The reporting of corporate responsibility activities has developed substantially over the past 10–20 years. It first emerged as social and environmental reporting whereby companies disclose the impact of their operations, both positive and negative, on the community and environment in which they operate. Typical social disclosures might include details of community support programmes, charitable fundraising activities and educational and social programmes for employees. Typical environmental disclosures might include activities to reduce levels of emissions, recycling programmes and pollution controls.

More recently, these types of basic social and environmental disclosures have developed into sustainability reporting. This form of reporting particularly focuses on the issue of sustainable development and whether the operations of an organisation are sustainable into the future. The ability of an organization’s performance to be sustainable into the future is said to be based on its economic, environmental, social and governance performance. For example in order to be sustainable, accompany must limit its use of non-renewable energy sources (an environmental issue); it must also treat its staff well and reward them adequately to ensure their continued support (economic and social issues). Therefore sustainability reporting discloses environmental and social issues but also expands disclosure to integrate the economic impact of a company, for example through wages, taxes and purchasing policy, and governance i.e. how the company is run.

Integrated reporting develops the concept of sustainability reporting further by linking sustainability issues to financial strategy and results, sometimes referred to as ‘triple bottom line’ or PPP reporting (‘Profit, Planet and People’). This form of reporting is based on the idea that companies that achieve success in the future will be those that have an integrated strategy that achieves financial results whilst also creating lasting value for the company itself, its stakeholders and the wider society.

(i) A Ghanaian company can present its financial statements on the same basis as its foreign competitors, making comparison easier.
(ii) Cross-border listing is facilitated, making it easier to raise capital abroad
(iii) Companies with foreign subsidiaries have a common, company-wide accounting language.
(iv) Foreign companies which are targets for takeovers or mergers are more easily appraised.
(v) Staff working with multinational firms can easily be redeployed to other jurisdictions.
(vi) Access to and mobility of quality accounting staff.
(vii) Efficient and cost-effective audit engagements for multinational firms.
(viii) Firm-level IFRS adoption can lead to earnings quality.

Timeliness:
If there is undue delay in the reporting of information it may lose its relevance. However, to provide information on timely basis it may often be necessary to report before all aspects of a transaction or other event is known, thus impairing reliability. In achieving a balance between relevance and reliability, the overriding consideration is how best to satisfy the economic decision-making needs of users.

Balance between benefit and cost:
The benefits derived from information should exceed the cost of providing it. Thus, relevant information may be excluded where the cost of providing it far outweiGHȻ the benefits to be derived from the information. The evaluation of benefits and costs is, however, substantially a judgmental and complex process.

Balance between qualitative characteristics:
In practice, a balancing, or trade-off, between qualitative characteristics is often necessary. Generally the aim is to achieve an appropriate balance among the characteristics in order to meet the objective of financial statements. The relative importance of the characteristics in different cases is a matter of professional judgment.

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership. All other leases are classified as operating leases and classification is made at the inception of the lease. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the legal form. Thus in many circumstances, the classification of a lease can be quite subjective. In the case of a lease of land, this is particularly subjective as the title to the land may not pass to the lessee at the end of the agreement but the lease may still be classed as a finance lease where the present value of the residual value of the land is negligible and the risks and rewards pass to the lessee.

Thus, it appears that at first sight this is a difference in a professional opinion, which can be solved by the financial controller seeking advice.

If the features of the lease appear to meet IAS 17 Leases criteria for classification as a finance lease and the treatment used is part of a strategy to understate the liabilities of the entity in order to raise a loan, then an ethical dilemma arises.

Professional accountants are capable of making judgments, applying their skills and reaching informed decisions in situations where the general public cannot. The judgments made by professional accountants should be independent and not affected by business pressures. The code of ethics and conducts for professional accountants is very important because it sets out boundaries outside which accountants should not stray. The financial director should not place the financial controller under undue pressure in order to influence his decisions. If the financial controller is convinced that the lease is a finance lease, then disclosure of this fact should be made to the internal governance authority. The financial controller will have the knowledge that his actions were ethical.

