3 Quarter September 2014 · 2.1 The Changing Landscape of International Educational Standards...

3rd Quarter – September

2014

1

In This Issue

1.1 ICAG Signs Partnership Agreement with

CIFPA

1.2. ICAG Organises a Presidential Luncheon For

2014

1.3 ICAG President Urges Members to Gain

Knowledge in Specialised Areas through the

Faculty System

1. 4. ICAG Inducts 274 New Members

1.5. ICAG Introduces New Syllabus for the

Professional Examinations

1.6. E-Copy of Students' Journals

1.7. ICAG’s Website Hosts a Job Portal

2.1 The Changing Landscape of International

Educational Standards (IESS) In the

Accountancy Profession

2.2 The Accountancy Profession and Good

Corporate Governance

2.3 Repositioning the Accounting Technician

2.4 Fighting Corruption in Public

Institutions: The Role of the Internal Auditor.

2.5 How to Solve Problems Efficiently,

Effectively and Decisively – Speed

2.6 Are You Playing Defense As A Leader?

2.7 Six Ways to Use Social Media Adverts

(Ads) To Grow Your Business

3.1 Cost-Value-Profit Analysis (Break Even

Analysis

4.0 Past Examination Questions and Solutions

SECRETARIAT ADDRESS

Institute of Chartered Accountants, Ghana

Okponglo, East Legon

P. O. Box GP 4268, Accra

Tel: +233(0)544336701-2+233(0)277801422- 4

Email: [email protected]

2

ICAG NEWS

1.1 ICAG SIGNS PARTNERSHIP

AGREEMENT WITH CIPFA

The Institute of Chartered Accountants, Ghana

(ICAG) and the Chartered Institute of Public

Finance and Accountancy (CIPFA), have signed a

Memorandum of Understanding (MoU) to

collaborate in promoting good Public Financial

Management (PFM). The MoU finalizes the

relationship between the two professional bodies

and creates a framework for the two institutes to

collaborate to promote good PFM practices in

Ghana. Both Institutes have identified strengthening

the capacity of finance professionals across

government as a key issue. The two bodies will also

collaborate in the implementation of IPSAS in

Ghana. The partnership will also ensure that the

voice of the accounting profession is heard on issues

of public interest regarding public financial

management, economic and fiscal policy within

Ghana.

The Chairman of CIPFA, Ian Ball stressed that

ICAG has adopted a leadership role through its

recognition of the need for strengthened PFM. He

noted that he has seen a strong support from

government and the public sector in Ghana for an

agreement between the two institutes during his

recent visit to Ghana. He further indicated that he

sees it as a great honor and opportunity for CIPFA

to use their knowledge, resources and experience to

work alongside with ICAG and governmental

institutions within Ghana.

Mr. Ian Ball remarked that the commitment of the

accountancy profession and the government to

improving financial management can only be to the

benefit of the people of Ghana. He reaffirmed the

commitment of CIPFA to work with ICAG in areas

of such fundamental importance to the economic

future of Ghana.

The President of ICAG, Prof. Omane-Antwi noted

that, ICAG recognises that a sound economy can

only be built when good public financial

management systems are put in place. He expressed

his delight that the Institute is collaborating with

CIPFA to serve the public interest through a strong

advocacy and advisory role on public financial

management issues in Ghana.

The MoU will provide a basis for cooperation and

collaboration between CIPFA and ICAG in

advancing high quality PFM in Ghana through a

number of initiatives. These include advocating

financial management reforms, identifying,

developing and supporting capacity-building and

the provision of a broad range of training for

government and public sector finance staff. The

MoU will also support professional development

that will create opportunities for dual membership

of the two institutes.

1.2. ICAG ORGANISES A PRESIDENTIAL

LUNCHEON FOR 2014

The 2014 Presidential Luncheon was held on the

19th of September, 2014 at Movenpick Ambassador

Hotel in Accra. The Luncheon which was heavily

attended by members was under the theme

"Effective public financial management: Strategies

for maintaining discipline towards achieving

economic growth". The guest speaker for the

occasion was the Rector of Takoradi Polytechnic

Rev. Prof. Daniel Nyarko. He noted that there would

be no economic progress if people in authority

3

continue to sacrifice accountability for the sake of

political convenience and that there is the need to

ensure prudent control of public funds. He indicated

that lack of strong leadership and political support

has become contributive factors to weak Public

Financial Management (PFM) system in the country

and raised concern about the general apathy towards

the protection and use of public resources and public

property. Prof. Nyarko said it was time prudent

control measures for the management of public

funds were instituted by government and also

ensured that all expenditures were budgeted for. The

absence of financial discipline, he said, was a recipe

for unemployment, poverty and social unrest.

Rev. Prof. Nyarko further indicated that public

financial management was a critical component of

good governance which should not be downplayed

or swept under carpet but be embraced, to ensure

transparency and promotion of reliable change. In

this vein, the national budget and any other budget

that cover public funds must be prepared and

meticulously executed to ensure credibility and win

the trust of citizens in the manner in which public

funds are managed. He stressed that government

should ensure that all negative variances are

promptly investigated and remedial measures taken

to correct the situation, and also Parliament must

perform its oversight responsibility over public

funds creditably. He urged the Ministry of Finance

to always publish the allocation of the District

Assemblies Common Fund in the newspapers for

the citizens to know the amount allocated to each

Metropolitan, Municipal and District Assemblies

(MMDAs) for proper accountability.

3. ICAG PRESIDENT URGES MEMBERS

TO GAIN KNOWLEDGE IN SPECIALISED

AREAS THROUGH THE FACULTY

SYSTEM

The President of ICAG, Prof. K. B. Omane-Antwi

has stressed that in view of technological

advancement, it was imperative for members to be

constantly equipped with in-depth knowledge in

specialised areas of accountancy practice taking

cognizance of the fast changing trend in skill

requirements triggered by Information and

Communication Technology (ICT). Delivering a

keynote address at this year's Presidential Luncheon

of the ICAG in Accra on the 19th of September 2014

at Movenpick Ambassador Hotel, he indicated that

the ICAG Council was proposing the establishment

of six faculties at the Institute. These faculties are:

Audit and Assurance Faculty, Financial Reporting

Faculty, Corporate Financial Management Faculty,

Corporate Governance Faculty, Taxation and Fiscal

Policy Faculty, and Public Financial Management

Faculty.

He stated that the faculties will, no doubt, provide

members with the platform and technical resources

needed to execute professional roles to the highest

standards, leveraging on the experiences of

members of the faculties. He entreated members to

embrace the faculty system and participate fully

when the full details are rolled out early next year.

Members are entitled to join any faculty of their

choice up to a maximum of two faculties.

4. ICAG INDUCTS 274 NEW MEMBERS

The Institute of Chartered Accountants, Ghana a

second Induction Ceremony in 2014 to admit newly

qualified students into membership. The ceremony

which took place at the Best Western Premier Hotel

in Accra Airport Residential Area from 24th to 26th

4

of September 2014 was to induct 274 persons into

membership. These comprise 187 persons inducted

under section 4(1)(a) and 87 persons inducted under

section 4(1)(b).

The inductees were taken through various topics by

distinguished professionals in their own fields

which were aimed at preparing the inductees to fully

perform adequately for the accountancy profession

and business life in general. Some of the topics

treated included the history of ICAG; the code of

ethics for professional accountants; the role of the

professional accountant in nation building; stress

management; career guidance and development,

nutrition and preservative health; stress talent

management; overview of district societies, the

ICAG Act 170; professional excellence; common

courtesies and good grooming; and overview of the

Ghanaian business environment among others.

5. ICAG Introduces New Syllabus for the

Professional Examinations The Institute of Chartered Accountants, Ghana has

introduced new syllabus for its professional

examinations with effect from May 2015 diet. As

has always been the case the Institute regularly

reviews its syllabus to meet current challenges and

also to meet international standards. Launching the

syllabus at Movenpick Ambassador Hotel in Accra,

the President of the Institute, Prof. Omane-Antwi

said the Institute has been reviewing its syllabus

structure and contents every five years to take into

account new developments in the accountancy

profession and knowledge as well as the aspirations

and requirements of the academia, industry and

practice.

The current structure which is in four parts and

sixteen subjects have been reviewed to three parts

and fourteen subjects. The syllabus has been

designed to develop core technical, commercial,

and ethical skills and knowledge in a structured

and rigorous manner. Progression through the

ICAG qualifying examinations, in combination

with integrated and monitored work experience,

will equip and prepare students for the demanding

multi-disciplinary job content of the accountant.

The subjects at the professional/advance level

assess the highest level of analysis, synthesis and

communication skills, commercial and ethical

awareness and the application of professional

judgment. The syllabus has been designed to

ensure that students understand the fundamental

principles of ethics, can apply relevant ethical

guidance and are able to recommend actions to

resolve ethical issues.

SUMMARY OF REVISED STRUCTURE

LEVEL 1: KNOWLEDGE LEVEL

1.1 Financial Accounting 1.2 Business Management and Information System

1.3 Business and Corporate Law

1.4 Quantitative Tools in Business

LEVEL 2: APPLICATION LEVEL

2.1 Financial Reporting

2.2 Management Accounting

2.3 Audit and Assurance

2.4 Financial Management

2.5 Public Sector Accounting and Finance

2.6 Corporate Strategy, Ethics and Governance

5

LEVEL 3: PROFESSIONAL LEVEL

3.1 Corporate Reporting

3.2 Advanced Audit and Assurance

3.3 Advanced Financial Management

3.4 Taxation and Fiscal Policies

6. E-copy of Students' Journals

As from the third quarter this year, the third edition

of the Students' Journal will be transformed from the

usual hard copy editions to e-copies. Students, who

have regularly not been receiving communication

from the secretariat by email, are kindly requested

to submit their email addresses to

[email protected],

[email protected]

and [email protected]

to ensure that they will be recipients of the e-copies

of the professional journal. Copy of the journal has

been posted at the ICAG website. Students are

advised to regularly visit the Institute's website for

more updates and current editions.

7. ICAG’s website hosts a Job Portal

The secretariat is keen on improving its services

targeted at its stakeholders including members. For

this reason, a job portal has been created and is being

hosted at ICAG’s website (www.icagh.com/jobs-

portal). Members and students are encouraged to

visit the portal often for job avenues available both

locally and internationally. Kindly forward to the

secretariat any vacancies related to the accounting

function for the benefit of our stakeholders to

[email protected]

mailto:[email protected]



http://www.icagh.com/jobs-portal

http://www.icagh.com/jobs-portal


6

2. ARTICLES

2.1 THE CHANGING LANDSCAPE OF

INTERNATIONAL EDUCATIONAL

STANDARDS (IESS) IN THE

ACCOUNTANCY PROFESSION

The IESs are issued by the International

Accounting Education Standards Board (IAESB).

IAESB: An independent standard setting body

that serves the public interest by strengthening the

worldwide accountancy profession The IAESB

enhances education by developing and

implementing International Education Standards,

which increases the competence of the global

accountancy profession, thereby contributing to

strengthened public trust

IAESB Issues Publications on:

Pre-qualification education

Training of Professional Accountants, and

Continuing Professional Education

Also acts as a catalyst in bringing together the

developed and developing nations, as well as

nations in transition, and to assist in the

advancement of accountancy education programs

worldwide, particularly where this will assist

economic development. The structures and

processes that support the operations of the

IAESB are facilitated by IFAC (A global

organization for the accountancy profession

comprising of 173 member and associates in over

129 countries and jurisdictions representing

approx. 2.5m accountants)

The Relevance of Accountancy Education

• To win public trust the Accountancy

Profession should be able to meet the

needs of decision makers

• Competence of global accountancy

profession is key to achieving public trust

• Enhancing education through developing

and implementing IESs should increase

competence of the accountancy

profession

Why IESs

• Assist professional accountancy

organizations, regulators, employers,

academics, and accountancy students by

7

prescribing principles or the learning and

development of professional accountants

• IESs provide a common reference point or

benchmark for training and development

of accountants

• Globally accepted standards minimize

differences among countries and

jurisdictions, thus

• reducing differences in the requirements

to qualify and work as a professional

accountant

• Increase opportunity for mobility of

labour, and hence, contribute to

economic development

The Existing IESs

• The existing list of IESs is as follows and

is summarized in table 1

1. Entry requirements to professional

accounting education programs

2. Content of professional accounting

education programs

3. Professional skills and general education

4. Professional values, ethics and attitudes

5. Practical experience requirements

6. Assessment of professional capabilities

and competence

7. Continuing professional development: a

program of lifelong learning and

continuing development of professional

competence

8. Competence requirements for audit

professionals

The IESs and Changing Landscape

• As part of its project to improve the clarity

of its standards, the IAESB undertook to

revise and redraft its suite of eight (8)

IESs

The project aims:

Improve clarity

Ensure consistency with concepts of the

revised Framework document; and

Clarify issues resulting from changes in

the experience gained from

implementation of the Standards by IFAC

member bodies

The Revision of IESs will help promote

consistency in practice and share good practices

in the learning and development of a

professional accountant.

A summary of Amendments made to IES 1, IES

5, IES 6, and IES 7 is in table 2

8

Table 1: IESs Summary before Revision

IES

No Title

Purpose, Scope &

Effective Date Introduction Requirements

1

ENTRY

REQUIREMENTS

TO

PROFESSIONAL

ACCOUNTING

EDUCATION

PROGRAMS

Prescribes entry

requirements to

professional

accounting education

program and how to

assess entry level

qualifications. Jan.,

1st 2005

Entrants must meet the

necessary standards. The

quality of the profession

depends on the quality of

candidates it can attract. IFAC

member bodies should try to

attract the best. May shorten

the education and practical

experience period

Entry to a program of

professional accounting be

equivalent to that for

admission into a recognized

university degree program (at

least three years). Appropriate

level and of prior education and

learning provide a foundation for

professional accounting

education and determines the

entry point, as starting points can

vary. All candidates should

achieve a comparable level of

professional competence at point

of qualification.

