Significance Of Accounting Information And Financial Reporting In Enhancing Corporate Governance In Business Organisations

Importance of Financial Reporting in Corporate Governance

PART 1

Answer – 1

1. Allocation of overhead cost on a factory wide approach

	VegieGrow	FlowerFood
Overhead costs Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper [$960000 in 18:42]	$288000	$672000

	VegieGrow	FlowerFood	Total(Homegardens Ltd.)
Overhead(A)	$288000	$672000	$960000
Direct labour Hours(B)	180000	420000	600000
Overhead rate(A/B)	$1.6/direct labour hour	$1.6/direct labour hour	$1.6/direct labour hour

1. Calculation of overhead rates (activity based costing system)

In terms of processing = $640000/  no of kilograms processed

=$640000/512000

=$1.25/kilogram processed

In terms of Packaging it is $320000/Total number of units packaged

=$320000/200000

=$1.6/unit packaged

Overhead cost allocation

 (Activity based costing system)

	VegieGrow	FlowerFood
Kgs processed(kgs)(A)	192000	320000
Packaged units  (B)	90000	110000
Total Overhead($) [(A*1.25)+(B*1.6)]	384000	576000

1. It is important for the organization to have a proper cost driver and to attain that the organization can use the method of survey method or the skills to bear. A basis once taken into consideration must be evaluated at regular intervals so that the process can be enhanced and apportionment is as per the desired level.

Answer -2

1. Computation of Rates of Overhead

	Scheduling and travel	Time for set up	Control
overhead($)(A)	85000	90000	60000
Cost drivers	Hours of travel	Number of setups	Direct labour costs
Overall cost driver (B)	1250	600	400000
Rate of overhead(A/B)	$68/hour	$150/setup	$0.15/direct labour$

	Details	Overhead($)
Commercial	[(750*68)+(350*150)+(100000*0.15)=]	118500
Residential	[(500*68)+(250*150)+(300000*0.15)=]	116500

• For commercial –   [(750*68)+(350*150)+(100000*0.15)=] This leads to overhead of $118500
• Residential –  [(500*68)+(250*150)+(300000*0.15)=] as per computation $116500 is derived

1. Computation of operating income (ABC method)

	Commercial	Residential
Revenues($)		300000		480000
Total Direct material costs($)	30000		50000
Total  cost associated with Direct labour ($)	100000		300000
Overhead costs($)	118500	248500	116500	466500
Operating income/(loss)		51500		13500

Going by the computation, it can be commented that the controller should follow the method of ABC as projected above. The method leads to assignment of overhead costs in a rational manner as compared to the traditional method. The important thing is that the assignment of cost is done to the activities that are the main cause of the overhead. Here, the distribution is done on the basis of overhead on the scheduling and travel time.

Part – 2

Answer – a  

Current net income for Oceania Ltd

Ocenia Ltd. Net income = all three model net income (spotter, snooker and stunner)

=30000+70000+(40000)

=$60000

1. If the stunner product line is discontinued by the company

Statement projecting the Net income of Ocenia Ltd.

Particulars	spotter	snooker	total
Sales	$300000	$500000	$800000
Less: Variable expenses	150000	200000	350000
Contribution margin	150000	300000	450000
Less: Fixed expenses (refer note)	142500	267500	410000
Net Income	$7500	$32500	$40000

1. Net Income by product line

Going by the computation, it can be commented that the company Ocenia Ltd should not abandon the product line Stunner because it will lead to a decline of $20000 decline in net income.

Note for Fixed expenses computation

Fixed Cost	Spotter	Snooker	Total
Common cost Allocation of #300000 in ratio of 3:5	$112500	$187500	$300000
Additional Fixed expenses(B)	30000	80000	110000
Total fixed cost(A+B)	$142500	$267500	$410000

Answer –2 (Tasman Company Limited)

1. Computation of equivalent number of units(using FIFO)

input	particulars	output	material	conversion cost
			completion %	equivalent units	completion %	equivalent units
1500	Total units completed
-From opening WIP	500	NIL	NIL	40%	200
-From  units introduced in current year	400	100%	400	100%	400
Closing WIP	600	100%	600	40%	240
1500		1500		1000		840

