Finance and accounting


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  • في عام 2010، أطلقت الصين برنامجا تجريبيا يسمح أن شركات السمسرة المؤهلين لإجراء عمليات التجارة الهامشية والبيع على المكشوف. هذا هو محاولة لتوسيع السوق المتخلفة، وتعميق أسواق رأس المال في البلاد، وتنويع خطوط ربح شركات السمسرة 'وسط ضعف أداء الأسهم المحلية. على الرغم من أن البيع على المكشوف يتيح للمستثمرين لجعل الحرف والرهان على التوقعات بأن السوق سوف تنخفض، لا يتم رسمها المستثمرين الصين إليها، وذلك جزئيا بسبب العدد المحدود وأنواع الأوراق المالية الأساس
  • Finance and accounting

    1. 1. FINANCE & ACCOUNTING Mini-MBA Course Ch.4 Prepared by: Amr Abdel-Aziz Computer science, Helwan University
    2. 2. INTRODUCTION  Finance and accounting are two common topics within almost every MBA program. Depending on the nation, various governments have unique requirements that tie into reporting practices for organizations. While they are connected functions within all organizations, teaching them separately tends to lose the interconnectedness necessary to avoid financial fallouts. So rather than treat these topics in separate chapters like courses within an MBA program, we’ve placing them together in the same chapter. We’ll break down this chapter into two sections, one for finance and one for accounting. After both are covered, we’ll briefly cover the connections between the two along with other topics.
    3. 3. INTERNATIONAL FINANCIAL MANAGEMENT  The Global Financial Environment – International financial management came about as a result of the trade liberalization phenomenon, where countries started reducing trade barriers unilaterally and opening their doors for each other. International trade flourished due to initiatives like the General Agreement on Trade and Tariffs (GATT), the North American Free Trade Agreement (NAFTA), and World Trade Organization (WHO). In recent years, Brazil, Russia, India, and China (BRIC) account for two-fifths of the gross domestic product (GDP) of all emerging countries, mainly due to their low labor and production costs. Four major aspects that differentiate domestic financial management and international financial management are: introduction of foreign currency, political risk, market imperfections, and enhanced opportunities. Multinational corporations (MNCs), which produce and sell goods or services in more than one nation, are major players in a global financial environment. McDonalds, PepsiCo, Microsoft, British Petroleum, Apple, Caterpillar, Sony, Deutsche Telekom are some of the successful MNCs.
    4. 4. CURRENCY BASICS  International business involves foreign currency transactions for at least one party. There are three main currency systems: floating currencies, fixed (or pegged) currencies, and currencies in target zones or crawling pegs. The floating currencies system is one which countries allow the value of their currencies to be determined freely in the foreign exchange markets. Major currencies, such as the dollar, yen, euro, and pound fall into this category. In most countries, the government has control over the money supply through a central bank.
    5. 5. CURRENCY CRISES  The price of foreign currency in terms of the domestic currency is the exchange rate, e.g. the Mexican peso price of the Canadian dollar. Many developing countries have fixed (or pegged) exchange rate systems. With the fixed currencies, governments allow their currencies to trade at particular “pegged” values relative to a basket of currencies; namely, the dollar, the euro, the yen, and the pound. The fixed-rate proponents believe that the currency volatility is not beneficial for international trade. Instead of a standard pegged exchange rate system, some countries have opted for a currency board, which issues base money that is fully backed by a foreign reserve currency and fully convertible into the reserve currency at a fixed rate and on demand. To seek exchange rate stability, the European Union (EU) countries use the euro that is issued by the European Central Bank. 
    6. 6. CURRENCY CRISES  During the past few decades, both the developed and developing countries encountered several waves of currency crises. Some of the explanations of the crises include: (a) depreciation (devaluation) of one country’s currency makes its exports less expensive, thereby creating pressure on its competitors to also devalue their currencies; (b) financial interdependence among countries; and (c) crisis experienced in one country causes other countries with similar characteristics to be perceived negatively.
    7. 7. ADVANTAGES AND DISADVANTAGES OF ADOPTING THE EURO  Currently, 23 countries are using the euro. Sharing a currency makes prices easier to understand and compare, lowers transactions costs, removes exchange rate uncertainty, and enhances competition. The potential cost of a single currency is that if there is a sudden fall in demand for a country’s main export product or a sudden increase in the price of one main input for a country’s manufacturing sector, it can no longer break off a recession or unemployment through monetary policy. An EC country facing higher inflation than other EC countries will soon lose its competitiveness with lower exports, lower economic growth, and declined tax revenues. This happened to Greece, Spain, and Portugal in recent years. Many U.S. economists think that Europe is not well suited to be a monetary union because the shocks hitting European countries are quite asymmetric (different among countries), given their cultural, linguistic, and legal differences.
