Question No.01
Transcript of Question No.01
-
8/14/2019 Question No.01
1/49
Accounting MBA 1-A
Question no.01
(a) Define what is mean by Treasury Stock?
Ans: Treasury Stock:
Every company has an authorized amount ofstock it can issue legally. Of this amount, the total number ofshares owned by investors, including the company's officers andinsiders (the owners of restricted stock), is known as the sharesoutstanding. The number available only to the public to buy andsell is known as the float.
Treasury stocks are shares that were once a part of thefloat and shares outstanding but were subsequently repurchasedby the company and decommissioned. These stocks do not havevoting rights and do not pay any distributions. A company candecide to hold onto treasury stocks indefinitely, reissue them tothe public, or even cancel them.
Stock repurchases are often used as a tax-efficient method to putcash into shareholders' hands, rather than pay dividends.Sometimes, companies do this when they feel that their stock isundervalued on the open market. Other times, companies do thisto provide a "bonus" to incentive compensation plans foremployees. Rather than receive cash, recipients receive an assetthat might appreciate faster than cash saved in a bank account.Another motive for stock repurchase is to protect the companyagainst a takeover threat.
(b) Define meaning and purpose of stock split?
A stock split occurs when a company releasesadditional stock in a structured manner without decreasingshareholder equity. A stock split is a decision by thecompany's board of directors to increase the number of sharesthat are outstanding by issuing more shares to currentshareholders.
For example, in a 2 for 1 stock split, an investor who owns 100shares of a stock valued at $100 per share before the stock splitwill own 200 shares valued at $50 per share after the split. After
Abdul Basit - 1 -
http://en.wikipedia.org/wiki/Share_repurchasehttp://en.wikipedia.org/wiki/Dividendhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/shareholder.htmhttp://www.investorglossary.com/equity.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/investor.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock-split.htmhttp://en.wikipedia.org/wiki/Dividendhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/shareholder.htmhttp://www.investorglossary.com/equity.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/investor.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock-split.htmhttp://en.wikipedia.org/wiki/Share_repurchase -
8/14/2019 Question No.01
2/49
Accounting MBA 1-A
the stock split the investor owns twice as many shares, with eachshare worth exactly half as much as before the stock split.
While a 2 for 1 stock split is probably the most commonform ofstock split it is not the only form. 3 for 1 stock splits andother ratios of stock splits are also possible. In the majority ofcases the purpose of a stock split is to reduce the share price of astock in order to make the stock more affordable to a wider poolof investors.
Purposes of Split stock
The purpose of the stock split is to provide greater liquidity of thecompanys
common shares, increase the number of individual investors andimprove return for shareholders through lowering the per shareinvestment amount.
(c) Define Capital Stock and different type of Capital
Stock?
Capital Stock:
The stockor capital stockof a business entityrepresents the original capital paid or invested into the business
by its founders. The number ofshares authorized for issuance by
a company'scharter, including both common stock and preferred
stock
It serves as a security for the creditors of a business since itcannot be withdrawn to the detriment of the creditors. Stock is
distinct from the property and the assets of a business which mayfluctuate in quantity and value.
The number of shares authorized for issuance by a company's
charter, including both common stock and preferred stock
Types of Stock
Abdul Basit - 2 -
http://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/investor.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorwords.com/4532/shares_authorized.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/832/charter.htmlhttp://www.investorwords.com/986/common_stock.htmlhttp://www.investorwords.com/3778/preferred_stock.htmlhttp://www.investorwords.com/3778/preferred_stock.htmlhttp://www.investorwords.com/4532/shares_authorized.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/832/charter.htmlhttp://www.investorwords.com/986/common_stock.htmlhttp://www.investorwords.com/3778/preferred_stock.htmlhttp://www.webfinanceinc.com/Ads/adclick.php?&bannerid=1837&zoneid=&source=&dest=http://www.investorguide.com/igup1-types-of-stock.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/investor.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock-split.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorwords.com/4532/shares_authorized.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/832/charter.htmlhttp://www.investorwords.com/986/common_stock.htmlhttp://www.investorwords.com/3778/preferred_stock.htmlhttp://www.investorwords.com/3778/preferred_stock.htmlhttp://www.investorwords.com/4532/shares_authorized.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/832/charter.htmlhttp://www.investorwords.com/986/common_stock.htmlhttp://www.investorwords.com/3778/preferred_stock.htmlhttp://www.webfinanceinc.com/Ads/adclick.php?&bannerid=1837&zoneid=&source=&dest=http://www.investorguide.com/igup1-types-of-stock.htm -
8/14/2019 Question No.01
3/49
Accounting MBA 1-A
With so many options, how do I decide which
stocks are right for me? Topics include common and preferred
stock, stock classes, market cap, penny stocks, sector stocks,
cyclical stocks, defensive stocks, and tracking stocks.
Common stock
Common stock is a form of corporate equity ownership, a type of
security. It is called "common" to distinguish it from preferred
stock. In the event of bankruptcy, common stock investors
receive their funds after preferred stock holders, bondholders,
creditors, etc. On the other hand, common shares on average
perform better than preferred shares or bonds over time.
Common stock is usually voting shares, though not always.
Holders of common stock are able to influence the corporation
through votes on establishing corporate objectives and policy,
stock splits, and electing the company's board of directors. Some
holders of common stock also receive preemptive rights, which
enable them to retain their proportional ownership in a company
should it issue another stock offering. Additional benefits from
common stock include earning dividends and capital appreciation.
Preferred stock
Preferred stock, also called preferred shares, preference shares,
or simply preferred, is a special equity security that resembles
properties of both equity and a debt instrument and generally
Abdul Basit - 3 -
-
8/14/2019 Question No.01
4/49
Accounting MBA 1-A
considered a hybrid instrument. Preferred are senior (i.e. higher
ranking) to common stock, but are subordinate to bonds.
Preferred stock usually carries no voting rights, but may carry
priority over common stock in the payment of dividends and upon
liquidation. Preferred stock may carry a dividend that is paid out
prior to any dividends being paid to common stock holders.
Preferred stock may have a convertibility feature into common
stock. Terms of the preferred stock are stated in a "Certificate of
Designation".
Similar to bonds, preferred stocks are rated by the major credit
rating companies. The rating for preferred is generally lower since
preferred dividends do not carry the same guarantees as interest
payments from bonds and they are junior to all creditors.
Types of preferred stock
Additional types of preferred stock include:
Prior Preferred Stock Many companies have different
issues of preferred stock outstanding at the same time and one of
them is usually designated to be the one with the highest priority.
If the company has only enough money to meet the dividend
schedule on one of the preferred issues, it makes the dividend
payments on the prior preferred. Therefore, prior preferred have
less credit risk than the other preferred stocks but it usually offers
a lower yield than the others.
Abdul Basit - 4 -
-
8/14/2019 Question No.01
5/49
Accounting MBA 1-A
Preference Preferred Stock Ranked behind the company's
prior preferred stock (on a seniority basis), are the company's
preference preferred issues. These issues receive preference over
all other classes of the company's preferred except for the prior
preferred. If the company issues more than one issue of
preference preferred, then the various issues are ranked by their
relative seniority. One issue is designated first preference, the
next senior issue is the second and so on.
Convertible Preferred Stock These are preferred issues
that the holders can exchange for a predetermined number of the
company's common stock. This exchange can occur at any time
the investor chooses regardless of the current market price of the
common stock. It is a one way deal so one cannot convert the
common stock back to preferred stock.
Cumulative preferred stock If the dividend is not paid, it
will accumulate for future payment.
