Introduction
Value added (VA) report is a statement of an entity wealth created and distributed in a financial year and intended to shift an organization away from the profit and loss account. It is simply an entity’s revenue for a given period less outside purchases or payment for supplier of services and materials. VA is a measures performance through the collective efforts of management, provider of capital and employees. According to Bao & Bao (1998, p252), VA statement shows “how the benefits of the effort of a firm were shared among its stakeholders including stockholders, creditors, management, employees, and government”. Morley (1979, p.620) expresses it as “the wealth creation for the company team, in which employee are seen as responsible participants”.
The corporate report which was published by the Accounting Standards (Steering) Commit-tee(ASSC) in 1975 recommended the publication of VA statement in Europe and since then has received prominent international acceptance. For instance, before the advent of IFRS in Nigeria, it was a mandatory requirement for public companies to provide VA information in their financial statement. In South Africa, greater numbers of companies in the industrial sector of the Johannesburg Stock Exchange (JSE) still voluntarily include VA information in their financial statement (Malgwi, & Purdy, 2009). In 2005, about 77% of companies listed on the JDE produced value added statement or consolidated value added statement (Stainbank, 2009, p. 138). The advent of the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines has considerably stimulated and encouraged value added information
One significant importance of Value added statement is that it provides a link bet...
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...orley(1979, p.625), a dishonest accountant could manipulate the choice of method to produce a misleading Value added figure.
Also, VA statement as part of financial report may lead to confusion with the earning statement, in particular if a non-accountant see a conflicting trend between earning and value added figure, for example a positive VA and negative earnings(Morley, 1979, p.624). This may have informed standard setter from making the information mandatory as it will conflict with one of the basic principle of financial statement.
More so, over the years the importance of VAS has declined due to shift from industrial democracy (Elliott & Elliott, 2012, p864) and there are alternative, modern and consistent, reliable corporate social responsibility reporting which can be benchmarked against international scheme as well as capable of external verification.
The Commissioner of Internal Revenue (Commissioner) argued that Jim Turin & Sons, Inc. should have used the accrual method of accounting. By using the accrual method of accounting “you generally report income in the year earned and deduct or capitalize expenses in the year incurred. The purpose of an accrual method of accounting is to match income and expenses in the correct year.” (IRS, 2017).
Windsor, D. (2001). The future of corporate social responsibility. International Journal of Organizational Analysis, 9 (3): 225-256.
V represents Value Added - interventions should increase the worth of the situation for the internal organization or external client.
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
El-Gazzar, S. M., Fornaro, J. M., & Jacob, R. A. (2008). An examination of the determinants and contents of corporate voluntary disclosure of management’s responsibility for financial reporting. A Journal of Accounting, Auditing & Finance, 23(1), 95-114. Retrieved from http://library.gcu.edu/
Companies have presented investigations about their motivation towards voluntarily social and environmental as insolvent. This paper argues in agreement with Adam’s view that the goal of CSR reporting is to promote credibility and corporate image of stakeholders operating in a particular industry. Whereas companies must focus their efforts on enhancing their profitability, they should also ensure that the welfare of other stakeholders is protected.
Explanations of EVA, MVA and NPV and their relationship with each other. The concept of EVA is a measure of economic profit and was popularised and originally trade-marked by Stern Stewart Consulting Company in the 1980’s. Economic Value Added (EVA) can be defined as the difference between net operating profit after taxes and the monetary value of a company’s total cost of capital. Should a company’s profit exceed the overall costs of funds they create EVA. It can be so important because EVA is the most efficient internal measure of the true economic profit of a company.
Accounting manipulation can be defined as when officers of an organization intentionally publish wrong statement their financial information to favourably represent the firm’s financial performance. The accuracy and transparency of Groupon’s financial statements clearly is suspect.
Many organizations do not achieve the profits they anticipate by using incorrect methods or models to determine the true costs of products and services. This failure to correctly assess the costs associated with business not only affects the profit margin, but the organizations competitive advantage as well. In order to asses whether the organization is failing to realize optimum resource allocation, the organization should look at the methodology first popularized by Michael Porter titled the Value Chain Analysis (VCA). "VCA seeks to define the entire chain through which goods are supplied to a customer" (Booth, 1997, 2). The VCA can be a powerful tool in increasing an organization's competitive advantage; by correctly pricing products and assessing the true costs of materials and labor, organizations can align the improvements in efficiency, quality, and profits with its strategic objectives.
In this essay it disused the link respectively between value theory and distribution theory both in classic political economic school, Karl Marx political economic school and Knut economic school. And then it provided evidence to illustrate the correctness of the contention. Moreover, it expounded the common element between different view of value and distribution in these three theories. At the end of essay, it summarized the main idea of this essay.
The value chain analysis allows the firm to understand the parts of its operation that create value and those that do not. This is important for firms to understand because the firm earns above-average returns only when the value it creates is greater than the costs incurred to create that value. The value chain analysis has two parts which include the value chain activities and support functions. The value chain activities are “activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers” (Hitt, Ireland, & Hoskisson). The support functions are the “activities or tasks the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing” (Hitt, Ireland, & Hoskisson)
To conclude our first year our balance was still positive and we had survived but now had a competitive advantage. We had gained a competitive advantage through two of the four key terms of VRIO , value and organisational support. Strategic capabilities are only of value if they generate higher revenues or lower costs, or both. Our business was organised in a way to provide support for our valuable capabilities and as such simply outsourcing orders and being the coordinator was still generating a profit and improving our cash flow. It was the key to our success as a business over the three years.
On the other hand, support activities uphold the primary activities. They usually include technology development, procurement, firm infrastructure and human resource management. This model was first created to analyze the impact of the firm activities on profit, but recently it is also used by social entrepreneurs to measure the impact of activities on the creation of social value. According to J. Gregory Dees, for business entrepreneurs wealth creation is the way to measure value creation while for social entrepreneurs social value is the way to measure value creation. When value chain approaches intersect with social entrepreneurship, firms take into account the social impacts of their value chains, including both mitigating harm from value chain activities and transforming value chain activities to benefit society.
As a result of modern corporate scandals and rapid development of international business environments, social responsibility (SR) has become a key aspect of corporate competitive contexts. (Brammer, Williams and Zinkin, 2007). Businesses are under increasing pressure to incorporate SR amongst their profit-driven aims and have become increasingly accountable for their social and environmental actions. Increased interest in CSR developed in the mid 1990s as consumers began to lack their former trust in companies due to both environmental and financial scandals and it became noticeable that society was moving towards values incorporating harmony, quality of life and environmental conservation (Carrasco, 2007) Additionally, major corporate failures over the past two decades have resulted in increased demand for stronger, corporate governance (CG) rules. (Sui, Wright & Evans, 2007). Superior CG rules are needed in order to preserve the integrity of corporations, financial institutions and markets and the health and stability of world economies. (OECD Website)
Explain how the company’s value-chain activities can be better linked to create value for the company.