Financial statements

Profit and loss account

Now usually referred to as an income statement

Identifies profit for an accounting period

An alternative indicator of financial health

Balances are again extracted from the accounts

Largely in the form of costs or charges

Prepared on accruals basis

Profit = revenue - costs

Revenue

The income of the enterprise within period

Sales during the period on the accruals basis

Not actual cash inflows

The expectation is a truthful figure reported

•       overstate – mislead third parties

•       understate – reduce the tax bill

Strongly reliant on trust

Cost of sales

A self explanatory idea

How much it costs to make sales

Link with the balance sheet – stock value

•       add opening stock, deduct closing stock

Cost of sales differs by type of business

•       retailers – bought in goods

•       manufacturers – materials

•       service providers – a lower proportion

Operating expenses

The many different expenses/charges

Carefully recorded in the ledgers

Use cumulative total costs for period

Labour costs normally identified first

•       wages and salaries

•       ‘uplift’ costs – tax and social insurance

•       pension provisions

The additional charges against revenue

•       utilities

•       rent and rates/local taxes

•       telephone, postal, internet charges

•       insurance

•       lease payments

•       professional fees

Adjust for any prepayments or accruals

Depreciation

Charge for the use of fixed assets

Do not charge the whole cost at purchase

Write-down over time

•       flow through principle

Distinct from capital allowances

•       amounts allowed for taxation purposes

•       adjustment through balance sheet

Amortisation of intangible assets

A number of different approaches used

•       straight line – simple, equal write-downs

•       reducing balance – same % each year

•       usage – per hour, per mile, per activity

Need to consider both

•       useful (envisaged) life

•       residual value

Write-back any gain at sale through accounts

Interest

In addition charges for interest payments

•       overdrafts

•       bank loans

•       personal loans

•       debentures and preference shares

These charges are in addition to capital sums

Recognised costs of doing business

Profit

In practice many different profit concepts exist

•       gross profit

•       operating profit

•       profit for year

A fourth measure is highly insightful

•       PBIT – profit before interest and taxation

•       adjust for depreciation and interest charges

Allows comparison between different enterprises

Dividends

Payments to shareholders

The reward for being prepared to take a risk

Usually a nominal amount per share

Dividends are not charges but deductions

Deductions set against profit

Strict rules exist about how much dividend paid

Dividends result in cash outflow from enterprise

After dividends are paid

•       retained earnings

Transferred to the balance sheet

Has the effect of increasing the owners’ equity

In large enterprises impacts market value

Where losses occur, retained earnings reduce

Market values may also fall prompting sale

Drawings

An interesting financial convention

Removing ‘value’ from a (small) business

•       taking cash from a till or bank account

•       taking food, drink, clothes, etc

Their value must be added back to profit

Provides a true profit figure

Adjust any retained earnings and current assets

Cash

All businesses need cash to function

•       more specifically access to cash (at bank)

Constant need to make cash payments

•       to employees

•       to suppliers

•       to government

•       to shareholders

In the absence of cash a business will flounder

Accruals convention

Profit is the excess of revenue over expenses

Within a specific accounting period

As represented in the income statement

No suggestion this equates with cash position

•       revenue includes debtors

•       expenses include creditors

Matching in a period on accruals convention

You might ask why?

Accruals accounting is viewed as enabling

Reflects the reality of doing mature business

•       reasonable expectations

•       coupled with ‘trust’

Accounting periods are a social construction

They are imposed upon economic activity

Accruals convention allows accomodation

Cash and cash equivalents

Have already distinguished cash and bank

In addition there are cash equivalents

•       very liquid current assets

•       short-term investments

As well as being readily convertible (‘cashable’)

Should not reduce in value

Premium bonds are probably best example………

Statement of cash flows

A relatively recent requirement

Albeit with a long history

During my own qualification years we had SSAFs

Now long forgotten (an interesting attribute)

