Business and healthcare management: Business Finance Analytical Essay Sample
"Treating humans as economic resources diminishes their value and disregards their dignity, well-being, and qualities. It is important to recognise and respect the multifaceted nature of humans and ensure their well-being and rights are upheld within the workplace."
Table of Contents
Financial Accounting and Management Accounting. 11
Equity Shares and Preference Shares. 11
Task 1
The concept of placing a value on the human assets of a business and including it on the statement of financial position is debatable. Although humans facilitate the success and productivity of a business, treating them as assets raise ethical, conceptual, and practical issues. According to Marsal (2020), humans are not tangible resources such as equipment or property. They possess unique skills, knowledge, and capabilities that contribute to the value and growth of a business. The value that humans bring to a business goes beyond their physical presence. Their unique perspectives, problem-solving abilities, creativity, and interpersonal skills enable them to contribute to the innovation, teamwork, and success of a company (Todericiu et al., 2014). As such, human resources play a critical role in driving productivity, efficiency, and competitiveness in organisations.
In addition, Takahashi (2022) indicates that treating humans as assets raises ethical concerns since it reduces individuals to economic resources. This ideology raises concerns about human dignity, employee rights, and the potential for exploitation. Thus, it is essential to respect the autonomy, dignity, and well-being of individuals within the business context. Key ethical concerns emerging from this treatment are objectification, exploitation, lack of respect and dignity, and decision-making challenges (Stone et al., 2021). Stone et al. (2021) indicate that reducing individuals to economic assets fail to recognise their worth beyond their economic productivity. It disregards their individuality, aspirations, and well-being. When humans are considered economic resources, there is a risk of exploiting their labour and disregarding their rights and welfare (Takahashi, 2022; Stone et al., 2021). This occurrence leads to poor working conditions, long hours, low wages, and limited opportunities for personal growth and development.
According to Muchlinski (2022), considering humans as economic assets neglects their inherent dignity as individuals. It fails to acknowledge their personal goals, values, and the importance of their well-being and fulfilment in the workplace. If the focus is solely on economic outcomes, important ethical considerations such as fairness, equity, diversity, and inclusivity are overlooked. As such, decision-making processes that prioritise economic returns over the well-being of individuals lead to unfair practices and inequitable distribution of resources (Ewing, 2023). Treating humans as economic resources diminishes their value and disregards their dignity, well-being, and qualities. It is important to recognise and respect the multifaceted nature of humans and ensure their well-being and rights are upheld within the workplace.
Furthermore, quantifying the value of human assets is challenging due to the subjective nature of skills, knowledge, and experience (Abderraouf, 2020). Tangible assets such as machinery or inventory are objectively measured in monetary terms. Their value is quantifiable based on their cost, market price, depreciation, and potential resale value. These assets have clear physical properties and assessable and valuable characteristics. However, human value is intangible and complex to assess accurately. Thus, valuing human assets involves subjective judgments, which lack comparability across organisations. Additionally, human assets are not static since humans can change workplaces (Stones, 2022). Unlike physical assets, humans possess agency and can exercise their freedom of choice. This mobility introduces uncertainty and volatility, which makes it challenging to include human assets as stable components on the statement of financial position.
Moreover, assets on the statement of financial position are subject to depreciation or amortisation to reflect their diminishing value over time. According to Merriman (2017), applying depreciation or amortisation to humans is ethically problematic. Human potential evolves progressively through learning and experience. As such, it does not compare to physical assets that depreciate due to wear and tear. Besides, accounting frameworks such as the Generally Accepted Accounting Principles (GAAP) provide specific criteria for recognising and measuring assets (Penman, 2023). Although these frameworks may acknowledge the importance of human resources, they do not consider humans as assets for inclusion in the statement of financial position.
However, it is important to note that businesses recognise the value of their human resources. They invest in their development and well-being through training programs, employee benefits, and performance management (Stewart and Brown, 2019). Although these investments contribute to the success of a business, they are expensed rather than capitalised as assets. Alternately, Stewart and Brown (2019) call for the adoption of alternative frameworks or reporting mechanisms to capture the value of human capital rather than treating humans as assets. For example, companies may disclose information on their human capital management such as talent acquisition and retention strategies, employee engagement levels, and workforce diversity. This approach provides stakeholders with a broader understanding of the organisation’s human resource practices and their potential impact on future performance.
