1 Accounting Other Statements in Financial Accounts Dr Clive Vlieland-Boddy

2 The 4 Principal Statements Balance Sheet Income Statement Cash Statement Statement of Equity (Shareholders Funds)

3 Statement of Shareholders Funds Shows the changes in the funds belonging to the shareholders. Starts with the opening position Ends with the closing position. The profit that is retained for the year is added Dividends paid to the shareholders is subtracted

4 Notes To The Accounts Start with the Accounting Policies. Then continue to give detail to the key financial statements. Help explain the raw financial data. Expand the figures with explanations and detail.

5 Principal Other Statements

6 Financial Information Accounting? Identifies and Measures and Communicates Financial Information Accounting? Identifies and Measures and Communicates Balance Sheet Income Statement Statement of Cash Flows Statement of Owners’ or Stockholders’ Equity Note to the Accounts Balance Sheet Income Statement Statement of Cash Flows Statement of Owners’ or Stockholders’ Equity Note to the Accounts Chairman’s letter Prospectuses, Exchange Reporting News releases Analyst Reviews Environmental Reports Etc. Chairman’s letter Prospectuses, Exchange Reporting News releases Analyst Reviews Environmental Reports Etc. GAAP/IFRS Not GAAP or IFRS Financial Statements Additional Information Economic Entity Financial Reporting

7 Objectives of Financial Reporting Financial reporting should provide information that: (a) is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. (b) helps present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts. (c) clearly portrays the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events, and circumstances that change its resources and claims to those resources.

8 Various users need financial information The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced. Financial Statements Balance Sheet Income Statement Statement of Stockholders’ Equity Statement of Cash Flows Note to the Accounts Financial Statements Balance Sheet Income Statement Statement of Stockholders’ Equity Statement of Cash Flows Note to the Accounts Generally Accepted Accounting Principles (GAAP) and now IFRS Need to develop standards

9 International Accounting Standards Two sets of standards accepted for international use: U.S. GAAP, issued by the FASB International Financial Reporting Standards (IFRS), issued by the IASB FASB and IASB recognize that global markets will best be served if only one set of GAAP is used. IFRS is now that format. Issues in Financial Reporting

10 Ethics in the Environment of Financial Accounting In accounting, we frequently encounter ethical dilemmas. GAAP does not always provide an answer Doing the right thing is not always easy or obvious Issues in Financial Reporting

11 Chairman's or Management Report Spirited Comments Useful to see what he said in previous years and see if he has actually achieved that. Does Management have real vision?

12 Auditors Report Not a Certificate True and fair view See if same auditors. If not why not? See what the report says...

13 Directors Report Tends to be a factual statement summarising key required information such as major shareholders, directors and their interest in the company.

14 Financial Overview A summary, normally using graphs to show how well the company has done and what is has achieved.

15 Environmental Report A new report created by shareholder demand for this.

16 Corporate Governance Report Created in the aftermath of the failures of Enron and Worldcom. Created by the non-executive directors. Shows areas of conflict of interest Internal Controls We will look at this area of considerable of growing importance in a minute….

17 Remuneration Committee Report Again by the non-executive directors shows the following:

18 Contents of the Remuneration Committee Report

19 Audit Committee Report Again Non-Executive directors Highlights and comments from the internal and external auditors.

20 Notes to The Accounts... Clearly the important information should be on the Face of the Accounts. However, notes are essential so that a fuller explanation of the issues and position can be given. These notes should amplify the information.

21 Structure of the notes Accounting Policies. Explain the basis of how the financial statements have been prepared. Disclose any important info which has not been disclosed elsewhere. Show additional info so that a fair presentation is given. Explain events occurring after the Balance Sheet date.

22 Key Accounting Policies  Depreciation rates and methods.  Valuation of inventories.  Writing off of intangible NCA’s.  Revenue Recognition.  Revaluation of Non Current Assets.

23 Audit Committees Why do we need them?

24 Remuneration Committees What are they responsible for?

25 Non Exec Directors Why do we need them?

26 Rotation of Auditors Why?

27 Restriction on Auditor other Services Why?

28 Coffee Break

29 Group Study Research You should each look at 2 companies and evaluate for qualitative purposes. (See end of Chapter 6) This should include the following: Industry Overview Risk Management Corporate Governance Corporate Social Responsibility Transparency and clarity of the company financial information Strategy – clear sustainable and achievable Management strengths Readability of the reported information Additional shareholder tools and reports.

30 Group Study Research Once you have reviewed these 2 companies each, you should aim to eliminate one on the grounds that it fails for certain reasons against benchmarks that you have set. ( See end of chapter 6). Then as a group you should evaluate these companies preparing a 15 minute presentation which will be made on the final session at the end of this course.

31 Bye for now! I’m ready for some leisure time. Please ensure you Prepare for next session