Exchangeable preferred stock This type of preferred stock
carries the option to be exchanged for some other security upon
certain conditions.
Participating Preferred Stock These preferred issues offer
the holders the opportunity to receive extra dividends if the
company achieves some predetermined financial goals. The
investors who purchased these stocks receive their regular
dividend regardless of how well or how poorly the company
Abdul Basit - 5 -
-
8/14/2019 Question No.01
6/49
Accounting MBA 1-A
performs, assuming the company does well enough to make the
annual dividend payments. If the company achieves
predetermined sales, earnings or profitability goals, the investors
receive an additional dividend.
Perpetual preferred stock This type of preferred stock has
no fixed date on which invested capital will be returned to the
shareholder, although there will always be redemption privileges
held by the corporation. Most preferred stock is issued without a
set redemption date.
Putable preferred stock These issues have a "put"
privilege whereby the holder may, upon certain conditions, force
the issuer to redeem shares.
Monthly income preferred stock A combination of
preferred stock and subordinated debt.
Non-cumulative preferred stock Dividend for this type of
preferred stock will not accumulate if it is unpaid. Very common in
Troops and bank preferred stock, since under BIS rules, preferred
stock must be non-cumulative if it is to be included in Tier capital
Question no.02
Abdul Basit - 6 -
-
8/14/2019 Question No.01
7/49
Accounting MBA 1-A
Explain the following terms in detail?
Answer
(i)Financial Accounting:
Financial accountancy (or financial accounting) is the field ofaccountancy concerned with the preparation of financialstatements for decision makers, such as stockholders, suppliers,banks, employees, government agencies, owners, and otherstakeholders. It is the information developed in conformity with
Generally Accepted Accounting Principles (GAAP). It involves therecording and summarization of business transactions and events.
Financial accountancy is used to prepare accounting informationfor people outside the organization or not involved in the day-to-day running of the company. Management accounting providesaccounting information to help managers make decisions tomanage the business.Financial accounting relates to thepreparation of financial statements for external users such ascreditors, investors, and suppliers. The financial statements
include the balance sheet, income statement, and statement ofchanges in financial position.
(ii) Managerial Accounting:
According to the Chartered Institute of Management Accountants(CIMA), Management Accounting is "the process of identification,measurement, accumulation, analysis, preparation, interpretationand communication of information used by management to plan,evaluate and control within an entity and to assure appropriate
use of and accountability for its resources. Managementaccounting also comprises the preparation of financial reports fornon-management groups such as shareholders, creditors,regulatory agencies and tax authorities" (CIMA Official
Terminology).
Abdul Basit - 7 -
http://www.answers.com/topic/generally-accepted-accounting-principles-gaaphttp://www.answers.com/topic/generally-accepted-accounting-principles-gaap -
8/14/2019 Question No.01
8/49
Accounting MBA 1-A
Managerial accounting is concerned with providing information to
managers- that is, to those who are inside an organization and
who direct and control its operations. Managerial accounting can
be contrasted with financial accounting, which is concerned with
providing information to stockholders, creditors and others who
are outside an organization (Garrison and Noreen, 1999).
Managerial accounting information includes:
Information on the costs of an organizations products
and services.
For Example, managers can use product costs to guide the
setting of selling prices. In addition, these product costs are
used for inventory valuation and income determination.
Budgets.
A budget is a quantities expression of a plan.
Performance reports:
These reports often consist of comparisons of budgets with actual
results. The deviations of actual results from budget are called
variances.
Other information which assist managers in their
planning and control activities.
Examples are information on revenues of an organizations
products and services, sales back logs, unit quantities and
demands on capacity resources.
Abdul Basit - 8 -
-
8/14/2019 Question No.01
9/49
Accounting MBA 1-A
(iii) Financial Reporting.
Recording and presentation of financial statements, such as the
Annual Statement by the insurance company. Financial reporting
statements are used by the State Insurance Commissioner in
regulating the adequacy of company reserves for benefit
liabilities, assets availability, and worth. Financial reporting is
largely an effort to assess financial performance of an entity.
Presenting financial data of a company's position, operating
performance, and funds flow for an accounting period. Financial
statements along with related information may be contained in
various forms for external party use such as in the annual report,
SEC Form 10-K, and prospectus.
(iv) Matching Concept
The matching concept is an accounting principle that requires the
identification and recording of expenses associated with revenue
earned and recognized during the same accounting period.
Accordingly, under the matching concept the expenses of a
particular accounting period are the costs of the assets used to
earn the revenue that is recognized in that period. It follows,
therefore, that when expenses in a period are matched with the
revenues generated for the same period, the result is the net
income or loss for that period.
Abdul Basit - 9 -
http://www.answers.com/topic/annual-statementhttp://www.answers.com/topic/annual-statement -
8/14/2019 Question No.01
10/49
Accounting MBA 1-A
A significant relationship exists between revenue and expenses.
Expenses are incurred for the for the purpose of producing
revenue. In measuring net income for a period, revenue should be
offset by all the expenses incurred in producing that revenue. This
concept of offsetting expenses against revenue on the basis of
"causes and effect" is called the Matching Concept.
The term 'matching' means appropriate association of related
revenues and expenses. In matching expenses against revenue
the question when the payment was made or received is
'irrelevant'. For example if a salesman is paid commission in
January, 2001, for sale made by him in December, 2000.
According to this concept commission expense should be offset
against sales of December 2000 because this expense is incurred
for producing revenue in December 2000. On account of this
concept, adjustments are made for all outstanding expenses,
accrued revenues, prepaid expenses and unearned revenues, etc,
while preparing the final accounts at the end of the accounting
period
A process in which expenses are recognized in the income
statement on the basis of a direct association between the costs
incurred and the earning of specific items of income.
This process involves the simultaneous or combined
recognition of revenues and expenses that result directly and
jointly from the same transactions or other events.
Abdul Basit - 10 -
-
8/14/2019 Question No.01
11/49
Accounting MBA 1-A
This principle dictates that when it is reasonable to do so,
expenses should be matched with revenues. When expenses are
matched with revenues, they are not recognized until the
associated revenue is also recognized.
This principle allows greater evaluation of actual profitability
and performance (shows how much was spent to earn revenue).
Wages paid to manufacturing laborers are not recognized as
expenses until the actual products are sold. When the products
are sold, the expenses are recognized as cost of goods sold.
Product costs are costs which add value to inventory. These
costs are capitalized (added) to inventory, and later expensed as
cost of goods sold.
Only if no connection with revenue can be established, cost can
be charged as expenses to the current period (e.g. office salaries
and other administrative expenses). These are period costs which
are costs which are expensed immediately.
Depreciation is another example of the matching principle: The
cost of purchasing a fixed asset is spread over the period in which
it is expected to generate revenue.
ILLUSTRATION NO.1
On March 14, the company received inventory of $10,000.
On April 13, the vendor is paid in full.
On May 11, the company sold the inventory for $20,000
Question: When should the inventory become an expense?
Abdul Basit - 11 -
-
8/14/2019 Question No.01
12/49
Accounting MBA 1-A
Answer: In the month of May as the inventory was sold. We have
the income of $20,000 which we need to match it with the cost of
$10,000
ILLUSTRATION NO.2
Company A bought a machinery for $36,000. It expects the
machinery to be able to generate incomes for a period of three
(3) years. The company uses the straight line method for
depreciating the machinery.
Question: What should be the annual or monthly depreciation to
be expensed off to match the generation of income?.
Answer: The company should expensed off $36,000/3 years
=$12,000 per annum or $1,000 per month so as to match against
the income.
