Chapter 7 - SPA #2

I really like the second quote by Agha Hasan Abedi. In my previous job, I learnt from an excellent Manager, that enabling the people around you to do good work, makes for a better overall workplace and that when you allow and encourage people to grow to their potential, not only the worker benefits, but the overall organisation.

Reading on, I am thinking about my recent training (which I thought was excellent), which was called ‘Manage to lead’.  The first day, is a discussion about the difference between a leader and a manager. When I think of this, and the reading in Chapter 7 about the first step taken, I’m actually thinking of the difference again. I personally think a leader is a visionary, someone who dreams up a vision and inspires others to follow it. I think a Manager is the right hand man (or woman), who facilitates this dream, who organises and manages the processes that achieve this dream.

Can Managers help or hinder from accounting? Thinking of this question at this point in the reading, I think definitely. People do seek guidance, nurture and coaching throughout work but I think mainly, they seek direction and purpose. People look to Management for direction and purpose and where a Manager uses a budget to work out objectives and convey them down the reporting line, people know where they stand, and what they are aiming towards (or walking towards with their firs steps).

When thinking of budgets, I would say they are definitely beneficial. Words can be interpreted in many ways but (as my previous Financial Controller always said), numbers don’t lie.  Everyone will read the budget in the same way and objectives are clearly laid out.

Delegation is instantly making me think a Manager who does not naturally do this!  It can be difficult to let go of control but when you do, you can be more supportive as an ally and a teacher.

Budgeting for programs that are reliant on government funding, and given as block funding, seems at times difficult. Within my industry, people are not trained in budgeting, or managing money to a high standard. It seems as though people that are managing the money are not experts on how to do this, and people who are managing the budgets are not experts on how to operate the program.  And, people that are distributing the money (government) are completely unrealistic about the needs of those with disabilities.

I will be appreciative of the NDIS and then changes within the disability sector turning to a fee for service based model. This will assist with clear budgets and understanding of our actual costs for operating. It may provide clearer targets and I do believe these help staff work towards something.

I like the idea of participative budgeting. I believe in the opportunity to at least have a say. Each person has different things to offer and when we listen to each other, our strengths are clearer (and weaknesses). I think having a budget process that really does include people, does facilitate a cooperative workplace.

Looking at the example of Purple Chocolates is a positive and learning experience. I enjoy the examples used not only because I can see the application of information but I also tend to refer to them later as examples or reminders.

Looking further at the time delays between products sold and money received, I’m connecting it to my company, Downer EDI and remembering that it tightened it’s monitoring and retrieving of cash inflow as a key strategy.

I personally like the ideas of objectives. I’ve not heard of scorecards but also like this idea. My colleague and I recently conducted a survey of our staff and less than half participated, this, perhaps like the scorecard, was clearly a reflection that people are not motivated by their jobs. It brings me back to the earlier points about motivation.

Again, I enjoy looking at the examples, it brings together what we’ve so far learnt and visually it helps me align the concepts. The conclusion then brings my mind back to the necessity for leadership and management and the need to be forthcoming with information so people know where they’re heading (or walking as described in the chapter).

I am feeling more and more that accounting is help in relation to decision making. Of course, there is more to a firm than a budget but when it comes to the bottom line and how to get there, Managers drive the firm and being transparent about the bottom line and understanding the bottom line, will bring together the flock.

Assignment 2 - Step 1. Key Concepts and Questions.

ASS #2 - Step 1.

I must say, this reading took me some time. It took time for me to read some parts, re-read and then even re-re-read (just created a word!!). I do feel as though I’ve enhanced my understanding.

One of the key concepts I took was the importance of social learning. It has been absolutely true within my life that once I start a conversation about something, I learn and understand more. So, I will continue to use Facebook and Peerwise as thus far, I’ve found them to be of great assistance.

This social learning is a key component of our course and I would think that all those involved with designing the course have seen the benefits. I can see that by involving yourself in discussion, forums, and questions, we ‘add value’ to our learning opportunities and our understanding.

Another key concept was, in my opinion, is that we need to look at the history of the firm in order to make educated guesses about its future. The fact that capital markets trade in expectations does make me uneasy. I think of ‘it takes money to make money’, in the sense that taking risks, is often needed in business.

