The International Financial Reporting Standard Ifrs Accounting Essay


An annual report is a feedback on a company's activity during a certain period of time, mostly to shareholders and other people that may be interested. It also has an impact on stock exchange, concerning the public companies, internal and external use and taxes to government. In fact, some firms abuse on the transparency of their annual report.

This is why, after the Enron scandal in 2001, the International Financial Reporting Standard (IFRS), which is a complement to the International Accounting Standard (IAS) came in progress. It was mostly to restore confidence in establishing reliability, transparency and clarity of accounts. These stringent standards may seem restrictive, especially since they upset the traditional accounting practices. Do companies really adhere to these rules? How reliable is the annual report and are those characteristics apply to the financial system?

As an example, we will use an Italian successful multinational call Parmalat, specialized in selling milk, yogurt and cream, founded by Callisto Tanzi in 1961.

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The Parmalat scandal has been, until 2003, the case with the biggest crack in Europe.

There are 150,000 savers who have never been fully repaid, and real economic ruin for many families. The Parmalat shares were often considered low risk, therefore were supported by many banks and consequently a high number of small savers. Only that society made wrong actions and financial transactions, affecting their performance on the stock market and its investors.

The trust dropped when the Standard and Poor's, responsible for classifying and analyse the market research on behalf of the MacGraw-Hill and categorize companies according to economic criteria, it announced that the Tanzi's company belonged to the level CC, which is one of the worst, and thought it was on the verge of bankruptcy and a step away from no longer able to make back the bonds.

When the scandal came out, Callisto Tanzi made public the fact that he had a company store for almost four billion euro to the Cayman Islands, on behalf of the company. With this money he claimed that he could compensate investors. But shortly after it was discovered that the news was nothing but a farce staged to stop the panic, and that the proceeds of the account were not paid more than the personal account of their leaders.

After the crisis, the patron of the company was charged with false accounting, and savers hit by the crisis have been converted their bonds into new shares Parmalat, in order to repay at least part of the losses.

Unfortunately, the parmalat annual report for 2002 is impossible to find as the Consob (commissione di controllo dell'attività della Borsa), which is the national audit board of the stock exchange, has asked to cancel all the information on the report to the Italian authorities. We will concentrate on the 2009 annual report.

The parmalat annual report is very long as it analyse every single aspects of the company. We will analyze the "Financial Statement", looking at the auditor's report, income statement and the balance sheet.

The auditor's report confirms that the report of a company is free from any mistakes. It is an essential tool for the three quality keys: reliability, transparency and clarity. Thanks to this feature the shareholders and other people that are interested can rely on this tool and be more confident on the information given by the accountants. In fact, it is because of the auditor's report that the Italian Parmalat's scandal was discovered.

Another important aspect of a company account is its income statement, is the budget document that shows the revenues and costs for a certain period of time, the gain (positive) or loss (negative) can be determinate. It is mainly to help the managers and investors to have a clear idea on the company performance for this period so that they are able to compare with the previous report and see how the company is performing on certain aspects.








Net sales revenues



amount from transactions with related parties



Other revenues



amount from transactions with related parties

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Cost of sales



amount from transactions with related parties



Distribution costs



amount from transactions with related parties



Administrative expenses



amount from transactions with related parties



Other (income) expense



amount from transactions with related parties



Litigation-related legal expenses



Allowance for losses of subsidiaries






Financial income



amount from transactions with related parties



Financial expense



Other income from (Expense for) equity investments



amount from transactions with related parties






Income taxes












The 2009 income statement compared to the 2008 is not doing so well. There is a decrease in revenue, therefore in profit, which is the most significant figure to understand a company performance. We can see from the table above that the profit decrease about 40 from 2008 to 2009.

The balance sheet is a document drawn up at the end of every accounting period, which will represent the financial position of the company and the economic result. This information tells what happened in the company during the year, which was the volume of revenues and costs, whether the management has resulted in a gain or loss. It is useful to look at the liabilities when analyzing the market, productive and financial performance of a company. A company that has debts is always problem and because capital = asset - liabilities, it is necessary that the liabilities should be as small as possible. When a company has the assets smaller than liabilities, it means that the firm is having problem and tend to be poor. There seems to be no problem regarding Parmalat as we can see in on the data below.








