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Accounting And Finance Theories And Issues Assignment
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1. Introduction
The study is going to portray changes coming up within business environment due to a sudden rise of Covid19 and different organisations are responding accordingly. Operating businesses are converting from traditional to modern accounting as a result a whole new set of accounting standards are growing for coping up with new normal. Operators of varied organisations are adopting block chain and digital assets however relevant accounting standards are still not available for recording new business transactions. Gradually, global accountants are showing concern in preparing proper accounting standards to avoid issues related to recording transactions related to digital assets. An organisation has a lot of stakeholders for acquiring capital to run business operations efficiently. Hence, varied organisations are coming forward to chalk out a way for preparing accounting standards related to environmental and social for securing rights of multiple stakeholders. Learners of this report are going to gather information on changing accounting theories related to current business environment after a pandemic situation.
2. Evolution of business idea after Covid19 pandemic
Covid19 pandemic situation has changed the entire world’s operating mechanism and the sudden lockdown to stop the spread of virus has put free movement stagnant. As stated by Pan and Zhang (2020), businesses have stopped existing procedures but are modifying operations to fly high in future. Utilising digital features helps different business sectors to flourish during and post-pandemic situations. Auto industry was badly affected due to Covid19 as $100 billion profit wiped off with that sales rate dropping by 20% to 30% (weforum.org, 2020). Even in this adverse situation automakers are turning around by focusing on innovating advanced vehicles such as electric cars or driverless cars for future market. Currently, this industry is focusing on preparing software programmes that “unlock features like heated seating or full self-driving capabilities” and reaching customers through online platforms.
The restaurant industry was also falling down as customers are showing a reluctant attitude to go out and enjoy food in an outdoor environment. Hence, operators of restaurants are coming up with innovative ideas within business operations to maintain an acceptable sales rate. “Long-term economic model” is being set up by different restaurants as indoor dining is nearly impossible even after post-crisis period. The model is being prepared that brings up varied ideas like takeaway options, home delivery and special offers on high-margin items (Asante Antwi et al., 2020) Primary motto of restaurant business is to provide food to customers’ doorstep by following proper hygiene.
The pandemic situation has changed entire mechanism of banking industry and risk-management teams are coming up to solve hard situations related to credit risk. Operators of banks are making an expectation that “automated underwriting” is going to come in scene for reducing losses of small and retail business customers. Hence, financial accounting bodies of different countries are preparing new accounting standards related to underwriting to make it easier to avail by customers (weforum.org, 2020). Presently in this pandemic situation banking staff started using financial software for measuring creditworthiness to avoid more uncertainty and focusing on rising margins by 5% to 10%.
Huge drive became visible in the digital healthcare facility after rise of Covid19 and most of the customers in 2019 started using telehealth as doctors cancelled physical visits. Currently, many large healthcare institutions launched “digital health apps” to build up a network between varied healthcare professionals and patients. Governments of different countries are coming forward to provide support to varied private institutions. Hence, public-private partnership helps to improve potentiality of healthcare industry for paving a better future. As opined by Anthony and Abbas Petersen (2021), moving towards digitalization is a common approach by different businesses after coronavirus has started spreading and becomes a life threat. Change in the viewpoint to operate a business has come into every industry as customers preferences are changing to stay fit (TAHERINIA et al., 2021). Globally, business executives are expecting this pandemic situation will last for the upcoming 5 years. Hence, opportunities have to be extracted from this crisis situation for addressing every uncertainty with effective steps.
3. Analyzing the increasing idea of blockchain and digital assets
The term "digital assets" refers to contents that are stored digitally such as images, videos, presentations or spreadsheets. In this era of digitalisation, the utilization of digital assets is common to store documents in cloud. Most of the organisations started adopting digital mechanisms after the rise of Covid19 as a result of making operations easier incorporation of "digital asset management solutions” becomes prominently visible. Primarily, operators of businesses have to understand the role of digital assets for extracting the best opportunities from those adopted solutions. As stated by Salamzadeh and Dana (2021), digital assets in any format enhance value of the users as managing documents becomes easy and efficiency reflects within business operations.
