7AC002 Accounting and Finance Module –

Cohort 12 – Welcome to the Sessions !!

Dr. Raman Subramanian , Senior Faculty – Accounting , Finance and Banking .
Email :- raman@mywestford.com
Skype – raman.s23

Dr. Raman Subramanian

Why Learn this Module ?

• The ability to analyse and question financial information is essential to current managers whether
they have a financial or general management role.

• This module will enable you to analyse and question financial information and financial decision-
making.

• Through a thorough analysis of financial statements, company investment decisions and company
financial decision making you will be exposed to the essential elements of company finances.

• Businesses and government organisations implement strategies for economic growth by relying on
sound financial knowledge.

Dr. Raman Subramanian

Reasons for Finance [ apart from just hating “numbers”] = Learning the ‘Language’ of Business
1. It Sets You up to Start Your Own Business –
If you have any kind of entrepreneurial ambition, a degree in finance
is one of the best places to start. A spark of genius might start a
business but a solid understanding of how to raise capital is what
keeps it going. Demonstrating your financial expertise will be
appreciated by any investor. By studying finance in school, you’ll be
able to think more creatively when starting a company at a later
date.
4. You can Live Anywhere
• And it’s not just different sectors that are open to you – as the
language of finance remains much the same around the world.
This means you also have plenty of opportunity to travel and find
work wherever you go. They say accounting is the language of
business. As long as you pass accounting, consider yourself
fluent!
• 2. You can get a Job in Any Industry at Any Company -
Hello, job opportunities! Whatever sector you want to
work in, from banking to charities to the arts, people with
a head for finance are always in demand. The finance
industry is relatively recession-proof (businesses still want
financial advice whether the economy’s booming or
tanking, after all…) Finance professionals is something no
large business can do without.
3. The Personal Financial Benefits
• If you truly understand finance, you’ll never go without. What you
learn in school can be applied not only to your career but also to
your personal life. Most college majors are only of use when
you’re at work. A finance degree is applicable to nearly every
situation. A finance degree will help you earn, save and invest
money at home. Talk about a degree that offers plenty of bang for
your buck!
Learning Outcomes
At the end of this course you, will be able to:

1. Critically analyze the use of the key functional areas of marketing, strategy, finance,
accounting and operations management in support of wider organizational activity.
2. Analyze strategic perspectives regionally, nationally and internationally at
organization and sector levels.
3. Critically evaluate the relationship between the organization and its business
environment and the importance and nature of organizational change and
transformation.
4. Critically analyze contemporary issues, challenges and problems relating to business
and management that impact on business and management at functional, strategic
and sector levels.
5. Evaluate the role and contribution of integrative strategic and leadership approaches.
6. Synthesize relevant critical thinking through organizational research completing an
independent Accounting & Finance Assignment at masters level.

Dr. Raman Subramanian

 Basic Steps of a 7AC002 Accounting & Finance Assignment –
University Word Count Limit = 6000 words + [10% grace] = 6600 words
• Select two Publicly Listed Organizations. A Main Organization & its Competitor in the same
trade segment What, When
• Research Business Practices of the Organization by reading the Annual Reports, Study
Analysis presented by KPMG, Deloitte , PwC, EY on the Segment & Industry What, Why
• Understand Macro Economic & Business Factors Who, When
• Perform Ratio Analysis & Interpret Performances- comparing Main to the Competitor
organization How
• Discuss the ability of raising Funds – Internal & External How
• Debate the Importance, Significance and Relevance of Management Accounting  What
• Draw Conclusions & Managerial Recommendations on improvements Why
• Tell about what you did and found out

Dr. Raman Subramanian

 Understanding Current Global Environment?
The amount of change we encounter on a daily basis, whether in the latest news headlines or a new technology
that suddenly unleashes an unfamiliar business challenge, is remarkable.

The key to managing the increasing pace, scale and scope of change is in how we react and whether we view these
events with caution or with the optimism that they present us with new opportunities.

This module would unravel as we set ourselves the challenge of understanding more about which strategic
dilemmas CEOs are grappling with, and how they plan to respond.

We will understand the various perspectives that have emerged as nearly 1,300 CEOs from many of the world’s
leading companies, located in 10 of the world’s largest economies, share their views of the forces and opportunities
shaping the businesses they lead.

