Financial Accounting Of Cocoa Ltd Essay

Question:

Discuss about the Financial Accounting of Cocoa Ltd.

Answer:

Introduction:

The business structure is becoming very complex with the changing time and preferences of the customers. In order to get bets out of the human resources, business proprietor satisfies the employees by rewarding them and providing them lucrative offers. The introduction of corporate governance sought the desire and wellbeing of the employees. Business are required to keep the shareholders satisfied and happy, as they are the capital provider, which helps in keeping the process of production smooth (Balakrishnan and Cohen 2013). It is very vital for the organization to have ethics structure and strong governance to keep the employees and shareholders happy and satisfied.

The given case study discusses about the Cocoa Ltd that is a large departmental store and since its formation, it has been following straight-line depreciation. Cocoa ltd has been experiencing the profits and the trend is expected to continue in the upcoming years that is 2016 and 2017. It is predicted that there would be economic downturn, which would lead to subsequent fall in the profits in the year 2018 and 2019. Manager of the company intends to provide the shareholders with the consistent profits to make them happy. He asked the manager to transfer the profits in the subsequent year by reducing in the upcoming years so that the shareholders are aligned with the organization (Bazley et al. 2013). The report would analyze and discuss the governance and ethics related issue related to the case discussed above. It discusses about the ethics, governance, shareholders and changing method of depreciation while maintaining compliance with AASB 116.

Discussion:

The case study discusses about the changing method of depreciation to maintaining the consistency in profits along with focusing on the corporate governance and ethics of the organization. In the event of the economic slowdown predicted by the economist, the managers of the organization seeks to maintain consistent profits over the year by changing the depreciation method. The reason was that the economic slowdown would hamper the profits generated by the Cocoa Ltd and this would ultimately lower the investment made by the shareholders (Callen 2015). In the light of the discussed issue, the manager of the organization came to the accountant Andrea Andy seeking change in the method of charring depreciation to their assets. He asked to adopt such method that would lower the profits in the year 2016 and 2017, so that the same amount of profit generated can be distributed in the year 2018 and 2019. This would enable the Cocoa Ltd to generate consistent profit distribution to their shareholders over the period. Andrea has been asked by Max cocoa to adopt to such strategy as this is in the best interest of the shareholders. This is because they would be provide with consistent profit maintaining the goodwill of Cocoa Ltd (Cascino et al. 2016).

Andrea Andy thought that the reason presented by Mr. Max to reduce the profits in the later year was not justified. However, she was concerned of terminating the contract if does not oblige with the managers view. This resulted the accountant in changing the depreciation method from the straight-line method to sum of years digit method, which would reduce the profits in upcoming year and distribute the same in the subsequent year. In addition to these, Andrea did not disclose the change in the financial statements as she thought that the reason for change in the accounting method would not satisfy the shareholders (Christensen et al. 2014).

orporate governance plays a vital role in proper functioning of the organization. This is so because of the ideology of corporate governance determine the value generated to the stakeholders. One of the crucial component of the knowledge and the skill base of the professional accountant in the modern world is the ethics and corporate governance. Accountants must possess relevant knowledge in governance technique, relevant regimes and compliance, as they are important decision makers of the financials of the company. This would ensure that they perform their duty effectively by observing the lawful operations and observing corporate behavior. In regard to the Cocoa Ltd, that the understanding of the structure of corporate governance and ethics needs to be align with the role and responsibilities shown in the accounting techniques (Deegan 2013).


It is viewed by Andrea that the professional and ethical issues are identified and resolved by the analytical talent, knowledge and decision-making. The matter of governance and ethics provides this. Andrea listened to Max even though the reason was not justified. She thought that the essential thing is to satisfy the shareholders need. Matters, which specializes in the functional discipline of the accounts, are assisted by the principle of ethics and corporate governance (Weil et al. 2013).

It is clearly depicted from the case study that Andrea is more focused on the management and leadership. She is less involved with the traditional accounting method as compared to the other professional accountant. Andrea is involved many crucial decision of the business and assist support to the senior management. Therefore, it is very essential on the part of Andrea to have proper knowledge about the governance and ethics. The matter presented above enhances awareness about the corporate governance (Harrison et al. 2014).

Accountants should possess proper knowledge and skills so that they are able to function effectively in the universal and dynamic structure of the prevailing business. Concerning this, Andrea should have a proper understanding of the ethical and governance matter. The process is structured to make the development in the attitudes, professional ethics among the accountants (Henderson et al. 2015).

Subjects concerning corporate governance and ethics are framed to make the development in the attitude, value and ethics of the professional accountant. This would help them in understanding the management problem and the decision-making would be in favor of the stakeholders.

The changed method adopted for charging the depreciation needs to comply with the Australian Accounting Standard Board 116. The new accounting treatment should help the users in discerning the information made by the entity in the plant, property and equipment. It should also take into account the changes made in the investment. The depreciation method adopted by Andrea should reflect the pater in which the future economic benefit derived by the asset should be consumed by the entity. Selecting the depreciation method by Andrea is a matter of judgment. However, according to the AASB 116, it is required on part of entity to disclose effect and nature of change in an accounting estimate that has an effect on the current period as well as subsequent period (Aasb.gov.au 2017).


