Fundamental ethical principles
In the first instance, the ethical issue at stake is integrity. Integrity ensures that professional accountants are straightforward and honest in all professional and business relationships. It also implies that accountants fair dealing and truthfulness. In this regard, presenting wrong or erroneous information that can misinform and mislead management will be a breach of the accountant’s integrity.

While you, as a professional accountant, may have time to include the information in the management accounts, it is unlikely that you will be able to check its accuracy as well since you are constrained with time. Therefore, you risk misinforming the finance director of the month’s sales which will constitute a breach of integrity.

In the second instance, the ethical issues at stake are professional competence and due care. Accountants have a continuing duty to maintain professional knowledge and skill at a level required to ensure that clients or employers receive competent professional service. It is expected of professional accountants to act diligently in accordance with applicable technical and professional standards when providing professional services.

With reference to the scenario, unless the employee is a tax expert, it is unlikely that he would have sufficient competence to calculate the tax liabilities. Providing financial advice may be a minefield, and one may need to be qualified under the financial services regulations before one could do so.
Even if the employee did have the required competence, it is probable that he could not offer due care as any advice he gives would be on-the-spot, and thus not have been able to look into the matter in enough detail.

                                                                             REPORT
To: The Board of Directors
From: Corporate Affairs Manager
Date:
Subject: A Case for Corporate Social Responsibility
Introduction
Following the impasse among members of the board on the nature of the company’s philosophy and strategy on corporate social responsibility, this report was commissioned to make a case for corporate social responsibility in order to help the board to formulate an appropriate CSR strategy. Below are the arguments in favour of CSR.
i. Customer expectations – There is an increasing expectation from consumers and other stakeholders that businesses will act in a more socially responsible manner. This is a global expectation. For example, from the food they eat, to the coffee they drink and the clothes they wear, consumers are becoming more aware of the origins of the everyday things they buy, and they want to buy products that are responsibly sourced.
Given that one of the key success factors for a business is the ability to offer customers what they want, then offering products and services which are deemed to be socially responsible could help boost sales. In this respect, CSR could provide opportunities to enter new markets or develop new products.
ii. Brand name – Being seen as socially responsible can help enhance a business’s reputation and therefore its brand. Customers may prefer to deal with a business they feel is socially responsible rather than with one which is not. Therefore, CSR could actually be a source of differentiation for a business.
iii. Lower environmental costs – If firms improve the efficiency of their energy usage, for example, then as well as making lower emissions they will also have lower cost bases. If firms can achieve a lower cost base through the efficient use of resources, this could help them create or improve their competitive advantage.
More generally, firms could also find it is less costly to regulate their own activities voluntarily than ignoring social responsibility in the short term and then having to comply with statutory regulations (in the form of taxes or fines, for example) which may imposed on them later.
iv. Trade opportunities – If firms are perceived as not being socially responsible, they may find it harder to attract trading partners, or support from nations and local communities where they might want to invest.
v. Access to staff – Similarly, the way firms are perceived to treat their employees may affect their ability to attract staff. For example, firms that are perceived to offer good working conditions are likely to be able to appeal to a higher caliber of staff than firms which are perceived to offer unfavourable working conditions. In turn, a firm which is able to attract (and retain) high quality staff may be able to generate competitive advantage over a firm which is less able to recruit good quality staff.
vi. Investment and funding – A firm’s reputation may also affects its ability to attract finance, particularly from ethical investors. For example, obtaining a listing on the FTSE4Good (index of companies that meet globally recognised corporate responsibility standards) is likely to help a firm attract finance from ethical investors.
vii. Sustainable business – Taken collectively, the arguments in favour of CSR suggest that a socially responsible business is likely to be able to operate for longer in society than a less responsible one. In turn, if the business can expect more years of cash flows in the future, it might be reasonable to expect the value of the company to be higher than that of one whose future is perceived to be less secure.
                                                                                                                                                                                                  Signed

i. Proactive strategy: This is a strategy which a business follows where it is prepared to take full responsibility for its actions. It does so without being forced to do so by regulators and enforcing agencies. A company adopting this strategy would, thus, take steps to recall a product from the market after it discovers a fault in that product. It does this in order to avoid injury or damage to consuming public.