It was found that while CEOs are confident in their ability to successfully transform their business, and to
outperform the general economic backdrop, they also feel that the next 3 years will be critical

Dr. Raman Subramanian

 CEOs are telling us the time for change is “now or never”.

Despite the change enveloping their organizations, and predicted global economic challenges in the coming 12 months,
these corporate leaders are largely confident in their near-term prospects. In fact, they expressed greater confidence in
the growth of their own company and the global economy over the next 3 years, as compared to last year.

CEOs are also alert to many unfolding challenges and they acknowledge a growing list of top concerns, from shifting
customer loyalty to technologies that are overturning traditional business models. There are also a number of
additional critical issues that have emerged recently, ranging from cyber security risks to the need to master advanced
data analytics.

When you add up these diverse challenges, as well as the geopolitical events impacting every continent, it’s easy to label
the current environment as ‘uncertain’. However, the CEOs remain optimistic .
Perhaps It’s natural for seasoned, long- tenured executives to remain unruffled in the midst of uncertainty, there
is another factor at play. Nearly half of CEOs expect their companies to be transformed into a significantly different entity
within the next 3 years.
 CEOs are telling us the time for change is “now or never”.

To do so, CEO’s are :-

 embarking on a transformation journey, reviewing strategies, implementing their own disruptive technologies and
increasing their headcounts to recruit new skill-sets.
 given - “The game is changing dramatically, but as CEO’s , most leaders know what they need to do, and we’re
confident that organizations can emerge as winners.”
 their ‘go-getter ‘attitude, and enthusiasm to introduce innovation, will remain a key factor towards inspiring
performances.
 that said, organizations would need to continue to match this pace of change and constantly apply innovative
approaches to meet its clients’ evolving needs, whether they seek advice for targeted change programs or end-to-end
support for enterprise- wide transformation
 we will share our clients’ spirit of confidence in the face of change, as we embrace innovation as a means to
overcome uncertainty and grow in new ways
 Critical change
Forty-one percent of CEOs anticipate that their company will be significantly transformed over the next 3 years.
That number has risen significantly from the 2015 survey, in which 29 percent of CEOs held that opinion.
According to 72 percent of CEOs, the next 3 years will be more critical for their industry than the last 50 years.

Confidence
The vast majority of CEOs feel they can succeed in
transforming their company and thus are confident in future growth, with 89 percent feeling confident.
This sentiment is echoed in their confidence level in the growth over the next 3 years in their home
country (86 percent), their industry (85 percent) and in the global economy (80 percent).

Cyber risk
Cyber security climbed the list to become the top risk over the next
3 years (30 percent). CEOs recognize there is work to be done to protect their organization, with 72 percent of
CEOs not feeling fully prepared for a cyber event.

Innovation
Fostering innovation is one of the top (21 percent) strategical
priorities for CEOs over the next 3 years, and a significant majority (77 percent) say it was important
to specifically include innovation in their business strategy with clear targets
and objectives.

Disruption
CEOs recognize that the lines between industries are blurring.
Sixty-five percent are concerned that new entrants are disrupting their business models and more than half (53
percent) of CEOs believe that their company is not disrupting their industry’s business models enough.

Now or never: 2016 Global CEO Outlook

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG netw ork are affiliated.
 Technology
The speed of change will be exponential and fueled by technology. Seventy-seven percent of
CEOs are concerned about whether their organization is keeping up with new technologies. Data
and analytics will be a top area of investment over the next 3 years (25 percent).

Collaboration Collaborative growth is how 58 percent of

CEOs intend to drive shareholder value for the next 3 years. Creating partnerships or collaborative
arrangements with other firms is the primary type of transaction that CEOs expect to undertake (50
percent).

Customer focus
Eighty-eight percent of CEOs are concerned about the loyalty of their customers and 82
percent about the
relevance of their products or services. Almost half (45 percent) feel they could better
leverage digital means to connect with customers.

Annual top-line growth Almost half (48 percent)

believe their annual revenues will grow between 2 percent and 5 percent
over the next 3 years.

