Contemporary Issues in Management and Financial Accounting

GREAT LAND COLLEGE
POST GRADUATE STUDIES MASTERS OF BUSINESS

ADMINSTRATION
GROUP ASSIGNMENT
ON THE MANAGERIAL ACCOUNTING
BY:-
s/n Name ID No
1. Melkamu Temesgen ___

2. Habtamu Tufa ___
3. Eba Lemesa ___
4. Hailu Ayana ___
5. Eba Sirika ___
6. Romano Merdasa ___
7. Esrael Negera ___
8. Abate Endalu ___
SUBMITTED TO :- KENO TELILA (Dr)
SEPTEMBER, 2023 GC
NEKEMTE
Group Assignment (Managerial Accounting) Contemporary Issues In Management And Financial Accounting
1. CONTEMPORARY ISSUES IN MANAGEMENT
The word management often creates a mental connection to organizations, but in our day- to-day
lives, humans seem to manage everything from the home, family, time, resources to tasks,
responsibilities, and relationships in their various communities. In managing our personal lives,
people encounter issues as it relates to them and others. However, looking at management from
the organizational perspective also brings to bear issues as well and how they affect both the
internal and external environments. Management roles encompass planning and budgeting;
organizing and staffing; and controlling and problem-solving in an organization (Kotter, 1996). In
a nutshell, management roles are geared towards maintaining the status quo and thus, produces
a degree of predictability and order in achieving organizational goals.
According to Kotter (1996), "management is a set of processes that can keep a complicated
system of people and technology running smoothly" .Research conducted by BMGI (2015)
identified uncertainty in the global economy, innovation struggles, government policies and
regulations, diversity, and weak supply chain strategies as some of the top 10 management
problems.
Conner (2013) talked about management challenges that small entrepreneurs could face vis-
à-vis organizational integrity, increased product selection and competition, risk, and
customer loyalty management. Other management issues include sustainable strategy,
corporate governance, change management and, corporate social responsibility. In this
paper, I focused on the issues of corporate governance, corporate social responsibility,
innovation, and workplace privacy.
CORPORATE GOVERNANCE AND CORPORATE SOCIAL
RESPONSIBILITY
Cooperate governance (CG) and corporate social responsibility (CSR) are critical topics in
organizational discourses. According to Crişan-Mitra (2015), "the concept of corporate
governance (GC) was used for the first time in XIX century both in economic and law
domains, to facilitate contracts implementation and to protect property rights and collective
action”. It seems there was a disconnect between how agents acted and how they were
expected to act by their principals. As Marie L'Huillier (2014) noted, "corporate governance
is deemed a systematic provision of some measure of control over the actions of agents such
as managers and subcontractors”. In other words, the averse behaviors of agents towards
their principals brought about the need for corporate governance. On the other hand,
corporate social responsibility (CSR) as defined by the World Business Council for
Sustainable Development (1998) is “the continuing commitment by business to behave
ethically and contribute to economic development while improving the quality of life of the
workforce and their families as well as of the local community and society at large”. In the
same vein, Reich (1998) noted, “to an ever-larger extent, it seems, corporations are being
called upon to respond to the needs of "stakeholders" other than investors” . Thus, it is about
looking at the whole and not just its parts vis-à-vis investors, employees, community,
environment, and supply chain.
Corporate governance(CG) and corporate social responsibility (CSR) are worth analyzing as
they both span why organizational leaders should not undermine the interest of their owners
and the holistic consideration of all stakeholders respectively. The Lehman Brothers and
Enron scandal to name a few, are examples of why CG and CSR are worth continuous
analysis. Therefore, the issues related to CG and CSR can have ramifications for
organizations and must be at the forefront of management discussions. Hopkins (as cited in
Crişan-Mitra, 2015) pointed out that "the numerous crises generated by notorious
companies, sustain the importance of corporate governance, in reducing immoral and
unethical behavior in their struggle for getting higher profits”.
These unethical actions by the management of such companies can dampen public
confidence. For example, weak CG lead to the 2001 Enron crises. Stiles (as cited in Clarke,
1998), talked about a shift from the prescriptive theory associated with CG to a more
descriptive approach. Thus, it is essential that robust CG systems be implemented by
organizations to change public perceptions of distrust and boost market confidence.
Corporate social responsibility is also significant as it calls for ethical responsibility
concerning society as a whole and greater responsiveness to investors and employees
(Reich, 1998). In other words, it is not all about making decisions to maximize shareholder's
value but considering social impacts as well.
CSR is so important that companies are shifting towards striking a balance among profit,
people, and the planet; from purely financial gains to sustainable profits (Cramer, 2003).
INNOVATION AND WORKPLACE PRIVACY
Innovation is the spark that makes good companies great, and great companies cultivate a
new style of corporate behavior that is comfortable with new ideas, change, risk, and even
failure (Hughes, 2003). Innovation involves creating better solutions, process improvements,
or products. Creativity is nothing more than seeing and acting on new relationships, thereby
bringing them to life (Anderson, 1992). In other words, it is about the ability to synthesize
diverse elements to produce something original and useful.
On the other hand, privacy is perhaps the most discussed ethical and social issue. According
to a study by Smith (as cited in Alder, 2001), employee monitoring can lead to extreme