(2)Statement projecting unit cost of production

Particulars	Cost(A)	Units (B)	Cost/equivalent unit(A/B)
Material	$2400	1000	$2.4
Cost of Conversion	$2820	840	$3.357

(3) Computation of  cost of units transferred out and closing WIP

Particulars	Details	Cost
Units transferred out	$[1350+(400*2.4)+(600*3.357)]	$4324.2
Closing WIP	$[(600*2.4)+(240*3.357)]	$2245.68

1. Cost report of Tasman Ltd

Particulars	Amount($)
Direct Material	2400
Direct Labour	1580
Prime Cost	3980
Manufacturing Overhead	1240
Add: Opening WIP	1350
Less: Closing WIP	(2246)
Cost of Goods Sold/Cost of Sales	4324

The process of corporate governance can be defined as the set of processes policies Institutions and laws that are to be taken into packed by the company while the operating management strategies. It also States the relationship of the shareholders with the company and that defines the goal for which it needs to be governed. All the back in the days the major focus of the companies and the management was to make rules and policies which can help the firm to attend profits. But with the change in time, the financial reporting system has also implemented the core element of corporate governance in a system because it is very evident for an organization to know about its transparency related details. Without a proper assessment of the data of the firm, there can be no fruitful decisions be taken that will help the company to attain profits (Yaling & Yilin, 2010). Also in recent days, there has been the demolition of many of the large and well-established companies which have made the business people realize that financial reporting system should be kept in its best position. There have been deviations observed in the stock market as a whole and the pension systems have also been kept under pressure on a worldwide platform.

Role of Accounting Information in Corporate Governance

Significance of accounting information and financial reporting in enhancing corporate governance in business organisations

Thus in order to keep the companies and good corporate governance principles financial reporting should be exercised in the best manner possible so that it can no longer be just a bookkeeping exercise but also one of the most important Central functions which need to be taken care by the management. Information economics are in need to be melded in such a manner that the traditional perspective of the financial reporting system can provide a great deal of information about the company’s economic situation which can be used by the investors in order to make decisions in relation to investments and observation of the management quality. There are many types of national accounting systems in which the orientation of the financial reporting is to be taken as one of the most important functions. The shareholders of the firm need to have perfect information in relation to the amount timing and uncertainty of the economic condition of the company so that it can make decisions on the basis of the data. This type of information is needed for mostly two kind’s jobs in which the economic point of you can be cited as the importance of financial reporting and the collection of a reliable source of information that can help to maintain the capital structure of the firm in a more efficient manner. If there is any incorrect information, then the company can invest the amount in the wrong and inefficient companies and thus incur losses in the future. The capital market value of the company can also collapse if it does not provide the investors with clear information about its economic state. The application of financial reporting also reduces the work of Management and investors and thus not only influences the capital market but also the data which has been reported. Thus it has been stated very important to provide the investors with the data which have been very useful in the legal sense and also in the case of information which leads to the accounting standards with the company takes into its reporting style. If there is any type of misleading information that has been provided by the company to its investors then the responsible person will also be eligible to get threatened with the legal consequences as he has not provided its customers with the proper information does disrespect the principle of the disclosure. Financial reporting has been stated to be the major key of corporate governance as in order to run an organization safely, effective information system should be attained and for that, proper financial reporting system should be managed by the organization.

Transparency and Reliable Information in Corporate Governance

The main function that is taken into account by the financial information system of the company is to give its investors and management high-quality accounting information so that transparency can be maintained.