2

CONTENT OF

PROFESSIONAL

ACCOUNTING

EDUCATION

PROGRAMS

Prescribes the

knowledge content

of professional


programs the

candidates need (in

complex and

changing

environment) to

acquire to qualify as

professional

accountants. Jan., 1st

2005.

Integration of professional

knowledge, skills, values

ethics and attitudes at the level

and environment equivalent to

degree level study. Lifelong

learning to include

understanding, application,

analysis, and evaluation, and

skills and problem solving.

Continually updating

knowledge as the knowledge

changes and expands.

Mastering of ICT competences

Adequate time and intensity to

permit gaining the required

professional knowledge.

Accounting, finance, related;

organizational and business; ICT

competences. Order of subjects,

weights, may vary, but

professional knowledge need to

complement non-professional

knowledge. Global environment,

knowledge of local conditions

equally essential. Minimum

accounting subjects: Financial

accounting +reporting,

Management accounting and

control, Taxation, Business and

commercial law, Audit and

Assurance, Finance and Finance

management, Professional values

and ethics. Organizational and

ICT subjects are also specified

9

3

PROFESSIONAL

SKILLS AND

GENERAL

EDUCATION

Prescribes

appropriate mix of

skills needed to

qualify and function

as professional

accountants. Jan. 1st

2005.

Acquisition of Skills (set of

capabilities to demonstrate

competence) such as

knowledge skills, professional

values, ethics, and attitude, are

relevant give professional

accountants a competitive

edge, and are useful throughout

an individual’s career. Skills

help candidates become broad-

minded individuals who think

and communicate effectively,

conduct inquiry, logical

thinking and undertaking

critical analysis, and hence

make decisions in the larger

context of society, exercise

good judgment, professional

competence, interact with

diverse groups of people, think

globally, and begin the process

of professional growth.

Under Professional Skills, the

following should to be acquired:

Intellectual, technical and

functional, personal,

interpersonal and

communication, organizational

and business management

skills. Intellectual skills incl.

knowledge, understanding,

application, analysis, synthesis

(to combine knowledge from

several areas, predict and draw

conclusions) and evaluation.

Candidates to reach the highest

level at point of qualification.

Intellectual skills are the product

of a broad general education.

Educational programs should

include some portion of general

education to develop non-

professional knowledge and

other skills, and provide a

foundation to build professional

and accounting studies.

4 PROFESSIONAL

VALUES, ETHICS

AND ATTITUDES

Prescribes the

professional values,

ethics and attitudes

professional

accountants should

acquire during the

educational program

leading to

qualification so as to

function as

professional

accountants. The

International Ethics

Standards Board for

Accountants

(IESBA) has

established an

International Code of

Ethics for

Member bodies to ensure that

their members are aware that

professional values, ethics and

attitudes identify them as

members of the profession.

Appreciation of potential

ethical implications of

professional and managerial

decisions and pressures of

observing and upholding

ethical principles is needed

because society has high

expectations of the

accountancy profession.

Wherever professional

accountants work, they operate

in a world of change, where

good governance depends on

adherence to professional

IFAC Members educational

programs should provide

potential professional

accountants with a framework of

professional values, ethics, and

attitudes for exercising

professional judgment and for

acting in an ethical manner that is

in the best interest of society and

the profession. The values,

ethics, and attitudes should

comply with the relevant local

codes of ethics which should be

in conformity with IESBA

Code. Teaching values, ethics

and attitudes should be

distinguished from developing

and instilling ethical behavior,

and the later need to begin early

10

Professional

Accountants (IESBA

Code) that relate

directly to IFAC’s

mission to develop

and enhance the

profession to enable it

to provide services of

consistently high

quality in the public

interest. Jan., 1st

2005.

values, ethics and attitudes,

hence a clear understanding of,

and education in, ethical

principles is essential.

Professional values, ethics and

attitudes need to be treated in

their own right within the

education framework and not

to be perceived as peripheral to

their education programs.

in the education program (first by

teaching as a separate subject)

and (later by integrating the

subject matters). Participative,

role playing, case studies, real

life business situations, guest

speakers, their own reflections

from their own experiences,

etc… may be important.

Training and practical experience

need to be structured to enable

trainees to observe (and

supervisors and mentors to instill

to trainees) t the application of

professional values, ethics, and

attitudes in the work situation.

These should be re-emphasized

throughout a career, and be

considered as part of life-long

learning.

5 PRACTICAL

EXPERIENCE

REQUIREMENTS

Prescribes the

practical experience

IFAC member bodies

should require their

members to obtain

before qualification

so as to function as

competent

professional

accountants. Further

development may be

required for

statutory auditor or

some other

specialization. Jan.,

1st 2005.

Practical experience, gained by

working, in addition to

knowledge acquisition through

professional accounting

education programs, is

necessary before candidates

can present themselves to the

public as professional

accountants. IFAC members

need to adapt their practical

experience requirements to

meet their circumstances.

There could be variations, but

employers, work colleagues

and mentors play a vital role in

planning and monitoring

practical experience.

Practical Experience

Requirements: The period be

long and intensive enough

(minimum of three years) to

permit candidates to demonstrate

that they have gained

professional knowledge, skills,

values, ethics and attitudes.

Experience may be obtained after

or alongside a program of study.

Trainees need to demonstrate the

competences achieved.

Monitoring and Control: An

experienced mentor to supervise

the candidate. Professional body

to receive written submissions

that have been reviewed by

supervisors/mentors.

Appropriate audit experience be

acquired. Monitoring and review

of progress necessary.

11

6

ASSESSMENT OF

PROFESSIONAL

CAPABILITIES

AND

COMPETENCE

Prescribes the

requirements for a

final assessment of a

candidate’s

professional

capabilities acquired

through a program of

education. Jan., 1st

2005.

IFAC member bodies to have

assessment procedures

(continual assessment + final

assessment) to test the

underpinning knowledge and

the practical application of

knowledge. Professional

Capabilities to be assessed

include professional

knowledge, skills, values,

ethics and attitudes.

Formal assessment of

professional capabilities and

competence should be done by

IFAC member body before

qualification is awarded. The

assessment should be in recorded

form. The assessment should be

reliable, valid and credible and

the final assessment need to be

administered near the end of pre-

qualification program.

7

CONTINUING

PROFESSIONAL

DEVELOPMENT:

A PROGRAM OF

LIFELONG

LEARNING AND

CONTINUING

DEVELOPMENT

OF

PROFESSIONAL

COMPETENCE

Requires a

commitment to

lifelong learning, by

facilitating and

providing access to

CPD opportunities

and resources.

Developing and

maintaining

professional

competence

necessary to protect

public interest.

Monitor and

enforcing CPD and

maintain professional

competence. Jan. 1st

2006

Member bodies should

implement a CPD requirement

as an integral component of

continued membership. CPD

refers to learning and

development that develops and

maintains capabilities to enable

professional accountants to

perform their roles

competently. A professional

accountant has a professional

duty to maintain professional

knowledge and skill at the

level required to ensure that a

client/employer receives the

advantage of competent

professional service.

Requires member bodies to

promote Lifelong Learning:

Facilitate access to CPD, and

CPD mandatory to professional

accountants. CPD should be

relevant, measurable, verifiable,

and may take various approaches

such as Input-based, Output

based or a combination of both.

CPD programs should be

monitored and enforced to ensure

that professional accountants

meet the requirements. Sanctions

may be used.

8

COMPETENCE

REQUIREMENTS

FOR AUDIT

PROFESSIONALS

Prescribes

competence

requirements for

audit professionals.

Audit is relied upon

by the public and

other third parties,

therefore member

bodies should

establish policies and

procedures to ensure

that their members

satisfy this IES before

they take on the role

The IES is consistent with the

requirements and guidance in

the various standards and

statements in the International

Framework for Assurance

Engagements developed by

IAASB. IFAC member bodies

may impose specific

requirements for professional

accountants working as audit

professionals, (or engagement

partners) beyond those

required by IES. The IESBA

Code should also be observed.

Requirements: Qualification as

a professional accountant, an

undergraduate degree (or

equivalent), IES 8 requirements.

Knowledge content: Audit of

historical financial statements

(best practices, ISAs, IAPSs,

other applicable standards/laws,

Financial accounting and

reporting, (relevant current

issues, IFRSs, other applicable

standards/laws), ICT.

Professional skills, values, ethics

and attitudes IES 3 & 4).

12

of an audit

professional. Jan 1st

2008 (Early Adoption

is encouraged)

Practical experience (IES 5).CPD

relevant to audit professionals.

Engagement Partners to have

additional professional

knowledge, skills, values, ethics

and attitudes and demonstrate a

comprehensive understanding of

the audit process, leadership,

formation of conclusions,

interpersonal skills, planning,

direction, consultation,

development of audit an

appropriate report and ability to

communicate effectively.

Table 2: Summary of major general and specific changes to IESs

GENERAL CHANGES

Major changes Aimed to achieve Effective

Date

All

Revised

IESs

(1, 5, 6,

7)

General Changes

Applicable to all

released (1, 5, 6 & 7)

Various

dates New Structure

includes 4 Major

sections:

Introduction,

Objective,

Requirements, and

Explanatory

Material.

Amendments to

language and

wording of several

explanations

To Improve clarity by

improving readability

and provide

explanation to ensure

understandability and

proper application.

Various

dates

CHANGES APPLICABLE TO INDIVIDUAL STANDARDS

Revised

IES No

Title Release

date

Major changes Aimed to achieve Effective

Date

1 ENTRY

REQUIREMENTS

TO

PROFESSIONAL

ACCOUNTING

EDUCATION

PROGRAMS

(REVISED)

Feb.

2013

Focus on entry to

professional


programs rather than

entry requirements to

the accountancy

profession

A Clarification that

entry requirements to the

profession was covered

by IES 2, IES 3, IES 4,

IES 5, and IES 6

July 1st

2014

13

5 INITIAL

PROFESSIONAL

DEVELOPMENT -

PRACTICAL

EXPERIENCE

(REVISED)

March,

2013

Title changed from


Requirements to

Initial Professional

Development -


(revised)

IPD is the learning and

development through

which individuals first

develop competence.

IPD includes general

education, professional

education, practical

experience and

assessment

July

1st2015)

6 INITIAL

PROFESSIONAL

DEVELOPMENT -

ASSESSMENT OF

PROFESSIONAL

COMPETENCE

(REVISED)

Nov.

2012

Title changed from

Assessment of

Professional

Capabilities and

Competence to Initial

Professional

Development -

Assessment of

Professional

Competence

(revised)

IPD is the learning and

development through

which individuals first

develop competence;

whereas, CPD is the

learning and

development that

develops and maintains

professional competence

to enable the

professional to continue

to perform their role

competently.

July, 1st

2015

7 CONTINUING

PROFESSIONAL

DEVELOPMENT

(REDRAFTED)

July,

2012

Title changed from

Continuing

Professional

Development : A

Program of Lifelong

Learning and

Continuing

Development of

Professional

Competence to

Continuing

Professional

Development

(Redrafted)

To reflect the focus of

IES 7 on only CPD and

ensure consistency with

the content of the

Framework (2009).

CPD is the learning and

development that takes

place after IPD, and that

develops and maintains

professional

competence.

Jan, 1st

2014

14

CONCLUSION

• The IAESB’s work on IESs Revision Project is ongoing.

• IESs 2, 3, 4, and 8 have not yet been finalized.

• The revised IES 1, 5, 6, and 7 have been released to provide lead time for IFAC member bodies

and other stakeholders to prepare for their implementation on their respective effective dates

• The IAESB’s project of Revising IESs is scheduled to be completed by the end of 2013.

References

1. IAESB(2010), “Handbook of International Education Pronouncements” (Online Edition).

2. IAESB(2009), “Basis of Conclusions: Framework for International Education Standards for Professional accountants”

3. IAESB(2013), “Basis of Conclusions: IES 1: Entry Requirements to Professional Accounting Education Programs”

4. IAESB(2013), “IES 1: Entry Requirements to Professional Accounting Education a Programs (Revised)”

5. IAESB(2013), “Basis for Conclusions for IES 5: Initial Professional Development - Practical Experience (Revised)”

6. IAESB(2013), “IES 5: Initial Professional Development - Practical Experience (Revised) )

7. IAESB(2012) “Basis for Conclusions for IES 6: Initial Professional Development - Assessment of Professional

Competence (Revised)”

8. IAESB(2012), “IES 6: Initial Professional Development - Assessment of Professional Competence (revised)”

9. IAESB(2012), “Basis for Conclusions for IES 7: Continuing Professional Development (Redrafted)”

10. IAESB(2012), “IES 7: Continuing Professional Development (Redrafted)”

11. Http://www.ifac.org/

2.2 The Accountancy Profession And

Good Corporate Governance

By

OBAZEE, Jim Osayande

Executive Secretary/Chief Executive Officer

Financial Reporting Council, Nigeria

Introduction

In the aftermath of the global financial crisis,

interest in the role of the accountancy profession

in supporting public value remains high. The way

that individual accountants apply accounting,

reporting and auditing standards has a powerful

impact on the stability of financial markets. Their

determination to meet high ethical standards in all

aspects of their work is also vital for maintaining

confidence and promoting public value.

Alongside individual professionals, accountancy

bodies too have essential roles to play in the

development and application of consistent global

professional and ethical standards, in promoting

good corporate governance, and supporting

economic development through access to finance.

