Financial Accounting Theory

Subject: Financial accounting theory

assignment

Student Name Student ID

Zeeshan Murtaza 1164440
Babar Ehsan 1158880
Zain ul abideen 1173500

Teacher Name: Gautam Dahima

Class wednesday (8:30am – 11:30am)

 Financial Accounting Theory

Case 1

Answer to the question no 1:

Natural Resources in the world are Limited. Efficient environmental system of a company
management can keep positive contribution to corporate profitability. Only a well designed
program can make sure of effective uses of natural resources which can directly or indirectly
reduce operating cost.
In 1996, it is found that crime was the largest social issue followed by health, education,
unemployment and environment. In that case company need to give a good attention to build a
suitable regulations and policy which can help the company to survive itself and its employees
from the social criminal threat as the biggest social issue. For that purpose company can
improve their company security plan and also can arrange some educational training about the
genres of personal, social and organizational criminal threat and the way to control them.
Specially, about the types of organizational criminal threat, how it can happen? How to protect
them? where to report for help? what is the punishment if any crime is proved commit by
employee? Everything should be clearer here. Even if need company has to allocate special
amount to face the threat when it is the biggest issue in the country. For example, company can
spend more money to improve their security systems..such as buying mourner valiance camera
to bring the every corner of the organization under strong security system.
But in 1998 health took the first place , instead of crime as the most concerned social issue.
When environmental issue is the top most issue in a country organization’s policy has to follow
the way that can make sure the proper use of natural resources uch as water, gas, electricity .
Reducing or stop wasting this resources company can keep a little contribution to the nation
against the environmental threat. In a word, in this situation, company need to try out how, it
can keep same level of production or profitability without harming the environment or less
harming. For example, some factory produce smoke or poisoned chemical which is not good for
the environment, in that case company can use the system which use less smoke-less smoke
meant less production of carbon die oxide. On the other hand ,the factory that released
poisoned chemical as wastage during production such as Leather Factory, Cloth factory they
can use latest plant for purifying the poisoned chemical into fresh water. This are some good
steps against social environmental issue.
The survey showed that people of Act are most concern about environmental factors ,while
Tasmania is the Least concerned zone. So during making the organizational policy company
have to more focus that means they need better preparation to face the consumers of ACT
while dealing with any products or services, they have to make sure less environmental damage
or pollution or changes otherwise people will kick them out from the market, people will go for
the product which has less environmental damage.
 Financial Accounting Theory

It is found that 32 % people are concerned about Air pollution so company has to sorted them
out-the are from which age group? specially from which Area? And what is their main demand?
If company has all this answers and also the solutions that meant company can now go for
production and marketing of the product without loosing any customers.
This way Attitudinal survey can help disclosing company policy in a positive manner and
decision can be changed according to the mode of recent concern of the time or age.

Case 2:

Dilemma for Cooperation’s to tackle the allegations:

In recent wake of the recent spate of highly publicized corporate scandals, corporations that
receive or uncover an allegation of fraud must navigate increasingly difficult waters in trying to
formulate an effective and expeditious response. On the one hand, the failure to act
aggressively against potential fraud could result in civil suits, enhanced criminal penalties.
 Financial Accounting Theory

Detection and Prevention

As recent events demonstrate, perhaps the most important step for a corporation to take is to
implement appropriate procedures for detecting and preventing fraud rather than having to
respond to it after the fact as a result of a lawsuit or government investigation. But detecting
sophisticated corporate fraud can be a difficult task, not surprising given that wrongdoers can
only enjoy the fruits of their schemes if their activity goes undetected. However, several basic
steps can minimize the risks.
A robust internal compliance program is overseen by sophisticated individuals of integrity and
experience is the best mechanism for identifying and preventing corporate fraud. Developing
and implementing such a program requires an understanding of the industry in which a
corporation operates areas in the industry inherently vulnerable to abuse, and how the
company recognizes revenue and expenses.

Policies

A corporation should develop a written policy clearly setting forth its policies and procedures
for reporting fraud. The policy should make clear that the commitment to preventing fraud runs
to the highest levels of the corporation. Indeed, a company would be well-advised to appoint a
person of stature and independence, at the executive level, to oversee its internal compliance
program and receive reports of wrongdoing. The policy also should make clear that those who
report fraud will not be retaliated against for doing so, and that those who participate in fraud
will be held accountable.

