What are operating segments (IFRS8)? 3
A component of an entity
- that engaged in business activities (earning revenues and I charring expenses)
- whose operating results are regularly reviewed by the CODM
- for which discrete financial info is available
What is a chief operating decision maker? 3
- someone who makes decisions about resources to be allocated to the segments and assesses its performance
- not necessarily a person
- could be a committee or group
What are the benefits of IFRS8? 4
- cost effective:don’t need 2 sets of data for internal and external segment reporting
- more closely aligned with US GAAP than IAS14
- segment data may better reflect how management view the business
- segment data better aligned with narrative sections of annual reports
What are the criticisms of IFRS8? 6
- subjective determination of segments
- CODM is a difficult concept
- reduced comparability between companies
- can use non GAAP profit measures
- geographical information is less important
- internal restructuring means a loss of trend data
What is a joint arrangement?
When two or more parties are contributing different things
E.g.technical expertise, financing,marketing
Where two or more parties have joint control
What are the indicators or a Joint operation? 5
- not commercial:purely for the benefit of the company
- company is committed to purchase a product:have no choice
- do not sell externally
- no third party borrowing/financing
- prices cover costs but don’t make a profit
What are the indicators of a joint venture? 5
- parties don’t have a right to or ownership of the assets
- the parties share profit or loss (not revenue and expenses)
- not required for the company to buy the products
- sells externally
- not totally dependant on each other
What is the accounting treatment of a joint operation?
Company shows their share of assets, liabilities, revenue etc. in their FS on the basis of ownership shares (their own share)
What is the accounting test enemy of joint ventures?
Equity accounting in each party’s FS.
Recognise the rights to the net assets of the arrangement as an investment
What are the issues of the accounting treatment of joint ventures?
In a joint venture you have joint control, so you all share the power. But the accounting is more like the accounting of an associate (associates don’t have power). The accounting of it should be like the accounting of subsidiaries
What are management control systems?
An integrated set of processes and tools that companies use to develop strategies, translate them into actions and monitor the effectiveness of them
What are the 5 stages for linking MCS to strategy (Kaplan and norton)?
- strategy development:how shall we best compete? Use SWOT, PEST etc
- strategy translation: objectives and initiatives to achieve goals
- plan operations: get on with it
- monitor and learn:use internal and external data
- test and adapt strategy:periodic review
What are the common problems with MCS’s? 4
- difficult to translate the big picture strategy to detailed measure for individual business units
- mixing up the discussion of operational and strategic issues
- need to consider external factors like regulation/government
- need to consider internal conflicts like:people may be opposed to MCS if it threatens their position or interests
What issues need to be addressed when developing or researching MCS (Ferreira and Otley)? 4
Consider
- information flows
- use of information and controls
- how do changes happen
- strength and coherence between elements
But this is rather internally focused
What are some risk management issues? 7
- risk assessment is seen as periodic (limited value)
- lots of information but hard to interpret and use
- results of risk assessment are not acted on
- same results every time
- risk assessment not interpreted into processes
- risk assessment won’t prevent next big failure
- risk management is mechanistic (gives illusion of control
What is segmental reporting used to do? 3
- better understand past performance of different parts of the business
- better assess risk and returns
- make more informed judgements about the entity as a whole