Developing talent
Faced with significant transformation plans and rapidly advancing technology, 99 percent of CEOs report taking action to
develop existing or future talent. In line with these findings, most CEOs report some level of skills gap emerging. Over 50
percent report
skills gaps in key business functions. This will likely create
challenges for the 96 percent of CEOs who plan to increase their
headcount over the next 3 years. This is up from 78 percent in last year’s survey.
Source: 2016 Global CEO Outlook, KPMG International

Now or never: 2016 Global CEO Outlook 7

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG netw ork are affiliated.
 The next 3 years…
“This period will be even Change will be led by technology, connected consumers
more challenging, as it and sector convergence. These three forces will upend
will take place in an business models, blur lines between industries and
environment that is still companies, and demand a new way of thinking about
characterized by
significant economic,
business
geopolitical
and regulatory
“Only those companies and industries accepting the
uncertainty.”
challenge to transform themselves will be more
competitive, gain efficiency and ensure the loyalty of new
John Scott digital consumers.”
Deputy Chairman KPMG
International

“Much of what will happen is unknowable. What is impossible today will become mainstream tomorrow “.
 The next 3 years……. Convergence & Diffusion
With the accelerated speed of change, it is increasingly difficult to have
a reliable long-term, or even medium- term, view. But waiting is not an
option. “You can’t wait until you have a satisfying level of clarity,
because you might never get it,” - Stephen G Hasty, Jr, Global
Transformation Leader at KPMG International.

The lines separating industries, companies, technologies

and customers are disappearing. “We are going to see far
more collaboration between organizations taking place
Now, it would be imperative to embrace the
because of the need for speed
sharing economy in the next 3 to 5 years in the
and the realization that ‘rent’ or ‘collaborate’ is a viable
way that consumers have in the past few
and often preferable alternative to ‘build’ or ‘buy, years.

“Much of what will happen is unknowable. What is impossible today will become mainstream tomorrow “.
The next 3 years… Convergence & Diffusion

Every business must become software and digitally

enabled to sharpen its competitive edge. While today’s
technology giants typically started off on unique
technology platforms, more traditional industries now
understand digital is integral to survive, let alone grow…..

“Much of what will happen is unknowable. What is impossible today will become mainstream tomorrow “.
 Shifting Paradigms
Top CEO concerns*
Customer loyalty
88%
Impact of the global economy on their company
88%
Lack of time to think strategically about the forces of disruption and innovation shaping their company’s future
86%
How Millennials and their differing wants/needs will change our business
86%
Our competitors’ ability to take business away from our organization
85%
Whether our organization is staying on top of what’s next in services/products
85%
Having to consider the integration of basic automated business processes with artificial intelligence and cognitive processes
85%
That regulations will inhibit our growth
85%
The quality of the data I’m basing my decisions on
84%
The value and quality of external audit
84%
The relevance of our products/services 3 years from now
82%
Whether our organization is keeping up with new technologies
77%

10 Now or never: 2016 Global CEO Outlook

Shifting Paradigms

This results in a redefinition of “power” and “responsibilities” and the need for a different type of
leadership. The global and national economies add headwinds, with a very low interest rate
environment, high volatility and political uncertainties.

“We are evolving towards a world where what’s inside the company and what’s outside is not
binary.” , No wonder then that CEOs’ concerns about meeting the demands of the future continue
to increase.

This means that, as a CEO, you can’t have a proprietary or protective mindset. You need to be
very comfortable with ambiguity and undefined spaces . They are also concerned about whether
they are taking the lead in disruption themselves.
Shifting Paradigms

Technology, can be a trigger as well as an enabler of

innovation, features among the top investments

“Our leadership approach centers on sharpening

our listening skills internally and externally to ensure that
we hone in on early signals and can be agile and
entrepreneurial enough to shift course if necessary.”

The strategic plan for 2016–18 identifies four areas of strategic priorities,
including[1]innovation. Each company should intend to innovate its [2]processes, [3]materials and
services it provides to its customers. There should also be plans to [4] invest in venture capital to
develop new ideas, internally or with another company.
 Regulatory Concerns & BEPS.

Regulatory compliance, if not approached properly, can hamper transformation and growth. CEOs are fully
aware of its importance. Eighty-five percent of CEOs are concerned that regulations will inhibit growth.
CEOs also see regulatory risk as the second most important risk (28 percent), after cyber risk.

One such regulatory project, base erosion and profit sharing (BEPS), has done a great deal to shine a
light on the risks associated with tax loopholes. The results are nothing short of transformational.

