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Assessment Task One (Steps 2-6)CourseACCT11059 – Accounting, learning and online communicationDegreeBachelor of PropertyPatrick Turner12074322CampusDistance (Newcastle)Step 2 Moodle profile & personal blog:Personal Moodle profile - Patrick TurnerPersonal blog - The General LedgerStep 3My company – Bovis Homes Group PLCThe company allocated to me in week one for the assessment is Bovis Homes Group PLC. Since learning this, I have endeavoured to learn as much as I can about Bovis Homes and unearth the truths (the good and the bad) about this company since its inception. To achieve this (and to gain the most I can from this assignment), I have attempted to look beyond the glossy pages of the annual report to understand the company itself, how it functions as well as how it has changed over time. Overall, I found this to be a particularly valuable exercise in the case of Bovis Homes as its recent history (as I will explain later in detail) has greatly affected the company and will undoubtedly be reflected within its financial statements.First ImpressionsHonestly, I was really hoping to be assigned an Australian company (or at least an international company I am familiar with) as I felt that I would feel more engaged in the assignment and would relate to its past and current position more easily. This apprehension is likely due to my lack of education and experience surrounding accounting and business. Accordingly, I initially felt quite worried when faced with a UK-based company I had never heard of. Despite this, I look forward to the challenge and am excited to delve into the annual reports of the Bovis Homes Group and think the company will provide a great platform to apply what I have learnt to analyse and understand its business realities.Upon opening the company website it was obvious that the company builds speculative housing (a.k.a ‘spec’ homes) much like various companies here in Australia such as McDonald Jones Homes, Montgomery Homes, Beechwood Homes and Eden Brae Homes. Spec home builders typically have a large portfolio of stock home designs that people can choose from and allow for a small degree of upgrades and options depending on budget. Despite the fact that you often have limited choice of particular details, these kit-style setups are a popular option due to their value for money (not to mention everyone dreams of someday owning a brand-new home!). These types of houses are clearly popular in the UK, with Bovis being one of the United Kingdom’s largest private residential building companies. A distinct advantage of large spec home companies, such as Bovis Homes, is that they have considerable purchasing power and can therefore afford to pass savings on to buyers for certain luxuries such as stone bench tops, timber flooring and European-style appliances that would otherwise be unaffordable for many people. In addition, the UK government’s Help to Buy equity loan scheme (introduced in 2013) has boosted the property construction industry, with the policy encouraging buyers to purchase new residential homes. This creates a promising opportunity for high-output building companies like Bovis to meet the growing demands of the market.Bovis’ website conveys a sense of quality in their service(s) in a confident manner. In particular, the website homepage is quite welcoming and has quick links to pages such as, “Why choose us?” and “Why buy new?”. As expected, these pages are filled with outstanding testimonials and photos of very satisfied customers, which exhibits experience. It was also hard to miss the large figures presented on the investors page including 2016 figure highlights such as revenue (?1,054.8 million, +11%), profit before tax (?154.7 million, -3%) and gross margin (22.3%, -2.2%). Furthermore, I can see from their website that the share price is currently 1,124 GBp (+0.36%) with a dividend of 41.3p per share and dividend yield of 5.04%. While revenue seems to be relatively large, the decreases in profit and gross margin along with the increasing dividend yield (+1.42%) appears to tell a contrasting story (perhaps they are trying to attract more investors to combat their recent difficulties?). I am clearly speculating here, but I trust that some of these numbers will begin to be clearer as I filter through their latest annual report and learn more throughout the unit. Overall, I feel more content with my company than I did in week one and look forward to finding out what is really going on beyond the numbers the Bovis Homes Group chooses to display on their sleek website.Bovis Homes Group PLC – The BackstoryBefore attempting to analyse Bovis’ annual reports, I think it is crucial to gain an insight into the company to better understand what is happening. Bovis Homes PLC is a public limited liability company based in Kent, United Kingdom. The company has been operating since 1965 and was the second largest homebuilder in the United Kingdom by 1972. Since then, the company has focused on servicing the private housing market and primarily designs, builds and sells new traditional-style homes for private customers. The services offered by Bovis Homes are extensive and covers many key aspects of the property development processes including land acquisition, planning, design, surveying, engineering, construction, sales and after-care services. At present, Bovis Homes operates eight regional businesses and offers a range of properties ranging from one-bedroom apartments up to six-bedroom