Stakeholder Theory and Reporting

This assignment delves into the concepts of stakeholder theory and integrated reporting. It examines how businesses can achieve sustainability through integrated reporting practices, considering various stakeholders involved and their perspectives. The analysis draws upon academic literature, case studies, and online resources to provide a comprehensive understanding of these important topics in contemporary business management.

ACCOUNTING
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TABLE OF CONTENTS
INTRODUCTION......................................................................................................................1
TASK 1......................................................................................................................................1
1. Stakeholders of sole trader organization.......................................................................1
2. Stakeholders of private limited company....................................................................1
3. Classification of identified stakeholders.......................................................................1
4. Stakeholders holding high level of interest, power and advise for suitable
communication method.....................................................................................................2
5. Presenting a letter to sole trader 'Happy'.......................................................................2
TASK 2(b)..................................................................................................................................3
1. Outline the different ways in which a restaurant can create value for its products......3
2. Porter's five force analysis for competitive advantage.................................................3
TASK 4......................................................................................................................................5
1. Statement of profit or loss.............................................................................................5
2. Statement of financial position.....................................................................................5
3. Statement of Cash Flow (SOCF)..................................................................................6
4. Sustainability and Integrated Reports (IR)...................................................................6
CONCLUSION..........................................................................................................................7
REFERENCES...........................................................................................................................8
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INDEX OF TABLE
Table 1: Stakeholder classification............................................................................................1
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ILLUSTRATION TABLE
Figure 1: Porter five forces model.............................................................................................4
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INTRODUCTION
Financial accounting is the process of recording, summarizing and interpreting all the
business transactions in an appropriate manner. Happy who is a sole trader in child wares
runs a successful and growing small business at Greenwich. The firm was founded in the year
2000 in North London and is having an average annual turnover of £5,000,000. In the present
project report, the significance of financial accounting will be discussed for sole trader
organization. Its main purpose is to prepare necessary statements such as profitability
statement and balance sheet to measure business performance and take effective decisions.
TASK 1
1. Stakeholders of sole trader organization
As per the present scenario, Happy individually owns entire organization and is
responsible for smooth functioning of its business operations. Stakeholders are those persons
who are affected by the business activities as they have direct and indirect interest in the
company (Freeman, 2015). Owners, employees, customers, creditors, managers, government,
competitors, public, media and financial institutions are the stakeholders of the firm.
2. Stakeholders of private limited company
PLC is a legal body which came into existence after following respective company
law. In the given scenario, Happy wishes to expand his business operations by acquiring a
small private limited company established in the year 2010 and whose annual turnover is one
million. It comprises of varied range of stakeholders that includes shareholders, lenders, and
board of directors. It further includes, managers, employees, customers, suppliers,
government, consultants, advisers, society, media, competitors and potential investors
(Duncan, 2015).
3. Classification of identified stakeholders
Table 1: Stakeholder classification
STAKEHOLDERS SOLE
PROPRIETORSHIP
PRIVATE LTD
COMPANY
Internal stakeholders  Owners
 Managers
 Employees
 Board of Directors
 Other Managers
 Employees
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Connected stakeholders  Customers
 Creditors
 Financial institutions,
banks who provide
loans to the sole
trader (Dawkins,
2015)
 Competitors
 Shareholders
 Other investors such
as lenders
 Consultants
 Customers
 Suppliers
 Competitors
 Advisers
External stakeholders  Public
 Government
 Media
 Government
 Society
 Media
4. Stakeholders holding high level of interest, power and advise for suitable communication
method
In sole proprietorship, internal stakeholders such as owners, employees and manager
holds high power and interest in enhancing company's performance and managing its
operations effectively so-as-to ensure long term growth. However, in private limited
company, stakeholders such as lenders and shareholders holds high power and have interest
in the organization (Mitchell, and et.al., 2015). Both the companies regularly focus on
communicating with their stakeholders by providing them desired information through
necessary financial statements. Furthermore, board meetings, annual general meetings and
published corporate social responsibility report are the effective ways to communicate and
connect with the investors (Brunton, Eweje and Taskin, 2015).
5. Presenting a letter to sole trader 'Happy'
To
Sole trader organization, Happy
Creditors are interested in assessing credit worthiness while investors and lenders are
interested in the profitability, cash earnings ability, financial risk, interest bearing capacity
and solvency position (Hueske and Guenther, 2015). Customer desire better quality products
at the affordable prices whereas government are interested in regular tax payments and
improving firm’s performance to ensure economic growth (Lopes and et.al., 2015).
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After acquiring other PLC, Happy intends to run both the businesses as single
enterprise. However, acquisition is the growth strategy which can be undertaken for
controlling the target of PLC (Stensaker, Persson and Pinheiro, 2015). Henceforth, it became
clear that legal structure of PLC cannot be changed and after acquisition, both the
organizations will run their operations as separate enterprises (Hertz, Beasley and White,
2015).
