Measuring Responsibility

This report is based on the[PS1]  article on how accounting choice employed by Mark & Spencer is selected keeping in mind to show maximum profit so as to win the trust of the investors. We will analyse all the procedures to find out truth to report various financial issues related to it.

Flaw in Operating Income Calculation

It shows Profit on property disposal, Exceptional cost and Exceptional pension credit as parts of the operating income calculation. But none of these activities are from the result of recurring operating procedure. Hence, the inclusion of this item is correct from the accounting point of view[PS2]  but it is totally wrong if we think about the interest of the investors. It is because of two reasons:- a) the investors give importance to the operating profit b) By adopting this method, It succeeded in overstating the profit of the company. This can easily clear from the analysis of profit statement for 2011 & 2012

It is because of this method only M & S is successful in overstating the profit by around 12% last year and 10% in 2011-2012.

Flaw in treatment of Property, plant and equipment Disposal

The method to show property plant and equipment and their depreciation is correct from accounting standard as well as from investor point of view. However, the only concern is not to include any profit or loss in operating income calculation as mentioned above. This is because of the reason that the profit and loss because of this step is not as a result of continued operation. Hence, it overstates the profit by 1% last year and 2% in 2011-12 as per analysis given below:-

The process of reviewing the annual life and the residual value is correct if we consider the way the price of all these things are changing, but the problem here is that no procedure is defined here which in turn raises doubt on their correctness. Hence, the right method is to give a detailed procedure about its calculation so that it will increase transparency and provide valuable information to the investors.

References

PwC's IFRS guidance http://www.pwc.com/gx/en/ifrs-reporting/index.jhtml

The Question:

  With Mrak & Spencer, the plant and equipment and disposal was an accounting procedure error and fraud. Why couldn't the public accounting firm catch such a simple item as this do you think? DR EW…… ( 1 page)