Accounting For Infrastructure and Consistencyâ€Myassignmenthelp.Com

Question: Discuss About the Accounting for Infrastructure and Consistency of Cost Benefit Analysis in the Assessment of Major Project? Answer: Introducation Accounting is one of the most important subjects in the world. Without accounting knowledge, the economy can easily tremble. Imagine a multinational company that has no accountant at all. This implies that financial accountability will not exist in the company. By definition, an accountant refers to an individual who performs accounting roles such as audits or the analysis if financial statements, and keeps and inspects financial records of individual people or businesses and also makes financial tax reports (Investopedia, n.d.). Accountants are, therefore, considered as an important part of the society. The profession plays a significant role in the economy of any state. As professionals, accountants are to act in a way that promotes the interest of the public as noted by Kaidonis (2008). There is a particular reference regarding the accounting profession to the CLERP Act 1999 and the ASIC Act 2001 (Kaidonis, 2008). In serving the public, the accounting professionals are expected to follow the objectives of the nation in supporting capital markets while, at the same time, help the society. Much has been said about the role of accounting and the requirements for one to be certified as an accountant. This project gives insight into what it means to be a professional accountant. There has been a rapid growth in infrastructure in Australia, but the question is, how are these projects appraised? Are the appraisals transparent enough to ensure proper use of the public funds? To answer these questions, one needs to have a better understanding and knowledge of accounting. Cost-benefit analysis is a method that is used to appraise projects in a bid to ensure that there accountability in the corporate and national financial expenditures. Honesty and transparency are the virtues that guide professional accountants in carrying out their roles. The project explores how the transparency and consistency can be used enhanced in the cost-benefit analysis appraisals. Background and Problem Definition Infrastructure developments play an important role in uplifting the livelihood of the Australian. The agency which deals with auditing of projects has established guidelines on how assessment is done. There are, however, some loopholes in the appraisals of these projects. According to Auerbach et al. (2014), there is a need to enhance the appraisals and selections of projects and how cost-benefit analysis is performed. The quality of life of the Australians as well as the productivity and sustainability are at stake if effective cost-benefit analysis of infrastructure projects is not enhanced (Davies, 2016). This calls for major reforms to be made in the selection process by acknowledging transparency and fairness as noted by Haimes (2015). The strategies to foster transparency are aimed at ensuring sustainable infrastructure projects throughout Australia. Justification for Relevance of Issue/Problem Accounting Transparency is one of the core pillars of the accounting profession. Cost-benefit analysis is one of the techniques used by accounting professionals to appraise projects. Infrastructure is a core pillar for economic development (Laurence et al. 2015). Without transparency in project appraisal, there will always be possibilities of people to misappropriate funds and interfere with infrastructure development. As per the accounting code of conduct, transparency is a mandatory when carrying out any task (Ravesz, 2016). Despite of the importance of transparency in resource allocations, the current professionals and government agencies do not incorporate transparency in their operations. This necessitates the need to conduct a study on how transparency can be enhanced in cost-benefit analysis of infrastructure projects. The study will provide guidelines on the best practices for enhancing transparency which is relevant to the accounting professionals and the entire society. Aim The aim of the study is to conduct a review and come up with the best strategies that can be used to enhance efficiency and transparency in project appraisals in a bid to escalate infrastructure developments in Australia. Objectives To improve transparency and consistency in the appraisals of infrastructure projects through the cost-benefit analysis technique. Research Question The project seeks to address the following research question: What are the means and strategies that can be used to enhance consistency and transparency of CBA in a bid to improve appraisals and selection of infrastructure projects? Literature Review The issue of infrastructural projects appraisal in Australia has drawn the attention of many researchers. There are various studies that have explored the importance of project appraisal using various methods. Cost-benefit analysis, as a method of project appraisals, is one of the most important methods. To capture the necessary information on the study, the literature was conducted on the following topics. The Cost Benefit Analysis Method Cost Benefit Analysis (CBA) is a standard technique applied in the assessment of public investment. The technique is used in the planning, support of decisions, evaluation of programs and proposals, and for other aims in various organizations. Brzozowska (2007) did an in-depth analysis of the technique and how it is used in investment decision-making. According to Brzozowska (2007), the Cost Benefit Analysis technique helps in decision-making concerning costs of projects and choosing the right project or business idea undertaken by investors. When using CBA method, an individual intends to select the optimal alternative that would result in the greater good. With the scarcity of funds and the presence of many social needs, such solutions are very crucial. These situations necessitate the need for selecting the most important or effective project. When properly done, CBA enables financial analysts and policy makers to determine the potential Pareto improvements and establish the differences between profits and losses (Brzozowska, 2007). The Cost Benefit Analysis technique ensures