The high-quality financial report helps to improve the relationship between the customers and the managers. Problems in the incentive system have been a major concern resulting from the information asymmetry does making the managers action to be irrelevant towards the principal. Also because of this type of preceding problems conflicts may race between the managers and the shareholders thus leading to an increase in the cost of contracting and monitoring of the services and activities. Also one of the major roles in the financial accounting information system has been to relate the limitations of the correct information collected, to the monitoring of the managerial behaviour so that efficient contract mechanism can be maintained. It has also been stated by many of the reports and information that financial reporting is an activity which has been supporting the conduction of corporate governance in organizations (Uyar et. al, 2016). The implementation of financial reporting and accounting information is also important for the corporate governance because there are many contracts that are not having complete information and are needed to be provided with more information so that correct decision can be made by using them. Therefore if transparency is maintained in the information, high-quality financial reporting can be assessed by the organization does leading it to have proper contracts and corporate governance mechanism and also helping to improve the relationship between the managers and the shareholders of the firm (Mariana & Maria,, 2016). The transparency of the reports can be used to filter out the factors that are irrelevant to the management actions and then make new actions to be performed so that efficiency of the firm can be improved. Also, the financial report data is used by the directors in order to assess the management system of the firm and make the decisions regarding it (Uyar et. al, 2016). The director needs to maintain the transparency of the account so that all the shareholders can get the information in order to assess the Investment Strategies and also the auditor’s need to assess this kind of transparency principles which are being followed by the organization.

The recent regulations invest the company has stated that it needs to improve the corporate governance mechanism of its organization have led to the requirement of making many of the board members independent in nature. This type of actions has been taken because it seems to the organization that independence of the managers and directors will become more relevant for the improvement in the performance and monitoring of the management (Mariana & Maria, 2016). Still, it was not possible to solve the problem of providing the outside shareholders with credible information so that they can make decisions on the basis of the reports. The functionality of the board of directors is maintained on the quality of information that they are being provided with. If they are being provided with Limited and less information then the world will not be working in an effective manner because the evaluation of the organization will not be done in a specified way. Therefore it is very important for the organization to maintain transparency in their reports so that the performance of the board of director can’t be affected in a negative manner (Mark, 2010). Also, the corporate governance practices are affected by the application of new accounting standard that has been published by the countries rules and regulations.

The improvement and the transparency of the form and quality of the financial reporting have helped a lot the form to attain effective corporate governance strategies which try to maintain the attention of practitioners, regulatory body, and academics. Also, the above discussion has clearly stated that the information transparency and the corporate governance mechanisms are being connected in a very efficient way (Uyar et. al, 2016). Also, the efficiency of the managers, directors, and shareholders can be attained by using high-quality transparency method and making arrangements which will help the organization to resolve the information asymmetry problems which were present in the management system. Also the application of corporate governance is important for the form to reduce the management and sentence and also to increase the flexibility in the engagement of the accounting activities (Goergen, 2012). There were financial accounting information and corporate governance methods used by the firm can be proved very faithful in order to attain the transparency principle and thus make its shareholders and the board of directors happy with the results which are being attained by the organization’s operational activities.

Conclusion

Improvement in the financial reporting system is a key to improve the corporate governance and the control over the management structure of the firm. It may also be used by the management in recognition of negative aspects present in the accounting information and thus make recommendations and changes so that an efficient decision-making process can be attained. There are many types of limitations which are faced with the problems of financial reporting leading to the measurement of many intangible assets and liabilities at the fair value have been made difficult. The process of corporate governance and financial accounting reporting help to improve many of the areas and fill up the gaps so that a better understanding of the resources of the firm can be made by the investors and thus helping them to make correct decisions.

References

Goergen, M. (2012).  International Corporate Governance. Prentice Hall.

Mariana, M., & Maria, C.(2016). Transparency of Accounting Information in Achieving Good Corporate Governance. True View and Fair. Social Sciences and Education Research Review. [online]. 3(1), p 41-62. Retrieved from: https://sserr.ro/wp-content/uploads/2016/05/3-1-41-62.pdf 

Mark, J. R. (2010). Political Determinants of Corporate Governance – Political Context, Corporate Impact. Oxford University Press.

Uyar, A.,  Gungormus, A.H., &  Kuzey, C. (2017). Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies. Australasian Accounting, Business and Finance Journal. [online].11(1), 9-27. Retrieved from: https://ro.uow.edu.au/cgi/viewcontent.cgi?article=1751&context=aabfj 

Yaling, D., & Yilin, Y. (2010).  Effect of governance on management in public project. Logistics Systems and Intelligent Management.  Harbin, China