anxiety and depression. Staff monitoring is becoming a predominant feature of most firms,
be they big or small. This monitoring, made easier with the use of electronic devices,
compromises the employee's right to privacy in the workplace. The monitoring, which
covers, recording with CCTV & miniature cameras, opening e-mails, listening to
voicemails, checking internet usage, social media platforms, and keeping records of
telephone calls, amounts to a mass stripping away of privacy. Being aware of the fact that
somebody knows about everything you do, can feel invasive and violating (Hartman, 2001).
Employees want to be treated as free people; being able to exercise the ability to decide how
their lives will unfold without being electronically monitored.
Innovation and workplace privacy are worth analyzing as they are intertwined with the
internal customers, otherwise known as employees, of an organization and thus, critical
issues for management. An organization needs innovative employees as well as highly
motivated employees to survive. In creating a product or service that adds value, an
understanding of the customers is important; in this case, the employees. Therefore, the
issues related to innovation and privacy in the workplace must be at the forefront of
management discussions.
Not challenging the status quo can make organizations complacent and begin to focus on
internal systems and neglect the significance of creativity (Pinard & Allio, 2005). Innovation is
critical to the future survival of an organization as competition makes the status quo
redundant. Research by Rao, Ahmad, Horsman, and Kaptein-Russell (2001) showed a
positive correlation between innovation and productivity and per-capita income as well as a
positive relationship between productivity and some drivers of innovation across developed
and developing countries such as the USA, Canada, and Hungary.
Privacy in the workplace is amongst one of the most pressing personal and professional
issues of our time. Highly invasive monitoring can lead to conflict in the workplace. The
fact that employees cannot deal with personal issues or family emergencies immediately,
and in a confidential manner during office hours, can lead to increased levels of stress for
the employee and lead the employer to believe the employee is tardy or a skive. Although the
individual need for privacy may vary, employees still expect the notion of it, at the very least,
to be theirs. However, with their employer‟s monitoring activities along with its ensuing lack
of privacy, may well impinge on their ability to control such (Hartman, 2001).
2. IMPLICATIONS FOR MANAGEMENT
Corporate governance will vary based on the size of the organization, and as Hart (1995)
noted for large corporations, managers may have goals that are more benign but that are still
inconsistent with value maximization and thus, the need for appropriate checks and
balances. Such checks and balances mechanisms like boards of directors, large shareholders,
the threat of proxy fights and takeovers, and corporate financial structure have limitations;
and any attempt by outside parties to weaken these mechanisms might be counterproductive
(Hart, 1995).
Academicians and practitioners face challenges with CSR that include unresolved
theoretical and empirical issues relating to the definition of CSR, the institutional
differences of CSR in different countries, and the demand and effects of CSR on firm and
stakeholder groups (McWilliams, Siegel, & Wright, 2006). Going forward, these challenges
would need to be resolved. Management will need to consider the financial resources, time,
and the commitment of all stakeholders for the successful implementation of CSR initiatives
(Phillips, Harvey, & Bosco, 2015).
Likewise, innovation and privacy in the workplace will have to be part of the discourse in
management in a continuous cycle. It is going to be a never-ending discussion in
management and a collaborative attempt by scholar-practitioners to promote innovation and
common-sense workplace monitoring. For innovation, discussions will be about a
restructuring of the organizational hierarchy, management styles, and developing policies
that encourage creativity. Innovation could also be about automation for competitiveness
(Ademola, 2016). Also, reward systems and culture would need to be in tandem to achieve the
desired results.
Another implication for management in dealing with workplace privacy is the arguments
about employer's right to surveil to protect assets and employees‟ privacy. These arguments
can range from productivity, security, to privacy, and social control (Martin & Freeman,
2003). Further, how employees are monitored and how the data are stored and used will
ensue in the discourse. These implications for management cannot be overemphasized.
3. POSITIVE SOCIAL CHANGE
Corporate social responsibility (CSR) and corporate governance (CG) have a relationship
with positive change. Social change "is a broad umbrella to encompass a range of typical
civic and social outcomes from increasing awareness and understanding to attitudinal
change, to increased civic participation, the building of public will, to a policy change that
corrects injustice" (Goel, 2015. Wood (as cited in Moir, 2001) noted, “the basic idea of
corporate social responsibility is that business and society are interwoven rather than distinct
entities” . CSR brings together the triple P: people profit and planet. Likewise, CG integrates
the economic and social balance of crucial pillars and can influence the firm's financial
overall performance thereby leading to economic growth and social change (Goel, 2015).
Further, what is the essence of an innovative solution if it does more harm than good?
Significant and positive social change can happen in social systems because of innovation
(Bruce, 1993). In other words, innovation can drive positive change. On the other hand,
positive social change can also influence innovation.
For example, health-related issues like the polio scourge in underdeveloped and developing
countries have brought about innovative treatment solutions.
