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Stakeholder Management and Business Ethics in Business Decisions

Question 1:
Big  Business  Tobacco  (BBT)  is  a  large  Australian  producer  of  tobacco  products including a market-leader brand of cigarettes. With the continuing development of Asian countries such as China and its move to a market-based economy, the company has made the decision to sell its cigarettes in this large market from the beginning of next month. The cigarettes will be sold in packs of 40. Mary Bender, the marketing manager, is discussing the design of the cigarette packet for the Asian market with Randall Hedges, the company’s public relations manager. Having agreed on the basic design of the pack, Hedges raised the issue of whether to include the normal health warning on the pack, which has to be displayed under Australian  law.  He  emphasised  recent  medical  findings  which  predicted  many hundreds  of  thousands  of  deaths  from  cigarette  smoking  in  the  next  few  years, particularly in the developing countries. 
Mary Bender was strongly opposed to including a ‘health hazard’ warning on the packs destined for parts of the Asian market. She explained: ‘In this business, it is the bottom line (i.e. profits) which matters  we have to think of our shareholders. BBT stands to lose a considerable market share to competitors if it includes such a warning. Besides, it is not a legal requirement in many Asian countries to display a health warning on cigarette packs. If Asian law is subsequently amended, then we will be one of the first to comply. Besides, the managing director supports me on this one.’ Hedges expressed a final opinion: ‘The company could be better off in the long term by being seen to be acting with corporate responsibility, and demonstrating some concern for its consumers. Besides, such warnings have not been detrimental to the company’s performance in Australia, where health warnings have been common for many years.’ 
A.  Who are the major stakeholders in the debate on the health warnings on cigarette packs? 
B.  What are the main ethical issues involved in the debate? 
C.  If you were Randall Hedges, what would you do? 
Question 2:
Financial accounting statements tend to reflect past events. In view of this, how can they help a user make a decision when decisions, by their very nature, can only be made about future actions? Give an example to justify/support your answer.
Question 3
A.  As a new management accountant, reply to this comment by a plant manager: ‘No “bean counter” knows enough about my responsibilities to be of any use to me. As I see it, our accountants may be needed to keep records for shareholders and the Australian Tax Office, but I don’t want them sticking their noses in my day-to-day operations.’
B. Knowledge of technical issues such as computer technology is a necessary but not a sufficient  condition  to  becoming  a  successful  management  accountant.’ 

Stakeholder Management and Business Ethics in Business Decisions

(a) The term 'stakeholder' refers to any person who has some interest or concern in the business, directly or indirectly. Stakeholders are linked with the business's actions and are affected by it. Stakeholders can be internal for example, investors, and employees etc or external for example, customers, government, etc.

As per the given situation, BBT is one of the largest Australian market leaders of cigarettes and is on the verge of taking the new move of stepping into the Asian market. However, while discussing the design of the pack, Marry Bender, the marketing manager was of the view that there is no point of displaying the health warning on the pack as the bottom line of a business is 'profits' and therefore, the company should focus on profit maximization more so as to assure their increase in revenue and in that way, can keep their shareholders happy and provide them with considerable returns (Alex, 2012).

The major stakeholder involved in this debate is the Customers. As per the modern marketing concept, Customer is the king of the market. It is the customer's trust and loyalty that a business should first win because the long term sustainability depends on them. Also, it is the new market that the business is stepping into. Therefore, it is better to make the customers its main focus and not the profits. Also, the other kind of stakeholders involved is the shareholders as it is their investment in the business and therefore, to satisfy them with proper returns on their investment is also the business responsibility. Thus, BBT has to take such a decision that it satisfies the needs of all the stakeholders involved in it (Ball, 1984).

(b) Business ethics are the policies and practices that a business has to abide by to behave ethically in the market. It is important for a business to conduct its operations ethically. Ethics refers to deciding the right and wrong and then choosing the right among all the right options (Berman, Knight, & Case, 2013).

