Questions and Answers of Corporate Finance Core Principles

From the IIRC website identify a company producing an integrated report. Read the report from an investor perspective and then from an employee perspective. Then provide two evaluations with reasons
Explain why governance procedures may vary from country to country.
Identify an organisation that undertakes corporate social reporting and has an independent party provide assurance on such reporting. Explain in your own words what the assurance covers and does not
Obtain three Viability Statements from published financial statements and critically compare.
The Prince’s Accounting for Sustainability Project was responsible for bringing together the sponsors of the International Integrated Reporting Council. The project is a co-sponsor of the Finance
In 2016 the UK Financial Reporting Council objected to the proposed European Union directive on integrated reporting for large companies. The discussion seems to revolve around disclosure of specific
Aviva plc provided in relation to 2016 three relevant reports. Those reports are the Strategic Report 2016, Corporate Social Responsibility Summary 2016, and Aviva Environmental, Social and
State and express two ratios that can be used to analyse each of the following:(i) Profitability;(ii) Liquidity;(iii) Management control.
Discuss the importance of the disclosure of exceptional items to the users of the annual report in addition to the operating profit.
Explain how a reader of the accounts might be able to assess whether the non-current asset base is being maintained.
Explain in what circumstances an increase in the revenue to current assets might be an indication of a possible problem.
Explain in what circumstances a decrease in the rate of non-current asset turnover might be a positive indicator.
The management of Alpha Ltd calculates ROCE using profit before interest and tax as a percentage of net closing assets. Discuss how this definition might be improved.
Discuss why an increasing current ratio might not be an indicator of better working capital management.
The asset turnover rate has increased by 50% over the previous year. Explain the questions you would have in mind and what other ratios you would review.
The current ratio has doubled since the previous year. Explain the questions that you would have in mind when reviewing the accounts.
Explain the problems a creditor might have when assessing the creditworthiness of a subsidiary entity.
Access the annual reports of two companies in the same industry and identify (a) the ratios that they report in common, (b) how these have been defined, and (c) why some ratios are not common to both.
A company has a very high rate of inventory turnover. Discuss circumstances when this might be of concern to management.
The ratio of current liabilities to net worth (equity + retained earnings) was 75%. Discuss how this would be viewed by suppliers and management.
The ratio of non current assets to net worth was 75%. Discuss the risk that this poses for a company.
It has been suggested that the growth in profits can be achieved by accounting sleight of hand rather than genuine economic growth. Consider how ‘accounting sleight of hand’ can be used to report
Explain how the use of debt can improve returns to equity shareholders in good years and increase their losses in poor years.
Telecomsabroad plc has a dividend payout ratio of 95%. Discuss why using the ratio of free cash flow to dividend might influence your assessment of dividend growth.
Discuss the difficulties when attempting to identify comparator companies for benchmarking as, for example, when selecting a TSR peer group.
The Unilever annual review stated: Total Shareholder Return (TSR) is a concept used to compare the performance of different com-panies’ stocks and shares over time. It combines share price
Discuss Z-score analysis with particular reference to Altman’s Z-score and Taffler’s Z-score. In particular:(i) What are the benefits of Z-score analysis?(ii) What criticisms can be levelled at
Identify the two most significant variables in the Altman’s and Taffler’s Z-scores and discuss why each variable might have been selected.
Discuss three situations when management might be under pressure to adopt an aggressive earnings management approach.
Compare the risks experienced by a lender in Islamic and non-Islamic finance.Access: www.futurelearn.com and see Video presentation by Professor Lawrence Harris ‘Risk Management in the Global
Discuss the advantages and disadvantages of all companies adopting the ratio criteria required to be shariah-compliant.
Describe the measures taken to reduce the risk that credit rating agencies can mislead investors.