Professional accounting bodies should have as a

strategic objective; the possibility of becoming a

brand that is recognised as a leading global

brand by reputation, influence and size.

Integral to the achievement of this goal is to

leverage internal values and public-facing

obligations to build the reputation. Promoting the

15

public interest and adding public value should

also be core to what individual professional

bodies does and establishing credibility that

should depend on society recognising that the

identified professional body should, and does,

work for the public good. Understanding the

perception of this part of the profession is key to

future advancement.

In January 2011 ACCA conducted an

international survey among Chief Financial

Officers and finance directors or their nominated

equivalents across 20 countries, seeking their

views on the public value delivered by the

accountancy profession and how it could be

increased.

The 1,384 participants were drawn from across

Africa (301), the Americas (159), Asia (50), Asia-

Pacific (362), Australasia (52), Eastern Europe

(157) and Western Europe (303). This is the brief

of that report.

Accountancy Profession Has High Public

Value

The accountancy profession has a key role in

delivering public value, the survey findings show.

Asked to rate a number of professions or sectors

in terms of their public value, 38% of participants

give accountancy a ‘very high’ rating, placing it

second only to the medical profession (rated ‘very

high’ by 43%). However, when also taking into

account participants who perceive ‘high’ public

value, the accountancy profession moves ahead

of all others – being seen as having ‘high’ or ‘very

high’ public value by 88% of participants,

compared to 78% for the medical profession and

77% for banking.

Ethics and transparency are key to high public

value

In order to contribute to public value, what

values, attributes or behaviours should a global

accountancy body demonstrate? Respondents

show strong agreement over two characteristics in

particular, with 44% identifying ethical conduct

as key, and 37% focusing on the need for

openness and transparency.

Many other factors are also identified.

Participants believe that, in order to contribute to

public value, a global accountancy body should:

• contribute to the development of the

economy (26%);

• contribute to the development of society

(25%);

• drive a common standard for financial

regulation (24%);

• be a trusted organisation (23%);

• promote good corporate governance

(23%).

A few participants identify a range of other

necessary qualities, such as professionalism,

competence, good service provision, knowledge

and independence.

How well does the accountancy profession do

now?

The accountancy profession is rated highly in

terms of its demonstration of certain values,

attributes and behaviours considered important

for supporting public value.

Two thirds of participants (66%) believed the

accountancy profession contributes to the

development of the economy. Given the high

emphasis previously placed on ethical conduct, it

is also encouraging that 65% of participants

16

considered the accountancy profession to be

ethical in its dealings with stakeholders.

Over 60% of participants also think the

accountancy profession promotes good corporate

governance, drives a common standard for

financial regulation and is trusted. Over half also

think the accountancy profession is open and

transparent and contributes to the development of

society.

Survey respondents reveal similar perceptions of

individual accountants – particularly in terms of

their ethical conduct (61%), trusted status (57%)

and openness and transparency (54%). The widest

divergence in perceptions of the profession as a

whole and of individual accountants arises in

relation to driving a common standard for

financial regulation. This perhaps suggests a

perception that individual accountants have less

influence over the development of common

regulatory standards around the world than do the

professional bodies to which they belong.

It emphasizes the importance of accountancy

bodies working together to help achieve high

quality, globally consistent regulatory standards.

There is also a notable divergence in perceptions

of an individual accountant’s current promotion

of good corporate governance, as compared to the

profession as a whole, and of their contributions

to the development of the economy. One

accountant in isolation can do so much, but a

body of professionals acting together has far

greater influence.

Accounting Profession And Good

Corporate Governance

After the scandals of Enron and Worldcom, it

was also not surprising that governments,

regulators and shareholders alike called for

governance reform and greater transparency in

relation to governance practices. In 2002/2003 we

saw numerous reports released which, at least in

part, focused on governance reform and

regulation, public company oversight and

financial reporting regulations.

The Principles and Recommendations were

operative for periods ending the following

calendar year. As you are well aware, the

Principles and Recommendations are given effect

by listing rules (for listed entities) and regulatory

pronouncements (for others), which require

companies to follow all recommendations or

provide an explanation as to why a particular

Recommendation was not complied with. More

commonly, this approach is referred to as the “if

not, why not‟ or “comply or explain” approach.

The approach supports the assertion that there is

no one size fits all governance framework. It also

supports the fact that all organisations are unique

and are subjected to different risks. It follows that

the governance strategy adopted by a company

should be fit for purpose in the same way that a

company will choose the business model and

strategy it believes is most appropriate for its

circumstances and which effectively addresses

the risks (and opportunities) to which it is

exposed.

Another school of thought opines that the

governance framework adopted by an

organisation is also influenced by other factors

such as regulation and market norms and

expectations. They also acknowledge that where

public funds are invested it is desirable to

encourage the adoption of certain governance

17

practices – or to require disclosure of alternative

practices (corporate governance by public sector

entities).

Notwithstanding the assertion that there is no

standard governance framework, there are

nevertheless various elements typically found in

governance frameworks and which are deemed

desirable in most circumstances (particularly in

relation to public companies). The key premise

used by many models is the OECD principles. A

summation of which requires that corporate

governance:

is not just about regulation and legislation,

it is about doing what is right for the

interest of stakeholders.

is broader than boards and committees; it

extends throughout the organisation, and

includes internal controls and compliance

functions such as risk management and

internal audit and external audit.

requires transparency of disclosure,

effective communication and proper

measurement and accountability as

essential elements for good governance.

The following are the key elements of good

corporate governance (that accommodates

SMEs):

Independence of directors

If the directors of a company are also the owners

and/or their family members, entrepreneurs

appointed by friends, or individuals who are

involved in the daily management of the

company, the board is unlikely to be impartial.

Having a majority of non-executive independent

directors will help avoid prejudice and conflicts

of interest between the board and the

management. Independent judgement is almost

always in the best interest of the company.

Separation of 'strategic planner' role from

'operator' role

For small companies that do not have a board of

directors, it is a good practice for the strategic

planner of the business to be someone other than

the owner-operator. This frees the planner from

attending to day-to-day operational duties and

enables him or her to focus on long-term,

strategic business planning.

An 'exit strategy' for company owners

Whether it is a succession plan for passing on a

family business or a buy-sell arrangement, an exit

strategy should be planned and agreed upon by all

parties concerned (e.g. shareholders, family

members) well in advance.

Reliable systems and procedures

Potential creditors feel more confident if they

know that the company has reliable systems and

procedures in place. Such processes enable

smaller SMEs to operate in the owners' absence

(e.g. due to illness) and allow for smooth

handovers to other parties.

Credible financial statements

Even for the smallest SMEs, credible financial

statements enable the entrepreneur to know what

is going on in the business and instills confidence

in lenders and primary regulators.

Key performance indicators

These indicators (e.g. financial strategy,

marketing plan, product/operational goal) are

used for measuring the performance of the

18

company, its management and even the board of

directors.

Remuneration and Human Resource policies

Transparency in matters such as remuneration,

incentives, discipline and dismissal is essential

for attracting good employees. It is especially

important for retaining non-family members in

family businesses.

The accounting profession, I must say, is at the

heart of the requirements stated above either

as providers of information or as advisers or

attesters to the principles/regulations.

There is the need for the issuance of a National

Code of Corporate Governance. The issuance of

a national Code of Corporate Governance is a

very important deliverable that can be used to

enhance national competitiveness and address

some socio-economic issues including corruption

and lack of independence.

It is also an opportunity to raise the bar in the

public and private sectors and to ensure that there

are stiff penalties and that directors are personally

liable for their actions and inactions. It is also part

of efforts aimed at improving the investment

climate, foreign direct investment flows and

enhancement of competitiveness and

international perception.

For accounting profession, the issue of attending

to the requirements of good corporate governance

is a sword with double edge. The profession is

expected to embrace good corporate governance

and to also assist their clients to adhere to it

especially in jurisdictions where it is mandatory.

Creative accounting, earnings management and

misleading financial analysis on the one hand,

insider trading, securities fraud, bucket shop,

forex scams, concerns (criminal) manipulation of

the financial markets on the other hand. Executive

compensation: excessive payments made to

corporate CEO's, bribery, kickbacks, and

facilitation payments; while these may be in the

short-term interests of the company and its

shareholders, these practices are anti-competitive

or offend against the values of society and

promote unacceptable corporate governance.

The Accounting profession must watch out

especially now that jurisdictions are promoting

reciprocity amongst gatekeepers of financial

reporting to ensure that leakages/weaknesses in

corporate disclosures that are the hallmark of

poor corporate governance are addressed from

global convergence of efforts.

CONCLUSION

Good governance of corporations (private and

public) plays very significant roles in attracting

both domestic and foreign investment,

establishing a very healthy private sector, and

shaping very progressive democratic societies.

The Centre for International Private Enterprise

(CIPE) observes that well-governed companies

tend to perform better and contribute to long-term

productivity and growth. Good corporate

governance instills the core values of

accountability, transparency, fairness and

responsibility. The point is made that when these

values spread throughout an economy, they tend

to buttress and sustain accountability and

transparency in the political system, while

avoiding tendencies that undermine the proper

http://en.wikipedia.org/wiki/Creative_accounting

http://en.wikipedia.org/wiki/Earnings_management

http://en.wikipedia.org/wiki/Misleading_financial_analysis

http://en.wikipedia.org/wiki/Insider_trading

http://en.wikipedia.org/wiki/Securities_fraud

http://en.wikipedia.org/wiki/Bucket_shop

http://en.wikipedia.org/wiki/Forex_scam

http://en.wikipedia.org/wiki/Executive_compensation

http://en.wikipedia.org/wiki/Executive_compensation

http://en.wikipedia.org/wiki/Bribe

http://en.wikipedia.org/wiki/Kickback

http://en.wikipedia.org/wiki/Facilitation_payment

http://en.wikipedia.org/wiki/Facilitation_payment

19

functioning of markets and the development of

democratic political institutions. The OECD

Principles of Corporate Governance also

emphasize this relationship between corporate

governance practices and the increasingly

international character of investment.

There seems to be no single especially isolatable

model of good corporate governance as ‘one size

cannot fit all’, OECD officially bears full

testimony to this. The world nevertheless has

identified common governance elements that

characterize good corporate governance practices

that ought to be embraced in the formulation of

the different national corporate governance

models. These governance elements are geared

towards the development of a culture of values,

good ethical behavior, trust and integrity as

bedrocks of well-functioning markets. This is

what the accounting profession should work for

and promote in the business character of their

clients.

Thank you for your rapt attention.

LIST OF REFERENCES

1. DiMaggio P. and W. Powell. 1983. “The

non-cage revisited: Institutional

isomorphism and collective rationality in

organisational field.

2. FASB Newsletter. May 2008.

“Understanding the Issues: Some facts

about Fair Value.

3. Irvine H. 1999 “Money and mission:

who’s counting? An institutional

approach to expectation of accounting in

a religious organisation within a changing

environment. PhD theses, University of

Wollongong, Australia.

4. Financial Reporting Council of Nigeria

Act N0. 6, 2011.

5. Aman, K. (ed.), (1991), Ethical

Principles for Development: Needs,

Capacities and Rights, Upper Montclair,

N.J.: Institute for Critical Thinking,

Montclair State University.

6. Borchert, D.M. & D. Stewart (1986),

Explaining Ethics, London: Macmillan.

7. Bull, H. (1979), 'Human Rights and

World Politics' in Pettman, R., Moral

Claims in World Affairs, New York: St

Martins Press.

8. Commission on Global Governance

(CGG) (1995), Our Global

Neighbourhood, Oxford: Oxford

University Press.

9. Falk, R. (1995), On Humane Governance:

Toward a New Global Politics,

Cambridge: Polity Press.

10. Held, D. & A. McGrew, D (2000), The

Global Transformations Reader,

Cambridge: Polity Press.

11. Sachs, W. (ed.), (1992), The Development

Dictionary, London: Zed Books.

20

12. Scholte, J.A. (2000), Globalization: A

Critical Introduction, Basingstoke:

Palgrave.

13. Singer, P. (2002), One World – the Ethics

of Globalisation, Oxford UP.

2.3 REPOSITIONING THE ACCOUNTING

TECHNICIAN

Presentation by Margaret Unubun (FCA) -

The Executive Secretary of the Association of

Accountancy Bodies of West Africa (ABWA);

Introduction

• The increasing complexity of the

professional accountants roles in any

given economy, the impact of the rapidly

changing information technology, the

effects of structural changes in

organisations, the expectations of clients

and other stakeholders, in practice,

business and in the public sector and the

need to develop the Accountancy

Profession, all aggregate to justify

meaningful and useful deliverables.

Professional accountants have therefore

become more involved with greater

challenging, competitive and daunting

tasks of giving strategic directions to

organizations and can no longer devote

valuable time to what may be termed

rudimentary operational activities which

could be adequately handled by middle

cadre accounting personnel. The call

today, for sustainable economic

development in developed and emerging

economies depends on strong financial

infrastructure encapsulating standards,

regulation and human capacity. Also it is

common knowledge that the number of

highly qualified Professional accountants

is abysmally low, particularly in our

continent.

• It was in recognition of this fact, that some

years ago, the World Bank nursed the idea

of having five thousand accountants in

Africa within a short time. That was also

one of the reasons that fuelled the setting

up of PAFA. It is truly encouraging that

PAFA has yet again picked on the topic

relating to this group, the accounting

technician which in my opinion is an

integral part of the accountancy

profession

History

• In the UK, Accounting Technician’

Scheme is about 33years old, when four

UK Accountancy bodies facilitated the

formation of the Association of

Accounting Technicians (AAT). A few

years later ACCA formed the Certified

Accounting Technician (CAT). AAT with

over 120,000 members is recognized as a

professional qualification by the

Department of Trade and Industry, UK,

expectedly former British

Commonwealth countries, USA and its

members are in over 90 countries

worldwide.

