AAF044-6 Accounting and Finance Assignment Sample
Module code and Title: AAF044-6 Accounting and Finance Assignment Sample
1. Introduction
In the current era of the market, competition is quite tough. In this situation, an organization through an effective financial strategy can be able to utilize its resources in a systematic way and enhance its overall competitiveness. The following assignment is based on a supermarket company named DX plc which is a British mail, courier and logistics company.
This company has a mission statement to a wide range of specialist delivery services in the UK and Ireland that consist of both business and residential addresses. This company operates through two divisions named DX Express and DX Freight. The total revenue of the company in 2021 stood at 382.1 million GBP (dxdelivery.com, 2022). Around 100 million items have been delivered in every financial year which highlights its operational efficiency and its market share.
The total workforce of this company stood at 3600 employees which operates in 77 depots and service centers across the UK and Ireland. This company has a mission to collect it, sort it, trunk it, deliver it, prove it and build it (dxdelivery.com, 2022). This company has a mission to make every conceivable effort to get valuable customer deliveries in accordance with the promise of service level.
However, this company has experienced poor service and damage issues which affect customer relationship management. Thus, this study aims to highlight the performance of the company’s budgeted income and expenses in the upcoming years through which decision-making ability can be increased and this issue can be mitigated.
2. Continuous budget and issues faced during its implication
Continuous Budget
Budget is the process of estimation of future income and future expenses of the company through which the company can be able to make an effective decision regarding different aspects of the company. As argued by Bhat (2022), in the current era of the market, a high number of competitors such as Royal Mail Plc highlight that the company’s performance has been affected in the context of the number of customers and total revenue.
In this situation adopting an effective budgetary system provides assistance for the company to enhance its performance in terms of ensuring economic utilization of the resource (Savenko and Zinkevych, 2018). As it has been found that this company has not previously used a continuous budget due to which company performance in terms of strategic position and overall competitiveness has been affected. In the mechanism of continuous budget, the previous month’s closing balance becomes the opening balance for the next month which highlights that the company can predict future income and expenses in a more effective way.
Continuous budgeting provides scope to mitigate issues of rigidness and enhance the flexibility of the budget. On the other hand, quicker decisions can be made as compared to annual budgets which highlight that using this kind of budget assists companies in terms of system management and adopting change in factors that have an impact on business. As per the view of Bulteauet al. (2021), the current era of the business environment is quite dynamic and change in the macro and microenvironment factors is quite obvious.
The below table depicts continuous budget of the company in which it has been found that DX plc has an opening balance of £21 million and the company as total income stood at £368 million which highlight that the company has total income stood at £395 million. On the other hand, this company has total expenses of £373 which is quite high in proportion to total income. This signifies that the company has to make an effective strategy regarding cost reduction and cost control.
| Particulars | (Amount in million) | |||||||||||
| Continuous budgeting | Jan | Feb | March | April | May | June | Jully | August | Sept | Oct | Nov | Dec |
| opening cash balance | £ 21 | £ 22 | £ 280 | £ 324 | £ 572 | £ 814 | £ 895 | £ 810 | £ 907 | £ 808 | £ 601 | £ 941 |
| Income | £ 368 | £ 590 | £ 370 | £ 586 | £ 557 | £ 436 | £ 214 | £ 581 | £ 262 | £ 405 | £ 650 | £ 700 |
| Finance income | £ 6 | £ 15 | £ 20 | £ 15 | £ 27 | £ 34 | £ 33 | £ 36 | £ 20 | £ 18 | £ 21 | £ 27 |
| Total income | £ 395 | £ 627 | £ 670 | £ 925 | £ 1,156 | £ 1,284 | £ 1,142 | £ 1,427 | £ 1,189 | £ 1,231 | £ 1,272 | £ 1,668 |
| Expenditure | ||||||||||||
| operating expenses | £ 263 | £ 225 | £ 211 | £ 271 | £ 211 | £ 239 | £ 207 | £ 224 | £ 270 | £ 237 | £ 226 | £ 247 |
| Interest expenses | £ 11 | £ 34 | £ 36 | £ 26 | £ 35 | £ 34 | £ 27 | £ 28 | £ 24 | £ 33 | £ 20 | £ 34 |
| rent & rates | £ 48 | £ 43 | £ 37 | £ 42 | £ 43 | £ 42 | £ 37 | £ 39 | £ 42 | £ 43 | £ 44 | £ 39 |
| salary | £ 51 | £ 45 | £ 62 | £ 14 | £ 53 | £ 74 | £ 61 | £ 35 | £ 45 | £ 65 | £ 41 | £ 25 |
| Total expenses | £ 373 | £ 347 | £ 346 | £ 353 | £ 342 | £ 389 | £ 332 | £ 520 | £ 381 | £ 630 | £ 331 | £ 345 |
| Surplus/ deficit | £ 22 | £ 280 | £ 324 | £ 572 | £ 814 | £ 895 | £ 810 | £ 907 | £ 808 | £ 601 | £ 941 | £ 1,323 |
Table 1: Continuous budgeting (Source: self-created)
On the other hand, in an analysis of the total income of Dx plc, it has been found that total income has continuously increased in each month and stood at except for the month of July and August due to seasonal effects (Ding et al. 2018). This highlights that the company has also considered the seasonal effect on its business and cash flow.
