Innovation in Evolution of Management - Free Samples to Students

Question: Discuss about the Innovation in Evolution of Management. Answer: Introduction: Computer World needs to consider certain factors at the time of making credit sales decision and these are evaluated briefly as follows: The first factor is the effect on sales revenue. The main reason behind granting credit is that the customers might delay in making payments (Coad, Jack and Kholeif 2015). This would help in winning the customers for Computer World. However, the sales revenue might be delayed due to credit period or discount period. The second factor is the effect on the cost of sales. At the time of extending credit, it denotes incurring amount for the product or service for having it in stock; however, the payment is not received immediately at the time of purchase (Cooper, Ezzamel and Qu 2017). Although the payment from the customers is confirmed, Computer World needs to have sufficient cash balance in order to compensate for the delayed payment. Moreover, the organisation might lose interest income that could have been earned on that amount. The third factor is the probability of bad debts. In case, Computer World provides any percentage of sales in the form of credit, there is a possibility of bad debt. Thus, at the time of determining the credit policy, the organisation needs to allow for some percentage of the credit accounts, which would not be paid. If Computer World decides to follow up the credit by the business through appointment of a new clerk for following up the collection, it might increase the probability of committing fraudulent actions. In addition, the new clerk could seek access of the various parts of the accounting system of the organisation through passwords, electronic access logs and lockouts and hence, the person could manipulate the results, which might have negative impact on the business operations (Fullerton, Kennedy and Widener 2013). In addition, another internal control threat includes standardisation of documents utilised for financial transactions like requests of internal materials, invoices and inventory receipts. When an organisation allows credit to its customers, few of them might not be able to pay within time. The direct write-off method is a way of accounting for such uncollectible expenditures (Granlund and Lukka 2017). However, it would not be effective to use this method for recording bad debts, since it violates the matching principle. At the time the business writes off an uncollectible amount, it charges the amount in the form of bad debt expense on the profit and loss account. In this method, this expense might happen in a period after the recording of initial sale, which violates the matching principle. In addition, if Computer World uses the direct write-off method, it would state accounts receivable amount at the time of sale, which might lead to overstatement of time. Hence, direct write-off method need not be used for recording bad debts The allowance method is a procedure that projects uncollectible receivables and bad debts through reporting of accounts receivable at its recognisable value (Messner 2016). This method is superior over the direct write-off method due to two distinct advantages. Firstly, this method agrees fully with the matching principle by recording projected bad debt expense in the period where the associated sale takes place. Secondly, this method reports accounts receivable at its recognisable value, which would help the creditors and investors to obtain an insight of the effectiveness of cash management policy of Computer World. It has been observed that there are certain material errors in measurement, recognition, disclosure or presentation of the elements of financial statements in a subsequent period of reporting. AASB 108 needs retrospective statement of the financial reports in such situations (Otley and Emmanuel 2013). In addition, this standard specifies that an organisation is to rectify any material prior-end error retrospectively in the first financial report after the error of discovery. This is mainly conducted by restating the comparative amounts for the previous period and if the error happened before the presentation of the earliest period, the restatement of the beginning balances of assets, equities and liabilities for the earliest previous period presented is made in accordance with Paragraph 42 of AASB 108. Hence, it is necessary for Computer World to develop a retrospective statement in accordance with the above-stated standard. As commented by Otley (2016), using both direct write-off method and allowance method of recording bad debt might lead to contradictory and inaccurate results in the financial statements of the organisation. This is because it would not be effective to use direct write-off method for recording bad debts, since it violates the matching principle. At the time the business writes off an uncollectible amount, it charges the amount in the form of bad debt expense on the profit and loss account. In this method, this expense might happen in a period after the recording of initial sale, which violates the matching principle. In addition, if Computer World uses the direct write-off method, it would state accounts receivable amount at the time of sale, which might lead to overstatement of time. On the other hand, the allowance method is superior over the direct write-off method due to two distinct advantages. Firstly, this method agrees fully with the matching principle by recording projected bad debt expense in the period where the associated sale takes place. Secondly, this method reports accounts receivable at its recognisable value, which would help the creditors and investors to obtain an insight of the effectiveness of cash management policy of Computer World (Taylor and Scapens 2016). According to the provided case, Harry is a customer and the person has placed a custom order for a notebook through credit card. As the order is ready for shipment, the credit card of Harry has been charged. However, the person has cancelled the order and he has lodged a dispute with the bank that has issued the credit card. Based on the provided scenario, it could be stated that the bank has made the right move, since the product of Harry is already up for shipment (Suomala, Lyly-Yrjninen and Lukka 2014). Since the product of Harry is already on shipment, the person is liable for clearing the amount and if the person cancels the order, the bank could impose charges for the order cancellation. Hence, it is unethical on the part of Harry to engage in a dispute with the bank. As the customer service officer of the bank, it is necessary to arrange a meeting with Harry, in which the detailed bank policies would be described and it would be ensured that the bank would work according to it s norms; however, the interest of the customer would be kept in mind as well. References: Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of management accounting and its integration into management control.Accounting, Organizations and Society,47, pp.1-13. Coad, A., Jack, L. and Kholeif, A.O.R., 2015. Structuration theory: reflections on its further potential for management accounting research.Qualitative Research in Accounting Management,12(2), pp.153-171. Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea: The case of the balanced scorecard.Contemporary Accounting Research. Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control practices in a lean manufacturing environment.Accounting, Organizations and Society,38(1), pp.50-71. Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms: Reviving contextuality in contingency theory based management accounting research.Critical Perspectives on Accounting,45, pp.63-80. Messner, M., 2016. Does industry matter? How industry context shapes management accounting practice.Management Accounting Research,31, pp.103-111. Otley, D. and Emmanuel, K.M.C., 2013.Readings in accounting for management control. Springer. Otley, D., 2016. The contingency theory of management accounting and control: 19802014.Management accounting research,31, pp.45-62. Suomala, P., Lyly-Yrjninen, J. and Lukka, K., 2014. Battlefield around interventions: A reflective analysis of conducting interventionist research in management accounting.Management Accounting Research,25(4), pp.304-314. Taylor, L.C. and Scapens, R.W., 2016. The role of identity and image in shaping management accounting change.Accounting, Auditing Accountability Journal,29(6), pp.1075-1099.