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The Importance Of The Conceptual Framework For Accounting Accounting Essay

A not for profit organization is an organization that does not earn profits for its owners or investors. In relation to accounting, it uses surplus revenues to achieve its goals rather than distributing them as profit or dividends. Non for profit organization is formed for the purpose of serving a public or mutual benefit. The organizations do not have commercial owners and must rely on funds from contributions, membership dues, public and private grants, investment income, program revenues, and fund raising events.
The concept that not for profit organization should not generate profits is not realistic. Profits must be generated in order to meet the expenses and keep the organization operating. Most of the organizations are charities but even charities need to pay bills and donations have been dropping nowadays. The maintenance and operation of these organizations has proved to be more costly than the amount of donations collected. Every non-profit organization that owns an office space or a building would need profits in order to pay for the rental.
Furthermore, private companies have the flexibility in cashing, but non-profit organization does not have it. And they shouldn’t do so because this is not the reason they set up the organization. However, they are still charged with meeting the needs of their constituents based on the mission statements. Non-profit organizations do not have shareholders like private companies do whose investor can buy shares in exchange of earning money. They earn money by their own creativity and innovation. The amount of money is used directly to fund their organization programs and activities.
Moreover, almost all of the non-profits organization does not have large amount of volunteer worker, so they are require to hire employees to run the organization. Therefore, an organization has to generate profits in order to have the ability to pay the employees according to their level of expertise. Generally, 50% of the money raised by the non-profit organization goes towards to support the employee’s salary.
Lastly, non-profit organization has to generate profits in order to benefit the public. Donations and contributions are revenue generated. They have to use some creative funding methods such as creating major events like concerts, marathons, and community festivals. The organization uses the fund to run the activities to meet the objectives of the organizations that brings advantages to the public.
In conclusion, a non-profit are businesses too, they need to generate profits in order to continue their missions of making a better society. The profits that the organization earned are used to provide goods or services to the groups that non-profit organization was formed to help.
The importance of the conceptual framework for accounting. An accounting framework is a coherent system of inter-related objectives and fundamentals that should lead to consistent standards that prescribe the nature, function and limits of financial accounting and financial statements. The main reason for developing a conceptual framework are that gives a framework for setting accounting standards, a basis for resolving accounting disputes and fundamental principles which then do not have to be repeated in accounting standards. Furthermore, Conceptual Framework can be categorized in terms of the distinctive function of management accounting within the management process in organizations. Moreover, the way in which the utility of the outcomes of the management accounting process can be tested. Conceptual Framework is a criteria which can be used to assess the value of the processes and work technologies used in management accounting and capabilities necessarily associated with the effectiveness of the management accounting function overall.
Conceptual Framework plays an important role in accounting. It is because, Conceptual Framework helps a better understanding of accounting information, for example general purpose financial reports and, in turn, their confidence in IFIs. Furthermore, Conceptual Framework promotes harmonization by giving a basis for selecting the most appropriate accounting treatment permitted by financial accounting standards. It is also assists in dealing with events, transactions, conditions or circumstances does not deal with any financial accounting standard developed by AAOIFI. This framework helps users of financial reports in understanding the information enclosed in financial statements prepared in conformity with financial accounting standards.
Conceptual Framework also direct to development of future financial accounting standards and regulator of subjective judgment made by management while preparing financial statements and another financial reports. Moreover, it’s helps national standard set a bodies in increasing national accounting standards. In additional, it’s gives who is interested in work of AAOIFI with information about its approach to formulating the financial accounting standard. “In my view, the conceptual framework is absolutely an important document for the Board as well as constituents. I believe the primary use of the framework is to make sure that the FASB does not issue standards in a random fashion. The framework provides a necessary common conceptual underpinning that helps the Board resolve issues,” by Jeannot Blanchet.
Conceptual Framework is an essential for investors. This is because it provides the risk capital to the investor and the adviser is concerned with the risk inherent from their investment. The information is needed to help them to determine whether they should sell, buy or hold the shares. Information which enables assess to the ability of the enterprise to pay dividend is interested by the shareholders. Employees and their representative groups are also interested in the stability and profitability of their employees and the information that enables them to assess the ability of the company to give retirement benefits, employment opportunities and remuneration.