(v) Accrual Concept
The effects of transactions and other events are recognized when
they occur (and not as cash or its equivalent is received or paid)
and they are recorded in the accounting records and reported in
the financial statements of the periods to which they relate.
ILLUSTRATION NO.1Company A has received cash of $40,000 from his customers.
However, the company actually has done all work satisfactorily
and the customers have acknowledged the work done which the
company can billed for another $20,000. Furthermore, the
Abdul Basit - 12 -
-
8/14/2019 Question No.01
13/49
Accounting MBA 1-A
expenses for the $20,000 work-done have been taken up into the
books of account.
Question: Should the company just close their accounting book
by presently its income as $40,000 for the cash received or
should it be $40,000+$20,000 =$60,000
Answer: Based on this concept, the company has actually
completed all work done, also, the work done have being
acknowledged by the customers, hence income of $60,000 should
be taken up and not just the cash received.
Question no.03
(a) What is meant by following Accountancy professional
institutions?
Abdul Basit - 13 -
-
8/14/2019 Question No.01
14/49
Accounting MBA 1-A
Answer :
1) ICAEW Institute of Chartered Accountants of England
and Wales
2) ACCA Association of Chartered Certified Accountants
3) CPA Certified Public Accountant
4) ICMA Institute of Cost & Management Accountants
5) CIMA Chartered Institute of Management
Accountants
6) CAT Certified Accounting Technician
7) AAT Association of Accounting Technicians
8) ICAP Institute of Chartered Accountants of Pakistan
9) CFA Chartered Financial Analyst
10) CIA Certified Internal Auditor
(a) How to become the member of these institutions.
Explain in detail?
1) ICAEW :
The Institute of Chartered Accountants in England & Wales(ICAEW) was established by a Royal Charter in 1880.
MEMBERSHIP
As a world leader of the accountancy and finance profession,they offer a number of routes to membership for both trainee andqualified accountants, as well as access to specialist technical andbusiness groups.
Abdul Basit - 14 -
-
8/14/2019 Question No.01
15/49
Accounting MBA 1-A
Routes to membership
The ICAEW has reciprocal membership arrangements with the
following professional accountancy bodies. Members of thesebodies can apply for ICAEW membership under certain conditionsand provided they meet the eligibility criteria.
Pathways to Membership
Qualified members of ACCA, CIMA, CIPFA, MICPA, CPA Australia orAICPA with a minimum of five years' full membership and post-qualification experience in an accounting and/or businessenvironment may apply to join the ICAEW through the Pathwaysto Membership programme.
2)_ ACCA.
The Association of Chartered Certified Accountants (ACCA) is aBritish accountancy body which offers the CharteredCertified Accountant (Designator letters ACCA or FCCA)qualification worldwide.
Membership
Two A-Levels and three GCSEs or equivalent in five separate
subjects, including English or Mathematics
OR
Mature student entry route:
Normally over age 21
No academic qualifications required
Must pass the equivalent of Papers F2 (Management
Accounting) and F3 (Financial Accounting) within two years
before further progression to the ACCA exams is permitted.
Abdul Basit - 15 -
http://en.wikipedia.org/wiki/British_qualified_accountantshttp://en.wikipedia.org/wiki/Chartered_Certified_Accountanthttp://en.wikipedia.org/wiki/Chartered_Certified_Accountanthttp://en.wikipedia.org/wiki/British_qualified_accountantshttp://en.wikipedia.org/wiki/Chartered_Certified_Accountanthttp://en.wikipedia.org/wiki/Chartered_Certified_Accountant -
8/14/2019 Question No.01
16/49
Accounting MBA 1-A
Holders of recognised degrees from universities and colleges, andholders of national professional qualifications MAYbe eligible for
exemption from some or all of the nine papers fromFundamentals level: Skills and knowledge Modules.
There are no exemptions from Professional Level.
ACCA can only award exemption on the basis of qualificationsawarded by recognised institutions (i.e. those which arerecognised by the local Ministry of Education as public sectorinstitutions, or the equivalent status under their regulations).
If you hold a degree or professional qualification you will need tosubmit copies (and translations) of your degree certificates andcourse transcripts to obtain any exemptions available.Applications for assessment of existing qualifications to claimexemptions must be directed to the ACCA Glasgow office inScotland.
Actual exemption will be confirmed at the time of a student'sinitial registration with ACCA. That is, when you receive the ACCAStudent Pack.
Students are required to pay an exemption fee for each paperawarded. Exemption fees are the same as examination fees.
You must send official proof of any relevant qualifications whichare held, or are currently being studied for, with your registrationform, in order for us to assess your eligibility and confirm yourentitlement for exemptions.
In Latvia usually most students with University Degree inEconomics get exemption from Paper F2 and F3. The StockholmSchool of Economics students may get additionally moreexemptions. Please note that exemption often varies from studentto student, based on their qualifications.
Abdul Basit - 16 -
-
8/14/2019 Question No.01
17/49
Accounting MBA 1-A
The Association of Authorized Public Accountants (AAPA), one of
the British professional bodies for public accountants, has been a
subsidiary of ACCA since 1996.
3)_ CPA:
Certified Public Accountant (CPA) is the statutory title ofqualified accountants in the United States who have passedthe Uniform Certified Public Accountant Examination and
have met additional state education and experiencerequirements for certification as a CPA. Individuals who havepassed the Exam but have not either accomplished therequired on-the-job experience or have previously met it butin the meantime have lapsed their continuing professionaleducation are, in many states, permitted the designation"CPA Inactive" or an equivalent phrase.[1] In most U.S. states,only CPAs who are licensed are able to provide to the publicattestation (including auditing) opinions on financialstatements. The exceptions to this rule are Arizona, Kansas,North Carolina and Ohio where, although the "CPA"designation is restricted, the practice of auditing is not.
Many states have a lower tier of accountant qualification(below that of CPA), usually entitled "Public Accountant"(with designatory letters "PA"). However the majority ofstates have closed the designation "Public Accountant" tonew entrants, with only about 10 states continuing to offerthe designation. Many PAs belong to the National Society of(Public) Accountants.
Many states prohibit the use of the designations "CertifiedPublic Accountant" or "Public Accountant" (or theabbreviations "CPA" or "PA") by a person who is not certifiedas a CPA or PA in that state.[2] As a result, in manycircumstances, an out-of-state CPA is restricted from using
Abdul Basit - 17 -
http://en.wikipedia.org/wiki/Association_of_Authorised_Public_Accountantshttp://en.wikipedia.org/wiki/British_qualified_accountantshttp://en.wikipedia.org/wiki/Statutoryhttp://en.wikipedia.org/wiki/Accountanthttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Uniform_Certified_Public_Accountant_Examinationhttp://en.wikipedia.org/wiki/Continuing_professional_educationhttp://en.wikipedia.org/wiki/Continuing_professional_educationhttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Arizonahttp://en.wikipedia.org/wiki/Kansashttp://en.wikipedia.org/wiki/North_Carolinahttp://en.wikipedia.org/wiki/Ohiohttp://www.nsacct.org/http://www.nsacct.org/http://en.wikipedia.org/wiki/Association_of_Authorised_Public_Accountantshttp://en.wikipedia.org/wiki/British_qualified_accountantshttp://en.wikipedia.org/wiki/Statutoryhttp://en.wikipedia.org/wiki/Accountanthttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Uniform_Certified_Public_Accountant_Examinationhttp://en.wikipedia.org/wiki/Continuing_professional_educationhttp://en.wikipedia.org/wiki/Continuing_professional_educationhttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Arizonahttp://en.wikipedia.org/wiki/Kansashttp://en.wikipedia.org/wiki/North_Carolinahttp://en.wikipedia.org/wiki/Ohiohttp://www.nsacct.org/http://www.nsacct.org/ -
8/14/2019 Question No.01
18/49
Accounting MBA 1-A
the CPA designation or designatory letters until a license orcertificate from that state is obtained.
