ACCT11059 ACCOUNTING, LEARNING AND ONLINE COMMUNICATION

ASSIGNMENT STAGE 1 (ASS#1) Steps 3 – 6

Melissa Bernotavicius – Cairns Campus

Find my Blog: Re Inventing Mel B STEP 3 Finding My Company – My ThoughtsI was eager to find out which company I had been allocated for my Assignment Stage 1. I had been hoping for an Australian Company and one that I would be familiar with, however as is usually the case I got the opposite of what I had been hoping for. My company is Frontier Developments PLC. Whilst the name sounded vaguely familiar I really had no idea who they were or what they did, so began my journey to discover all I could about Frontier Developments. To my surprise, I discovered Frontier Developments was a video game developer. I’m not a gamer myself but I have 2 teenage boys, one of which would happily forgo sleep and sustenance to ‘keep on gaming’ 24 hours a day if I let him! I thought this is going to be more interesting than I had initially anticipated. I imagined that for a company to be successful in the competitive world of video gaming, it would have to utilise cutting edge technology, have a highly skilled, dynamic and creative workforce and a finger on the pulse of its consumers. Companies like this didn’t exist 50 years ago, they are the product of advances in technology and continue to grow in this new age of connectivity – I mean who doesn’t own a device that connects you to the world whenever and wherever? So, who is this new age Company? With my accounting hat on I started to consider….

My Company – Who are they and what to do they do?

Frontier Developments PLCFrontier Developments PLC is a leading software technology company with its focus being on videogame development and is one of the longest surviving game studios in the UK. Frontier Developments was founded in 1994. Founder and CEO, David Braben, began computer programming as a hobby when he was a school boy. In 1984, whilst still at University, David and fellow student Ian Bell, published a computer game called ‘Elite’. The game set new standards in video game programming and set the wheels in motion for David to go on and establish the company Frontier Developments, ten years later.

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Doing so allowed David to continue his ground-breaking work on a much larger and more ambitious scale, the likes that can only be achieved with a team of people. Today Frontier Developments has nearly 300 employees! Frontier Developments established partnership with globally recognised companies such as Sega, Atari, Konami, Sony and Microsoft, in developing video games for their various brands - Xbox, PlayStation, Nintendo, Wii, IOS and Microsoft Windows.

In recent years Frontier Developments, has been going through a period of transition both in company structure and business strategy. Whilst beginning as a private company in July 2013, Frontier Developments successfully listed on AIM (Alternative Investment Market) , a sub-market of the London Stock Exchange. This gave the company funds to invest in its future growth and allowed Frontier to move forward with its strategic decision to focus on developing and publishing their own games directly to consumers, rather than working in partnership with other parties as they had done previously. The strategy was aimed to give Frontier Developments greater control over their own business. Today, Frontier Developments is a fully self-funded and self-published video game developing company.

Stated in their website, ‘Frontier’s development strengths are immersive, fun gameplay design and unparalleled artistic quality underpinned and enabled by cutting-edge technology development and a talent for getting the best out of hardware and UI. proven track record of progressive development and innovation spanning several decades of rapid technological change.’ And list their company values as Quality, Innovation, Continuous Improvement and a Focus on People’.

http://www.frontier.co.uk/

Below are links to some articles I found interesting relating to David Braben and Frontier Developments.

A Life in Pixels - How David Braben got started

David Braben - An Elite Entrepreneur

The Game Changer - David Walsh C.O.O. Frontier Developments

What have we become? by David Walsh - C.O.O. Frontier Developments

Frontier Developments Coasts into 2017 - www.proactiveinvestors.co.uk

My Company - KCQ’s The below is a snap shot taken from HIGHLIGHTS found on page 2 of Frontier Developments 2016 annual report. The following questions came to mind:

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Why has there been a big fluctuation in the company’s operating profit from over the last 3 years? What has changed within the company to make it go from running at a loss to now making profit?

What caused the growth in revenue from 2014 to 2015? Why has the Net Cash Balance remained stable when revenue and profits have varied?

The rest of the information included on the HIGHLIGHTS page raised the following Questions:

What is EPS & EBITDA? Given these have improved, year on year, are the related to revenue and operating profit?

What is Deferred Income? How does Deferred Income affect the profit from year to year? 2014 Deferred Income of 2.5M with an Operating Loss of -1.7M, while 2016 had 2.2M in Deferred Income but ended with an Operating Profit of 2.2M

What is Adjusted Operating Result and Adjusted LPS/(EPS)? What has been adjusted? The results after adjustment are not so positive.

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The Chairman’s statement which follows the Highlights, begins to answer some of my earlier questions, indicates the company has been going through a period of transition, resulting in a major shift in how the company generates revenue.

“For the first time, substantially all our revenue has come from self-published titles: Elite Dangerous and Planet Coaster (in Alpha). We have transformed a business-to-business enterprise into a business-to-consumer organisation in the space of two years.

