O slideshow foi denunciado.
Seu SlideShare está sendo baixado. ×

Icab lectures chapter last

Anúncio
Anúncio
Anúncio
Anúncio
Anúncio
Anúncio
Anúncio
Anúncio
Anúncio
Anúncio
Anúncio
Anúncio
Próximos SlideShares
Competition act 2002
Competition act 2002
Carregando em…3
×

Confira estes a seguir

1 de 4 Anúncio
Anúncio

Mais Conteúdo rRelacionado

Diapositivos para si (20)

Semelhante a Icab lectures chapter last (20)

Anúncio

Mais de Sazzad Hossain, ITP, MBA, CSCA™ (20)

Mais recentes (20)

Anúncio

Icab lectures chapter last

  1. 1. External regulation in business Why is regulation of businesses necessary? Regulation is any form of state interference with the operation of the free market. This could involve regulating demand, supply, price, profit, quantity, entry, exit, information, technology or any other aspect of production and consumption in the market. Regulation of business is needed for:  Addressing market failure: Government try to intervene market failure by the following ways: 1. Providing public goods 2. Providing merit goods for long term interest of society 3. Controlling the means of production through state ownership of industries 4. Redistributing wealth by direct taxation of income 5. Creating job opportunity 6. Influencing supply & demand through price regulation, indirect taxation, subsidy 7. Influencing market through persuasion 8. regulating markets through legislation Regulation will be more appropriate in case some market failures like Market imperfection, Externalities, asymmetric information, equity, etc.  Protecting public interest: Regulation in business are designed to ensure that the need of other stakeholders can be met. People find it difficult to trust business entities that exist to make profit. Experience has taught people that the objective is met at the expense of public interest. So the society has increasingly demanded that the business should be externally regulated to restore the balance of power. Bangladesh regulations:  Regulations imposed by Bangladesh parliament  Notifications/ circulars/ decision addressed to certain entities or individuals There are many regulatory bodies which oversee and enforce these regulations. For example, RJSC, SEC, Bangladesh Bank, The Department of Environment, The information commissioner, the Controller of Insurance, etc. Outcomes of regulations: 1. Address market failure 2. increase or reduce social standing of various social group 3. See through the collective desire of a significant section of the society 4. Enhance opportunities for the formation of beliefs in society 5. Affect the development of particular preference across the society 6. Deal with the problem of irreversibility (current activities will result outcomes from which future generation may not recover at all) How do businesses respond to regulations? - a variety of ways 1. Entrenchment of a particular practice (nil or no response) 2. Mere compliance 3. Full compliance 4. Innovation as per Porter hypothesis (strict environmental regulations trigger the discovery and introduction of cleaner technologies and environmental improvements, the innovation effect. Direct regulation of the level of competition in a market: Generally monopolies are not in the public interest as they do not allocate resources effectively. The government seeks to diminish them by direct regulation so that the market become perfect competitive. For this, the government prohibits anti-competitive agreements and abuse of dominant position. Many different types of such agreements may fall within the prohibition:  Fixing purchase or selling price or other trading conditions  Agreeing to limit or control production, market, technical development and investments  Sharing market or supply sources  Applying different trading conditions to equivalent transactions  Making conclusion of contracts subject to acceptance of supplementary obligations. Government also prohibits cartels which is an agreement between businesses (for prices, output levels, discounts, credit terms, technology, etc.) not to compete with each other. Direct regulation of externalities: Externalities (external costs and benefits) are regulated by the government by the following ways  Price regulations (setting maximum or minimum selling price)  Direct and indirect taxation or tariffs
  2. 2.  Subsidies to suppliers  Regulations by means of quitas, standards or fines. Direct regulation of people in business: Individuals in organizations are regulated in some way to protect the public and interest of creditors:  Insider trading of listed company’s share: People in an organisation will commit a crime under SEC act 1993, if they use knowledge they have as insider to make profit or avoid a loss when buying and selling shares and at the expense of open dealings in the market  Market abuse: If the people engaged in the stock market do not act standard behavior like, misusing information as an insider, distorting market price, creating false or misleading information about supply, demand and price, they must be fined or imprisoned.  Fraudulent trading of an insolvent company: If an insolvent company is found to have been carried out with the intention to defraud creditors, or indeed for ant fraudulent purpose, concerned director or managers will be personally liable for company’s debt under the Insolvency Act 1997.  