Management Accounting Investors and Traders

Question: Discuss about the case study Management Accounting for Investors and Traders. Answer: Introduction: Share market can be defined as a marketplace where investors and traders invest their money in various organizations, which in turn allows the corresponding organizations to utilize the funds to increase their business. The investors or traders invest their money in the share market in order to yield profits from the variations in the price of the stocks of the organizations listed in the share market (Basu, 2014). The transactions in the share market can be categorized into buy and sell transactions. Each stock of the companies listed in the share market are assigned with a monetary value or price and the buy/sell transactions in the share market occur on the basis of the price of these stocks. The investors and traders are allowed to buy the stocks of ASX-listed companies through the licensed brokers and by paying the equivalent amount of money for the total amount of stocks being bought (He, 2014). The investors and traders are then allowed to sell those stocks at a different pric e which is either higher or lower than the buy price. If the sell price is less than the buy price, the investor incurs a loss and if the sell price is more than the buy price, the investor yields some profit. The broker is an entity which facilitates these buy and sell transactions to the investors for some fee, which is called brokerage. So the role of the broker is to take the buy and sell orders from the investors and actually executing them on the share market in exchange of some brokerage (Smales, 2014). The current top 20 shares by the dollar value traded in ASX are mentioned below along with the traded value. ASX code Company name $ value traded CBA Commonwealth Bank of Australia 159,275,995.61 BHP BHP Billiton limited 136,098,663.40 ANZ Australia and New Zealand banking group limited 126,406,627.97 WBC Westpac Banking Corporation 111,994,471.79 NAB National Australia Bank limited 104,355,578.64 FMG Fortescue Metals Group Ltd 101,460,820.53 TLS Telstra Corporation limited 101,305,468.23 NCM Newcrest Mining limited 78,376,553.52 RIO Rio Tinto limited 76,148,542.95 WES Wesfarmers limited 63,989,726.39 CSL CSL limited 63,803,654.49 MQG Macquarie Group limited 57,548,047.44 AMC AMCOR limited 54,599,995.22 WPL Woodside Petroleum Limited 52,766,473.27 WOW Woolworths limited 52,352,809.73 CTX Caltex Australia Limited 39,828,138.26 SCG Scentre Group 38,389,292.66 BXB Brambles limited 35,287,582.04 S32 South32 limited 33,568,228.92 RMD Resmed Inc. 33,408,036.22 The number of listed entities on 30th June, 2008 in ASX was 2226. There are 2189 entities currently listed in ASX, which is 1.02% less than that of 2008. Both financial and management accounting play significant roles in the decision making process of the board of directors of an organization. They are different in terms of the type of information they provide to the board of directors. Financial accounting provides the financial information and health of the organization, which in turn defines the performance of the organization in a particular time period (Leauby, 2012). So financial accounting provides accurate figures to the board of directors to take effective business decisions based on the current business processes and performance of the organization. Whereas management accounting provides the information regarding the day-to-day business and operations to the board of directors. The information provided by management accounting includes the accurate information like costs of the business processes along with estimates like the current and future trends (Quattrone, 2016). This type of information allows the board of directors to analyze the current business operations in terms of their costs and profits, which in turn allows them to take effective business decisions in the market of operation. The combination of both the types of information provided by management and financial accounting allows the board of directors to take the most effective business decisions based on the past performance and current trends of the organization (Collis, 2012). Incorporation of a business allows the owners to protect their personal assets. The incorporation of a business allows the business to exist even after the owners leave the business, whereas in case of proprietary or partnership businesses, the business ceases to exist if the owners die or leave the business. The incorporation of a business allows it to have more credibility i.e. the name of the business with Inc. or LLC after it, is considered to be more credible in the market and the external entities feel safe to interact with the business. The incorporation of a business also protects the corporate name of the business i.e. the corporate name of the business cant be used by any other organization (Liu, 2014). The incorporation of a business allows the owners to avoid the taxation on both the individual and corporation level, which in turn allows the taxation to be applied only on the corporation level. The incorporation of a business also provides various tax benefits to the orga nization, which are not provided to the proprietary or partnership businesses. The incorporation of a business also allows the income of the owners to be defined after the deduction of the normal expenses like salaries (Choudhury, 2016). The organization is being tendered a job worth millions of dollars and I own a significant share in one of the companies tendering. All the three options mentioned in the question involve certain ethical issues and different consequences, which are mentioned here. 1. Declaring my interest to the CEO and stepping out of the decision making process will involve an ethical issue of not being neutral in a process of recommending a course of action. The personal interest or profit involved in the process of accepting the offer might affect the suggestion, which will be unprofessional and could lead to disciplinary actions, if revealed later. 2. Declaring my interest and staying in the decision making process will expose the recommendation and decision making process to the personal bias. This can affect the decision making process to be bent towards the achievement of the personal benefits instead of the organizational benefits. This in turn may lead to the negative consequences for the performance of the organization, for which Ill be responsible. 3. Not declaring my interest and continuing in the decision making process will be highly unprofessional and unethical in terms of not disclosing significant information regarding the tender, which can alter the decision of accepting the tender. This in turn could lead to negative impressions and perceptions on me, if the information is revealed later in the decision making process (Ferrell, 2015). The course of action of declaring my interests and stepping out of the decision making process seems to be the best. The declaration of the personal interests allows me to avoid the unethical action of hiding the information from the organization and allows me to be free of any guilt. Stepping out of the decision making process, saves me from the trouble of explaining or persuading others regarding the absence of any personal bias in the decision taken at the end of the process. This in turn allows me to avoid any kind of disciplinary actions from the organization and allows me to avoid affecting the business decision due to my personal interests (Hoffman, 2014). References Basu, A. K., Forbes, B. (2014). Does fundamental indexation lead to better riskà ¢Ã¢â€š ¬Ã‚ adjusted returns? New evidence from Australian Securities Exchange. Accounting Finance, 54(3), 699-728. Choudhury, B. (2016). Spinning Straw into Gold: Incorporating the Business and Human Rights Agenda into International Investment Agreements. University of Pennsylvania Journal of International Law, Forthcoming. Collis, J., Holt, A., Hussey, R. (2012). Business accounting: an introduction to financial and management accounting. Palgrave Macmillan. Ferrell, O. C., Fraedrich, J. (2015). 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