Task 2
Assets
Assets are the resources controlled and owned by a business with future economic value. According to Kraja (2018), common assets are tangible assets such as cash, property, equipment, and inventory and intangible assets such as trademarks, patents, and goodwill.
Historic Cost Concept
This accounting principle states that assets are recorded on a company’s financial statements at their initial cost when they were purchased (Tkachuk, 2019). This approach offers an objective avenue for reporting and measuring assets in financial statements.
Going Concern Concept
This accounting concept assumes that a business will progress with its operations and fulfil its objectives in a predictable timeline (Seyam and Brickman, 2016). It allows financial statements preparation by assuming that assets are used, liabilities are settled, and business operations are progressing.
Double Entry Concept
This accounting principle calls for the recording of every financial transaction in two accounts (Ovunda, 2015). Based on duality, a transaction has a debit and a credit record.
Matching Concept
This accounting principle states that expenses are recorded in the same accounting period as the revenues they played a role in their generation. It ensures that the costs incurred to generate revenue match the revenue earned during that period (Fera et al., 2018).
Depreciation
Weygandt et al. (2019) indicate that depreciation is the systematic allocation of the value of a tangible asset over its lifespan. It recognises and accounts for the gradual decrease in the value of assets due to obsolesce or wear and tear (Carey et al., 2014).
Rights Issue
This is a way for a business to increase capital by providing its existing shareholders with the capability to increase their shares at a predetermined price (Massari et al., 2016). It enables shareholders to maintain ownership and participate in capital-raising efforts.
Company
This is a legal entity established by people to carry out corporate activities (Pride et al., 2022). It is a discrete legal entity from its owners and has rights and obligations distinct from those of its owners.
Corporate Governance
This is the system of rules, processes, and practices by which an entity is managed, directed, and controlled (Pride et al., 2022). It entails the responsibilities and relationships among the business’s management, shareholders, board of directors, and stakeholders.
Prudence
This principle suggests caution and conservatism in financial reporting. It involves exercising a degree of caution when recognising revenues and gains as well as when recording expenses and losses (Idrus et al., 2022).
Task 3
The statement “not-for-profit organisations are not interested in making a profit” is inaccurate. Non-profit organisations are entities that operate for purposes other than making a profit. These organisations are dedicated to addressing social, cultural, educational, religious, or environmental needs (Horner, 2020). Their diverse missions and activities address social needs and promote positive change in communities globally. Although they have different objectives compared to for-profit businesses, they generate a surplus of revenue over expenses to sustain their operations (Carroll, 2018). These organisations include charities, foundations, educational institutions, and healthcare organisations. They operate with the primary objective of serving a specific cause. Their focus is on achieving their mission rather than maximising profits for the benefit of shareholders. Consequently, any surplus generated by not-for-profit organisations is reinvested back into their programs, services, and initiatives to support their mission and serve their beneficiaries more effectively.
Accordingly, accounting and finance play a crucial role in not-for-profit organisations. They ensure financial accountability, financial planning, resource management, grant management, compliance, governance, and evaluation (AICPA, 2020). Further, AICPA (2020) indicates that not-for-profit organisations are accountable to their stakeholders. Their stakeholders are donors, grantors, and the public. Accounting ensures transparency and accountability by accurately recording and reporting financial transactions (AICPA, 2020). As such, it allows stakeholders to assess the organisation’s financial health, efficiency, and effectiveness. In addition, these organisations rely on limited resources such as donations, grants, and government funding (Farazmand, 2023). Thus, effective financial management enables the organisation to achieve its mission and maximise its programs and services.
Furthermore, accounting and finance enable not-for-profit organisations to develop budgets and financial plans that align with their goals and priorities. As such, the organisation proposes income, estimates expenses, and makes informed decisions regarding program expansion, resource allocation, and sustainability (Farazmand, 2023). Besides, they are subject to legal and regulatory requirements such as tax reporting, financial disclosure, and governance standards. Accounting ensures compliance with these regulations and provides the necessary financial information for audits and external reviews (Cordery et al., 2019). According to Farazmand (2023), accounting systems provide information on the use of funds, financial performance, and impact measurement. These considerations are essential for fundraising efforts. Donors and grantors require financial reports and accountability to determine whether to continue funding an organisation’s initiatives.