• On the other hand, CAT is a professional

academic qualification within the ACCA

Structure.

21

• Both AAT and CAT work together with a

common goal of furthering the

accountancy profession.

• In South Africa, there is The Association

of Accounting Technicians South Africa -

AAT (SA), which is a finance and

accountancy professional body that offers

practical, internationally recognized

qualifications. It is dedicated to the

education, development, regulation and

support of finance and accounting staff

and includes local government accounting

qualifications.

• Under the scheme you study while you

work and the qualification is work- based.

This is a relatively young initiative by a

partnership arrangement between the

South African Institute of Chartered

Accountants ( SAICA ) and the

Association of Accounting Technicians (

AAT )

• In West Africa, two renowned and

respected pioneer professional

accountancy organisations, the Institute of

Chartered Accountants of Nigeria (ICAN)

and the Institute of Chartered Accountants

Ghana, as far back as 24 and 22years ago,

respectively saw the need for the

accounting technician in the financial

reporting chain and national development

process in their countries.

• The thrust then was to upgrade the skills

and competences of the lower grade

workers in accounting offices, who

needed higher skills to carry out their

work more competently, enhance their

career potential, while giving them status.

• Both schemes were independently run and

received a lot of enthusiasm with good

patronage. However, in 1997 the ABWA

Council, thought it expedient to have the

scheme run under ABWA so that all

ABWA member bodies and thereby their

national economies could benefit there

from. The scheme became Accounting

Technicians Scheme West Africa

(ATSWA) a major project in the sub

region to provide a regionally recognised

and accepted professional qualification to

support the Professional Accountants

within the region. Council set up a

Harmonization Committee to work out

the modalities for the actualization of the

project. It is worthy of note that once the

modalities were in place, that committee

metamorphosed into the Implementation

Committee as well.

• The ATSWA Syllabus was designed to

strengthen the education and training

requirements to produce world class

accounting technicians:

• Who play supporting role to the

professional accountants

• With primary duty to maintain accounting

systems designed by chartered

accountants

• Who may sometimes work independently

with little or no supervision

• Who can adequately meet the needs of

public sector including local government,

industry, commerce and broad based audit

and related practice

22

• And who are well equipped with requisite

skills and knowledge to progress to

professional examination level....

• Structure of the Syllabus

• The Syllabus has a three part structure

with twelve subjects as listed:

• PART 1

• Basic Accounting Processes and Systems

• Economics

• Business Law

• Communication Skills

• PART 2

• Principles and Practice of Financial

Accounting

• Public Sector Accounting

• Quantitative Analysis

• Information Technology

• PART 3

• Principles of Auditing

• Cost Accounting

• Preparing Tax Computations and Returns

• Management.

• The ATSWA Syllabus is revised every

four years and it had been strategically

drawn up to align with those of

Accounting Technicians in the UK,USA

and Canada to ease the process of

conversion of students from one scheme

to the other if they so desired and also

facilitate reciprocity, when such option

becomes necessary since graduates

compare favourably globally.

• It is a known fact that donor agencies are

interested in this scheme. In West Africa

for instance, The World Bank was

instrumental to the production of Study

Packs for Students and having them

translated to French.

• USAID was committed to assisting with

the hiring of instructors, all for the benefit

of the students of the scheme.

Challenges

• The scheme has not had silver bullets and

neither had there been quick fixes.

• The Legislative frame work and back up

of each country poses a major challenge,

which has contributed to the francophone

members’ inability to participate in the

scheme, though some of these institutions

have adopted the syllabus into their

academic curriculum

• National specifics must be recognized and

accepted and there is no one size fit all

• There is a dire need for continued

adequate and effective awareness

programmes

• Assisting and preparing students for the

examinations

• Preference in some quarters for university

degrees.

23

Beneficiaries

• Entire economy from increased

productivity of a well – trained, skilled

and discipline work – force.

• The individual accounting technician

recognized and with professional respect

• The organization she/he works for

• Those organizations that lack the financial

muscle to engage professional

accountants including some NGOs, Local

Governments, SMEs, Charities etc

• Generally, the accounting technician’s

function should be to add value in areas

including transaction processing, cash

management & budgeting, credit control,

internal control, preparation of taxation

returns, reconciliation statements etc. It is

important to note that the list is not

exhaustive and one could perhaps assert

that the demarcation line between

professional accountants and accounting

technicians is not as thick as it used to be.

• As a matter of fact that distinctive line

varies between jurisdictions and changes

on account of globalization, regional

integration and cooperation,

developments in information and

communication technology and as a

reaction to economic crisis.

• What is relevant is that they are properly

and adequately trained, qualified and

regulated within a professional body so as

to ensure that financial and performance

reporting have strong and tested

foundations which portend financially

healthy organisations that create viable

and successful economies.

• It is important to note that many

professional accountancy bodies are

promoting the development of accounting

technicians albeit in different models in

different countries. Some of them are

standalone professional bodies for

example, the Hong Kong Institute of

Accredited Accounting Technicians and

Accounting Technicians Ireland to

mention a few. Some have membership

status within Professional bodies such as

the Botswana Institute of Chartered

Accountants and the New Zealand

Institute of Chartered Accountants

• Repositioning the accounting

technician, is justifiable since “No

condition is perfect” and neither should it

remain permanent.

• It is interesting to note that there are

evidences to show that Technicians are

recording very good passes in

Professional exams.

• Consequently, I will like us to look at

these from 2 perspectives:

Firstly,

• All PAOs without accounting technician

scheme should delay no more. Get on the

drawing board and start something or at

least seek advice from those running the

scheme.

Secondly,

• Those with the scheme should not rest on

their oars. There is yet so much to do.

24

Accountancy and finance work has never

been more varied, more interesting, more

challenging and more competitive.

Support and promote the accounting

technicians in your jurisdiction.

• Obtain recognition for them with

governments and have them put on proper

pay scale, encourage them, where

interested, to progress to professional

level and also secure direct entry to

universities for degree programmes.

• Give them some membership status and

make them belong and enhance their

relevance.

Caveat:

• Understand the political terrain in your

jurisdiction

• CPD is a must for the accounting

technician

• They cannot act as external auditors and

cannot sign financial statements.

• PLEASE VISIT RELEVANT

WEBSITES FOR MORE DETAILS.

2.4 FIGHTING CORRUPTION IN PUBLIC

INSTITUTIONS: THE ROLE OF THE

INTERNAL AUDITOR.

By Paul Kwame Awuah

Corruption is a complex social phenomenon,

which has become rooted in all facet of society in

the world especially in the developing world. For

so many years, the issue of corruption has caused

severe damage in public institutions in Ghana

resulting in serious financial loss to the state,

damage to organisational performance and loss of

credibility. It has seriously eroded public

confidence and undermines the legitimacy of the

spending of taxpayers’ money by public

institutions.

In Ghana, corruption has become prominent in

public institutions due to factors like wide

discretionary powers of state functionaries,

minimal accountability, weak punitive

mechanism for corrupt behaviour, lack of

transparency, low salaries to government

employees and absence of incentives for honesty

and integrity. According to anti-corruption

watchdog’s 2013 Global Corruption

barometer(GCB) report in July, 2013, 54% of

the 2000 respondents in Ghana reported that

corruption has increased in the past two years

(2011 to 2013) .According to the report Ghana

police service top the list of the most corrupt

institution in the Ghana followed by political

parties.

Fighting corruption in Ghana has not been easy

for some time now mostly due to lack of political

will to fight this social canker. However, it has

been suggested that the surest way of fighting

corruption in our public institutions is the practice

of sound corporate governance system and one of

the key corporate mechanism necessary to fight

corruption is the internal audit units. This has

become necessary due to the relevance of the

agency theory in the public sector. In both private

and the public sector, the providers of the

economic resources are separate from the

management of the organisations. The owners

require the management to use the resources

provided judiciously for the benefit of the owners.

25

This is normally referred to as the Agency theory

or the agent/principal relationship. In the private

sector the managers of the companies are the

agents and the shareholders (owners) the

principal. In the public sector, the citizens are the

principal and government officials are the agents.

In practice the principal delegates the day- to –

day decision making of the organisation to the

managers who are agents to the owners. The

problem that normally arises from this

relationship is that in most cases the decisions

taken by the agents are not in the interest of the

principal but rather to the advantage of their own

selfish interest. In most public institutions in

Ghana, Directors, chief executives, politicians

and other key public officials in responsible

positions mostly pursue their own personal

objectives like payment of fat sitting allowances,

collection of kickbacks, , frequent travels etc.

These corrupt practices in our public institutions

are some of the reasons why most Ghanaians are

facing economic hardships. This assertion was

collaborated in a recent report by the transparency

international when they reported that in some

countries especially in the developing world poor

families have to pay bribes before they can seek

medical attention from government hospitals. The

report went on to say that corruption by

politicians and some public sector workers has

led to the failure in the delivery of basic services

like good education, adequate and affordable

electricity supply and proper healthcare.

An important question that comes into mind is

that how can the citizens who pays tax for the

development of the nation exercise control over

politician and other government officials who are

supposed to ensure that monies collected from

and on behalf of the citizenry are put into good

use? What effective mechanisms can be put in

place to ensure that government officials

periodically properly account for their

stewardship to the citizens?

Theoretically, Ghana can boast of a lot of

legislations which have been put in place to

ensure that funds assigned to various government

institutions are judiciously used for the benefit of

the people. The financial Administration Act,

2003 (ACT 654), The Financial Administration

Regulations, 2004(L.I. 1802), The public

Procurement Act, 2003(ACT 663), The Internal

Audit Agency ACT, 2003(ACT, 658) are

examples of such regulations which have been

enacted to ensure financial discipline in our

public institutions but the biggest problem is how

to ensure compliance of the provisions in these

regulations. Briefing the press on the outcome of

a self-assessment process under the United

Nations Convention Against Corruption

(UNCAC) last year, a deputy commissioner of

human rights and administrative justice (CHRAJ)

in charge of Anti-corruption and Public

Education Mr. Richard Quayson conceded that

in terms of legislation Ghana is doing well in

fighting corruption but we are weak when it

comes to the practical implementation of these

regulations.

In addition to the legislation there are other

mechanisms being used to fight corruption in

public institutions. One of such mechanisms is

the establishment of internal audit units in various

government institutions. Internal audit represent

a key indispensable corporate governance checks

and balances that if well functioned can help to

monitor financial activities in government

institutions. A well-functioned internal audit unit

can play a vital role in the governance and

accountability process in the public sector

through their assessment of the effectiveness of

26

key organisational controls a risk management

processes. They are also responsible for the

strengthening of public sector internal controls

systems to ensure that public sector officials

conduct activities fairly, transparency and

honesty. In every organisation especially in the

public sector, the internal auditor plays a crucial

role in fighting corruption because they have the

best access to detail information on financial

transactions, procurement procedures and the use

of funding.

For the past ten years internal auditing have

received massive recognition in the financial

management process in government institutions

especially with the enactment of the internal audit

agency act in 2003(Act 658). The Act was

enacted as part of efforts to strengthen the internal

controls in public institutions to ensure

effectiveness and efficiency in the use of

government resources and to minimise

corruption. The Internal Audit Agency Act gave

birth to the Internal Audit Agency, a central body

mandated to coordinate, facilitate and provide

quality assurance within the public sector and to

operate as an oversight body. The agency since its

establishment has ensured that all public sector

institutions have a well-established internal audit

units. The agency within its powers has put all the

necessary measures in place including the

provision of auditing standards and the periodic

workshops for all internal auditors to ensure that

internal auditors in public institutions function

effectively as a key public sector corporate

governance mechanism.

The question that will once again come into mind

is why is it that corruption is still rife in our public

institutions despite the rejuvenation of internal

audit units in our public institutions? The issue

with independence has been one of the reasons

why internal auditors have not been effective in

protecting government resources. There is a

perception that internal auditors in our public

institutions are not independent because of the

powerful nature of senior public servants to

whom they report. This lack of independence has

affected the objectivity of most internal auditors

in public institutions. The integrity of some

internal auditors is also questionable. It is

believed that some internal auditors are also

engaged in corrupt practices in public institutions.

Some internal auditors are found chasing

suppliers to pay kickbacks to them before

approving their invoices for payment. Political

interference is another reason why internal

auditors in public institutions cannot function

effectively. It is believed that some internal

auditors have been strategically be put in some

institutions where they can easily be manipulated

and there are also situations whereby some

internal auditors succumb to political pressure for

fear of losing their jobs.

Notwithstanding the above problems with

internal audit units in the public sector, the unit

remains one of the key corporate governance

mechanisms if well properly structured can help

fight corruption in our public institutions, which

is increasing at an alarming frequency. The issue

with independence should be a source of concern

to the internal Audit Agency. I am therefore

calling for the immediate amendment to the

Internal Audit Agency Act to ensure that auditors

in the public institutions report directly to the

Agency and not to the politicians and heads of

institutions. This will help improve the

independence and objectivity of internal auditors.

The attraction and retention of competent internal

audit also remains one of the serious challenges

in the public sector. The inability to attract and

27

retain competent professionals is a contributing

factor to the failure of internal audit units to fight

corruption in the public sector.