The market of digit assets is growing and it is expected to flourish more in the upcoming years with more increasing users. “Global Digital Asset Management Market" is positioned to prosper by $ 7.45 billion in the forecasted period of 2021-2025 (finance.yahoo.com, 2020). Enhanced growth will become visible as the high demand for storing documents by different organisations in digital format. Software developing companies are going to invest in developing varied cloud storage applications for helping other sectors promptly. Growth in this area is segregated by two segments: premises and cloud where the most common providers of digital asset management solutions around the world are Adobe Inc., Cognizant Technology Solutions, Microsoft Corp. and so on. Currently, the growing interest in cryptocurrency, a form of digital asset, helps businesses to earn money through buying coins and holding for a certain period till the price of those coins rises. As commented by Abusalma (2021), crypto assets are purely a form of digit asset that utilises "public ledgers over the internet to prove ownership". In this present business environment, usage of cryptocurrency has become common to make money with a piece of adequate knowledge to avoid a high degree of risk.
Blockchain is an advanced technology that is being used within a distributed database and shared among various "nodes of computer networks" for storing information in a digital format. Globally, a lot of businesses are dealing with different cryptocurrencies as a result the usage of blockchain increases for maintaining a decentralized and secured record of transactions. Among a set of available cryptocurrencies, Bitcoin is the most popular and blockchain guarantees security as well as fidelity in investing money in cryptocurrency without inclusion of any third party. The usage of blockchain is gaining popularity due to different sectors commonly banks are pursuing blockchain technology for sharing trust among users through presenting transparency within operations. As stated by Ferretti and D'Angelo (2020), popularity in adopting blockchain technology has become common for the presence of different factors such as low fees associated with “cross-border transactions" and secured “B2B payments”. Furthermore, the factor transparency is essential for a technology user which is being provided by blockchain as transactions once recorded within digital ledgers cannot be modified or erased. The feature of audit is present that informs every single party involved with a transaction leading a path to build up trustable relationships among users of blockchain. Growing use of digital assets after converting into digital mechanisms forced many organisations to utilise blockchain for sustaining transparency and accuracy (Pournader et al., 2020). Increasing volume of data cannot be stored in a physical format as result accountants adopt digital ledgers to record a series of debit or credit financial transactions.
3.1. Growing need for global accounting standards
“International Financial Reporting Standards” (IFRS) put forward accounting standards with the support of “International Accounting Standards Board” to compile businesses around the world with common standards. Observing the changing business environment, modern economies commonly rely on “cross-border transactions” and “the free flow of international capital". Most of the financial transactions of global business are related to cross borders and whose number is going to increase in upcoming days (Gökalp et al., 2018). Hence, following a common accounting standard helps to maintain financial transactions without any discrepancy. Commonly, cross-border activities are complex and different companies following its own national accounting standards make cross-border transactions more complicated. However, comparing accounting standards of two different counties and preparing statements is related to cross-border transactions increases additional expenses, complexity and financial risk for engaged companies (ifrs.org, 2021). Furthermore, investors find difficulty in making economic decisions on a company that is not following global accounting standards for maintaining business operations.
Adapting global accounting standards is becoming popular since applying “national accounting standards” does not provide a true picture of a company’s financial statements. Calculations differ under different accounting standards as a result the impact of any transaction varies and financial performance cannot be judged properly. As opined by Mikhaylov (2020), a company might earn a profit under one set of accounting standards while the scenario can change in another set of standards. Hence, following global acceptable standards ensure transparency as well as accuracy in providing high-quality financial statements. Digital services refer to providing electronic services to the users of digital assets. Global businesses are engaging in cross-border transactions to improve efficiency and include better services within business operations. Software companies are developing to provide best help in using digital assets and bring digital transformation within business operations. Customers become more attracted towards digitally improved companies as a result of “contemporaneous digital products and services” (Moll and Yigitbasioglu, 2019). Primarily, operators of businesses have to understand the role of digital assets for extracting the best opportunities from products and services. Digital transformation with the support of advanced products and services helps to create better processes and innovative ideas. Those ideas help to modify business structure and attract more customers to earn profit from business operations. Cloud-based software, e-books or websites are certain commonly developed services from the end of digital providing organisations. Gradually, global accountants are showing concern in preparing proper accounting standards to avoid issues related to recording transactions related to using digital services. An organisation has a lot of stakeholders for acquiring capital to run business operations efficiently. As opined by Succar and Poirier (2020), the usage of digital services helps external and internal stakeholders to observe performance of a company in a digital format. Hence, stakeholders have high interest in a company's operations and create an impact on decision-making procedures.