ii. Reactive strategy: This strategy involves allowing a situation to continue unresolved until the public, government or consumer groups find out about it. Unlike the proactive strategy, a company employing the reactive strategy will only withdraw a faulty product if it is forced to do so by regulators, the public or strong consumer groups – by which time the consuming public may have suffered some damage already.

iii. Defence strategy: A company that adopts this strategy would take steps to minimize or attempt to avoid additional obligations arising from a particular problem which have occurred as a result of its negative actions.

iv. Accommodation strategy: An accommodation strategy involves a company taking responsibility for actions, probably when one of the following happens:

*Encouragement from special interest groups

*Perception that a failure to act will result in government intervention

Outsourcing involves an organisation contracting out certain internal business functions to a third party. In outsourcing, the external third party is located within the same country as the outsourcing entity. The outsourced function is usually considered be a non-critical activity within the value chain of the firm. A bank hiring out its security or cleaning services to external security or cleaning companies is a typical example of outsourcing.

Offshoring is a form of outsourcing. It, however, differs from traditional outsourcing to the extent that it involves an external entity – i.e. the third party – which is based in a different country that provides an organisation with a particular product or process which had previously been provided in-house. An example of Offshoring will be a financial institution operating in the United Kingdom but has a customer call centre operated in India.

Shared servicing is an alternative to outsourcing. In this structure, an organisation establishes shared service centres to consolidate the transaction-processing activities of many operations with the organisation. Shared service centres aim to achieve significant cost reductions whilst improving service levels through the use of standardized technology and processes. A typical example of shared servicing would be a very large University that centralizes its IT support function or its HR support function instead of decentralizing among the various colleges of the University.

i) It can affect the quality of a firm’s product or services offered since the use of third parties breaks the direct link between the firm and its customers.
ii) It can lead to bad publicity to the firm in the home market when consumers perceive moves to offshore operations as leading to domestic jobs losses.
iii) It could lead to loss of control since it increases the scope for third parties not to meet agreed service levels.

Management orientation and organisation for engaging in international business are as follows:
1. Ethnocentrism orientation
2. Polycentrism orientation
3. Regiocentrism orientation
4. Geocentrism orientation
1. Ethnocentrism orientation: This is a home country orientation and it’s based on the philosophy that the culture of the home country is superior to that of other countries. The approach, thus, ignores any inter-country differences which exist. Essentially, ethnocentric companies will tend to exhibit the following features:

• Market the same products with the same marketing programmes in overseas countries as at home.
• Centralize the marketing function in the home country
• Standardize the marketing mix
• Carry out no local market research or adaptation of promotion.
  As a result of the above, market opportunities in the overseas markets may not be fully exploited and foreign customers may thus be alienated by the approach. Ethnocentric companies usually focus on its domestic market and sees exports as
  secondary to domestic marketing. One significant advantage in using this approach is the economies of scale that accrues to the company.
  2. Polycentrism orientation: The polycentrism orientation is based on a philosophy that is exactly in contrast with the ethnocentrism orientation. This orientation believes that each country’s culture is unique. Based on this philosophy, the following features of polycentric companies become evident:
• It adapts totally the product and the marketing programme to each local environment
• It establishes largely independent local subsidiaries who are free to formulate their own objectives and plans
• It decentralizes its marketing management function
• It invests massively in marketing research in order to be responsive to the local markets.
  The result of the above is major increases in turnover. However, loss of economies of scale can seriously damage profitability. Ethnocentric companies tend to think of themselves as having multiple identities, what is usually referred to as multinational corporations.
  3. Regiocentrism orientation: This is a synthesis of ethnocentrism and polycentrism orientations. It is based on the philosophy that there are both similarities and differences between countries that can be incorporated into regional objectives and strategies. Thus, with the approach market segmentation is fulfilled on the basis of similarities in terms of regions. A regiocentric company will find economic, cultural or political similarities among regions in order to cover the similar needs of potential consumers. For instance, nations like India, Pakistan and Bangladesh possess a strong regional identity that can be exploited using same products and strategies. The significant features of regiocentric companies are:
• It uses an integrated approach to marketing that is based on regional blocks.
  4. Geocentrism orientation: This orientation is similar to regiocentrism orientation. The only difference is that it fails to recognise similarities and differences among regional blocks. Thus, the target of geocentric companies, also known as global companies, is to target consumers who have similar tastes and preferences wherever they may be found on the globe. The main idea of this approach is to borrow from every country what is best. It treats the issues of standardization and adaptation on their merits so as to formulate objectives and strategies that exploit markets fully while minimizing company costs. The aim is to create a global strategy that is fully responsive to local market differences. The essential features of a global company are as follows:
• It uses an integrated approach to marketing management.
• It gives due consideration to each country’s condition without allowing any specific country’s culture or condition to dominate.