Preserve Relevant Documents

Once a corporation decides to investigate an allegation of fraud, it must learn the full extent of
any wrongdoing, and critical to understanding the fraud is collecting documents. Generally,
steps should be taken immediately to preserve and protect any relevant documents as soon as
a company learns that it or its employees may have engaged in fraudulent activity. While it may
be given that a leading public accounting firm met its demise as a result of an allegation of
improper document destruction, a written document retention policy is advisable, if not
essential.
 Financial Accounting Theory

Proactive Stance:

Special care also must be taken to secure any electronic material, including e-mails, until the
matter is resolved. This may require purchasing additional software or other computer
hardware to increase a business’ electronic storage capacity. Though costly, preserving
electronic material is essential in today’s world. The government is unlikely to sympathize with
a company that, while aware of possible fraud, deleted or lost potentially relevant electronic
documents.

Internal audit:

A person affiliated with the business possesses institutional knowledge that can only be
acquired by outside counsel through time, effort and expense. Moreover, the costs of an
investigation are apt to be lower if conducted internally.

Result:

The post-effect of these strategies are very lucrative and beneficial for companies as wella s
community as a whole. The result would give these favorable outcomes;
 Improved employee and organizational morale
 Increased ability to attract new customers
 Improved customer loyalty
 Reduced risk of negative exposure and public backlash caused by poor ethics
 Attraction of new stakeholders
 Making a positive impact on the community
 Financial Accounting Theory

Case study 3.

Read headline “Lay off Big Macs, radio boss tells staff” and using Legitimacy Theory as the
basis of your argument, explain why a company such as McDonald’s would not want a radio
station to make adverse comments about it. If the station does make adverse statements, how
might McDonald’s react from a corporate disclosure perspective?
2ue Radio is recognized as potentially the most authoritative form of medium at present in
Australia. It corporations that have previously depending on either television or newspaper
passed their message to likely customers offers unbelievable options and opportunities for. As
the Amanda Meade said on 22nd of July 1999. MacDonald’s had conflicts with 2ue. McDonald’s
spokesman John Blyth said would never make its advertising contracts qualified on perspective
comment and the company was uninformed the 2UE directive had issued. There are few factors
behind it such as:-
 Economic problems cannot be interrogated in the non-appearance of making an
allowance for the political, social and institutional framework within which economic
activity takes place.
 Political economy is the money-making structure opinionated, and communal within
which human life takes place and legitimacy, Stakeholder and Institutional Theory
consequent from Political Economy theory.

 Society hopes are not fixed. Because its depend on current situation.
 As society expectations divert, organisations should also familiarize their self with those
changes. because its change on condition.
 the organisation’s performance is similar to company’s expectations.
 Legitimacy can be exposed even Possibly the organisation has unsuccessful to make
exposes that show it is meet the terms with the public expectations.
 Perhaps previously mysterious information about the company comes to light.
 The social of legitimacy can be modifying through communication so it conforms to the
company’s present practices, output and standards.
 The values or symbols can be recognised through communication which involves
legitimacy.
 Look for instruct and notify the society about changes in routine and actions.
 Look for change opinion but not behaviour.

stake holder theory and The legitimacy should not be compare or treat as two different
theories but they are two overlapping opinions of the problem which sets within a
‘political economy’ framework. Legitimacy theory investigate the boost in disclosure
occurred from corner to corner in organisation. Legitimacy Theory depends on the belief
of a communal contract.
It does not depend on the financial-based guess that all activities and profit
maximisation and actions is motivated by self-interest or make best guesses about the
effectiveness of markets.
 Financial Accounting Theory

McDonald’s would not want a radio station to make adverse comments about it. The reason is,
they don’t want to lose their customers as they believed on 2ue. McDonald’s spokesman John
Blyth said they were unaware that the 2UE directive had problems otherwise they would not
make the advertising contracts qualified on perspective comment.
If the station does make adverse statements, McDonald’s can react from a corporate disclosure
perspective. Thus MacDonald’s can use communal exposé to effort to affect public strategy.
Such exposes may address policy problems themselves or may be used to go to create an
overall image of social duty for the company.

Relevant legislation includes:

• Banking Act 1959 (Cth)
• Reserve Bank Act 1959 (Cth)
• Australian Prudential Regulation Authority Act 1998 (Cth)
• Australian Securities and Investments Commission Act 2001 (Cth), which
References: www.fos.org.au/public/download.jsp?id=2793