Many other countries also use the title CPA to designate localpublic accountants. The equivalent in formerly Britishcountries is the chartered accountant.
4)_ ICMA:
The Institute of Cost & Management Accountants of Pakistan was
established in 1951 and was granted statutory status under the
Cost and Management Accountants Act, 1966 for the regulation of
the profession of Cost and Management Accounting. ICMAP is the
sole provider of cost and management accounting education,
training and professional certification in Pakistan.
MEMBERSHIP OF THE INSTITUTE
A person, on his/her name being entered in the Register, as an
associate and, so long as his/her name remains so entered, shallbe entitled to use the letters [ACMA] after his/her name toindicate that he/she is an associate of the Institute.
The person, on his name being entered in the Register as a fellowof the Institute and such person, so long as his/her name remainsso entered, shall be entitled to use the letters [FCMA] afterhis/her name to indicate that he/she is a fellow of the Institute.
A person who has been an associate for a continuous period ofnot less than five years and who possesses such qualifications asthe Council prescribes may apply to the Council for admission asfellow; and if the Council grants his/her application, his/her nameshall be entered in the Register as a fellow.
Abdul Basit - 18 -
http://en.wikipedia.org/wiki/Chartered_accountanthttp://en.wikipedia.org/wiki/Chartered_accountant -
8/14/2019 Question No.01
19/49
Accounting MBA 1-A
The decision of the Council on an application for membershipshall be final.
The following persons shall be entitled to have to their namesentered in the Register, namely:-
1. Any person who has passed such examination andcompleted such training as may be prescribed formembership of the Institute.
2. Any person who has passed such other examination andcompleted such other training outside Pakistan as it isrecognized by the Federal Government, or by the Councilwith the approval of the Federal Government, as beingequivalent to the examination and training prescribed formembership of the Institute and, in case he/she is notpermanently residing in Pakistan, fulfils such otherconditions as the Federal Government, or the Council withthe approval of the Federal Government, as the case maybe, may deem fit to impose
5)_ CIMA:
CIMA: - Chartered Institute of Management Accountants
The Chartered Institute of Management Accountants (CIMA) is a
UK based professional body offering training and qualification in
management accountancy and related subjects, focused on
accounting for business; together with ongoing support for
members.
Become a member
We can apply for CIMA membership when we have completed theCIMA professional qualification. we also need to demonstratethree years of relevant practical experience.
Abdul Basit - 19 -
-
8/14/2019 Question No.01
20/49
Accounting MBA 1-A
Once our membership application has been approved and wehavebeen notified of this, we can use the letters ACMA after our name
to signify that we are an Associate Chartered ManagementAccountant.
6)_ CAT:
The Certified Accounting Technician:-Qualification is offered by
the Association of Chartered Certified Accountants (ACCA). Upon
completion of the exams and required practical work experience
the CAT graduate will be able to apply to use the letters CAT after
his or her name. In addition, they will have the opportunity to join
the CAT alumni.
Although CAT can be obtained as a stand-alone qualification, it is
often the case that individuals study for CAT as an introduction
qualification in accountancy prior to training to become a
Chartered Certified Accountant through the ACCA Professional
Scheme. It usually takes one and a half years to complete the
nine CAT exams.
7)_ AAT:
The Association of Accounting Technicians, or AAT, is an
accountancy organization with over 108,000 members worldwide.
The AAT is a technician level qualification which entitles those
who have completed the exams and obtained relevant supervised
work experience to call themselves associate accounting
Abdul Basit - 20 -
-
8/14/2019 Question No.01
21/49
Accounting MBA 1-A
technicians. The AAT is based in London but there are branches
all over the UK and the rest of the world.
Membership:
There are three categories ofAAT membership:
Full (MAAT)
Fellow (FMAAT)
Member in practice (MIP)
Each category depends on
how long a member has worked in accountancy. the status the member has achieved.
whether the member is running their own business.
All AAT members commit to continuing their professionaldevelopment (CPD) with the support of the AAT. This ensuresthat their skills are kept up-to-date.
Several AAT members have set up their own practices andbecome self-employed
8)_ ICAP:
The Institute of Chartered Accountants of Pakistan(ICAP) is a professional body of Chartered Accountants inPakistan, and represents accountants employed in publicpractice, business and industry, and the public and privatesectors.
ICAP is a member of the International Federation ofAccountants (IFAC), International AccountingStandards Board (IASB), Confederation of Asian &Pacific Accountants (CAPA), International InnovationNetwork (IIN) and South Asian Federation ofAccountants (SAFA).
How to become a member?
Abdul Basit - 21 -
http://www.aat.org.uk/members/http://www.aat.org.uk/members/http://www.aat.org.uk/content/item14332/http://www.aat.org.uk/content/item14332/http://www.icap.org.pk/web/links/4/howtobecomeamember.phphttp://www.aat.org.uk/members/http://www.aat.org.uk/members/http://www.aat.org.uk/content/item14332/http://www.aat.org.uk/content/item14332/http://www.icap.org.pk/web/links/4/howtobecomeamember.php -
8/14/2019 Question No.01
22/49
Accounting MBA 1-A
Those who have completed the prescribed training and havepassed all the prescribed examinations of the Institute will be
eligible for Associate Membership of the Institute. Pleaseensure the following is taken care of:
1. The application should be in prescribed Form "A" (Guidelinesfor Form A)
2. Please read carefully the Guidelines Regarding Completing
3. Prescribed Application Form "A" for ICAP Membership beforecompleting the application form
4. Please insert full names (S. No. 1 & 2 of the Form A) as
entered in ICAP records as a trainee student/examinee5. If training received in more than two firms (S. No. 9 of the
Form A), particulars may be mentioned in the blank space oflast page
6. Photocopy of documents attested by a member of ICAPmentioning full name and his Membership Number
7. For proof of age please enclose Matriculation/SSC Certificate(NIC or relevant page of passport for applicants whopassed O & A levels examinations)
8. In S. No. 7 give details of your qualifications and enclosecertificates issued by Board / University / Institute; if notalready submitted
9. In S. No. 8 give details of result communication letters /examination certificates/ exemption certificate (if applicable)
10.Give Particulars of Training in (S.No. 9)
11.Enclose period completion certificate issued by the Principal.Students of recognized accounting bodies may furnish
Summary Record of Experience and necessarycertificate/documents covering information on completion ofprescribed training.
Those who qualified from other recognized AccountingBodies:
Abdul Basit - 22 -
http://www.icap.org.pk/Downloads/FormA.pdfhttp://www.icap.org.pk/userfiles/file/GUIDE%20LINES%20FOR%20FORM.dochttp://www.icap.org.pk/userfiles/file/GUIDE%20LINES%20FOR%20FORM.dochttp://www.icap.org.pk/Downloads/FormA.pdfhttp://www.icap.org.pk/userfiles/file/GUIDE%20LINES%20FOR%20FORM.dochttp://www.icap.org.pk/userfiles/file/GUIDE%20LINES%20FOR%20FORM.doc -
8/14/2019 Question No.01
23/49
Accounting MBA 1-A
A person who is a member from Institute of CharteredAccountants in Australia, Canada, England & Wales, Ireland,
Scotland may apply for membership.9)_ CFA (Chartered Financial Analyst):
CFA (Chartered Financial Analyst) is an international
professional designation offered by the CFA Institute
(formerly known as AIMR) to financial analysts who complete
a series of three examinations.