The internal auditor is a respectful and

honourable position reserve for men and women

with integrity and not for people with

questionable characters. Anybody who is

appointed as an internal auditor in any public

institution has the responsibility to maintain a

good ethical standard of himself and his authority

as a good example to ensure adherence to rules

and regulations, procedures and recommended

acceptable practices. The modern internal auditor

should therefore be fully prepared to adhere to the

principles of integrity, confidentiality,

objectivity, and competency and above all be able

to detect and report issues on corruption without

fear or favour.

2.5 HOW TO SOLVE PROBLEMS

EFFICIENTLY, EFFECTIVELY AND

DECISIVELY – SPEED

Problem solving has, in this new generation found

a more positive approach in that more focus is

provided to the solution than the problem itself.

This is a good shift away from the old problem-

based orientation as it provides a variety of

methods to apply. Thus, instead of focusing on

passive ‘problem-solving’, it is the more active

‘solving problems’. In solving problems

efficiently, effectively and decisively, there are

several levels of focus: 1 principle which outlines

the approach, 2 strategies that provide high-level

orientations, 5 pillars of values and 4 types of

problem types.

SPEED Principle

The principle of SPEED is making small but

significant changes that minimize disruption yet

achieves the objectives of the changes. The

principle is really about identifying traits of good

decision making processes and developing a

system to reliably duplicate these decisions.

SPEED Strategies

The 2 core strategies of SPEED are:

1. “Help others sincerely in solving their

problems and God will make your

problems easier to solve”. This is

accepting that man was created to serve

God, thus play a role in creating peace on

Earth as His vicegerents. As such, His

blessings are available for anyone who

truly assists others to save them from

difficulty. Even if you do not know how,

God will show you the way. Just want to

help and help will come.

2. “Ask for help”. Keeping a problem to

oneself will only stretch the limit of

human capacity. By sharing his

challenges and goals, one widens his

capacity to receive assistance by other

people or communities. Asking for help

from God and His creation is not a sign of

weakness. It is, in fact, a sign of humility.

SPEED Pillars

SPEED is built upon 5 pillars, meaning when you

inculcate these as your lifelong values, they will

support your problem solving efforts. They are:

1. Acceptance – accept the reality of the

situation and quickly move to resolve it.

2. Confidence – every disease has a cure.

Every problem has a solution, whether it

resolves in your favour or otherwise.

28

Therefore, become involved in the

problem and solve it in your favour rather

than stand back and do nothing.

3. Determination – this is doing everything

with stamina and passion to find a

solution, even if you do not see it yet.

Have faith. Like a ship, a leader shall

navigate with caution taking

consideration of all factors that may

hinder the voyage objective until reaching

the final port of destination and with

expected results.

4. Improvement – when you are once

burned, why get a credit card again? After

the tsunami, countries like Japan and

Malaysia are now better prepared. After

our personal tsunamis, we want to be

better prepared too.

5. Follow-up on the decision taken – when

you make any decision ensure that it is

carried through. It is critical to check with

each other at specific times to make sure

that the agreement is still working.

Risk or Issue?

A problem is identified first as a risk or an issue.

A risk is a potential problem and an issue is a

present problem. Most people solve issues yet

forget that risks, when left unprepared for, can

develop exponentially into issues. In a car,

neglecting to change a timing belt that may cost

GHC100 can easily escalate to becoming a GHC

5,000 engine overhaul. A habit of not wearing the

seatbelt can easily cause sudden and painful

orphan hood. Pay as much attention to identifying

risks and nipping them in the bud as you do

solving issues.

Problem types

SPEED recognizes that analyzing problems is the

first step to understanding its complexity since

most problems have many moving parts. It is

because of this that solvers sometimes

oversimplify a problem and are not able to resolve

the cause-and-effects of complex ‘problem’. To

see clearer SPEED categorises all problems into

4 types, these are:

1. Process – resolving bottlenecks,

blockages, lack of resources, delays, etc to

maintain a controllable and desirable flow

of value.

2. Decisions – weighing between two or

more similar options and choosing

between them based on merit and being

able to defend the decision.

3. Relationships – communicating clearly

and persuading other people with as

minimal emotional turmoil as possible.

4. Motivation – individual drive.

Most problems come as a mix of two or all four

of the above, which as previously mentioned,

makes solving them challenging. Some people

categorize health problems as a process issue. All

they need is the money for an operation. Once

they have it, they believe the problem is solved.

There is also the possibility that one’s health

problem affects one’s motivation to live thus

contributes them to die in the operating room or

to take too long to heal. This strains familial

relationships. Thus, in this case, the “health”

problem comes bundled 3 disguised as 1.

Therefore, analyze the problems separately and

solve them at the same time rather than

sequentially.

Final solution

29

As human beings, we must accept that our ability

to process problems is very limited, even when

work together en masse. Thus, the realization that

God is the Ultimate Solver leads us to use that

final and most powerful of tools in our toolbox,

and that is supplication. For solving problems

certainly feels like going to war, and supplication

is the weapon

2.6 ARE YOU PLAYING DEFENCE AS A

LEADER?

In sporting teams we hear about the importance

of the “defense” to win games, however this is

one factor that has no place in the business and

leadership environment. The idea of defense is to

prevent a threat from breaking the line and

making ground against an opposition. Therefore

if you are a defensive leader then you must be

presenting yourself as an opposition to the

workplace rather than a team member. A leader

that becomes defensive and tries to block his or

her employees from making ground is in fact the

same as your teammate tackling you just before

you score a try.

How would you react to seeing a fellow teammate

act in this way on a sporting field?

Everyone else in the team would alienate

you

People will avoid you

No one would trust you

No respect

You have broken ethical and moral

obligations

You are full of self-interest and

importance

You care only for yourself and your own

game, not the results of the team

What happens then when this is present in the

business environment?

If you are a leader and are creating a defensive

team you are effectively stopping the team from

performing at all. The result of treating others

within the workplace as a threat creates a culture

of negativity and loss of forward momentum. As

a leader your job is to lead them, play to their

strengths and ensure that each person has a clear

understanding of their role and position. As a

leader you encourage brilliance and the ability of

individuals to produce inspiring results and

reward them for doing so.

The best example of the defensive environment is

use of the term “Think outside the box”. The idea

implies that a box has been created in the

workplace to begin with, which by its very design

is to stop anything from getting out of a controlled

area, e.g. Thought. As a leader you cannot have a

box environment then expect people to switch on

and off the thought process when the business

feels like it. The moment a box mentality or

defensive mentality is installed in the workplace

you have effectively shut down the creative

process and in turn created a defensive opposition

in the workplace.

In reference to the term “threat”, if you are

threatened by the performance of a team member

you are not fit to lead. Experience has shown that

those that act to block threats ultimately are left

without a team to lead and in turn make their job

more difficult by a multiple of ten. Leading the

individuals to shine is the ultimate form of

leadership and as such you have to lead a team to

victory. The accolades are not taken from the

30

leader for the outstanding performance of those

around them. As a leader you should be

embracing the idea of creativity and thinking at

all times. The human brain is forever thinking and

wanting to create, it is its nature to do so, as such

you should be continually embracing it and

enabling your team to perform to their strength

and produce the results they are capable of.

Telling traits of a defensive business

environment:

Lack of input by employees

Lack of communication

Negative behaviors and emotional state

Poor staff retention

Lack of enthusiasm

Lack of respect for the business

Lack of respect for others

Poor workplace culture

These are just some of the key traits that are

present in the business environment that have a

dramatic effect on the overall position of the

business and ultimately its success. As leaders

you have an obligation to those around you as

well as the obligation to the business, the moment

that your own self-interest takes precedent over

the environment in which you lead is the moment

the walls will fall down around you.

It is not an impossible task to run around; you can

change the direction of the workplace and create

a team with a powerful culture. It will take some

work and some restructuring, but it is possible.

More importantly, the result of turning around

and creating this positive leadership will be more

rewarding and prosperous than you ever

managed, not just for you but also for your entire

team.

How can you improve your leadership?

Open communication and feedback at any

time

Regular input sessions as a team

Find individual's strengths and develop

them

Find individual's weaknesses and develop

them

Have everyone understand each other’s’

roles and positions

Encourage individuals to pursue an idea

Give constructive feedback on thoughts

presented (never ignore them)

Never take credit for someone else’s idea

Never put down an idea, especially in

front of others

Be true to your word.

Nothing is ever beyond repair; a great leader

never gives up on his team. Do whatever it takes

and never be afraid to ask for help, nobody has all

the answers, even as a leader.

An effective leader is someone who can build

trust, makes decisions, and takes decisive actions

towards achieving goals and objectives. Effective

leadership is all about balance – it is about

understanding the different styles of leadership,

how to use the various leadership styles and most

importantly, when to use them. Leadership

failures are commonly due to the inability and the

failure to understand one’s default leadership

style and how it affects others around you, and not

knowing how and when to apply the various

leadership styles to obtain the results that you

want. Effective leadership is about knowing when

to be nice and when to be demanding. It is about

understanding when to give and when to take. It

is about knowing when to coach and when to be

31

directive. It is about knowing when to be

democratic and when to be authoritative. It is

about understanding when to set the pace and

when to allow your people to run their own race.

Leadership is also about awareness. A leader

cannot be effective being nice all of the time.

Neither can a leader be effective by being

coercive and demanding all of the time. An

effective leader is one who is not only socially

aware, but also emotionally aware. Being socially

and emotionally aware will enable the leader to

effectively read the social situation and

understand the political, emotional and social

undercurrents. This will enable the leader to know

what leadership styles to apply, when to apply

those styles and how best to apply the various

leadership styles within different social,

emotional and political contexts.

Leadership is about individual personality. An

effective leader must also be able to understand

the personality make-up of their individual team

members because each individual is different and

each will respond and react differently to

different stimuli and motivation. Understanding

the basic personality make-up of each team

member will enable the leader to understand how

best to engage each individual and know exactly

what motivates each person and what drives each

individual.

Effective leadership is about the right people.

Effective leadership is about having the right

people on-board the team. With the right people

on-board the team, a leader can only become even

more effective. Having the right people in terms

of cultural fit, aptitude, personality, skills,

qualifications and experience will help put the

team on the right track and enable the team to stay

the course and reach for the stars.

If you are wondering why your team is not

performing to expectations and you wish to know

how to lead your team to higher performance,

perhaps you should begin by identifying your

own leadership styles. Your leadership styles

drives the way you communicate with your team,

and that in turn determines how your team

members perceive your message and how they

respond back to you. Ultimately, it is your

leadership style that determines the end results

that you get.

2.7 SIX WAYS TO USE SOCIAL MEDIA

ADVERTS (ADS) TO GROW YOUR

BUSINESS

Back in 2011, social media users began to see a

mysterious new breed of messages show up in

their Twitter feeds: paid ads dressed up to look

just like regular Tweets. Fast forward three years,

and these Promoted Tweets – along with

Facebook ads and similar offerings on other

social networks – are officially one of the fastest

growing sectors of online advertising. And while

user opinions of native social ads may vary from

indifference to annoyance, the results seem to

speak for themselves.

Facebook native ads that appear in users’ news

feeds are clicked on 49 times more often than

traditional banner ads in the right sidebar,

according to AdRoll. Promoted Tweets have

shown engagement rates of 1-3 percent –

exceptional considering that normal banner ads

are clicked on just.2 percent of the time.

For businesses, native ads offer additional

advantages, like fine-tuned targeting, analytics

and cost effectiveness when compared to

32

traditional marketing campaigns. The following

six tips should be helpful for marketers

considering a foray into the world of native social

advertising.

1. Use free social media to beta-test your

paid social ads

If your company is on social media, you are likely

already sending out multiple Tweets, Facebook

Posts and LinkedIn Updates every day. Some of

these messages will resonate with followers;

others will not. Using free analytical tools it is

easy to track which ones are being clicked, shared

and commented on. It is precisely these high-

performing messages that make great candidates

for native social ads. You already know they

“work”, taking the guesswork out of the creative

process. All you are doing is taking a tried and

true message and paying to put it in front of a

newer, larger audience.

2. Take advantage of targeting features

One of the major rubs with traditional ads is

inefficiency. For example every time a die-hard

Prius owner which runs on electricity sees adverts

for a fuel-guzzling SUV, for example, it

represents a major waste of resources. Social ads

minimize this type of spillage. On LinkedIn,

Sponsored Updates can be targeted to particular

regions (countries, cities, etc.) and industries, as

well as to specific job titles and even particular

companies. Twitter allows advertisers to drill

down based on region, gender, device and

literally hundreds of different interest categories.

Messages can even be aimed at specific brands

and their respective followers, enabling

businesses to go directly after the competition and

its client base.

Meanwhile, Facebook’s Sponsored Posts can be

blasted out to a nearly endless list of interest

groups. Facebook can even go after “lookalike

audiences”, i.e. users who have already expressed

interest in products similar to yours.

3. Rotate ads frequently

With TV commercials and other traditional

“interruption ads” repetition is the name of the

game. But Promoted Tweets and Sponsored Posts

appear right in users’ news feeds. Not only are

engagement rates bound to plummet if you

hammer users on their home turf with repetitive

messaging, but you may end up losing more

business than you gain. The remedy here is fresh,

ever-changing ad content. Because tweets and

posts are generally short and sweet, this is hardly

a heavy burden. At the same time, social ads can

be used by targeting them to multiple

demographics. Rotating the same message

through a series of different, highly targeted

groups, in fact, is of the easiest ways to extend the

life and utility of native social ads.

4. Use small samples to test your social ads

One of the great virtues of native social ads is

instant feedback. Minutes after sending out a

Promoted Tweet or Sponsored Post, for example,

it is possible to gauge its effectiveness. Detailed

analytics reports and charts show who is clicking

and how often. Before doubling down on a single

social ad, we have found it effective to send out

several “test” ads to small audiences and wait to

see the results. For minimal spend, we get a clear,

data-driven picture of which ad performs best.

