Deck 2: The Business Environment

Question 1

Choose 3 (three)New Zealand Acts of Parliament that you consider have a major impact on accountants,and 2 (two)examples of that impact.

Answer 1

Financial Reporting Act:
• This act governs the establishment of financial reporting standards in New Zealand.
• It lists the financial statements that must be prepared (by accountants).
Companies Act:
• This act sets financial disclosure requirements for companies in New Zealand.
• It also requires a company's accounting records to be audited where the shareholders of the company request an audit.
GST Act:
• Requires GST to be properly recorded and paid (or refunded)each GST period.
• Requires accountants to keep proper GST records.
Income Tax Act:
• Requires all businesses to pay income tax on their profits.
• Therefore,requires accountants to keep proper records of profits and tax payable.

Question 2

What are 3 major activities that the New Zealand Institute of Chartered Accountants (NZICA)undertakes to control the accounting profession in New Zealand? (Note: this is additional to the notes in Smart,Awan & Baxter. )

Answer 2

• Sets the requirements for new members to join the institute,in terms of education levels and practical work experience.
• Sets behavioural requirements for members in terms of their expected performance and ethics in business dealings.
• Disciplines or expels members who break set behaviour standards.

Question 3

How do the government and the New Zealand Institute of Chartered Accountants (NZICA)influence the business environment? Do you think such influence is necessary? Why?

Answer 3

The government,through a number of Acts,Regulations and Standards (via the External Reporting Board (XRB)),affects how businesses can operate.NZICA provides input in the development of Accounting Standards and its members are involved in a variety of activities in businesses,including ensuring compliance with Standards.Such influences are necessary because they are there to protect the public from unfair practices.

Question 4

Oliver the Oil Developer
Oliver is a very independent-minded person who likes to run things his own way.He is very hard-working,honest and well-organised.He has a science degree,in which he majored in geology with most of his topics relating to oil-field exploration and development.He also worked for several years on oil rigs off the North Sea.
Oliver believes he could make a success with an oil exploration business of his own,although he realises he would have to raise a lot of money to finance it.
Oliver is considering either a sole trader or a company form of business.Advise Oliver which you think is best for him,stating 3 reasons relating to his circumstances.

Question 5

'All businesses should have moral objectives.' In defence of this statement,explain what is meant by moral objectives and why are they important.

Question 6

Outline 4 impacts of increasing IT use in an accounting system.

Question 7

Outline 2 major roles of the New Zealand Institute of Chartered Accountants (NZICA)in the accounting profession.

Question 8

Users of accounting information
Smart,Awan & Baxter list seven stakeholders who have an interest in accounting information:
• owners and investors
• managers
• creditors and lenders
• employees
• the government
• unions
• the general public.
a Explain the meaning of 'stakeholder'.
b For each of the first five listed stakeholders (i.e.excluding unions and the general public),state:
• a specific decision that the stakeholder would make,that would require accounting information before they made it
• the specific accounting information they would require for that decision
• the financial statement from which they would obtain that required information.
Note: do not use the same type of decision twice.

Question 9

It is claimed that to be successful,businesses must undertake 'financing';'investing' and 'operating' activities.Do you agree? Explain your answer by using your local dairy store as an example.

Question 10

Discuss the significance of accounting information both within and outside the organisation.

Question 11

a Smart,Awan & Baxter (text,chapter 2)outline two types of investor - current and prospective.Briefly describe two general types of information they are interested in,and what they use the information for.
b The text (in chapter 2)further outlines three general types of information needs for managers.Briefly describe these three,and how managers would use this information.
c Creditors are interested in solvency and security.Briefly define and explain these in relation to creditors' needs.

Question 12

Delia the Doctor
Delia passed her final exams and qualified as a medical doctor in 1996,and has worked in the Wellington hospital since qualifying,specialising in heart operations.Delia is married with 3 children who are at secondary school.
She has always wanted to have a medical practice in a country area or small town,as she likes the countryside.She is also not interested in doing any more heart operations.
Delia has seen an advert in the medical journal calling for a doctor to join an existing medical practice in a farming town in the Waikato.While she has not had previous experience in small-town medical practices,she is keen to move.The practice has had a turnover of more than $500,000 a year and is still growing.
Delia is considering either a partnership or a company form of business.
a Advise Delia which you think is best for her,stating 3 reasons relating to her circumstances.
b Explain to Delia what GST is,and state 3 responsibilities in regard to GST that she will have if she becomes an owner of the medical practice business.