detached family homes. They also have a considerable land bank of 25,494 plots (as of the beginning of 2017), which constitutes over 4 years of land supply. The conversion of these land plots is a key driver of value for the Group. On the surface (and considering my lack of experience in business), this company seems to be quite a force in the market. For instance, Bovis employs more than 1200 staff and 4000 sub-contractors and completed a total of 3,977 homes in 2016. To put the growth of the company in perspective, the number of house completions doubled in just five years! However, this is where things begin to get interesting. While their website promises to deliver homes of the highest quality, several well-publicised articles have been written alleging that Bovis offered cash incentives (~?3,000) to entice customers to move into unfinished homes prior to Christmas in order to reach ambitious sales targets in 2016. As a result, shortcuts were clearly taken and quality rapidly deteriorated (see examples below). 1590675171450004762516192500Consequently, a Facebook group and YouTube channel were created by unhappy customers called “ HYPERLINK "" Bovis Homes Victims Group” in which almost 2,500 people have shared their complaints. Whilst perusing several internet pages I also came across an interesting article that highlighted that the company had a 62% turnover rate of site managers during the year - something is very wrong here! It appears that the rapid growth of the company has eventually caused its production processes to burst at the seams and has had a detrimental effect on other aspects of the business (i.e. employee welfare, customer satisfaction etc.). Despite Bovis’ desperate attempt to deliver on their planned quantity of private home completions in 2016, they fell short by around 180 by the close of December. The reason is suggested to be due to major short-term resource shortages (i.e. skilled construction labour). Thus, subcontractors and suppliers are a very important area of the business. In early January of 2017 Bovis’ CEO David Ritchie was sacked after a profit warning in which profits fell 3 per cent to ?154.7 million – far from its forecast of around ?170 million. Shares in Bovis also plummeted 10%, wiping ?115 million from the company’s value – what a disaster. Interim CEO Earl Sibley acknowledged their decline in customer service standards and allocated ?7 million to compensate customers who had problems with their new homes. Enter Greg Fitzgerald. Greg Fitzgerald was headhunted to restore the company back to its previous glory as the previous CEO of Bovis Homes’ closest rival, Galliford Try PLC. There are some clear (and well publicised) challenges the firm is currently facing and the key strategy of the new CEO is to get investors back onside as well as focusing on rebuilding customer relationships, decreasing costs and delivering high quality homes by reducing the growth plans of the company. Under Mr Fitzgerald’s management, Bovis aimed to complete 10-15% fewer homes in 2017 to ‘reset’ the business. Further, Bovis is investing in apprenticeships and trying to reduce the labour shortage (and increase workmanship quality) through its launch of the Bovis Homes Training Centre, a dedicated training facility. To prove the new CEO’s confidence in the company’s future, he has invested over ?3 million of his own money into the company. As a result, shares have risen more than 30%! Evidently, the new CEO’s leadership is getting strong buy-in from investors. Although such matters will take time to fix, the initial approach taken by Bovis is starting to have a positive effect. Now to look at the financial statements contained within the 2016 Annual Report. 2016 Annual Report – The Nitty GrittyUpon opening the 2016 annual report for Bovis Homes Group, I was quite overwhelmed by the sheer size of it – 144 pages no less! As expected, the report reflected the typical structure including a letter from the CEO, a highlights section, various charts, the four financial statements, a lot of footnotes and a plethora of marketing.Remembering the accounting equation from the first week (i.e. assets = equity + liabilities) I decided to begin with the balance sheet. I found the balance sheet quite easy to read – it was set out nicely under headings for assets, liabilities and equity and no items were particularly confusing. I could also see that all numbers needed to be multiplied a factor of 1,000 to attain the true GBP values. It was easy to locate total assets = ?1,630,326 comprising ?57,617 non-current and ?1,572,709 current assets. Further, total liabilities = ?614,399 including ?170,014 non-current as well as ?444,385 current assets. Finally, total equity was ?1,015,927. Naturally I put the formula to the test to see if the components balanced: total assets (?1,630,326) = equity (?1,015,927) + total liabilities (?614,399). It is all finally making sense! I then turned to the income statement, which was split into a group income statement and a statement of comprehensive income. I found this statement straightforward and did not have any issues regarding revenue or any expenses. Moreover, the statement of cash flows was also relatively easy to understand. As with the income statement, the statement of cash flows was for a specified period, in this case 12 months ending December 31, 2016 and outlined cash receipts and payments during the accounting period. It is now clearer why potential investors and lenders would be interested in this component