However, the company’s surplus has increased each month as it stood at £1323 million at the end of the financial year. Thus, it has been found that the continuous budget assists DX plc to draw the expected income and expenses of the company through which it can make an effective decision.
The issue faced during implication of continuous budget.
Lack of accurate data
In order to make an effective budget, it is quite necessary for the company of business to procure the necessary amounts of data and information for its management through which future estimation of income and expenses can be possible. As DX plc is not using a continuous budget before thus management faced an issue with drawing the future income and expenses of the company.
As cited by Schmider et al. (2019), the success of the budget lies in the accuracy and adequacy of data. In this situation at the initial phase of the budget due to lack of information, we came across an issue regarding the estimation of income and expenses of the company.
Intense focus on the financial outcome
The estimation of income and profit of the company is a core feature through which an organization can be able to increase its overall performance. However, intense focus is required in terms of the preparation of the budget (Öberg et al. 2020). In the initial phase, DX plc has faced various issues regarding estimation of the financial outcome due lack of systematic management of data and information. In this situation, this company has spent a lot of financial resources on the collection and use of data.
Figure 1: Issue faced by DX plc while the implication of continuous budget (Source: Zhang et al. 2020)
Demand change in organization structure
The implication of continued budget demands various changes in the business organization structure. For instance, the success of the budget depends on budget control and variance analysis. In this situation, DX plc has to make various changes in the controlling process and managerial decisions. Moreover, these changes create barriers for the company to make proper control of the activity (Zhang et al. 2020). This process is quite lengthy as well which affects its success rate and overall decision-making process.
Performance of the company due to changes in the business various aspects has been affected. For instance, a company has to engage more financial resources to monitor activity and variance analysis.
3. Investment Appraisal tool
Worth of cash
1.Giving an upper hand to the purchasing power of the company: If the company has the money in hand, then there is a purchasing power that the company enjoys. The company can buy the resources in large quantities and decrease the cost of the raw material to some extent. Which will help the company to make more profit or grab customers by lowering their product price (Cherytaet al. 2018).
The purchasing power will also help the company to buy the raw material when there is a drop in the price. There is also a rise in the economy so they can purchase fixed assets now and can generate money with their help and it can be even possible to raise the invested amount in the next three years.
2.Risk-free: In a business loss of cash is one of the key risks that the companies are always exposed to. Soo evening cash now will reduce the risk of losing cash in the future (Ahrends et al. 2018). There are various external factors that arise such as a pandemic so having cash at that moment will help the company survive in an adverse situation.
3.Opportunity costs can be grabbed easily by the company: If the company has the money after three years, then the opportunity which is arising before these 3 years, would not be able to grab by the company quickly, as there would be a shortage of cash which the company has to take loans or finance from somewhere else to seize the opportunity.
This in turn will increase the interest amount which the company pays, or it may lead to dilution of the shares of the company in both scenarios there is a loss for the company (Kusnadi, 2019). If the company has the money now then they can grab the opportunity in comparison to their competitor and will have the upper hand over them. In this market of globalization, every company should be ready to seize the opportunity as it arrives to make it for the long run.
Payback period analysis
| Project A | Project B | |||
| cash flow | cumulative | Year | cash flow | Cumulative cash flow |
| -200,000 | -200,000 | 0 | -150,000 | -150,000 |
| 70,000 | 70,000 | 1 | 70,000 | 70,000 |
| 82,000 | 152,000 | 2 | 82,000 | 152,000 |
| 100,000 | 252,000 | 3 | 100,000 | 252,000 |
| 120,000 | 372,000 | 4 | 120,000 | 372,000 |
| 150,000 | 522,000 | 5 | 150,000 | 522,000 |
| Payback Period
(Years) |
2.48 | Payback period (years) | 2.53 |
Table 2: Payback period (Source: self-created)
There are two projects A and B with an initial investment of 200,000 thousand dollars and 150,000 thousand dollars respectively. It can be observed that the payback period of project A is 2.48 years whereas the payback period of project B is 2.53 years. So, the company should choose to project A as its payback period is less and the initial amount will be recovered within 2.48 years being the external factors remain constant.
