听说ACCA考试挺难，是真的吗？

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(b) Motivators (or ‘satisfiers’) are those factors directly concerned with the satisfaction gained from the job itself. Herzberg
suggested that these included a sense of achievement, the level of recognition of the employee, the intrinsic value felt at the
job itself, level of responsibility, opportunities for advancement and the status both inside and outside provided by the job or
position held.
Motivators lead to satisfaction because of the need for growth and a sense of self achievement
A lack of motivators leads to over concentration on hygiene factors; that is those negative factors which can be seen and
therefore form. the basis of complaint and concern.

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(a) Deferred taxation

A deferred tax asset should be recognised for deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profi t will be available against which the deductible temporary differences can be utilised. The recognition of deferred tax assets on losses carried forward does not seem to be in accordance with IAS 12 Income Taxes. Cate is not able to provide convincing evidence that suffi cient taxable profi ts will be generated against which the unused tax losses can be offset. According to IAS 12 the existence of unused tax losses is strong evidence that future taxable profi t may not be available against which to offset the losses. Therefore when an entity has a history of recent losses, the entity recognises deferred tax assets arising from unused tax losses only to the extent that the entity has suffi cient taxable temporary differences or there is convincing other evidence that suffi cient taxable profi t will be available. As Cate has a history of recent losses and as it does not have suffi cient taxable temporary differences, Cate needs to provide convincing other evidence that suffi cient taxable profi t would be available against which the unused tax losses could be offset. The unused tax losses in question did not result from identifi able causes, which were unlikely to recur (IAS 12) as the losses are due to ordinary business activities. Additionally there are no tax planning opportunities available to Cate that would create taxable profi t in the period in which the unused tax losses could be offset (IAS 12).

Thus at 31 May 2010 it is unlikely that the entity would generate taxable profi ts before the unused tax losses expired. The improved performance in 2010 would not be indicative of future good performance as Cate would have suffered a net loss before tax had it not been for the non-operating gains.

Cate’s anticipation of improved future trading could not alone be regarded as meeting the requirement for strong evidence of future profi ts. When assessing the use of carry-forward tax losses, weight should be given to revenues from existing orders or confi rmed contracts rather than those that are merely expected from improved trading. Estimates of future taxable profi ts can rarely be objectively verifi ed. Thus the recognition of deferred tax assets on losses carried forward is not in accordance with IAS 12 as Cate is not able to provide convincing evidence that suffi cient taxable profi ts would be generated against which the unused tax losses could be offset.

(b) Investment

Cate’s position for an investment where the investor has signifi cant infl uence and its method of calculating fair value can be challenged.

An asset’s recoverable amount represents its greatest value to the business in terms of its cash fl ows that it can generate i.e. the higher of fair value less costs to sell (which is what the asset can be sold for less direct selling expenses) and value in use (the cash fl ows that are expected to be generated from its continued use including those from its ultimate disposal). The asset’s recoverable amount is compared with its carrying value to indicate any impairment. Both net selling price (NSP) and value in use can be diffi cult to determine. However it is not always necessary to calculate both measures, as if the NSP or value in use is greater than the carrying amount, there is no need to estimate the other amount.

It should be possible in this case to calculate a fi gure for the recoverable amount. Cate’s view that market price cannot refl ect the fair value of signifi cant holdings of equity such as an investment in an associate is incorrect as IAS 36 prescribes the method of conducting the impairment test in such circumstances by stating that if there is no binding sale agreement but an asset is traded in an active market, fair value less costs to sell is the asset’s market price less the costs of disposal. Further, the appropriate market price is usually the current bid price.

Additionally the compliance with IAS 28, Investments in associates is in doubt in terms of the non-applicability of value in use when considering impairment. IAS 28 explains that in determining the value in use of the investments, an entity estimates:

(i) its share of the present value of the estimated future cash fl ows expected to be generated by the associate, including the cash fl ows from the operations of the associate and the proceeds on the ultimate disposal of the investment; or
(ii) the present value of the estimated future cash fl ows expected to arise from dividends to be received from the investment and from its ultimate disposal.

Estimates of future cash fl ows should be produced. These cash fl ows are then discounted to present value hence giving value in use.

It seems as though Cate wishes to avoid an impairment charge on the investment.

