Abena Pokua was a first year student in the business studies at the KNUST School of Business. She had been born and brought up in Kusie Besaa, a small grasscutter market town in the hinterlands. Abena was an attractive, bright and popular girl, and she had many sports and activities in which she was involved. She had been hoping to go to one of the ancient universities to read philosophy, but her A result had been disappointing. In desperation, and somewhat at the last minute, her father had managed to get her a place at KNUST School of Business. To begin with, Abena had no more interest in business studies than she had in going to the moon, but the course was quite a varied one she got on well with her fellow students. While there were one or two subjects that some of the hated, everyone found Accounting to be the boring. Professor Appiah, their Accounting Professor, did his best but it was hard going for all of them. During the first month, they ploughed through the mechanics of double entry bookkeeping, and it took a long time before it begun to make sense. The one golden rule in accounting seemed to be that the answer to any question was the opposite of whatever you first thought. In the second month, the class begun to study the format and structure of published financial statements. There were lots of rules to learn that were based partly on Companies Act and partly on what were called financial reporting standards. 16 As it was a degree class, Professor Appiah was very keen to be critical of such procedures. Abena was not alone in finding it very difficult to understand what he was talking about. It was not easy to remember all that they were supposed to learn, and it was almost impossible to criticize something that was not very clear to you in the first place. As the semester went by, Abena began to realize that accounting was not like simple arithmetic. She came to appreciate that, although you were supposed to follow a lot of accounting rules, it was possible to interpret then in any way you wished. It was quite a shock to find out that accountants were just as fallible as anybody else. You could in fact, fix accounting statements so that they showed what you wanted, and yet you could still be following the rules! It was all very confusing. Professor Appiah was even more scathing about the contents of an annual report. Just get hold of an annual report, he invited the class. You have now done some accounting. Tell me honestly: does it mean anything to you? Oppong Kyekyeku, one of Abenas friends, did get hold of an annual report, and they both had a good look at it. They quite agreed with Professor Appiah: it did appear to be meaningless. By this time the class was thoroughly disillusioned. Although the students found the subject boring, they had understood that accountancy was a highly regarded profession, and yet it now appeared to be nothing more than a gigantic confidence trick. Fortunately, Professor Appiah was a very experienced tutor, with over 15years experience in teaching in KNUST. He realised that some of the class did not understand him, while the remainder had been put off accounting for life. He tried to argue that while the current method of reporting financial results was open to question, neither the accountancy profession nor anyone else had anything better to put in its place. In other words, he stated, Its better to be vaguely right, than precisely wrong. Well, why doesnt your profession try to do something about making it precisely right?, asked Oppong (who was one of the more bolder elements in the class). Why, for example, dont you ask people, such as shareholders, what they want, instead of supplying all this information that you say is rubbish? Now thats a very good question, replied Professor Appiah without a trace of sarcasm in his voice. Perhaps we should be able to design financial reports that will be useful to those who want to use them. A thought struck him. I tell you what, well make this the subject of a tutorial exercise. I think it would be a lot more interesting for you, and it might either prove or disprove my point. How about it? The class agreed, and Professor Appiah began preparing a suitable assignment. By the next week he had come up with a few ideas. I want you to work in your respective tutorial groups, he said. Abena was pleased, because she was in a good tutorial group of only eight students. As part of a group exercise I want you to do two things: first, find out from looking at books in the library what are the desirable characteristics of financial reports. Now, I think you will find that, while it is relatively easy to put them down on paper, it is less easy to apply them in practice. And that takes me on to the second part of the exercise. I want you to do a survey of what use shareholders make of their annual reports. I want each group to prepare a report on its findings, and then to present it to the rest of the class. There are one or two suggestions on how you should go about doing this exercise in the hand-out I circulated at the beginning of the lecture. 17 Now, I think that four weeks should be long enough for the project, particularly as we shall not be holding any accounting lectures or tutorials during that time. The class cheered, and Abena became quite excited. This seemed a lot more interesting than sitting in an uncomfortable lecture theatre taking notes from dozens of overhead slides. Required: 1. Describe the desirable characteristics of financial reports 2. Examine the supporting financial statements and assess them to see how far in your view they appear to contain the desirable characteristics of financial reports as outlined above (see below). 3. What use do shareholders make of a companys annual report, and what improvements would they like to see in its presentation? 4. Evaluate the financial performance and position of the supporting financial statements in Appendix A (see below) and write the relevant Report to relevant stakeholders, note show all workings. The supporting financial statements Appendix A PROFIT AND LOSS ACCOUNTS (EXTRACTS) FOR THE YEAR TO MARCH 31ST 2016 2017 2018 2019 2020 GHS GHS GHS GHS GHS INCOME Installation fees 1,250 1,500 2,100 2,400 2,500 Maintenance fees 1,000 1,500 1,920 2,340 2,600 2,250 3,000 4,020 4,740 5,100 EXPENDITURE Direct materials 250 306 437 528 575 Direct labour 795 1,254 1,753 2,182 3,060 Direct expenditure 40 40 70 90 120 Operational overheads 140 200 280 370 470 1,225 1,800 2,540 3,170 4,225 OPERATING PROFIT 1,025 1,200 1,480 1,570 875 Directors emoluments 80 100 130 150 150 Loan interest 75 75 Office expenses 675 780 995 1,040 1,085 Office salaries 120 140 155 180 210 875 1,020 1,280 1,445 1,520 NET PROFIT (LOSS) 150 180 200 125 (645) Taxation 45 60 65 70 105 120 135 55 (645) Dividends 100 115 115 120 RETAINED EARNINGS 5 5 20 (65) (645)

18 STATEMENT OF FINANCIAL POSITION (EXTRACTS) AT 31ST MARCH 2016 2017 2018 2019 2020 GHS GHS GHS GHS GHS Non-current Assets At cost 1,400 1,450 1,500 1,550 1,900 Less: Accumulated Depreciation 275 355 440 530 695 1,125 1,095 1,060, 1,020 1,205 CURRENT ASSETS Inventory at cost (2016 - GHS15) 20 25 40 50 80 Receivables 200 240 363 434 806 Other Receivables 25 25 30 40 50 Cash and bank 278 245 290 433 802 936 1,370 1,385 1,493 1,822 2,141 CAPITAL AND RESERVES Ordinary shares (GHS1) 1,000 1,000 1,000 1,000 1,000 Retained Profits 55 60 80 15 (630) 1,055 1,060 1,080 1,015 370 DEBENTURE LOANS (15%) 500 500 CURRENT LIABILITIES Trade Creditors 26 31 43 52 66 Other Creditors 40 50 60 65 80 Bank Overdraft 104 69 130 1,125 Taxation 45 60 65 70 Proposed Dividend 100 115 115 120 315 325 413 307 1,271 1,370 1,385 1,493 1,822 2,141 Notes: 1. There were no sales of Non-current assets during the period 1/4/2016 to 31/3/2020 2. Advance corporation tax may be ignored.