Question

Select a company you are familiar with or one you are currently working in, or one with information publicly available. Using your own words as much as possible, and in not more than 2,000 words (in total):

(a) Provide a brief description of the organisation - background, the organizational structure, the nature of business, the industry and the environment it is operating in, its products/services, etc.

(b) Choose one functional area (e.g. production, sales, customer service etc.) and describe in detail how accounting information is used to facilitate and influence decision makings to maximize firm value.

(c) Discuss on whether the quality of the accounting information you have described achieved the objective of maximizing the firm value. Your comment on the quality of the accounting information can be based on the attributes of accuracy, timeliness and cost of producing the information.

(d) Suggest possible improvements to the quality of the accounting information that the company can adopt.

Answer 1

1. I am currently working in Dabur India limited. Dabur India Ltd is one of the leading FMCG Companies in India. The company is also a world leader in Ayurveda with a portfolio of Herbal/Ayurvedic products. They operate in key consumer products categories like Hair Care, Oral Care, Health Care, Skin Care and Foods. The company operates through three business units, namely consumer care division (CCD), international business division (IBD) and consumer health division (CHD). Their CCD business is divided into four key portfolios: healthcare, personal care, home care and foods. Their CHD business offers a range of healthcare products. Their IBD business includes brands, such as Dabur Amla and Vatika.
2. Lets choose sales as a functional area. So when taking decision related to appointment of salesman, introducing a new offer for increasing sales, penetrating a new market, to compete in a particular situation or geographical location accounting information is needed firstly in order to form any decision.

Let’s understand this by taking examples: -

Example 1: - Appointment of salesman – in order to appoint salesman and deciding their remuneration or deciding the commission on sales, accounting information like gross profit is required to determine that no. of salesman appointed or commission given to them will not turn profits in losses.

Example 2: - Introducing a new offer – When introducing any new offers management requires detail of each and every expenses pertains to that product so that any new offer will not results in decrease in profits.

Example 3: - To compete in a geographical location – in order to expand the business new locations always explored by the company. Management always takes those decision based on cost that will incurred in sending goods to that location and particulars markets. So current freight and carriage charges considered for that as well.

3. Quality of accounting information : -

Accuracy: - any information reported to management for taking decision should be accurate because once a decision is taken for such a big company every small mistake will also results in heavy losses.

Timeliness: - Information provided should be latest, if any crucial information is provided based on past accounting information and if there is any significant change in that duration then the decision taken will be incompetent.

Cost of producing the information – cost involved in arranging all the necessary information i.e. from generating raw information to present it with management should not be that much that it will nullify the effect of decision. However most of the times cost of producing information doesn’t have that much significance.

If a company wants to maximize its value quality of accounting information should be maintain. A business is run around facts and figures produced through accounting information, so any compromise in quality will results into not maximizing the value of firm.

4. Some suggestions:-
   1. Appointment of competent persons for providing and producing accounting information as that will built the base of many important decision.
   2. Applying best practices available in market to produce and prepare accounting information