In FY17, we will launch our second franchise, Planet Coaster, and, as a result will complete our strategic transition to self-publishing multiple revenue generating franchises.”

DAVID GAMMON Non-Executive Chairman

I note in the Chairman’s Statement it says “Number of Planet Coaster pre-orders at end August 2016: 50,000”. Is this the source of the Deferred Income shown in the annual report as at 31 May 2016?

The Chief Executives Statement goes on to further explain the company’s change in strategy and revenue streams.

“This year we earned substantially all our revenue from self-published products for the first time, with self-published revenue increasing by 13% and revenue from work-for-hire contracts falling to zero in the year as planned”

DAVID BRABEN OBE Founder and CEO

Reading further through Frontier Developments Annual Report I gain some insight into the relationship between company events and its financial performance. Putting it simply the variations in revenue have come about due to a determined strategy to grow revenue by developing and marketing their own products (self-publishing) rather than in a partnership arrangement (work-for-hire). The timing of game development and game release contributes to variations in revenue, profit and deferred income. The expense associated with developing a game (franchise) may be captured in one accounting period, increasing expense with no attributable revenue, reducing profits. The game may be released in the next accounting period generating revenue for that year and increasing profits because the associated expenses were captured beforehand. Pre-sales of games affect the deferred income as the company has received payment for a product but has still to provide the product. Income – because it’s a sale and deferred because the transaction is to be completed in the future. The company would have to return these funds if they failed to provide the product and is why this appears as a liability on the company’s balance sheet.

Analysts suggest the video games market will continue to grow, with a shift towards digital distribution of games for PC’s and mobile devises. Frontier Developments plan to continue their growth by adding to their games catalogue and enhancing their existing games with updates and expansion packs. The company’s strength are innovation and quality.

Frontier Developments have included in their annual report a list of risks and uncertainties for their business as the following:

Staff ability and retention Cybersecurity

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Strategic Focus – the ability to continue their growth through self-publishing Currency Risk – managing currency fluctuations in relation to international dealings Growth Management Market Disruption Credit – the financial impact on the company if a business partner fails to me it obligations to

Frontier Developments.

The Chief Financial Officer of Frontier Developments is a qualified Chartered Accountant whilst the Chairman has a background in Investment Banking. I surprised to find the Chief Creative Officer had a degree in Zoology.

David Gammon – Non-Executive Chairman Analyst, Fund Manager, Broker and Private Equity professional, Investment Banker

David Braben – Founder & Chief Executive Officer

Degree in Natural Science specialising in Electrical Science

David Walsh – Chief Operating Officer Background in engineering and commercial management. University of Nottingham

Johnny Watts – Chief Creative Officer Degrees in zoology and computer scienceCharles Cottan – Non-Executive Director BA Hons in Physics, a Fellow of the Institute of

Physics, a Fellow of the Royal Society of Arts.Neil Armstrong – Company Secretary and Chief Financial Officer

Qualified chartered accountant

My Company – Annual Reports2016 Annual Report - Frontier Developments PLC

POISED TO SUCCESSFULLY COMPLETE OUR BUSINESS TRANSITION

BUILDING WORLD-CLASS FRANCHISES. The games industry is transitioning into the world’s premier form of entertainment. Frontier has a proven track record of progressive development in video games spanning several decades of rapid technological change. The Group’s projects cross a wide variety of genres and platforms and are linked by an underlying drive for innovation, timely delivery and, above all, quality, enabled by its COBRA technology.

Cover page 2015 Annual Report

2015 Annual Report - Frontier Developments PLC

RECORD REVENUE AND PROFIT WHILE IN TRANSITION

FRONTIER IS FOCUSED ON BUILDING WORLD-CLASS FRANCHISES AS THE GAMES INDUSTRY TRANSITIONS TO THE WORLD’S PREMIERE FORM OF ENTERTAINMENT. Frontier has a proven track record of progressive development in video games spanning several decades of rapid technological change. Its projects cross a wide variety of genres and platforms and are linked by an underlying drive for innovation, timely delivery and, above all, quality, enabled by its COBRA technology.

2014 Annual Report - Frontier Developments PLC

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FRONTIER IS LEADING THE GAMES INDUSTRY IN ITS TRANSITION TO THE WORLD’S PREMIERE FORM OF ENTERTAINMENT We have a proven track record of progressive development in video games spanning several decades of rapid technological change. Our projects cross a wide variety of genres and platforms and are linked by an underlying drive for innovation, timely delivery and above all, quality.

My Favourite BlogsIt was not an easy task choosing just 3 favourite blogs! There are some very well written blogs that I’ve enjoyed reading for various reasons.

betweenthespreadsheets – Jennifer Martin’s blog was one of the first I looked and her first blog post made me cry. She has really put her heart and soul in to her blog and I find it engaging to read and a little bit of fun along the way. Jen has provided great insight into her company Finbar Group.

