BBAW2103 FINANCIAL ACCOUNTING

BBAW2103 FINANCIAL ACCOUNTING 1.0 1.1 Introduction Companys Descriptions : : : : : : : : Teck Guan Perdana Berhad Listed Public Limited Company Operational MYL7439OO002 Ernst & Young (2011) July 11, 1993 432

As cited from the Emerging Markets Information Service: Company Name Status Legal Form Operational Status ISIN CODE Financial Auditors Incorporation Date Total Employees

Teck Guan is a Malaysia-based diversified multinational founded by the late Datuk Seri Panglima Hong Teck Guan in 1935. It has core businesses in plantations, industrial including oleochemicals, trading as well as other businesses. With an annual turnover of around USD 1 billion and growing, Teck Guan is committed to excellence in all areas be it in businesses, environment and corporate social responsibility. It has well over 7,000 employees in over several countries. With its headquarters in the state of Sabah, in East Malaysia, Teck Guan has currently more than 80 companies. The corporate logo signifies the planet earth sustaining all forms of life by the Sun which is a non-mankind, non-earth provider of wealth. Since the source of wealth is identified, Teck Guans mission is therefore to develop hardware and software to harness this abundant free wealth, with a firm commitment to be a big global leader in making a sustainable prosperous society.

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1.2

Vision Craving to serve humanity.

1.3

Mission To harness abundant wealth from non-earth resource.

1.4

Core Values To conduct mutually beneficial and ethical relationship on the principles of honesty,

integrity and sustainability. 1.5 Financial Highlights As cited in the EMIS, Teck Guan Perdana Berhads financial status for the current year could be explained as the following. According to the Consolidated - Non-Audited financial statement for the first three cumulated quarters of 2013, total net operating revenues increased with 4.17%, from RM 129,051 thousands to RM 134,438 thousands. Operating Results decreased from RM 5,642 thousands to RM -8,326 thousands. The results of the period reached RM -11,283 thousands at the end of the period against RM 2,147 thousands last year. Return on equity (Net income/Total equity) went from 3.99% to -25.56%, the Return On Asset (Net income / Total Asset) went from 1.65% to -8.76% and the Net Profit Margin (Net Income/Net Sales) went from 1.66% to -8.39% when compared to the same period of last year. The Debt to Equity Ratio (Total Liabilities/Equity) was 191.71% compared to 141.92% of last year. Finally, the Current Ratio (Current Assets/Current Liabilities) went from 3.00 to 1.44 when compared to the previous year. 2.0 Accounting Information: There is general agreement that, before it can be regarded as useful in satisfying the needs of various user groups, accounting information should satisfy the following criteria: i. Understandability: This implies the expression, with clarity, of accounting information in such a way that it will be understandable to users - who are generally assumed to have a reasonable knowledge of business and economic activities ii. Relevance This implies that, to be useful, accounting information must assist a user to form, confirm or maybe revise a view - usually in the context of making a decision. 2

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iii.

Consistency

This implies consistent treatment of similar items and application of accounting policies iv. Comparability

This implies the ability for users to be able to compare similar companies in the same industry group and to make comparisons of performance over time. Much of the work that goes into setting accounting standards is based around the need for comparability. v. Reliability

This implies that the accounting information that is presented is truthful, accurate, complete (nothing significant missed out) and capable of being verified (e.g. by a potential investor). vi. Objectivity

This implies that accounting information is prepared and reported in a "neutral" way. In other words, it is not biased towards a particular user group or vested interest 2.1 Teck Guans Accounting Information Teck Guan Group is well-known for its quality and reliability in products and services. Its well-established wide distribution network enables it to provide timely deliveries, thereby allowing its customers to achieve savings in both time and costs. The accounting information for this company can be obtained from: i. ii. 3.0 Directors Report and Audited Financial Statements (Published annually) Unaudited Interim Financial Statements (Published Quarterly) Reliability Characteristics: The FASB was the first standard setter to define the term reliability. In terms of the FASB Concepts Statement No. 2 (FASB, 1980: 28) the reliability of a measure rests on the faithfulness with which it represents what it purports to present (representation faithfulness), coupled with an assurance for the user, which comes through verification, that it has that representational quality (verifiability). Further, neutrality of information interacts with the first two characteristics to affect its usefulness (FASB, 1980: 28). Reliable information explains things that have already happened and can predict the outcome of things that have not yet happened. This is important because if a piece of information 3