1992: International Accounting Standard (IAS) 7

Mandatory requirement from 1994

Must include a CFS within financial statements

Purpose is to identify (visualise) for a period

Change in cash/equivalent balances

Complements the B/S and P&L account

Identifies three different cash flows

•       cash flows from operating activities

•       cash flows from investing activities

•       cash flows from financing activities

In sum: net increase/decrease in cash/equivalents

Operating activities

Cash inflows and outflows for operations

•       actual revenue from cash sales

•       cash from debtors

•       actual payments for goods/inventory

•       payments to creditors

•       wages and salaries

•       taxes collected and forwarded

•       interest payments and dividends

Investing activities

This is where you find capital investments

•       outflows to purchase fixed assets

•       one-off cash payment or instalments

Also include income from sale of such assets

•       not profit on sale – through the P&L

In addition any investments in other businesses

Complemented by any income generated

Financing activities

Businesses also experience cash flows when

•       issuing shares (net inflow)

•       redeeming shares share (outflow)

•       taking on long term loans (inflow)

•       paying off long term loans

Might elect to include dividend payments here

Highlights long term health of a business

In combination

Each element provides a different visibility

Requirement to utilise all three

Later 1970s/1980s interest in a fourth statement

•       value added statement

Re-presents information to identify

How value added is distributed to stakeholders

In some quarters regarded as problematic

Corporate reporting

Financial reporting

The formal reporting of accounting information

Statutory requirement on

•       private limited companies - ltd

•       public limited companies – plc

In case of plcs a public document produced

Ltds’ documentation is also accessible to public

This is the obligation for limited liability status

Current model is known as corporate reporting

Dates back to the mid 1970s

Always in a state of evolution

Two decades ago calls for business reporting

•       acknowledge wider stakeholder interest

Currently attention is on integrated reporting

•       extend the information published

Annual report

The annual statement of business performance

Refers to performance in accounting period

Required to be filed within 4 months

Constructed around the 3 financial statements

In case of groups more statements required

Pursuit of greater transparency

‘Resented’ by business/accountants

Increasingly lengthy document

•       mandatory and voluntary contents

Recognised as a means of public relations

Available in hard copy and on-line

Quality/impact continues to improve

Variety has also increased – comparability issues

Accountants no longer have control

Notes to the accounts

Long been the largest part of annual report

Provides an explanation of financial numbers

Numbers predominate but some narrative

•       identify accounting policies adopted

Policies originate in accounting standards

•       International Financial Reporting Standards

•       Statements of Standard Accounting Practice

Conceptual Framework

Seeks to create a coherent underpinning to both

•       accounting theory

•       accounting practice

Principally understood as financial reporting

Also dates back to 1970s

•       FASB project 1976 – 80

•       IASB framework project 1989 – 2001

•       most recently 2010 statement

Notes to the accounts

Massive amount of information disclosed

For the most part only as required however

Concerns about what is not disclosed/required

Possible to reveal (bury) problematic disclosures

•       revaluations of fixed assets

•       significant debt write-offs

•       termination of failed initiatives

Analysts always very alert to such issues

Narrative reports

These have grown extensively in last 25 years

Characteristically use of numbers is limited

More significantly – more expansive

Seek to document a fuller story

•       greater accountability

•       more prospective/forward looking

A prominent attribute of integrated reporting

Chairman’s statement

Long established convention

Now understood as an executive summary

A general introduction to the business

Often low on specifics – found elsewhere

Generally a positive/optimistic overview

Not advisable to make exaggerated observations

Not audited but always monitored

Directors’ report

By contrast a closely delineated statement

A statement of performance and position

An assessment of future prospects

Additionally information on

•       the membership of the directorate (changes)

•       employee involvement

•       any major eventualities (prospective)

•       any recommended dividend

Again this is not subject to audit

Strategic Report

Most recent UK reporting requirement

Introduced in September 2013

A replacement for the 2007 Business Review

Prior to that the Operating and Financial Review

Also the Management Commentary provision

Similar requirements in other jurisdictions

•       Management Discussion and Analysis

Intended to be more of a self-evaluation

Corporate Governance

Now explored and documented at length

Greater emphasis on how directors operate

Perceived need to control excesses

Key milestone - Cadbury (Commission) Report

A decade later – Sarbanes-Oxley Act 2002

•       response to Enron scandal

Promotion of greater accountability

A growing number of issues to address

•       board responsibilities

•       directors’ remuneration

•       audit provisions

•       risk assessment

•       shareholder relations

Formal indication of CG provision compliance

Extended reporting

In principle can report/disclose anything

More companies now disclose information on

•       ‘people’ (employees)

