Therefore, SVA represents the economic profits generated by a business above the minimum return required by all providers of capital. Value term is added when the overall net economic cash flow of the business exceeds the economic cost of all the capital employed to produce the operating profit. Hence, SVA integrates financial statements of the business (profit and loss, balance sheet and cash flow) into one meaningful measure.
Economic Value Added (EVA) is best explained by Drucker (1998) as, ‘EVA is based upon something we have known for a long time: What we call profits, the money left to service equity, is usually not profit at all. Until a business returns a profit that is greater than its cost of capital, it operates at a loss.’ In other words, EVA is a measure that tells what has happened to the wealth of shareholders. Accordingly, earning a return greater than the cost of capital increases value of a company, and earning less destroys the value. EVA is calculated as the excess of net operating profit over the cost of capital including cost of equity.
EVA is the mostly encountered index of measuring economic profit. It is an index of measuring internal and external performance of companies being introduced by Stern Steward American consulting firm. EVA index is relevant in quantifying the capacity of a company of creating value for capital suppliers; capital cost represents the index of the average efficiency expected by investors under similar risk circumstances.
Return on Capital Employed
There are many definitions for the return on capital employed (ROCE), but the widely-used definition, as evidenced by the fact that it is the standard measure produced by DATASTREAM and Standard
Research Proposal On Threat To Auditors Independence Accounting Essay
History reveals that audit is a Latin word meaning “he hears”. Auditing originated in those years when individuals entrusted with public funds were required to give an oral account of their handling of those funds. Porter (1997)
An opinion of an independent chartered accountant is needed to give the public rest of mind that the sets of accounts presented were true and fair and also conform to lay down standards.
Independence is the cornerstone of auditing; Stewart (1977) quoted by Porter. In carrying out the audit assignment, the auditors must be independent i.e. the sense of being self reliant and his/her professional judgement not being subordinated by the opinion of others. (Porter, 1997, p.65)
It is very important for the auditors to be independent otherwise the audit report will be undermined and lose its value. In order to make the users of information to have faith and rely on the audited account, they must be sure that the audited accounts are independent of entity, its management and other interested party.
This is reflected in the fundamental principles of external auditing- objectivity and independence which state that auditors are objective and they express opinion independently of the entity and its directors. As the guide to professional ethics statement (GPES) 1:201: integrity objectivity and independence explains, objectivity is essential for any professional person exercising professional judgement. Objectivity is sometimes described as independence of mind (Dunlea, A.