Nyamekye Plc needs a significant injection of capital in order to finance a capital intensive project and the NCB requires the company to demonstrate good projected statement of cash flow and profitability.

However, the projected statement of cash flow does not satisfy the bank’s criteria and the directors have told the bank that the financial results will meet the criteria. Thus there is pressure on the chief accountant to forward a financial report which meets NCB’s criteria.

The chief accountant cannot afford to lose her job because of her financial commitments and family concerns and this in itself creates an ethical dilemma for the accountant, as not only is there self-interest of the accountant involved but also the interests of the company and its workforce.
The accountant has to rely upon her moral and ethical judgement in these circumstances she finds herself in.

Ethical standards are used by members of a profession to decide the right course of action in given circumstances.
Ethics rely on logical and rational reasoning to reach a decision, morals are a behavioural code of conduct to which an individual ascribes and ethical rules create an obligation to undertake a particular course of action.

Conflict can arise between personal and ethical values but when an individual becomes a member of a profession, there is recognition that there is acceptance of the standards of that profession which include its code of ethics and values. The ethical rules of the accounting profession represent an attempt to codify principles. A profession is distinguished by having a specialised body of knowledge, a social commitment, the ability to regulate itself and high social status.

The profession should seek to promote or preserve public interest. Professional accountants make a bargain with society in which they promise to serve the public interest which may, at times, be at their own expense. Accountants, as professionals, cannot rely exclusively on rules to define how they will act ethically. Members of the profession have a responsibility to present the truth in a fair and honest fashion and in a spirit of public service. In such circumstances, accountants should think carefully before seeking creative accounting solutions to particular problems. Thus, in this case, the chief accountant should insist that the report to the National Commercial Bank is a true reflection of the current financial position, irrespective of the consequences for herself.

i. Ratios are used to express the logical relationships which exist between certain items in the financial statements.
ii. Ratios are also used to assess the liquidity position and financial condition of an enterprise over a period as well as with other similar enterprises.
iii. Ratios provide a better means of comparison than absolute values of financial or operational measurement.
iv. Ratios are useful in assessing the efficiency in managing the entity’s assets.
v. Ratios provide an indication of whether it is safe to invest in an entity.
vi. It is also useful in summarising the information contained in financial statements and in directing the user’s attention to certain key areas which may vary from firm to firm.
vii. Trend analysis, horizontal analysis and vertical analysis are all undertaken using ratios.

1. Inconsistent definitions of ratios
2. Financial statements may have been deliberately manipulated (creative accounting)
3. Different companies may adopt different accounting policies (e.g. use of historical costs compared to current values)
4. Different managerial policies (e.g. different companies offer customers different payment terms)
5. Statement of financial position figures may not be representative of average values throughout the year (this can be caused by seasonal trading or a large acquisition of non-current assets near the year-end)
6. The impact of price changes over time/distortion caused by inflation.

                             Decimal Limited
                                 REPORT
From         :
To             :
Date          :
Subject     :
Introduction

i. Profitability:
Both gross profit margin and net profit margin have fallen below the industry average. This may be the result of uncontrolled overhead cost on the presence of large obsolete equipment. Unless steps are taken quickly to improve the income account investors may shift their interest into more profitable companies in the industry.

ii. Liquidity:
Both quick and current ratios fall far below those of the industry as confirmed by the fact that it takes longer to collect its debt than the industry. The problem may have been worsened by the fact that inventory stay longer at Decimal Ltd than in the industry which is not the best use to which resources should be put.

iii. Efficiency:
Even though Decimal Ltd takes longer to collect its debts (5 days), this is compensated by an even longer time to settle the debts (20 days). This means that creditors provide free finance for its operations. However, the holding on to inventory for a long time (10 days) cannot be justified. This should be turned over in like manner as that assets turnover far exceeds that of the market.

iv. Shareholders’ Investment:
Both dividend cover and dividend yield fall below that of the industry. Such a situation is not likely to excite investors especially income – oriented investors who are seeking to recoup their investment in the shortest time possible. This poor performance may be due to the fact that high gearing ratio of Decimal Ltd has effectively put its future in the hands of debenture holders who are reaping the bulk profits in the form of interest charges.