(c) Disposal group ‘held for sale’

IAS 27 Revised Consolidated and Separate Financial Statements moved IFRS to the use of the economic entity model. The economic entity approach treats all providers of equity capital as shareholders of the entity, even when they are not shareholders in the parent company. IFRS 5 has been amended such that if there is an intention to dispose of a controlling interest in a subsidiary which meets the defi nition of ‘held for sale’, then the net assets are classifi ed as ‘held for sale’, irrespective of whether the parent was expected to retain an interest after the disposal. A partial disposal of an interest in a subsidiary in which the parent company loses control but retains an interest as an associate or trade investment creates the recognition of a gain or loss on the entire interest. A gain or loss is recognised on the part that has been disposed of and a further holding gain or loss is recognised on the interest retained, being the difference between the fair value of the interest and the book value of the interest. The gains are recognised in the statement of comprehensive income. Any prior gains or loss recognised in other components of equity would now become realised in the statement of comprehensive income.

In this case, Cate should stop consolidating Date on a line-by-line basis from the date that control was lost. Further investigation is required into whether the holding is treated as an associate or trade investment. The agreement that Cate is no longer represented on the board or able to participate in management would suggest loss of signifi cant infl uence despite the 35% of voting rights retained. The retained interest would be recognised at fair value.

An entity classifi es a disposal group as held for sale if its carrying amount will be recovered mainly through selling the asset rather than through usage and intends to dispose of it in a single transaction.

The conditions for a non-current asset or disposal group to be classifi ed as held for sale are as follows:

(i) The assets must be available for immediate sale in their present condition and its sale must be highly probable.
(ii) The asset must be currently marketed actively at a price that is reasonable in relational to its current fair value.
(iii) The sale should be completed or expected to be so, within a year from the date of the classifi cation.
(iv) The actions required to complete the planned sale will have been made and it is unlikely that the plan will be signifi cantly changed or withdrawn.
(v) management is committed to a plan to sell.

Cate has not met all of the conditions of IFRS 5 but it could be argued that the best presentation in the fi nancial statements was that set out in IFRS 5 for the following reasons.

The issue of dilution is not addressed by IFRS and the decision not to subscribe to the issue of new shares of Date is clearly a change in the strategy of Cate. Further, by deciding not to subscribe to the issue of new shares of Date, Cate agreed to the dilution and the loss of control which could be argued is similar to a decision to sell shares while retaining a continuing interest in the entity. Also Date represents a separate line of business, which is a determining factor in IFRS 5, and information disclosed on IFRS 5 principles highlights the impact of Date on Cate’s fi nancial statements. Finally, the agreement between Date’s shareholders confi rms that Cate has lost control over its former subsidiary.

Therefore, in the absence of a specifi c Standard or Interpretation applying to this situation, IAS 8 Accounting policies, changes in accounting estimates and errors states that management should use its judgment and refer to other IFRS and the Framework.

Thus considering the requirements of IAS 27 (Para 32–37) and the above discussion, it could be concluded that the presentation based on IFRS 5 principles selected by the issuer was consistent with the accounting treatment required by IAS 27 when a parent company loses control of a subsidiary.

(d) Defi ned benefi t plan

The Plan is not a defi ned contribution plan because Cate has a legal or constructive obligation to pay further contributions if the fund does not have suffi cient assets to pay all employee benefi ts relating to employee service in the current and prior periods (IAS 19 Para 7). All other post-employment benefi t plans that do not qualify as a defi ned contribution plan are, by defi nition therefore defi ned benefi t plans. Defi ned benefi t plans may be unfunded, or they may be wholly or partly funded. Also IAS 19 (Para 26) indicates that Cate’s plan is a defi ned benefi t plan as IAS 19 provides examples where an entity’s obligation is not limited to the amount that it agrees to contribute to the fund. These examples include: (a) a plan benefi t formula that is not linked solely to the amount of contributions (which is the case in this instance); and (b) those informal practices that give rise to a constructive obligation. According to the terms of the Plan, if Cate opts to terminate, Cate is responsible for discharging the liability created by the plan. IAS 19 (Para 52) says that an entity should account not only for its legal obligation under the formal terms of a defi ned benefi t plan, but also for any constructive obligation that arises from the enterprise’s informal practices. Informal practices give rise to a constructive obligation where the enterprise has no realistic alternative but to pay employee benefi ts. Even if the Plan were not considered to be a defi ned benefi t plan under IAS 19, Cate would have a constructive obligation to provide the benefi t, having a history of paying benefi ts. The practice has created a valid expectation on the part of employees that the amounts will be paid in the future. Therefore Cate should account for the Plan as a defi ned benefi t plan in accordance with IAS 19. Cate has to recognise, at a minimum, its net present liability for the benefi ts to be paid under the Plan.

