What is the key concept of ACCT11059’s chapter one study guide? From the beginning, even as I write this KCQ, I was unsure as to what the exact key concept is. Is the key concept simply what is accounting or is it something a little more complex. It wasn’t until I read about the authors discussion with a senior politician, that I actually engaged with the chapter and felt like I understood what the author was trying to convey. From this understanding I believe the key concept for this chapter was understanding that accounting is a complex analysis tool used to identify and view a firm’s economic and business realities.
Therefor is accounting the analysis and processing of historical data, with the primary purpose of the analysis being the processing of data into a easily comprehendible state in order to understand a company’s economic and business realities? Who knows the author doesn’t seem to write in a direct manner. From this I had the following questions:
What is or what are a firm’s economic and business reality?
What data reveals what economic or business reality?
I am an analyst by trade, however the key terms and concepts I use in my day to day job consist of disrupt, destroy, interdict, dislocate and neutralise. Business or more specifically accounting is a new concept for me, and with this a lot of terms used in chapter were foreign to me. Such terms as, economic and business reality, double entry bookkeeping and a firm’s account. Though some of my questions were answered as I read on some were not. From this I believe the next key concept was understanding the key ideas underlying accounting.
What are the key ideas underlying accounting? For this the author detailed that they would not simply state the underlying ideas using the quote “ there is a great difference between knowing and understanding: you can know a lot about something and not really understand it”, and that the reader would have to find their own answers. I disagree with the author’s philosophy and I would say knowing is the first step to understanding.
Overall this chapter was both insightful and frustrating, as it did create an environment where I had to think about the topic and develop my own understanding. However, I have been left with questions unanswered, such as what exactly is economic and business reality and why does it diverge from real world economic events that the firm experiences.
Step 2
https://wordpress.com/block-editor/post/11059.travel.blog/3
Step 3
Who Is Roche?
I was intrigued to find that my assigned company was Roche, a multinational healthcare company based in Switzerland. I had mixed emotions at this point as I originally thought I was doing an assignment on my favourite chocolate, unsuspecting that in fact it was big pharma. Not being a peace-loving hippy protestor or political lobbyist, I knew very little about the big pharma industry or Roche. So, as step three instructed I began this journey with their website and 2018 annual finance report.
Unlike the chocolate, Ferrero Rocher, Roche is based in Switzerland and is one of the oldest, and largest pharmaceutical company in the world. Upon researching further, I found that Roche is the second biggest pharmaceutical company in the world, generating $57 Billion in revenue in the last financial year. This was almost an incomprehensible amount. The financial reports were staggering and almost overwhelming in the size and the amounts of the figures that were being discussed.
In terms of difficulties faced by Roche, I found limited. Being such a large corporation and holding more revenue than some countries, they seemed too big to fail (although this was said in regards to the banking sector prior to the 2008 Global Financial Crisis, so who knows). There was media articles relating to the increase of legislation needed throughout many countries on the pharmaceutical sector, mainly regarding the ‘price fixing’ of medicines or the hugely inflated prices of medicines that they held patents to. Another interesting aspect I discovered regarding their business policies was that Roche tends to expand through the purchasing of other companies. These deals tend to get a lot of media attention and scrutiny by the regulatory authorities as the pharmaceutical sector becomes more and more monopolistic. There is an article concerning the Federal Trade Commission in Americas investigations into the purchasing of a smaller pharma company that can be found here.
Another aspect of their financial report which can be seen as a large challenge for the Roche group was highlighted in their auditor’s report. The Roche group has a large liability in regards to commercial arrangements they have in the United States. In the governmental scheme of Medicaid, the Roche group has provided consumers of their products a right of reimbursement, that in some cases extends years. Due to this arrangement, the Roche group has a $1.4 Billion liability listed as a component of the sales that they make under these schemes in the United States. This is based on a judgement by the company of the amount that could be collected through this liability, but due to its nature, and a lack of similar schemes, is hard to define an appropriate amount for this. This was an aspect of the financial statements that I found incredibly interesting, particularly the way this was interpreted by the auditing group. It is such a staggering number and a large component of the group. I look forward to further interacting with the financial statements to see further aspects like this that provide greater insight into the “goings-on” of the firm.
A further aspect of the firm’s financial reports that was nearly incomprehensible was the amount of goodwill that the Roche group has acquired. As mentioned earlier, a key expansion policy of Roche is the purchasing of pre-existing pharmaceutical companies to gain control over them. At the 1st of January 2018, the Roche group had acquired almost $78 billion in Goodwill. This is a staggering amount, particularly when I read further that they have impaired goodwill by over $2 billion in revaluation, that year alone.
The whole exercise of reading the financial statements really opened my eyes to the complexity and vastness of ‘big pharma’ companies. It was, at times, difficult to understand how much money that they were talking about. I am really excited to continue my learning into this business and to further get an idea of really, how powerful these large corporations are.
