1. Corporate governance and management
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 1

2. Corporate governance Definition:
“Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies”
It includes
the activities and actions of the board of directors of a company;
the system of values set by the directors on behalf of the company;
the structure, strategy, leadership and supervision necessary for effective and
prudent management of the business.
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 2

3. Directors Requirements of the Companies act 2006 Executive Directors
Private- requires 1
Public at least two
Executive Directors
Stewardship
Day-to-day management
Nonexecutive directors
External awareness
Same legal duties as exec directors
UK corporate governance code
Accountability
Transparency
Probity
Long-term sustainability
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 3

4. Corporate governance statement
Procurement risk
Credit risk
Liquidity risk
Cash flow risk
Creditor risk
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

5. Linkage between governance and contracts
Annual accounts
Establishment of:
Turnover
Profit
Debtors
Valuation of work in progress
Governance statement
Large contracts
Application of accounting policy
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

6. Turnover Definition Problems of calculation
Amount stated in the annual accounts during the accounting year exclusive of VAT.
Need to attribute to different aspects of the business
Problems of calculation
Work in progress
Short-term vs long-term contracts
Application-certified-payment-cost
Four unrelated figures?
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

7. Profit
Definition
“...the financial benefit that is realised when revenue exceeds costs.”
Corporate profit
Operating profit- turnover after deduction of costs and overheads
Profit before taxation- operating profit less the cost of interest payments on loans, etc.
Profit after taxation- that remaining which is available for distribution to shareholders
Need for prudence in the expectation of future profits as contingent liabilities are inevitable!
Accounts must give a true and fair view of the business at the time they are struck
Problem of matching costs with turnover- if outcome cannot be predicted with confidence no profit should be taken.
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

8. Project Profit
Nothing is certain until the final accounts with the client have been agreed and the significant liabilities are settled.
Profit at tender
Dictated by the market, need for work, the client, the risks......
Profit during and at the end of a contract often NOT a function of profit added at tender stage
Why?
Cost of production
Production methods
Quicker completion
Better discounts
Additional revenue
Settlement of claims
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 8

9. Management accounts
Internal representation of how the business is doing to allow for control
Basic information
Revenue and expenditure
Money owed to creditors
Money it is owed by others
Larger companies produce forecast balance sheets and make statements if the current financial position is likely to affect forecasted turnover and profit.
Need for a system of cost/value reconciliation
Influenced by accounting policy, SSAP9
Need to match costs and revenue
Long-term vs short-term contracts
Profit
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 9

10. Accounting for Contracts
Directors responsibility
Must report prudently
Turnover
Profit
Debtors
Work in progress
Need for a management system that reports
Contract profit and loss
Value of outstanding work
Projected costs to complete
Contract cash position
Extent of liabilities and likelihood of recovery
Extent of contingent liabilities and likelihood of expenditure
How do we “freeze” a contract to show the position?
How do we deal with contracts that end after the accounting year?
Short-term contract definition
Long-term contract definition
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 10

11. Some examples
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 11

12. Some examples
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 12