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Tutor note: This is a detailed solution and candidates would not be expected to produce an answer of this length.

(a) Weaknesses in the current budget process at Perkin

Perkin uses a traditional approach to budgeting, which has a number of weaknesses.

First of all the budgeting system does not seem aligned with Perkin’s corporate objective which focuses on innovation and continuous product improvement. Innovation is a key competitive advantage to both component and device manufacturers in this industry and the products which incorporate Perkin’s components are subject to rapid technological change as well as changes in consumer trends. The markets in which the two divisions operate appear to be evolving, as seen by the high popularity of the smartphone model which was designed for playing games. This may mean the distinction between smartphone and gaming devices could be becoming less clear cut. Management time would probably be better spent considering these rapid changes and currently the budgeting process does not facilitate that.

In reality, the budget process at Perkin is time consuming and probably therefore a costly exercise. Divisional budgets go through a lengthy process of drafting and then revision by the main board before they are approved. The approval often happens after the start of the period to which they relate, at which point the budgets are already out of date. This also means divisional managers are trying to plan activities for the next financial year without a set of finalised targets agreed, which could impact the effectiveness of decisions made.

Another weakness is that the budgets are only prepared annually, which is clearly too infrequent for a business such as Perkin. The process is also rigid and inflexible as deviations from the planned targets are not tolerated. Sticking to rigid, annual budgets can lead to problems such as P Division not being able to cope with increasing popularity of a particular product and even other short-term changes in demand like those driven by seasonal factors, or one-off events such as the factory fire. Linked to this problem of budgetary constraints is that to cut costs to achieve the budgeted net profit, managers closed one of the three research and development facilities in G Division. As identified at the outset, a successful research and development function is a key source of long-term competitive advantage to Perkin.

It also appears that Perkin fails to flex the budgets and consequently the fixed budgets had discouraged divisional managers from deviating from the original plan. P Division did not make technical modifications to its components due to the cost of doing so, which meant they were unable to supply components for use in the new model of smartphone and had to discount the inventories of the old version. It is unclear why G Division did not take on additional staff to cope with increased demand following reopening of their customer’s factory, but it may be because managers felt constrained by the budget. This then caused long-term detriment to Perkin as they lost the preferred supplier status with their main customer.

Another problem created by annual budgeting is the management of short-term changes in costs and prices. A key component of Perkin’s products is silver, which fluctuates in price, and though it is not clear how much effect this has on Perkin’s costs, any problems in supply could disrupt production even if only a small amount of silver were required. Also Perkin exports goods worldwide and probably also purchases materials, including silver, from overseas. The business is therefore exposed to short-term movements in foreign currency exchange rates which may affect costs and selling prices.

Similarly, there also seems to be considerable uncertainty in sales volumes and prices which creates problems in the forecasting process for the two divisions. P Division did not anticipate the high demand for the new component which meant P Division had to discount products it had already manufactured in order to achieve its forecast sales volumes. G Division did correctly forecast the demand, but based on past growth in the market which may be too simplistic in a rapidly changing industry. Lack of up-to-date information will hinder decision-making and overall performance at Perkin. Perkin would perhaps be better adopting a rolling basis for forecasting.

The two divisions share manufacturing facilities and are likely to compete for other resources during the budgeting process. The current budgeting system does not encourage resource, information or knowledge sharing, for example, expertise in forecasting silver requirements. Divisional managers are appraised on the financial performance of their own division and hence are likely to prioritise the interests of their own division above those of Perkin as a whole. P Division would not re-allocate its manufacturing facilities to G Division, even though G Division needed this to cope with extra demand following reopening of the customer’s factory. The current system is therefore not encouraging goal congruence between the divisions and Perkin as a whole and a budgeting system, if done effectively, should encourage co-ordination and co-operation.

Managers may find the budgeting process demotivating because it is time-consuming for them and then the directors override the forecast which they had made. It is also unfair and demotivating to staff to appraise them on factors which are outside their control. This also identifies another weakness in Perkin’s budgeting system related to control as there does not seem to be any planning and operating variance analysis performed to assess exactly where performance is lacking and so no appropriate management information is provided. In fact it is not even clear just how often divisional managers receive reports on performance throughout the year. Any budgeting system without regular feedback would be ineffective. It should even be noted that for the industry in which Perkin operates the use of only budgetary targets as a measure of performance is narrow and internal. It should be utilising information from external sources as well to assess performance in a more relevant and contextual way.

Given the rapidly changing external environment and the emphasis on innovation and continuous product development, the current traditional budgeting method does not seem appropriate for Perkin.