DX plc is in the logistics industry so generating its revenue early and then reusing it in expanding the business in the two countries where it is working will help the company to grab more market and that too in quick succession. This all will give an added advantage to the company over its competition when it expands its network as fast as it can.
4. Corporate Governance
Membership
Dx Plc audit committee consists of three members. This member should not be dependent on Non-executive Directors. One of the members out of the three-member should have relevant knowledge and recent experience in the finance sector and should also be comfortable in accounting and auditing (Dxdelivery.com, 2022). The members of the committee should also be relevant and competent to the industry in which the company is working which is the logistics industry.
The member of the board cannot be a member of the audit committee. The tenure of the audit committee is a maximum of 5 years. In these 5 years, 3 years are fixed and two years can be extended upon the agreement made by the boards of the company (Alshirah, et al. 2021). A chairperson is also appointed and heads the audit committee by the members of the boards. In the absence of the chairperson, the deputy takes his place and if both are absent then the other members choose among themself to head the meeting.
No other members of the company have the right to attend the meeting of the audit committee unless they are invited. The members of DX plc can attend the meeting fully or partially on invitation by the audit committee (Omar and Yusof 2018). The information and data about the company are provided to the Audit Committee by the company’s secretary (Dxdelivery.com, 2022).
The primary function of the audit committees
Financial Reporting
Monitoring the integrity of the financial statement is done by the committee which includes half-yearly, quarterly, annual reports, and even any other financial-related report announced by the company (Al-Refiay, 2021). It also looks at the various assumptions which are made in calculating different financial activities.
Committee also reviews the application of different policies used in accounting methods, assumptions, and disclosure made in the long-term viability and challenges it. The committee also demanded the clarity of disclosure of different unusual transactions made by the company (Namakavarani et al. 2021).
External Audit
They play a key role in making recommendations regarding the reappointment, removal, and appointment of external auditors to the members of the board.
They also hold an investigation when any external auditors resign, and also find the issue which leads to their resignation, and then take necessary actions if required (Agyemang-Mintah and Schadewitz 2018).
They also look that the work of external auditors is not interfered with by any members of the company (McLaughlin et al. 2021). They also monitor the external auditor in compiling the laws, regulations, and other standards and requirements for professional ethics of the United Kingdom and Ireland.
Internal audit
- They review regular reports of the company and also help and support different activities which align with the risk involved with the business.
- The committee also monitors and assesses the different roles and effectiveness of the RA function.
- The Audit Committee also has the power to appoint and dismiss the RA.
Whistleblowing, fraud, and compliance
- They review all the procedures and also revise them if needed for detecting fraud in the company.
- They also help in arranging for the whistleblowing that allows a proportionate and independent of those matters where follow-up action is to be taken.
Risk Management and Internal control
- They set the standard to monitor financial risks and internal risks and help the company to monitor, assess, identify, and manage them.
- Another key function is to approve and review the statements in the Annual Accounts and report regarding internal control, risk management, emerging risks and risks, and other statements that are valid (Abuseif and Gou, 2018).
- They accurately and timely try to monitor the various risks and also large exposure to the things which are critically important to the company.
Taxation, treasury, and pension
- If there is any change in the tax planning system, then the Audit committee makes recommendations to the board member.
- They also review the meeting of the pension committee.
- The annual treasury policy shall be reviewed, and any recommendation should be made accordingly to the board member.
The issues that the committees face
Adhere to the legal and Regulatory compliance:The company operates both in the United Kingdom and Ireland. The company has to adhere to the different laws and regulations of both countries, so it is difficult for the audit committee to keep up with both the country’s laws and regulations. There are different cultures in different parts of the United Kingdom and also in Ireland which the company also has to mitigate without compromising with the laws and regulations that are mandatory for a company to follow. Missing to comply with any of the laws and regulations of a country can cause huge damage to the company’s operations and also to the brand image that the company has been building in past.
Maintaining a controlled environment in and out of the company: After the mitigation of Covid19 the logistic industry has captured a pace and new opportunities are on a grab. So, the company should follow the law in such a way that capturing the opportunities should be easy and there would be no hindrance in grabbing the opportunity. Audit companies sometimes face a situation where the company is entering or expanding the business in a new area and the community lacks the data which makes the work of the audit committee hard.
Improvement
The audit committee should include members belonging to the two countries that are the United Kingdom and Ireland. As there are various laws and regulations which are different in both countries. So having members from both companies will help the company to adhere to the laws and regulations prevailing in both countries.