of the financial statements as it gives a useful indication of cash management.The statement of cash flow was by far the most confusing to comprehend. At first, it looked like a Sudoku puzzle but I eventually made sense of how the rows of each variable in the other statements had been transposed into columns. It was more that many of the terms used were totally unfamiliar to me. It felt like reading another language. This feeling was similar to what it was like the first time I tried reading and understanding a computer coding language. It was just a whole bunch of numbers, letters and words that didn’t appear to say anything of meaning to me – how could this possibly tell me anything? However, once you spend the time to learn what each component means and the intricacies and rules of it all, you can make sense of it collectively and use it in a very powerful way. Specifically, I noted that the total equity from the previous accounting period was the same as the current financial year and could see the dividends paid to shareholders and total comprehensive income. However, I am still having trouble with a few of the concepts such as shared equity reclassified to the income statement and issue of share capital.Peer Discussions and BloggingI have been following the progression of some excellent blogs throughout the unit so far and have found it to be quite an interesting approach to learning. In particular, I have thoroughly enjoyed learning about the myriad of firms that other students have been assigned and have found it beneficial to read how they are dealing with all the new concepts along the way. In the case of my blog, I welcome others to provide honest and genuine feedback in the hopes that I can improve on it week-to-week and look forward to engaging in open discussions about various topics I have covered.My Top Three BlogsI have delayed the completion of this component of the assignment to try to allow other students time to develop their blogs and visit as many as I can. Although this seemed like a good idea at the time, selecting just three blogs was a difficult task as I found many blogs to be quite good in different ways. In order to be as fair and consistent as possible, I decided to appraise each blog based on two fundamental components:Presentation – While this is highly subjective, given the masses of blogs available on the internet covering almost every topic you could ever think of, I really think that a well thought out and neatly presented blog will be far more successful than a very boring or generic one. Let’s face it we have probably all opened a webpage at some point and closed it soon after because it does not look legitimate. It is quite distracting and I find myself struggling to trust the accuracy of the content on the site as a consequence. This component encompasses my initial impressions and feelings when I open the webpage and look around without reading much more than the title. In other words, does it grab and hold my attention?Blogs that are interesting and well-written. While I do enjoy the informality of many blogs, they should still be carefully written and flow between relevant ideas without getting too side-tracked or seem like a diary entry. Topics discussed should also be backed up with a credible form of evidence and find a good balance between objective and subjective ideas.While these criteria are relatively ambiguous, they do help to justify how I selected my final top three blogs. A link to my blog post about my favourite bloggers in the unit can be found here – My top 3 accounting blogs and the list can also be found below:Isabella Plautza – Hold the vision, Trust the process’s blog stuck with me when going through others for a number of reasons. With respect to my first criteria, the way she has presented her blog is very clean and neat. I also appreciated how easy it was to find her posts. However, the best aspect of her blog is that her posts are well-constructed and flow quite nicely, which makes them easy and enjoyable to read. Keira Esler – A University Adventure Keira’s blog is quite plain in terms of design, I couldn’t help but immerse myself in the content she has posted. Her ideas are not only well-written, they convey a strong understanding of the underlying concepts that have been taught in the unit so far and makes reading her post very worthwhile. Overall, her blog undoubtedly has made a valuable contribution to my own learning and one I will follow closely throughout the unit. Chris Peters – Chris Peters Accounting Chris’ blog was neatly set out, it was the variety of different content (as well as the quality) that he has posted that first caught my attention. There has clearly been a lot of work invested into this blog and I found his ideas to be insightful and well-written. Chris clearly has a good grasp of the topics covered so far and is effective in highlighting these with reference to his own company, XTEP International Holdings Ltd. I believe Chris’ blog and work is the most well-rounded I have read. Accordingly, his has to be my favourite and is one I will visit time and time again during this course. Step 4Bovis Homes PLC Annual Report Links:Annual Report 2016Annual Report 2015Annual Report 2014Completed – see Excel spreadsheet for inputted financial statementsStep 5KCQs - Chapter 2Chapter two of the course notes aimed to equip students with a better understanding the game of financial accounting. Specifically, providing the financial information of a firm to parties of interest