Then we will back the winning message with

additional spending to ensure it reaches the

largest audience. This will depend on the product

33

or service that is being advertised. Different ads

will get better impressions at different times.

5. Understand how ads are sold

Different networks sell ads in different ways. On

Twitter, companies pay on an engagement basis.

Every time users take an “action” – click, retweet,

favorite, etc. – a fee is assessed. Meanwhile,

Facebook and LinkedIn offer the option of paying

per impression, while companies are charged

whenever their ad shows up in user’s streams

(regardless of whether or not it is clicked on).

With Twitter, make sure the engagement you

want is the engagement you are getting. Twitter

counts all RTs, URL clicks as well as clicks on

ANY @, # or image in the tweet as an

engagement. You pay each time any of those

occur. If your goal is to drive visits to a specific

web URL avoid including too many @ handles or

#s since you pay each time someone clicks on

those and you will burn through your budget in no

time.

Though the difference may seem academic, it is

critical to bear these two pricing models in mind

and to design Tweets and Posts accordingly. For

example, since we pay Twitter each time users

click on our ads, it is important that people be

genuinely interested in the content waiting on the

other side. This requires drafting Tweets that are

clear and straightforward – in essence, the

opposite of “link bait”. The goal here is to drive

genuine prospects to our site, not merely to attract

as many eyeballs as possible.

6. Design your ads with smartphones in

mind

Social media is consumed overwhelmingly on

mobile devices. Twitter users spend 86 percent of

their time on the service on mobile. Facebook

users are not far behind at 68 percent. This means

most native social ads are being viewed on mobile

devices, as well. And this comes with certain

benefits and caveats. First, messages have to be

optimized for viewing on small mobile screens.

For Promoted Tweets, this is hardly a challenge,

given the 140-character limit. For Facebook’s

Sponsored Posts, this requires keeping messages

short and sweet and ideally, imaged-based.

But the fact that native social ads viewed on a

device people carry around with them at all times

also opens up unique marketing possibilities.

Twitter recently unveiled a feature enabling paid

Tweets to be targeted by zip code. Users walk into

a neighborhood, for instance, and suddenly

Promoted Tweets for the local pub, dry cleaner or

McDonald’s pop up in their Twitter stream. This

kind of “geo-fencing” technology, which

Facebook has had since 2011, enables businesses

to court the kind of walk-in customers mostly to

act on limited-time deals and in-store specials.

Digital advertising is a notoriously fickle field,

and trends come and go. Banner ads boasted

click-through rates of up to 5 percent in the

1990’s before viewers learned to simply tune

them out. There is good reason to believe,

however, that native social ads are poised for

growth and here for the long haul. (in fact,

Instagram and Pinterest – two fast-rising visual

social networks – have just unveiled their own

versions). Native social ads are cheaper to

produce than traditional ads and reach their target

with impressive efficiency. Plus, at their best,

they are creative, entertaining and even useful – a

novel concept in advertising and one whose time

has come.

34

TECHNICAL MATTERS

Cost-Value-Profit Analysis (Break Even Analysis)

By Ofori Frimpong Henneh

This is a systematic method of examining the relationship between changes in activity (i.e. output) and

changes in total sales revenue, expenses and net profit. As a model of these relationships CVP analysis

simplifies the real world conditions that a firm will face. CVP analysis are subject to a number of

underlying assumptions and limitations. The objective of CVP analysis is to establish what will happen to

the financial results if a special level of activity or volume fluctuates.

There are two approaches to CVP

1. Economists' model

2. Accountants' model

Accountants' model assumes a linear relationship between costs and revenues over a relevant range of

activity level. They are straight lines whereas economist assumes a curvilinear relationship between costs

and revenues. The relevant range is used to refer to the level of activity/output a firm is expected to be

operating within a short term planning horizon. Fixed cost is assumed to be constant over the relevant

range and selling price and variable cost per unit are also constant. The breakeven point is the level of

operation where the firm neither makes profit or loss.

Approaches to solving CVP

1. Mathematical approach

2. Graphical approach.

CVP analysis uses variable costing approach. i.e. sales less variable costs gives contribution. This is the

amount each product brings in to cover fixed cost.

Net profit = (units sold x selling price) – (units sold x unit variable cost) + fixed cost.

i.e. NP = Px –( bx +a )

where NP = net profit

Px = Sales revenue

Bx = variable cost

35

a = fixed cost

x = units sold/produced.

Contribution (C) = Px – bx

Example

Travel and Tours Ltd operates in the leisure and entertainment industry and one of its activities is to

promote tourism to various locations throughout the country. The company is examining the viability of

organising excursions for students of SIT to Lake Bosomtwi.

Estimated fixed costs are GH¢60,000. These include fees for tourist guides, hire of vehicle, district

assembly charges, and advertizing costs. The variable costs consist of the cost of a pre-packed buffet which

will be provided by a firm of caterers at a price of GH¢10 per person. The amount to be paid by each

student is GH¢20. The management of Travel &Tours Ltd have approached you to estimate the following

for them.

1. The number of students that must attend to break-even.

2. How many students must attend to earn GH¢30,000 profit?

3. What profit would result if 8,000 students attend?

4. What price to charge to give a profit of GH¢30,000 if 8,000 students attend, fixed cost of GH¢60,000

and variable cost of GH¢10.

5. How many additional students must attend to cover the extra cost of television advertising of GH¢8,000?

Solution

The equation can be expressed mathematically as NP = Px – (a + bx) or using a formula:

Fixed cost + profit

Contribution per unit

1. Break-even point in units

Since NP = Px – (a + bx) the breakeven point is the level of output(x) where

a +bx = Px – NP

60,000 + 10x = 20x – 0

60,000 = 10x

x = 6,000 students or (GH¢120,000 in revenue)

36

Alternative method:

Fixed cost + Profit


Contribution = Px - bx = 20 – 10 = 10

60,000 + 0 = 6,000 students

10

2. Students to attend to make a profit of GH¢30,000

NP = Px – (a + bx)

30,000 = 20x – (60,000 + 10x)

90,000 = 10x

x = 9,000 students

OR

Fixed cost + Profit


= 60,000 + 30,000 = 90,000

10 10

= 9,000 students

3. Profit if 8,000 students attend

NP = Px – (a + bx)

NP = 20 x 8,000 – (60,000 + 10 x 8,000)

= 160,000 – (60,000 + 80,000)

= 160,000 – 140,000 = GHC20, 000

4. Price to charge to show a profit of GH¢30,000 if 8,000 students attend

30,000 = 8,000P – (60,000 + 10 x 8000)

30,000 = 8,000P – 140,000

8,000P = 170,000

P = ¢21.25 per student

37

5. Additional students to cover advertizing cost of GH¢8,000

The contribution per unit is ¢ 10. Extra fixed cost is GH¢8,000

Extra students to attend

= 8,000 = 800 students

10

B: The Profit -Volume Ratio

The Profit-Volume ratio is the contribution expressed as a percentage of sales.

PV ratio = Contribution x 100

Sales

In the example given PV ratio

= 10 x 100 = 50%

20

This can be used as an alternative formula.

Fixed cost + profit

C/S ratio

C. Margin of safety

The margin of safety indicates by how much sales may decrease before a loss occurs.

Using the example: Selling price = GH¢20

VC =GH¢10 Fixed Cost = GH¢60,000

BEP = 6,000units (GH¢120,000)

If 8,000 students are expected or (GH¢160,000), the margin of safety = 8,000 – 6,000 = 2,000 students or

GH¢160,000 – GHC120,000 = GH¢40,000

The margin of safety (m/s) can be expressed in percentage form based on the following ratio:

Margin of safety =

Expected sales – breakeven sales

Expected sales

= 160,000 – 120,000 = 25%

160,000

38

The Graphical Method

a. Contribution Graph

In this graph fixed cost is drawn first parallel to the horizontal axis at the fixed cost level? The total cost

line is drawn starting from the level of fixed cost. The difference between total cost and fixed cost is the

variable cost (TC – FC = VC)

The Sales or revenue function is drawn starting from the origin straight across the graph. The point where

sales revenue curve intersects the Total Cost Curve is the breakeven point. The margin of safety is the area

in between TC and revenue function above the breakeven point.

Breakeven Chart Sales revenue

Sales revenue

200

Total cost

180

160

120

60

40

20

0

6

Alternative approach for contribution graph

Here the variable cost curve is drawn first. Total cost is drawn parallel to the variable cost level. The point

where Revenue curve intersects the Total cost curve is the Breakeven point. The difference between the

two parallel lines (TC - VC) is the Fixed cost

Total

VC

Total FC

M/S

39

200

180 profit

Fixed cost

120

60

6

B. Profit Volume Method (PV method)

The breakeven and contribution charts do not highlight the profit or loss at different volume levels. To

ascertain the profit or loss from a breakeven chart, it is necessary to determine the difference between TC

and TR lines. The PV graph is a more convenient method of showing the changes in volume on profit.

The horizontal axis represents the various levels of sales volume, and profits and losses for the period are

recorded on the vertical axis. The breakeven point occurs where the profit line intersects the sales/output

line. When sales/output is zero the loss is equal to the fixed cost. So PV graph starts from the level of fixed

cost where sales equals zero.

Profit

60

40 M/S

20 profit area

0 BEP

6 10 sales volume

20 loss area

40

60

loss

TR

TC

VC

Q

R

40

CVP analysis Assumptions

1. Variable costs remain constant.

2. Fixed Costs do not change.

3. A single product or constant sales mix.

4. Profits are calculated on variable costing basis

5. Sales matches production

6. Total costs and Total revenue are linear functions of output

7. The analysis applies to the relevant range only

8. Costs can be accurately divided into fixed and variable elements

9. The analysis applies only to a short term horizon

PAST EXAMINATION QUESTIONS AND SOLUTIONS

QUESTION 1

(a) In accordance with IAS 1 – Presentation of Financial Statements, explain:

(i) the components of a complete set of Financial Statement, and (2 marks)

(ii) the Elements of Financial Statement (4 marks)

(b) A company received two separate grants during the year from the United Kingdom government.

The first grant, an amount of GHC500,000 was given to acquire an Electricity Plant, whilst the

second grant of GHC50,000 was to support the training of electrical engineers on the Electrical

Plant. The Plant was estimated to have an economic life of 25 years.

Required:

Detail out the treatment of the above events in accordance with IAS 20 – Accounting for Government Grant

and disclosure of Government assistance. (4 marks)

(c) Mega Band leased a set of musical instrument from Best Equipment Limited on 1 January 2010.

The cash price of the instruments was GHC10,000 and the annual rental payment is GHC3,000

payable in advance.

The initial period of the lease is four years and the implicit interest rate in the lease is 13.7%.

The set of instruments are expected to have an economic useful life of four years, and depreciation

is to be charged on this basis on cost (with nil residual value).

Mega Band’s accounting period ends on 31 December and finance charge is accrued at 31

December.

Required:

(i) Prepare a lease schedule showing the allocation of the finance charge over the four year period.

41

(ii) Show the extracts of the Income Statement and the Statement of Financial Position in respect of the

lease over all relevant years. (10 marks)

(d) On 1 January 2009 Ahafo Brewery Limited (ABL) acquired a new bottling plant under the

following terms:

GHC’000

Manufacturer’s base price 4,200

Trade discount (applying to base price only) 20%

Freight charges 120

Electrical installation cost 112

Staff training in use of machine 160

Pre-production testing 88

Purchase of a three-year maintenance contract 240

Estimated residual value 80

Hectolitres (HL)

Estimated life in hectolitres of beer 24,000

Hectolitres of beer produced - year ended 31 December 2009 4,800

- year ended 31 December 2010 7,200

- year ended 31 December 2011 (see below) 3,400

On 1 January 2011, ABL decided to upgrade the plant by adding new components at a cost of GHC800,000.

This upgrade led to a reduction in the production time per unit of output and also improved the quality of

the bottling process. The upgrade also increased the estimated remaining life of the machine at 1 January

2011 to 18,000 HL and its estimated residual value was revised to GHC160,000.

Required:

Prepare extracts from the income statement and statement of financial position for the above machine for

each of the three years to 31 December 2009, 2010 and 2011. (10 marks) (Total: 30 marks)

QUESTION 2

Happy Ltd acquired 90% of the equity shares in Joy Ltd on 1st July 2011 for GHC100,000.

The draft financial statements of the parent company and its subsidiary for the year ended 30th June 2012

is as follows:

Income Statement for the year ended 30th June, 2012

Happy Ltd

GHC

Joy Ltd

GHC

Revenue

Cost of sales

Gross profit

Distribution cost

Administration expenses

Operating profit

Other income

Investment income

Finance charges

Profit before taxation

500,000

(300,000)

200,000

(52,500)

(39,000)

112,500

-

2,250

(15,000)

99,750

100,000

(50,000)

50,000

(7,500)

(12,500)

30,000

14,500

-

(3,750)

40,750

42

Tax

Profit after tax

(17,500)

82,250

(3,250)

37,500

Statement of Financial Position as at 30th June 2012

ASSETS

Non-current Assets:

Happy Ltd

GHC

Joy Ltd

GHC

Property, Plant & Equipment

Investment in Shares

Current Assets:

Inventories

Trade Receivables

Bank

TOTAL ASSETS

EQUITY AND LIABILITIES:

Equity:

Stated Capital

Income Surplus

Current Liabilities:

Trade Payables

Bank Overdraft

Total Equities and Liabilities

400,000

100,000

58,000

30,000

12,000

600,000

125,000

392,250

517,250

62,000

20,750

82,750

600,000

100,000

-

9,000

9,000

7,000

125,000

25,000

55,000

80,000

35,000

10,000

45,000

125,000

Additional information:

i. During the year, Happy Ltd sold goods to Joy Ltd for GHC2,500. These goods were invoiced to

Joy Ltd at a margin of 20% and one quarter of the goods remained unsold to external customers as

at 30th June, 2012.

ii. Joy Ltd sent goods to Happy Ltd for GHC4,500. These were invoiced at a mark-up of 50% and

half remained in stock at the reporting date.

iii. At the date of acquisition, the fair value of Joy Ltd’s net assets were equal to the carrying amounts

with the exception of an item of plant that had a fair value of GHC5,000 in excess of its carrying

value and a remaining useful life of four years. Joy Ltd has not reflected this fair valuation

adjustment in its financial statements.

iv. An impairment review of goodwill at the year revealed a loss of GHC2,000.

v. Both companies paid dividends during the year. The dividends distributed by Happy Ltd and Joy

Ltd were GHC5,000 and GHC2,500 respectively.