As per the given situation, the past researches show that hundreds of thousands of people have died out of smoking. The company's main focus should be its customers. Knowing that their product is harmful for the health, it is an organization’s duty to warn their customers about the side effects that can even cost their life. According to Marry, the company if displays the warning may lose its customers thereby losing a considerable market share and therefore may lose the trust of the shareholders. However, the fact is focusing on profit couldn't let a company to last long in the market. However, satisfying the customers can assure a company of lasting long (Berman, Knight, Case, & Berman, 2008). Also, the company being from Australia should abide by the Australian law that clearly states the need of displaying the health hazard warning. Also abiding by the own country's law wouldn't drag the company into any legal disputes later on. Also there is something called 'Corporate Responsibility' that defines a company's responsibility towards all the persons linked with it. Therefore, it is the corporate responsibility of the company to consider their customers first before their shareholders and competitors (Bragg, n.d.).

Financial Management for Business Growth and Stability

Also considering the legal impacts, in case, the rate of death increases, it may happen that the company is then to be blamed of not producing the right product and therefore, would adversely affect the reputation of the business in the market while the company would then be having the highest probability of being trapped in the consumer civil court. Therefore, it is better for the company to act ethically so as to sustain in the long run (Cafferky, & Wentworth, 2010).

(c) Had I been the public relations manager, that is, Randall Hedges, I would have done the same. Considering the past statistics of the cigarettes consumption in Australia, the displaying of health hazard warning on the pack haven't affected the sale of cigarettes as such. The company has been enjoying the profits sufficiently so as to maintain its position of the being the brand market leader. Therefore, trusting on the past experience, BBT should enter into the Asian market in the same way it has been doing in the Australian market. Also, it is the customers that will make a business last long and not the competitor’s steps or the investor's money. Therefore, customers have a better position than the shareholders and competitors.

Also, the company is supposed to fulfill its corporate responsibility that involves caring for the health of the customers. Thus, acting ethically in such a case would be more profitable and sustainable for the long term run.

Financial statements are prepared by an entity for its internal use as well as use by the external parties. Such external users include the stakeholders i.e. the person having interest in the company. A stakeholder gathers several information relating to the past as well as present about the entity before allocating its resources. His decision is based on the information acquired and therefore, all the information that is provided to him should be correct and appropriate (Financial management, n.d.).

The financial statements of the past years enable the decision makers to compare the present performance of the entity with that of the past performances. It enables them to ascertain the extent of improvement that can be seen year after year. The financial statement provides both qualitative and quantitative information based on which the final decision is taken.

Although the decision is taken for a forthcoming period but it is very important to know about its past records to create understandibility regarding the financial position and the financial stability of the company. The financial position of the company can be checked by knowing the value of the assets and liabilities present in an entity. For example, if the assets of the company are declining over the years with an increase in the liabilities then the company is considered to be having a weak financial position. A person may not like to invest its resources in such an entity where the company is not able to maintain a good financial position. An entity is said to have a strong financial position where the value of assets are huge enough to meet the liabilities (Fischer, Cheng, & Taylor, 2002). The past records will enable to know that whether the company was able to pay off its liabilities or not.

The decision makers compare the profits earned by the company in the past in order to ascertain the growth and improving capacity of the company. If we do not have past records then it will become difficult to compare the performance over the years. An entity is said to financially stable when it has managed to earned sufficient profits and the return to the shareholders has been increasing over the years. The stakeholders have interest in the company in order to earn higher returns and hence, every decision maker wants to study about the past trends of returns that have been earned by the stakeholders. The growing profits will automatically increase the returns.

The decision makers use some non financial information also before making a final decision. They look after the goodwill of the company and the corporate social responsibilities (Garrison, & Noreen, 2003). It is also important for the company to fulfil its responsibilities towards the society. The stakeholders can check the actions done towards the betterment of the society over the years and if they have maintained consistency in doing such things or not. For example, if the goodwill of the company in the past years was high but has subsequently fallen then the stakeholders may have a suspicion about some wrong activities and they may not want to trust with their resources on such companies.