outside of the firm itself, known as financial accounting as opposed to management accounting. This distinction highlights how information of any kind can be spun to target certain audiences, despite the fact that a company usually only keeps one ‘set’ of accounts. I found this to be particularly true within my firm's annual reports. Although they did concede to several shortcomings with respect to their targets, everything is worded in a particular manner and presented in a very positive light. Prior to this course, I never really considered how the business activities of a firm would affect more than the business itself and its equity providers, so this chapter was immediately appealing to me. This idea really ties in with how interconnected even the general community is with companies as consumers and potential equity providers. I have always wondered how investors gathered information about firms to determine whether they are worth investing in or not. I therefore found it quite surprising to learn that it was so difficult to get the necessary information to understand what is happening within a company (particularly in the past). With my total lack of knowledge, I thought that an individual was essentially ‘in the know’ or not. In other words, investors are businesspeople who either have good insider knowledge or are very good at playing the stock exchange game. By contrast, the point that managers are not confined by official rules when it comes to accessing financial information about their firm was not surprising to me as I am sure that insiders in large companies in particular are able to exercise their influence to gain access to information with ease. As wisely stated by Einstein, you must know the rules of the game and then play better than anyone else!In the case of government entities (such as the ATO) and banks, it seems reasonable to require proof of income, assets and liabilities in order to assess risk for mortgage purposes etc. However, I never realised that many companies are legally required to publish data relating to their financial and general business performance for members of the public to see under the Corporations Act. When a firm is required to provide financial information to persons external to the company, it seems only appropriate that there should be a standardised way to present such information. Further, given that big companies are often good at 'playing the game', I can understand why there are regulations to ensure that companies cannot omit or warp critical information used to make important business decisions. One of the more confusing concepts that I came across concerns when exactly entities such as trusts and partnerships are required to actually produce financial statements for external parties? I understand they can choose to, but is the main reason to attract potential investors for sole traders and partnerships?One of the most surprising concepts that I came across within the chapter was the fact that the rules (GAAP) governing how general-purpose financial statements are to be presented (while similar) can differ between countries. I find it difficult to come up with a rationale as to why these rules are not standardised across the world. My best guess is that differences in business culture and standards of reporting mean that each individual country alters particular rules to ensure they are relevant and appropriate? One question that persisted was how would one go about presenting information for international firms that have branches all over the world such as PwC or KPMG – do they comply with the local regulations based on where the company is based? A quick web search did not provide a clear answer unfortunately.Another thing I find quite interesting is that the GAAP enforced in Australia comprises thousands of pages and is continually changing to stay relevant with emerging issues. However, if nobody can keep up with all the rule changes let alone know them all, it would be extremely difficult to enforce such a large body of rules for the ASIC. It therefore seems to defeat the purpose somewhat. This point highlighted that it is not feasible to have a written rule for everything, leaving large grey areas open to interpretation requiring judgements to be made. This makes sense as often we just need to look at a situation on a case-by-case basis and can’t possibly have a step-by-step answer for every situation due to the complexity of business. An over-reliance on rules would probably cause the whole system to grind to a halt, rather than merely guide the reporting of financial information to ensure it is reliable and accurate.Accrual accounting was another major topic of chapter 2. I found this to be interesting as I had no idea that firms recorded transactions as they occurred rather than when money changes hands. Initially, my thoughts were why would you include transactions in an account before money has actually been paid? Would this not just muck up the accounts and cause confusion? This was perplexing for me. While I can understand that if you were a building firm (like my assigned company, Bovis Homes) and you had a lot of money owing (potentially millions), it probably should be counted even before the debt is paid. But what happens when transactions fall through? In particular, for companies that deal with much smaller products at a high volume? This would surely make it difficult to keep up with the accounts! The final topic relating to quality of information with reference to financial