5 Jones and Cousin, a public quoted company, operate in twenty seven different countries and earn revenue and incur

costs in several currencies. The group develops, manufactures and markets products in the medical sector. The growth

of the group has been achieved by investment and acquisition. It is organised into three global business units which

manage their sales in international markets, and take full responsibility for strategy and business performance. Only

five per cent of the business is in the country of incorporation. Competition in the sector is quite fierce.

The group competes across a wide range of geographic and product markets and encourages its subsidiaries to

enhance local communities by reinvestment of profits in local educational projects. The group’s share of revenue in a

market sector is often determined by government policy. The markets contain a number of different competitors

including specialised and large international corporations. At present the group is awaiting regulatory approval for a

range of new products to grow its market share. The group lodges its patents for products and enters into legal

proceedings where necessary to protect patents. The products are sourced from a wide range of suppliers, who, once

approved both from a qualitative and ethical perspective, are generally given a long term contract for the supply of

goods. Obsolete products are disposed of with concern for the environment and the health of its customers, with

reusable materials normally being used. The industry is highly regulated in terms of medical and environmental laws

and regulations. The products normally carry a low health risk.

The Group has developed a set of corporate and social responsibility principles during the period which is the

responsibility of the Board of Directors. The Managing Director manages the risks arising from corporate and social

responsibility issues. The group wishes to retain and attract employees and follows policies which ensure equal

opportunity for all the employees. Employees are informed of management policies, and regularly receive in-house

training.

The Group enters into contracts for fixed rate currency swaps and uses floating to fixed rate interest rate swaps. The

cash flow effects of these swaps match the cash flows on the underlying financial instruments. All financial

instruments are accounted for as cash flow hedges. A significant amount of trading activity is denominated in the

Dinar and the Euro. The dollar is its functional currency.

Required:

(a) Describe the principles behind the Management Commentary discussing whether the commentary should be

mandatory or whether directors should be free to use their judgement as to what should be included in such

a commentary. (13 marks)