•       sustainability

•       ethical behaviour

•       corporate social responsibility

Largely voluntary – only minimal requirements

Mandatory vs voluntary disclosures

The audit/’agency theory

Auditing is a major aspect of accountancy

Previously the principal source of income

Reflects the relationship between

•       owners/shareholder – ‘principals’

•       management  - ‘agents’

Auditors act on owners’ behalf  - independent

Appointed by management

Audit report

Annual reports must be audited

This does not apply to all content however

Reviewed by an independent third party

In practice by a small team of audit professionals

Follow a series of established principles

Including specific focused guidelines

Intended to be a powerful safeguard

Auditors provide an audit report

•       acknowledged as their (professional) opinion

•       a ‘true and fair view’ presented

•       accounts are properly prepared

•       in accordance with prevailing standards

Reports now commonly offer considerable detail

‘Qualified’ audit reports are rare (and damning)

Looking to the future

These are interesting times for accounting

•       much technical practice now deskilled

•       concerns about capacity to accommodate

•       ‘business reporting’ is more than a concept

•       continued pressures for greater accountability

Conversely accounting has exhibited resilience

•       revolution not evolution?   

Module Title	Contemporary Issues in Business and Management
Module Code	BU5002
Module Leader	Debbie Rowlett
Component Number	Assessment 1
Learning Outcomes	1 and 2
Assessment Type, Word Count & Weighting	Essay – 50% weighting 2,000 words
Submission Deadline
Submission Instructions	Via Turnitin
Feedback Return Date

Faculty of Business & Management Assessment Brief

Learning Outcomes Covered by this assessment. 1.      Analyse and evaluate the different and opposing views within the globalisation debate. 2.       Examine the dynamics and effects of globalisation and the continuing consequences for management action and reflection.

Assessment Brief  Introduction This assignment will offer you the opportunity to analyze the challenges, problems and issues facing managers of International business organizations trading within the current global economic scenario, using course concepts and models. You should think about real world examples and appropriate economic factors and the influence they are likely to have upon a TNC of your choice. Task:  Individual Essay (2,000 words) - Your essay should include: 1. An analysis of the different and opposing views within the globalization debate (500 words). 2. Illustrate appropriate course concepts using a TNC of your choice (750 words) 3.Which of the current global challenges - (Brexit, President Trump’s trade policy, sovereign    debt / austerity, political uncertainty, environmental challenges or migration) are most likely to       be important for your TNC – why? (250 words) 4. What are the implications of these changes for managerial decision-making? (250 words) 5. Conclusion – what factors do managers of TNCs need to consider to ‘future-proof’ their     organizations against the vagaries of global change and uncertainty (250 words).

Specific Criteria / Guidance Presentation Include a title page with your assessment number, title of your work, word count, module title & code, name of module tutor (and seminar tutor if relevant) . Include a footer or header with student assessment number, module title & code. Word-processed work using MINIMUM 1.5-line spacing and Font size 12. All references should be constructed using the APA Standard English - It is expected that your writing will conform to Standard English in terms of spelling, syntax and grammar Essay format             APA Reference Guide and Information can be found here: https://ganymede2.chester.ac.uk/index.php?page_id=1553173 and https://portal.chester.ac.uk/LIS/Pages/FindingInformation/referencing.aspx Specific Marking Scheme (Bullet point guidance for staff and students) Knowledge & Understanding ·         Knowledge and understanding of the different and opposing views within the globalisation debate including current economic, political and social factors that affect businesses in the global world (35%). Cognitive ·         Identification and discussion of relevant challenges facing TNCs and how these factors influence managers’ decision making. Application of appropriate theories, concepts and techniques. Use of appropriate real life examples to illustrate key points (45%).            Structure            Structure, organisation and presentation of assignment (10%). Communication Clear and concise spelling, grammar and syntax (5%). Referencing Evidence of wider reading (5%). For customised papers, jumachris85@gmail.com