    8. 8. FOREIGN EXCHANGE MARKETS  The foreign exchange ( [ Forex ] in short) market is a large, overthe-counter market composed of banks and brokerage firms and their customers in the financial centers of countries worldwide. Exchange rates can be quoted in direct terms as the domestic currency price of the foreign currency or in indirect terms as the foreign currency price of the domestic currency. Exchange rates between two currencies that do not involve the U.S. dollar are called cross-rates. Triangular arbitrage keeps cross-rates in line with exchange rates quoted relative to the U.S. dollar. An example of triangular arbitrage is to buy some pounds with euros and then simultaneously selling the pounds for dollars and selling the dollars for euros. If the ending number of euros is greater than the starting number, there is a profit. Traders quote two-way prices in a bid-ask spread; and they buy one currency at the low bid price and sell that currency at the higher ask (offer) price. Changes in flexible exchange rates are described as currency appreciations and depreciations.
    9. 9.  Foreign Direct Investment (FDI) – FDI refers to the acquisition of existing companies in a foreign country. A less costly entry mode is to establish a new subsidiary. While the growth in FDI in developing countries, such as China and Africa, was faster than in developed countries, FDI remains primarily an activity between developed countries. FDI flows to and from developed countries by the global financial crisis that began in 2007 has slowed economic growth. An improvement in FDI depends on improved growth prospects in the world economy and financial market conditions.
    10. 10. TRANSACTION EXCHANGE RISK  Transaction Exchange Risk, Foreign Exchange Risk, and Hedging – Fluctuations in exchange rates while waiting for delivery of goods and payment of goods in a foreign country could create potential losses or gains for the parties involved. The possibility of taking a loss is called “transaction exchange risk.” Since exchange rates can fluctuate in an unfavorable direction, companies dealing in different currencies have to mitigate and manage the risk that the foreign currencies will depreciate in value before payments are received. With the goal of managing foreign exchange risk and transaction exchange risk, forward foreign exchange market (also called the forward market) exists to allow companies to hedge (protect) themselves against transaction exchange risk by entering into additional contracts that would potentially provide profits.
    11. 11. GLOBAL COST OF CAPITAL  The top oil companies (BP, Chevron, ConocoPhillips, ExxonMobil, Shell) are posting unprecedented profits in 2011. Are these companies creating value for their shareholders? The answer is not just based on the level of these companies’ earnings, but also on: (a) how large an investment has been made in order to produce these earnings; and (b) how risky the investors perceive the investments. From a financial standpoint, we need to know the rate of return earned on the invested capital as well as the market’s required rate of return on the invested capital. The cost of capital is the rate that must be earned on an investment project if the project is to increase the value of the common stockholders’ investment. ExxonMobil’s April 2012 growth period return on capital and cost of capital are 40% and 11.35%, respectively. Its April 2012 perpetual period return on capital and cost of capital are 15% and 9.36%, respectively. By realizing a premium that is over its capital cost, it is creating value for its stockholders.
    12. 12. INTERNATIONAL CAPITAL BUDGETING  Capital budgeting is the process by which corporations decide how to allocate funds for investment projects. The basic principle of capital budgeting is that all projects with a positive adjusted net present value (ANPV) should be accepted. Two valuation alternatives to ANPV are: the weighted average cost of capital (WACC) approach and the flow-to-equity (FTE) approach.
    13. 13. GLOBAL INVESTMENT MARKET  International Stock Markets – An MNC can obtain additional funds by issuing shares to its existing shareholders or new shareholders. Most MNCs have shares listed on the stock market of the country in which they are headquartered, but many list their shares on several stock exchanges around the world. The largest stock market capitalizations are in the United States, the United Kingdom, and Japan. A trading system may be order driven or price driven. In a price-driven system, dealers stand ready to buy at a bid price and sell at an ask price. NASDAQ (stands for “National Association of Securities Dealer Automated Quotation system) in the U.S. is such a system. In an order-driven system, share prices are determined in an auction that brings together the supply and demand of shares. The Tokyo Stock Exchange (TSE) in Tokyo is an example of an order-driven system. The New York Stock Exchange (NYSE) has elements of both systems.
