Case Study On Laba Family

• Discuss the three possible reasons why Youtus Enterprise require a better accounting information system, an effective corporate governance and a change in business status under the equity financing option in the context of positive accounting theory perspective.  

Youtus is planning to implement online sales services which requires the company to make use of accounting information system, such that needs of growing business and customer base can be managed. The information system such as ERP (enterprise resource planning) system can enable the company to automate the recording of accounting information and to make financial reports for effectively communicating the financial position of company to public (Rikhardsson & Yigitbasioglu, 2018). Therefore, in order to ensure better reporting of accounting information, the implementation of accounting information system is crucial for Youtus Enterprise. 

The reason for implementing an effective corporate governance system in Youtus Enterprise lies in the fact that independent board is likely to assure enhanced internal control and strategic planning will also be effective. For instance, based on the opportunitistic perspective of positivist theory, the directors are agent of organization and they work in direction of their benefits and self-interest (Bandsuch, Pate & Thies, 2008). Thus, if directors will be independent and good corporate governance will be adopted, then only those accounting policies will be adopted which are in best interest of the organization (Callahan et al., 2002). Therefore, good governance will enhance strategic effectiveness of Youtus and will improve transparency of accounting system as well. 

Based on the positivist theory, the liability protection is considered as core benefit of changing the status of business from sole proprietorship to Limited Company. The inclusion of equity funding based on limited company business status assures that risk of business is divided among multiple investors and thus proprietor’s personal assets are no more under jeopardy (Brown et al., 2018). Likewise, equity financing will increase availability of capital for expansion, will foster growth of business in long run and will ensure enhanced competitiveness of organization (Inders & Vladimirov, 2019). The future plans of Youtus growth regarding innovation, new product development and international expansion can all be supported if company will embark on equity financing option by changing its business status. 

• Why is the cost of funding under the debt option expected to be higher than the cost of funding under the equity method of financing. 

The cost of debt funding will be higher, as debt will restrict Youtus from reinvesting the revenue in business, based on the notion that payment of principal as well interest will be due (Silaghi, 2018). On the other hand, the equity funding is feasible as company has plan to invest in innovative information technology, new product development and further business expansion, which require substantial amount of cash over the years (Ball, Hail & Vasvari, (2018). Thus, change to limited company status and acquisition of equity funding will enable the company to address future plans in effective way. As, Youtus will not divert revenue to pay loans, thus equity funding will have limited associated cost than debt funding.