statements such as the importance of factors such as relevance and faithful representation were straightforward concepts to me. It is essential to have all aspects balanced to ensure the information conveyed is a fair, accurate and meaningful. This concept resonated with me as due to my previous work as a science researcher. For example, a piece of equipment can be reliable, but not valid for its intended use – which deems it useless!KCQs - Chapter 3 (sections 3.1 and 3.2)This reading built on chapter 2, which outlined the basics of financial statements. By this point, I understood the purpose and general principles surrounding financial statements but so many questions were left for me to ponder such as what should they look like and what do they include? The previous chapter provided a good understanding of what to avoid, however I still did not necessarily know what to expect. Accordingly, chapter 3 was a good natural progression in the learning process.The fact that no rules exist regarding how firms must set out their financial statements or the naming of the various items within the statements was baffling to me. I thought having uniform names for things as well as standard templates would make everyone’s job a lot easier and would eliminate misleading or confusing names for certain items. I was equally surprised that most expenses for a company are not required to be disclosed.There are four fundamental financial statements (balance sheet, income statement, statement of changes in equity and cash flow statement) was a completely new concept to me. Further, I was surprised by the need to have more than just the balance sheet and income statement. However, after learning that the statement of changes in equity details the changes in shareholder's equity over a period it made more sense to me. While I had heard of a balance sheet before, I was unaware that it was a snapshot of a firm’s financial position at a specific point in time or that it included assets, liabilities and equity. I found it quite easy to see how these aspects interacted with the formula: Assets + expenses = equity + revenue + liabilities within my company’s balance sheet. It was not until I actually applied this concept to the raw numbers in the financial statements that I gained a deeper understanding of how interdependent each component is. As for the other three financial statements, I had never heard of them prior to this unit. However, I am eager to learn how they can help me better understand the business realities of Bovis Homes. Despite this, I can see some familiar concepts standing out to me such as revenue minus expenses equals a firm’s income for a period. The idea that a firm's annual report functions as a marketing document is an interesting concept. After looking through my firm's annual reports from the past few years I can definitely see that despite their recent difficulties the report is filled with photos of satisfied customers and colourful graphs that really just try to put a positive spin and outlook. They clearly put a lot of thought and work into presenting the business in a promising light!The opening paragraph of section 3.2 was an extremely interesting part of the reading for me. I never appreciated businesses as active 'living' things that in a constant state of flux. Given the balance sheet is merely a snapshot as at a certain date, it makes sense to look at these at regular intervals to see how things have changed. This reminds me of my previous experience as an exercise scientist, whereby we would measure a variable, wait a period of time for the effects of a stimulus such as training to let the body adapt then take another measurement or snapshot later on to quantify and understand how the body adapts over time. This is an effective exercise for highlighting noteworthy changes (good and bad) or even stagnations that may be of interest.Although the cashflow statement showing the opening cash balance as well as inflows and outflows over a period makes sense, I don't understand why it needs to be counted as an asset in the balance sheet as well as have its own 'cash flow statement'. I also found it interesting that the cash flow statement is devoid of judgements that often need to be made within the balance sheet etc.Lastly, the idea that revenue & expenses are temporary factors separated from equity as revenue or expenses was a new concept that I did not know but its process and rationale were logical. These are then transferred over at the end of a period into a profit and loss account and subsequently transferred to equity. This wipes the revenue and expense accounts clean again and allows for the recalculation of profits. This point reinforced the idea of how value is transferred between accounts and that value is not always just created or destroyed.Step 6 – Peer FeedbackFeedback To: Georgia Lane My CommentsStep 1KCQsI really enjoyed reading your step one. Your writing has great flow and you add in good examples and draw from experiences, which really adds to your thoughts. Overall, you covered the major concepts well and were succinct. Great work!Step 2To ensure you can get full marks here I would add some basic details about yourself in your Moodle profile – what are your interests etc.?Not sure if you have a photo or not – maybe other students can’t see them. In any case, make sure you upload one to your Moodle profile.Links are provided.Introductory words in Description boxPhoto and descriptionLink to your blog/Set up blogStep 3 Background – The