Discuss how the following might be used by a shareholder and by the management:(i) The ratio of dividends plus share price movement to the opening share price.(ii) Accounting profit less an
The finance director was investigating a potential acquisition. As part of the exercise she gave your colleague the current value of total assets, the post-tax operating income, the economic life of
There is evidence (Black, Christensen, Joo and Schmardebeck ) suggesting that managers prefer to meet expectations based on neutral reporting of solid operational performance.They also found that,
There are differences of opinion as to whether alternative performance measures (APMs) should be regulated by standard setters such as the IASB or whether they should remain entity-specific as
Investors want a better understanding of how boards identify and manage risk to protect the sustain-ability of companies. By reference to the FRC’s Financial Reporting Lab, identify one good
Discuss the HMRC approach to valuing unquoted shares in (i) an Established trading company and (ii) a Start up company with no external investment.Access
Discuss how an investor might benefit from annual reports being made available in XBRL.
Explain how a body such as a tax authority might benefit from XBRL.
Explain what you understand by taxonomy and mapping.
Explain the use of instance documents.
Explain the use of stylesheets.
Explain iXBRL and where it is used.
XBRL will make it easier to prepare quicker quarterly reports. Discuss the suggestion that this encourages short-termism and that companies should not therefore be required to produce on a quarterly
‘Interim assessment of performance is important but should only be discursive.’ Discuss.
Investor demand for assurance takes precedence over their demand for speed when it comes to general financial information and liquidity. Access www.accaglobal.com/reporting and identify from its
Discuss the implications of using IFRS and NON-IFRS in financial reports when using XBRL.
Access the Lab project report Digital Present: Current Use of Digital Media in Corporate Reporting
Deloitte interviewed a number of prominent organisations about their vision of XBRL.What is XBRL and what value does XBRL bring to an organisation?Access quite a good video clip
Explain in your own words what you understand corporate governance to mean.
What are the implications of governance for the Big 6 and their audit practices?
Auditors should take a more combative position and start with presumptive doubt and a more sceptical frame of mind, even though past experience of the FD and client staff has never revealed any cause
The Big 6 audit firms have had their professional competence found to be lacking on various audits. Discuss the measures that might be taken to avoid a
Researchsuggests that companies whose managers own a significant proportion of the voting share capital tend to violate the UK Corporate Governance Code recommendations on board composition far more
‘Stronger corporate governance legislation is emerging globally but true success will only come from self-regulation, increased internal controls and the strong ethical corporate culture that
In the modern commercial world, auditors provide numerous other services to complement their audit work. These services include the following:(a) Accountancy and book-keeping assistance, e.g. in the
There has been much criticism of the effectiveness of non-executive directors following failures such as Enron. Some consider that their interests are too close to those of the executive directors
In 2000, the chairman of the US Securities and Exchange Commission (SEC), Arthur Levitt, pro-posed that other services provided by audit firms to their audit clients should be severely restricted,
Discuss how remuneration policies may adversely affect good corporate governance and how these effects may be reduced or prevented.
Discuss the major risks which will need to be managed by a pharmaceutical company and the extent to which these should be disclosed.
Egypt is a country in which many of the public companies have substantial shareholders in the form of founding families or government shareholders. How do you think that would affect corporate
‘Management will become accountable only when shareholders receive information on corporate strategy, future-based plans and budgets, and actual results with explanations of variances.’ Discuss
The Chartered Institute of Management Accountants (CIMA) has warned that linking directors’ pay to EPS or return on assets is open to abuse, since these are not the objective measures they might
Review reporting requirements in relation to disclosure of related party transactions and discuss their adequacy in relation to the avoidance of conflicts of interest.
Discuss in what situations audit independence could be compromised.
It has been suggested that an Investors Forum will make management more accountable to the shareholders. Discuss how this might be achieved when shareholdings are so widely held.
Access the Kingman Report (https://www.gov.uk/government/publications/financial-reporting-council-review-2018Discuss:(a) Why proposal for a new regulator-Audit. Reporting and Governance Authority(b)
Discuss the factors that you consider might limit the ability to use non-financial information when making investment decisions as an analyst.