    14. 14.  Trading on Margin and Selling Short - A "margin account" is a brokerage account in which the brokerage firm lends the investor the cash with which to buy securities. The brokerage firm charges a margin rate, which is interest that must be paid on the amount borrowed. The "margin" in the account is the amount of money or securities the investor must deposit in order to create a loan against securities held in the account. A margin account, therefore, offers increased purchasing power for additional securities. Margin accounts can also be used to enhance anticipated gains from the short sale of a stock. Selling a stock short means that the investor would borrow stock from a firm and sell the stock with the hope that the stock's price falls. If the price falls, the investor would then buy the stock back at the lower price and return it to the broker, pocketing the difference.
    15. 15.  Trading on Margin and Selling Short - A "margin account" is a brokerage account in which the brokerage firm lends the investor the cash with which to buy securities. The brokerage firm charges a margin rate, which is interest that must be paid on the amount borrowed. The "margin" in the account is the amount of money or securities the investor must deposit in order to create a loan against securities held in the account. A margin account, therefore, offers increased purchasing power for additional securities. Margin accounts can also be used to enhance anticipated gains from the short sale of a stock. Selling a stock short means that the investor would borrow stock from a firm and sell the stock with the hope that the stock's price falls. If the price falls, the investor would then buy the stock back at the lower price and return it to the broker, pocketing the difference.
    16. 16. EXAMPLE [C]  In 2010, China launched a pilot program that allowed qualified brokerages to conduct margin trading and short-selling operations. This is a bid to expand the underdeveloped market, deepen the country's capital markets, and diversify brokerages' profit lines amid a weak performance of local stocks. Although short selling allows investors to make trades and bet on expectations that the market will decline, China's investors are not drawn to it, partly because of the limited number and types of underlying securities.
    17. 17. DERIVATIVE SECURITIES  Forwards, Futures, Options, Swaps – A derivative security is an investment from which the payoff over time is derived from the performance of an underlying asset. Examples of derivative securities include: forwards, futures, options, and swaps, which are financial contracts. The values of these financial contracts depend on the values of underlying asset prices, e.g. exchange rates, interest rates, or stock prices.
    18. 18. HEDGING METHODS  Several hedging (protection) methods are available to companies that desire to eliminate short-term transaction exposure. The most common method is using forward contracts. A forward contract between a bank and a client calls for delivery of a specified amount of one currency against payment in another currency at a specified future date. The specified exchange rate is called the “forward rate.” Besides forward contracts, there are other methods of hedging transaction exchange risk:
    19. 19. OTHER HEDGING METHODS    Futures Contracts – A futures market hedge is essentially the same as a forward market hedge. If a company purchases a futures contract to hedge its foreign currency accounts payable due in a few months, an increase in the foreign currency would cause a corresponding increase in the accounts payable due. Currency Options – Options provide one party the right to buy or sell a specific amount of currency at a specified exchange rate on or before an agreed-upon date. If the exchange rate is favorable, the option holder can exercise the option. If the rate moves against the holder, the option can be left to expire. Currency Swaps/Credit Swaps – Swaps are agreements by two parties to exchange specified amounts of currency or credits now and to reverse the exchange in the future. Default on a swap generally results in no loss of investments or earnings.
    20. 20. CURRENT FINANCIAL PERSPECTIVES  The Global Financial Crisis – The crisis is commonly believed to have started in 2007 in the U.S. when the value of sub-prime mortgages (non-conventional mortgages offered to borrowers with lower credit ratings at higher interest rates) caused serious liquidity issues. Reacting to the crisis, the U.S. Federal Bank injected substantial amount of capital into the financial markets. By September 2008, the crisis deteriorated as the stock markets around the world crashed. In the U.S., the value of homes tumbled. Borrowers with negative equity in their homes defaulted on their loans. Banks faced a severe liquidity crisis when they repossessed homes worth less than the original loan amounts.
    21. 21. CURRENT FINANCIAL PERSPECTIVES  Credit Rating Downgrades – For the first time in history, the U.S. credit rating was downgraded from AAA to AA+ in 2011 by Standard & Poor’s (S&P), a nationally recognized credit-rating agency. Although Moody’s and Fitch Ratings, two other U.S. credit-rating agencies, reaffirmed an AAA rating for the U.S., the outlook on U.S. debt was classified as “negative.” Responding to the downgrade, China, U.S.’s largest foreign creditor, called for a new global reserve currency to take the place of the dollar.