Suitability: Suitability relates to the strategic logic of the strategy. The strategy must be consistent with the company’s current strategic position and its operational circumstances. Suitability of strategic options can be viewed from many angles. For instance, a strategic option can be considered as suitable if it exploits company strengths and distinctive competences while rectifying internal weaknesses. Also, suitable strategies should neutralize or deflect environmental threats and help the firm to seize opportunities. They must fit with the company’s mission and objectives.
Other questions to ask in evaluating the suitability of strategic options bother on whether they fill the gap identified by gap analysis and whether they generate or maintain competitive advantage over competitors. Management must also ensure that the strategy or strategies involve an acceptable level of risk as well as suit the politics and corporate culture.
It is important for a company to also consider three overall important strategic issues when assessing the suitability of an option.

• Does the strategy fit with any existing strategies which the company is already pursuing, and which it wants to continue to pursue?
• How well does the option actually address the company’s strategic issues and priorities?
• Will the option contribute to a sustainable competitive advantage for the company, in the light of the competitive environment?

Acceptability: The acceptability of a strategy relates to whether the chosen strategy of the firm is acceptable to its stakeholders. The key stakeholders will be those with high power and high interest in an organization or a strategy. It is particularly important that any potential strategy is acceptable to these key stakeholders.
The level of risk and return associated are with the strategy are likely to be critical in determining how acceptable it is. Some considerations in terms of evaluating the acceptability of strategy are discussed below:
Financial considerations: Strategies will be evaluated by considering how far they contribute to meeting the dominant objective of increasing shareholder wealth. The financial considerations of a chosen strategy would usually evaluated using investment appraisal ratios and other benchmarks such as return on investment, profits, growth, earnings per share, cash flow, price/earnings and market capitalization.
Customers: It is important that the chosen strategy fulfills the expectations of customers. In other words, the strategy must produce value for customers at reasonable prices for it to succeed. Customers may object to a strategy if it means reducing service or raising price but, on the other hand, they may have no choice but to accept the changes.
Staff has to be committed to the strategy for it to be successful. If staff are unhappy with the strategy – or with any organisational which result from it – they could either resist the strategy, or else leave the organisation completely.
Suppliers have to be willing and able to meet the input requirements of the strategy for the strategy to be considered as acceptable.
Government: A strategy involving a takeover may be prohibited under legislation designed to prevent anti-competitive behaviour (e.g. the creation of monopoly). It is important to evaluate the chosen strategy in terms of whether it is acceptable within the framework of the law or government policy. Government regulations and policy may stem from tax laws, employment law, environmental laws, competition laws, etc.
The public: The environmental impact may cause key local stakeholders to protest. Will there be any pressure groups who oppose the strategy?
Risk: Different shareholders have different attitudes to risk. A strategy which changes the risk/return profile, for whatever reason, may not be acceptable.