The company should also look forward to expanding the 3-year tenure of the committee to 5 years; this will help the company to build trust with the committee. The committee should frequently meet the members of boards so that important information could be exchanged. There can be more company secretaries so that the data which are provided to the audit committee are valid and crosschecked, as it will reduce the mistakes made by company secretaries.
5. Concussion
Based on the analysis of the issue faced by DX plc while the implication of continuous budget it has been concluded that this company due to lack of accuracy faces an issue to estimate future income and expenses. On the other hand, it can be further concluded that this company has to make various changes in its organizational culture due to the implication of this continuous budget which affected its performance in terms of maintaining productivity and profitability in its initial phase.
Analysis of the period payback analysis can conclude that selecting a project which has short tenure seems a sound strategy as it indicates the minimum amount of risk associated with the project. In this situation, it has been found that adopting such a strategy provides a wider range of scope for DX plc to enhance its overall financial position and its strategic position in the market.
References
Journals
Agyemang-Mintah, P. and Schadewitz, H., 2018. Audit committee adoption and firm value: evidence from UK financial institutions. International Journal of Accounting & Information Management.
Ahrends, M., Drobetz, W. and Puhan, T.X., 2018. Cyclicality of growth opportunities and the value of cash holdings. Journal of Financial Stability, 37, pp.74-96.
Al-Refiay, H.A.N., 2021. The Effect of Audit Committee Chair Characteristics in Earnings Management: Evidence from the UK. Journal of Baghdad College of Economic sciences University, 2021(conference-9).
Alshirah, M., Alshirah, A. and Lutfi, A., 2021. Audit committee’s attributes, overlapping memberships on the audit committee and corporate risk disclosure: Evidence from Jordan. Accounting, 7(2), pp.423-440.
Bhat, C.R., 2022. A new closed-form two-stage budgeting-based multiple discrete-continuous models. Technical paper, Department of Civil, Architectural and Environmental Engineering, The University of Texas at Austin.
Bulteau, L., Shahaf, G., Shapiro, E. and Talmon, N., 2021. Aggregation over metric spaces: Proposing and voting in elections, budgeting, and legislation. Journal of Artificial Intelligence Research, 70, pp.1413-1439.
Cheryta, A.M., Moeljadi, M. and Indrawati, N.K., 2018. Leverage, asymmetric information, firm value, and cash holdings in Indonesia. JurnalKeuangan dan Perbankan, 22(1), pp.83-93.
Ding, D., Zhang, Y., Wu, W., Chen, D., Liu, M. and He, T., 2018. A novel low-thermal-budget approach for the co-production of ethylene and hydrogen via the electrochemical non-oxidative deprotonation of ethane. Energy & Environmental Science, 11(7), pp.1710-1716.
Kusnadi, Y., 2019. Political connections and the value of cash holdings. Finance Research Letters, 30, pp.96-102.
McLaughlin, C., Armstrong, S., Moustafa, M.W. and Elamer, A.A., 2021. Audit committee diversity and corporate scandals: Evidence from the UK. International Journal of Accounting & Information Management.
Namakavarani, O.M., Daryaei, A.A., Askarany, D. and Askary, S., 2021. Audit committee characteristics and quality of financial information: The role of the internal information environment and political connections. Journal of Risk and Financial Management, 14(6), p.273.
Öberg, G., Metson, G.S., Kuwayama, Y. and A Conrad, S., 2020. Conventional sewer systems are too time-consuming, costly and inflexible to meet the challenges of the 21st century. Sustainability, 12(16), p.6518.
Omar, N. and Yusof, M.A.M., 2018. Accounting Body Membership of Audit Committee Member and Fraudulent Financial Reporting. International Journal of Academic Research in Business and Social Sciences, 8(6), pp.1265-1273.
Savenko, H. and Zinkevych, T., 2018. Alternative methods of budgeting: aspects of their implementation in Ukraine.
Schmider, J., Kumar, K., LaForest, C., Swankoski, B., Naim, K. and Cauble, P.M., 2019. Innovation in pharmacovigilance: use of artificial intelligence in adverse event case processing. Clinical pharmacology & therapeutics, 105(4), pp.954-961.
Zhang, X., Ward, B.B. and Sigman, D.M., 2020. Global nitrogen cycle: critical enzymes, organisms, and processes for nitrogen budgets and dynamics. Chemical reviews, 120(12), pp.5308-5351.
Websites
dxdelivery.com, 2022 about Dx deliveryhttps://investors.dxdelivery.com/websites/dxgroup/English/1000/about-dx.html [accessed on 5 September 2022]
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