Initially through the readings, I wonder what are the drivers for a firm? I am interested to learn about this. Are we going to get these answers? I begin to understand after reading on about the restating of financial statements. It makes sense to me to do this. I relate this to many situations but for example work, you enter a new job, get information on how it operates but until it’s in your own hands, you don’t ‘really’ understand.

I am beginning to understand some concepts throughout this chapter such as free cash flow, operating assets and how to create value. I feel more confident as I read through the chapter in relation to these principles as they make sense to me. I relate it to a previous work situation where I fought tooth and nail to have an Occupational Therapist employed (in direct relation to my operating programs). Once the OT (capital) was employed, the organisation was very pleased with the return on operating cash flow that was produced from this investment. She made the company well above what the company paid her.

Analysing the drivers is also starting to gel with me. It has still been elusive to me, lets be honest, as to how I’m going to have a ‘real’ understanding of a firm based on their annual report. Up until now, I have felt as though I am very unprepared and perhaps being lulled into their very alluring marketing plans. I am starting to see that once we restate the financials,, look into the history, see what is driving the profits and see what choices a company is making as far as capital, we can make an educated guess as to what the future might hold. I like the information about capital not being free and the alternative investments that could be. It seems a good point to make that by looking at what a company invests in, will show where it wants to go.

Drivers are – profitability, efficiency and return on net operating costs.

I also note that it’s important to focus on areas that are not affected by organisational policy (eg. Dividends). Focusing on what IS making profit and what is NOT, will improve our understanding of the firm.

The importance of separating Operating activities and financial activities is crucial. This information and including how to apply tax is initially a bit over my understanding. I do see the examples though and believe once I look into restating my firms reports, I will be able to reference the examples and once I can apply the information, I’m confident I will understand.

Another key concept I have noted is the relationship between profit margins and efficiency. I am assuming this is all about the ‘bottom line’ and look forward to further understanding this.

Comments to other blogs

Wasn't entirely sure how to do this or how to view another page.  Thanks to Anna for sharing the information though.
Many comments have been made on Facebook and I hope this link also works.

List of comments.

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Thinking thinking thinking............... KCQs.....

Step 4 - KCQs for Chapters One and Three

Chapter 1: A way of viewing business

What is accounting about?  Initial reactions are that I wouldn’t say it was simply the manipulation of numbers nor would I say it was about computer software. Thinking about the statement, ‘businesses experience their own realities of what is really happening’, this makes me think of the culture within businesses and how this single factor can bring with it, for example, a high over turn of staff. It could also bring stagnant ideas from people who might lead to ‘old ways of thinking’ and I’m not sure businesses like this cannot survive in an evolving world.

What is captured in a firm’s reports and why it is captured appeals to me. I wonder what things get left out and for what reason. And, what gets put in for purposes of ‘looking good’.

I am still lacking in an understanding of the terminology used in accounting but understanding this would surely help me understand why certain things are captured and others not.

Understanding the reports appeals highly to me. I am interested in Business; hence the study, and I have just moved organisations so this subject appeals greatly to me. Does this happen?  Will this course teach that or are we to find out that annual reports are a constructed reality that does not allow insights to the business?  What will the outcomes be of this subject?

‘Imagining Business’.  What does this mean? 

The value of businesses, who decides this? 

Real value to others.  Does the tobacco company, with its multi million dollar business create value?  The addicted smoker may say yes, they ‘need’ and value their cigarettes.  What value has this product served society? Does value mean monetary value?  I suppose this is dependent upon the person’s perception for certainly, money is valuable to the majority. Is this sill so at the expense of millions of people’s lives?

Do people learn enough about a business from reading the annual reports to then invest in the company? To put trust in the company? Or is the investment something you would do should you know for certain that the company is moving forward and creating monetary value?

The CEO and CFO of my previous work were Accountants and both really wonderful people. It is interesting that so many Accountants are in charge of business, which absolutely makes sense.

Talking of businesses in a fast moving world. This reminds me of my previous CFO telling me after reviewing the success of a program, ‘numbers don’t lie, so I know the program is doing well’.  This does make sense, as it is certainly true that people lie, and that people manipulate the truth for better outcomes. Numbers don’t lie (or do they?).