that the public sector and other sectors are capable of allocating the limited resources effectively to accomplish various projects being undertaken. Cost Benefit Analysis is used to estimate the totals up the equivalent value of money of the projects benefits and the project costs to the community in order to determine whether they are worth investing in (Brzozowska, 2007). This implies that it is a necessity to measure the projects benefits and costs in terms of their equivalent money value in a given time. According to the CBA technique, a project is to be undertaken only if the benefits are expected to be higher than the expenditures. With the knowledge and understanding of what the CBA entails, it is imperative to look at transparency and consist ency in cost-benefit analysis. The Australian Government Project Assessment Framework The Australian has long been using an appraisal criterion for its infrastructural projects which does not take into account transparency in the process. There is a body in Australia called the Infrastructure Australia which is responsible for managing the infrastructure developments in the nation. Its main role is to provide advice to all government levels and investors in the infrastructure industry (Infrastructure Australia, 2016). The IA's framework of assessment is structured in a way to identify a problem and to ensure project development and delivery (Infrastructure Australia, 2016). The IAs assessment framework comprises of five stages. As stated by the Infrastructure Australia (2016), the framework was developed on the basis of development project activities grouping in line with the various stages that various territories and states use. The role of IA in the assessment is to advise and support the various proposals put forward by different proponents through the initiative and project development process with a bid to select the best business case that takes into account the balanced economic, social and environmental perspectives (Infrastructure Australia, 2016). The first stage is goal definition and identification followed by initiative identification. The third stage is the assessment of options which is followed by business case assessment. The last stage is "benefits realization" (Infrastructure Australia, 2016). Using the CBA technique, the IA analyses the suitability of the project based on the financial outcome that the project will have. However, the agency does not put any focus on transparency in the assessment process. Trends in Cost-Benefit Analysis of Infrastructural Development Dahl, PTV, Meunier, LVMT Quinet (2015) conducted a study to determine the current and past trends in the cost-benefit assessment of projects in Germany and France. According to Dahl et al. (2015), the guidelines were mainly based on classical analysis whose main focus was time and cost reduction. The value was then multiplied by some predetermined coefficients to account for environmental costs and effects such as air pollution, noise, and carbon dioxide emissions (Dahl et al. 2015). There is no focus on transparency whatsoever. All the emphasis is put on cost reduction and environmental impact assessment (Jones, Moura Domingos, 2014). How can one be sure that the figures presented are correct? That is the question that I can ask because a lot of funds have been misappropriated in Australia without realising the actual objectives of the various infrastructure projects in the nation. Transparency and Consistency of Cost-Benefit-Analysis Transparency and consistency in appraising infrastructural projects have been an issue in the Australian government. Transparency in the execution of a budget, honesty in the procurement of resources and other things, as well as the efficiency in the management of funds are very critical in making investments stable and predictable and in ensuring that rent seeking opportunities are reduced. According to IMF (2015), Australian finance ministries are expected put an emphasis on protecting the investment expenditures within the country. They can do this by the appropriation of the total costs of projects at the beginning of every project, protect the budgets from being manipulated to meet the current pressures, and allow debts to be carried over to the future generations (IMF, 2015). IMF (2015) further states that transparency and accountability are needed during project management, evaluation and monitoring for the purpose of strengthening incentives for a timely delivery of projects while adhering to the budget allocated and ensuring that the value for money is realized in using public resources. Even with the importance that IMF puts on transparency in project appraisals, the current system of the Australian Government does not put that into consideration. Douglas and Brooker (2013) conducted a review of the transport project appraisal in NSW Australia. The study revealed that the appraisal has always been centred on Cost Benefit Analysis for over forty years in the Australian government. The approach has remained to date from the 1960s (Douglas Brooker, 2013). The major change that has occurred to date is the inclusion of environmental impact assessment of the infrastructure projects. According to Douglas and Brooker (2013), the appraisals of roads were done on the basis of engineering economy, which emphasized on highway design, speeds and the discounting of present and future values of costs and benefits (p. 3). NSW provided guidelines on assets economic appraisals based on CBA and cost-effectiveness in 1988 (Douglas Brooker, 2013). The NSW Treasury in Australia conducted workshops and published a list of accredited agencies and consultants who were certified to carry put evaluations as a way of promoting good practice (Douglas B rooker, 2016). The Government agencies were urged to conduct economic evaluations (Douglas Brooker, 2016). Most of the infrastructure projects, the Cost Benefit Analysis report incorporated few risk management studies and demand management assessment. Very few project completion reviews were done (Douglas Brooker, 2016). The Gap: The studies conducted on the project appraisals using the CBA technique do not touch on transparency. The main issue that is of concern for most of the CBA appraisals is value for money. In