In addition, it enables lenders to make sure that their loans and interest will be paid when due. Next, the information of the amount of money borrowed out by the suppliers and other trade creditors is important for them because it may determine whether the money will be paid when due. Trade creditors have an interest towards an enterprise over a short-term than lenders unless they are needy on the continuation of the enterprise as a major customer. Moreover, customers are also interested in the information about the continuance of an enterprise, especially during the long term involvement of the enterprise. Finally, allocation of resources and the activities of the enterprise is important to government and their agencies. Information enables them to determine taxation policies, as the basis for national income, determine taxation policies and similar statistics.
Ways of modern day bookkeeping and the double entry system evolved and the importance of it. The recording of financial transactions undertaken by an individual or an organization defined Bookkeeping. The organization could be an enterprise, a charitable organization or even a local sports club. The necessary support for such accounting function is provided by bookkeeping as the preparation of cost reports, financial statements, and tax returns. Making entries to specific accounts with debit and credit system and keeping track of a business’s financial transactions is involved.
Bookkeeping has evolved through the years from clay tablets, to paper ledgers, and now computerized systems. Even for now, bookkeeping fundamentals have not been changed through the ages. And chances are the future societies will not be able to exist without a formal system of financial recording keeping. In short, some of the same problems that plagued ancient bookkeepers still exist even with modern advancement.
The process of bookkeeping is always considered to be as vital importance to categorize and record financial data. Each transaction or activity must be posted to the proper general ledger account. The general ledger is used to prepare Profit

The Corporate Governance Arrangements for Tesco PLC

Essay Question: Research and evaluate the corporate governance arrangements for Tesco PLC
Tesco Plc, one of the largest food and beverages retailers in the world is a non-cyclical company that has seen enormous investment from around the globe including Warren Buffet’s parent firm Berkshire Hathaway. On grounds of the company’s established strategy and mature business model it is a recommended investment for the client.
The report:
Defines Corporate Governance
Discusses Tesco’s governance structure
Value drivers for corporate governance
Corporate Governance:
The fundamental pillar as to how corporations are run day to day and all stakeholder interests (shareholders, management, suppliers etc) are taken into consideration is referred to as “Corporate Governance”. The term encompasses the framework for internal controls that a company has in place to help management and those in charge of running the company to act in the best interests of the shareholders (CFA Institute, 2013).
Principles relevant to Corporate Governance that achieve maximum shareholder wealth are attributed to three fundamentals (CFA Institute, 2013):
Ability of shareholders to voice their opinions and concerns in regard to running of the company with minimum hassle; and
The management responsible for running the company acts in an ethical as well as an independent capacity towards all stakeholders of the company so as to ensure the most efficient running of the corporation
Consistent high quality financial reporting so as to ensure investors are receiving all relevant information in a timely and verifiable manner that eventually results in maximum profitable allocation of resources and capital.
Tesco PLC Structure of Governance
Tesco’s operations around the globe have allowed it to develop a strong and fair framework for running the company across all the markets it operates in. The Board of Directors incorporating the Chairman, the Chief-Executive alongside Non-Executive Directors who provide independent appraisal of the vision of the company whilst adding insight to the strategy lies at the forefront of governance (Tesco, 2014). Furthermore, a senior Independent Director is also present on the Board to ensure all conflicts amongst management and shareholders are resolved in the interests of the shareholders which eventually prevents any “agency problems” or front running by the management in regard to the shareholder investments.
The specialised tasks of running the company have called for segregations of major duties to respective committees in the corporation. At present Tesco Plc supports its vision with the help of five committees (Tesco, 2014).

Tesco PLC Board Committees
The major drivers of each committee alongside its evolvement over the years are summarised below.
The Audit Committee: The committee is tasked to ensure that the risk management principles for the company are effective and are consistently updated to keep risk management of Tesco in line with its strategy (Tesco, 2014). Furthermore, interim audits and financial disclosures are verifiable and accurately presented to any person who demands knowledge of them.