Disputes.  How often do these occur?  Clearly, enough to warrant legal documentation to assist where conflict arises. A financially successful business can break down from a dispute.

Actual recordings.  How many firms omit certain things? What type of things? How can we trust that what we read is based on an overall view of the business?

When I read the information about processing, I am very eager to learn more about double entry accounting and believe learning a ‘process’ will be good as I know I can follow processes.

The debits and credits feels a bit foreign and challenges me.  I have been able to learn it and have answered several questions correctly through peer wise but it certainly makes me think.  This concept going to take time to settle.

Remaining aware of the central concepts of accounting is important and reading through Chapter One, I’m grateful of being reminded of that. It is clearly an important point being made and I am concentrating on reflecting on the concepts to really understand them. I appreciate the examples given that apply them to real situations.

I like being reminded of the fluidity of accounting, business and value.

Reading this again (as I’ve read it several times now), I have a clearer understanding of revenue and expenses.  Particularly that cash provided from shareholders goes straight to equity and does not register as far as revenue; it is simply an increase in equity. I have spent some time trying to understand that equity investors are merely moving money around by investing. This is something with which I must remember.

I feel I have gained many insights after reading the chapter and makes me feel as though I have certainly learned many things.

Chapter 3: Introducing financial statements

I’m very eager to get a better idea of the reports and more concepts. The introduction to this chapter makes me feel expectant.

Wishing that there was a concrete way in which financial statements are made but I’m sure I will have a better understanding once we learn more.

Reading further, regarding the marketing, I understand that the annual report of my company is very much marketing. As I do not understand the financial statements greatly, I’ve centred my KCQs about the annual report predominantly on the language, which I understand to be ‘interpretive’.

Reading about the parent company, I’m aware my company, Downer EDI is a parent company to many other companies and I’m now keen to look back at just how many. I’m keen also to see the financial statements as I feel knowing some of this information; I’ll be more ready to ‘read’ them.

If a firm does not have to disclose all of it’s expenses, doesn’t that make it difficult to understand what is really happening?

A lot of the information is starting to have an application as I read on about equity statements. I’m feeling like I can apply this information.

Wow, being introduced to those financial statements is intimidating. It seems there is much to remember! The information does make sense though.

A lot of the information on ratios is interesting but I’m not sure at this point it makes ‘complete’ sense to me. The issues about solvency and do interest me and it’s interesting to know when someone is in a situation where they need to sell their assets. I’m sure we’ll understand more of this in the future.

It is a good point regarding Ryman Healthcare being unable to control housing prices and the people over a certain age wishing to live in residential settings. It reminds me that business is fluid and keeping ahead of trends is essential for success as many things are beyond our control.

The dividends section does make sense to me but I still feel I’d have no idea on which company to buy shares in if I had the money to invest.

Cash flow does make sense to me so I’m pleased. I get the sense that the information is all in the Chapters provided however, I like to read, watch the lecture and then read again. I then like to answer Peerwise Questions and apply the knowledge that brings it all together for me (usually).

At this stage, I’m certainly keen to learn more.

Key Concepts & Questions

Wow, I must say reading the Financial Report does not come easily to me.  I am better with the text than the figures but am still not an expert on all of the terminology.  I do not find it particularly easy and so I hope that my ideas are relative and useful to the continued assignment and the eventual outcomes.

Key Concepts –

1.     Revenue increased.  This was driven by the infrastructure division.

2.     Expenses increased.  Mainly related to salaries and wages and this is AFTER the corporate restructure.

3.     Group earnings increased.

4.     Operating cash flows increased – this was due to a drive to ensure payment terms were met (is there more to this ‘drive’ or is it simply a wise business procedure being amped up?).

5.     Net capital decreased.

6.      

7.     General consulting business is down in Aus and NZ due to larger competition.

8.     Commodity prices (particularly coal) have decrease putting pressure on companies to reduce ancillary production.

9.     Downer Rail revenue fell.  There is little information provided regarding the Rail division.

10.  The majority of Downer Infrastructure’s work comprises contracts that are valued at less than $30 million and are recurring in nature. This makes the business more resilient through economic cycles.