Feasibility: Feasibility is a criterion that is used to evaluate whether the potential strategic option can in fact be implemented. It helps to answer the question, ‘Is the strategy doable?’ In this regard, it is important to assess whether there is enough money as well as the ability to deliver the goods/services specified in the strategy. Management should also assess whether it has the ability to deal with the likely responses that competitors will make. Other questions that need answering in terms of assessing feasibility relates to whether the company has access to technology, materials and resources to carry through the strategy and whether there is enough time to implement the strategy.
Feasibility must be assessed using both quantitative and qualitative analysis. Quantitative approaches include funds flow analysis and breakeven analysis. Resource deployment analysis is a qualitative analysis that helps the organisation to make a wider assessment of feasibility in terms of resources and competences. The resources and competences required for each potential strategy are assessed and compared with those of the firm. In this regard, a two stage approach may be followed. The first is to find out whether the firm has the necessary resources and competences to achieve the threshold requirement for each strategy and secondly, whether the firm has the core competences and unique resources to maintain competitive advantage.

For objectives to facilitate the implementation of management by objectives (MBO) it should possess the ‘SMART’ characteristics. SMART is the mnemonics representing the following:
i. Specific: An objective must be a clear statement of what the organisation is trying to achieve, and must be easy to understand. For an objective to enhance MBO, it should avoid any form of ambiguities. For example, managers may set an objective to increase sales, profit or customer satisfaction.
ii. Measurable: This means objectives should include some quantifiable element. This way, performance can be monitored and evaluated against the objectives. Measuring performance against objectives is a key element of control in organisation.
iii. Achievable: For MBO to be effective, targets set should always be realistic. If objectives set by management cannot be achieved, those required to achieve the target will not be motivated by it. It may even discourage them, because they know the target can never be reached anyway, no matter the level of effort they put in. To work well, employee must believe that their efforts can be successful.
iv. Agreed: Sometimes, the ‘A’ is explained as agreed. In this sense, objectives or targets set need to be the consensus reached by the different people who are involved in the process. There is no need to impose targets on employees since it could discourage them from making any attempt to achieve it. The essence of MBO is participative management.
v. Relevant: An objective is relevant if it relates to an organisation’s mission, and will help it fulfill that mission. Thus, objectives must necessarily flow from the organisation’s mission otherwise it will lead to avoidable conflicts in its achievement.
vi. Realistic: Sometimes, the ‘R’ is explained as realistic. In this regard, the explanation will be the same as in achievable/attainable.
vii. Time-related: All objectives or targets should state quite clearly when they should be achieved. Managers and/or employees need to know exactly how long they have so that they can plan accordingly. When objectives are time-specific, it enables management to judge whether or not the objective has been achieved. This characteristic also facilitates management function of control. For example, if an organisation has an objective ‘To increase sales revenue by 5%’ how will managers know the time period over which this sales increase is expected.                                                                                                      (Any 3 points)

                                                                                                      MEMO
To: The Chief Executive Officer
From: Management Accountant
Date:
Subject: Balanced Scorecard
Introduction
This memo is to describe the four perspectives of the balanced scorecard and the major problems inherent in its application to corporate strategic management.
i. Description of the four perspectives of the balanced scorecard

• Financial perspective – The financial perspective of the balance scorecard answers the question, ‘how do we as an organisation look to shareholders?’ Thus, it addresses the question on how the organisation should create value for its shareholders in order to succeed financially. It covers traditional measures such as growth, profitability and shareholder value, with measures set through talking directly to the shareholders. Financial performance measures indicate whether the company’s strategy, implementation, and execution are contributing to bottom-line improvement.
• Customer perspective – The customer perspective of the balance scorecard is a means by which management translates its overall mission statement on customer service into specific measures that reflect the factors that really matter to customers. It answers the question of how the organisation should appear to its customers in order to achieve its vision. It helps management to pay attention to customers’ concerns such as cost, time, quality, performance, reliability and service.
• Internal business process perspective – This perspective addresses internal business processes for which the organisation must excel at in order to meet or exceed customer expectations and achieve financial objectives. Internal measures for the balanced scorecard should stem from the business processes that have the greatest impact on customer satisfaction – factors that affect quality, employee skills, and productivity. It also attempts to identify and measure the organisation’s core competencies and critical technologies needed to ensure continued market leadership.
• Innovation and learning perspective – This perspective is a means of recognising that the targets for success keep changing due to intense global competition and other environmental factors. Thus, it is an attempt to measure the continual improvement of the organisation with regards to existing products and processes. Thus, measures may include the ability of the company to introduce entirely new products with expanded capabilities as well as innovative processes that delivers better value to customers. It brief, it answers the question of how the organisation can continue to create value and maintain its competitive position through improvement and change.