Wrongful trading of an insolvent company: If a director is involved in wrongful trading, he may be required by a liquidator to make a contribution to an insolvent company’s assets under the Insolvency Act 1997. The effect of international legislations: International legislation regulates some markets more than other. The development process of global regulation is complex and very from industry to industry. But some common features emerged  The US has huge influence over the globalization of business. EU is starting to have influence  International organization like WTO, IMF, ICC also have power to influence in development of regulation  US corporations are very effective at enrolling the power of their own government and international bodies to promote their interests. The US Sarbanes-Oxley Act 2002 This act is a piece of US regulation that has had a global reach. This act has been passed after experiencing corporate scandals like Enron, WorldCom, etc. This act is directly applicable for listed companies in UK. These companies should face the following tasks of ensuring their accounting operations comply with the Act 1. A comprehensive external audit by Sarbox Compliance specialist to identify areas of risk, then 2. The installation of specialized software to provide the “electronic paper trails’ necessary to ensure Sarbox compliance Corporate responsibility for financial report: Under this Act, the CEO and CFO  Must reviews all financial reports and sign a personal certificate that they do not contain any misrepresentations and information in the financial report is “fairly presented”  Are responsible for the internal financial controls  Must report any deficiencies in internal accounting controls or any fraud involving management, to the Board, Audit Committee and external auditors  Must indicate any material changes in internal accounting controls If they submit an inaccurate certification, they may be fined up to &5 million plus a prison term of up to 20 years. Management assessment of internal controls: All annual reports must include internal control report to  State that management is responsible for an “adequate” internal control structure  State management’s assessment of the effectiveness of the control structure  Report any shortcomings in these controls Besides, external auditors must attest to the accuracy of the company management’s assertion that internal accounting controls are in place, operational and effective Company are required to disclose on an almost real time basis information concerning material changes in their financial condition or operations Accounting and audit firms and whistleblowing • The Public Oversight Board registers and regulates accounting firm in US • Audit firm should retain working paper for several year, have quality control standards in place and perform an audit review of each client’s internal control system • Auditors are expressly prohibited for carrying out a number of services for the client. Provision of other non-audit services is only allowed with the prior approval of the audit committee • There should be rotation of lead or reviewing audit partners every five years
  3. 3. • Auditor should discuss critical accounting policies and possible alternative treatments with the audit committee • All member of the audit committee should be independent and at least one member should be financial expert. Audit committee should be responsible for appointment, compensation and oversight of auditors. • Employees of the listed companies and auditors are granted whistleblower protection against their employers if they disclose private employer information to parties involved in a false claim. International regulation in trade International free trade support efficient allocation of resources in the world by  Encouraging specialization  Evening out of surpluses and deficits of resources  Competition  Economies of scale  Close political links Barriers to free international trade  Tariffs & customs duty  Import quotas  Embargoes (ban on certain imports and exports)  Hidden subsidy for exported or domestic producers  Import restrictions  Government actions to devalue the nation’s currency Arguments in favor of protectionist measures:  Preserve output and employment in domestic industry  Counter dumping of surplus production  Protect unfair measure taken by other country  Protect country’s infant industries  Deal with the problems of a declining industry  To reduce balance of trade deficit Arguments against protectionist measures:  Reduce volume of international trade  Import will be reduced, so also exports  Damage the prospect for economic growth  Political ill-will amongst countries Free trade agreements: 1. The World Trade Organisations 2. Regional trading organizations (EU, NAFTA, SAARC, Mercosur, ECOWAS The Business Finance Function The task of finance functions  Recording Financial Transactions- ensuring that the business has an accurate record of its revenue, expenses, assets, liabilities and capital  Management Accounting- providing information to assist managers and other internal users in their decision making, performance measurement, planning & control activities  Financial reporting: Preparing information about a business for external users that is useful to that in making economic decisions  Treasury management- Managing the fund of business namely cash, other working capital, long term investment, debt finance and equity finance The structure of finance functions Figure 7.1 from Books (pare 198) Management Accounting: Management Accounting provides information to managers within organizations, to assist decision making, planning & control.
  4. 4. Cost classification 1. By nature of expenditure: Material, Labor and Expense 2. By Function: Production cost, administrative expense, distribution costs 3. By traceability: direct cost, Indirect Cost 4. By cost behavior: Fixed cost and variable costs 5. Costs for decision making: Sunk costs, avoidable cost, unavoidable cost, differential cost, incremental costs, marginal cost, opportunity costs, etc. Making resource decision in the short term to medium term 1. Cost-volume- profit analysis 2. Breakeven analysis 3. Contribution analysis 4. Limiting factor analysis Pricing Impact on business pricing policy  Costs  Competitors  Customers  Corporate objectives Making Invest decision for long term 1. Capital budgeting 2. Capital investment appraisal Managing finance functions: 1. Planning & Control-  Forecasting what is needed  Evaluating available resources  Developing objectives plan and targets,  Implementing plans and monitoring performance  Using feedback from monitoring to make necessary amendments to the plan 2.

×