Book Review: Business Accounting and Finance in New Zealand

Reviewer: Stella Sofocleous, Victoria University, Melbourne

Business Accounting and Finance, in the words of the authors, has been specifically “designed for all students who are studying an introductory accounting course in accounting and finance at tertiary level in New Zealand, whether towards a diploma, undergraduate degree, MBA or similar qualification.” The authors adopt a user’s perspective and assume no prior knowledge. Their focus is on stepping the student through relevant concepts and their application. Three important areas of business – financial accounting, management, and business finance are covered. While individual topics are dealt with separately indiscernible sections in the book, the overall aim is to de-emphasise divisions between these three areas. This is on the basis that management decisions and deliberations are not always separated from accounting, management, and finance, and commencing business students need an overall view of the business. The outcome is a coherent and relevant coverage of many issues that will result in the student gaining an understanding of the context and operational issues facing business and managers.

The first section of the book consists of four chapters dealing with financial accounting issues. They give the student an overview of the context of accounting and the form and content of common financial reports including the balance sheet, income statement and the cash flow statement. Students are shown how items are grouped and described in these financial reports. In particular, the student is introduced to the subjective nature of various measurement approaches adopted in the reporting of financial position and performance including the accrual accounting concept. The relationship between profit and cash is considered, and the link between the cash flow statement and the income statement and the balance sheet is demonstrated. This is particularly useful for the commencing student as it is important to dispel any notion that profit and cash are the same.

The second section examines the contribution of management accounting to the efficient running of a business. Five chapters step the student through matters such as scorekeeping – ‘how well the business is doing’, attention directing - including ‘which issue to focus on?’, and problem-solving – the ‘what should we do?’ concerns of business management. In particular, the student finds here material that provides an insight into break-even analysis, life-cycle costing, quality management, and ‘Kaizen’ – the philosophy of continuous improvement in business operations. The student is introduced to the scope and types of different decisions a business needs to make and to the decision-making process. This section also deals with the budget setting process, and the attendant conflicts and problems in this process including behavioural issues and motivation, uncontrollable costs and responsibility for outcomes. The section closes with an exploration of the standard costing approach and the use of variance analysis for achieving a better understanding of business operations. While many texts struggle to present management accounting concepts and problems in a style that does not alarm or dispirit the student, this text is appealing in the clarity and ease of its presentation and content.

Section three of the book, consisting of five chapters, focuses on investment and financing decisions and the efficient management of assets. The authors begin by establishing what an investment is and then providing techniques for choosing between alternative investments. Issues such as: the net present value technique, discounted cash flows, and the discounted payback method are explained. After considering the investment decision, the main sources of finance available to a business are identified, and the cost of capital is discussed. The student is introduced to the capital asset pricing model and the economic value-added and market value-added models. The focus of the final section of this book is the analysis of business performance. Three major issues are examined: the management of working capital, understanding the broad picture provided by the information included in the annual reports of a business, and evaluating business performance. Steps involved in the performance review process are outlined and explained, and the section closes with an examination of non-financial measures of business performance. For students who intend to focus on an accounting major, the book also provides, in an appendix, the basics of the double-entry system. Clearly, an appreciation of how business data is recorded is helpful when interpreting accounting information, yet it is not integral to the user’s perspective of accounting information adopted in the book.

On the whole, in terms of its content and structure, this book covers many relevant issues and addresses them thoroughly. I recommend the book for commencing business students as, by interrelating the three major areas of accounting – financial accounting, management accounting, and business finance, it provides a useful and thoughtful coverage of many issues confronting modern business and its managers.