1. Slide 14.1 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Chapter 14 Reporting corporate performance

2. Slide 14.2 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Operating and financial review Analysis of the business through the eyes of the board of directors. Focus on matters that are relevant to the interests of members. Have a forward-looking orientation, identifying those trends and factors relevant to the members’ assessment of the current and future performance of the business and the progress towards the achievement of long-term business objectives.

3. Slide 14.3 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Operating and financial review (Continued) Complement as well as supplement the financial statements, in order to enhance the overall corporate disclosure. Be comprehensive and understandable. Be balanced and neutral, dealing even- handedly with both good and bad aspects. Be comparable over time.

4. Slide 14.4 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 OFR framework (a) The nature of the business, including a description of the market, competitive and regulatory environment in which the entity operates, and the entity’s objectives and strategies. (b) The development and performance of the business, both in the financial year under review and in the future.

5. Slide 14.5 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 OFR framework (Continued) (c) The resources, principal risks and uncertainties and relationships that may affect the entity’s long-term value. (d) The position of the business including a description of the capital structure, treasury policies and objectives and liquidity of the entity, both in the financial year under review and in the future.

6. Slide 14.6 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Key performance indicators (KPIs) Quantified measures of factors that help to measure the performance of the business effectively. Idea of ‘success factors’. Examples: Return on capital employed (see Chapter 13) Market share Average revenue per customer Sales per square foot of selling space Employee costs per £ of sales Environmental spillage

7. Slide 14.7 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Other guidance in annual report Highlights statement Turnover Profits Earnings per share Return on capital employed Historical summaries and trend analysis 5-year summaries frequently provided. Trends, for example, percentage changes, may give indication of expectations. Finance director’s review Usually contains a discussion of cash flow.

8. Slide 14.8 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Segmental information Users’ need for information Better understanding of the entity’s past performance and a better assessment of its future prospects. Awareness of changes in significant components of a business on the business as a whole.

9. Slide 14.9 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Segmental information (Continued) Information provided in the financial statements Parent company In the annual report, there is a column or a page for the balance sheet of the parent company. Relatively uninformative and not used for ratio analysis.

10. Slide 14.10 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Segmental information (Continued) Group One statement of financial position represents assets and liabilities of all companies of the group. Income statement for the group as a whole. Benefit of bringing together a large amount of information in a financial statement for the total. But loses detail of what is happening in separate segments.

11. Slide 14.11 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Segmental information (Continued) Segmental information in Safe and Sure Reports to main decision maker are based on business segments. Some information also provided on geographical areas. (see illustration in chapter, section 14.4)

12. Slide 14.12 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Off-balance-sheet finance Remove an asset and liability from the statement of financial position (balance sheet). Reduces gearing (reduces appearance of financial risk). But have the benefits and risks also gone? Sale and leaseback of property. Special purpose entities.

13. Slide 14.13 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Corporate social responsibility Companies integrate social and environmental concerns with their business operations and their interactions with stakeholders. Disclosures may be: Environmental report Social report CSR report

14. Slide 14.14 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Global reporting initiative Provides guidelines on good practice in CSR reporting. Recommendations on reporting: Vision and strategy Profile of the organisation Governance structure Management system Performance indicators ‘Triple bottom line’ equals economic, environmental and social performance.

15. Slide 14.15 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Corporate social responsibility (Continued) Kyoto Protocol Agreement on carbon emissions. Creates assets and liabilities based on the right to make emissions (up to a limit) and penalties for making emissions over that limit.

16. Slide 14.16 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Corporate governance The way in which directors manage a company. Combined Code of corporate governance – guidance set by the Financial Reporting Council. ‘Comply or explain’ in the annual report. Directors’ remuneration: –The amount paid to each director must be disclosed. –Nominations Committee sets policy for rewarding directors’ performance.

17. Slide 14.17 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 True and fair view Required by law and by European regulation. Directors prepare financial statements as a true and fair view. Auditors give an opinion on true and fair view. No precise definition, courts of law will seek opinions of experts.

18. Slide 14.18 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Present fairly Wording used in other countries. Some say ‘present fairly in accordance with generally accepted accounting principles’.

19. Slide 14.19 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Measurement of value Historical cost has limitations, only relevant at the date of acquisition. Subsequently remeasure – which value to choose? Entry price (cost of buying in) Exit price (proceeds of selling in orderly market) Fair value – the amount for which an asset could be exchanged between a willing buyer and a willing seller.

20. Slide 14.20 Pauline Weetman, Financial and Management Accounting, 5 th edition © Pearson Education 2011 Measurement of value (Continued) Value to the business could be: selling price, replacement cost, present value of future cash flows. Difficult to find an agreement so historical cost tends to continue to dominate.