background information provided about your company was of good quality, however I think that you could have expanded on what the primary focus of the company is in terms of services and also a bit more about the structure of the company. Also, the news articles you added links for were also a purposeful addition, good job! All in all it was a good brief overview. KCQs – Overall, I think you covered the annual report for your company quite well. You indicated areas of strength and challenges in the company as well as incorporated your understanding of the financial statements themselves. One thing you could think about doing is perhaps adding a few extra examples into your writing to highlight the points you ments to others – good description to justify top blogs.Background information on companyComments/KCQsComments on other’s blogsStep 4Nice layout and clear attention to detail.All totals are very easy to read and everything seems in order.Not much else to add here – really great job I think you will do well in this section.Input company’s financial statementsStep 5Not completed at this stage.KCQsStep 6Individual feedback with othersGood quality feedback given to three other students marked according to the criteria.Constructive and thorough, good job!Overall ASS#1Overall, I think you have done a fantastic job. Your work is well thought out and thorough in all areas. Please use this feedback as positive, constructive feedback and best of luck with the assessment and the rest of the unit!Feedback To: Tenille Ashton CommentsStep 1KCQsExcellent writing style – engaging, persuasive and succinct.Enjoyed your inclusion of personal experiences and thoughts relevant to the topics.Appreciated that you avoided summarising the reading.To improve, your step one may benefit from a few more key concepts and a little more depth for each one.Great job overall!Step 2Link to blog provided – blog looks great!Need to add a link to your Moodle profileEnsure that you have a brief description about yourself and a photo.Introductory words in Description boxPhoto and descriptionLink to your blog/Set up blogStep 3 Good brief description – simple outline of what Phosphagenics does as well as some details about their current challenges and links to relevant articles.This section may benefit from some extra details in each paragraph as well as more information about the structure of the company etc.Annual report KCQs may also benefit from more details, but the concepts you did choose to discuss were beneficial.A few more sentences on each of your favourite blogs may be necessary. Even try to incorporate examples of what stood out to you in particular for each one. Overall, good work in this section!Background information on companyComments/KCQsComments on other’s blogsStep 4Very neatly formatted Excel workbook with all four years of financials completed.Formulas used well and appear accurate.I think this is a strong section!Input company’s financial statementsStep 5Enjoyed your writing style – very engaging and easy to follow.Good use of personal experiences/examples.Could include a few more key concepts but those chosen were strong and relevant.Remember to proof read your work before the final submission – there are a couple of simple spelling mistakes in this section.KCQsStep 6Individual feedback with othersUseful and honest feedback was provided to three other students.Overall ASS#1Overall, you have done some quality work in your assignment one. Please use this feedback as positive, constructive feedback and best of luck with the assessment and the rest of the unit!Feedback To: Harry Dodsworth CommentsStep 1KCQsGood concepts chosen for KCQsLike that you listed the pain points of each section within the chapter than gave your own insights/understanding.Step 2General description in both blog and Moodle profile (could add a Moodle profile link for the marker).Photo also provided.Introductory words in Description boxPhoto and descriptionLink to your blog/Set up blogStep 3Very succinct background on the assigned company (Sogefi).Includes all relevant details and liked that you outlined the 3 main divisions within the business (i.e. air & cooling, filtration and suspension).Comments/KCQs for the company’s annual reports were quite insightful and compared performance with 2015 KPIs. Could consider adding a few more concepts as this section did seem a little brief, but the quality was 3 blogs given with a well-informed justification.Background information on companyComments/KCQsComments on other’s blogsStep 4Excel spreadsheet was of high quality – neatly presented and numbers appeared to be accurate.Could have used formulas for totals etc. to demonstrate understanding of the relationship between some items on the financial statements.Input company’s financial statementsStep 5Good start to chapter 2 – choice of concepts to include were great, but would add a few more if you have time.Chapter 3 not yet completed at the time this feedback was written.Keep working hard, you are doing good work!KCQsStep 6Individual feedback with othersEvidence of individual feedback was provided for three students in the ments appear to be relevant and constructive, but could benefit from a few more details in certain areas.Overall ASS#1Great effort overall, you are well on your way to submitting a strong assignment 1! Please use this feedback as positive, constructive feedback and best of luck with the assessment and the rest of the unit! ................
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