4. Requirement of stringent regulations on environmental regulations
Organisations follow strict regulations in preparing management accounting statements for analysing performance within a stipulated time frame. Comparison of a company’s current and historic performance becomes easy through management accounting information. The broad area of performance management pulls out a concept of “environmental accounting” and while implying this accounting into organisation helps pave the way to build up “environmental management accounting”. A company’s both internal and external stakeholders have full right to gather information on that company. As opined by Ramanathan et al., (2017), "environmental accounting encompasses the provision of environment-based information". Information secured from environmental accounting helps to prepare reports on an organisation's activities related to the environrment's betterment. Stakeholders focus on such reports to generate decisions on further investment so that a company can extract profit from operations and divert certain profitable amounts for society’s benefit. Managerial activities related to environment accounting is considered a specialized part of a business that focuses on curtailing down cost of energy like water or electricity and actively taking part to dispose of waste. Standard accounting techniques are being incorporated within “environmental management accounting” in order to analyse, manage and recognize environmental-based costs (Li et al., 2017). Observing the outcome of those techniques, further decisions are being taken from an organisation's end to reduce environmental cost creating a mutual benefit for both the business and its serving environment.
“Activity-based costing" is one of the common techniques to compute environmental costs related to an activity (Brooks and Oikonomou, 2018). For example, identifying cost of “washing towels at a gym” includes energy of washing machine to clean that towel which is considered as the environmental cost and washing refers to the cost driver. Collecting information on a number of individuals visiting the gym signifies an important element to estimate the exact environmental cost. An individual might use more than one towel in a single visit that will increase cost of cleaning. Hence, the company has to include an extra payment method for using a second towel. This approach from the organisation's end is highly acceptable by most the gym users as extra usage leads to extra cost. Furthermore, payment on extra usage is considered as an environmentally friendly approach as creating a mindset among gym-users, not to overuse towels and increase washing cost leading to enhanced more environmental expenses. A sense of not paying for using extra towels among gym users has helped the organisation to wash every towel less frequently. In this essence, company saves in washing expenses and more importantly less usage of electricity, as well as cotton, helps to save scarce resources of the world. Observing this environmentally friendly approach increases business value among its customers and in turn attracts more gym-users to enhance revenue within a financial year.
Three main reasons of making environmental accounting common among organisations around the world. Firstly, consumers have become aware of “carbon footprint” and accept those organisations that focus on recycling. In order to become appealing in front of consumers, companies are becoming environmentally responsible (Deegan, 2017). Secondly, organisations want to manage operational costs by lowering environmental costs. Mainly, industrialised sectors have to bear extra operating cost such as extracting oil from ground leading to addition of 20% on operating cost. Thirdly, regulations on global accounting standards are growing at an increasing pace and companies have to pay penalties for not complying with environmental accounting. On the basis of current business environment digitalisation is the most common approach and for that electricity is a highly used resource. Hence, organisations have to adopt environmental accounting techniques for saving non-renewable resources.
4.1. Social accounting regulations related to new business environment
Social accounting signifies practice theories that contribute to improving society in which a business operates. Social accounting practice is common among stakeholder accounting as stakeholder is a major element for an organisation. As stated by Ramanathan et al., (2017), stakeholders have high interest in a company’s operations and create an impact on decision making procedures. Hence, global organisations are adopting international accounting standards to increase accuracy within financial statements. Proper view of financial statements help stakeholders to analyse exact performance of a company and evaluate social value imparts to the society. Developing countries are becoming more responsible towards looking after society. Global accounting standards are preparing social accounting regulations strongly to maintain social responsibilities effectively.
International accounting boards are forcing every organisation to utilise social accounting standards to minimize misuse of non-renewable resources existing without society. Therefore, environmental and social regulations have a certain common usage from the viewpoint of an organisation. As opined by Li et al., (2017), any large organisation has a variety of expenses and every single business operator wants to minimize additional cost for improving profitability level. Thinking about society’s well being depends on curtailing environmental costs. Identifying and lowering down the entire cost related to environment is being categorised under four segments. The first category is “environmental prevention cost” that identifies misuses of resources and creates a limit for production cost to limit wastage. “Environmental detection cost” makes an assurance that every organization is being complied with proper voluntary standards and regulations to detect costs incurred from performing activities related to environment. Third category refers to “environmental internal failure costs” which signifies cost incurred to perfectly dispose of waste materials that occurred from business operations without harming the environment. Lastly, costs a company has to bear for not disposing waste materials perfectly in the environment and this refers to “environmental external failure costs”.
