Day 174 End of term analysis

End of term analysis

Time surely pass fast, it is now the end of my trimester in university. As we know, people would not learn from experience, we learn from the process that we review and evaluate it. So that is the reason for me to write this integrated performance assessment. 

I would like to expand this review on the skill basis. In fact, there are three major objectives for me to achieve in the first level of my personal improvement plan. For instance, the interpersonal skills, career skills and self-management skills are my fundamental goals through this trimester. 

At first, I believe my interpersonal-skills have improved immensely. Since I comprehend the basic concept of relationship management, which is to provide something of value to others. Through my effort, I met many friends who share the same interest and target as me. My endeavor wins me an advantage on course understanding and progress. Therefore, I utilize it as my specific value to others. My knowledge and outgoing characteristic grant me the respect and friendship. In addition, the ‘more praise than criticize’ approach helped me to maintain this relationship. 

Moreover, the career skill involves the two components as the university course and actual practice. I could proudly present that I was hardworking through the whole trimester, and expect a decent grade to reward my effort. I have successfully adapted the university study culture, thus I am confidence to accept for challenges in the future. On the other hand, I have acquired some practical skills on MYOB from the accounting course, participated in the stock market trading and tried to make my own analysis corresponding to my finance major. It was a good start because I reached 40% investment return in three months period. However, I definitely need to participate more in the trading and develop a more systematic perspective on the market trend anticipation. 

At last, my main focus in this trimester is to enhance my self-control ability. It has been the greatest weakness for me, which dragged me down several times in life. Fortunately, I finally understood that there are priorities that identify the hierarchy of events in our life. So I managed to concentrate on what is the most important objective for me right now. I think the consistent blog post writing not only improved my writing skills, but also trained my strength of will to work hard. Thereby, I am satisfied with my progress on self-management skill. 

In conclusion, I made a head start on my university life, and consequently, I must keep this pace in order to obtain higher goals in my personal improvement plan.   

Day 167 General accepted accounting principles

General accepted accounting principles

The objective of financial reporting is to provide information of the reporting entity that is useful to internal and external users in making decisions. Therefore, the accounting framework sets out plenty of requirements and assumptions in order to maintain the quality of the report. 

There are several assumptions established the foundation of accounting process. For example, the accrual accounting is the basis method of generating the accounting report. It means that the effects of transactions and other events are recognized when they occur, and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. In addition, the going concern is another common assumption. Which assumes that the business will operate long enough to carry out its existing objectives. This assumption is critical, since the PPE would be recorded at their liquidation value rather than their cost if the going concern principle is not recognized. 

On the other hand, there are also many qualitative characteristics of financial reporting, which ensure the utility of decision making. The two fundamental qualitative characteristics are relevance and faithful representation. For a financial information to be relevance, it must affect the outcome of a decision. So if the information has enough materiality, it has an impact on an entity’s overall financial condition and operations. Thus the user’s decision may be influenced by it. Moreover, the characteristic of faithful representation ensures that users can trust or depend on the information provided in financial statements. Hence the information should have complete depiction, neutral and free from bias/error. Furthermore, comparability, verifiability, timeliness and understandability are the enhancing qualitative characteristics for the financial reporting. Where comparability require the accounting report is comparable within the industry. The verifiability relates to the ability to support or confirm the existence and amount of an event or transaction. Timeliness needs the information to be provided in a timely manner, so the relevance is not lost. At last, the understandability assumes the users of information have sufficient knowledge to understand the report, so complex information should not be excluded from the reports. 

In conclusion, the financial report should be provided according to these assumptions and qualitative characteristics. However, the cost-benefit analysis on the cost of gathering information and the benefit granted to users from such information should be balanced.   

Day 166 Member’s remedy

Member’s remedy

As we know, the company operates under the majority rule. Therefore, it is very common that the majority will use their influence and voting power to oppress the minorities. In order to balance the interest of all shareholders as a whole, the Corporations Act regulated sequences of remedies to protect company and the minority’s right. Since we have already discussed the oppressive and unfair conducts, we would focus on other remedies today.

As a separate legal entity, the company has the capacity to enter legal proceedings itself. However, in some cases the company may unwilling or unable to do so. Therefore, S.236 give the power of shareholders/officers to make an application to the court to enter the legal process on behalf of the company. S.237 further developed on this issue, which states that the court must grant the application of statutory derivative action if: the company will not itself bring the proceeding or properly take responsibility for them; the applicant must act in good faith( not for a private purpose, but for the company’s good); the application fits the best interest of company; there is a serious question to be tried, so the claim must not be frivolous; and the notice of the proceeding is correctly given to the company itself. In addition, the court may appoint an independent person to investigate on the situation under S.241. As to prevent collusion between applicant and defendants, the s.240 sets out the rule which the derivative action could not be discontinued or settled without court’s permission. The court also has the power to order the company to cover all costs incurred from this derivative action.

Furthermore, the court may protect member’s rights by force a compulsory winding up, even though the company remains solvent. Court may enter the winding up process whenever it is just and equitable to do so. For example, when the company is experiencing dead lock, breakdown of mutual trust, or failure to conduct business for which company was formed can all be treated as just and equitable reason to wind up the company.