To thrive in this new environment, businesses will need a much more holistic, global view of their overall
tax management over the 3-year horizon. They will need to think through their strategy in relation to tax
and communicate it throughout the entire organization, to make sure that it is consistent with the overall
values. Then they will have to figure out a good way to communicate that to their stakeholders.
How Managerial Accounting Adds Value to
the Organization
•• Providing
Providing information
information for
for decision
decision making
making andand
planning.
planning.
•• Assisting
Assisting managers
managers in
in directing
directing and
and controlling
controlling
activities.
activities.
•• Motivating
Motivating managers
managers and
and other
other employees
employees towards
towards
organization’s
organization’s goals.
goals.
•• Measuring
Measuring performance
performance ofof subunits,
subunits, activities,
activities,
managers,
managers, andand other
other employees.
employees.
•• Assessing
Assessing the
the organization’s
organization’s competitive
competitive position.
position.

Dr. Raman Subramanian

 Top 5 Strategic & Investment Priorities over the next 3 years

Top five strategic priorities over the next 3 years Top five areas of investment over the next 3 years

Increasing data analysis

capabilities 25%
Fostering innovation
21%
New product
Stronger client focus 19% development 24%

Implementing disruptive
technology 18% Cyber security 22%
solutions

Talent development/
management
18% Measurement and analysis of customer 21%
experience/needs
Stronger marketing, branding and 17%
communications
Geographic expansion within home 20%
country

Source: 2016 Global CEO Outlook, KPMG

Now or never: 2016 Global CEO Outlook 17

Managerial versus Financial Accounting

Dr. Raman Subramanian

Ethical Climate of Business
The
The corporate
corporate scandals
scandals experienced
experienced over
over the
the last
last few
few
years
years have
have shown
shown us us that
that uunethical
nethical behavior
behavior in
in business
business
is
is wrong
wrong inin aa moral
moral sense
sense and
and can
can be
be disastrous
disastrous in
in the
the
economy.
economy. In In addition
addition to
to Sarbanes-Oxley,
Sarbanes-Oxley, there
there will
will
likely
likely be
be more
more reforms
reforms in
in corporate
corporate governance
governance and and
accounting.
accounting.

Dr. Raman Subramanian

 Biggest Scandals – 2015 , 2016

From Volkswagen's Dieselgate to Martin Shkreli, the former CEO of Turing Pharmaceuticals, to Sepp Blatter, the disgraced
former head of soccer's international governing body, 2015 did not disappoint on corporate scandals.

The allegations weren't as big as, say, Enron or Madoff, the characters were just as captivating. Shkreli was defiant on
Twitter.
Perhaps the most blatant was Volkswagen, ””which ran commercials of its engineers as angels”” even when company
officials were setting up elaborate systems to lie to customers and get around pollution controls. Here are the most
compelling corporate fiascos and alleged frauds of 2015.
 Volkswagen lost roughly $20 billion in market capitalization, as investors worried about the cost of compensating
customers for selling them cars that weren't compliant with environmental regulations.
 The only surprising fact about the FBI’s indictment of FIFA officials for racketeering, fraud, and other offenses was that
the charges came from the United States, where soccer’s popularity lags the rest of the world. The scandal spooked
some of America’s largest corporations, including Coca-Cola and McDonald’s‑top FIFA sponsors.
 Biggest Scandals – 2015 , 2016

 In September, electronics conglomerate Toshiba admitted that it had overstated its earnings by nearly $2 billion over
seven years, more than four times its initial estimate in April.
CEO and President Hisao Tanaka resigned from the firm, and an independent investigators found that “Toshiba had a
corporate culture in which management decisions could not be challenged” and “Employees were pressured into
inappropriate accounting by postponing loss reports or moving certain costs into later years.”

Toshiba president and CEO Hisao Tanaka at a news conference at

company headquarters in Tokyo on the day he resigned.

Photograph by Toru Hanai — Reuters

 Biggest Scandals – 2015 , 2016
In October, short seller Andrew Left accused drug company Valeant of using a specialty pharmacy company
Philidor to artificially inflate its sales. Valeant denied the charges.
But the fact that Valeant had never discussed its close ties to Philidor raised questions about Valeant's, and
Philidor's, sales practices. It also shook investors' confidence in the acquisitive drug company, which had racked
up debt as it did deals. And Valeant had paid $100 million for an an undisclosed option to acquire Philidor for no
additional dollars whenever it wanted, essentially giving Valeant ownership of the company.