Membership at CFA InstituteMembership is available to all investment professionals who meetthe requirements.
Membership Types and Requirements
Affiliate Membership
Affiliate members receive the same benefits as regular members,but do not have voting rights. To qualify for affiliate membership,you must:
1. Agree to adhere to and sign the Member's Agreement andProfessional Conduct Statement
2. Fulfill society requirements, which vary by society (find asociety). All societies require two sponsor statements as partof each application; these are submitted online by yoursponsors. Once you're approved for affiliate membership bya society, you will be prompted to activate yourmembership. You may activate your membership at that
time or wait until you qualify and are approved for regularmembership to activate your membership.
Note: Affiliate membership does not qualify you to receive the CFAcharter. Candidates are often first approved as affiliate membersand then apply for an upgrade to regular membership after theyhave accrued the required work experience.
Abdul Basit - 23 -
http://www.cfainstitute.org/cfaprog/charterholder/membership/member_types.htmlhttp://www.cfainstitute.org/cfaprog/charterholder/membership/member_types.htmlhttp://www.cfainstitute.org/aboutus/conduct/pcsabout.htmlhttp://www.cfainstitute.org/society/societies.htmlhttp://www.cfainstitute.org/society/societies.htmlhttp://www.cfainstitute.org/cfaprog/charterholder/membership/sponsor.htmlhttp://www.cfainstitute.org/cfaprog/charterholder/membership/member_types.htmlhttp://www.cfainstitute.org/cfaprog/charterholder/membership/member_types.htmlhttp://www.cfainstitute.org/aboutus/conduct/pcsabout.htmlhttp://www.cfainstitute.org/society/societies.htmlhttp://www.cfainstitute.org/society/societies.htmlhttp://www.cfainstitute.org/cfaprog/charterholder/membership/sponsor.html -
8/14/2019 Question No.01
24/49
Accounting MBA 1-A
Regular Membership
To qualify as a regular memberof CFA Institute and a local society,you must:
1. Hold a bachelor's degree from an accredited institution orhave equivalent education or work experience
2. Pass Level I of the CFA exam or pass the self-administeredStandards of Practice Examination
3. Have 48 months ofacceptable professional work experiencein the investment decision-making process
4. Fulfill society requirements, which vary by society (find asociety). Unless you are upgrading from affiliatemembership, all societies require two sponsor statements aspart of each application; these are submitted online by yoursponsors
5. Agree to adhere to and sign the Member's Agreement, aProfessional Conduct Statement, and any additionaldocumentation requested by CFA Institute
If you are an affiliate member and meet the requirements statedabove, you must update the appropriate information in youraccount and submit an Upgrade Membership application.
In the event of a discrepancy, CFA Institute makes the finaldetermination for regular membership status.
10)_CERTIFIED INTERNAL AUDITOR :MEMBERSHIP Eligibility Requirements
EducationCertified Internal Auditor (CIA) candidates must hold a bachelor'sdegree or its equivalent from an accredited college-levelinstitution. Work experience will not substitute for an appropriatedegree. A copy of the candidate's diploma, transcripts, or otherwritten proof of completion of a degree program must accompanythe candidate's application.
Abdul Basit - 24 -
http://www.cfainstitute.org/centre/codes/ethics/self_exam.htmlhttp://www.cfainstitute.org/cfaprog/charterholder/membership/work_experience.htmlhttp://www.cfainstitute.org/society/societies.htmlhttp://www.cfainstitute.org/society/societies.htmlhttp://www.cfainstitute.org/cfaprog/charterholder/membership/sponsor.htmlhttp://www.cfainstitute.org/aboutus/conduct/pcsabout.htmlhttp://www.cfainstitute.org/finsecustomer_enuhttp://www.cfainstitute.org/centre/codes/ethics/self_exam.htmlhttp://www.cfainstitute.org/cfaprog/charterholder/membership/work_experience.htmlhttp://www.cfainstitute.org/society/societies.htmlhttp://www.cfainstitute.org/society/societies.htmlhttp://www.cfainstitute.org/cfaprog/charterholder/membership/sponsor.htmlhttp://www.cfainstitute.org/aboutus/conduct/pcsabout.htmlhttp://www.cfainstitute.org/finsecustomer_enu -
8/14/2019 Question No.01
25/49
Accounting MBA 1-A
The IIA will accept student candidates into the CIA program whoare:
(1) Enrolled as a senior in an undergraduate program or as agraduate student
(2) Full-time students as defined by the institution in which thestudent is enrolled (a minimum of 12 semester hours or itsequivalent is required for undergraduate students and ninesemester hours for graduate students)
(3) Register for and take the CIA exam while enrolled in school.
(In certain countries where higher educational degrees differs
based upon cultural or societal factors, The IIA may acceptinternationally recognized professional designations as equivalentto a bachelor's degree. Additionally, in certain circumstanceseducational performance may be considered when a nondegreecandidate has completed more than 90 percent of the academicrequirements needed for a degree (in the United States,approximately 120 semester hours or 180 quarter hours ofdegree credits at an accredited college-level institution).Candidates who do not possess a bachelor's degree and whomeet these circumstances should submit their educational and/or
professional information with their registration forms requestingreview and approval. The information submitted should besufficiently detailed to determine equivalency.)
Character ReferenceCIA candidates must exhibit high moral and professionalcharacter and submit a character reference form completed by aCIA, their supervisor, manager, or educator with their registration.
Professional ExperienceCIA candidates must complete 24 months of internal auditingexperience or its equivalent. Equivalent experience meansexperience in audit/assessment disciplines, including externalauditing, quality assurance, compliance, and internal control. Amaster's degree or work experience in related businessprofessions (such as accounting, law, or finance) can besubstituted for one year of experience. Candidates may sit for the
Abdul Basit - 25 -
http://www.theiia.org/download.cfm?file=10037http://www.theiia.org/download.cfm?file=10037 -
8/14/2019 Question No.01
26/49
Accounting MBA 1-A
CIA exam prior to satisfying the professional experiencerequirement, but they will not be certified until the experience
requirement has been met.
Question no.04
(i) Define the role and importance of accounting standards
in the preparation of financial statements.
Answer :
Definition of Accounting Standards
A set of international accounting and reporting standardsthat help to harmonize company financial information, improve
the transparency of accounting, and ensure that investors receive
more accurate and consistent reports.
Statements of International Accounting Standards issued by the
Board of the International Accounting Standards Committee
(IASC) between 1973 and 2001 are designated InternationalAccounting Standards. The International Accounting Standards
Board (IASB) announced in April 2001 that its accounting
standards would be designated International Financial Reporting
Standards (IFRS). Also in April 2001, the IASB announced that it
Abdul Basit - 26 -
-
8/14/2019 Question No.01
27/49
Accounting MBA 1-A
would adopt all of the International Accounting Standards issued
by the IASC.
Role and Importance of Accounting Standards in the
preparation of financial statements
Financial statements are mainly prepared for the internal and
external users. Internal users are the management persons,
administration etc and external users are vendors, shareholders,
government etc. Both users have to make decisions based on
financial statement. There are various methods to prepare the
statements. If all the companies follow different methods, then for
external users it is difficult to rely upon their information because
the information presented vary from company to company. The
accounting standards have restricted the organizations to follow
some restrict rules every year to make financial statements and
that makes easy to compare their results with past results as well
as with results of other companies.
