Accounting: Business Reporting for Decision Making 7th Edition by Jacqueline Birt Solution manual
d. Integrated reporting is a type of reporting that has been adopted in countries such as South Africa. What do you think are the advantages and disadvantages to the company of providing such disclosures?
Integrated reporting combines social, environmental, financial and governance information. It provides a clear and concise representation of how an organisation demonstrates stewardship and how it creates and sustains value. It is based on the six capitals of financial capital, manufactured capital, human capital, intellectual capital, natural capital, and social and relationship capital.
Advantages of adopting IR include:
- more integrated thinking and management
- greater clarity on business issues and performance
- improved corporate reputation and stakeholder relationships
- more efficient reporting for both users and preparers of reports
- employee engagement
- improved gross margins although financial benefits of adopting IR may take time to realise
- the integrated report gives a holistic image of the organisation, by combining the financial and nonfinancial information.
Disadvantages of adopting IR include:
- very time consuming
- it is hard for the organisation to determine which information should be disclosed, since they want to report only the material aspects, yet they also want to be fully transparent and disclose as much as is required by the stakeholders
- non-financial information is not as easy to obtain as financial information.
e. What are the three elements of a business plan? Consider the situation of two sisters contemplating a new business hiring surfboards and providing surf lessons on the Sunshine Coast. Explain how the business plan would assist the sisters in planning their business venture.
The three elements/components of a business plan are:
- marketing
- operations
- finance.
The business plan would provide the sisters with a clear statement of purpose and direction for their business. It would allow them to both work towards a set of clearly defined goals, thus enhancing the likelihood of the goals being reached. It also provides them with a suitable means of periodically evaluating the performance of their business. Different quantifiable targets, such as sales of surfboards, the number of surfboards sold, market share and profitability, can be compared with the actual results at the end of the plan period. The business plan also would encourage the sisters to effectively review all aspects of their operations, which could foster a more effective use of scarce resources, such as staff, time and money, and improve coordination and internal communication. Finally, the process of collecting information, analysing it and integrating it into a written plan can help ensure that the sisters have adequately researched the business idea.
Comprehension questions
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 can be defined as external exchanges of resources between the entity and another entity or individual that affects the assets, liabilities and owners’ equity items in an entity. The accounting process is the identifying, measuring and communicating of economic information about an entity to a variety of users for decision-making purposes. The first component of the process is the identification of business transactions which are then measured and communicated to the different users of financial reports.
Business transactions for a provider of Chinese therapeutic massages include the following.
1. The contribution of capital by the owner to commence the business. This transaction would increase cash (asset) and increase capital (equity).
2. The purchase of equipment (massage tables, massage chairs) on credit. This transaction would increase equipment (asset) and increase creditor (liability).
3. The payment of building rent. This transaction would decrease cash (asset) and decrease profit (equity).