Required:

Prepare:

a. Consolidated Income Statements for the year ended 30th June 2012. (11 marks)

b. Consolidated Statement of Financial Position as at 30th June 2012 (9 marks)

43

(Total: 20 marks)

QUESTION 3

Balahu and Gazu are in partnership. The following balances were extracted from their books of account

as at 31st December 2011.

Debit

GHC

Credit

GHC

Capital account 1/1/2011

Balahu

Gazu

Accruals

Cars: at cost

Accumulated depreciation (1/1/11)

Cash and Bank Balance

Drawings:

Balahu (all on 30/6/11)

Gazu (all on 30/6/11)

Furniture: at cost

Accumulated depreciation (1/1/11)

Net Profit (for the year to 31/12/11)

Prepayments

Salary paid to Gazu

Stocks at cost (31/12/11)

Trade payables

Trade Receivables

137,500

52,500

37,500

25,000

50,000

7,500

50,000

175,000

250,000

785,000

10,000

2,500

22,500

62,500

20,000

372,500

295,000

_______

785,000


a) The partnership agreement includes the following arrangements between the partners:

i. Profits and losses are to be shared in the ratio 4:2;

ii. Interest of 10% per annum is to be paid on the partners’ capital account balance;

iii. Interest at the rate of 15% per annum is to be charged on the partners’ drawings;

iv. Gazu is entitled to be paid GHC50,000 per annum salary.

b) On 1 January 2012 a company called Piotorico Ltd was formed in order to make an offer for the

purchase of the partnership. The arrangement were as follows:

i. Gazu was to purchase one of the cars at an agreed valuation of GHC12,500

ii. Other assets and liabilities (except cash and bank) were taken over by the company at the

values below:

GHC

Cars 45,000

Furniture 25,000

Stock 185,000

Trade Receivables 200,000

44

Trade Payables 290,000

Accruals 25,000

iii. Goodwill is to be valued at one year’s purchase of the weighted average net profit of the

proceeding three years.

Weighting Amount

GHC

Year to 31 December 2009



1

2

3

182,500

325,000

372,500

iv. Additional costs incurred by the partnership in arranging the conversion amounted to

GHC7,500.

v. The company agreed to issue 150,000 ordinary shares at GHC3.10 of no par value. The

shares are to be divided equally between the partners.

vi. Any remaining balance on the partners’ capital accounts was settled between them in cash.

Required:

(a) Prepare the Partners Profit and Loss Appropriation Account for the year ended 31 December 2011.

(b) Prepare the Partners’ Capital Accounts (to close their books)

(c) Prepare Piotorico Ltd’s Statement of Financial Position as at 1 January 2012. (15 marks)

QUESTION 4

The Faith Rural Bank Ltd has presented the following trial balance for the 2011 financial year:

DR

GHC’000

CR

GHC’000

Operating expenses

Donations

Staff costs

Directors remuneration

Capital work-in-progress

Motor vehicles/Accumulated depreciation

Equipment & Furniture/accumulated depreciation

Computers/Accumulate depreciation

Land and buildings/Accumulated depreciation

Corporate tax

Sundry payables

Interest from short term funds

Interest from Government securities

Interest on loans and advances

Other accounts

Staff advances

Loans and overdrafts granted

Income surplus, 01/01/2011

Allowance for doubtful debts, 01/01/2011

987

24

2,213

39

168

327

588

390

776

180

789

449

8,233

182

163

133

83

763

243

7,137

373

1,146

614

45

Statutory reserves, 01/01/2011

Share deals

Capital surplus

Trade investments

Government Treasury bills

Interest on customers’ deposits

Amounts due to other banks

Deposits with other banks

Cash in hand

Balance with Bank of Ghana

Stated Capital

Current accounts

Fixed/time deposits

Savings accounts

Profit on foreign exchange transaction

Dividends from investments

Miscellaneous income

Commission and fee income

Total

1,343

19,593

3,515

12,794

1,629

4,666

_____

58,703

648

34

410

3,871

4,823

22,767

3,582

7,819

141

55

2,328

1,388

58,703


i) Increase allowance for doubtful debts to GHC851,700

ii) Provide for depreciation at the following rates:

Land and buildings 5% on cost

Equipment and furniture 20% on cost

Computers 33⅓% on cost

Motor vehicles 33⅓% on cost

iii) Provide for Audit fees of GHC60,000

iv) Transfer 12½% of net profit after tax to Statutory Reserve Fund.

v) The corporate tax provision made in the 2010 financial statements was GHC200,000. This was

agreed with Ghana Revenue Authority at GHC220,000 and fully settled in March 2011. Interim

tax for 2011 based on self-assessment was settled at GHC160,000. Corporate tax applicable to the

bank is 25%.

vi) Directors have agreed to pay end-of-year bonus to staff estimated at GHC72,000. This is yet to be

paid.

vii) The authorised capital is 10,000 equity shares of no par value out of which 6000 shares have been

issued and fully paid.

Required:

(a) Statement of Comprehensive Income for the year ended 31st December, 2011.

(b) Statement of changes in equity for the year ended 31st December, 2011.

(c) Statement of Financial Position as at 31st December, 2011.

46

Notes are not required, but show all workings. (20 marks)

QUESTION 5

(e) The management of Abayie Ltd is considering expanding the scale of operation of the company.

At the last Board meeting, it was decided that investing in an existing company would be

advantageous. A search team, of which your boss is the chairman, was set up to look for potential

companies.

Two companies, Tomah Ltd and Yagao Ltd have been identified by the search team. Tomah Ltd

and Yagao Ltd produce similar products but they are located in Accra Metropolitan Area and

Kumasi Metropolitan Area. In view of the bulky nature of their products and attendant

transportation cost, each company has spatial monopoly.

The financial statements of the two companies are as follows:

Statement of financial position as at 31/12/2011

Tomah Ltd

GHC

Yagao Ltd

GHC

Non Current Assets:

Property, Plant & Machinery

Current Assets:

Inventories

Account receivables

Bank & cash on hand


Payables

Net current assets

Total assets less current liabilities

Non Current Liabilities:

Loan

Net assets

Equity:

Stated capital

Capital surplus

Income surplus

12,000

37,500

500

50,000

(22,605)

190,000

27,395

217,395

(130,000)

87,395

10,000

-

77,395

87,395

26,250

105,000

22,000

153,250

(117,670)

780,000

35,580

815,580

(370,000)

445,580

100,000

50,000

295,580

445,580

Payables are made up as follows:

Tomah Ltd

GHC

Yagao Ltd

GHC

Trade Payables

Overdraft

Taxation

10,605

10,000

2,000

22,605

67,670

-

50,000

117,670

47

Income statement for the year ended 31st December 2011

Tomah Ltd

GHC

Yagao Ltd

GHC

Revenue

Cost of sales

Gross profit

Selling expenses

Administrative expenses

Operating profit

Interest

Profit before taxation

Taxation

Profit after taxation

13,500

15,000

150,000

(60,000)

90,000

(28,500)

61,500

(3,000)

58,500

(13,605)

44,895

84,000

35,000

700,000

(210,000)

490,000

(119,000)

371,000

(32,000)

339,000

(68,170)

270,830

Dividend paid during the year 20,000 110,000

Required:

Calculate the following ratios for each company and comment on the results.

(i) Profitability ratios – gross profit margin, net operating profit margin and the return on capital

employed

(ii) Liquidity ratios – current ratio, quick ratio, stock turnover, debtors collection period and creditors

payment period.

(iii) Leverage ratios – gearing ratio and interest cover.

(15 marks)

SOLUTION 1

(a) i. Components of Financial Statements:

(i) A statement of Financial Position as at the end of the period;

(ii) A statement of Comprehensive Income for the period;

(iii) A statement of changes in equity for the period;

(iv) Notes, comprising a summary of significant accounting policies and other explanatory information;

(v) A statement of cash flow for the period; and

(vi) A statement of Financial Position as at the beginning of the earliest comparative period when an

entity applies an accounting policy retrospectively or makes a retrospective restatement of items in

it Financial Statement.

ii. Elements of Financial Statements

Financial statements portray the financial effect of transactions and other events by grouping them into broad

classes according to their economic characteristics. These broad classes are termed “the Elements of

Financial Statements”.

48

The elements directly related to the measurement of Financial Position in the Statement of financial position

are: Assets, Liabilities and Equity. Assets and Liabilities are sub-divided into Non-Current and Current

Assets and Liabilities.

The Elements directly related to the measurement of performance in the statement of comprehensive income

are Expenses and Income.

Expenses is sub-divided into Expenses and Losses while Income is sub-divided into

Sales/Revenue/Turnover and Gains.

(b) GOVERNMENT GRANT – There are two types of Government Grants

The first is a Government Grant related to Assets, while the second is a grant Related to Income.

Grant Related to Assets: - are government grants whose primary conditions is that an entity qualifying for

them should purchase, construct, or otherwise, acquire long-term assets.

Grant related to Assets, shall be presented in the statement of financial position either

(i) by setting up the grant as deferred income and amortized over the useful life of the Assets or

(ii) by deducting the grant in arriving at the carrying amount of the asset.

Of the above treatment the first (i) is preferred.

Therefore the Grant of GHS500,000 will be amortized at the annual rate GHC20,000.

Grant related to Income are Government Grants other than those related to Assets.

Grant related to income are:

(i) sometimes presented as a credit in the statement of Comprehensive Income as other

separately or

(ii) they are deducted in exporting the related expense

Of the two methods of treating grant related to Income the first (i) method is preferred. Thus

the grant GHC50,000 will be credited to the statement of comprehensive income as a gain.

(c) Schedule of Lease payment and finance charge

Period

Liability

at start

Lease Payment

Liability

during the

period

Finance charge

@ 13.7%

Liability at end

of period

1

2

3

10,000

7,959

5,638

3,000

3,000

3,000

7,000

4,959

2,638

959

679

361

7,959

5,638

2,999

49

4 2,999 3,000 - - -

Income Statement Extracts

2010 2011 2012 2013

Finance charge

Annual depreciation (10,000/4)

959

2,500

679

2,500

361

2,500

-

2,500

Statement of financial Position (Extracts)

Current Liability

Obligation under finance lease:

2010 2011 2012 2013

2,321 2,698 2,999 -

Non-Current Liability

Obligation under finance lease:

2010 2011 2012 2013

7,959 5,638 - -

2010 2011 2012 2013

Non-Current Assets

Leasehold Musical Instruments 10,000 10,000 10,000 10,000

Depreciation (2,500) (5,000) (7,500) 10,000

7,500 5,000 2,500 -

(d) Year ended as at 31 December 2009 2010 2011

Income statement GHC,000 GHC’000 GHC’000

Depreciation (see workings) 720 1,080 476

Maintenance (60,000/3 years) 80 80 80

Staff training 160 ____ ____

50

960 1,160 556

Statement of financial position (see below)

Property, plant and equipment

Cost 3,680 3,680 2,680

Accumulated depreciation (720) (1,800) (472)

Carrying amount 2,960 1,880 2,204

Workings GHC’000

Manufacturer’s base price 4,200

Less trade discount (20%) (840)

Base cost 3,360

Freight charges 120

Electrical installation cost 112

Pre-production testing 88

Initial capitalised cost 3,680

The depreciation amount is GHC3,600,000 (3,680,000 – 80,000 residual value) and, based on an estimated machine

life of 24,000 hectolitres, this gives depreciation of GHC150 per hectolitres. Therefore depreciation for the year

ended 31 December 2009 is GHC720,000 (GHC150 x 4,800 hl) and for the year ended 31 December 2010 is

GHC1,080,000 (GHC150, x 7,200 hours).

Note: Staff training in use of machine and maintenance are all revenue items and cannot be part of capitalized costs.

GHC’000

Carrying amount at 1 January 2011 1,880

Subsequent expenditure 800

Revised ‘cost’ 2,680

The revised depreciation amount is GHC2,520,000 (2,680,000 – 160,000 residual value0 and with a revised

remaining life of 18,000 hours, this gives a depreciation charge of GHC140 per hectoliter of beer. Therefore

depreciation for the year ended 31 December 201 is GHC476,000 (GHC140 x 3,400 hl).