The concept of ethics and matter of governance would help Andrea in explaining and understanding the factors from the global perspective along with the accounting style and functioning as an accountant. Important duties of the accountant are crucial to be applied from the viewpoint of member of CPA in Australia. It is vital to practice to have the ethics and professional judgment, which explain the governance framework and crucial regulations. This fact is inclusive of the effect on the shareholders involved in the organization international viewpoint on the corporate governance (Hoggett et al. 2014). Such factors are considered essential for the accountant such as Andrea as the estimations are explained based on the stakeholders arising from the organizational responsibilities from the corporate governance. The compliance and regimes affecting the international business environment is also ascertained. Ethics and governance involved in the business assist in finding the strategic, leadership and the international issues, which have an impact on the accountants. This is evident in case of Andrea and her accounting profession. The accounting profession practiced by Andrea also ensures that the importance, nature and role of corporate governance are inclusive of the sustainable development (Schipper et al. 2017).

The ethics module intends to describe the implementation of ethics on the nation of the interest of stakeholders and public. Overview of the ethical approach is depicted here that would help Andrea in solving the issues of ethical dilemma. The ethical dilemma concerning the case study presented here is unjustified explanation regarding the changing depreciation method by the manager of Cocoa Ltd. For the professional accountant, the issue presented here helps in detailed evaluation of the code of ethics. Ethical issues are addressed by revealing the process to gain the code of ethics (Richard and David 2016). It also takes into consideration the factors that are essential for the accountant to undertake the ethical decision-making. The guidance and codes would provide the outline of the proper approach of decision-making, which is essential to take the decision in the situation faced by Andrea.

The framework of corporate governance can be examined by explaining the theory of corporate governance. This considers the relationship between the managers, stakeholders and the organization (Wagenhofer 2015). Operation of Cocoa Ltd in the country like Australia has witnessed that the codes of governance are vital and it influences the cultural approach followed by the organization with respect to the corporate governance. In this case, there is a scope of recommendation for improvement. The process tries to takes into account the failure of the corporate governance due to the unjustified reason presented by the manager in changing the accounting methods (Narayanaswamy 2014). Such types of corporate governance failure can be identified in the future. In order for the Professional accountant such as Andrea to perform the duty and successfully obliged to the duty should have the understanding of the in depth concept of the corporate governance.

In the current scenario presented by the case study, where Andrea is obliged to undertake some decision imposed by the managers. It is very essential in this regard for Andrea to have the understanding of the ethical behavior with respect to the corporate governance. However, this requires the two level analysis. It would include effect of the growth on the welfare of the stakeholders of the organization and the corporate agency internal concerns.

Recommendation:

The governance practiced by the organization is based on the behavior of the employees and managers in their most effective interest that would satisfy the stakeholders. Ideology of corporate governance is restricted by the two factors. This include the managers’ interest concerning the stakeholders. Many instances are available where the stakeholders are hurt by the decisions of the managers. Another factor is that the stakeholders of the company do not possess the knowledge and skills possessed by the management. Such situation may lead to establish the dynamism and the accountants like Andrea are compelled for ‘short termism’. This would imply that the accountants behave in the way that is in the stakeholders’ interest and here Andrea has behaved in the same way by not disclosing changed method of accounting. Such process undermines the value creation over time as the profits reported are reduced for few years and later on distributed in the subsequent year. Some of the things like oversight, transparency mechanism and the remuneration mechanism would help in restricting the agency cost.

Conclusion:

The study conducted evaluates that it is being predicted by Cocoa Ltd that it would have decreased profit in light of economic downturn. Account of the organization has been asked by the manager Max Cocoa to initiate the process that would reduce the profit in the upcoming year, so that consistent profit would be generated in the subsequent year. This would provide the shareholder with consistent return in terms of dividends. The case study takes into consideration the idea of corporate governance and ethics that would help Andrea to align the decision that is in the interest of the stakeholders. It can be conclude from the report discussed above that governance structure and ethics has helped Andrea in taking decision. Decision to change the method of depreciation without mentioning in the financial statement helps in retaining the reputation of the firm. At the same time, it is required by the entity to disclose the accounting method as per the standard. On this part, Andrea led to the failure of corporate governance and being ethical. This also took into account the unjustified decision taken by the manager and taking the financial decision in line with the managerial decision.

Reference:

Aasb.gov.au. (2017). Available at: [Accessed 16 Jan. 2017].

Balakrishnan, K. and Cohen, D.A., 2013. Competition and financial accounting misreporting. Available at SSRN 1927427.

Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., Berk, J. and DeMarzo, P., 2013. Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne.

Callen, J.L., 2015. A selective critical review of financial accounting research. Critical Perspectives on Accounting, 26, pp.157-167.

Cascino, S., Clatworthy, M., Osma, B.G., Gassen, J., Imam, S. and Jeanjean, T., 2016. The decision usefulness of financial accounting information: an experimental interview study of institutional investors.

Christensen, T.E., Baker, R.E. and Cottrell, D.M., 2014. Advanced Financial Accounting. The McGraw-Hill Companies, Inc.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Harrison, W.T., Horngren, C.T., Thomas, C.B. and Suwardy, T., 2014. Financial accounting: international financial reporting standards.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Hoggett, J., Edwards, L., Medlin, J., Chalmers, K., Hellmann, A., Beattie, C. and Maxfield, J., 2014. Financial accounting.

Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial accounting: a user perspective. Wiley Global Education.

Narayanaswamy, R., 2014. Financial accounting: a managerial perspective. PHI Learning Pvt. Ltd..

Richard, L. and David, P., 2016. Advanced financial accounting.

Schipper, K., Francis, J. and Weil, R., 2017. Financial Accounting: Introduction to Concepts, Methods and Uses. Cengage Learning.

Wagenhofer, A., 2015. Usefulness and implications for financial accounting. The Routledge Companion to Financial Accounting Theory, p.341.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

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