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Tuesday, 30 January 2018

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

Saturday, 27 January 2018

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?   

Wednesday, 24 January 2018

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:


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%).

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