Core Activity E Flashcards
Who are internal and external stakeholders in an organisation?
Internal stakeholders include employees, managers, departments, and internal auditors who influence or are influenced by operational outcomes. External stakeholders include shareholders, regulators, customers, suppliers, lenders, tax authorities, and the public, all of whom have a vested interest in the organisation’s performance.
What are key relationship management skills?
Trust-building, effective communication, emotional intelligence, conflict resolution, stakeholder mapping, regular engagement, empathy, and maintaining transparency and consistency in interactions.
What is the purpose of group accounts under IFRS?
To provide a consolidated view of the financial position and performance of a parent and its subsidiaries as a single economic entity, facilitating comparability and transparency for stakeholders and investors.
What are key IFRS standards relevant to group accounts?
- IFRS 10: Defines control and requires consolidation of subsidiaries
- IFRS 3: Business combinations and goodwill recognition
- IAS 36: Impairment of assets including goodwill
- IAS 21: Foreign exchange translation
- IFRS 15: Revenue recognition
- IFRS 16: Leases
- IFRS 9: Financial instruments – classification and ECL model
How is goodwill treated in group accounts?
Goodwill is recorded when the acquisition price exceeds the fair value of net assets. It is subject to annual impairment testing under IAS 36 and is never amortised. Impairment losses are recognised in profit or loss and cannot be reversed.
What is impairment under IAS 36?
Impairment occurs when the carrying amount of an asset or cash-generating unit (CGU) exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and value in use.
How is impairment of goodwill tested?
- Goodwill is allocated to CGUs expected to benefit from the acquisition.
- An impairment test is performed annually or when indicators arise.
- Compare the CGU’s carrying amount to its recoverable amount.
- If carrying amount > recoverable amount, recognise an impairment loss.
What are indicators of impairment?
- Significant decline in market value
- Adverse changes in technology, markets, or regulations
- Increases in market interest rates
- Poor economic performance of the CGU
What is a non-controlling interest (NCI)?
NCI represents the portion of equity in a subsidiary not owned by the parent. It is shown in consolidated equity and may be measured using the fair value method or the proportionate share of net assets.
How are foreign currency transactions and subsidiaries treated?
- Transactions: Initially recorded at the spot rate. Monetary items retranslated at closing rate; differences in profit or loss.
- Subsidiaries: Assets/liabilities translated at closing rate, income/expenses at average rate. Translation differences go to OCI (other comprehensive income).
What does IAS 21 cover?
IAS 21 addresses the effects of changes in foreign exchange rates, outlining methods for translating individual transactions and foreign operations, ensuring currency consistency in financial reporting.
What are related party disclosures under IAS 24?
Companies must disclose transactions and balances with related individuals or entities (e.g., key management, subsidiaries, joint ventures) to prevent conflicts of interest and enhance transparency in financial reporting.
What is the purpose of segmental reporting (IFRS 8)?
It provides information about different business activities or geographic areas, enabling users to assess the risks and returns of each segment. Segments are defined based on internal management reporting.
What is transfer pricing?
Transfer pricing sets prices for goods, services, or intangibles transferred between divisions of the same organisation. It is critical in multinational enterprises for internal performance and tax management.
What are key objectives of transfer pricing?
- Goal congruence: Align divisional behaviour with organisational goals
- Performance evaluation: Fairly assess division results
- Tax efficiency: Minimise group-wide tax liabilities
- Managerial autonomy: Encourage independent decision-making
What are the common transfer pricing methods?
- Marginal Cost: Suitable when spare capacity exists; risk of under-recovery of fixed costs
- Market Price: Promotes fairness and comparability with external sales
- Dual Pricing: Selling division uses one price; buying division another; balances performance and motivation
- Two-Part Tariff: Fixed fee + variable charge, encourages cooperation and cost recovery
What are behavioural issues in transfer pricing?
Poor transfer pricing can lead to:
- Demotivation of managers
- Inter-divisional conflict
- Underinvestment or suboptimal decision-making
- Profit shifting that conflicts with local regulation
What is Integrated Reporting (IR)?
IR provides a comprehensive account of how an organisation creates value over time by integrating financial and non-financial factors, with a forward-looking perspective.
What are the six capitals in IR?
- Financial – equity, debt, and retained earnings
- Manufactured – physical infrastructure and equipment
- Intellectual – intellectual property, systems, and innovation
- Human – skills, experience, leadership, and well-being
- Social & Relationship – partnerships, customer loyalty, stakeholder trust
- Natural – land, water, energy, biodiversity, and ecosystem health
What are the benefits of Integrated Reporting?
- Enhances transparency and accountability
- Promotes sustainable business practices
- Strengthens investor confidence
- Supports long-term strategic thinking and resource allocation
What are limitations of Integrated Reporting?
- Difficulty in quantifying non-financial data
- Subjectivity in value reporting
- Not mandated in many jurisdictions
- Risk of selective disclosure (greenwashing)
What are types of communication in organisations?
- Formal: Reports, board meetings, strategic documents
- Informal: Casual conversations, internal messaging
- Channels: Verbal (meetings), Written (emails), Visual (charts)
- Modes: One-on-one, group sessions, digital platforms (Zoom, Teams)
What are effective feedback mechanisms?
- 360-degree feedback
- Annual performance reviews
- Surveys and suggestion boxes
- KPIs and scorecards with regular check-ins
What are the four stages of negotiation?
- Preparation – Define goals, research both parties, identify limits
- Opening – Build rapport, share perspectives
- Bargaining – Exchange proposals, consider trade-offs
- Closing – Agree and document terms, follow up