Valeant said that Philidor sales never amounted to more than 7%

of its total sales.
Valeant's shares fell 75% in the wake of these revelations, to just
over $70 from a high of $260.

J. Michael Pearson, chief executive officer, Valeant

Pharmaceuticals.
Photograph by Kevin Van Paassen—Bloomberg via Getty
Images
Biggest Scandals – 2015 , 2016

Martin Shkreli (C), CEO of Turing

Pharmaceutical, is brought out of 26 Federal
Plaza by law enforcement officials after being
arrested for securities fraud on December 17,
2015 in New York City.

Shkreli gained notoriety earlier this year for

raising the price of Daraprim, a medicine used
to treat the parasitic condition of
toxoplasmosis, from $13.50 to $750 though
the arrest that happened early this morning
does not involve that price hike.

Photograph by Andrew Burton — Getty

Images
Biggest Scandals – 2015 , 2016

Martin Shkreli became known as the bad boy of

the drug industry after his drug company,
Turing, increased the price of a 62-year-old drug
that treated HIV patients by 5,000% to $750 a
pill. But it's what he did before that could land
him in jail.
In mid-December, the government arrested
Shkreli on charges of stock fraud related to his
activities while at Retrophin, the drug company
he ran before Turing
Biggest Scandals – 2015 , 2016
Roger Ailes's Sexual-Harassment Scandal

When former Fox News anchor Gretchen Carlson made public her lawsuit against Roger Ailes, the chairman and CEO of
Fox News, few thought the suit would end the career of the most successful cable news executive of his generation. But
the news of Carlson's action opened a floodgate of reports about complaints from several other women that Ailes had
allegedly harassed over the years.

James Murdoch and his brother Lachlan—who have run Fox parent 21st Century Fox as CEO after their father Rupert
stepped down in 2015—commissioned an internal review by outside lawyers that uncovered several other allegations of
sexual harassment.

That report convinced the executives they had to force Ailes out, though not before offering him a $40 million severance
package.
Biggest Scandals – 2015 , 2016
Wells Fargo's Fake Accounts
- Wells Fargo was the golden child of the post-financial crisis banking world. The bank's focus on funding itself with a
large base of retail deposits helped it weather the credit crisis and emerge even stronger with a truly nationwide
presence. The downside to Wells Fargo's strategy? To grow profits, it had to rely on its ability to cross-sell more
profitable products to its customer base.

That path wound up leading the company into a quagmire.

Executives sought to drive growth by putting undue pressure on its employees to hit sales quotas, and many employees
responded by fraudulently opening customer accounts
. In most cases these accounts were closed before customers noticed, but in other cases consumers were hit with
associated fees or took hits to their credit ratings. The bank was forced to return $2.6 million in ill-gotten fees and pay
$186 million in fines to the government.

But the biggest hit Wells Fargo will take is to its reputation, as the media and government officials spent much of the
year slamming the bank for its fraud. (The scandal also cost CEO John Stumpf his job.)
Biggest Scandals – 2015 , 2016
Samsung Battery Recall

Smartphones can do just about anything these days, but exploding is not on the top of most consumers' list of desired
features.
When reports began to surface this summer that batteries in the new Samsung Galaxy Note 7 were exploding, the tech
press jumped on the story, which snowballed quickly. Just a week after the first reports surfaced, the Federal Aviation
Administration advised passengers not to turn on or charge Note 7 smartphones aboard aircraft or stow them in plane
cargo. (Most airlines now ban them from their cabins entirely.)

Then the Consumer Product Safety Commission urged Galaxy Note 7 owners to stop using their phones altogether.

A formal recall process was then initiated, but not before phones began harming consumers in various ways, leading to
lawsuits and a PR nightmare for the South Korean electronics giant.
Country Differences in Accounting Standards

• 5 variables that influence a country’s accounting system:

• The relationship between business and the providers of capital.
• The political and economic ties with other countries.
• The level of inflation.
• The level of a country’s economic development.
• The prevailing culture in a country.

Dr. Raman Subramanian

Session 1 Ends.

• End of Session 1

Dr. Raman Subramanian