Page 23 - Advanced Transformational Leadership Programme - 128 Hours Blended Learning Module info

ways in which this can be assessed; these include (but are not confined to): whether the data has been subjected to audit, internal checks and controls or other scrutiny (including the culture of the organisation in terms of the importance it places on the finance function and financial control). Also relevant are validity and reliability which can be further assessed when the information has been produced using accounting standards and adheres to accounting conventions/concepts, been subject to audit and/or is contained in ‘published’ statements. ‘Watch-outs’ here will include consideration of the ways in which the organisation’s accounting policies deal with items such as depreciation for example and, whether financial information is
Closely linked, these assessment criteria look for the application of analytical tools and techniques to financial documents, providing the opportunity to carry out ‘comparative analysis’ and formulate conclusions about performance levels. A key technique that is relevant here is that of ratio analysis which, when undertaken across two or more years of (ideally) published accounts, facilitates both the comparison across years (horizontal analysis) and ‘within’ year (vertical analysis). Comparisons can also seek to benchmark performance as against a sector or competitor. When formulating conclusions, the author should consider some of the considerations also be able to identify the needs of stakeholders within the analysis. Examples of this approach may include, for example, the recognition that strong dividend cover would be of interest to shareholders, whereas suppliers may be interested in ‘creditor days’ and the senior management interested in ratios relating the profitability and liquidity.
When undertaking such analysis, drawing conclusions, and informing decisions, there should be an awareness of the pitfalls that can befall ratio and similar analysis. These include: changes in accounting policies
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Created: 23rd January 2017
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