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cannot explain both past and future events, the information is either incomplete. For example, if we do not understand the context in which it is true or inaccurate thus the information cannot be relied upon. Reliable information can also be used to elucidate new information when unexpected results arise. This is important because if something unexpected happens, reliable information can be used to exclude things that are not the origin of the unexpected results and enables focusing of efforts and resources on other areas. There are three characteristics of reliable information. There are: i. Verifiability: Verifiability implies a consensus among different measurers. For example, the historical cost of a piece of land to be reported in the balance sheet of a company is usually highly verifiable. The cost can be traced to an exchange transaction, the purchase of the land. However, the market value of that land is much more difficult to verify. Appraisers could differ in their assessment of market value. The term objectivity often is linked to verifiability. The historical cost of the land is objective but the lands market value is subjective, influenced by the measurers past experience and prejudices. A measurement that is subjective is difficult to verify, which makes it more difficult for users to rely on. ii. Neutrality: Information contained in the financial statements must be free from bias. It should reflect a balanced view of the affairs of the company without attempting to present them in a favored light. Information may be deliberately biased or systematically biased. iii. Representational Faithfulness: This exists when there is agreement between a measure or description and the phenomenon it purports to represent. For example, assume that the term inventory in a balance sheet of a retail company is understood by external users to represent items that are intended for sale in the ordinary course of business. If inventory includes, say, machines used to produce inventory, then it lacks representational faithfulness.

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3.1 Teck Guans Reliable Characteristics: The reliability principle is the concept of only recording those transactions in the accounting system that users can verify with objective evidence. In this case, the evidence is referred to as the Teck Guans Directors Report and Audited Financial Statements Ended 31 January 2012. End users of accounting information are commonly referred to as internal and external users. Internal users include business owners, managers and employees. External users include lenders, investors and the general public. External users use relevant accounting information to make financing decisions for small business loans. The companys reliability characteristics can be explained as follow. 3.1.1 Verifiability: In my opinion, the verifiability of the companys financial status could be drawn in a few facts. The first one is the declaration made by the directors at the time when the financial report is issued. For example: In these excerpts, the verifiability of the financial statements could also be seen in the detailed reports presented from page 9 79. Here are some excerpts taken from the mentioned financial statement ended 31 January 2012. Excerpt 1: Statement of Comprehensive Income

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From this statement, the income of the company is stated clearly for two years which gives the user some insights about future investment in the company. Here, it shows the company gross profits on 31 January 2012 are RM 534, 864 while in 2011 they made RM 551,758. Both of this information could be verified by looking at the revenue stated prior to the figures given which also shows a slight difference in the cost of sales. Therefore, by using this information the external users, such as the investors, creditors as well as customers could evaluate the companys performance and also to decide the best investment for them in the future. Excerpt 2: Consolidated Statement of Changes in Equity

For this excerpt, the financial statement has also included three years of financial balance starting from 2010 until 2012. The users could clearly see the difference in the Equity whereby it is clearly stated that each year the company is progressing. In 2010 their equity is RM 45, 366, 224 while in 2011 is RM 51, 653, 310 and finally in 2012 they have made RM 55, 432, 083. These figures are verifiable and thus help the users to decide for their future investments.

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3.1.2

Neutrality: Neutrality emphasize on the accuracy of the information given by the company. The content

of the company financial statement must be bias free and thus allowing the users both internal and external to accept the information as true. The neutrality in the Teck Guan financial statement in my opinion could be seen as the following: Excerpt 3: Statement by Directors

Excerpt 4: Statutory Declaration

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These two excerpts guarantee that all information in the financial statement is true upon presentation and does not favour any individuals or the company itself. 3.1.3 Representational Faithfulness:

Excerpt 5: Statements of Cash Flows

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In this excerpt, the cash flow of the company is listed in detail with particulars that clearly describe how the money is spent. This manner in which the spending is described guarantees the representational faithfulness of the company. 3.2 The Importance of Reliability Characteristics Reliability in short is a quality of information that assures decision makers that the information represented in the financial records and financial statements captures the actual conditions and events of the reported entity. The first concept of verifiability implies that different knowledgeable and independent observers would generally reach consensus, although not necessarily complete agreement (IASB, 2006b:51). Verification should be reached on two aspects, which are: first, that the information represents the economic phenomena that it purports to represent without material error or bias and second, that the chosen recognition or measurement method has been applied without error or bias. Neutrality aims at strengthening the integrity of the standard-setting and financial reporting process (IASB, 2006:53). By focusing faithful representation on the economic phenomena it purports and the link to the resources and obligations, and by classifying the components of faithful representation the application of this concept as a replacement for reliability should enhance the application of the qualitative characteristics.