Comparable, transparent, and reliable financial information is
fundamental for the smooth functioning of capital markets. In the
global arena, the need for comparable standards of financial
reporting has become paramount because of the dramatic growth
in the number, reach, and size of multinational corporations,
foreign direct investments, cross-border purchases and sales of
Abdul Basit - 27 -
-
8/14/2019 Question No.01
28/49
Accounting MBA 1-A
securities, as well as the number of foreign securities listings on
the stock exchanges. However, because of the social, economic,
legal, and cultural differences among countries, the accounting
standards and practices in different countries vary widely. The
credibility of financial reports becomes questionable if similar
transactions are accounted for differently in different countries.
(ii) What do you understand by IFRS, how does IFRS
different from ICAP accounting standards.
IFRs are the intenational accounting standards follow worldwide
whereas ICAP standards are followed localy in Pakistan only.
IFRS(International Financial Reporting Standards)
International Financial Reporting Standards (IFRS) are Standards,
Interpretations and the Framework adopted by the International
Accounting Standards Board (IASB). Many of the standardsforming part of IFRS are known by the older name of International
Accounting Standards (IAS).
International Financial Reporting Standards comprise :
International Financial Reporting Standards (IFRS) - standards
issued after 2001
International Accounting Standards (IAS) - standards issued
before 2001
Interpretations originated from the International Financial
Reporting Interpretations Committee (IFRIC) - issued after 2001
Abdul Basit - 28 -
-
8/14/2019 Question No.01
29/49
Accounting MBA 1-A
Standing Interpretations Committee (SIC) - issued before 2001
IFRS AND ICAP (Institute of Chartered Accountants ofPakistan)
IFRS are the international reporting standards that are adopted
almost by all the countries with some changes. ICAP In Pakistan
determines which of the IFRS are to be followed by Pakistans
organization and which are not. The standards, which are
approved by ICAP and SECP, are compulsory to follow by allorganizations in Pakistan.
Requirements Relating to IFRS under Pakistan Law
Compliance with Requirements relating to IFRS specified in
the Company Law.
Companies are required to comply with IASs / IFRSs under
section 234 of the Companies Ordinance, 1984 that are
notified by Securities & Exchange Commission (SECP)
SECP notifies the accounting standards based on the
recommendations of The Institute of Chartered Accountants
of Pakistan (ICAP)
In the event of difference between IAS/IFRS, with Company
law or SECP notifications, the law / notifications prevail.
inception.
Status of Adoption / implementation of IFRS by ICAP
Abdul Basit - 29 -
-
8/14/2019 Question No.01
30/49
Accounting MBA 1-A
All IASs/ IFRSs that have become applicable stand notified
except IFRS 1, 4.
Strategy for adoption / implementation of these two IFRS are
as follows:
IFRS 1 will be adopted once all other IAS/IFRS have notified
& implemented, as it requires unreserved compliance.
IFRS 4 A Committee of Insurance experts of ICAP is actively
deliberating on the adoption of this standard.
Following IFRS / IASs have been approved by the Council and
recommended their notification, but approval & notification
by SECP is in process:
IAS 29 - Financial Reporting in Hyper- Inflationary
Economies
IFRS 7 - Financial Instruments : Disclosures
IFRS 8 - Operating Segments
All IFRS except the following stand notified & are part of the
law:
IAS-29
IFRS-1
IFRS-4
IFRS-7
IFRS-9
Abdul Basit - 30 -
-
8/14/2019 Question No.01
31/49
Accounting MBA 1-A
(iii) Write name of five accounting Standards?
1)International Financial ReportingStandards(IFRS)
2)Financial Accounting Standards(FAS)by FASB
3) Generally Accepted Accounting Principles(GAAP)
(UK)
4) Indian Accounting Standards(IAS)
5) Statements of Standard Accounting Practice (SSAPs)issued by ICAEW
Q uestion no.05
(1) What is creating accounting? What are the modes
of creative accounting? What are
the factors giving rise to creative accounting?
Abdul Basit - 31 -
-
8/14/2019 Question No.01
32/49
Accounting MBA 1-A
Answer :
CREATIVEACCOUNTING:
Definition:
The use of aggressive and/or questionable accounting techniques inorder to produce a desired result, generally high earnings per share.Creative accounting may include selling assets with a low cost basis,shipping unusually large quantities of product near the end of theyear, and failure to write down inventories that have declined invalue.
The practice of recognizing revenue in a way that makes acompany look better than it is while still conforming to the GAAP.Creative accounting seeks to inflate stock prices, for example, byselling assets at the end of a year to create a profit that offsets aloss. One could argue that creative accounting hides a company'strue financial state, but, unlike aggressive accounting, creativeaccounting is generally legal. It is also called financial engineering
Creative accounting, also called aggressive accounting, is themanipulation of financial numbers, usually within the letter of thelaw and accounting standards but very much against their spiritand certainly not providing the true and fair view of a companythat accounts are supposed to.
A typical aim of creative accounting will be to inflate profitfigures. Some companies may also reduce reported profits ingood years to smooth results. Assets and liabilities may also bemanipulated, either to remain within limits such as debt
covenants, or to hide problems. Typical creative accounting tricks include off balance sheetfinancing, over-optimistic revenue recognition and the use ofexaggerated non-recurring items.
The term window dressing has similar meaning when applied toaccounts, but is a broader term that can be applied to other
Abdul Basit - 32 -
-
8/14/2019 Question No.01
33/49
Accounting MBA 1-A
areas. In the US it is often used to describe the manipulation ofinvestment portfolio performance numbers. In the context of
accounts, window dressing is more likely than creativeaccounting to imply illegal or fraudulent practices, but it need todo so.
The techniques of creative accounting change over time. Asaccounting standards change, the techniques that will workchange. Many changes in accounting standards are meant toblock particular ways of manipulating accounts, which meansthose intent on creative accounting need to find new ways ofdoing things. At the same time, other, well intentioned, changes
in accounting standards open up new opportunities for creativeaccounting (the use of fair value is a good example of this).
Many (but not all) creative accounting techniques change themain numbers shown in the financial statements, but makethemselves evident elsewhere, most often in the notes to theaccounts. The market has been surprised before by bad newshidden in the notes, so a diligent approach can give you an edge.
MODES OF CREATIVE ACCOUNTING:
The techniques of creative accounting change over time. As
accounting standards change, the techniques that will workchange. Many changes in accounting standards are meant toblock particular ways of manipulating accounts, which meansthose intent on creative accounting need to find new ways ofdoing things. At the same time, other, well intentioned, changesin accounting standards open up new opportunities for creativeaccounting (the use of fair value is a good example of this).
Many (but not all) creative accounting techniques change themain numbers shown in the financial statements, but make
themselves evident elsewhere, most often in the notes to theaccounts. The market has been surprised before by bad newshidden in the notes, so a diligent approach can give you an edge.
Earnings management usually involves
1. the artificial increase (or decrease) of
revenues,
Abdul Basit - 33 -
-
8/14/2019 Question No.01
34/49
Accounting MBA 1-A
profits,
or earnings per share figures through aggressive
accounting tactics. Aggressive earnings management is aform of fraud and differs from reporting error.
The main forms of creative accounting are as follows:
Unsuitable revenue recognition
Inappropriate accruals and estimates of liabilities
Excessive provisions and generous reserve accounting
Intentional minor breaches of financial reportingrequirements that aggregate to a material breach.
FACTORS GIVING RISE TO CREATIVE ACCOUNTING:
1.Management wishing to show earnings at a certain level orfollowing a certain pattern seek loopholes in financialreporting standards that allow them to
1. adjust the numbers as far as is practicable to achieve their
desired aim2. or to satisfy projections by financial analysts. These
adjustments amount to fraudulent financial reporting whenthey fall 'outside the bounds of acceptable accountingpractice'.