    22. 22. EXAMPLE [D]  In February 2012, Moody’s downgraded the credit ratings on Italy, Portugal, Spain, Slovakia, Slovenia, and Malta, while dropping the outlooks for France, Britain (currently has the highest AAA rating), and Austria from “stable” to “negative”. These three countries are put on negative watch due to uncertainty over Europe’s handling of its ongoing debt crisis. Moody’s has recommended western nations which have high debts to prioritize programs to stimulate growth and cut deficits which were brought by the 2008 financial crash.
    23. 23. PRACTICING YOUR KNOWLEDGE  Perform a historical review of currency exchange rates to determine if your country’s currency has strengthened or weakened relative to another currency (e.g., the U.S. dollar) for the last three years and determine the impact that change has had on import and export transactions with companies in that country (e.g., U.S.). Historical rates are available at: Review the notes to consolidated financial statements of a Fortune 500 company and see how the company discloses derivatives and the type of hedging activities used.
    24. 24. ACCOUNTING Accounting has three primary focuses. Financial accounting concentrates on the preparation and provision of financial statements. Management accounting is concerned with providing information to internal parties so that they can plan, control operations, make decision, and evaluate performance. Cost accounting intersects between financial and management accounting by providing product cost information to external parties for investment and credit decisions, and internal managers for planning, controlling, decision making, and evaluating performance.
    25. 25. MANAGEMENT AND COST ACCOUNTING  Classification of Cost – Cost can be classified as: (a) direct or indirect; (b) variable (constant per unit), fixed (constant in total), or mixed (fluctuate in total with changes in activity); (c) unexpired (assets) or expired (expenses or losses); and (d) product (inventoriable) or period (selling, administrative, and financing). To convert raw material into finished goods, manufacturers incur three inventory accounts: raw material, work in process, and finished goods. Overhead is any cost incurred to make products or perform services that is not direct material or direct labor.
    26. 26. MANAGEMENT AND COST ACCOUNTING  Flexible Budget – A flexible budget is a planning document that presents expected variable and fixed overhead costs at different activity levels. The activity levels cover the contemplated (relevant) range of activity for the upcoming period. Within the relevant range, costs at each successive activity level should equal the previous activity level plus a uniform monetary increment for each variable cost factor.
    27. 27.  Standard Costing – A standard is a performance benchmark or norm used for planning and control purposes. A standard cost system determines product cost by using standards or norms for quantities and/or prices of component elements. Developing a standard cost involves judgment and practicality in identifying material and labor types, quantities, and prices as well as an understanding of the types of organizational overhead costs.
    28. 28.  The Budgeting Process – Budgeting is the process of formalizing plans and translating qualitative narratives into a documented, quantitative format. A well-prepared budget can: (a) effectively communicate objectives, constraints, and expectations to personnel throughout an organization; (b) translate a company’s strategic and tactical plans into usable guidelines for company activities; and (c) become a performance benchmark. The budgeting process results in the preparation of a master budget. The master budget is a comprehensive set of budgets, budgetary schedules, and budgeted (pro forma) organizational financial statements, prepared for a specific time period and is static.
    29. 29. FINANCIAL ACCOUNTING AND REPORTING  Financial Reporting and Accounting Challenges – The role of financial reporting is to assist in the making of business and economic decisions by providing unbiased information. The global financial crisis has affirmed the increased complexity of Accounting. Some analysts projected that in the future, there will be a greater regulatory focus with a single global accounting model that advocates integrated reporting.
    30. 30.  Review of Financial Statements – Financial statements provide useful information about the financial position and cash flows of an organization to support economic decisions by its stakeholders. Financial information is provided in four separate financial statements: statement of financial position (balance sheet), statement of earnings and comprehensive income (income statement), statement of cash flows, statement of investments by and distributions to owners (statement of owners’ equity).
    31. 31.  Cash vs. Accrual Accounting – Cash basis of accounting recognizes revenue only when cash is received and expenses only when cash is dispersed. Accrual basis of accounting recognizes revenue when it is earned and expenses when incurred, without regard to the time of receipt or payment of cash.
    32. 32.  Revenue, Expenses, Gains, and Losses – Revenues are inflows and other increases in assets, or reduction of liabilities. Expenses are outflows and other decreases in assets, or increases in liabilities. Gains are increases in net assets (equity) that result from transactions other than those related to the normal ongoing operations. Losses are decrease in net assets (equity) that result from transactions other than those related to the normal ongoing operations.
