Keith Girling Panel 1 Information Systems and Professional Issues 2007 (BMAN 30801) – Session 3 Monday 15th October hours Roscoe Building Lecture Theatre B Keith Girling – Visiting Professor Module Text: “Professional Issues in Information Technology” – Frank Bott 2005

Keith Girling Panel 2 Objectives For Today 15 th October? Second of TWO sessions on the BUSINESS context for IT Text Chapters 5, 6, 7, 8 Consider FINANCIAL Accounting – the main tools – largely looking backwards Consider MANAGEMENT Accounting – using those tools to manage businesses – trying to look forward? Remember both constantly evolving because Accountancy is a “Profession”! Next session about ORGANISATIONS and the ASSIGNMENT

Keith Girling Panel 3 Remind ourselves of our “mind-map” Professional Issues in Information Technology PROFESSIONS (4) Data Protection S/W Contracts Anti-discrimination LAW & GOV’T (3) IPR Nature Bodies Internet Misuse ORGANISATIONS (2) HR Issues Financial Accounting BUSINESS (1) Capital Management Accounting Investment Structure and Management  

Keith Girling Panel 4 Financial Accounting - Inputs and Outputs INPUTS Real time thru to Monthly quantitative and financial data Manual thru to System Driven Audit Trails Cash? OUTPUTS Cash Flow Statement Profit & Loss Account Balance Sheet Legal, Prudential?

Keith Girling Panel 5 The Key Outputs Proprietors of Limited Companies can lose only their investment – in return obliges annual report Other entrepreneurs follow same principles as best practice or because they are also “regulated” e.g. charities Sometimes additional disclosure required by, for example, Stock Exchange But Balance Sheet, Profit & Loss and Cash Flow Statements are always historical “Balance Sheet for a Student” – see Page 60

Keith Girling Panel 6 Balance Sheet – Assets ( Many categories and definitions but examples:) Fixed Assets – primarily wealth generating Current assets – primarily to support running the business day to day Bases of Valuation Tangible v Intangible “Notes to the Accounts” will often run into many pages of explanation as to valuations Illustration only

Keith Girling Panel 7 Balance Sheet – Liabilities ( Many categories and definitions but examples:) CAPITAL & RESERVES Called-up Share Capital Share Premium Reserve Profit & Loss Account CURRENT LIABILITIES Falling due within 1 year Trade Creditors Short Term Borrowing (e.g. overdrafts) CREDITORS Falling due after 1 year Provisions “Notes to the Accounts” will often run into many pages of explanation as to valuations

Keith Girling Panel 8 The Profit & Loss Account - Basics Can be simple income and expenditure Student example on Page 66 “Bottom Line” will (in principle) reflect difference between subsequent years’ Balance Sheets “Notes to the Accounts” will often run into many pages of explanation as treatment policies for certain figures and provide additional information regarding staff numbers, directors’ remuneration etc.

Keith Girling Panel 9 Balance Sheet adjustments that are reflected in the P&L e.g. Depreciation Acquisitions & Disposals Normally year on year comparisons to give trends Ratios XYZ Sofware Ltd on Page 67 The Profit & Loss Account – What to Look Out For? Pete’s Perfect Plumbing Company

Keith Girling Panel 10 The Cash Flow Statement - Basics P&L shows depreciation on capital items Capital expenditure deduced from Balance Sheet but doesn’t show where funds came from Link that ties P&L and Balance Sheet together is Cash Flow Statement The cash Flow Statement will alert analysts to significant changes in cash flows as a result of acquisitions or disposals, and to changes in the status of assets versus liabilities which may be “netted off in the Balance Sheet

Keith Girling Panel 11 P&L i.e. Operating Profit – adjusted for non-cash flows such as depreciation Then a number of “non-trading” flows such as taxation and interest payable Then a number of flows concerned with changes in the way in which the company is financed The Cash Flow Statement - Overview Source: Professional Issues in Information Technology Page 69

Keith Girling Panel 12 The Overall Picture – Financial Accounting Derived From : Professional Issues in Information Technology Page 72 Balance Sheet Start of Trading Period Cash Owners Equity Balance Sheet End of Trading Period Cash Owners Equity Retained Profit (from Profit & Loss Account) Net increase/decrease in cash (from cash flow statement) Balance Sheet shows snapshot position at start and end of trading period P&L shows what has happened during the trading period TIME

Keith Girling Panel 13 Management Accounting – Looking Forward? Cost of Labour Overheads Budgeting Pricing Cash Flow Forecast Knowledge of the past more certain than knowledge of the future?

Keith Girling Panel 14 Cost of Labour Salary Costs –Direct –Indirect On-Costs –Direct –Indirect Revenue-earning working hours No single magic construct – varies by sector and enterprise

Keith Girling Panel 15 Overheads “BBC One costs £1.4 billion a year, nearly £600 million more than has been previously disclosed, figures to be published next week are expected to show. The increase comes as the channel's audience share has declined in the face of competition, raising concerns that it is becoming poorer value for money. The BBC Trust, the Corporation's governing body, has decided to include the costs of news gathering, marketing and other overheads for the first time in the BBC One budget” (Telegraph 26 June 2007) Understand what these are and how they are driven Allows us to allocate costs to products and services to establish competitive pricing strategies Examples Labour CostsAllocate by hours utilised and number of units? Occupancy CostsAllocate by number of people employed? IT Processing CostsAllocate by MIPS utilised? Marketing CostsAllocate by number of enquiries generated or sales? Often more art than science ‘tho sometimes important accounting guidelines and need to be consistent year on year

Keith Girling Panel 16 Financial Plan –Budgets deals with Income & Expenditure (all kinds) –Cash Flow deals with flow of cash in and out (e.g. bank account) Monitored Phased Rolling Budgeting & Cash Flow Forecasting “kitchen economics”? Such plans often include extensive detail of the non-financials that underpin the actual financials e.g. staff numbers, production volumes

Keith Girling Panel 17 Summary Remind ourselves of objectives for today –Second of TWO sessions on the BUSINESS context for IT –Challenging but Fundamental –Text Chapters 5, 6, 7, 8 –Consider FINANCIAL Accounting – the main tools – largely looking backwards –Consider MANAGEMENT Accounting – using those tools to manage businesses – trying to look forward? –Remember both constantly evolving because Accountancy is a “Profession”! Next session about ORGANISATIONS - STRUCTURES and the ASSIGNMENT Actions? –Get access to the Book! –Digest Chapters 9 and 10 ask an accountant?