Share capital



Reserve for creditor challenges and claims of late-filing creditors convertible exclusively into share capital



Statutory reserve



Shares subscribed through the exercise of warrants



Other reserves and retained earnings



Interim dividend



Profit for the year









Long-term borrowings



Deferred-tax liabilities



Provisions for post-employment benefits



Provisions for risks and charges



Provision for contested preferential and pre deduction claims









Short-term borrowings



amount of intra-Group financial payables



Trade payables



amount of intra-Group payables



Other current liabilities



amount of intra-Group payables



Income taxes payable






Liabilities directly attributable to held-for-sale assets



























The net assets have increase of €130,807,474 from 2008 to 2009. We can now say that Parmalat has got a good year despite its history. Looking at the liabilities there has been a decrease of €75,642,695 which is another information that show the great performance of the company. Since the liabilities are poor and the assets are greater; the capital is doing well. But after the scandal of 2003, Parmalat's revenue and profit is going up and down as we saw before. Although the company is increasing, after the crisis the firm went through, it rising at another rate.

The Value added gives the people a clear idea on how the company is doing. In fact, it is one of the features that consumers and others look to understand the firm's, as it is what better describe the company's wealth.

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It is important to look at a company's account to get a detailed understanding on how the firm is performing. However, it is useful to read the news for more updated information regarding the company like we saw for the Parmalat case. It is also important to be able to compare with other companies and see how they are doing, see the market share with the current economic condition. The example that has been used for this essay does not seem to have any kind of problem getting through the current economic crisis but as we saw before the scandal in 2003 left some scars on the company.

Annual report and account are useful until a certain point in understanding and analysing its market, productive and financial performance only if the company stick to the quality keys, such as reliability, relevancy and understanding.


Essay 3: "To what extent can improvements in productive flow and product quality lead to an increase in sales and profit? Use examples to critically examine the links."

Every managers or owners want to achieve their main objective; maximise the total opportunity cost, using planning and directions to enhance the performance of the company by developing their resources. It is call the Strategic management. To what extent can improvements in productive flow and product quality lead to an increase in sales and profit?

In the first part of this essay, we will look at how quality and profitability are assest, then we will look at different concepts and theories that encourage an increase on sales and profit like the corporate strategy, the theory of constraint, economies of scale, scientific management, Fordism and Taylorism. In the third part, we will analyse some of the concepts that will tend to have no change and maybe a decrease in the total opportunity cost per unit.

There are few ways on assessing the quality of a product and its profitability. To have an idea on the profit earned by the company; the profit margin can be calculated by finding the net profit by the percentage of the revenue. The calculation is Net profit after tax divided by the revenue time a hundred percentages.

A low profit margin means a low margin of safety: there are more risks than a decrease in sales will erase profit and result in a net loss. Profit margin indicates the tariff strategy and shows how the costs are controlled. There are differences in competitive strategy and product mix because the profit margin varies among different companies.

The quality can be calculate thanks to the Quality Control, a method that is used by the companies to make sure that their products have a certain standard of quality, testing them to cover the defects that may come after the customer's purchase. The quality control is send to the management that decides to either release or not the good; as the brand's reputation would be seriously affected but also because the costs will be exuberantly high to take every goods and revise them. Toyota is the best example; in 2002, the Japanese car brand faced a very hard period concerning quality control.

The first model that will be analyzed is the corporate strategy that has been present by Johnson, Scholes and Whittington. This theory present the three keys success criteria that evaluate the strategic option to have a rise in the sale and profit when the firm has risen the productive flow and the product quality. The theory believe that suitability, feasibility and acceptability are the answer to the planning for the future.

Suitability corresponds to the following question -would it work? - is based on the rationality of the project. Feasibility is concerned with the availability of the resourced need it to achieve the goal -will they work it? -. Acceptability is linked to the stakeholder as it looks closely at the return, risks and reactions; which are the negative side that we will analyse in the second part of the essay.

The second model is the Theory of constraints (TOC); which is an idea that has been introduced by Dr. Eliyahu M. Goldratt in 1984. It is an approach that punctuates business practices to deal with limitation to maximize profitability and quality. The theory is based on critical questions on the companies themselves regarding competitive improvement, key technologies and techniques, improvement and investment opportunities. There are some constraints that can either be capacity, market, policy, logistical or behavioural form that limits the improvement of the firm.

