Reasons for Better AIS and Effective Corporate Governance Structure

This document discusses the reasons why Youtus Enterprise requires a better AIS and an effective corporate governance structure. It also explores the advantages of equity financing and the higher cost of debt financing. Additionally, it examines the means to influence proposed regulations and the impact on equity shareholders. Finally, it discusses the basis for not capitalizing a lease agreement.

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Advanced Financial Management
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1a) Reasons why Youtus Enterprise require better AIS.
1. The main purpose of an accounting information systems is to store, process and
collect accounting and financial data, produce formal reports and analysis for business
to make better decisions.
2. As the company expands, there is need for a better Accounting information system as
it is used when measuring a company’s financial health for investors and other
stakeholders of the company (Abdulla & Hanna, 2018).
3. To create more efficiency and effectiveness in data collection and processing due to
faster systems.
b) Reasons why Youtus should have an effective corporate governance structure
1. Youtus is a sole proprietorship business and structure. Its operations are family led.
The need for a good corporate structure is to ensure that there is good structure for
better decision making processes. Corporate governance structure will ensure that the
board is involved to the fullest in decision making processes (Arnold, & Kyle, 2017).
2. One of the principles of corporate governance is to ensure that main goals are
clearly explained. The board, shareholders and other stakeholders will be able to
know what responsibilities and duties they have within the business.
3. Corporate governance structure ensure that there is transparency, rule of law,
responsiveness, accountability, inclusiveness and participation by all the stakeholders
within the organization.
c) A Change in business status under the equity financing option in the context of
positive accounting theory perspective.

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1. The main advantage under equity financing is that the money acquired through
equity has no obligation to be repaid. The equity owners want the company to be
successful and give them a good return to their equity without interest charges as in
the case of debt financing.
2. There is no servicing of loans allowing the 100% of equity raised to be used in the
company expansion strategy (Davies, 2016).
3. The funding is fully committed to the business expansion strategy and not any other
purposes.
2. Why is cost funding under debt option expected to be higher than under equity
funding
For Youtus Enterprise, debt financing is expected to be higher than equity financing
since the debt acquired has a huge amount of interest. Its return on equity is at 12.5%
annually making it one of the best investment options for the company. Debt on the other
hand is expensive due to the risky nature of the business and the high amount of interest
charged on the loan. The Laba family want to acquire the company through floating of an
IPO, which will bring more equity at a cheaper cost than debt financing. IPO is the difference
in the cost but the family will have to shed off some shareholding (Hoyle, Schaefer, &
Doupnik, 2015).
3) (a) Youtus Enterprise has decided to find a means to influence the outcome of the
proposed regulation in its favor.
Theoretical justification of proposed regulations
The regulations are meant to protect the manufacturing industry for the Australians. This
means that the enterprise will have to influence the outcome in order to come on top of the

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game. Mass production by Youtus in overseas is necessary because it is less expensive and
allows the goods being produced in large volumes. Large volume manufacturing ensures that
the company does not have a shortage and can meet demand at any time due to market needs.
The ability to produce in mass consistently is crucial for company’s success. The influence to
the proposed regulations ensures that the company is not out of market due to high
production costs(Hoyle, Schaefer, & Doupnik, 2018).
Logical explanation for Regulatory Changes
It is logical to note that the company wants more business. After the regulations, it would
mean that the government intends to increase the cost of manufacturing outside Australia so
that it may encourage more domestic industry. However, manufacturing in Australia is more
expensive than in China. Therefore, the board of Youtus has decided to import the production
machine and to produce by themselves the shoes and the sportswear. This will be almost the
cost of producing abroad and even lower due to removal of shipping costs. The ability to
produce in mass consistently is crucial for company’s success. The influence to the proposed
regulations ensures that the company is not out of market due to high production costs (Gao,
& Yan, 2019)..
b) Cite and illustrate a practice example/s of corporate intervention in public policy
formulation.
1. Economic policies to make to protect the business activities in the market- this
includes price setting by corporates on their services and goods produced.
2. Leasing and buying manufacturing equipment- this is to reduce the cost of
production outside the country like the way Youtus is trying to do.

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3. Outsourcing- goods outsourced from countries with cheaper manufacturing costs
are also the best corporate intervention strategies in the market against public policy
formulation.
4) (a) present an argument on whether equity shareholders are better off or adversely
affected in reference to agency theory lease liability.
Agency theory in corporate governance is used in determining the relationship
between the principles and the agents. The agent acts as a representative of the principle in a
business transaction and represents the best interest of the principle without any bias or any
interest for self (Miller, & Shawver, 2016). An increase in debt to equity ratio means that the
company is doing poorly in terms of debt servicing or there is an erosion of the shareholders
equity. This means that the shareholders are adversely affected since most of the profit
received by the company will go to servicing of the debt while their equity is slowly eaten
into. This means that the liabilities are higher than the equity and from a financial perspective
this is risky due to a higher degree of risk financing.
(b) On what basis is Youtus Enterprise likely not to capitalise this lease agreement.
Capitalizing of a lease is recording the equipment as an asset rather than an expense. This
means that the item will appear as an asset in the balance sheet rather than an expense in the
income statement. The basis for not capitalizing on an asset is when Youtus has cash flow
problems and is not able to honor its lease agreements (Tricker, 2015). .

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References
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Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.
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