for a period of time more than a year. On the other hand Revenue expenditures are are incurred for specific revenue transactions such as the cost of goods sold or repairs and maintenance expense.  The basis of difference between the two in the company of Alamrai are as follows:

Accounting Practices

Time: Capital expenditures are long term in nature. Revenue expenditures are charged to expense in the current period or short period.

Consumption rate: Capital expenditure is to be consumed over the useful life of the related fixed asset. A revenue expenditure is assumed to be consumed within a very short period of time.

Size: The capital expenditures tend to involve larger monetary amounts than revenue expenditures.

The principle of going concern is the assumption that an organization will remain in business for the foreseeable future. This signifies that the entity will not be forced to stop the operations and liquidate its assets in the near term at what may be very low fire-sale prices (Aldosari and Atkins 2015). This assumption, helps in recognizing the certain expenses until a later period, when the entity will presumably still be in business and using its assets in the most effective manner possible.

In the Almarai Company the auditor evaluates an entity’s ability to continue as a going concern for a period not greater than one year following the date of the financial statements being audited. The auditor considers the following items in deciding if there is a substantial doubt about Almarai’s ability to continue as a going concern:

• Loan defaults by Almarai
• Denial of trade credit to Almarai by its suppliers
• Uneconomical long-term commitments to which Almarai is subjected
• Legal proceedings against the Almarai

The IAS 2 refers to the set of the accounting treatment for inventories. It consists of the guidelines for determination of the inventories cost and for recognising the expense. The standard measures the inventories at the lower of cost and net realisable value (NRV) and find outs the acceptable methods of determining cost. According to the annual report of the Almarai Company the methods of inventory valuation are as follows:

First in, First Out method: FIFO is a considered a valuable method of inventory valuation where there are huge quantities are involved. By using the method of FIFO, the one of the oldest inventory is considered to be sold first, so the cost/value of the inventory in the financial statements is always the most recent.

Weighted Average Cost:  The Weighted average cost is used in case the inventory is all the same, or very similar.

Actual Cost: This is generally used for items that are high-value, taking the actual value of the items.

In order to adapt the accounting practices (GAAP) that is approved, Almarai must account for their revenue in specific ways. There are several revenue recognition mechanism that may be used, in Almarai, there are three basic methods adapted for recognising revenues that are

Sales Basis Method: In the process of sales basis method of revenue recognition, the revenue is recorded during  time of sale. Sale is defined as the period of time where goods and services change hands, which may or may not be at the same time as payment (Al Daffaa, 2018).

Percentage of Completion Method: The percentage mechanism of completion is for recognizing the revenues that is typically used in projects which are large or long-term in nature. Construction services Firms, engineering services or other services with long projects are most likely to utilize this technique. 

Completed Contract Method: When the technique of completed contract is used, the revenue recognition is done only when the project is complete and the contract is fulfilled. This process applied in case of both revenue and expenses. This method of  revenue recognition is used is when the requirements of the percentage of completion method are unable to be met.

The financial condition is the condition of solvency of the organization that takes into account both the financial status and current operational, as replicated in the balance sheet, and an evaluation of the capability of the organization to survive risk scenarios  in future  (Scott 2015). The Almarai Company has a sound financial condition with a proper balance between the assets and the liability and a sound corporate governance.

References

Al Daffaa, A., 2018. Policy and Regulatory Frameworks for Foreign Direct Investment in Saudi Arabia. In Economic Diversification in the Gulf Region, Volume I (pp. 117-135). Palgrave Macmillan, Singapore.

Aldosari, A. and Atkins, J., 2015. A study of corporate social responsibility disclosure practices in Saudi Arabia.

Alhumoudi, H.Y., 2016. Corporate Governance Mechanisms and Firms’ Performance: An Empirical Analysis of Firms Listed on the Saudi Stock Exchange. International Journal of Accounting and Financial Reporting, 6(2), pp.101-145.

AlZahrani, Y.A., 2014. Critical Evaluation of Minority Shareholders’ Rights in General Shareholders Meeting under the Saudi Company Law No. 1965. Global Journal of Human-Social Science Research.

Bodnar, O., 2014. Some Aspects of Developing Company Accounting Policy in Relation to Production Costs. Accounting and Finance, (2), pp.14-18.

Gashgari, R., 2017. Exploring the implications of corporate governance practices and frameworks for large-scale business organisations: A case study on the Kingdom of Saudi Arabia (Doctoral dissertation, Brunel University London).

Hodgkinson, R., 2017. Special Issue: International Accounting Policy Forum Introduction. ACCOUNTING AND BUSINESS RESEARCH, 47(5), pp.471-472.

Sarker, B.R., 2014. Consignment stocking policy models for supply chain systems: A critical review and comparative perspectives. International Journal of Production Economics, 155, pp.52-67.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Woertz, E. and Keulertz, M., 2015. Food trade relations of the Middle East and North Africa with tropical countries. Food Security, 7(6), pp.1101-1111.