At last, the members may apply to the court or be authorized by the general meeting resolution to inspect the company’s book. They also have a statutory right to inspect the shareholder’s register, as long as they do not utilize this information to contact other members.  

Day 165 Payment priority after winding up

Payment priority after winding up 

As we know, the liquidator will distribute the surplus assets to shareholders after the winding up process of the company. However, this amount is limited, so obviously not all classes would be treated equally on this allocation. The section 556 Corporations Act sets out the detailed priority list on the payments. 

The section stated: in the winding up of a company, the following debts and claims must be paid in priority to all other unsecured debts and claims. First of all, all secured creditors should be paid for their debts. Generally, the secured creditors would appoint an independent practitioner referred as ‘ receiver’, in order to take procession on the secured property. Hence the proceeds would cover the unpaid debt owned by the company. After the secured creditors, the relative expenses of winding up process need to be covered next. For instance, the application of the court winding up order, the amount to indemnify the administrator/liquidator under S.443D, and the deferred expenses such as liquidator’s remuneration should be paid in this order. Besides that, the liquidator needs to pay wages and superannuation rendered before the relevant date. Examples like accrued wages should be cleared after the following transactions. Moreover, the S.556 (1)(g) regulates that the amounts due in respect of leave or absence ought to be reimbursed next. This section has a restriction attached to it, which only recreation leave 1500 payable would be applicable. Furthermore, the liquidation would pay out the retrenchment payments payable to all employees. The last two items are the unsecured creditor and the shareholders. As these two always have the lowest claim for company’s surplus assets. 

The S.556 explained the process of asset distribution on company winding up in an concise manner. Hence we should be able to comprehend this priority list as the most important issue in the company’s liquidation.  

Day 164 Company’s name

Company’s name

According to S.119 Corporations Act (2001), a company comes into existence on registration. In order to complete the process, the company must lodge a application form 201 and determine an available company name. However, there are many restrictions on naming the company.

For example, let’s assume the current issue is whether ‘Bakers Delight’ or ‘The Baker’s Dozen’ named by shareholders are available to be registered with Australia securities an investment commission. According to the Section 147 Corporations Act, the name is available to a company unless the name is identical or unacceptable.   See “Sumitomo Mitsui Banking Corporation v Sumitomo Mitsui Financial Group Pty Ltd.   Consequently, both names are not available in regard to S.147 (1) (b), where the names are ‘identical (under rules set out in the regulations) to a name that is held or registered on the Business Names Register in respect of another individual or body who is not the person applying to have the name’.  In fact, the ASIC Business Name Register suggests there are 6 similar names with ‘Bakers Delight’ and another 10 similar names with ‘ Baker’s Dozen’. (The definition of a business name register can be found in S.22 Business Names Registration ACT).  

Besides the name being ‘ identical’, S.147 (1) (c) also introduced the term ‘unacceptable’ company names.  Which is further explained in Business Names Registration Act S.27 undesirable name and s.28 restrictive words and expressions.  The Business Names Registration (Availability of Names) Determination 2012 has illustrated some examples of unacceptable names.  For instance, it should not include any offensive words, the name should not imply a non-existing connection to the government or Crown, and there should not be infringement of copyright. Moreover, if this ‘NewCo’ is a limited private company, the proprietary limited ‘Pty Ltd’ must be shown in the end of the company’s name’. 

In conclusion, the registered name must comply with all rules listed above.

Day 163 Information System and Information Technology

Information System and Information Technology

Information technology (IT) relates to the technology people use to proceed the information and support the information requirement by the organization. On the other hand, the Information System is more on systematic perspective, where data are collected, proceeded, stored, analyzed and disseminated into quality information for a specific purpose.

The fundamental factor for an information system is the procedure to transfer data to information and allow the informed users to obtain knowledge from it. The data item is the elementary description of things, events, activities and transactions that are recorded, classified and stored. It does not present any specific meaning, since it is simply the facts or evidence. Once data is collected, it must be translated into information, where these facts will be organized to generated meaning and value to the recipient. At last, users gain knowledge base on the combination of data and information, which are organized and processed to convey understanding, experience or expertise for the recipient. For a computer-based information system, all these procedures are completed through computer technology. The four fundamental components for the CBIS are software, hardware, database and network. Hence the system will utilize these components to produce the desired information output. IT personnel perform IT services use the IT components, and these three elements comprise the IT infrastructure in the business.

In a organization, there are many different type of information systems. For example: the functional area IS supports the activities within the specific functional area; the Transaction-processing system processes transaction data from business events; the enterprise resource planning system integrates all functional areas of the organization are cross-functional system that used to communicate with FAIS; Inter-organizational information systems connect two or more organizations, where the electronic commerce is part of this system. In addition, there are plenty of information systems are designed to assist employee’s productivity. For instance, the office automation systems support daily work activities of individuals and groups; the business intelligence system provide computer-based support for complex decisions; the expert systems attempt to duplicate the work of human expert to make decisions in particular areas; and dashboards are often adopted to assist the managements of the organization, which provides timely information and direct access to structured reports.

