An investigation into, social, ethical and technological issues and how they impact on the Jamaica Public Service Company Limited for the year 2008.

Name : Alex Ellis

School : Oberlin High

Territory : Jamaica

Registration # : 100086

Teacher : Ms. Jones

Centre # : 100086

Date : April 2011

CONTENT PAGE

ACKNOWLEDGEMENT 3

INTRODUCTION 4 - 5

REPORT: 6 - 27

AIMS 6

SYLLABUS OBJECTIVES 7

METHODOLOGY 8

ANALYSIS 9

EVALUATION 18-19

RECOMMENDATION 20

APPENDICES 21-27

BIBLIOGRAPHY 28

Nothing in life is ever successful without the corporate effort of many gifted people who

are willing to submit their assistant. This work is a product of my thoughts, ideas, perspectives

and work. This product has given me the exposure to the knowledge I have placed in this School

Based Assessment (SBA).

First and foremost I would like to thank the heavenly father for giving me the knowledge

and wisdom, so that I was able to complete this School Based Assessment. I Alex Ellis would

like to extend my sincere gratitude to Miss Jones for assisting me to carry out the necessary

requirement of Caribbean Advanced Proficiency Examination syllabus and to making sure that

this SBA was successful at the end.

I also would like to thank Keron Brown for lending me his computer and printing

facilities so that this School Based Assessment could meet the presentation standards of the

Caribbean Advanced Proficiency Examination syllabus.

The Jamaica Public Service Company Limited is incorporated and domiciled in Jamaica

and is eighty percent (80%) subsidiary of Maru Energy JPSCO Barbados SRL, which is

incorporated in Barbados. The ultimate holding company is Marubeni Corporation, which is

incorporated in Japan. The company preference shares are listed on the Jamaica stock Exchange

(JSE) market.

Jamaica Public Service Company Limited having its preference shares listed on the

Jamaica Stock Exchange market shows that the company is a public limited company (a limited

liability firm whose securities is traded on a stock exchange and can be bought and sold by

anyone). The company is strictly regulated by law, and is required by law to publish its complete

and true financial position so that investors can determine the true worth of its shares or stock.

Marubeni Caribbean Power Holdings Incorporation at the time period being investigated

owns eighty percent (80%) of the Jamaica Public Service Company Limited, while a further

nineteen point nine percent (19.9%) of the ordinary shares is held by the Accountant General and

the Development Bank of Jamaica on behalf of the Government of Jamaica collectively, and the

remaining zero point one percent (0.1%) is held by individuals.

Jamaica Public Service Company Limited being a public limited company has some

advantages such as; it can raise huge amount of money from the sale of shares, the company can

easily raise finance as financial institutions are more willing to lend to public limited companies

and production cost may be lower as firms may gain from economies of scale. However the

company confronts some drawbacks of being a public limited company which includes; setting

up cost can be very expense, it is possible for an outside interest to take control of the company,

and the company shareholders are not able to deal with their customers at a personal level.

The company has certain legal, social, ethical and technological issues that impact on the

financial reporting of the company and the company in general. This research is done to assess

these issues listed above and how they have impact on the Jamaica Public Service Company

Limited.

To determine the accounting standards used by the Jamaica Public Service Company

Limited.

To learn how the Jamaica Public Service Company Limited controls its accounts

payables, accounts receivables, cash and inventory.

To assess how technology impact on the financial accounting of the Jamaica Public

Service Company Limited.

To find out the advantages and disadvantages of the Jamaica Public Service Company

Limited operating as a public limited company.

To find out the ethical and social issues that impact on the financial report of the Jamaica

Public Service Company Limited.

To analyze the performance of the Jamaica Public Service Company Limited using ratio

analysis.

Module 1:

Justify the use of standards in Accounting.

Justify the use of control systems in organization..

Assess the impact of technology on financial Accounting.

Module 2:

Assess critically the advantages and disadvantages of the various forms of organizations

Prepare financial statement from incomplete records or where records are deficient or

erroneous.

