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Question 1 – Users
Different entities have different users of their accounting information. Find a company listed
on the NZX and a PBE, and complete the table below to answer each of the following sub-
questions:
1. Provide an example of each type of entity (must be a NZ example).
2. Identify at least three (3) different users of each entity’s accounting information.
3. For each user you identified, provide one (1) example of what kind of information they
would need from the entity’s financial statements.
Type of Entity NZ example Possible Users What info might this user need?
NZX Listed The Warehouse 1. Investor As an investor, the Statement of
Company Group Limited (external) Changes in Equity would be useful
to analyse as it links the Income
Statement and the Balance Sheets.
From this connection, it can
explain any changes in equity
during the period analysed. The
investor may find viewing the
Balance Sheet useful as it is a
detailed snapshot of the
company’s financial condition.
Viewing the Income Statement wall
indicates whether the entity has
made a profit or loss during the
reported duration. Finally, the cash
flow statements are a good way of
seeing the health of the entity. The
cash flow statement will show the
entities financial health due to the
amount of cash flow moving
through the entity. These
statements are commonly known
as general purpose financial
statements as they have been
prepared for users external to the
entity.
Case Study
Paul Sarver is the accountant at an unlisted company (i.e. its shares are not traded on a stock
exchange). The company has just received a patent on a product that is expected to yield
substantial profits in a year or two. At the moment, however, the company is experiencing
financial difficulties; and because of inadequate cash flow, is on the verge of defaulting on its
bank loan.
At the end of the most recent financial year, the company’s CEO instructed Sarver not to
record several invoices as accounts payable. Sarver objected since the invoices represented
genuine liabilities (future outgoings). However, the CEO insisted that the invoices not be
recorded until after year-end, when the bank loan was expected to be renewed. After several
very strenuous objections – expressed to both the CEO and other members of senior
management – Sarver finally complied with the instructions.
(adapted from Garrison, Noreen, & Brewer, 2008, p33)
Required
Using one of the theories of ethics outlined in lecture (consequentialism, deontology, virtue-
ethics), explain whether you think what Paul did was ethical or not.
Consequentialism.
Under the set of these ethics, I feel that Paul ultimately made the right decision. Taking in
consideration that the companies bank loan was on the verge of defaulting, looking at the
long term future of the company, this decision has a far more positive outcome. By holding
back the invoices, this gave the company the opportunity to gain financial stability through
the patient they received.