TASK 2(B)
1. Outline the different ways in which a restaurant can create value for its products
As per the scenario, value activities are the means by which firms creates value for
their products and services. It comprises all the activities and operating functions that
corporations perform to create, manufacture, marketing, sell and distribute the products and
services to their customers (Crow, 2002). The main aim of value chain is to focus on business
operations to make product different from their competitors. It is very important because
present market is highly competitive henceforth; product differentiation is very necessary to
attract large number of customers and improve competitive strength of the restaurant
business.
With reference to restaurant business, it has to provide tasty food at cost effective
rates to improve product quality. Further, cleanliness and varied range of foods such as
Mexican, Italian, Chinese and others will help to attract large number of customers whose
preferences are different from each other. Moreover, design means the way of food
presentation which should be very classy so that customers will be highly satisfied. In
addition, online ordering and home delivery also provide high convenience to the users. This
in turn ensures a steady growth in the number of customers and serves them effectively.
2. Porter's five force analysis for competitive advantage
As already said, fierce level of competition exists in the present market. Therefore, it
seems to be very necessary to improve competitive strength of the restaurant in order to
compete effectively. Porter's 5 forces is an effective way to compare restaurant's performance
with the competitors. Five forces analysis is described as below:
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Figure 1: Porter five forces model
(Source: Porter's 5 forces, n.d)
Supplier power: If supplier provides their services at higher rates to restaurant in
comparison to other competitors who are getting supplier services at lower rates. Then, it will
decrease restaurant competitive strength and vice versa.
Buyer power: High bargaining power of customers will reduce the restaurant’s
business revenues and profitability as well. Therefore, it affects the company's operations in
an adverse direction.
Competitive rivalry: Large number of competitors and rival firms makes it necessary
to improve restaurant's strategic capabilities and competitive position.
Threats of substitution: If substitutes are available at lower costs then, large number
of customers will use substitute products offered by other firms. Henceforth, it will lead to
reduce restaurant's revenues and profitability too (Porter's 5 forces, n.d.). Therefore,
restaurant needs to make some product differentiation to not to diversify their customers.
Threats of new entry: Restaurant is a growing business therefore; new entry threats
are very high. Therefore, it seems to be essential to earn high revenues, profits and improve
financial performance so-as-to compete effectively and not to lose their customers base.
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TASK 4
1. Statement of profit or loss
Every organization prepares profit and loss account by combining all the expenditures
and revenues incurred during a specific period. The main purpose of preparing this statement
is to determine business operational performance in the terms of profit or loss (Share, 2009).
As per this statement, excess of sales revenues over the cost of goods sold is called gross
profit while excess of cost of goods sold over sales is called gross loss. However, excess of
total of sales income and other operating incomes over all of the operating expenditures is
called operating profit. On contrary, if total operating revenues are lower than the operating
expenses then, it will be reported as operating loss. In addition to it, balance of total revenues
after deducting all the expenditure is known as net profit (Sheet, 2014). However, if sum of
all the direct as-well-as indirect incomes are comparatively lower than total business
spending then it will be shown as the net loss. Thus, it became clear that profit or loss account
is a summarized statement of incomes and spending and helps to determine business
operational results.
2. Statement of financial position
Along with profit and loss account, organizations also need to prepare financial
position statement which is also known as balance sheet. It is a summarized statement of
company's assets and liabilities which aims at identifying financial position of the company
(Aghion, Bacchetta and Banerjee, 2004). Liabilities comprise all the current as-well-as non-
current liabilities. Current assets are the assets that will be required to repay within one year
such as creditors and bank overdraft. However, non-current liabilities will be repaid after a
longer duration that also includes long term loan and debentures as well. Moreover, it shows
equity that represents the proportion of total assets that are financed by owner's funds.
However, assets shown in the right hand side and combine both the current as-well-as fixed
assets. Fixed assets include all the assets that are used for a longer term period to get business
profits. It comprises land and building, plant and machinery and etc. On contrary to it, current
assets includes all the assets that will be use for a short term period of less than one year such
as cash, debtors, inventory and others (Oliveras, 2001). The statement provides great
assistance to the managers to measure business solvency, liquidity and managerial efficiency
to use company's assets so that managers will be able to take effective decisions and improve
potential performance.
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3. Statement of Cash Flow (SOCF)
Cash flow statement summarizes all the cash inflow and outflow during a financial
year. It combines cash inflows and its application in various operating, financing and
investing activities. Cash is the most liquid assets available in every organization hence; the
main purpose of SOCF is to determine changes in cash balance reported in two different
balance sheet dates (Nurnberg, 2006). Under this, operating activities comprises daily
business revenues and expenses such as sales and purchase whereas investing activities
include purchase and sales of business assets. For instance; investing activities include
acquisition and disposal of land and building, plant and machinery and others. However,
financing activities comprise issues and repayment of share capital and debt funds (Ormiston
and Fraser, 2013). For instance, issue of additional share capital and extra borrowings will
tend to enhance cash inflows. However, redemption of share capital and repayment of debts
will increase cash application henceforth; cash outflows will be increased. At last, the
statement reports about the net cash flow available in the business and will be reported in the
balance sheet.