most cases, investors aim at maximizing profits without putting into considerations what the public perceive of certain projects being undertaken. In theory, the private sector, as well as the government sector, is expected to safeguard the interest of the public by ensuring that there is transparency in all the undertakings and a guaranteed value for money. In practice, however, this is not the case; members of the government are always under pressure to follow short-term objectives at the expense of the public interests (Beukers, Bertolini Te Brmmelstroet, 2012). Most of the government officials sign contracts that are driven by self-interests and benefits and not to deliver long-term benefits to the public (Sagalyn, 2012). The costs for future are ignored. In as much as the government is tryin g to develop infrastructures, the main stumbling block is the lack of transparency in the appraisal processes. The Australian government relies heavily on external consultants during the CBA appraisals of infrastructure projects some of whom may have a conflict of interest as noted by Phillips, Ellis Boshier (2010). There is, therefore, need to ensure transparency prevails so that the government and its advisors are exposed to a broad range of other views in making decisions on matters that concern the public interest. The current literature does not provide guidelines on how the transparency can be incorporated in the Cost Benefit Analysis to ensure infrastructure projects are well selected. Methodology To ensure that the topic is tackled correctly, the study involved a review of literature in understanding the gap that exists. This gap formed the basis of the study and was used to formulate the research design. Theoretical Framework The decisions made concerning the topic were informed using the utilitarian approach. According to West (2017), utilitarianism tells us how we can evaluate a range of things which involve choices faced by people in their daily lives. The actions that people take, the laws and policies that govern various practices and the moral codes are of great importance when appraising infrastructure projects in Australia and other parts of the world. The utilitarian theory is a type of consequential theory as it focuses on the consequences that the choices made may have on people and the society (West, 2017). According to this approach, the best option that people should choose is one that maximizes utility, i.e. the best option should be able to produce the largest amount of good (West, 2017). When appraising the infrastructure projects, the consequences that each option may have should closely be evaluated and the best option selected. Infrastructure projects affect the entire public in Austra lia; focussing only on value for money is not enough. Transparency has to be incorporated so that the rest of the public members can have their say on the ongoing projects (Williams Samset, 2010).). Using this theory, various alternatives were evaluated, and the best strategies for enhancing transparency in CBA were selected and discussed in the recommendation section. Research Design The study utilized a mixed approach; it incorporated both qualitative and quantitative approach. It involved a review of the already published literature on project appraisals in Australia and other parts of the world. This gives an insight on weaknesses in addressing the issue of transparency in CBA. Questionnaires were handed over to a selected number of accounting managers for the purpose of finding how much the managers know about the enhancing transparency in CBA and the challenges facing the appraisal of infrastructure projects in Australia. A sample size of 100 was used. The results were then analyzed in pie charts and tables using Microsoft Excel software. The qualitative data, on the other, was analyzed mainly in writings and explanations of the implication. Findings and Analysis (500) Current Practices It was found that the Australian government relies on Australia Infrastructure to do an appraisal of projects. AI uses Cost Benefit Analysis to evaluate the suitability of infrastructure projects. The process is conducted in five stages. The first stage is the goal definition and problem identification. At this stage, problems and opportunities are identified and then assessed on their significance to the national goals and objectives. After identification, the next stage is initiative identification. In this stage, the project proposals are assessed on whether they demonstrate constraint on achieving the intended goals and objectives. The relevant data on addressing the problem is assessed and prioritized. The third stage is option assessment. In this stage, AI develops a number of possible options to address the problem, which includes possible reforms and investment proposals which may entail a reduction of demand, improvement of productivity and increasing supply. The best option is then selected upon justification using evidence obtained from various studies. The next stage is business case assessment. This is where a thorough cost-benefit analysis is carried out. The most common estimates in the CBA are the probabilistic risk-based cost estimates which are used in requesting for financial assistance. A certain financial model has been developed to determine the viability gap and in further exploring the best choices for and impact of the various funding options available. The AI has also been able to put in place a plan for assessing risks in a bid to provide a guarantee that the proposal will be delivered within the proposed budget. The final stage is the benefits realization. In this stage, the project outcome is assessed to determine whether the benefits have been realized. Knowledge of incorporating Transparency in CBA The knowledge of CBA was assessed through interviews with financial managers in various companies. Fifty managers were given questionnaires to fill their views on how best they know the incorporation of transparency of Cost Benefit Analysis. The results were as follows: Figure 1: Knowledge of Enhancing Transparency in CBA of Projects Criteria used to Analyse Projects This particular aspect was aimed at finding out the weights of various criteria used when conducting Cost Benefit Analysis of