SOLUTION 2

51

Happy Ltd

Consolidated Comprehensive Income Schedule for the year ended 30 June 2011

Happy Ltd

GHC

Joy Limited

GHC

Group

GHC

Revenues

Inter-company sales (2,500 + 4,500)

Cost of sales

Inter-company purchases

Gross profit

Distribution cost

Administrative expenses

Prov. Unralised profit

Additional depreciation

Impairment of Goodwill

Operating profit

Other income

PBIT

Interest charges

PBT

Tax

PAT

NCI @ 10%

Group profit

500,000

-

500,000

(300,000)

-

(300,000)

200,000

(52,500)

(39,000)

(125)

-

-

108,375

-

108,375

(15,000)

93,375

(17,500)

75,875

-

75,875

2,250

100,000

-

100,000

(50,000)

-

(50,000)

50,000

(7,500)

(12,500)

(750)

(1,250)

(2,000)

26,000

14,500

40,500

(3,750)

36,750

(3,250)

33,500

(3,350)

30,150

(2,250)

27,900

-

600,000

(7,000)

593,000

(350,000)

7,000

(343,000)

250,000

(60,000)

(51,500)

(875)

(1,250)

(2,000)

134,375

14,500

148,875

(18,750)

130,125

(20,750)

109,375

(3,350)

106,025

106,025

-

52

Inter-company Dividend

Dividend paid

Retained profit for the year

Retained profit b/f

Retained profit c/fwd

78,125

(5,000)

73,125

319,000

392,125

27,900

-

27,900

(5,000)

101,025

319,000

420,025

Happy Ltd Group

Consolidated Statement of Financial Position as at 30 June 2012

GHC GHC

Assets

Non-current assets

Goodwill

PPE (400,000 + 100,000 + 5,000 – 1,250)

Current Assets

Inventories (58,000 + 9,000 – 125,750)

Trade Rec. (30,000 + 7,000)

Bank (12,000 + 7,000)

Total assets

Equity and liabilities

Stated capital

Income surplus

NCI

66,125

39,000

19,000

53,000

503,750

556,750

124,125

680,875

125,000

420,025

545,025

8,100

53

Liabilities:

Current liabilities

Trade payables (62,000 + 35,000)

Bank Dividend (20,750 + 10,000)

Total equity an liabilities

97,000

30,750

553,125

127,750

680,875

Goodwill on Acquisition of Joy Ltd

GHC GHC

Cost of investment

Net Assets at Acquisition

Stated capital

Income surplus

Fair value adj.

Group (090 x 50.000)

Goodwill

Impairment

Goodwill c/fwd

28,000

20,000

5,000

50,000

100,000

(45,000)

55,000

(2,000)

53,000

NCI

Net Assets @ …… Date GHC

State capital 25,000

Income surplus (55,000 – 1,250 – 750 – 2,000) 51,000

Fair value Adj. 5,000

81,000

NCI (0.10 x 8,100) 8,100

54

Consolidated Retained Earnings

GHC

Happy Ltd 392,250

URP (125)

Joy Ltd

Share of post-Acq profit 55,000 – 20,000 – 750

0.90 – 1,250 – 2,000 27,900

420,00

SOLUTION 3

Balahu and Gazu

(a) Partners’ Profit and Loss Appropriation Account for the year to 31st December 20011.

GHC GHC

Net profit for the year

Less: Interest on capital accounts

Balahu (GHC10,000 @ 10%)

Gazu (GHC2,500 @ 10%)

Add: Interest on drawings

Balahu (GHC37,500 @ 15% x 6/12)

Gazu (GHC25,000 @ 15% x 6/12)

Less: salary to Gazu

Profit to be shared

Balahu (4/6)

Gazu (2/6)

1,000

250

2,813

1,875

372,500

(1,250)

4,688

(50,000)

325,938

(217,292)

(108,646)

NIL

b.) The requirement of part (b) can be tackled with the balances on the drawings accounts and the salary of Gazu

being transferred to the partners’ capital account. In order to complete the closing process the asset and liability

55

accounts should be transferred to the realization account. Students must remember to record all the pre-

incorporation activities i.e. part (b) (i) and (iv) of the question. The purchase consideration can be determined

simply by computing the value of the shares issued in exchange for the partnership (i.e. GHC150,000 @

GHC3.10) which amounts to GHC465,000.

Another method of determining the purchase consideration is by aggregating the fair values of the net assets in

part (b) (ii) and adding the goodwill figure determined in accordance with part (b) (iii) of the question.

Computation of Purchase Consideration

GHC GHC

Cars

Furniture

Stocks

Trade debtors

Trade creditors

Accruals

Net Asset

45,000

25,000

185,000

200,000

290,000

25,000

455,000

(315,000)

140,000

Goodwill:

1 x 182,500 = 182,500

2 x 325,000 = 650,000

3 x 372,500 = 1,117,500

1,950,000

= 1,950,000 ÷ 6 325,000

Purchase consideration 465,000

56

REALIZATION ACCOUNT

GHC GHC

Furniture (cost) a/c

Prepayment a/c

Stock a/c

Debtors a/c

Cash (Expense)

Cars (cost) a/c

50,000

7,500

175,000

250,000

7,500

137,500

Accruals a/c

Acc. Depn. on cars a/c

Acc. Depn. on furniture a/c

Creditors

Capital

(Car taken by Gazu)

22,500

62,500

20,000

295,000

12,500

Capital a/c

Profit on realization

Balahu (4/6)

Gazu (2/6)

166,667

83,333

877,500

Piotorico Ltd 465,000

______

877,500

57

CAPITAL ACCOUNT

Balahu

GHC

Gazu

GHC

Balahu

GHC

Gazu

GHC

31/12/01

P & L appn. a/c:

Int. on drawings

Drawings a/c

Realization a/c car

taken over

Salary a/c cash paid

Piotorico Ltd (shares)

Cash a/c

2,813

37,500

232,500

122,146

394,959

1,875

25,000

12,500

50,000

232,500

-

321,875

11/1/01 bal. b/d

31/12/01:

P & L appn. a/c

Int. on capital

Salary

Profit shared from

P & L appn. a/c

Realization Profit

Cash a/c

10,000

1,000

-

217,292

166,667

-

______

394,959

2,500

250

50,000

108,646

83,333

77,146

______

321,875

CASH AT BANK ACCOUNT

GHC GHC

Balance b/d

Capital a/c Gazu -

52,500

77,146

129,646

Realization (Expenses)

Capital - Balahu

7,500

122,146

129,646

58

PIOTORIC LTD ACCOUNT

GHC GHC

Realization 465,000

______

129,646

Capital a/c

Balahu

Gazu

232,500

232,500

465,000

STATEMENT OF FINANCIAL STATEMENTS

PIOTORICO LTD’S BALANCE SHEET AS AT JANUARY 1, 2002

GHC GHC

Fixed Assets:

Intangible Goodwill

Tangible Assets (as valuation)

Furniture

Cars

\

Current Assets:

Stocks

Trade Debtors


Trade Creditors

Accruals

Net assets

GHC290,000

25,000

25,000

45,000

185,000

200,000

385,000

(315,000)

325,000

70,000

395,000

70,000

59

Financed By:

Stated Capital

465,000

______

465,000

PURCHASE OF BUSINESS ACCOUNT

GHC GHC

Trade Creditors

Accruals

Shares issued in exchange for

the partnership

290,000

25,000

465,000

______

780,000

Cars

Furniture

Stocks

Trade Debtors

Goodwill

(Balancing figure)

45,000

25,000

185,000

200,000

325,000

______

780,000

SOLUTION 4

FAITH RURAL BANK LTD

Statement of Comprehensive Income for the year ended 31st December 2010

Workings GHC

Interest Income

Interest Expense

Net Interest Income

Commission and Fees Income

Other Operating Income

1

2

7,753

(3,515)

4,238

1,388

196

60

Less Operating Expenses

Less Doubtful Debts

Other Income

Profit before Tax

Tax Provision (20 + 1,030)

Net Profit after Tax

3

4

5,822

3,719

2,031

238

1,793

2,328

4,121

1,050

3,071

Statement of Changes in Equity for the year ended 31st December, 2011

Stated

Capital

GHC000

Share

Deals

GHC000

Capital

Surplus

GHC000

Income

Surplus

GHC000

Statutory

Res. Fund

GHC000

Total

GHC000

Balance Bfwd

Transfer Income Statement

Transfer Statutory Reserve

4,823

-

-

34

-

-

410

-

-

1,146

3,071

(384)

648

-

384

7,061

3,071

-

Balance Cfwd. 4,823 34 410 3,833 1,032 10,132

=================================================

FAITH RURAL BANK LIMITED

Statement of Financial Position as at 31st December, 2011

Working GHC000

Assets:

61

Cash and Short-Term Funds

Government Securities

Balance due from other Banks

Loans and Advances

Trade Investments

Other Assets

Fixed assets

Total assets

5

6

7

6,295

19,593

12,794

7,381

1,343

1,238

1,292

49,936

Financed By:

Shareholders’ Fund and Liabilities

Stated Capital

Capital Surplus

Share Deals

Statutory Reserve Funds

Income Surplus

Liabilities

Customers Deposit

Balance due to other Banks

Sundry Creditors

Taxation

Accrued Auditors Fees

Total shareholders fund & Liabilities

8

9

10

4,823

410

34

1,032

3,833

10,132

34,168

3,871

835

870

60

39,804

49,936

62

Workings

GHC

000

1 Interest Income:

Interest from Short Term Funds

Interest on Government Securities

Interest on Loans & Advances

243

7,137

373

7,753

2 Other Operating Income:

Profit on foreign exchange

Dividends from investment

141

55

196

3 Operating Expenses:

Directors Remuneration

Staff costs

Donations

Operating expenses

Audit fees

Bonus

39

2,213

24

987

60

72

63

Depreciation 396

3,791

4 Provision for Doubtful Debts:

Balance c/fwd

Less balance b/fwd

Income statement

852

614

238

5 Cash & Shirt term Funds:

Cash

Balance with Bank of Ghana

1,629

4,666

6,295

6 Other Assets Account:

Other Accounts

Staff allowances

789

449

1,238

8 Customer Deposits:

Current Accounts

Time Deposits

Savings Accounts

22,767

3,582

7,819

34,168

64

9 Other Liabilities:

Sundry Payables

bonus

763

72

835

10 Taxation Schedule

Balance at

01/01

GHC000

Charge for

the year

GHC000

Payment

GHC000

Balance at

31/12

GHC000

For 2010

For 2011

200

-

200

-

1,050

11,052

(220)

(160)

(380)

(20)

890

870

W7 Fixed Assets Schedule

Capital

WIP

GHC

000

Land &

Buildings

GHC

000

Computer

GHC

000

Equip. &

Furniture

GHC

000

Motor

Vehicle

GHC

000

Total

GHC

000

Cost

At 01.01.2011

Additions

Disposals

168

-

-

776

-

-

390

-

-

588

-

-

327

-

-

2,249

-

-

Bal at 31.12.2011 168 776 390 588 327 2,249

===============================================================

65

Acc. Depreciation

As at 01.01.2011

Change for the year

-

-

83

39

133

130

163

118

182

109

561

396

Bal at 31.12.2011 0 122 263 281 291 957

NBV at 31.12 168 654 127 307 36 1,292

SOLUTION 5

(1) Profitability Ratios

Tomah Ltd Yagao Ltd

Gross Profit Margin 90,000 x 100 490,000 x 100%

150,000 700,000

60% 70%

Net Operating Profit Margin 61.5 x 100 371 x 100

150 700

41% 53%

Return on Capital Employed 61.5 x 100 371 x 100

217.4 815.6

28.3% 45.5%

Net Asset Turnover 150 700

217.4 815.6

0.69 0.86

Liquidity and Working Capital Ratios

Current Ratio 50,000 153,250

22,605 117,670

2.21:1 1.3:1

66

Quick Ratio 38,000 127,000

22,605 117,670

1.68:1 1.08:1

Stock Turnover 60,000 210,000

12,000 26,250

5 times 8 times

Debtors Collection Period 37,500 x 365 105,000 x 365

150,000 700,000

91 days 55 days

Creditors Payment Period 10,605 x 365 67,670 x 365

60,000 210,000

64½ days 118 days

Gearing Ratios 130,000 x 100 370,000 x 100

217,395 815,580

60% 45%

Compared to Equity only 130,000 x 100 370,000 x 100

87,395 32,000

149% 83%

Interest Cover 61,500 371,000

30,000 32,000

20.5 times 11.6 times

Comment:

Profitability:

From the angle of profitability, Yagao appears to be better company because it has a higher gross profit

margin and a higher net operating profit margin than Tomah. It is apparent that Yagao is much larger

67

company than Tomah and therefore may be benefiting from discounts from suppliers that might not be

available to Tomah, and economies of scale.

Yagao has a higher ROCE caused by a better net profit margin and a higher asset turnover indicating a more

efficient use of assets.

Liquidity & Working Capital Management

Yagao appears to be the stronger company with regard to working capital control.

Both companies have high current and quick ratios which may be the norm in this business. However, Tomah

appears to have higher ratios indicating that best use is not being made of the assets of the company.

Tomah’s debtors collection period are seemingly long at 91 days compared with both Yagao’s collection

period of 55 days and Tomah’s creditors payment period of 64 days.

Tomah is paying its creditors faster than it is receiving money from its own debtors.

Yagao’s creditors payment period does appear long at 118 days but this may be due to the negotiating power

of a much larger business.

Gearing:

Both companies have fairly high level of gearing and the following could be noted:

Although the gearing levels appear quite high, so does the interest cover in each companies showing that

there is no problem with servicing the debt finance.

On the face of it, Tomah has a much higher interest cover than Yagao despite being more highly geared.

The interest rate that Tomah appears to have paid is only 2.3% (3,000/130,000 x 100) which would indicate

that Tomah has only recently taken out the loan finance.

Yagao’s effective interest rate of 8.6% is much more realistic [(32,000 ÷ 370,000) x 100].

3 Quarter September 2014 · 2.1 The Changing Landscape of International Educational Standards...

Documents

Transcript of 3 Quarter September 2014 · 2.1 The Changing Landscape of International Educational Standards...