Module 3:

Discuss the social and ethical issues in financial reporting.

Analyze the performance of an entity using ratio analyses, and explain the limitations

In order to carry out this Accounting Internal Assessment, primary and secondary data

collection methods were used. The primary data collection method used was an interview, while

the secondary data collection methods include: textbooks, internet and published financial

statements.

The interview was carried out on September 16 2010, with a member of the finance

department of the Jamaica Public Service Company Limited. The person interview was asked

approximately seven questions pertaining to the research that is being carried out on the

company. All the questions in the interview were answered by the person interviewed. Figure

one in the appendices shows the list of questions asked in the interview.

A total of four textbooks were used in conducting the research. These textbooks were

used to source definition of jargons in the accounting field, and for explanation of accounting

standards and what they entail. The researcher also made use of sources from the internet to get

information that weren’t found in the textbooks used.

The methods used by the researcher could be said to be credible and valid since the data

was concerned with the period being investigated and the sources used have an excellent

reputation in the field of accounting, hence they are credible, reliable and valid sources.

Due to the engagement of the researcher in curricular activities he was unable to gather

other person point of view to have a more concise researcher been presented.

The Jamaica Public Service Company Limited financial statements are prepared in

accordance with the International Financial Reporting Standards (IFRS) and their interpretations

adopted by the International Accounting Standards Board (IASB), and comply with the provision

of the Companies Act.

The International Financial Reporting Standards refers to the new numbered series of

pronouncements that the International Accounting Standard Board is issuing, as distinct from the

International Accounting Standards (IAS) series issued by its predecessor. The International

Accounting Standard is a set of standards stating how particular types of transactions and other

events should be reflected in financial statements. The Companies Act is an act of parliament

governing limited companies. The Companies Act require the Income Statement Account to give

a true and fair view of the income of the company for the financial year, and the Balance Sheet to

give a true and fair view of the state of affairs of the company as at the end of the financial year.

The presentation of the Jamaica Public Service Company Limited financial statements is

required by law to follow the objectives of International Accounting Standard one (IAS 1) which

prescribes the basis for presentation of general purpose financial statements of previous periods

and with the financial statements of other entities. IAS 1 states that a company financial

statement should includes a balance sheet, an income statement, a statement of changes in equity,

cash flow statements and notes. The IAS 1 also states that the financial statement must state the

name of the company, the country of incorporation, the balance sheet date, and the period. IAS 1

stipulates a brief description of the nature of the activities of the company, and the currency in

terms of which the financial statements are expressed should be given if they are not otherwise

apparent. The standard states that financial statements are a structured representation of the

financial position and financial performance of an entity.

The objective of the financial statements is to provide information about the financial

position, financial performance and cash flows of an entity that is useful to a wide range of users

in making economic decisions. Financial statements shows the results of the management’s

stewardship of the resources entrusted to it. To meet this objective, financial statements provide

information about an entity’s: assets, liabilities, equity income and expenses, including gain and

losses, contributions by and distribution to owners in their capacity as owners and cash flows.

Figure two through to five shows the Jamaica Public Service Company Limited Balance Sheet,

Income Statement, Cash Flow Statement and Statement in changes in equity.

The Balance Sheet which is also known as the statement of financial position as a

minimum items which it should include, these are: all the company fixed or long term assets,

current assets, long term liabilities, current liabilities and the shareholders equity. The company

balance sheet is shown in figure 2 in the appendices where it is structured under two main

headings assets and shareholders’ equity and liabilities. The assets headings has two sub

headings noncurrent assets known as fixed assets and current assets. The shareholders equity and

liabilities headings has three sub headings namely; shareholders equity which consist of the

company finances, current liabilities which are the company’s debt or obligations that are due

within one year, and the noncurrent liabilities which are the debts that are not due currently such

as long term loans.