Drivers for such behaviour include market expectations, personalrealisation of a bonus, and maintenance of position within amarket sector. In most cases conformance to acceptableaccounting practices is a matter of personal integrity. Aggressive
earnings management becomes more probable when a companyis affected by a downturn in business.
(2) What is Social Accounting? Why social accounting
excised? What are the major forms of social accounting?
Social Accounting
Abdul Basit - 34 -
-
8/14/2019 Question No.01
35/49
Accounting MBA 1-A
Social accounting is the process of communicating the social and
environmental effects of organizations' economic actions to
particular interest groups within society and to society at large.
Social accounting is commonly used in the context of business, or
corporate social responsibility (CSR), although any organization,
including NGOs, charities, and government agencies may engage
in social accounting.
Social accounting emphasizes the notion of corporateaccountability D. Crowther defines social accounting in this sense
as "an approach to reporting a firms activities which stresses the
need for the identification of socially relevant behavior, the
determination of those to whom the company is accountable for
its social performance and the development of appropriate
measures and reporting techniques."
Social accounting is a method by which a business seeks to place
a value on the impact on society of its operations. This might
include the following impacts on the environment: waste; the
effect on society of the packaging it produces; and how much fuel
it uses in its company cars. It can also include the effect on the
local community who might have to live in the shadow of its
premises, and how it engages with the community, its customers
and workforce.
Social accounting is also known as
social and environmental accounting,
Abdul Basit - 35 -
-
8/14/2019 Question No.01
36/49
Accounting MBA 1-A
corporate social reporting,
corporate social responsibility reporting,
non-financial reporting
or sustainability accounting)
Social accounting is often used as an umbrella term to describe a
broad field of research and practice. The use of more narrow
terms to express a specific interest is thus not uncommon.
Environmental accounting may e.g. specifically refer to the
research or practice of accounting for an organizations impact on
the natural environment Sustainability accounting is often used to
express the measuring and the quantitative analysis of social and
economic sustainability
It points to the fact that companies influence their external
environment (both positively and negatively) through their
actions and should therefore account for these effects as part of
their standard accounting practices. Social accounting is in this
sense closely related to the economic concept of externality
Social accounting offers an alternative account of significant
economic entities. It has the "potential to expose the tension
between pursuing economic profit and the pursuit of social and
environmental objectives"
The purpose of social accounting can be approached from two
different angles, namely for management control purposes or
accountability purposes.
Abdul Basit - 36 -
-
8/14/2019 Question No.01
37/49
Accounting MBA 1-A
Social accounting for accountability purposes is designed to
support and facilitate the pursuit of society's objectives. These
objectives can be manifold but can typically be described in terms
of social and environmental desirability and sustainability
BENEFITS OF SOCIAL ACCOUNTING OR WHY SOCIAL
ACCOUNTING EXISTS:
Social accounting for accountability purposes is designed to
support and facilitate the pursuit of society's objectives. These
objectives can be manifold but can typically be described in terms
of social and environmental desirability and sustainability
Organizations are seen to benefit from implementing social
accounting practices in a number of ways, e.g.
Increased information for decision-making;
More accurate product or service costing;
Enhanced image management and Public Relations;
Identification of social responsibilities;
Identification of market development opportunities;
Maintaining legitimacy.
FORMS OF SOCIAL ACCOUNTIG:
Companies and other organizations (such as NGOs) may publish
Abdul Basit - 37 -
-
8/14/2019 Question No.01
38/49
Accounting MBA 1-A
1. Annual corporate responsibility reports, in print or online.
2. The reporting format can also include summary or overviewdocuments for certain stakeholders,
3. a corporate responsibility or sustainability section on its
corporate website,
4. or integrate social accounting into its annual report and
accounts.
Companies may seek to adopt a social accounting format that is
audience specific and appropriate. For example, H&M, asks
stakeholders how they would like to receive reports on its
website; Vodafone publishes separate reports for 11 of its
operating companies as well as publishing an internal report in
2005; Weyerhaeuser produced a tabloid-size, four-page mini-
report in addition to its full sustainability report.
(3) What is forensic accounting? Who need forensic
accounting? What required to become a forensic
accountant?
Forensic accounting is the specialty practice area of
accountancy that describes engagements that result from actual
or anticipated disputes or litigation. "Forensic" means "suitablefor use in a court of law", and it is to that standard and potential
outcome that forensic accountants generally have to work.
Forensic accountants, also referred to as forensic auditors or
investigative auditors, often have to give expert evidence at the
Abdul Basit - 38 -
-
8/14/2019 Question No.01
39/49
Accounting MBA 1-A
eventual trial. All of the larger accounting firms, as well as many
medium-sized and boutique firms, have specialist forensic
accounting departments. Within these groups, there may be
further sub-specializations: some forensic accountants may, for
example, just specialize in
1. insurance claims,
2. personal injury claims,
3. fraud construction,
4. or royalty audits
NEED OF FORENSIC ACCOUNTING:
Forensic accounting is needed in Engagements relating to civil
disputes which may fall into several categories:
1. calculating and quantifying losses and economic damages,
whether suffered through tort or breach of contract
disagreements relating to company acquisitionsperhaps
earn outs or breaches of warranties;
2. and business valuation.
3. Forensic accountants often assist in professional negligence
claims where they are assessing and commenting on the
work of other professionals.
Abdul Basit - 39 -
-
8/14/2019 Question No.01
40/49
Accounting MBA 1-A
4. Forensic Accountants are also engaged in marital and family
law matters for the purpose of analyzing lifestyle for spousal
support purposes, determining income available for child
support and equitable distribution.
Engagements relating to criminal matters typically arise in the
aftermath of fraud. They frequently involve the assessment of
accounting systems and accounts presentationin essence
assessing if the numbers reflect reality.
Forensic accountants utilize an understanding of business
information and financial reporting systems , accounting and
auditing standards and procedures, evidence gathering and
investigative techniques, and litigation processes and procedures
to perform their work. Forensic accountants are also increasingly
playing more proactive risk reduction roles by designing and
performing extended procedures as part of the statutory audit,
acting as advisers to audit committees, fraud deterrence
engagements, and assisting in investment analyst research.
In addition to gathering, investigating and then analyzing financial
evidence to recover assets through court litigation, some forensic
accountants are actually involved in the mediation process to
negotiate settlements and resolve disputes. Whether assisting in
legal proceedings by testifying as an expert witness, hearing
testimony of an opposing witness and then assisting with cross-
examination, calculating economic loss from breach of contract,
Abdul Basit - 40 -
-
8/14/2019 Question No.01
41/49
Accounting MBA 1-A
or looking for hidden assets in a divorce case, the forensic
accountant is an investigation specialist who helps to fight white-
collar crime.
REQUIREMENTS FOR BEING A FORENSIC ACCOUNTANT:
Most forensic accountants are CPAs within large firms, but the
expansion of global marketing has created a continuously growing
need for individuals who specialize in Forensic Accounting In order
to have a successful career as a Forensic Accountant, you need tobe familiar with legal concepts and procedures. The degree in
forensic accounting is a post graduate degree. You must have a
bachelors degree in accounting, and a CPA certification is
actually preferred as well
Education and training. Most accountant and auditor positionsrequire at least a bachelor's degree in accounting or a related
field. Beginning accounting and auditing positions in the Federal
Government, for example, usually require 4 years of college
(including 24 semester hours in accounting or auditing) or an
equivalent combination of education and experience. Some
employers prefer applicants with a master's degree in accounting,
or with a master's degree in business administration with a
concentration in accounting.