• Conflicting measures – The balanced scorecard sometimes presents conflicting measures. A typical example is research funding and cost reduction. While research is a means of ensuring innovation and learning it leads to cost accumulation which may reflect in high prices for customers. Thus, it is often difficult to determine the balance which achieves the best results.
• Selecting measures – Not only do appropriate measures have to be devised but the number of measures used must be agreed. Care must be taken that the impact of the results is not lost in a sea of information. The innovative
• Expertise – Measurement is only useful if it initiates appropriate action. Non-financial managers may have difficulty with the usual profit measures. With more measures to consider, this problem will be compounded. Measures need to be developed by someone who understands the business processes concerned.
• Interpretation – Even a financially-trained manager may have difficulty in putting the figures into an overall perspective.
• Management commitment – The scorecard can only be effective if senior managers commit to it. If they revert to focusing solely on the financial measures they are used to, then the value of introducing additional measures will be reduced. In this context, do not overlook the cost of BSC. There will be costs involved in data-gathering and in measuring the performance of additional processes.
• Lack of aggregate performance measure – The balance scorecard doesn’t provide a single aggregate summary performance measure; for example, part of the popularity of ROI or ROCE comes from the fact that they provide a convenient summary of how well a business is performing.
• No direct link with shareholder value – In comparison to other measures used in value-based management (such as economic value added or EVA) there is no direct link between the scorecard and shareholder value.
• Culture – Introducing the scorecard may require a shift in corporate culture; for example, in understanding an organisation as a set of processes rather than as departments.
• Imbalance between short-term and long-term perspective – Implementing the scorecard will require an organisation to move away from looking solely at short-term financing measures, and focus on longer-term strategic measures instead. This usually leads to an imbalance between the long and short-term perspectives by management.
                                                                                                                                                                                               Signed
                                                                                                                                                                                  (Any 3 points)

Suggested ways of improving the cash situation of Richward Ltd

• Raising new capital
• Ploughing back profits
• Raising new loans
• Leasing or renting non-current assets instead of buying them
• Raising prices
• Selling for cash
• Asking for a extended period from creditors
• Cutting down costs

Advice to Mr. Bonku
Competitor Information

• Information about competitors can be very useful as it provides a benchmark against which Richward Ltd’s performance can be compared.
• Budgeting will provide information to forecast patterns and trends. This will be very useful when making decisions and setting objectives and targets e.g. market growth rates.
  Financial information
• Investment appraisal
  Information can be provided to evaluate each capital investment project undertaken by Richward Ltd. This will be very useful when developing the new site.
• Variance analysis
  This is a very important management accounting control tool. The expected costs and revenues will be forecast and actual costs and revenues compared with them. Variances can then be identified and investigated to find their cause. This will establish some of Richward Ltd’s strengths and weaknesses.
• Customer account profitability
  Costs incurred by Richward Ltd can be related to each customer and the profit generated by each customer calculated. This will be very important information used by Richward Ltd’s managers to make decisions relating to each customer e.g. Grace Ltd.
• Quoting prices
  Most of Richward Ltd’s customers will be other organisations. They will expect a price to be agreed before awarding a contract to a supplier. Management accounting can supply the information for quoting competitive and realistic prices when negotiating with customers.