Although the application of the information system brings more opportunities to the organization, it also disrupts the business by eliminating jobs. Due to a large proportion of jobs are carried out through the system. So the company should be aware of this situation and implement the system efficiently.  

Day 162 The accounting principle framework

The accounting principle framework

The accounting is the subject, which involves identifying, recording and communicating the economic events in an entity to interested users. It allows the users to make relevant decisions using the information. The vital element in communicating process represents the accountant’s ability to interpret and analyze the accounting data. This ability is important since the accountant should be able to translate the data into business language. Consequently, it becomes the means of measuring the business activity, and the information will be processed into accounting reports to communicate the results to users.

There are many different users for accounting information, and these users can be divided into two groups: internal and external. The internal users of accounting reports are the managers who direct the business. So the accounting information is crucial for them to make management decisions. For examples, the sales manager would like to know the profit margin for the company sales, hence a sales journal and relative ratio analysis could provide him the sales figure on the timely basis. On the other hand, user outsider the business are the external users. Since the accounting reports efficiently translate the business activity into a concise and understandable format, these users may rely on this information to evaluate the company’s conduct and performance. To illustrate, the investors want to use the information to decide the trading strategy on the company’s stock; the creditor wants to monitor the business’ ability to cover its debts; and the Australian Taxation Office or ASIC would use the information to scrutiny the conduct of the company in accordance with the laws and regulations.

In order to ensue the quality of the report, the general accepted accounting principles (GAPP) were established and adopted by many professional organizations such as Australian Accounting Standard Board(AASB) and Financial Reporting Council(FRC). As an accounting participant, it is critical for use to comprehend the GAPP and the International Financial Reporting Standards(IFRS). 

Day 161 Internal Control

Internal Control

Accounting is a subject dealing directly with money, therefore there is high possibility for participants use their position and opportunity to commit a fraud. In order to prevent that as well as the employee’s theft, most companies implemented the internal control system, as to safeguard its asset and enhance the quality of its financial reports. 

There are six major principles of establishing internal control in the company. Firstly, is the determination of responsibility. In this section, each employee should be assigned with a specific responsibility, hence if something goes wrong the person obligated to it would be clear. Other allocations of responsibility includes the authorization and approval of transactions. For instance, the manager should be given the authority to record sales return, so it would prohibit employees to unfaithfully use this opportunity to gain personal benefit. In addition, the segregation of duty is also a important factor. It is also named as the separation/division of work, since the principle is generally carried out with following two procedures: related activities should be assigned to different people, and the recording of assets should not be assigned to the same individual who is responsible to safeguard it. Furthermore, the company should introduce a systematic documentation procedure, which provides evidence of transactions and events. Techniques such as pre-numbering the documents, immediate transfer the source document to accounting department, and using different color for copied files will contribute on reducing the chance of error or irregularities by employees. Moreover, the physical, mechanical and electronic controls seem to be one of the best options for company to safeguard their asset and controlling employees’ misbehavior. In fact, the employee monitoring system is a good example for these controls. Besides that, the independent internal verification on periodically or surprise basis can efficiently improve the internal control inside a company. This person who is taking the evaluation should be separated from the duty being inspected. Any exceptions found under scrutiny should be reported to the manager, so correction procedure can be performed. 

At last, there are still plenty other control methods such as: job rotation, proper training about the internal control or adequate wages corresponding to duties. We should comprehend it not only because it is a crucial part as management accounting, but also it is examinable material!!!   

Day 160 Financial Assistance for acquiring shares

Financial Assistance for acquiring shares

In general law, the company is prohibited from providing financial assistance to the relevant party to acquire its own shares, or the shares of its holding company. Such assistance can be given directly or indirectly, such as loan or guarantee for securities. It also may be given before or after the acquisition and take the form of dividends. The reason behind this is to protect the interests and rights for company creditors, since the share capital is considered as the pool of funds for the company to repay its debts. Consequently, the financial assistance to purchase its own shares will be a conduct of capital reduction, therefore it will unfairly prejudice the interest of creditors.

However, S.260A(1) has suggested several approaches to permit the company to provide financial assistance. For instance, if the assistance does not materially prejudice the interest of company/shareholders/creditors, if it is approved by share holders’ special resolution or it applies to the exemptions listed under S.260C. In the famous ASIC v Adler[2002], the improper loan issued to the PEE substantially prejudiced the interest of the HIHC and its shareholders. That is because the rights acquired on the investment were lower than the 10 million loan. On the other hand, the company may pass a special resolution on general members’ meeting, which ratifies the financial assistance. In fact, S.260B clearly discussed this topic, and if the company would have a holding company immediately after the acquisition, then this assistance must be approved by a special resolution in the holding company as well S.260B(2) (3). In addition, there are plenty of exemptions that release the company from the restriction. To illustrate, exemption for certain payment arrangements for partly paid shares made in the ordinary course of commercial dealing; the exemption for financial institutions if the assistant is provided in the ordinary course of business; or the exemption for financial assistance given as part of an employee share scheme approved by shareholders.

The S.260A is a civil penalty provision, but breaches do not affect the validity of financial assistance or connected contract.