Overall, it is the responsibility of employees to perform according to the company's business
policy and not engage in practices that undermine the interest of the company and society as a
whole. Employers also owe a duty to act appropriately towards employees and not undermine
their privacy and interest. Ellis (2004) noted that we are all responsible for ensuring the
human rights of others, which in turn ensures that our own human rights are respected and
protected. Thus, the society is better off when employers and employees act in ways that do
not undermine either party.
4. CONCLUSION
The issues of corporate governance (CG) and corporate social responsibility (CSR) will
remain at the forefront of management. These issues are critical as they cut across all
stakeholders and the environment. The scandals of corporations in recent decades are clear
reminders for organizations to continue to strengthen their CG and CSR policies. This
strengthening will require resources; financial and human capital as well as management
commitment for a sustained effort. In the same vein, innovation and workplace privacy are
some of the current management issues. Both issues have importance and implications in
management as well as a relationship with positive change. For innovation to happen in an
organization, efforts must be made by managers to ensure the work environment is receptive
to new ideas and integrate creativity into current decision-making processes to remain
competitive.
In addition, employee monitoring at work can create a tense environment. Employers have the
right to monitor their assets and employees should have the right to work without their
personal communications being covertly monitored. Thus, by monitoring employees in an
ethically balanced manner, employers can still protect their assets and respect the privacy of
their employees. With such an approach, effort needs to be put into deciding where the
biggest threats are and how best these risks should be mitigated. Having employees‟ input
can help minimize the organization‟s exposure to such challenges. By bringing employees'
suggestions onboard, the organization can further reduce the chances of assets being
compromised. Altogether, these issues will remain as the society continues to move towards
transparency and disclosures, and organizations recognizing the need for accountability.
Contemporary Issues In FinancialAccounting
The Conceptual Framework inFinancial Accounting
Objectives
➢ To explain what a conceptual framework offinancial accounting is
➢ To discuss the accounting principles set out inthe accounting framework
➢ To explain the benefits and criticisms of theconceptual framework in accounting
➢ To comment critically on rule−based andprinciples−based approaches
What an accounting conceptual framework is
➢ An accounting conceptual is a set of guiding principles used to plan and decide financial
accounting standards.
➢ Those guidelines/principles are designed to provide guidance and help make
decisions relating to the financial accounting treatments.
➢ Those guidelines/principles can be used as a basis forforming the accounting standards
and interpretationsused for financial reporting.
➢ A conceptual framework differs from an accounting standard. Accounting standards state
specific requirements for a particular area of financial reporting
➢ From 1920s and 1930s, there were attempts to draft statements of principles to guide
accountingin response to reporting failure.
Principles suggested in this period focused on the area of accounting measurement.
– In 1936, the American Accounting Association issued a Statement of accounting
principles.
– In 1959, a set of basic principles for accounting standards was established
by the American Institute ofCertified Public Accountants.
– In 1962, A tentative set of broad accounting principles of business enterprises
published by Sprouse and Moonitz.
➢ The development of more comprehensive and formal conceptual frameworks begins in
the 1970sin response to corporate failure the 1960s.
♽ The Financial Accounting Standards Board (FASB) established 6 concept statements
between 1978 and1989 in the US.
♽ During this period the UK, Canada and Australia were also developing their own
conceptual frameworks.
♽ The Framework for the preparation and presentation of financial statement
issued by the IASC (now IASB) is developed directly from those previous
conceptual framework projects.
IASC Framework for the Presentation and Preparation of Financial Statements
1. What statements are we considering?
– General purpose financial statements.
 The financial reports aims to meet the information needscommon to users
 Not for particular users. (Some lenders, taxation authorities and management may
require specific reports for special purposes.)
 The Framework is aimed at financial statements prepared by commercial,
industrial and business reporting enterprises.
Who are the financial statements for? There is a very wide range of users.
 Investors
 Employees
 Lenders
 Suppliers and trade creditors
 Customers
 Governments and their agencies
 The public
2. What is the purpose of financial statement?
 Stewardship or accountability
 managers are required to report to the providers of the resources in order to explain
how well they have managed the companies.
 Decision usefulness
 the financial statements should provide information about the financial position,
performance, generation and use of cash, and financial adaptability of an enterprise
that is useful to users in making decisions.
3. What are the assumptions to be made when preparing financial
statements?
 The accrual basis.
„The effects of transactions and other events are recognised when they occur
(and not as cash or its equivalent is received or paid) and they are recorded in the
accounting records and reported in the financial statements of the periods to
which they relate‟.
 The going concern basis.
„The financial statements are normally prepared on the assumption that an entity is a going
concern and will continue in operation forthe foreseeable future‟.
What makes Financial Information Useful?
Giving Information That is not

