Fair Value Or False Accounting Accounting Essay

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Information systems combine the daily business activities, such as accounting, finance, operations management, or any other major business functions better and better now. And information technologies, including Internet-based information system, are playing important roles in business. It can help all kinds of businesses improve the effectiveness of business processes.

The main purpose of report is to analyse the case study, and provide Rebecca, who is the owner of a small business named 'Ready To Eat' with suggestion about how to manage the business well by suitable computer system. Furthermore, this report advises Rebecca running a system to record daily transactions, storage, meet customers' needs in order to increase company operating efficiency.

The report is requested by 18th May 2010 and general areas will be focused such as: Information System (IS), Supply Chains Management System (SCM), Customer Relationship Management (CRM), Enterprise Resource Planning (ERP), Decision Support System (DSS), Transaction Processing System (TPS), Knowledge Management System (KMs), website-including Intranet and Internet, explained how these information systems could be used to gain competitive advantages. It also mentions Porter's Competitive Forces Model to analyse management challenges for RTE, stated and explained the security and ethical issues from the business.

Due to the discussion part, it is recommended that to choose the CRM and SCM system and set up a small e-business is good for RTE.

Table of contents

1. Introduction 1

1.1 Background 1

1.2 Aims 1

1.3 Scope 1

2. Discussions 1

2.1. What are the essential features of the 'Fair value' accounting as laid out in IFRS13/AASB13 Fair Value? How are assets and liabilities valued under the Fair Value accounting system? 1

2.2. According to Rayman, how is the Income Statement and Balance Sheet affected by the Fair Value accounting system? (4 marks) 2

2.3 How does Fair Value accounting contradict with the Historical Cost accounting? (4 marks) 2

2.4 Are the changes resulting from applying the Fair Value accounting principles a change increase/decrease) in assets or a change (increase/decrease) in income? Is change in assets and change in income the same thing? Why, or why not? (8 marks) 2

2.5 How does 'value in exchange' differ from 'value in use'? Which of the two should be the fundamental value in accounting? Why? 2

6. Conclusion 2

7. Recommendations 2

References 4

1. Introduction

1.1 Background

'Ready To Eat' (RTE) is a small business which sells pre-packed healthy food. At the beginning, it ran smoothly and made beautiful gains. Unfortunately, problems (e.g. cannot managing the pricing information, storage material and communicating well with the customers, new competitor) have appeared as the business became bigger and bigger. Because of these, the owner asked an IT consulting company to help her.

1.2 Aims

This report will introduce the Information System via definition, functions, benefits, and linking up with Porter's Competitive Forces Model to analyse management challenges for RTE to explain how these information systems could help solve the problems of RTE. It also tries to use website-including Intranet and Internet to set up an e-business. Besides that, it states and explains the security and ethical issues from the business.

1.3 Scope

This report only talks about the affection of Information System and web-site to RTE. It does not discuss the financial part, such as increasing investment, changing the business model, and advertising, etc.

2. Discussions

2.1. What are the essential features of the 'Fair value' accounting as laid out in IFRS13/AASB13 Fair Value? How are assets and liabilities valued under the Fair Value accounting system?

IFRS 13 Fair value measurement defines fair value. It establishes guidance that fair value measurement is a single source required under IFRS; sets out a framework about how to measure fair value for financial reporting purposes and requires enhanced disclosures about fair value measurements. (McCarroll & Khatri 2012). Under AASB 13(2011) and IFRS 13(2012), they define fair value on the basis of an 'exit price' that would be received from selling an asset or paid to transfer a liability at the measurement date. That definition emphasises that fair value is a market-based measurement, not an entity-specific measurement. In another words, the fair value of a financial liability is the amount at which it could be settled between knowledgeable, willing parties in an arm's-length transaction. As a result, an entity's purchasing a non-current asset is not relevant when measured by fair value. (Godfrey, et al 2010).

Maris (2013) indicates that, the Key features of AASB 13 in determining fair value are including as follows:

• Use of exit market (principal or most advantageous)

• Highest and best use for non-financial assets

• Block discounts not permitted

• Liquidity considerations incorporated into the valuation

• Liabilities and equity instruments considered from the perspective of market participants who hold these as assets

• New disclosures.

2.2. According to Rayman, how is the Income Statement and Balance Sheet affected by the Fair Value accounting system? (4 marks)

2.3 How does Fair Value accounting contradict with the Historical Cost accounting? (4 marks)

2.4 Are the changes resulting from applying the Fair Value accounting principles a change increase/decrease) in assets or a change (increase/decrease) in income? Is change in assets and change in income the same thing? Why, or why not? (8 marks)

2.5 How does 'value in exchange' differ from 'value in use'? Which of the two should be the fundamental value in accounting? Why?

6. Conclusion

In the discussion part, it completely explains the competition and challenges for RTE. At the same time enumerates different types of Information System, analyses the advantages and disadvantages to summarize the best system for RTE.

7. Recommendations

Due to the complexions of RTE, it is recommended that to choose the CRM and SCM system and set up a small e-business is good for RTE.