The income statement which is also known as the trading profit and loss account is a

company financial statement that indicates how the revenue of the company is transformed into

net income. The IAS 1 which stipulates that for the income statement preparation the statement

must show the company revenue, the cost of sales, gross profit, expenses and the net income for

the company. The Jamaica Public Service Company Limited statement of income for the year

2008 is shown in the appendices in figure 3, it shows all the headings as lay down by the IAS ,

however the cost are summarized under some of the headings but are explained in the company

notes. The notes that are attached to a company financial statement give explanation and

workings of figures in the statement. For example in the company income statement one of the

items listed on the statement is other income, and only shows the total of other income however

it indicate that you can visit note 22(a), this is also shown in the appendices in figure 6.

Another critical piece of statement that is prepared under the IAS 1 is the statement of

changes in shareholders’ equity. This statement explains the changes in a company retained

earnings over period being reported on. It break down changes affecting the account such as

profits or losses from operation dividends paid, and any other items charged or credited to

retained earnings. This statement for the company is shown in figure four in the appendices. The

statement of change in shareholders’ equity shows the change in shareholders’ equity, however

there is a similar statement known as the statement of cash flow which shows the flow of cash.

The cash flow statement is the only statement in the financial statement that is prepared

in accordance to the International Accounting Standard seven (IAS 7). The objective of IAS 7

requires the provision of information about the historic changes in cash and cash equivalents of

any entity by means of a statement of cash flow which classifies cash during the period from

operating, investing and financing activities. The operating activities are the principal revenue

producing activities of the entity and other activities that are not investing or financing activities.

Investing activities involves the acquisition and disposal of noncurrent assets, while financing

activities are of a result of a change in the size and composition of the contributed equity and

borrowings of the company. The statement of cash flow for the company is shown in figure 5 in

the appendices. All the statements that are prepared by the use of technology, resulting in

technology impacting on the company’s financial reporting.

The use of technology at the Jamaica Public Service Company Limited has impacted on

the company financial accounting over the years. The benefits the company receive from the use

of technology in its financial reporting includes; increased functionality (this is where reports are

now more accessible), improved accuracy, faster processing and better external reporting.

However the use of technology requires for workers to be able to use computers and accounting

softwares. The use of technology at the company affects other aspects of the business which

helps in business operations. Technology which has gone a far way is also used by the company

in its internal control system.

An internal control system includes all the procedures and policies taken by an entity to

safe guard assets and ensures accuracy in financial records. The objective of any control system

in an organization is to:

Indentify the social and ethical issues in financial reporting

Complying with company policies, regulations and government laws

Assess the operating effectiveness of the organization and its structure and

Discourage occurrence of errors or irregularities.

Two internal control systems used by the Jamaica Public Service Company are inventory control

and cash disbursement.

The internal control system for inventories consists of perimeter fencing; security guards as

company property. Workers at the company are segregated into different areas so has to have

persons been responsible for any problem that may occur. At the Jamaica Public Service

Company limited only persons with authorization are able to access files such as payroll

documents.

Controlling the disbursement of cash at JPS is very important. This is done by preparing a

bank reconciliation statement each month. A bank reconciliation statement is helpful to the

company in that it can highlight a surplus of cash at bank that could be invest and earn interest

and it helps to discover errors early.

An objective of internal control system is to identify the social and ethical issues in financial

reporting. The Jamaica Public Service Company Limited has some social and ethical issues that

affect the financial reporting of the company. The social responsibilities of the company

includes; making a contribution to promoting culture, promoting further education and learning

and stating their involvement in the country. Ethical issues includes: dignified in the treatment of

the workforce, honesty in dealing with all stakeholders, fair in reporting financial and non

financial issues and recognize as a fair dealer. These are the social and ethical responsibilities of

the company. Does the company carry out these responsibilities? The company which offers

scholarship to student pursuing Engineering career in tertiary institutions and sponsor sports

development in the country. As indicated by picture 2 in the appendices is an image of the

company as a sponsor of a track event in Jamaica.