Additionally, not-for-profit organisations assess their effectiveness and impact to ensure they are meeting their mission and making a difference. Cordery et al. (2019) indicate that financial data and other performance indicators facilitate the evaluation of program outcomes, measurement of social impact, and making of data-driven decisions for continuous improvement. However, although accounting and finance are vital for not-for-profit organisations, there are some differences compared to their for-profit counterparts. According to Horner (2020), not-for-profit accounting involves specialised reporting frameworks such as the GAAP for not-for-profit organisations or IFRS for not-for-profit entities. These frameworks focus on transparency, fund accounting, and reporting on the use of resources rather than profit maximisation.
Besides, not-for-profit organisations emphasise non-financial measures such as social impact, outcomes, and program effectiveness (Cordery et al, 2019). These considerations highlight the organisation’s commitment to achieving meaningful results and making a difference in society. According to AICPA (2020), social impact is the positive change created by a not-for-profit organisation in addressing a social issue. Social impact is assessed through indicators such as lives impacted, behavioural changes, access to opportunities, and long-term sustainable outcomes. Farazmand (2023) indicates that outcomes are the results of the programs and activities undertaken by a not-for-profit organisation. They are defined based on desired changes such as increased literacy rates, reduced homelessness, improved health outcomes, or enhanced community cohesion. Accordingly, program effectiveness is the extent to which a not-for-profit organisation’s programs and interventions are achieving their intended objectives (Farazmand, 2023). It involves assessing whether the organisation’s strategies, activities, and resources are utilised effectively to create the desired impact.
Task 4
Financial Accounting and Management Accounting
On the one hand, financial accounting is the process of preparing, planning, and reporting financial statements to external users. Some of these users are creditors, investors, and regulatory authorities. This accounting provides relevant, reliable, and timely financial data about an entity’s performance, cash flows, and financial position (Schroeder et al., 2022). Key financial statements included in this accounting are statements of cash flows, income statements, the balance sheet, and statements of changes in equity (Horner, 2020). Financial accounting enables external users to make informed decisions about lending, investments, and other financial transactions with the organisation. On the other hand, management accounting is financial and non-financial information provided to internal users. It assists managers in planning, decision-making, and controlling activities within the company (Campos et al., 2022). It incorporates budgeting, cost analysis, variance analysis, and performance measurement. It enables managers to evaluate performance, allocate resources, set targets, and assess the profitability and efficiency of different business segments.
Equity Shares and Preference Shares
Cahn and Donald (2018) indicate that equity shares represent ownership in an organisation and outline shareholders with voting rights. Equity shareholders have a residual claim on the entity’s assets and earnings. Due to the higher risk they carry, they have the potential for higher returns compared to other shares. Unlike this, preference shares have priority rights over equity shares. Cahn and Donald (2018) indicate that preference shareholders receive a fixed rate of dividend before any dividend is paid to equity shareholders. They have a priority claim on the firm’s assets in the event of liquidation. However, preference shareholders do not possess any voting rights. They are considered to have a lower risk compared to equity shares.
Profit and Cash
According to Kastratović et al. (2017), profit is the surplus amount generated when revenues exceed expenses during a specific period. It is a measure of financial performance that represents the company’s ability to generate income from its operations. It is calculated based on accrual accounting principles, which recognise revenue when earned and expenses when incurred (Carey et al., 2014). Profit is reported on the income statement and is crucial for assessing a company’s profitability and growth potential. However, cash is the actual money or equivalents held by a company at a given point in time (Stobierski, 2020; Kastratović et al., 2017). It represents the immediate availability of funds that are used to meet financial obligations. Cash entails physical currency, bank deposits, and other highly liquid instruments (Carey et al., 2014). Managing cash flow effectively is essential to ensure a company’s solvency and ability to meet short-term obligations.
Reference List
Abderraouf, G., 2020. Measuring human resources’ value using human resources accounting methods and models – Theoretical study. El-Wahat Journal for Research and Studies, 13(2), pp.1416-1431.
AICPA, 2020. Audit and accounting guide not-for-profit entities. Hoboken: John Wiley & Sons, Ltd.
Cahn, A. and Donald, D.C., 2018. Comparative company law text and cases on the laws governing corporations in Germany, the UK and the USA. Cambridge: Cambridge University Press.
Campos, F., Lima Santos, L., Gomes, C. and Cardoso, L., 2022. Management accounting practices in the hospitality industry: A systematic review and critical approach. Tourism and Hospitality, 3(1), pp.243-264.
Carey, M., Knowles, C. and Towers-Clark, 2014. Accounting: A smart approach. Oxford: Oxford University Press.