(b) Beyond budgeting moves away from traditional budgeting processes and is suitable for businesses operating in a rapidly changing external environment and has the following features:

1. Encourages management to focus on the present and the future. Performance is assessed by reference to external benchmarks, utilising rolling forecasts and more non-financial information. This encourages a longer term view.

2. More freedom is given to managers to make decisions, which are consistent with the organisation’s goals and achieving competitive success.

3. Resources are made available on demand, for example, to enable a division to take advantage of an opportunity in the market, rather than being constrained by budgets.

4. Management focus is switched to the customer and managers are motivated towards actions which benefit the whole organisation, not just their own divisions.

5. Effective information systems are required to provide fast and easily accessible information across the whole organisation to allow for robust planning and control at all levels.

Taking each of the elements of beyond budgeting in turn, the impact of introducing this technique into Perkin can be assessed.

At Perkin, there are rapid technological changes in the products being produced by customers and competitors as a result of changes demanded by the market, which mean that Perkin must respond and continuously innovate and develop its products. This will support Perkin’s corporate objective. Consequently, this means that Perkin must change its plans frequently to be able to compete effectively with other component manufacturers and therefore will need to move away from annual incremental budgeting to introducing regular rolling forecasts. This process will need supporting by KPIs which will have a longer term focus. The impact of this will be that Perkin will need to develop a coherent set of strategies which supports its corporate objective, which will then need to be translated into targets and appropriate KPIs selected and developed. It will also mean that performance measures at the operational level will need to be revised from annual budgetary targets to these longer term objectives. Management at all levels will require training on the production of rolling forecasts and Perkin will need to assess if additional resources will also be required to run this new system.

Beyond budgeting focuses on the long-term success of the business by division managers working towards targets which may be non-financial. The use of external benchmarks and non-financial information will mean Perkin will need to put processes in place to collect this information and analyse it to assess performance. This will be a learning process as Perkin does not currently do this. The status of preferred supplier with key customers, for example, would be important to the long-term success of the business and this could be an objective which Perkin sets for its divisional managers.

Beyond budgeting allows authority to be delegated to suitably trained and supported managers to take decisions in the long-term interests of the business. It allows managers to respond quickly and effectively to changes in the external environment, and encourages them to develop innovative solutions to external change. In Perkin, budgets proposed by divisional managers are changed by the board to reflect its overall plans for the business. This means that a change in the approach to communication between the board and the divisions will be necessary as Perkin would need to switch from the top down process currently adopted to a more devolved decision-making structure. This will again require training for management to enable them to be ready to deal with this delegated authority as it will be very different from their existing approach.

Traditional budgeting may constrain managers who are not allowed to fail to meet the approved budget. This can be seen when P Division did not adapt its components because it did not want to incur the costs of doing so, which had not been budgeted for. Similarly, prices of raw materials are known to be volatile. Beyond budgeting makes resources available for managers to take advantage of opportunities in the market, such as the smartphone designed for playing games. Managers would also be able to react to changes in the price of materials or changes in foreign currency exchange rates, for example, by having the authority to purchase silver for inventory at times when the price of silver is low. This will mean that as a result there will be fewer budgetary constraints; however, these resources and targets will still need to be effectively managed. This management will mean that strategic initiatives invested in will need monitoring rather than closely scrutinising departmental budgets, which will be a significant change in Perkin.

In Perkin, the two divisions share some manufacturing facilities and are likely to compete for other resources, for example, when setting budgets. When manufacturing facilities are in short supply, each division will prioritise its own requirements rather than those of the business as a whole. Beyond budgeting encourages managers to work together for the good of the business and to share knowledge and resources. This is important in a business such as Perkin where product innovation is key and where the activities and products of the two divisions are similar. This coordinated approach will be new to Perkin so there will be a culture change. Also, the customer-oriented element of beyond budgeting is key here and will require the setup of customer focused teams which will require more harmonised actions in the divisions.

Each division currently has its own IT systems. In order to effectively share knowledge and to be able to respond to the external environment, which are key elements of beyond budgeting, it would be preferable for them to have shared IT facilities. This will mean that Perkin may have to invest in new technology capable of sharing information across the organisation in a rapid and open fashion but also be able to collect all relevant comparative data to allow for continuous monitoring of performance. This will facilitate better planning and control across all levels of Perkin.

With appropriate training of managers and investment in information systems, it would be relevant for Perkin to adopt beyond budgeting because of the rapid changes in the external environment in which it operates.