A business can be following the guidelines governing the preparation of its financial

statements and carrying out its social and ethical responsibilities and their performance is not

good. In order to analyze the performance of an entity ratios are used, these include profitability

ratios, financial ratios and investing ratios. Profitability ratios include; return on capital

employed (ROCE), net margin percentage, expenses to sales ratio, and gross margin percentage.

The financial ratios are: current ratio and acid test ratio. The investing ratios consist of earnings

per share (EPS), debt ratio and borrowings to net worth ratio. In order for ratios to be useful and

reliable, they must be reasonable accurate.

The net margin percentage is related to sales by the following formula: net margin divided

by sales times a hundred. The Jamaica Public Service Company net margin percentages for 2008

and 2007 respectively are:

8845000 x 100 = 0.895% (2920000) X 100 = -0.37199%

988204000 785388000

The net margin percentage as increased by one point three percent (1.3%), this is a good

indicator of profitability for the company. It can be further explained by the gross margin

percentage and the expenses to sales ratio. The gross margin percentage for 2007 and 2008

respectively are:

264843000 X 100 = 26.8004% and 236492000 X 100 = 30.11486%

988204000 785388000

The margin had fallen by three point three percent (3.3%), therefore this is not the indicator of

the rise in net profit in 2008. Gross profit which has increase from two hundred and thirty six

million four hundred and ninety two thousand dollars (USD $236 492 000.00) to two hundred

and sixty four million eight hundred and forty three thousand dollars (USD $264 843 000.00),

which is an increase of twelve percent (12%), this is due to the increase in operating revenue by

twenty five point eight percent (25.8%) this is depicted by figure 7 in the appendices where in

shows the rise in operating revenue from 2007 to 2008. The expenses margin to sales for 2007

and 2008 respectively are:

2422113000 X 100 = 30.82718% and 256253000 X 100 = 25.93118%

785388000 988204000

As indicated above by the working out the margin had fallen by five percent (5%) in 2008, which

is a positive sign to higher net profits. Higher net profit for the company was as a result of lower

fall in the gross profit margin and a greater fall in the expenses margin.

Another profitability ratio is the return on capital employed. It shows the returns in

percentage on the capital that is employed. As shown by the working below in 2007 when the

company made a lost the ROCE was zero point eight percent (0.8%), however in 2008 the ROCE

increased by three point one percent (3.1%) to carry the ROCE for the year 2008 to two point

four percent (2.4%). That was indicating that for every one hundred united states dollar (USD

$100) of capital employed in 2008 a profit of two dollar thirty six cents (USD $2.36) was made.

2007: -2920000 X 100 = - 0.78% 2008: 8845000 X100 = 2.36%

(389442000 + 361520000)/2 (36152000 + 387220000)/2

As shown in the working above in 2007 when the company made a lost the ROCE was negative

zero point seven eight percent (-0.78%) however in 2008 the ROCE increased by three point one

four percent (3.14%) to carry it to two point three six percent (2.36%). This is indicating that for

every one hundred dollars ($100.00) of capital employed a profit of two dollars thirty six cents

($2.36) was made in 2008.

Financial ratios or solvency ratios are ratios that calculates if the business has sufficient

resources to meet their debts when due. Two types of are the current ratio and the acid test ratio.

The current ratio compares the total current assets to total current liabilities and indicates

whether there are sufficient short term assets to pay short term liabilities. For the company in

2008 its current ratio was 1.6:1 or 1.6 times as shown by the working below.

234124000 = 1.6 times

145192000

The acid test ratio is similar the current ratio the only difference is that it doesn’t includes

inventory. In 2008 the company acid test ratio was 1.3: 1 or 1.3 times as indicated by the

working below.

190195000 = 1.3 times

145192000

Investment ratios are of particular interest to people who have invested in a company.

