CASE STUDY

Golden Enterprise Ltd. has been operating a restaurant business for the past ten years. The company has ten branches in Accra and is planning to expand its operations to other parts of the country. Despite the high growth and profit enjoyed by Golden Enterprise Ltd., the company has been struggling with its financial reports, specifically, the application of the conceptual framework which requires financial reports to have various qualitative characteristics such as relevance, reliability, consistency, faithful representation, understandability, verifiability and timeliness.

In an attempt to ensure that the financial reports meet the various qualitative characteristics, the accountants publish the reports immediately at the end of each year and distribute them to all shareholders. After the publication, they often find material errors in the published accounts which results in the publication of new financial reports to the shareholders. This situation has resulted in shareholders gradually losing trust in the financial reports of Golden Enterprise Ltd. Also, the financial reports usually disclose how managers use their salaries, the time periods employees report to work, the tips that waiters/waitresses receive from customers and the strategies they use

LECTURERS: Dr. Cletus Agyenim-Boateng, Mr. E. Asafo-Adjei

to outsmart competitors. The company also discloses every detail of transactions no matter the amount involved and provides a detailed explanation to every item in the financial reports. Every year, Golden Enterprise Ltd. changes how they value their assets using the current inflation rate and other macroeconomic variables that apply.

The above scenarios clearly show that Golden Enterprise Ltd. is facing serious challenges with complying with all the qualitative characteristics under the conceptual framework.

Required

As a Level 300 student who has been introduced to the conceptual framework that guides the preparation of financial statements, discuss how the conflicts in the qualitative characteristics of financial reports can be resolved by Golden Enterprises Ltd. (15 marks)