The Audit committee is also responsible for recommending the appointment of an independent external auditor for the yearly audit and conducting inquiries into management in regard to any investigative matter it deems fit (Tesco, 2014). Over the years the committee has hired external legal counsel to advice on matters that have raised concern.
“Corporate Governance” Critique for Tesco
Presence of knowledgeable financial experts to help the operating environment of the company
External auditors appointed through shareholder participation and not by management decision
Adherence report in regard to compliance with the UK Governance Code
Continuous training of personnel on the committee to remain updated on matters of accountancy and finance
The Remuneration Committee: The Remunerations committee is primarily responsible for determining the compensation agreements of senior management as well as analyse structure of compensations that needs to be extended out to Executive members so as to retain the most competent and diligent executive management for overseeing the company (Tesco, 2014).
The committee sets out the incentive fee specifications for senior management as well as deliberates on the aptness of expenses that can be claimed by management so as to focus on long term profitability and not short term goals (Tesco, 2014).
“Corporate Governance” Critique for Tesco
Disclosures regarding share scheme payments to management are discussed in the Annual Reports or any other public document
“Clawback” provisions are present to discourage management from participating in short term profitability at the expense of long term ones
Use of external counsels and consultants to ensure no conflict arises in regard to compensation between management and the committee
Outlining philosophy for compensation to management and shareholders so as to assess compensation in “Best case” and “Worst case” situations
The Corporate Responsibility Committee: The committee was established in 2012 and incorporates the principles of the Companies Act 2006 to help govern its scope of operation (Tesco, 2014). The committee ensures Tesco acts in a sustainable manner to benefit the communities and environment. Moreover, it considers impact of corporate actions by Tesco or any of its subsidiaries on the ethical culture present across all its markets of operation.
“Corporate Governance” Critique for Tesco
Consistent and timely updates on ethical stances of Tesco throughout its financial year and implications of such actions on the communities
Updating investor and consumer beliefs in regard to sustainable business model and sourcing of operations for Tesco Plc
Develop strong communication channels to ensure investors are aware of business model and the company is living up to its reputation
The Nominations Committee: The Nominations committee lies at the heart of the company. It is tasked primarily with all matters relevant to management. Acting in accordance with the Companies Act 2006, the committee ensures that executives on the board possess relevant skill to discharge duties, project a vision for the achievement of goals and the balance required between executive and the non-executive directors so as to maintain independence within the organisation (Tesco, 2014). Furthermore, the committee deals with regular appraisal of management so as to make sure the leadership quality of the board is not compromised.
Since its development the committee has also taken up the responsibility to ensure that equitable nomination procedures are drawn and implemented on a firm wide basis as well as a smooth transition mechanism is prevalent for passing over of responsibility when managerial personnel change.
“Corporate Governance” Critique for Tesco
Presence of independent members ensure shareholder interests are at the forefront of discussion
Linking management performance to compensation by means of regular appraisals helps Tesco ensure that it is extending out the most cost-effective expertise at every level
The Disclosures Committee: The committee not only makes sure that consistency prevails in financial statements making them easily verifiable but also scrutinizes the annual reports to ensure that accounting estimates or policies are not inappropriate for treatment of various matters (including financial and operating leases) (Tesco, 2014). The committee also deals with incorporating a framework within the firm to handle “material nonpublic information” and how it is to be disclosed.
“Corporate Governance” Critique for Tesco
Helps ensure effective risk management with regard to insider information and assessing best course of action to dealing with speculations in the market
Enhancing investor confidence by making sure that notes to the financial statements are comparable over periods of time
The Corporate Governance framework at the Executive Management level is limited to the Board, the Board’s composition and the committees formed to review their respective matters. To deal with corporate governance on a business strategy level Tesco ensures that each division possesses its own strategic plan to enhance performance and help achieve the company’s vision. The committees can be thought of as being responsible for a distinct business segment of the company and at the moment are made up of the following (Tesco, 2014):
Compliance Committee
Multichannel Committee
People Matters Group
Property Strategy Committee
Social Responsibility Committee
Technology Committee
Commercial Committee
Given the nature of the work of such committees the overall oversight responsibility lies with the Chief Executive of the company. These add value by ensuring the laying down of a strategy for fulfillment of objectives.
