1、Book overview,Part 1 Environment of financial reporting Part 2 Basic accounting techniques and the preparation of annual financial statements Part 3 Interpretation and analysis of financial statements Part 4 Consolidated financial statements and issues related to multinational groups Part 5 Advanced
2、 financial statement analysis and accounting values.,CHAPTER 1 Financial reporting and regulation,Contents,Annual financial statements Uses of financial statements Accounting choices Accounting regulation International Financial Reporting Standards,Financial versus management accounting,Financial ac
3、counting (FA) - external financial reporting Management Accounting (MA) - financial information useful in internal decision and management processes Starting from the same source data + FA is frame of reference for MA,Annual financial statements,Income statement Balance sheet Notes to the accounts C
4、ash flow statement Statement of changes in equity Audit report,Uses of financial statements,Objective of financial statements User groups Accounting traditions Anglo-Saxon accounting Continental Europe Link with taxation,Objective of financial statements,“The objective of financial statements is to
5、provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.”IIASB, Framework for the Preparation and Presentation of Financial Statements, par.12,Users of financial statements,Inves
6、tors Employees Lenders Suppliers Customers Governments Public,Users of financial statements,Users Focus on investors,Accounting traditions,Anglo-Saxon tradition Continental European tradition,Anglo-Saxon accounting,US, UK, Australia, Canada, New Zealand, etc. Financial statements as a function of a
7、companys financing Market solution to accounting rules Powerful accounting profession,Continental European accounting,Financial statement as a product of government regulating of the economy All businesses are subject to accounting rules, with extra rules for: Limited liability companies Listed comp
8、anies,Link with Taxation,Link between measuring performance for shareholders and measuring profit for tax purposes Looser in Anglo-Saxon tradition Greater impact on individual accounts (less on consolidated group accounts) Impact of taxation on company accounting also depends on ownership of the com
9、pany, which is in turn an issue frequently linked to size,Accounting choices,Accounting is not a set of precise measurement rules which permit the exact measurement of company profit and company value Measurement of profit can never be anything but an estimate Accounting measurement is full of choic
10、es Choices made should be stated clearly in the annual financial statements,Accounting choices Relevance versus reliability,To be useful, accounting information should be both relevant and reliable Information has the quality of relevance when it influences the economic decisions of users by helping
11、 them evaluate past, present or future events or confirming or correcting their past evaluations Relevant information is timely Relevant information has predictive or feedback value,Accounting choices Relevance versus reliability (cont.),Information has the quality of reliability when it is free fro
12、m material error and bias and can be depended upon by users to represent faithfully what it purports (or is expected to) represent Accounting choices may imply trade-offs between relevance and relaibility of information,Accounting regulation,Accounting regulation will discipline accounting choices T
13、ypes of regulatory body: Government Stock exchange Private sector body Professional accountants Specialist industry organizations Usually separate rules for banks and insurance companies.,Government as accounting regulator,Regulation of accounting designed to ensure that the markets can operate free
14、 from fraud and misrepresentation Accounting laws Commercial codes Government regulatory agencies Regulation of accounting for tax collection purposes,Stock exchange as accounting regulator,Stock exchange regulates the financial information to be provided by listed companies In some countries this i
15、s done by a government regulator US: Securities and Exchange Commission (SEC) as accounting regulator,Private sector as accounting regulator,Delegation of responsibility of writing detailed accounting rules to private sector bodies, financed by contributions from companies, audit industry, etc US: F
16、inancial Accounting Standards Board (FASB) Global: International Accounting Standards Board (IASB) Flexible and rapid rule-making, as opposed to governmental rule-making Technical committees from professional accounting bodies may function as catalyst,International bodies,International Accounting St
17、andards Board (IASB) Accepted as an international source of best practice Issues the International Financial Reporting Standards (IFRS) International Organization of Securities Commissions (IOSCO) Represents the worlds stock exchange regulators Strives for a single, uniform set of accounting standar
18、ds worldwide Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) Under the auspices of the UN Conference on Trade and Development (UNCTAD) Commissions research reports into current accounting problems International Federation of Accountants (IFAC)
19、 International representative of the accounting profession,International Financial Reporting Standards,Single set of global accounting and reporting standards, issued by the IASB Increasingly used by many large and mutinational companies Accepted by most security market authorities Used as a basis f
20、or national accounting requirements (partially or in full) or as a benchmark for the development of national accounting rules,International Accounting Standards Board,A private sector body Operates under the International Accounting Standards Committee Foundation (IASCF) Has no responsibility to any
21、 governmental organization Has no enforcement authority Develops and issues both main standards (IAS / IFRS) and interpretations (SIC / IFRIC),Fig. 1.1 The structure of the IASB,IFRS Standard-setting due process,The IASBs standard-setting procedures have to ensure that resulting IFRS are of high qua
22、lity and are issued only after giving IASBs constituencies opportunities to make their views known at several points in the standard-setting due process An overview of the due process is presented in figure 1.2,Fig. 1.2 Standard-setting due process of the IASB,IFRS in the world,Recent decisions of v
23、arious governments result in the requirement or permission of the use of IFRS by more than one hundred countries Europe: IAS Regulation of 2002 Requirement of use of IFRS for consolidated financial statements of EU qouted companies as from 1 January 2005 Member state option to extend the application
24、 of IFRS to not-listed companies and to individual financial statements Adoption of IFRS (-equivalent) as national accounting rules in a number of countries (Australia, Singapore, Hong Kong, ) US: convergence process of US accounting rules and IFRS started in 2002 (“Norwalk Agreement”),Table 1.2 Financial reporting in the European Union Main developments,Table 1.3 Effects of the IAS Regulation (EU),Table 1.1 List of IASB rules as of September 2005,Table 1.1 List of IASB rules as of September 2005 (cont.),Table 1.1 List of IASB rules as of September 2005 - Interpretations,
