September 1st, 2010
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The Investor’s Perspective
The last few months have unearthed a huge number of accounting scams in the world and especially in USA. Although this is not a new phenomenon what has come as a rude shock to markets and investors is the scale and the blatancy involved in these recent scandals. Most of these cases belong to the erstwhile reputed and giant companies and the ‘cooking’ done by them has surely left the investor with a very bad taste in his mouth. What has certainly not helped is the fact that the numbers involved are in billions and the fall of the company so meteoric that the investor had no time to take corrective action.
This note aims to provide the reader with a deeper understanding of some of the critical issues involved in this subject and the entire discussion has been presented with a clear focus on the Indian context. The key issues covered in this note are: Read more…
What are the limitations of accounting information?
Accounting information can be used to assist both financial and managerial oriented decisions. In order to come to effective financial or managerial decisions, many factors other than accounting should be duly considered.
Accounting information is extremely vital in/and for all enterprises though it does have certain limitations.
I. Accounting is only one source of information and primarily provides information based on financial terms: Although this information is vital, decisions cannot be based solely on a monetary basis. Various decisions depend upon a diverse range of issues being considered. A unique combination of Quantitative as well as Qualitative factors should be considered to ensure an effective decision making process. Read more…
Introduction
Until recently, detecting fraud was thought to be a part of the responsibility of the accountant. Fraud was something the internal or external auditors were expected to guard against by their periodic audits. We now know that auditors can only check for compliance of a company’s books to the Generally Accepted Accounting Principles (GAAPs) and to company policy; therefore, a new category of accounting had to be established, one which revealed the fraud for companies with suspected fraudulent transactions. This new area of accounting is known as forensic accounting.
What is Forensic Accounting?
To fully understand the definition of forensic accounting, we can use parts of the definition of forensic medicine and accounting, both taken from Webster’s Dictionary, to produce a clear definition. Forensic medicine is a “science that deals with the relation and application of facts to legal problems. Read more…
The possible revenue recognition points are the signing of the contract, the beginning of construction, the progress stages of the construction (gradually over the life of the contract), the completion of the project to the satisfaction of the customer, and collection of the cash. To postpone taxes, you would want to delay recognition of revenue until the next year, even though you have completed more than half of the project. Of the four criteria, the strongest argument might be that the costs will not be fully known until the customer has indicated that the work is satisfactory. Collectibility of the payment may also be somewhat uncertain. The Income Tax Act allows completed contract accounting on contracts of less than 24 months so at a minimum, this revenue could be recognized when the contract is complete.
The gain on the portfolio could be recognized in the year in which it occurs or when the shares are sold. To postpone taxes, revenue should be recognized when the shares are sold. That can be supported based on the fact that the selling prices of the shares are quite volatile and may very well fall back to, or even below, the original cost. In other words, the amount earned is not known until the sale actually takes place. This treatment is consistent with the requirements of the Income Tax Act which only requires that income from investments be recognized on disposition. Read more…
One option that may be available to the National Australia Bank (NAB), as part of its strategy of expansion in the UK market, is the adoption of a dual listed company (DLC) structure, Explain the nature of a DLC and examine the possible implications of the approach for the operations on the NAB.
Australian companies, particularly the larger multinational companies, are always seeking ways to expand their operations and find ways into new capital markets both nationally and internationally. Expansion strategies that are currently available to these companies include the merger and acquisition of not only domestic companies/competitors and assets, but also international ones. Companies that are in such positions are more often than not Australia’s larger companies, with multinational operations and are at the forefront of their respective industries. However, the problems that face these companies in their plans for expansion are varied and multifaceted. One expansion strategy to overcome these problems that is available to these companies is the adoption of dual-listed company (DLC) structures.
Dual-listed company structures are not a new concept, however they are growing in popularity with Australian companies. The first two companies that banded together to form a DLC structure were the Shell Transport and Trading Co. (United Kingdom) and Royal Dutch Petroleum (Netherlands) at the turn of the century in 1903. Since then a further 11 DLC company structures have been created of which five still remain. The popularity of DLC structures amongst Australian companies is emphasised by the fact that of the six well-known DLC’s three involve Australian companies, Rio Tinto Limited, BHP Billiton Limited and Brambles Industries Limited. Read more…
