Lecture 27 (Reporting Corporate Performance) Flashcards
What else can we find in the annual report and accounts?
Strategic Report
Off balance sheet review
Corporate governance
What has the been the general response to the partial nature of financial statements?
For companies to provide additional textual information that provides background information and analysis and explains performance and financial position.
What are the main narratives?
Chairman’s Statement
CEO’s Review
Strategic Review
What has been the UK guidance on the Strategic Review?
UK has issued new guidance on this area.
UK company law requires certain entities to prepare a strategic report.
FRC produced non-mandatory guidance,
What is the international perspective?
In December 2010 the IASB introduced IFRS Practice Statement Management Commentary.
Not mandatory but provides guidance on what to include in a strategic report/management commentary.
What are the IASB principles when preparing management commentary?
- Provide management’s view of the entity’s performance, position and progress.
- Supplement and complement information presented in the financial statements (thus enhancing disclosure).
- Should include information that is:
- forward looking
- in line with qualitative characteristics of the conceptual framework. 4. Should provide information to help users to assess the performance of the entity and the actions of its management relative to stated strategies and plans for progress.
What should be included in management commentary?
Management commentary should include information that is essential to an understanding of:
a) the nature of the business.
b) management’s objectives and its strategies for meeting those objectives
c) the entity’s most significant resources, risks and relationships
d) the results of operations and prospects
e) the critical performance measures and indicators that management uses to evaluate the entity’s performance against stated objectives.
What are Key Performance Indicators (KPIs)
part of performance measurement.
Quantified measures of factors that help to measure the performance of the business effectively.
Must include definition and commentary.
Examples of KPIs?
Sales per square metre of selling space
Employee costs per £ of sales
Number of accidents on building site
NSS satisfaction scores
Why do we need this extra information?
pressure on directors to show a healthy financial position for a company.
How and why is debt hidden?
Director’s want to show a healthy financial position.
temptatin to hide debt (off balance sheet finance).
Assets - Liabilities = Equity
if liability is missing, there must also be an asset missing.
What is a method of hiding debt?
Sale and leaseback of property.
Land and buildings removed along with loan liability.
means there is 0% gearing.
What does the Sarbanes Oxley Act prohibit auditors from providing?
- book-keeping or other services related to accounting records
- financial information systems design
- internal audit activities
- legal services
- actuarial services
What are valuation methods described in the IASB conceptual framework?
Historical cost
Current cost
Realisable (settlement value)
Present value
historical cost most frequently used, but many IAS seek to move to fair value- the amount for which an asset could be exchanged between a willing buyer and a willing seller in an arms length transaction.