Step 4:
I have attached step 4 as a separate submission to my assignment. It can also be viewed on my blog – https://wordpress.com/block-editor/post/11059.travel.blog/3
Step 5:
Key Concepts and Questions
The first key concept that I came across in reading chapter two was the development of accounting principles over time. Rules have developed to ensure understandability and transferability of financial statements across companies and firms but also across countries. Through chapter two we began to learn about the rules that firms needed to comply with in developing general-purpose financial statements. This included, GAAP or generally accepted accounting principles and AASB or standards set by the Australian Accounting Standards Board in conjunction with the principles under IFRS standards. This is my first time learning about accounting and whilst it’s not surprising that governing rules exist, I truly had no idea of them. I was even more surprised to find out that it really is only in reporting entities that the above principles, standards and rules are applicable.
There are a lot of rules that reporting entities need to comply with. Whilst the concepts covered in this section were relatively easy to understand I have not yet completely got my head around their intersection and applicability. This is an area I will do further research into as I don’t yet feel entirely comfortable with this concept yet, particularly in determining which entities are reporting entities and which aren’t.
The next key concept I came across was the ‘accounting concepts’. Where it was stated that financial statement set out a particular way of viewing the economic and business realities of the firm. This was another area that I struggled with at times. In reading my own companies financial reports I was often overcome with information but even after reading and thoroughly going through different aspects of the reports I often felt like I still didn’t really have any better understanding of the company. The objective of the general purpose reports is to “provide information to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity”. In purely examining the financial reports for a year, say 2018, I found that I didn’t really gain too much information or understanding of the company. Where I really started to feel more confident was in comparing the financial reporting over the years. For example I didn’t really know if x amount of financial liabilities was good or bad or was anything, but in comparing previous years and determining that this was a decrease on the past four years, and attempting to find the cause is where I truly began to engage and find a use for the financial reports.
The chapter then moved into the concept of accrual accounting. Accrual accounting is the recording of a transaction or economic activity when it occurs irrespective of when the transaction is paid for. This gave more meaning to my financial statements. I generally understood the concept of accounts payable or accounts receivable but when I began to see terms like unearned revenue included as a liability I was temporarily confused. It however, does make sense. For example, if we only included transactions as payment was received, all transactions involving written off debts would not be accounted for, as payment would never come forth. Even though these transactions used other resources and assets of the company, they would all simply disappear if we weren’t including the transactions as they occurred.
The chapter then went into other general accounting concepts such as going concern, materiality, faithful representation, comparability and understandability. These concepts were all fairly easy to comprehend. It appeared that these concepts were included so that financial reporting is genuine. That It provided an accurate and useful view of the financial status of these companies that wasn’t convoluted and excessively complex or lacking in usefulness. This was a concept that made sense to me but maybe could be used further in financial reporting, as some of the financial statements I read didn’t always each the concept of understandability and even comparability across financial years was sometimes lacking.
The readings then began on the key concepts of the financial reports themselves, including the balance sheet, income statement, statement of changes in equity and statement of cash flows. I began reading chapter 3 whilst also undertaking work on assignment 1 and going through my firms (Roche) reports. The first issue I had was actually trying to work out which financial reports were which. It is very true that different firms can use entirely different terms to describe the same concept. Even in trying to compare Ryman healthcare’s to my own I became easily confused and lost. It was not only the names of the financial reports themselves but then attempting to compare like for like assets, liabilities and other concepts became quite difficult. It was only after going back over the chapter that I realised I had been read my firms group financial reports incorrectly. Going through and completing comparisons of my financial statements was the most exciting part of the two chapters but it also raised the most questions for me. As I am just beginning my accounting journey I od realise that for a lot of the questions that were raised throughout this process, I will work out through the passage of time. But there were a lot of aspects such as unearned revenue, provisions and good will (which at times were staggeringly high numbers) that I would like to work out what they mean and what they represent. I really enjoyed going through my firms financial statements and completing the chapter 3 readings and I hope that in completing Assignment 2 and further accounting subjects I will gain a better understanding.
Step 6:
The feedback process I found to be invaluable in assisting with my own learning and confidence. As I have previously mentioned, accounting is a completely new concept for me. To have the ability to provide feedback but also see what others did well, where I was doing well, where I could improve but most importantly that I was on the right track was a really great experience. I am really enjoying this aspect of engaging with others in the cohort to help each other’s learning experience and this is true across the Moodle site, Facebook as well as engaging through the blogs. I have detailed the feedback sheets below. One of the biggest helps I received in feedback was another student suggesting to use online grammar checking tools such as studiosity and grammarly. I found that I would go through my blog and think I have completed everything in regard to spelling, grammar even layout correctly, and then a few days later reading what I had written and picking up issues. I began to use Grammarly as a tool to assist with this and have also passed this onto other students so they can also benefit from online services like this.
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