Question

1. Explain value-based management and how shareholder value relates to the interaction between product and capital markets. How does corporate governance impact the decisions of management?

2. Discuss how accounting standards have developed in the United States. What factors have had the most influence on accounting and how the standards have developed over time? What organization(s) do you feel have influenced US GAAP the most? Why?

Answer 1

1) Value based management is mainly concerned with increasing shareholders value. Increasing shareholders value ultimately leads to increasing value creation in organization and leads to the growth of organization.

It has three element, which are creating the value; managing the value and measuring the value. VBM works on this.

To understand how shareholders value relates to the interaction between product and capital market, we need to understand that as products are when sold, value is added to the company. The market of the company goes up. It also leads to increase in the value of shareholders.

Corporate governance refers to the laws and policies that governs how a company is controlled and run. Any decision taken by the management should be under the laws written down to be followed. Corporate governance shows a way in which activities of a business should be carried forward.

There are various principles of corporate governance that has impact on managerial decision making like rights of shareholders and treating them equally ; Stakeholders interest; Poard roles and responsibilities; Integrity and ethical behavior ; Disclosure and transparency.

All these factors lead to proper functioning of the management. Keeping all factors in mind, management would always like to take a fair decision on what is to be done. This is good for organization also.

If management will not keep transparency, there are chances of fraudulent activities going on in the business, so corporate governance guides as what is right, and how it is to be done.

2) AICPA ( American Institute of Certified Public Accountants) is the origin from where accounting standards originated with subject to US SEC(Securities and Exchange Commission) regulations. GAAP( Generally Accepted Accounting Principles) was been developed for various businesses.

In 1939, Committee on Accounting Procedures was created by AICPA which was later on replaced in 1959 by Accounting Principles Board. This Accounting Principles Board was also replaced by FASB (Financial Accounting Standards Board) in 1973.

Organizations that influenced US GAAP are FASB( Financial Accounting Standards Board) ; AICPA( American Institute of Certified Public Accountants) ; SEC ( Securities and Exchange Commission) ; IRS (Internal Revenue Service).

If we talk about FASB, it has set certain guidelines which is followed while making financial reports and accounting. But for GAAP, violating the rules does not men ans committing crime. It just sets a standard that can be followed. Their influence has mede GAAP widely accepted as for standards.