The conceptual notion of a ‘Business Model’ in Financial Reporting

Harmonisation of International Financial Reporting standards is a route or journey, where the road map is not yet very clearly defined. However, it is getting there.
Road_map
In a recent article we drafted on IFRS, we argued that the eventual outcome of harmonisation should be the deepening of global capital markets and the spreading of risk on a wider scale. This would lead to potentially fewer liquidity crunches, like the last one we experienced in 2008 onwards.

However, this is not the only objective, but would be a welcome outcome, if the route is traversed successfully. In 2010 we drafted another article on the concerns in the US for IFRS conversion versus convergence. By stealth, however, should a group entity be listed in an IFRS regulated environment, with a US subsidiary, then by default the group financial statements would have the US GAAP output ‘automatically’ converted to IFRS compliant financial accounts.

This sets the scene for further developments and improvements in international financial reporting. A concept that is currently under review and debate is that of the ‘Business Model‘ and how this concept, together with risk management reporting is incorporated into national and international corporate reporting.
business model
(from Businessmodelgeneration/com)
EFRAG outlined in a research paper that the term ‘Business Model’ is not universally defined or applied as a consistent notion in the business world. It is distinct from Management Intent in that the two notions differ in that a business model is generally more stable focusing on the larger picture and is usually more observable and easier to verify.
However, the paper also outlines an interesting notion. A Business Model is more widely understood and stands up to better scrutiny versus Management Intent. They go on to state:
The term has ‘no universal view on relationship/distinction with strategy, business purpose, management intent, management actions‘.
We agree generally with this statement.

In conclusion, we understand a business model to be the ‘How you make money?’ question, versus the strategic dimension which includes the preceding question, which should be: ‘Where do we want to be’.

English: A model that describes the competitiv...
English: A model that describes the competitive environment of a company’s business model. (Photo credit: Wikipedia)
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