The plant manager must be informed by the management accountant about the bean counter and the relevance of it in his work and what affects it has on overall performance of the company.

Firstly, the plant manager should know that what a bean counter is. It is possible that the plant manager has misinterpreted about it as he thinks that it is a kind of interference in his day to day work. Bean counter means keeping a track on the expenditures in order to reduce cost and increase savings (Gitman, 1985). It also includes preparation of various budgets which will help him to take wise decisions which will be beneficial for his unit. The duty of the plant manager is not only to manage his unit but also to take various types of decisions related to this unit.

There arise many situations when the plant manager has to take decisions regarding the resource allocation or time management also. Therefore, the management accountant explains him the ways in which he could be helped in saving his time and allocating his resource in the best alternative available. It would also help him gain extra knowledge about the technical aspects of the plant which would help him in certain ways (Goyal, 2012.

The management accountant should give the plant manager some examples relating to his past experiences which will help him understand the relevance better. It will explain him how the budgets can be prepared more effectively and efficiently and the various positive impacts it will have on the performance. It will provide the plant manager to solve various problems and bring him out of the difficult situations by providing guidance.

Bean counter not only helps in saving time and reducing cost but helps in financial planning as well. Financial planning is important not only for a particular department but for the entire entity. Bean counter enables to provide correct and appropriate information that may be important for the plant manager for taking his final decision. If the decisions taken are correct then it will help the company to work effectively and expand its market share (Narayanaswamy, 2014).

The plant manager thinks correctly that the records are maintained by the accountant for the shareholders and the Australian tax office but he unaware of the fact that he is also directly or indirectly benefitted by such records.  Even if the plant manager is very efficient in his works and knows his responsibilities well he may have to face certain situations that would be difficult for him to handle alone (Pandey, 2015). In such a case, the bean counter will act as a support and provide him with information that would help him to move out from such adverse situation and take a decision which will have positive impacts on the company.

Therefore, the management accountant can conclude to the plant manager that bean counter is not interference but a helping hand for the plant manager to make his work easier and organised (Pratt, 2006).

I totally agree to the statement that a management accountant need not be successful only by having complete knowledge of computer technology.

A management accountant is a person who manages both financial and non financial workings of the company which helps the managers to achieve the objectives of the company. A management accountant must have complete knowledge about the strategies of a company and must be capable enough to motivate the employees or the managers to work efficiently. He must also have technical skills foe keeping a track of the cost, planning and controlling. Here planning means setting up of goals and preparing certain plans to achieve them. Such plans should be communicated to all the team members of the company so that they can help in achieving such goals. Control refers to performing actions based on the plans that have been set up, evaluating the present performance of the company and getting a feedback for the same so that corrective measures can be taken at the places where the company lacks efficiency.

It is good enough if the management accountant has knowledge about the technical issue in the computer technology but this condition is not sufficient to determine the successfulness of the management accountant. The main work of the management account is to measure, analyse and report the various financial as well as non financial information so that the managers can work and take decisions accordingly and remain focussed towards achieving the goals. Hence, the statement provided in the question is fully justified.

Current ratio =

Current Assets

Current liabilities

1.07      =

Current asset


Current asset      =


=    16799

Cash = Total Current asset – Total Current asset excluding cash

Cash = $(16799-100-7300-2000)

Cash =$ 7399

(c ) 2012.

Quick ratio=

Current asset- Inventories- Prepayments

Current Liabilities- Bank overdraft


Current asset-8400-8500


Current asset=


Current ratio =

Current Assets

Current liabilities

Current ratio=





Account Receivable = Total Current Asset – Total current asset excluding Account Receivable.

Account receivable = $ (31834-5800-8400-8500)

Account receivable = $9134

(d ) 2013

Prepayment = Total current asset – Total current asset excluding prepayment.