A brief critical outline for other minor stakeholders is also provided below. However, corporate governance should be more closely linked with management, the Board and shareholders. (CFA Institute, 2013).
Tesco’s “Clubcard” rewards programmes and the “Finest Product” range helps the mature company retain its trusted image. Customers see such aspects as the most value efficient means for satisfying their needs. A store format from hypermarkets to corner stores ensures that each store type caters to the unique needs of the community it is housed in. Tesco’s ability to house a multichannel leadership under one roof helps keep barriers to new entrants high and protect market share in the UK.
Tesco places immense importance on the skill and betterment of its employees. The company trained more than 250,000 employees last year in light of turning around the company. The employees are not only encouraged to suggest improvements in stores or company policies through Tesco’s feedback approach but are also made to feel as an intangible asset of the company by continuous investment in their betterment.
Legislation has a huge impact on how Tesco conducts its businesses around the globe. The impact is further magnified when the company’s policies are in the spotlight. Anti-competitive and employment legislation have affected Tesco the most over the years, whether in developing or developed markets (Tesco, 2014). For a better public image and to comply with local legislation Tesco actively hires from the local community where new stores are opened. Furthermore, Tesco actively participates in sustainability projects where its huge hypermarket stores open up so as to benefit the community.
Tesco’s significant market share allows it to obtain favorable terms from its suppliers from a monetary point of view whereas special teams such as the agricultural team within the corporation help make sure that the company obtains products of utmost quality from its suppliers (Tesco, 2014). Moreover, the “protector line” initiative by Tesco under which any wrongdoing on part of the supplier can be raised by the suppliers’ employees on behalf of Tesco would enable Tesco to improve its operations (Tesco, 2014).
Having analysed the broad corporate governance framework prevalent at Tesco, improvements that can be instituted to reflect better corporate publicity and reputation are related to three main aspects of the company. The table below illustrates methods for strengthening the prevalent model.
The Board Election policy of the Board members should be with staggered whilst keeping a majority of independent members at all times thus making sure that shareholders’ interests are paramount
Related party transactions or any conflict of interest arising from people serving on the Board should be disclosed in all interim reports and annual reports
The board should meet without the presence of the management so as to prevent any over riddance of independence
Little or no barriers to communication with investors or shareholders should be prevalent
Management Establish a Code of Ethics to dictate corporate culture of the firm
Increased transparency of options, their exercise period and fees paid out to management for their services rendered (currently amounts disclosed in Financial Statements)
Choosing the optimal “peer group” to benchmark performance so as to allow for the most meaningful comparison
The use of company assets and property should be limited to circumstances as determined by shareholders and the usage as such should be disclosed at the Annual General Meeting
Shareholders Use of different share classes with different voting powers are fully known to the shareholder
Whether the company allows for shareholders to cast their vote in absence (proxy voting)
Procedure for raising concerns at the Annual General Meeting
Procedures that need approval from the shareholders prior to implementation by the management ( such as defenses in takeovers)
Recommendation Summary
The complex and ever-changing nature of Corporate Governance does not allow for a limited set of principles that govern the matters. The interpretation of the framework for the corporate governance lies with the collaborate interaction of the shareholders and the management.
Given Tesco’s strong framework to delegate matters of public interest and scrutiny to committees independent of the Board and delegating internal strategy vision to segments within the corporation, Tesco successfully ensures that all stakeholder interests are looked after at all times.
The continuous updating of the foundations that form the Corporate Governance framework allows the company to retain its strong customer base and investor confidence. The internal review and revamping of the company’s strategic committees after the “Horse-meat scandal” ensure that the company strives to deliver the very best of responsibility at all levels. Given the responsibilities of various committees of the Board and a “Corporate Code of Ethics” within the firm it is safe to conclude that the company has established an effective corporate governance framework.
Reference List
CFA Institute (2013). Corporate Finance