Question: International financial reporting standards set out the requirements and recognition criteria for what is included within the statement of financial position, and.......

Question 1
A) International financial reporting standards set out the requirements and recognition criteria for what is included within the statement of financial position, and the statement of profit and loss and other comprehensive income. Through an analysis and application of international financial reporting standards, critically discuss two examples of transactions and events that are excluded within your organisation’s financial statements.
B) For those items that are not included, reflect on ways in which you and your organisation can engage with, and profit from Quattrone’s (2015) approach to decision-making for the unknown.

The company that we will focus on is a private medium sized company that works within the IT sector; developing B2B solutions across the fintech, prop-tech, and logistics domains. IT offers more that 20 digital solutions to different partners from government to businesses. The company headquarter in KSA and operates regionally as well. You may select the 2 items/ transactions that are excluded from the financial statement by yourself that will help you to write about them critiquely, since there is no need to attach the financial statement here in this essay.

with regards to question B, you need to refer to the article attached (quattrone 2015) to answer this question by reflecting to the decision- making for the unkown through designed governance framework (example attached with the file named framework for decision making for the unkown- BAF slide 6).

DRAFT / STUDY TIPS:

A) Excluded Transactions and Events from Financial Statements

In the realm of international financial reporting standards (IFRS), certain transactions and events may be excluded from a company's financial statements despite their significance to the organization's operations. For a private medium-sized IT company operating in the KSA region, specializing in B2B solutions within fintech, prop-tech, and logistics, there are unique aspects of its business that may not be fully reflected in traditional financial reporting. Let's critically discuss two examples of such excluded transactions or events and analyze their impact.

Example 1: Intellectual Property Development

One critical area often excluded from financial statements is the internal development of intellectual property (IP). For an IT company like ours, considerable resources are dedicated to developing proprietary software solutions tailored for specific industry needs. However, under IFRS, costs incurred in developing IP are generally expensed as incurred, rather than capitalized as assets, unless specific criteria are met (such as demonstrating technical feasibility, marketability, etc.).

Critique: This treatment might lead to understating the true value and potential of the company's IP portfolio. The exclusion of IP development costs from the financial statements can distort the picture of the company's true asset base and its future revenue-generating potential. Investors and stakeholders may not fully appreciate the value embedded in these intangible assets based solely on the financial statements.

Example 2: Research and Development (R&D) Expenditure

Another common exclusion from financial statements is R&D expenditure. In the IT sector, continuous innovation and R&D are vital for maintaining competitiveness. However, under IFRS, most R&D costs are expensed immediately rather than being recognized as assets. While some development costs can be capitalized under specific circumstances (e.g., after technical feasibility is demonstrated), much of the early-stage R&D investment is written off in the year it is incurred.

Critique: By expensing R&D costs, the financial statements may not adequately reflect the potential future benefits and breakthroughs that could result from ongoing research activities. This approach can lead to undervaluing the company's innovation capabilities and its ability to generate future revenue streams through new product offerings.

B) Engaging with Quattrone's Approach to Decision-Making for the Unknown

Quattrone's (2015) approach to decision-making for the unknown emphasizes the importance of recognizing and navigating uncertainty within organizational decision-making processes. His framework promotes a proactive stance toward dealing with the unknown rather than relying solely on reactive strategies.

Reflection and Engagement:

1. Designing Governance Frameworks: One way to engage with Quattrone's approach is by implementing robust governance frameworks tailored to address uncertainty. This involves creating structures and processes that facilitate adaptive decision-making, acknowledging that not all relevant information may be quantifiable or immediately apparent.

2. Scenario Planning: Adopting scenario planning techniques can assist in anticipating and preparing for potential outcomes in uncertain environments. This approach allows the organization to evaluate various scenarios and develop strategies that are resilient across different future states.

3. Stakeholder Engagement: Emphasizing continuous dialogue and engagement with stakeholders can provide diverse perspectives and insights into emerging risks and opportunities. This inclusive approach helps in identifying and responding to uncertainties more effectively.

4. Dynamic Risk Management: Moving beyond static risk assessments, organizations can embrace dynamic risk management practices that adapt to evolving uncertainties. This involves integrating risk intelligence into decision-making processes and fostering a culture of agility and responsiveness.

Linking to Quattrone's Framework for Decision-Making for the Unknown (BAF Slide 6):

The attached framework underscores the importance of acknowledging the limitations of traditional decision-making models when dealing with uncertainty. It advocates for a more nuanced and adaptive approach that considers multiple dimensions of risk and uncertainty.

In conclusion, by critically examining excluded transactions and events within financial reporting and reflecting on Quattrone's approach to decision-making for the unknown, organizations like ours can enhance their strategic resilience and capacity to thrive in dynamic environments characterized by uncertainty and rapid technological change. Adopting a proactive stance toward uncertainty can unlock hidden value and pave the way for sustained growth and innovation.