Prepayment = $ (28160-4200-4200-9900)

Prepayment = $9860


Inventories = Total current asset – Total current asset excluding inventories

Inventories = $ (21364-1700-7600-8100)

Inventories = $ 3964

(f) 2015

Account Payable = Total current liabilities – Total current liabilities excluding account payable.

Account Payable = $ (20000-4000-7900)

Account Payable = $ 8100

The above table clearly shows the trend of current ratio and quick ratio of James Bond ltd.

Current ratio and quick ratio both are considered as the liquidity ratio. The current ratio is calculated to check whether the company is able to pay its liabilities or not. To ascertain this current ratio, current asset id divided by current liabilities. A company needs to maintain a correct level of liquidity in the company. If the liquidity is more then the company may lose an opportunity of earning interest whereas if a company does not maintain proper liquid funds then it may become difficult for the company to pay off the short term liabilities and carry out the day to day operations smoothly.

We can conclude from the above table that the current ratio has been declining over the years. In 2012 the current ratio was 8.17 but it fell in the next year. However, in the year the current ratio again increase to 2.79 but it went on falling in the subsequent years. This reflects that the company’s ability to pay off its dues is falling over the years. In 2015, the current ratio has fallen below 1 which is a very bad sign for the company as this shows that even after selling off all the asset of the company it wont be able to pay off its dues. Such situation shows that the company may not survive for a longer period and it may shut down in the near forcible future. The management should take certain steps or else the company may have to suffer many negative impacts.

Quick ratio is also a liquidity ratio and similarly if the quick ratio falls below 1 then it is considered bad. The quick ratio shall be maintained at 1 or higher. If the quick ratio falls below 1 then it reflects the inability of the company to pay off the current liabilities by using the liquid assets of the company. The quick ratio of James Bond ltd is falling gradually which should be a matter of concern for the management because the company may not be able to survive if it does not have proper funds to pay off its creditors. The quick ratio in 2010 was 1.37 which shows that the company was in a very good position and there was no risk of insolvency but the recent records of 2015 shows that the quick ratio is 0.26 which shows that the company is in a very bad state and can shut down at anytime.

James Bond Ltd should be concerned about the falling current and quick ratio as it may hace several adverse impacts on the company.


Alex, K. (2012). Cost accounting (1st ed.). Chennai [India]: Pearson.

Ball, W. (1984). A sense of direction (1st ed.). New York: Drama Book Publishers.

Berman, K., Knight, J., & Case, J. (2013). Financial intelligence (1st ed.). Boston, Mass.: Harvard Business Review Press.

Berman, K., Knight, J., Case, J., & Berman, K. (2008). Financial intelligence for entrepreneurs (1st ed.). Boston, Mass.: Harvard Business Press.

Bragg, S. Corporate cash management (1st ed.).

Cafferky, M., & Wentworth, J. (2010). Breakeven analysis (1st ed.). New York: Business Expert Press.

Ehrhardt, M. and Brigham, E. (2011). Financial management. 1st ed. Mason: South-Western Cengage Learning.

Financial management (1st ed.).

Fischer, P., Cheng, R., & Taylor, W. (2002). Advanced accounting (1st ed.). Mason: South-Western/Thomson Learning.

Garrison, R., & Noreen, E. (2003). Managerial accounting (1st ed.). Boston: Irwin/McGraw-Hill.

Gitman, L. (1985). Principles of managerial finance (1st ed.). Harper & Row.

Goyal, R. (2012). Financial accounting (1st ed.). [Place of publication not identified]: Prentice-Hall Of India.

Hoyle, J., Schaefer, T. and Doupnik, T. (2015). Advanced accounting. 1st ed. New York, NY: McGraw-Hill Education.

Narayanaswamy, R. (2014). Financial accounting (1st ed.). [Place of publication not identified]: Prentice-Hall Of India.

Pandey, I. (2015). Financial management (1st ed.). New Delhi: Vikas Publishing House PVT LTD.

Pratt, J. (2006). Financial accounting in an economic context (1st ed.). Hoboken, NJ: John Wiley & Sons.

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