Another reason that the improvement in productive flow and the quality make the sale and the profit increase, is the economies of scale's concept; which states that due to an increase in output, there are some cost advantage. In fact this statement works in the long run, where the price per units decreases as the quantity rise because some costs disappear, like the fixed costs. The economies of scale is important as it shows that a growth in the production leads to a decrease in the price of the good or service, as the company can afford to decrease it.

The scientific management is also known as Taylorism. Frederic Taylor has developed it between the 1880s and 1890s. The idea is about the task specification on every worker, where some are more productive mentally and some other they will be better doing work where more strength is needed. This project leads to a higher productivity and a higher quality as the workers do what they are best at doing.

The Fordism is a philosophy of manufacture where the aim is to have a higher productivity by minimizing the costs, whereas Taylorism is to maximising the profit, by using the assembly line and cut every part of the production in small de-skilled task. In this case, the quality is not the number one priority as it take in consideration only standardize goods.

In a perfect economic world, we would say that due to a rise in the quantity produced, it will lead to an increase in price, therefore the demand will be lower, as it is shown on the graph below.








It is logical to believe that if the quality of a product has evolved, the demand will increase, as the customers want the best relation between the price and the quality. Now the question is; does the profit will be proportional to the increase in sale? Can the business afford an increase in the quality of their product?

The quality is a fundamental factor for demand of a good and service. It is necessary to have quality control on a product; because the product tends to be cheaper when the quality is low as the rarity makes it more expensive. In fact, some people do not put quality as their priority to save money; this may have repercussions on the customer's health.

The quality of a product is an issue for all companies, it changes from one an other; some firm have problem finding the quality that they are prepared to pay because of their high expectations to have a high quality product which make it unique. Some others take risks finding the right relation between the price and the quality, as costumers may change to a substitute with a little change in price.

The size of the firm is necessary to have a better understanding on quality. It is logic that the quality is easier to deal with smaller firms, as the control on price and the customer's behaviour can be more accurate. For example, a small business; like the Japanese restaurant in Stains at the corner of Clarence Street, called MOMO, knows that it can manage quality and price at his best because it is a very small restaurant with a very few employees, which most of them are family members. But if that same little sushi place decides to extend their production, the quality might not follow; therefore the sale will decrease and the profit will be less proportionate.

Some business's concentrate on the quality of their products, therefore they can manage to give the very best to their customers. In that situation, the firm that have such a high level of quality cannot rise the price too high, over wise the demand will be minimize as very few people can afford and the firm will fail.

One of the factors that will prevent from a rise in profit is the shift of customers to a substitute good. Some people like the rarity of a good or service, therefore if the production becomes too massive the customers might not like it and shift to another business with standard innovation, this is usually the case for luxury good.

We have seen that the quality and the productive flow are very closely linked to sales and profit. Looking back at the essay, there are many ways of programming and controlling the results of profits and sales, except if factors come to affect the market. Arieu said in 2007, "there is consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context". It is the same in Italian; "Chi va piano, va sanno e chi va sanno, va lontano". The two want to say that if the management organisation does things properly and slowly, nothing can go wrong, except if other factors from the outside world come to affect the market.


Essay 8: "Discuss how the different stages of the product life cycle can affect a business's cost recovery performance? Use examples."

The product life cycle is a concept that analyses a product and its industry over time, based on the revenue. It is divided in four main stages, introduction, growth, maturity and decline, which will be analyzed observing the cost recovery. It is a system that ensures that the full costs of a project are covered or funded. The life cycle concept is an appropriate comparison to understand what happen to goods and industries over-time.

The product initiation is called "development stage". It is not one of the formal stages of the product life cycle but it is worth to mention it, as the costs begin to accumulate due to investments.

At this stage, the only case where there could be cost recovery is if consumers advance the money needed to produce the good, so that they are prioritized when the product is released. This situation is possible when the buyers are enough confident with the company. There can be two possibilities when the company has a positive reputation, either because is already known or because the firm has the approval of a big institution, like the government. In this case, the sales volume at the development stage will not start from zero but higher on the y abscise.