Conclusion
Signature

According to IAS 24 Related Party Disclosures, a customer with whom an entity transacts a significant volume of business is not a related party merely by virtue of the resulting economic dependence.

Zico is not a related party and the negotiated discount does not need to be disclosed.

A party is related to an entity if it has an interest in the entity that gives it significant influence over the entity. The party is related to an entity if they are a member of the key management personnel of the entity. As founder member and major shareholder holding 40% of the equity, Aqeel is able to exert significant influence and is a related party of Mane. Aqeel is also a related party as he is Mane’s president. He is a member of the key management personnel of Mane. The sale of the property for GHȻ500,000 will need to be disclosed, along with its valuation as a related party transaction.

Providers of finance are not related parties simply because of their normal dealings with the entity. However, if a party is a close member of the family of any individual categorized as a related party, they are also a related party. As Sherif is Aqeel’s son and Aqeel is a related party, Sherif is also a related party. The loan from Cheap Capital will need to be disclosed along with the details of Sherif and his involvement in the arrangements.

Afoko would recognise the impairment loss in the following way:
When impairment loss is identified, it should be recognised as an expense immediately in the income statement. Where impairment loss relates to a group of assets, usually, the impairment loss should be allocated in priority to those assets which have the most subjective valuations. Impairment identified in this way should usually be allocated to goodwill, thereafter to intangible assets to which there is no active market, thirdly to assets which net selling price is less than their carrying amount and finally to any tangible assets in the unit.

The impairment loss of GHȻ30,000 is recognised first for the stolen vehicles and the balance (GHȻ15,000) is attributed to goodwill.

IFRS 9 requires gains and losses on financial liabilities designated as at fair value through profit or loss such as Abiba’s Ltd to be split into the amount of change in the fair value which is attributable to changes in the credit risk of the liability, which is shown in other comprehensive income, and the remaining amount of the change in the fair value of the financial liability which is shown in the statement of profit or loss.
IFRS 9 allows the recognition of the full amount of change in the fair value in the statement of profit or loss only if the recognition of changes in the liability’s credit risk in other comprehensive income would create an accounting mismatch in profit or loss.

This is determined at initial recognition and is not reassessed. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss, and the entity may only transfer the cumulative gain or loss within equity. As a result, Abiba Ltd should charge GHȻ5 million to OCI and GHȻ95 million to statement of profit or loss.

Pension cost recognised for the year would be:

IAS 19 does not actually specify where service cost and net interest cost should be presented. As a result, it is acceptable to include the net interest cost in finance costs.

IAS 19 states that past service cost should be recognised immediately and the past service cost will be included in the defined benefit obligation at 1 May 2015. Thus there is no need to calculate an interest cost on the past service cost.

Financial statement extracts:

The lease in this case is a sale and lease back of which the building is for the major part of the building’s economic life and the present value of the minimum lease payments amounts to all of the fair value of the leased asset. Therefore, the lease should be recorded as a finance lease.

The building is derecognised at its carrying amount and then reinstated at its fair value with any disposal gain, in this instance GHȻ1.5 million (GHȻ5m – GHȻ3.5m) being deferred over the new lease term. The building is depreciated over the shorter of the lease term and useful economic life, so 20 years. Finance lease accounting results in a liability being created, finance charge accruing at the implicit rate within the lease, in this case 7%, and the payment reducing the lease liability in arriving at the year-end balance. The associated double entry for the derecognition is as follows:
.                                         DR GHȻ000           CR GHȻ000
Cash                                        5,000
Building                                                                  3,500
Deferred income                                                 1,500
The asset will be immediately reinstated and accounted for as follows:

Depreciation = GHȻ5, 000, 000/20years = GHȻ250,000 per annum
Deferred income recognized per annum = GHȻ1, 500, 000/20years = GHȻ75,000

Financial statement extracts for the first year of the finance lease contract