Threshold material May impair the
Materiality
Quality usefulness of the other
information given
Relevance Understandability
Reliability Comparability
Similarities and The significance of

Information That has the Information That is complete and differences can be the information can
ability to influence faith full representation be perceived
discerned and
economic decision
evaluated
Free Complete Contingen Disclosure Aggregation

Productive Confirmatory Faith Full Natural Pruden User
cy and
Value value Representatio From ce Abilit Classification
n Material y
Error
4. What type of information should be included? Answers: Useful information But what
makes financial information useful????
*Four main elements (qualitative characteristics)

■ Information Content
□ Relevance
□ Reliability
■ Information Presentation
□ Comparability
□ Understandability
■ Additionally, information need to be material.
➢ Relevance: This characteristic ensures that the information included in the financial
statement has the ability to influence the economic decisions of users. It must have:
 predictive value, i.e. help users to evaluate past and present event, or
predict future event.
 confirmatory value, i.e. help users to confirm or correcttheir past evaluation.
➢ Reliability: This characteristic ensures that users have confidence in the information
stated in the financial statements/reports. Five components affect the reliability of
accounting information:
 Faithful representation: this requires making sure that ensure that what is shown in the
financial statement corresponds to the actual events and transactions that are being
represented.
 Free from material error: transactions have beenaccurately recorded and reported.
 Substance over form: this requires item to be accountedfor and presented in accordance with
their substance and economic reality and not merely their legal form.
 Neutrality: this aims to ensure that there is no attempt to promote and particular view; the
financial statementsprovide an impartial description of the events and transactions.
 Prudence: The inclusion of a degree of caution in the exercise of the judgements needed in
making the estimates required under conditions of uncertainty, such that assets or income are
not overstated and liabilities orexpenses are not understated.
 Completeness: Users require all relevant information to be included in the financial
statements, if there are to beuseful for decision making.
➢ Comparability: The accounting information needs to be comparable over time and