Every institution under healthcare industry around the world after the rise of Covid19 situation has to dispose of waste materials of patients properly to ensure minimizing spread of coronavirus. Hence, it is a duty to be responsible towards society and help human beings to provide a better environment to stay. Management of social accounting helps to improve economic performance that guides a pathway to develop and implements appropriate accounting practices and systems. “Life Cycle costing” or “full cost accounting” is few social accounting techniques that help to audit a company’s performance accurately and plan a strategic idea for sustaining within an industry. As stated by Brooks and Oikonomou (2018), addressing every cost related to social accounting helps to take a proper decision on a company’s ongoing project and extract an accurate profitability level. For instance, a pharmaceutical company wants to innovate a new medicine in order to make a decision on proper cost structure. At the initial stage this company has to allocate costs related to labour and managing waste properly. Proper cost structure can be prepared with allocation and identification of environmental costs with the help of “inflow and outflow analysis” of every minute details related to developing a medicine.
5. Conclusion
The entire report tells of changing patterns in operating businesses after rise of Covid19 and the usage of digital assets with the help of blockchain. Utilising digital features helps different business sectors to flourish during and post pandemic situations. Even in this adverse situation automakers are turning around by focusing on innovating advanced vehicles such as electric cars or driverless cars for future market. “Long-term economic model” is being set up by different restaurants as indoor dining is nearly impossible even after post-crisis period. Currently, many large healthcare institutions launched “digital health apps” to build up a network between varied healthcare professionals and patients. Most of the organizations started adopting digital mechanisms after the rise of Covid19 as a result for making operations easier incorporation of “digital asset management solutions” becomes prominently visible. Globally, a lot of businesses are dealing with different cryptocurrency as a result the usage of blockchain increases for maintaining decentralized and secured record of transactions. Furthermore, environmental and social regulations are becoming strict for betterment of society within which a business operates.
References
Journals
Abusalma, A., 2021. The role of strategic innovation for sustainability of businesses during the covid-19 pandemic. Management Science Letters, 11(7), pp.1991-1998. doi: 10.5267/j.msl.2021.3.010
Anthony Jnr, B. and Abbas Petersen, S., 2021. Examining the digitalisation of virtual enterprises amidst the COVID-19 pandemic: a systematic and meta-analysis. Enterprise Information Systems, 15(5), pp.617-650. doi.org/10.1080/17517575.2020.1829075
Asante Antwi, H., Zhou, L., Xu, X. and Mustafa, T., 2021, April. Beyond COVID-19 Pandemic: An Integrative Review of Global Health Crisis Influencing the Evolution and Practice of Corporate Social Responsibility. In Healthcare (Vol. 9, No. 4, p. 453). Multidisciplinary Digital Publishing Institute. doi.org/10.3390/healthcare9040453
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Mikhaylov, A., 2020. Cryptocurrency market analysis from the open innovation perspective. Journal of Open Innovation: Technology, Market, and Complexity, 6(4), p.197. doi.org/10.3390/joitmc6040197
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Ramanathan, R., He, Q., Black, A., Ghobadian, A. and Gallear, D., 2017. Environmental regulations, innovation and firm performance: A revisit of the Porter hypothesis. Journal of Cleaner Production, 155, pp.79-92. doi.org/10. 1002/cpe.5493.
Salamzadeh, A. and Dana, L.P., 2021. The coronavirus (COVID-19) pandemic: challenges among Iranian startups. Journal of Small Business & Entrepreneurship, 33(5), pp.489-512. doi.org/10.1080/08276331.2020.1821158
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TAHERINIA, M., NAWASER, K., SHARIATNEJAD, A., SAEDI, A. and MOSHTAGHI, M., 2021. The Evolution of the E-Business Value Cycle Through Value Co-Creation during the COVID-19 Pandemic: An Empirical Study from Iran. The Journal of Asian Finance, Economics and Business, 8(10), pp.19-28. doi:10.13106/jafeb.2021.vol8.no10.0019
Websites
finance.yahoo.com (2021) The Global Digital Asset Management Market is expected to grow by $ 7.45 bn during 2021-2025, progressing at a CAGR of about 21% during the forecast period, Available at: https://finance.yahoo.com/news/global-digital-asset-management-market-151500302.html [Accessed on 24th November 2021]
ifrs.org (2020) Why global accounting standards?,Available at: https://www.ifrs.org/use-around-the-world/why-global-accounting-standards/ [Accessed on 24th November 2021]
weforum.org (2020) 6 ways the pandemic has changed businesses weforum.org Available at: https://www.weforum.org/agenda/2020/11/covid-19-innovation-business-healthcare-restaurants/ [Accessed on 24th November 2021]