infrastructure projects. The criteria selected are as follows: Strategic Fit: This criterion assesses the suitability of a project to address the set the intended goals and objectives of a project and its significance Economic: The economic criterion assesses a project based on the economic implication. This mainly involves the identification whether a project is able to meet the financial goals by balancing the expenditures and profits. The best option is one that has delivers more value for money. Environmental Value: Environmental criterion involves the assessment of the environmental impact that a project will have. Under this criterion, a project is expected to be environmentally friendly. Social Value (interest of public): The social value criterion assesses a project on the impact that a project will have to the society. Is it beneficial to the society? How will it transform the society? The project should address the interest of the public. Deliverability: Deliverability assesses the risks that are inherent in delivering a proposed project and the measures that an investor has proposed for mitigation and managing these risks. The results on the weights put on the various criteria are as follows: Figure 2: Percentage Weights on Various CBA criteria Discussion Current Practices Based on a review of literature conducted on the current practices employed in cost-benefit analysis, the Australian Infrastructure is the agency responsible for appraisals of projects. The agency has clear guidelines on how the assessment of projects is done. The focus of infrastructure project appraisal is mainly value for money. Most of the respondents said that more emphasis is put on the profitability of a project. 30% have a slight knowledge on how they can incorporate transparency and they were willing to do so if they are educated on the same. Knowledge of incorporating Transparency in CBA When asked whether it is possible to incorporate transparency into the cost-benefit analysis when appraising infrastructure projects, most 66% of the respondents said it is impossible. According to them, transparency in the process of evaluating projects is an impossible task because, as much as that is what the public wants, the investors and the evaluators fear that the public may interfere with their operations if everything is to be discussed to the public. When asked whether they have any plans for enhancing transparency in the appraisals, the 66% of them said they dont even know the strategies that can be put in place to enhance transparency. Only 4% of the respondents had knowledge and willingness to enhance transparency. When asked whether they practice, they replied that they have been trying, but there are lots of challenges due to different perceptions by the investors and some of the government agencies. They acknowledge that the accounting professionals have a crucial ro le to play in ensuring that transparency prevails in the infrastructure projects appraisals using the cost benefit analysis technique. Criteria used to Analyse Projects After analysing the results on the weights of the criteria used in analysing infrastructure projects, it was shocking to note that most of the social aspect carried the lowest weight at only 8%. The highest weight was put on economic value, at 40%. This implies that the investors emphasize more on profitability at the expense of the interest of the public. Based on this criterion, the investors and the government agencies responsible for appraising projects termed threats from the public as the reason for not exercising transparency in appraising their projects. An environmental assessment was the second, having a weight of 20%. The respondents cited strict environmental regulations as the reason for emphasizing on the environmental impact assessments. Strategic fit criterion had a fair share of 17%. The financial accounting professionals emphasized on the achievement of project goals. Of all the entire criteria, there was nothing to do with an emphasis on public interest. The financ ial accounting professionals who were involved in the cost-benefit analysis of projects did not have any strategies to incorporate transparency. According to them, the realization of profits was more critical and that the public did not have any role to play in assessing projects. Their response is evidenced in a research conducted by Mouter, Annema, and van Wee (2013). Based on the results, it is apparent that there is a need establish strategies to ensure there is transparency when performing a cost-benefit analysis of the infrastructure projects which play a significant role in the economy of the Australian government. Recommendations and Conclusion Resource allocation is a critical aspect of the infrastructure projects. In many times, investors only think of their interests at the expense of the public (Phillips e Costa, 2010). The approach of putting value for money as the biggest priority imposes a dilemma when considering the interests of the public (Cavill, Kahlmeier, Rutter, Racioppi Oja, (2011). The cost benefit analysis should be inclusive, open and transparent as proposed by Phillips e Costa (2010). According to European Investment Bank (2013), resource allocation is not just a technical matter of using the right modelling. There should be trust and fairness within which the modelling is executed (Franks, 2012). Various stakeholders should be engaged in when carrying out the project appraisals as proposed by Mulgan (2010). There is a need to create awareness on the importance of transparency in cost-benefit analysis of infrastructure projects (Forrer, Kee, Newcomer Boyer, 2010). The government should make use of tec hnology to encourage public participation in CBA, such as the use of social media as proposed by Paez, Bishop, and Williamson (2012). Implementing these strategies will, indeed, enhance transparency which will, in turn, improve appraisal and selection of infrastructure appraisal. References Auerbach, D. A., Deisenroth, D. B., McShane, R. R., McCluney, K. E., Poff, N. L. (2014). Beyond the concrete: Accounting for ecosystem services from free-flowing rivers. Ecosystem Services, 10, 1-5. Beukers, E., Bertolini, L., Te Brmmelstroet, M. (2012). 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