between companies. Therefore, the similarities and differences can be determined and
evaluated. Comparability would be achieved with:
– Consistent measurement
– Disclosure of accounting policy used in preparing financial
statements.
➢ Understandability:
– Users‟ abilities: the information is capable of being understood by a user
with a reasonable knowledge ofbusiness activities and accounting.
– Aggregation and classification
➢ Threshold quality - Materiality: no information can be useful if it is not material.
„An item of information is material to the financial statements if its misstatement or
omission might reasonably be expected to influence the economic decisions of users
of those financial statements, including their assessment of management‟s
stewardship.‟
– Materiality depends on the size of the item or error judged in the particular
circumstances of its omission ormisstatement.‟
– Avoid unnecessary costs on preparers
– Impede decision makers by obscuring material
information with excessive detail
➢ Unresolved trade−offs and relative importance betweenqualitative characteristics:
In practice, the accounting information provided may not always be possible meet all of these
qualitative characteristics.
Therefore, there will often be a need to „trade off‟ to determine which should be given more
importance. For example,
♽ Historic cost => more reliable, less relevant. Present or fair value => more relevant, less
reliable
♽ Disclosing details to improve relevance may reduceunderstandability.
Therefore, the Framework proposes that when the conflict occurs, the qualitative characteristics
of relevance and reliability should override understandability and comparability (In theory, it is
still an unresolved question).
Constraints on information
Two constraints may limit the ability to provideinformation that is relevant and reliable.
♽ Timeliness: Accounting information needs to be provided on a timely basis. Delaying the
issue of the financial statements is likelihood to reduce itsusefulness to users.
♽ Benefits versus costs: The benefits to users from better decisions should outweigh the
costs in preparing the statements.
The Frameworks give guidance on the items that could appear in financial statements and
provides definitionfor the essential elements of the financial statements:
– Assets: a resource controlled by the enterprise as a result of past events and from which
future economic benefits are expected to flow to the entity.
– Liabilities: a present obligation of the enterprise arising from past events, the
settlement of which is expected to result in an outflow from the enterprise of resources
embodying economic benefits
– Equity: the residual interest in the assets of the enterpriseafter deducting all its liabilities.
The element of financial statements
The definitions of the elements relating to financialperformance are:
– Income: is increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increase in equity, other
than those relating to contributions from equityparticipants
– Expenses: are decreases in economic benefits during the accounting period in the form
of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity,
other than those relating to distributions to equity participants.
*The definitions of those elements do not refer to legal form but to economic benefits. This
reflects the substance over form approach required by the Framework.
Recognition criteria
Recognition is the process of recording an item in the balance sheet or income statement. An
item should berecognised if it meets two criteria:
– Probability: There is always some uncertainty as to when to recognise an event or
transaction. It is necessary to take into account there being some uncertainty about many
items in the financial statements. Sufficient evidence to support the existence of the new
asset or liability.
– Reliable measurement: the item has a cost or value (monetary amount) that can be measured
with reliability. In many cases, the use of estimates in the accounting information does not
mean that a measure is unreliable.
Items that do not meet both of recognition criteria cannot be recognised, although information
may bedisclosed in notes to the statements where this is useful to users.
Rules-based versus principles-based standards
• The characteristics of the rules-based and principles-based standards
Rules-based Standards Principles-based Standards
Standards that contain specific details and  Standards that contain a substantive accounting
mandatory definitions that attempt to meet as many principle that focuses on achieving the accounting
potential contingencies and situations as possible. objective of the standard.
 The principle is based on the objective of accounting
in the conceptual framework.
Very prescriptive Much more broad and flexible
FASB IASB
Advantages and disadvantages of rules−based standards:
Advantage:
 Consistent on adopting accounting treatment for the samecommercial activity.
 Financial statements are more comparable.
Disadvantage:
 Can be very complex => allow confusion and even manipulation.
 Detailed rules => Companies are able to structure their transaction in order to circumvent
unfavorable reporting maskunfavorable financial position.
– Detailed standards are likely to be incomplete or out of date.
– Manipulated compliance with rules makes auditing more difficult.
Advantages and disadvantages of principles−based standards:
Advantage:
– Simpler than rules−based standards.
– Supply broad guidelines => can be applied to manysituations.
– Broad guidelines may improve the representationalfaithfulness of financial statement.
 Allow accountants to use professional judgment inassessing the substance of a transaction.
 Evidence shows that managers (auditors) are less likely to attempt (permit) earnings management
when facedwith principles−based standards.
Rules-based versus principles-based standards
Advantages and disadvantages of principles−based standards:
Disadvantage:
The incentive, ability and judgment of managers, audit committee members and auditors may
affect the quality ofthe accounting statements.
 Managers are able to select treatments both that reflectthe underlying economic substance of a
transaction andthat do not.
 Rely on the incentive and ability of managers, audit committee members and auditors:
managers, audit committee and auditors must have the desire for unbiased reporting and
expertise to achieve treatmentsthat reflect the underlying economic substance.
 The judgment and choice of the treatment may reducecomparability.

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GREAT LAND COLLEGE

POST GRADUATE STUDIES MASTERS OF BUSINESS

1. Melkamu Temesgen ___

The Conceptual Framework inFinancial Accounting

What makes Financial Information Useful?

Giving Information That is not

Similarities and The significance of

Free Complete Contingen Disclosure Aggregation

*Four main elements (qualitative characteristics)

➢ Comparability: The accounting information needs to be comparable over time and

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