ESTP Course How to compile statistics on global enterprises Agenda Item IV.1 Basic accounting and reporting concepts Introduction to IFRS Levente Szekely Eurostat

Basic concepts Accounting (A) recording, classifying and summarizing of transactions, other events and circumstances having effect on an entity’s economic resources; the production of information; Reporting (R) preparing formal reports on an entity’s economic situation and performance; stand-alone – for one entity consolidated – for two or more entities acting as one (a group) the presentation of information;

Basic concepts (continued) Financial accounting/reporting requirements IFRS (issued by the IASB) – standards for both (A) and (R) specified in legal acts at EU level – 4 th and 7 th Directives (to be superseded by the new Accounting Directive) – rules for (R) only at national level (called National Accounting Standards or National GAAPs) required for legal persons (usually including their branches, representations, offices, etc. without separate legal personality)

Basic concepts (continued) Financial statements (both stand alone (“separate”) and consolidated) Statement of Financial Position (Balance Sheet - BS) assets liabilities equity Income Statement (Profit and Loss Account – PL) income expenses result (profit/loss) Statement of Cash Flows (CF) cash in/outflows from operating/financing/investing Statement of Changes in Equity Explanatory Notes significant accounting policies used detailed information on several elements from the BS and PL information on changes in equity, operations and main management decisions key indicators on profitability, liquidity, gearing and investor’s interest disclosure of contingencies, events after the reporting date

Potential sources for SBS variables VariablePotential source Turnoverfrom PL (to exclude duties and taxes; not based on invoicing – cutoff issue; to clarify treatment of discounts and rebates) Gross margin on goods for resalefrom PL and Notes (depending on certain factors, like: the method used to present expenses in PL; GAAP) Personnel costsfrom PL (or Notes) Wages and salariesfrom PL (if 4 th Directive), from Notes (if IFRS) Social security costsfrom PL (if 4 th Directive) Gross investment in tangible goodsfrom Notes Gross investment in landfrom Notes Gross investment in construction and alteration of buildings from Notes Gross investment in machinery and equipment from Notes Gross investment in concessions, patents, licences, trade marks and similar rights from Notes

Basic concepts (continued) Accrual basis of accounting Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period. This is important because information about a reporting entity’s economic resources and claims and changes in its economic resources and claims during a period provides a better basis for assessing the entity’s past and future performance than information solely about cash receipts and payments during that period. Going concern (underlying assumption) The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

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