    33. 33.  Realization, Recognition, and Matching – Realization actually occurs when noncash resources and rights are converted into cash or receivables. Recognition relates to the actual reporting of an item in the financial statements of an entity. Matching is the process whereby costs that are associated with particular revenues are recognized as reductions of those revenues or as expenses in the same period.
    34. 34.     Statement of Financial Position (Balance Sheet) – It provides information about an entity’s assets, liabilities, and equity, as well as their relationships to one another as of a particular point in time. It reports the structure of the entity’s resources and financing. Statement of Earnings and Comprehensive Income (Income Statement) – the statement of earnings includes the effects of all revenues, expenses, gains, and losses occurring during the accounting period and separates earnings (net income) from comprehensive income. Comprehensive income incorporates earnings and items that are excluded from earnings. Statement of Cash Flows – It reflects the entity’s cash receipts classified by major sources, and the entity’s cash payments classified by major uses, for the period. Those sources and outflows include: operating activities, investing activities, and financing activities. Statement of Investments by and Distributions to Owners (Owners’ Equity) – It reflects the increases or decreases in equity resulting from transactions with the owners.
    35. 35. RECORDING TRANSACTIONS       Each transaction affects at least two accounts and one or more of the three basic accounting elements (assets, liabilities, and owner’s equity). Accounting transactions can be classified into 5 groups: increase in an asset offset by an increase in owner’s equity; increase in an asset offset by a decrease in another asset; increase in an asset offset by an increase in a liability; decrease in an asset offset by a decrease in a liability; decrease in an asset offset by a decrease in owner’s equity.
    36. 36. RATIO ANALYSIS  In order to gain insight into an entity’s financial decision making and operating performance, financial data are converted into ratios to facilitate the analysis. A ratio is one figure or balance divided by another. The goal of financial statement analysis is to measure whether an entity’s figures and balances fall within certain acceptable ranges that are derived from the entity’s history, the industry, the major competitors, or the economy. The five major types of financial ratios are: liquidity ratios, coverage ratios, debt ratios, activity or efficiency ratios, and profitability ratios.
    37. 37. REVENUE RECOGNITION ISSUES  In order to recognize revenues on the income statement, the following conditions must be met: (a) the earnings process must have been substantially complete; (b) the entity must have reasonable assurance of payment; and (c) the transaction cannot be cancelled or revoked. If any of the conditions have not been met, revenue will have to be deferred until an appropriate time in the future.
    38. 38. EARNINGS QUALITY AND EARNINGS SURPRISES  Earnings quality is the extent to which a firm's reported earnings accurately reflect income for that period. Firms using conservative accounting practices tend to penalize current earnings and are said to have high earnings quality. Earnings surprise is a situation where a publicly traded company’s earnings report indicates higher or lower profit than analysts expected. The situation can lead to a sharp increase or decrease in the stock price. Many companies avoid earnings surprises by slowly distributing information before the earnings report is released to the public.
    39. 39. INVENTORY AND COST OF GOODS SOLD (COGS)  Inventory represents items of tangible personal property that: (a) are held for sale in the ordinary course of business; (b) are currently in the production process to be held for sale; and (c) will be consumed in the production process of goods or services. Both inventory and COGS are monitored at the end of the year by a periodic system or on an ongoing basis by a perpetual system. The cost of the inventory and COGS can be determined by using: (a) the average cost method, (b) the first-in, first-out (FIFO) method, and (c) the last-in, first-out (LIFO) method.
    40. 40.  Intangible Assets – Intangible assets are generally used to generate revenues but have no physical substance. They can be acquired from outside the entity, or they can be developed internally. Acquired intangibles are amortized, unless they have an unlimited life. Internally developed intangibles are expensed. Common examples of intangible assets are: patents, goodwill, copyrights, franchises, and trademarks.  Depreciation – Depreciation is the process of assigning or allocating the cost of a fixed asset to expense for the years in which it is used to generate revenues. Accumulated depreciation is a contra-account to the asset and is reported on the balance sheet. The asset’s book value is its cost less total accumulated depreciation recognized to date. Acceptable methods of calculating depreciation include: straight-line method, double-declining balance method, and sum-of-theyear’s-digits method.  Current Liabilities – Current liabilities are short-term obligations whose liquidation is reasonably expected to require the use of existing resources properly classified as current assets, or the creation of other current liabilities. Examples of current liabilities are: trade accounts and notes payable, loan obligations, dividends payable, accrued liabilities, property taxes. Unearned revenue is a liability because cash receipt precedes accrual-basis recognition
    41. 41.  Shareholders’ Equity - This is the residual interest in an entity’s assets after subtracting the company’s liabilities. Stockholders’ equity is presented on the balance sheet and consists of the following items: contributed capital (or paid-in capital), retained earnings, accumulated other comprehensive income, and contra stockholders’ equity items.  Earnings Per Share (EPS) – EPS is a common stock computation. It must be reported for each income period by all publicly held companies. Both simple capital structure entity (an entity that only has common stock outstanding) and complex capital structure entity (an entity with dilutive securities [securities that can be converted into common stock]) must present basic EPS (and diluted EPS, if applicable) on the face of the income statement for income from continuing operations and for net income.