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4.0

Relevance Characteristics: For information to be relevant the ASOBAT requires that the information must bear upon

or be useful associated with the action it is designed to facilitate or the result it is desired to produce (AAA, 1966:9). Further, either the information or the act of communicating must influence or have the potential to influence the designed actions (AAA, 1966:9). This indicates that accounting information provides a necessary benefit for the end user. End users of accounting information are commonly referred to as internal and external users. Internal users include business owners, managers and employees. External users include lenders, investors and the general public. External users use relevant accounting information to make financing decisions for small business loans. There are three characteristics of relevance. They are: i. Predictive Value and Feedback Value: Relevant accounting information is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. Information can make a difference to decisions by improving decision makers' capacities to predict or by providing feedback on earlier expectations. Usually, information does both at once, because knowledge about the outcomes of actions already taken will generally improve decision makers' abilities to predict the results of similar future actions. Without knowledge of the past, the basis for a prediction will usually be lacking. Without an interest in the future, knowledge of the past is sterile. ii. Timeliness: Timeliness, that is, having information available to decision makers before it loses its capacity to influence decisions, is an ancillary aspect of relevance. If information is not available when it is needed or becomes available so long after the reported events that it has no value for future action, it lacks relevance and is of little or no use. Timeliness alone cannot make information relevant, but a lack of timeliness can rob information of relevance it might otherwise have had.

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4.1

Relevance Characteristics: Summary of Significant Accounting Policies

Excerpt 6:

Based on the excerpt above, I believe that the company has taken a lot of decision making in order to increase their profits. These decision making are done based on the predictions that certain steps need to be undertaken before a certain time frame so that they could generate profits and at the same time to decrease the amount of money they could potentially loss. Excerpt 7: Summary of Significant Accounting Policies

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In excerpt 7, Teck Guan Perdana Berhad had justified their reasons for decision making based on the predictions and at the same time disclosed the feedback value from their decision. 4.2 The Importance of Relevance A company discloses an increase in Earnings Per Share (EPS) from $5 to $6 since the last reporting period. The information is relevant to investors as it may assist them in confirming their past predictions regarding the profitability of the company and will also help them in forecasting future trend in the earnings of the company. Relevance is affected by the materiality of information contained in the financial statements because only material information influences the economic decisions of its users. 5.0 Summary As Teck Guan Perdana Berhad is one of the most recognized business entities in Malaysia and is also listed in the Bursa Malaysia their financial information is no confidential from public view. This could ensure continuous public investment nationwide that could help them generate more profits in the future. In this assignment, the discussion has been made upon Teck Guan Perdana Berhad accounting information. The information is undeniably valuable for both internal and external users. It is with this information that users could predict the business growth and finally deciding whether or not to invest in the company. The reliability of the company is characterized in three respective areas which are verifiability, neutrality and representational faithfulness. These elements are crucial due to the fact that regardless of how the accounting is done, by far the most vital issue is for it to become trustworthy. With out accounting reliability, the company will endure loss and discourages further investment from external users. Apart from reliability, another important element in accounting is relevance. The progress of a company is affected by the relevance of the decision making. Relevance requires predictive value, feedback value and timeliness. Upon information towards what the company needs in accordance to the current situation, decisions must be made in a specific amount of time so that the changes are beneficial for the company.

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All in all, reliability and relevance are two of the four key qualitative characteristics of financial accounting information. Reliability requires that the information should be accurate and true and fair whereas relevance requires that the financial accounting information should be such that the users need it and it is expected to affect their decisions. Relevance and reliability are both critical for the quality of the financial information, but both are related in ensuring the development of any company.

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REFERENCE: AAA (American Accounting Association) (1966). A Statement of Basic Accounting Theory. Evanston, Illinois: AAA. Directors Report and Audited Financial Statements Ended on 31 January 2012. Emerging Markets Information Services (EMIS). Accessed on May 30, 2013. http://www.securities.com/ FASB & IASB (International Accounting Standards Board) (2007). Project Update: Conceptual Framework: Summary of Tentative Decisions (Updated through October 9, 2007). [Online]. Accessed on May 31, 2013. Available: http://www.fasb.org/project/cf_summary-ofdecisions.shtml. FASB (Financial Accounting Standards Board) (1980). Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information. IASB (2007a). Phase A: Objective of Financial Reporting and Qualitative CharacteristicsComment Letter Summary. Information to observers: Board meeting 20 February 2007. June 1, 2013. Unaudited Interim Financial Statements for the Fourth Quarter Ended 31 January 2011 http://www.teckguan.com/TGP/

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