Any accountant filing a report with the Securities and Exchange
Commission (SEC) is required by law to be a Certified Public
Abdul Basit - 41 -
-
8/14/2019 Question No.01
42/49
Accounting MBA 1-A
Accountant (CPA). This may include senior level accountants
working for or on behalf of public companies that are registered
with the SEC. CPAs are licensed by their State Board of
Accountancy. Any accountant who passes a national exam and
meets the other requirements of the State where they practice
can become a CPA. The vast majority of States require CPA
candidates to be college graduates, but a few States will
substitute a number of years of public accounting experience for
a college degree.
Some forensic accountants are also
1. Certified Forensic Accounting Professionals,
2. Certified Fraud Examiners,
3. Certified Public Accountants,
4. or Chartered Accountants
Abdul Basit - 42 -
-
8/14/2019 Question No.01
43/49
Accounting MBA 1-A
Q.6 (a) Define the following
1. Authorize Share capital
It is the amount of capital with which the company is
registered. This capital is mentioned in the memorandum of
association. A mention is also made of the number of sharesinto which this total capital is divided and of the par value of
shares. In late years if the company want to either increase
or decrease this capital, certain legal requirements must be
met. This capital is also known as nominal capital or
registered capital.
2. Issued Shared capital
Shares offered to the general public for contribution are
known as shares issued. The total par value of such shares is
called issued capital. To begin with a company seldom offers
all of its shares for subscription. Therefore, the amount of
issued capital is generally less than the authorized capital. If
a company has a authorize capital of Rs. 10,00,000 divided
into 10,000 shares of Rs, 100 each, it may decide to offer
5000 shares to the general public. In this case the issued
capital is said to be Rs. 5, 00,000 divided into 5000 shares of
Abdul Basit - 43 -
-
8/14/2019 Question No.01
44/49
Accounting MBA 1-A
RS.100 each. The remainder, that is, the difference between
the authorize and issued capital is known as un issued
capital.
3. Called-up Capital
A company may require the payment of par value either in
instalments or in lump sum. This amount is known as called
up capital. For example for each of 4500 shares taken up by
the public the company may require a payment of Rs. 70 per
share,(the remainder Rs.30 per share to be paid per share
when asked by the company).In this case called up capital of
the company is Rs. 3,15,000(4500 * RS. 70 per share called
up).The difference between subscribed capital and called-up
capital is known as un-called capital.
4. Paid-Up capital
The total amount received by the company out of the total
called-up capital is know as paid-up capital. Assuming that of
Rs. 3, 15, 000, called-up capital the company received Rs.
300,000 ,the paid-up capital is the amount Rs. 300,000. The
remainder of Rs. 15,000 is known as calls unpaid or calls in
arrears.
(b) Advantages and limitation of ratio analysis
1. advantages of ratio analysis
Abdul Basit - 44 -
-
8/14/2019 Question No.01
45/49
Accounting MBA 1-A
Ratio as a tool of financial analysis provides symptoms with the
help of which any analyst is in a position to diagnose the financial
health of a unit. Different groups are interested in the affairs of
any business entity, therefore significance of ratio analysis for
various groups is different and may be discuss as follow
1. Usefulness to the management
1)Decision making
Mass of information contained in the financial
statements may be unintelligible or confusing. Ratios
help in highlighting the areas deserving attention and
corrective action, thus facilitating decision making.
2)Financial forecasting and planning
Planning and forecasting can be done only by knowing
the past and the present. Ratios help the management
in understanding the past and present of a unit. These
also provide useful idea about the existing strength or
weakness of the unit. This knowledge is vital for the
management to plan and forecast the future of the unit.
3)Communication
Ratios have the capability of communicating the
desired information to the relevant persons in a mannereasily understood by them to enable them to takes
stock of the existing situation.
4)Control and coordination is more effective
Abdul Basit - 45 -
-
8/14/2019 Question No.01
46/49
Accounting MBA 1-A
Ratio analysis is likely to result in the coordination from
all quarters of management as those who required
attention. Due to results of ration analysis, results can
be compared with standards. Variance to be computed
an analysed by reasons and individuals. So it is great
help in administering an effective system of control.
1. Usefulness to the Owners/Shareholders
Existing as well as prospective owners or shareholders are
fundamentally interested in the (a) long term solvency (b)
profitability of the unit .Ratio analysis can help them by
analyzing and interpreting both aspects of their unit.
2. Usefulness to the Creditors
Creditors both short term and long term can analyze the
liquidity and capacity of the unit to repay periodical interest
and repayment of loans on schedules. Ratio analysis
provides ,both type of creditors ,answers to their questions
3. Usefulness to Employees
Employees are interested in fair wages. Ration analysis
provides them adequate information regarding efficiencyand profitability of the unit .This knowledge help them
bargain with the management regarding their demands for
improved wages, bonuses etc
4. Usefulness to the Government
Abdul Basit - 46 -
-
8/14/2019 Question No.01
47/49
Accounting MBA 1-A
Govt. is interested in the financial information of the units
both at micro as well as macro level .Individual unit
information regarding production, sales, profit is required for
excise duty, sales tax and income tax purpose. Group
information for the industry is required for formulating nation
policies and planning .In the absence of dependable
information, Govt. plans and policies may not achieve
desired results.
Limitations of ratio analysis
Ratio analysis is widely used and useful techniques to
evaluate the financial position and performance of any
business unit but it suffers from a number of limitations.
These limitations must be kept in mind by the analyst while
using this technique.
1)Reliability is linked with accounting data
Ratios are calculated on the basis of accounting information.
Accounting system has certain built in limitations like
historical cast, going concern value ,stable monetary value
etc. So limitations of accounting data effect the quality of
ratios also. After, all ratios can not be more reliable then the
reliability of data itself.2)Qualitative factors are ignored
Ratio analysis is only quantitative analysis. Sometimes
qualitative factors may be more important. For example ,
management may be justified in making huge purchase of
Abdul Basit - 47 -
-
8/14/2019 Question No.01
48/49
Accounting MBA 1-A
raw material in anticipation of large demand of its product
for coming period. But ratios are not capable of considering
qualitative factors.
3)Isolated ratios is meaningless
Ratios assume significance only when studied in proper
context and if compared with norms or over a period. Ratio
in itself does not convey any sense.
4)Ratio analysis is historical
Ratios are based on the facts contain in the financial
statements. These statements contain past records. Past
may be less important for the management then present
and future.
5)Different accounting practice Render Ratios
incomparable
Accounting permits alternative treatment of many items like
depreciation, valuation of stock differed expenses etc. Ratios
based on statements prepared by following different
practices are not comparable.
6)Price level changes affect the utility of Ratio analysis
Comparison of ratios over a period of time relating to the
same unit may be misleading. For example sales may bestatic in quantity but higher in rupee value due to inflation.
7)Incompetence of Bias of analyst
Much depend upon the skills, integrity and competence of
the analyst to use ratios judiciously.
Abdul Basit - 48 -
-
8/14/2019 Question No.01
49/49
Accounting MBA 1-A
8)Lack of adequate standards
There are no well accepted standards or rule of thumb for all
ratios which might be accepted as norms for comparison. It
renders interpretation of ratios difficult and to some extent
arbitrary.
9)Window dressing
Financial statements can easily be window dressed to depict
better than real picture of the enterprise. Moreover the
analyst depending only upon the published information will
not be in a position to get inside information.
--------------------------------------------------------------------------------
---------------