The first stage of the product life cycle is called "introduction", it is the point where the product enter the market. The size of the market and growth are very little and the marketing costs are high, due to testing the product. It is a crucial moment for the good; it has to be carefully monitored to make sure that it starts to grow properly to maintain a strong reputation so that adopters start consuming the product.

To launch the product, it should have a low price to encourage the consumers to make an immediate purchase, but if the company decides to do so, it sacrifice the long-term sales and also reduce their margins making it more difficult and time consuming before the product first become profitable and hits its break-even level.

The cost recovery at this stage is very little due to all the costs added to produce the good in first place but especially because of the payback period, which is the time that is needed to repay the investments back so that the company has less debt as possible.

If the good is making negative profitability, it is better for the company to take it off the market, not because of little success but because of the high cost of production.

The second stage is called "growth" as there is a rapid growth in sales, therefore profit, due to the increase in output and possibly a decrease in price thanks to the economies of scale. It refers to the cost advantages in producing higher quantity of output as the average cost per unit decreases. As the volume of sales increases the manufacturing and the promotional spend per unit decreases. Therefore there is a bigger possibility to increase the cost recovery, as is it easier for the company to make profit.

At this point, pioneers replace adopters, a massive quantity of consumers that have heard about the product, waiting for the price to decrease and potential weakness to iron out because purchasing the good.

When the barriers of entry are open; the growth on sales makes competitors more enthusiastic about the new product, therefore there are new entrances in the market. They reduce the profitability as some consumers may switch to the substitutes.

It is time for the company to find ways to boost the market so that growth continues without petering out and make the consumers buy a new product or expend in other countries with other cultures. Some ways would be to add a new product with a better rendition like improving the quality and new design or adapting the good to different tastes. Other way is to decrease the price but this is not a good idea if the firm is aiming to a long lasting maturity stage.

The "maturity" is the third stage of the product life cycle; it marks the turning point in the product success. Companies fight to keep the market share and want to stay in competition that is very intense as most of the profit is earned at this point. The firm wants to improve the product quality efficiency and is likely to spend less money on development and research but more on modification and improvement.

The cost recovery is at its best in this period as the firm earns maximum of the profit. The company needs to find every possible marketing management techniques to keep the sales at this rate as long as possible, like modify the product quality, reliability or some esthetic features.

The multinational corporation called Apple is a good example to explain this feature. In fact the brand is now worldwide known but it has not always been like this, especially in the early years. Apple is selling thousands of items everyday and big part of the population own more than one product from the company. If fact, Apple releases new products every once in a while to keep up in the market and keep the consumers existed about the new technologies. The best example is the iphone, released in 2007. Nowadays there have been five changes for this phone including the brand new "conference call" option.

Most of the time, products come to the "decline" phase, due to a drop in sales and profit. The reasons for this decline could be because of a development in technology, a change in the consumer behavior or a rough increase in competition. There are few ways that can be used to limit the damages or even pushing the interruption of production a bit further, for example take out some production cost to have cheaper facilities or caring for the amount of stock so that there is no left other.

The cost recovery gets closer as the sales are dropping, as the company must decrease the price of his product to limit the decrease in number of consumers. It is better for the firm to close production when the profitability becomes to low.

We can tell that the product life cycle curve is proportionate to the profit and to the cost recovery. In fact the more it gets higher on the y-abscise, the more the product is doing good and the more it gets far from the x-abscise the more the product is better of. It is shown on the graph, the distance between the cost recovery and the curve of the product life cycle, the bigger the distance the better the product and the bigger the profit as well. The cost recovery can be seen as a fixed cost such as if a company produce the good at £20 and sell it at £100, the cost recovery will be until £20 and the profit £80.

We have seen in this essay that the cost recovery is proportionate to the product life cycle's curve, where at the introduction phase the curve is low due to the volume of sale and the cost recovery is low because of all the cost of production and marketing. In the second stage, there is a growth due to the positivity of the product so the sales grow higher and the cost recovery is better off as the form where able to pay the investment back and other cost. In the maturity stage, the sales and profit are on the higher level possible in this market and so is the cost recovery. But in the last phase, there is falling down of the sales, profit is lower and it is better to close the production before it reaches the cost recovery point.

We have also seen that it is possible to change the life cycle of the product if the managers of the company find ways to boost the market like advertising or make some change to the product, therefore everything is possible.