These ratios include earnings per share, debt ratio and borrowings to net worth. Earnings per

share give the best view of performance. It indicates how much of a company’s profit can be

attributed to each ordinary share in the company. The company Earnings Per Share was four

cents in 2008 ($0.04) and negative one cent (-$0.01) in 2007 as indicated in figure 2 at the end of

the income statement. The debt ratio compares the total assets and it’s concerned with whether

the company has sufficient assets to meet all its liabilities when due. The company debt ratio for

2007 and 2008 are fifty eight percent (58%) and fifty six percent (56%) respectively. The

borrowing to net worth ratio indicates the proportion that borrowings represent of a company’s

net worth, it also shows the degree of risk to investor in ordinary shares in a company.

Ratios that are used to analyze financial statements however have their own limitations.

Ratio analysis is a retrospective and not a prospective examination. Ratio analysis is based on

accounting and not economic data. They don’t capture significant off balance sheet items. Basic

ratios can be manipulated through accepted alterations of accounting policies example

LIFO/FIFO. Financial statements accounts reflect historical cost not necessarily economic value.

Also ratio analysis doesn’t tell the entire story. There may be a good reason to support

management’s decision to reduce or increase liquidity or fixed assets in a different manner than

the rest of the industry.

The Jamaica Public Service Company Limited prepares its financial statement in

accordance with the International Financial Reporting Standards and their interpretations adopted

by the International Accounting standards Board. The company uses IAS 1 for the presentation

of its financial statements except for the statement of cash flow which the IAS 7 is used. The

company has several control system to control its operations, these consist of cash disbursement,

inventory control and accounts receivables and payables control. As indicated in the research the

company operations is affected by the use of technology positively which has foster development

for the company through improved accuracy and faster processing.

The Jamaica Public Service Company Limited have social and ethical responsibilities

which it has to carry out, these includes:

Defining their responsibilities as corporate citizens

Stating their involvement in the country

Promoting further education and learning

Fair in reporting financial and non – financial issues

Honesty in dealing with all stakeholders

The company which is a public limited company has its own benefits and drawbacks as

mentioned in the introduction where it’s able to raise large amount of capital by issue of shares

on the stock market and also its possible for an outside interest to take over the company as with

the case with the company where a Japanese company now owns the company.

Based on the ratio analysis of the company financial statements it could be shown that the

company current ratio was not good because it was below two which is indicating that the

company is unable to pay its short term debts twice. Also the ratios showed that the shareholders

returns aren’t great.

The researcher would like to recommend that the Jamaica Public Service Company

Limited continues to follow the guidelines in the preparation and publication of its financial

statements set by the International Accounting Standards Board and the Companies Act. The

researcher indicated that the company should increase in participation in its involvement in the

country by sponsoring educational and sporting events.

The researcher would also like to recommend that the company increase the use of

technology so has to have reduced cost in the long run which will increase profit for the

company and that the company make other decisions so has to increase profits in the coming

financial year.

Interview Questions

1. What form of organization is the Jamaica Public Service Company Limited?

2. What are the advantages of been such a company?

3. What are the disadvantage of been such a company?

Figure 1

Picture 1

Interview Questions

1. What form of organization is the Jamaica Public Service Company Limited?

2. What are the advantages of been such a company?

3. What are the disadvantage of been such a company?

FIGURE 2

FIGURE 3

FIGURE 4

FIGURE 5

2007 20080

200000

400000

600000

800000

1000000

1200000

785388

988204

Operating Revenue

operating revune

YEAR

AMO

UNT

IN T

HOUS

AND

Figure 7

Picture 2

(2010, September 16). Accountant. (A. Ellis, Interviewer)

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London: Pearson Education.

(2009). JPs Financial Statements. Kingston: Jamiaca Public Service Company Limited.

Randall, H., Stephens-James, L., Lamorell, C., Francis, L., & Noel, D. (2007).

Accounting for CAPE. London: Cambridge University Press.

Teck, T. B., Wee, A., Chan, O., & Sinanan, R. (2007). Cape Accounting. Caribbean

Publishers.

Wood, F., & Sangster, A. (2008). Business Accounting 2. London: Prentice Hall.