Carroll, A.B., 2018. Non-profit organisations: The SAGE encyclopaedia of business ethics and society non-profit organisations. Thousand Oaks: Sage.
Cordery, C.J., Crawford, L., Breen, O.B. and Morgan, G.G., 2019. International practices, beliefs and values in not-for-profit financial reporting. Accounting Forum, 43(1), pp.16-41.
Ewing, A.P., 2023. Teaching business and human rights. Cheltenham: Edward Elgar Publishing Limited.
Farasmand, A., 2023. Global encyclopaedia of public administration, public policy, and governance. New York: Springer International Publishing.
Fera, P., Moscariello, N. and Cinque, E., 2018. A renewed interest on the fundamentals of accounting: the impact of the matching ‘principle’ on earning attributes. In P. Fera, N. Moscariello and E. Cinque, Accounting from a Cross-Cultural Perspective. Rijeka: IntechOpen.
Granof, M.H., Khumawala, S.B. and Calabrese, T.D., 2022. Government and not-for-profit accounting: Concepts and practices. Hoboken: John Wiley & Sons, Ltd.
Horner, D., 2020. Accounting for non-accountants. London: Kogan Page.
Idrus, M., Fatimah, S., Mukhtar, A. and Salam, K.N., 2022. Examining the factors affecting accounting prudence. Jurnal Ilmiah Akuntansi, 5(1), pp.62-76.
Kastratović, E., Kaličanin, M. and Kalicanin, S., 2017. Features of cash flow compared to profit. International Review, 2017(3-4), pp.50-56.
Kraja, Y., 2018. The impact of tangible and intangible assets on the SMEs’ success: The Albanian case. In: J. Ateljević and J. Budak, Entrepreneurship in post-communist countries new drivers towards a market economy (pp.135-145). Cham: Springer.
Marsal, N.M., 2020. Effects of Intangible assets of human capital on the performance and development of modern Cuban enterprise. Journal of Human Resource and Sustainability Studies, 8(1), pp.185-201. https://doi.org/10.4236/jhrss.2020.82011
Massari, M., Gianfrate, G. and Sanetti, L., 2016. Corporate valuation measuring the value of companies in turbulent times. Hoboken: John Wiley & Sons, Ltd.
Merriman, K.K., 2017. Valuation of human capital quantifying the importance of an assembled workforce. Cham: Springer International Publishing.
Muchlinski, P.T., 2022. Advanced introduction to business and human rights. Cheltenham: Edward Elgar Publishing Limited.
Ovunda, A.S., 2015. Luca Pacioli’s double-entry system of accounting: A critique. Research Journal of Finance and Accounting, 6(18), pp.132-139.
Penman, S., 2023. Accounting for intangible assets: Thinking it through. Australian Accounting Review, 33(1), pp.5-13.
Pride, W.M., Hughes, R.J. and Kapoor, J.R., 2022. Foundations of business. Boston: Cengage Learning.
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2022. Financial accounting theory and analysis: Text and cases. Hoboken: John Wiley & Sons.
Seyam, A.A. and Brickman, S., 2016. The going concern assumptions and presentation on financial statements. The Business & Management Review, 7(3), pp.241-244.
Stewart, G.L. and Brown, K.G., 2019. Human resource management. Hoboken: Wiley.
Stobierski, T., 2020. Cash flow vs. profit: What’s the difference? Available at:<https://online.hbs.edu/blog/post/cash-flow-vs-profit> [Accessed on 29 June 2023].
Stone, R.J., Cox, A. and Gavin, M., 2021. Human resource management. Australia: John Wiley & Sons, Ltd.
Stones, M.H., 2022. The price tag is on you. London: Austin Macauley Publishers.
Takahashi, H., 2022. Practice of business ethics – Case study of Johnson & Johnson. Singapore: World Scientific Publishing Company.
Tkachuk, N.V., 2019. Historical cost and fair value: Advantages, disadvantages, application. Journal of History Culture and Art Research, 8(1), pp.173-182.
Todericiu, R., Lucia, F. and Stăniţ, A., 2014. Reflections on human resources – Vital intangible assets of organisations. Procedia Economics and Finance, 16(1), pp.575-579. https://doi.org/10.1016/S2212-5671(14)00842-9
Weygandt, J.J., Kieso, D.E., Kimmel, P.D., Trenholm, B., Warren, V. and Novak, L., 2019. Accounting principles (vol. 2). Hoboken: John Wiley & Sons, Ltd.