There is a concern that the audit of FTSE 100 companies is dominated by the Big Four audit firms. One proposal is that there should be joint audits which include mid-tier firms. Discuss the
PwC were severely reprimanded and fined £5m for misconduct in relation to the 2009 audit of Connaught plc, a FTSE 250 company which went into administration in 2010. What is the FRC’s role in
In discussing in Parliament the directors’ remuneration in Carillion: Rt Hon Frank Field MP, Chair of the Committee, said: ‘It’s greed on stilts, pure and simple.’Discuss the actions of the
GRI has Principles for Defining Report Content. Included in those is the principle of stakeholder inclusiveness, which says ‘The organization should identify its stakeholders, and explain how it
GRI has Principles for Defining Report Quality, which states that ‘The report should reflect positive and negative aspects of the organization’s performance to enable a reasoned assessment of
Obtain copies of three integrated accounting reports (including at least one which has been certified) and identify whether or not they have been certified. On any that has been certified review the
The Integrated Reporting Framework stresses the need for linkages to the business strategy to be clear and the reporting to be restricted to significant items. However, other parties stress the need
Should integrated reports address allocation of value added? Justify your conclusions.
Select an industry and explain the best approach to conveying to readers the state of human resources.
Nissan, the Japanese car company, decided that ‘any environmentalism should pay for itself and for every penny you spend you must save a penny. You can spend as many pennies as you like as long as
Consumer-oriented models are more likely to be influenced by ethical principles. Discuss.
Look up the S & P Dow Jones Indices and then discuss:(a) What you think the index can be used for;(b) The number of high-performing companies by country;(c) The comparative performance of two of
In a speech given for the Arthur Burns Memorial Lecture, Mark Carney highlighted paradoxes in addressing the financial risk from climate change. The first paradox is that ‘the future will be
Discuss two sectors where climate change could adversely affect shareholder value.
Future of Accounting Profession: Three Major Changes and Implications for Teaching and
Linda Midgleysuggested that the major deficiency with current integrated reports is that they do not provide a story which shows the linkage between the reporting on the various capitals. Explain in
Identify a company that is registered under the EMAS and discuss its disclosures under that scheme and what it indicates in terms of progress in achieving significant improvement in environmental
Explain two ways in which unrealised profits might arise from transactions between companies in a group and why it is important to remove them.
Discuss the acceptability of the LIFO and replacement cost methods of inventory valuation and why the IASB has not permitted all methods to be used.
Explain what is meant by the term ‘split accounting’ when applied to convertible debt or convertible preference shares and the rationale for splitting.
Discuss the implications for a business if a substance approach is used for the reporting of convertible loans.
Explain how redeemable preference shares, perpetual debt, loans and equity investments are measured and presented in the financial statements.
The authors contend that the use of current valuations can present an inaccurate view of a firm’s true financial status. When assets are illiquid, current value represents only a guess. When assets
Explain the difference between a cash flow hedge and a fair value hedge. Does the nature of the hedging instrument (e.g. forward contract, interest rate swap, option) influence the hedging model
‘Disclosure of the estimated fair values of financial instruments is better than adjusting the values in the financial statements with the resulting volatility that affects earnings and gearing
Companies were permitted in 2008 to reclassify financial instruments that were initially designated as at fair value through profit. Critically discuss the reasons for the standard setters changing
‘If financial liabilities can be recognised at fair value all gains and losses arising should be reflected in profit or loss.’ Discuss.
‘The only true way for balance sheets to be meaningful to users would be for all financial assets and liabilities to be measured at fair value with gains and losses recognised in profit or loss.’
In its year ended 31 December 2017 Procter Limited, a UK private company has the following financial assets and liabilities in the accounts:(i) An equity investment in Milner plc, a UK listed
Outline the differences between a defined benefit and a defined contribution pension scheme.
If a defined contribution pension scheme provided a pension that was 6% of salary each year, the company had a payroll cost of €5 million, and the company paid €200,000 in the year, what would be

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