Need help from any accountants - on a profit and loss account, how important is the Trading Profit versus the Net Profit? I want to argue that Trading Profit is more important cos the figures are in my favour (up on same period last year). However, when factors such as exceptional costs and trading exchange differences are taken into account, the net profit figure obviously isn't as good and is down on last year.
Is it reasonable to argue that as these trading exchange differences and exceptional costs weren't budgeted for (which is poor) the trading profit is as important?
You may have guessed that accounts aren't my strong point! This is all necessary for a tribunal argument, by the way.
I am a public sector accountant, so not sure whether my advice is worth much to you. Because it is for a tribunal, I have to say that this is just an opinion - please don't rely on it.
However, just as an objective bystander, it sounds like this to me:
The trading profit is something within your sphere of influence, something you can control, and something your decisions have made a difference to.
The rest depends on whether the trading differences and exceptional costs are also something within your control. If exchange rates have deteriorated, beyond that which could have been reasonably forecast, and this has an impact on your net profit, then you have a mitigating argument as to why that has happened. It depends on whether this is something you are expected to be able to make a difference to.
If there is nothing you could have done to influence that, then how can you be held accountable for it?
Again with the exceptional costs, if they were down to your decisions, then you have to take responsibility for them, but depending on what they are, they might be outside your scope.
The issue of whether they were budgeted for is probably down to timing. If they should have been budgeted for, because they were predictable, then this is a factor. For example, if they were budgeted for in other areas, or if you were asked to submit a forecast for them and didn't.
I think there is an important principle of delegated authority and autonomy. You can only be held accountable for the things that you are in control of.
Thanks very much for this. I am basing one set of figures on the same period for the previous year, and I am arguing that profit was up - which it was if you are talking about the trading profit. As you say, I had influence over this due to managing my own budget well.
I thought it was rather unreasonable for my opponents to say there were talking about net profit, which they have done so as it contradicts my argument that profit was up. As you say, we can't control exchange rates and I don't know what the exceptional costs are.