4. Sustainability and Integrated Reports (IR)
Sustainability is the process of managing company's bottom line through fulfilling
their obligations. It is the process of managing financial, social and environmental
responsibility. Under the financial responsibilities, management has to increase profits
through maximizing business revenues and expenditures. Moreover, all the organizations are
established in society therefore; they have some social responsibilities towards society. For
instance; providing employment opportunities helps to reduce unemployment rate in the
society (Eccles, and Saltzman, 2011). Moreover, qualitative products and services at
affordable prices and innovative products help to improve customer lifestyle and make
contribution to the economic development. Along with this, reducing carbon gas emission
and waste or scrap helps the management to accomplish environmental responsibilities. On
contrary, integrated reporting is the report that describes how company's strategy, governance
and performance contribute to the value creation (Integrated reporting, 2013). According to
International Integrated Reporting Council, (IIRC), IR helps to communicate with the firm's
internal and external users about financial and other value related information in order to
ensure sustainable business for longer duration.
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CONCLUSION
On the basis of presented report, it can be concluded that there are varied range of
stakeholders who require distinct information from the company's accounts. Further, the
report inferred that value chain management and Porter's Five forces are effective ways to
enhance product value for consumers and competitive strength. Last part derived that is the
profitability statement; SOFP and SOCF which are the statement prepared to determine the
organization's performance and helps to take effective and strategic decisions. Furthermore,
IR is a report that provides information to the stakeholders about overall achievement of
strategic objectives and social and environmental responsibilities to ensure long term success.
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REFERENCES
Books and Journals
Aghion, P., Bacchetta, P. and Banerjee, A., 2004. A corporate balance-sheet approach to
currency crises. Journal of Economic theory. 119(1). pp.6-30.
Brunton, M., Eweje, G. and Taskin, N., 2015. Communicating Corporate Social
Responsibility to Internal Stakeholders: Walking the Walk or Just Talking the Talk?.
Business Strategy and the Environment.
Dawkins, C., 2015. Agonistic Pluralism and Stakeholder Engagement. Business Ethics
Quarterly. 25(01). pp. 1-28.
Duncan, I., 2015. A Synopsis of Company Law of the People's Republic of China:
Commercially and Socially Effective" Stakeholder-oriented" Law 1. Quarterly
Journal of Chinese Studies. 4(1). p.1.
Eccles, R. G. and Saltzman, D., 2011. Achieving sustainability through integrated reporting.
Stanf Soc Innov Rev Summer. 59.
Freeman, R. E., 2015. Stakeholder Theory. Wiley Encyclopedia of Management.
Hertz, G. T., Beasley, F. and White, R. J., 2015. Selecting a Legal Structure: Revisiting the
strategic issues and views of small and micro business owners. Journal of Small
Business Strategy. 20(1). pp. 81-102.
Hueske, A.K. and Guenther, E., 2015. What hampers innovation? External stakeholders, the
organization, groups and individuals: a systematic review of empirical barrier
research. Management Review Quarterly. 65(2). pp.113-148.
Lopes, E. and et.al., 2015. Involving patients in health technology funding decisions:
stakeholder perspectives on processes used in Australia. Health Expectations.
Mitchell, R. K. and et.al., 2015. Stakeholder inclusion and accounting for stakeholders.
Journal of Management Studies. 52(7). pp.851-877.
Nurnberg, H., 2006. Cash Flow Statement. John Wiley & Sons, Ltd.
Oliveras, E., 2001. Understanding Financial Statements. Issues in Accounting Education,
16(1). pp.153-153.
Ormiston, A. and Fraser, L. M., 2013. Understanding financial statements. Pearson
Education.
SHARE, D. P. P., 2009. Profit and loss account. Notes. 666. pp. 275-382.
Sheet, B., 2014. Profit and Loss Account. Balance. 1. pp.1-143.
Stensaker, B., Persson, M. and Pinheiro, R., 2015. When mergers fail: A case study on the
critical role of external stakeholders in merger initiatives. European Journal of
Higher Education. pp.1-15.
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Online
Crow, K., 2002. Value chain analysis. [PDF]. Available through: <http://www.npd-
solutions.com/va.html>. [Accessed on 17th March, 2016].
Integrated reporting. 2013. [PDF] Available through:
<https://www.pwc.com/us/en/cfodirect/assets/pdf/point-of-view-integrated-
reporting.pdf>. [Accessed on 17th March, 2016].
Porter's 5 forces. n.d. [PDF]. Available through:
<https://www.mindtools.com/pages/article/newTMC_08.htm>. [Accessed on 17th
March, 2016].
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