Public Sector Accounting (Coursework Sample)

Public Sector Accounting
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PART A
Users of the annual report and accounts
I identified Scottish Water as my public sector organization.
The users of financial information of Scottish Water can be divided into two:
Internal users
External users
Internal users/primary users
These types of users use the accounting information that is typically in a form of account managements, budgetary, predictions as well as financial reports (Belkaoui 2004, p.56).The users consist of:
Management: The management involves the board of directors of the organization and top managers (Chambers 2006, p.30)They use the annual report and accounts in analyzing the financial performance and position of the organization in the market and making better decisions for the organization to improve its performance.
Employees: They refer to the staff of the organization (Edwards 2011, p.78).They will use the annual report and accounts in assessing the profitability of the organization at large and its effects on their compensation in future and more importantly their job security.
Owners/shareholders: These are the stakeholders of the organization who own shares in the company (Chambers 2006,p.90).They use the accounting information in assessing whether their investments are viable and profitable and come up with the best measures to take in the future.
External users /secondary users
These are the stakeholders of the organization who are communicated the accounting information through the financial statements. These users include:
Investors: This refers to the current or potential investors of the organization. They use the financial statements to analyze the feasibility of their investments in the organization to ensure that there is a risk-benefit relationship before committing any reasonable amount of financial resources into the organization (Debarshi 2011, p.17). The investments should yield returns
Customers: They will use this accounting information to analyze the continuity of existence of the organization by looking at the potential suppliers so as to make long-term decisions about trading (Ahmed 2002, p.167)
Public: This stakeholder is interested in the information that is useful for determining the economic and social impact of the organization to the society as a whole (Belkaoui, 2004, p.6).
Regulatory authorities: The includes the international bodies such as IFRS Board and IAS board that ensures that each organization complies with the regulations of preparing the final books of accounts(Putra 2009, p.279). The rules include: International Financial Reporting Standards and International Accounting Standards (Riahi 2002, p.46). They ensure that proper disclosure of accounting was observed so as to protect the interests of shareholders.
Government: As a stakeholder of the organization, it' requires  the annual report and accounts so as to ensure that the comp is carrying out legal business activities and also it uses the accounting information in determining the appropriate tax policies to use in deriving tax rates that the company should have subjection to through the tax regulatory authority .
Financial institutions: These institutions include the banks and other financial lenders of the organization (Chambers 2006, p.123). They need the accounting information of the organization to determine its credit worth before awarding them any loan or grant
Creditors: The suppliers of the organization sell the goods on credit will be interested in the financial statements so as to determine the organization's solvency so as to determine if   the amount owed will be paid at maturity (Debarshi 2011, p.91)
Conflict of interest
Shareholders versus Managers
Any organization is owned by the shareholders but in most cases is headed by executives appointed with shareholders. Shareholders may lack the required time to engage in management (Mittal 2011, p.145).The conflicts of interest include: The management may not strive towards shareholders' wealth maximization if they see that they are not likely to get a share of the benefit that they will bring to the company. They may award themselves huge salaries and other benefits more than what a shareholder would consider reasonable. They may maximize leisure time at the expense of working hard. Undertaking projects different risks than what shareholders would find reasonable.
Creditors/financial institutions versus Shareholders
Lenders lend funds to the organization at rates basing on; the risk that the firm's existing assets are subjected to (Horngreen and Strattom 2007, p.23). The conflict of interest is that the shareholders through the management may make decisions that will cause the firm's risk to change that affects the value of debt (Mittal 2011, p.67).The company may increase their debts so as to promote profitability .The value of the older debt  reduces because it will raise the certainty of the organization
Government versus shareholders
The organization conducts business in support of the administration since the state lacks sufficient resources required. The government only provides favorable environment for investment for any firm then gets the company profits in form of levies paid by such firms (Rawlins 2006, p.45).
PART B
Prioritization of the user groups
Basing on the linkage model of prioritization, I would recommend the users of the accounting information to be prioritized in the following way beginning from the most important to the least important:
Management
Shareholders
Government
Customers
Employees
Creditors
Investors
Regulatory authorities
Financial institutions
Public
The above prioritization was arrived at after classifying the users according to the classification of the linkage model as follows:
Enabling Linkages
These are the users of the accounting financial information, who have the full management and power over a corporation, for instance shareholders, BOD together with the state. These users provide the organization with the resources as well as sovereignty to perform its duties successfully (Gruing 2004, p.34).Thus without these stakeholders the company cannot operate within the required framework since it will be restricted hence these users are the most prioritized users of the accounting information.
Functional Linkages
These users handle the proper functioning of the business. They are grouped into input roles which are the sources of manpower as well as resources for generating outputs or services (Gruing 2004, p89). Examples of input functions are; employees and suppliers while the examples of output functions include; customers. Thus, these users come second after the enabling linkages in the prioritization of the users of the accounting information.
Normative Linkages
These are organizations otherwise bodies in which the corporation has the universal interest with. Accounting information employers within this association share comparable values and goals. They can consist of competitors, specialized groups as well as regulatory bodies for instance the IAS together with The IFRS (Rawlins 2006,p.79).They make sure that every accounting law and standards are maintained when preparing the final accounting books.
Diffused linkages
These stakeholders/users never have recurrent dealings with the firm; however they get engaged as per the operations of a firm. These users normally are general public which usually come on the light whenever a crisis arises relating to the company and it affects in one way or the other. This linkage is composed of the society and the media (Riahi 2002, p.68). Thus are ranked last amongst the users of the accounting information and the annual report.
Part C
Ratio Analysis Appraisal
Ratio analysis is the critical appraisal to use in determining the usefulness of the annual report and accounts of Scottish Water. This type of appraisal will be majorly useful to the users of the accounting information of Scottish Water in meeting their needs. This appraisal will be useful in analyzing the various financial issues:
Shareholders: These are concrete owners are concerned with the firm's short as well as long term existence thus they shall utilize ratios like (Edwards 2011, p.91)Profitability ratios (that aspire to ascertain viability) as well as Dividend ratios .They are responsible for establishing returns to owners who are dividends. Such ratios are the dividend earnings yield; dividend costs percentages, dividend capitulates as well as the Price incomes proportions
Creditors: These are concerned with the firm's capability towards meeting their short-term requirements whenever they are due. They shall utilize ratios, for instance: Liquidity proportion (the qualitative gauge for firm's liquidity situation calculated by means of acid test proportion) as well as Current ratio – that is the gauge of corporation's amount of CA in opposition to the CL (Margaret 2014, p.24).
Financial institutions: These possess equally short as well as long term concern for the firm as well as its capacity forfeit not merely the interest for a debt but similarly principal due (Belkaoui 2004, p56).
Management: These will be concerned with the effectiveness of the firm for making profits as well as gearing rates towards gauging the security alongside risk related for a corporation
Potential investors: They are the factions which are concerned with the way company altogether mutually on short as well as long term run, particularly, the corporation’s capability to spawn a satisfactory yield on their invested wealth within the firm (Mitta...