I'm a busy lady! – Nicole’s blog is simple, maybe not as ‘flashy’ as others but I think it is honest reflection of where she is right now in her studies – at the beginning. I’m following Nicole’s blog because I want to see how her Accounting journey unfolds and where she’ll be at the end when we’ve all ‘really learnt’. Finding out her company, Best of the Best PLC, is a ‘spot the ball’ competition, caught my interest, as you wouldn’t normally consider something of this nature when thinking about companies.

Be Audit You Can Be – Danielle Bradley’s blog and what she writes is very well put together. She seems to have taken to this like a duck to water and has a good grasp of what she is doing! This is the reason why her blog is one of my favourites as it’s given me a benchmark to aim towards. Danielle is also a great contributor to FB group and her advice has been of great help. Her company LPC was interesting to read about and she has been very thorough is what she has presented. Danielle’s work gave me a starting point to begin my own assignment.

STEP 4 My Company SpreadsheetIncluded as a separate attachment.

STEP 5 I love how each chapter starts with a deep and meaningful and might I add, totally relevant, quote!

Taken from Chapter 2 – Understanding the Game

‘You have to learn the rules of the game. And then you have to play better than anyone else.’

Albert Einstein

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My reply to that is simply……

‘To know the rules of the game, you have to be educated.’

LL Cool J

Getting educated is turning out to be tougher than I thought. Having written a first draft, a second first draft, a third first draft and now my fourth first draft, I find myself missing deadlines, missing work and missing sleep! In step 1 of this assignment I stated I would be ‘challenging myself to grow’ and while I may be experiencing growing pains one positive is the realisation that I am growing - real learning is actually taking place! I’m learning a little bit about myself and a little more about accounting!!

It has come as a surprise to me that my assignments ask me to write my ideas, reflections and reactions to what I am reading. My reaction to that is to check that I’ve signed up for the correct course – this is Accounting, right? Perhaps creative writing should be a pre-requisite? My struggle is not with content of the accounting text I am reading, my struggle is with ‘finding my words’. I thought accounting was numbers not words! Please, someone, anyone, tell me there are going to be numbers!!

Where I work, it is my job to prepare the monthly financial statements. My role as an assistant to the Financial Controller means I spend most my time keeping the books and producing the monthly Financial Operating Statements or FOS, as we refer to them, this includes the balance sheets. I then hand over the reins to the Financial Controller to take it from there. When I’m reviewing the FOS each month I’m looking to find errors and inaccuracies before I pass the reports along to the boss. I’m not looking to understand the realities of the business, simply checking the numbers are correct. Since reading these chapters I’ve started looking at the financial reports I produce and the reports of the company I have been allocated in my assignment (Frontier Developments) in a whole new light. To borrow from Martin’s analogy, I feel like I’ve just re-acquainted with an old friend and gotten to know them better.

Surprisingly it’s been little things that I’ve learnt about my ‘old friend’ where I’ve had my light bulb moments. I was stunned to read Equity Investors were initially given little consideration when it came to sharing financial information. Surely the need to provide Investors with quality information to gain or maintain their continued investment would be sufficient reason for business to share such information even before regulations made it compulsory. Equity Investment helps business grow. Without equity, the accounting equation just wouldn’t add up.

Discovering the distinction between Financial Accounting and Management accounting was a personal light bulb moment. I recall starting a new job several years ago, which was a reasonably senior position and one of my new colleagues asking ‘How long I had been doing Management Accounting?’ Not wanting to undermine my credibility my answer was something fairly vague along the lines of “Um I don’t know. I’ve always worked in places where you had to do everything.” When the truth was, I had no idea what Management Accounting was! To me accounting is just that – accounting, the reports I've always produced have mostly been for internal use in a standardised format, dictated by Head Office. Financial accounting is likely to be of more significance at our Head office. Going back to the question from my colleague and finally understanding exactly what she was asking me that day – priceless!

The value of footnotes has also been a revelation. The financial reports I produce do not have footnotes so I’m not familiar with them. However, I liken footnotes to the financial critique I write each month which further explains what is contained in the reports. I’ve since gone back and had a look at the 2016 Annual report and reviewed all 21 pages of footnotes for my company, Frontier Developments. I'm surprised the financial statements make up only 10% of the 72-page document, while the footnotes make up 30%. Regulations and standards result in financial statements from one business to another being

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very similar in format and content, however the footnotes are specific to each business. This is where I've found greater depth to the view I have of my business, Frontier Developments.

As an overall comment the rest of the material I read in the chapters just made sense - or perhaps that should be cents as in dollars and cents! There needs to be conformity in Accounting and financial reporting and to achieve conformity rules, regulations and standards must be applied. If accounting is a game, then why shouldn’t we all start with a level playing field and all be playing the same game? After reading the text, I can't help but wonder what game the US is playing by choosing not to adopt the standards set by the IFRS especially in today's global economy? It is a case of the rest of the world waiting for the US to catch up or the rest of the world catching up to the US?

STEP 6 Feedback Feedback from Katelyn Hill

Feedback from Amanda Panda

Feedback to Amy-June Stenhouse

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