    42. 42. CURRENT ACCOUNTING PERSPECTIVES   Globalization of the financial markets has prompted the need for international standards of accounting. The International Accounting Standards Board (IASB) has the sole responsibility of establishing International Financial Reporting Standards (IFRS). IFRS represent a set of international accounting standards that determine how economic transactions and related events should be reported in an organization’s financial statements. Such standards help all businesses level have a common foundation, especially when it comes to investment analysis. Currently, over 100 countries have adopted the IFRS accounting standards. Some of the countries which have not implemented mandatory adoption of the IFRS for listed companies include: India, Japan, Saudi Arabia, and the United States. For a complete list of the status of IFRS adoption or convergence by country, please go to: world.htm.
    43. 43.  According to the British Accounting and Finance Association’s Financial Accounting and Reporting Special Interest Group (FARSIG), the European Union was in favor of minimal standards, while the IASB wanted the highest common denominator. The IASB was primarily influenced by the U.S.. There were some major changes to accounting, but many items remained the same and the resulting standards were primarily historical-cost. The financial crisis focused attention on issues such as fair value, the use of which was argued to have exacerbated the crisis. The IASB was criticized for its lack of consultation and due process. Two scenarios are possible in the future: EU retention of standards or the development of an EU standard-setter.
    44. 44. ENTERPRISE RESOURCE PLANNING SYSTEMS  In order to reduce overheads, eliminate duplication of effort, improve customer service and quality, and provide timely management information, organizations are replacing their decentralized information databases with enterprise resource planning (ERP) systems. ERP systems are packaged software programs that allow companies to have a single enterprise-wide database to: (a) make quicker decisions based on real-time information; (b) improve decision making quality; (c) reconcile and optimize conflicting organizational goals; (d) standardize business processes; (e) improve procedures that protect assets and prevent falsification of accounting records; and (f) enhance audit planning and execution. The top ERP software vendors are: SAP, Oracle, Sage, Microsoft, and Infer.
    45. 45.  Is your organization using an ERP system? If so, what modules (e.g. Finance/Accounting, Human Resources, Customer Relationship Management, Project Management, and so on) does the system include? What are the advantages and disadvantages of using an ERP system that you and your colleagues have experienced? If your organization is not currently using an ERP system, is there a plan to implement it in the near future?  International Quality Standards – To compete effectively in a global environment, companies must recognize the need for and be willing to initiate compliance with a variety of standards outside their domestic borders. Standards are essentially formalized agreements that define the various contractual, functional, and technical requirements to assure customers that products, services, processes, and/or systems do what they are expected to do.  The ISO 9000 series is a primary international guideline for quality standards. The International Organization for Standardization (ISO), based in Geneva, Switzerland, developed the ISO 9000 series. Internally, ISO 9000 certification helps ensure higher process consistency and quality as well as reduce costs. Externally, ISO 9000 certified companies have an important distinguishing characteristic from their noncertified competitors.
    46. 46.  The European Foundation for Quality Management (EFQM) was founded in 1988 by the presidents of 14 major European companies with the endorsement of the European Commission to develop a European framework for quality improvement similar to the U.S. Malcolm Baldrige National Quality Award and Japan’s Deming Prize. The model is based on the premise that leadership is delivered through people, policy and strategy, as well as partnerships and resources, which all impact organizational processes. Does your company follow any international quality standards mandatorily or voluntarily?
    47. 47. PRACTICING YOUR KNOWLEDGE Obtain a copy of your company’s latest annual report or published consolidated financial statements. Read and interpret the statements with one or more of your colleagues who have working accounting knowledge, and check your understanding of items presented in the statements or discussed in the notes to the consolidated financial statements. You can download an illustrative IFRS consolidated financial statements as your reference from:   Visit the IASB website at and investigate what progress the IASB has made in developing convergent accounting standards with countries which have not fully implemented IFRS