Role of Management Accounting Market Statistics

Question: Discuss about the Role of Management Accounting for Market Statistics. Answer: Introduction: Share is ownership of a part of the company. It is issued by the company to raise money for its operational or investment activities by going public. Share Market is a platform where shares of the companies are either issued or traded in. A share can purchased or sold in the share market if the company is listed on the exchange. There are two kinds of share markets- Primary and secondary markets. Primary market is where the company is registered to issue shares and raise money. Once the shares of the company are issued in the primary market, the shares can be purchased or sold in the secondary market. The investors have two ways to purchase shares of the company. The first is they can purchase share of the company through a float where the shares of the company are offered to the public for the first time. The second is investors can sell off their investment in the company to another investor through brokers in the secondary market. These trading take place at the market price prevalent in the share market. The brokers act as agents of the investors in the share market. The brokers help in transaction of shares in the market. The investors can reach out to them and ask them to sell or purchase shares. They charge brokerage fees for their service. The brokers can be classified as Advisory Brokers and Non advisory brokers. The non advisory brokers help the investors only with execution of transactions in the share market whereas the advisory brokers not only help the investors with execution but also provide advice to the investors on the purchase and sales of shares. (ASX, 2010) The following is the list of the companies which are top 20 shares by $ value traded Company $ Value Traded CWLTH BANK 232,879,436.26 BHP BLT 191,049,710.18 WESTPAC 173,718,494.86 ANZ BANK 163,334,556.30 NAT. BANK 119,883,628.52 TELSTRA 110,924,747.94 RIO TINTO 99,309,642.21 CSL 89,818,795.14 WESFARMER 82,674,846.20 AMCOR 81,989,307.19 WOOLWORTHS 78,377,077.55 FORTESCUE 68,781,130.38 NEWCREST 65,073,021.94 WESTFIELDC 60,214,770.87 WOODSIDE 59,691,249.50 BRAMB LTD 58,374,059.02 MACQ GROUP 57,965,748.35 SCENTRE 55,201,290.57 TRANSURBAN 53,021,914.42 STOCKLAND. 52,388,796.63 The number of listed entities in ASX in 2016 including wholesale and retail debt issuers is 2204. The number of listed entities in ASX in 2008 was 2223. Thus percentage increase in the listed entities = (2204-2223)/ 2223 = -0.85 %. (ASX, 2016) The role of management accounting is to provide the necessary information to the managers so that they can plan, set targets and evaluate these targets and the role of financial accounting is to disclose the results of the business and the financial conditions of the company till a specified date. The management accounting provides the Board of directors with reports that help the company in forecasting the future plans and decision making. They help the company with strategic and tactical decision making. They provide the estimation of labor costs, raw materials cost, manufacturing cost, etc. and helps in preparing the budget. The management accounting can also provide the deviation from the budgets and help the Board of Directors in understanding which areas require attention and how to improve performance of the company. (CMA, 2013) The financial accounting provides the Board of directors with four major financial statements: Balance sheet, Income statement, Cash flow statement and statement of shareholders equity. Thus, using these statements, they can determine the results of the actions they have taken in the past and help them decide what are the changes in the decisions they need to take to achieve the end goals of the company. The benefits of incorporation of a business are Protection of Personal Assets: The incorporation of a business helps in protection of personal assets of the owners. The business can own property, continue the business, incur debt and can be sued. Thus the creditors of the business can seek payment only from the business and not from the personal asset of the shareholders. Easier access to capital: The incorporation of a business helps in easier access to capital. The lenders and banks lend money to the incorporate business easily than the unincorporated business. Thus the business can grow and develop at a faster pace. Enhance the credibility of the business: The incorporation of a business helps in improving the credibility of the business. The suppliers, employees and customers have the perception that the incorporated companies are more stable than the unincorporated business and they believe the incorporated companies will last longer and are more trustworthy to work with and this helps the company in building long term relationship. Perpetual Existence: The incorporation of a business helps in having lasting legal structure which can continue indefinitely without being affected by what happens to shareholders and employees. (CalCPA) An ethical issue is a situation or a problem where the person or the organization has to choose between alternatives and evaluate which of them is correct (ethical) and which is incorrect (unethical). In this case, the manager of the entity is required to make recommendation to the CEO for accepting a tender. He is a significant shareholder in one of the companies which is tendering. Thus there is a conflict of interest for the manager and the decision taken by him can be biased as he needs to choose between his responsibility and personal benefit. The manager has three choices to choose from. If he chooses option A i.e. declare his interest and step outside of the decision making process of this tender then he has freed himself from being accused by other for favoring a particular company for personal gains. Also it is morally correct for the CEO to be aware of this fact and this should be the correct course of action for the manager. If he chooses option B i.e. declare his interest and remain a part of the decision making process of this tender and provide recommendation then there might be bias by the manager while providing the recommendations but having declared his interest it is the CEOs decision whether to consider the recommendation or reject it. If he chooses option C i.e. do not declare his interest and continue with the decision making process of this tender and provide recommendation then the manager will be accused of providing the recommendations with bias and for personal benefits. The management can also fire the manager on ethical grounds for not declaring his interest. The best course of action for the manager is to choose option A i.e. declare his interest and step outside of the decision making process of this tender. Being a major shareholder in one of the tendering companies, there is a conflict of interest for the manager and his decision can be affect by his personal interests. Thus in order to avoid any bias and helping the company to choose from all the competing companies on a fair basis it is advised that the manager is not a part of the decision making process. Also declaring the interest in advance also helps him in gaining trust of the management. Thus option A is the best course of action. References ASX. (2016). Market statistics. Retrieved on August 2,2016, from https://www.asx.com.au/about/market-statistics.htm ASX. (2010). What is a share? Australian Securities Exchange. Retrieved on August 2,2016, from https://www.asx.com.au/documents/resources/shares_course_01.pdf?shares_course_01_text CMA. (2013). Management Accounting: Roles and Challenges ahead. Retrieved on August 2,2016, from https://www.cmawebline.org/ontarget/management-accounting-roles-and-challenges-ahead/ CalCPA. (n.d.). Five Advantages to Incorporating Your Business. Retrieved on August 2,2016, from https://www.calcpa.org/public-resources/ask-a-cpa/small-business-entity-structure/entity-choice/five-advantages-to-incorporating-your-business. BBC. (2014). Introduction to Ethics. Retrieved on August 2,2016, from https://www.bbc.co.uk/ethics/introduction/