Evolution of financial information and management control over the last 150 years:

The case of Bodegas Torres

Oriol Amat Natàlia Amat Contents

1. Introduction 2. Methodology 3. Contextual Analysis 4. Findings 5. Conclusions 1. Introduction: Research question

• How are the changes in accounting practices related to the changes in the economic environment?

• More specifically:

Development of Financial Information Overall economic ? environment Development of Management Control 1. Introduction: Purpose

• In order to answer the research question, the article:

Sets out the most important milestones in the history of accounting and how they relate to the general evolution of the economy.

Describes the evolution of financial information and management control over the last 150 years by analyzing the company Bodegas Torres.

2. Methodology: Research method applied

• Case Study Methodology

• Research method involving a detailed examination of a subject of study (the case), as well as its related contextual conditions.

Bodegas Torres Case Study: • Insights obtained from interviews with managers and directors at Bodegas Torres 2. Methodology: Scope

• Chronological Scope: Last 150 years

• Most innovations in accounting have occurred during this time frame.

• Company Scope: Bodegas Torres

• Founded in 1870 (almost 150 years old) • Successful company • Innovative in terms of accounting practices

3. Contextual analysis:

• Economic environment evolution, Impact on Financial Information and on Management Control

End of XVIII century

First Industrial Revolution

Rise of external audit

Emphasis on production control Direct costing method 3. Contextual analysis:

• Economic environment evolution, Impact on Financial Information and on Management Control

XVIII Beginning of XX century

Model Ford T

Major advances in production control. New cost systems developed. 3. Contextual analysis:

• Economic environment evolution, Impact on Financial Information and on Management Control

XVIII XX 1929

Stock Exchange Crash

Obligation: external audit and disclose financial information (listed companies) 3. Contextual analysis:

• Economic environment evolution, Impact on Financial Information and on Management Control

XVIII XX 1929 1945

Economic recovery after WW II Third Industrial Revolution

Financial scandals lead to improvement of external audit

Budgets and deviations 3. Contextual analysis:

• Economic environment evolution, Impact on Financial Information and on Management Control

XVIII XX 1929 1945 1980

Globalization and increased outsourcing

Companies start to use transfer costs and ABC (Activity Based Costing) 3. Contextual analysis:

• Economic environment evolution, Impact on Financial Information and on Management Control

XVIII XX 1929 1945 1980 2000

Dotcom bubble

Global implementation of IFRS New PGC (Spain) 3. Contextual analysis:

• Economic environment evolution, Impact on Financial Information and on Management Control

XVIII XX 1929 1945 1980 2000 2008

Real estate bubble Global financial crisis

Improvements in regulation and ethical codes

Rolling forecast Fast close 3. Contextual analysis:

• Economic environment evolution, Impact on Financial Information and on Management Control

XVIII XX 1929 1945 1980 2000 2008 Present day

Fourth Industrial Revolution

Everything is under question Reporting becomes a key function 4. Findings:

• Economic environment, Financial Accounting regulation (Spain), Bodegas Torres Financial Information milestones Mid XIX 1929 1950 1973-75 1980 1986 2000 2008 2nd End of Spain Global Financial End of Global Dotcom Industrial dictator enters financial Crash WW II economy bubble Rev. in Spain the EU crisis Adoption of Spanish GAAP First Spanish Auditing EU directives, GAAP for wine GAAP Law New Spanish adapted industry GAAP to IFRS

GAAP New Adoption of First Adoption of for wine Spanish First Spanish accounts New Spanish industry GAAP GAAP audited GAAP adopted adopted 4. Findings:

• Economic environment, Adoption of accounting practices in the world vs in Bodegas Torres Mid XIX 1929 1950 1973-75 1980 1986 2nd End of Spain Financial End of Global Industrial dictator enters Crash WW II economy Rev. in Spain the EU

Standard Budgets, Direct costing Bonuses ABC costing Full costing

Direct costing Full First implemented costing Budgets 4. Findings:

• Economic environment, Adoption of accounting practices in the world vs in Bodegas Torres 1973-75 1980 1986 2000 2008 Now End of Spain Global Fourth Global Dotcom dictator enters financial Industrial economy bubble in Spain the EU crisis Revolution

Rolling Bonuses ABC EVA BSC Forecast

Bonus system Rolling ABC BSC EVA for Forecast managers 5. Conclusions:

• Evolution of financial information and management control practices • Requirements of accounting regulation have increased over time: financial information has improved • Management control practices have also improved: need for more precise information in decision- making

• Bodegas Torres has managed to be very innovative towards environment changes that affected accounting and management control practices