11.  After several years of very strong growth, current market conditions are challenging for Downer Mining with customers reviewing their operations and seeking to reduce costs.

12.  Debt and liabilities decreased.

13.  Shareholder equity increased, mainly due to capital being raised.

14.  The outcomes of the troublesome Waratah train productions is being carefully managed and could have significant impacts on the Rail division if not delivered according to scheduled time frames.

15.  During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company (as named above), the Company Secretary, all officers of the Company and of any related body corporate against a liability incurred as a Director, secretary or executive officer to the extent permitted by the Corporations Act 2001 (Cth). The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

16.  Tighter controls are enforced regarding remuneration and the withholding of payments dependent on ‘actual’ performance.  Policy changes have taken effect to provide framework for measuring outcomes of key personnel.

17.  Between 30 – 50% of executive salaries are based on key performance outcomes

18.  In determining revenues and expenses for construction contracts, Management makes key assumptions regarding estimated revenues and expenses over the life of the contracts. Where contract variations are recognised in revenue, assumptions are made regarding the probability that customers will approve those contract variations and the amount of revenue arising from contract variations. In respect of costs, key assumptions regarding costs to complete contracts may include estimation of labour, technical costs, impact of delays and productivity. Changes in these estimation methods could have a material impact on the financial statements of Downer.

19.  In relation to tenders - Judgement is exercised by Management in determining whether it is probable that the contract will be awarded. An error in judgement may result in capitalised tender/bid costs being recognised in the statement of profit or loss in the following financial year.

20.   The Downer Asia business had not performed to the expectations of the Group, as a consequence of increased competition from other Asian contractors who have commenced operations in Singapore and had not secured sufficient future work to support the carrying value of the goodwill in the business. Management has decided to impair goodwill of Downer Asia by $9.3 million in the prior year.

21.  The Spiire business in Australia had underperformed as a result of challenging economic conditions and scarcity of work to support its operational and overhead structure. Management had decided to impair goodwill of Spiire Australia by $8.7 million.

22.  The Group did not acquire any businesses during the financial year ended 30 June 2013.

23.  The Group disposed the Spiire Australia business by way of a management buy out (MBO) to three of its senior executives for $1.8 million. The sale transaction was completed on 30 June 2013.

24.  Downer suffered a workplace fatality in New Zealand in October 2012. The Group has embarked on an analysis, assessment and response at every level of the organisation on critical risk management where hazards are identified and known controls are applied. An example of this is the introduction of a set of Group-wide Cardinal Rules, which address ten of the most significant areas of risk for harm to employees.

Key Questions –

1.  What does this statement mean?  Footer of page.

Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other alliances not proportionally consolidated.

2.  What does this mean, another notation.

-  Numbers are underlying, i.e. excluding Individually Significant Item.

-  Interest and other costs of finance paid minus interest received.

-  Unaudited.

3.  What does this mean?

Downer’s weighted average debt maturity has been extended.

4.  This statement is interesting and I’m not entirely sure I understand it.  Modest expectation?

With Downer having made substantial progress rebuilding its balance sheet, in February 2013 the Downer Board elected to recommence the distribution of dividends on its ordinary shares electing a “cents per share” policy rather than a fixed payout ratio. This allows Downer to set a modest expectation that can be achieved in terms of available capital and franking credits. Once Downer returns to an Australian tax paying position, a fixed payout ratio policy will be reassessed.

5. The company is looking to outsource more and use contractors so as not to be ‘fixed’ long term to wages or salaries (in particular operations).  Is this to warrant future issues?

6.  Don’t completely understand the Fit 4 Business component and what is this about?

7.  Accounting policies are selected and applied in a manner that ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. 

What is the above statement really saying?  ‘Substance of the underlying transaction’?  Meaning what?  Meaning that information of substance is reported or meaning that information is withheld?

8.  Wondering if the below statement is a good or bad thing for the company.  Does the fact they don’t have big contributors mean they are constantly competing in an uncertain industry/future?

There is no single customer that contributed 10 per cent or more to the Group’s revenue in FY13. Sales arising from the Group’s largest customer in FY12 are related to rendering of services and mining services totalling $45.2 million and $780.7 million respectively.