Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 36 views

    Corporate Financial Reporting: Session-2 IIMC-PGP-2013: Prof. Arpita Ghosh

    Uploaded by

    milepn
    This document discusses key concepts in corporate financial reporting including the basic accounting equation, conceptual framework, objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements such as assets, liabilities, equity, revenues and expenses, basic accounting assumptions, and accounting conventions like consistency. The learning goals are to understand these fundamental concepts that form the foundation of preparing and analyzing corporate financial reports.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd

    Corporate Financial Reporting: Session-2 IIMC-PGP-2013: Prof. Arpita Ghosh

    Uploaded by

    milepn
    36 views23 pages
    This document discusses key concepts in corporate financial reporting including the basic accounting equation, conceptual framework, objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements such as assets, liabilities, equity, revenues and expenses, basic accounting assumptions, and accounting conventions like consistency. The learning goals are to understand these fundamental concepts that form the foundation of preparing and analyzing corporate financial reports.

    Original Description:

    CFR Session 2

    Original Title

    CFR Session 2

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses key concepts in corporate financial reporting including the basic accounting equation, conceptual framework, objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements such as assets, liabilities, equity, revenues and expenses, basic accounting assumptions, and accounting conventions like consistency. The learning goals are to understand these fundamental concepts that form the foundation of preparing and analyzing corporate financial reports.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    36 views23 pages

    Corporate Financial Reporting: Session-2 IIMC-PGP-2013: Prof. Arpita Ghosh

    Uploaded by

    milepn
    This document discusses key concepts in corporate financial reporting including the basic accounting equation, conceptual framework, objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements such as assets, liabilities, equity, revenues and expenses, basic accounting assumptions, and accounting conventions like consistency. The learning goals are to understand these fundamental concepts that form the foundation of preparing and analyzing corporate financial reports.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 23

    Corporate Financial Reporting

    Session- 2 IIMC-PGP-2013: Prof. Arpita Ghosh

    asic Acco!nting "#!ation


    Assets = Liabilities + Stockholders Equity

    Session- 2: $earning Goals


    Basic Assumptions :
    Mone% Meas!re&ent' Separate "ntit%' Cost an( Fair )al!e' Going Concern' Cash *ers!s Accr!al' Acco!nting Perio(' Re)en!e Recognition' Matching Principle

    Conceptual Framework +,-ecti)es of Financial Reporting .!alitati)e characteristics "le&ents of Financial State&ents Assets' $ia,ilities' +/ners "#!it%' 0i)i(en(s' Retaine( "arnings' Re)en!es' "1penses Acco!nting Con)entions : Consistenc%' F!ll 0isclos!re' Materialit%' Cost- enefit' Conser)atis& "thics : Sar,anes-+1le% 2S+34' Fra!(!lent Reporting
    3

    Basic Assumptions
    Money Measurement Financial acco!nting recor(s onl% those e)ents /hich can ,e e1presse( in &onetar% ter&s Mone% pro)i(es a co&&on (eno&inator to all transactions FS prepare( in c!rrenc% of the co!ntr% /here incorporate( 25 /here liste( if nee(e(4 2For international transactions : "1change rate to ,e !se to translate4 $i&itations 6 .!alitati)e infor&ation' Inflation Separate Entity !siness: Separate entit%' (istinct fro& its o/ners' cre(itors' c!sto&ers Acco!nts are 7ept for entities as (isting!ishe( fro& the persons associate( /ith the entities. Its financial records and reports should refer to the financial affairs of the business only. So' capital ,ro!ght in ,% the o/ner to his ,!siness is the o,ligation of the ,!siness entit% to its o/ner 8ol(s irrespecti)e of the for& of the ,!siness e)en if fro& legal point of )ie/ separate entit% (oesn9t hol(
    :

    Basic Assumptions
    Goin Concern or Continuity An entit% /o!l( contin!e to operate in foreseea,le f!t!re' an( is not going to ,e li#!i(ate( 8elps to sprea( the effect of long ter& transactions o)er ti&e Meas!re&ent of Assets an( $ia,ilities on closing (ate Going Concern *al!e ; $i#!i(ation *al!e Cost and Fair !alue Cost or historical cost principle' (ictates that co&panies recor( assets at their cost Fair *al!e: In(icates that assets an( lia,ilities sho!l( ,e reporte( at fair )al!e - the price recei)e( to sell an asset or settle a lia,ilit%

    <

    asic Ass!&ptions
    Accountin "eriod or "eriodicity Meas!re&ent of inco&e generate( ,% an entit% can not ,e postpone( in(efinitel% since a n!&,er of !sers nee( to ha)e the infor&ation at perio(ic inter)als for their econo&ic (ecisions Inter)al of ti&e' at the en( of /hich financial state&ents of the entit% are prepare( is calle( an Acco!nting perio( So' life of a ,!siness is (i)i(e( into artificial ti&e perio(s= inter)als >he inter)als are generall% of e#!al length' ?s!all% one %ear /hich can ,e calen(ar %ear' Can ,e prepare( for the interi& perio( 2.!arterl%4

    asic Ass!&ptions: Accr!al )ers!s Cash asis


    #imitation of Cash Basis Accountin $ So&e e1a&ples of e)ents /here the timing of cash flows is (ifferent to the substance of the transaction
    Selling goo(s on cre(it' ?sing ser)ices that /ill ,e pai( for in a later perio( 2/ages pa%a,le4' Recei)ing &one% in a()ance for ser)ices to ,e pro)i(e( in the f!t!re 2&agaAine s!,scription4

    >i&ing of cash receipts &ight not ,e the sa&e as the ti&e of re)en!e ,eing earne( an( >i&ing of cash payments &ight not &atch the ti&ing of e1pense ,eing inc!rre( >his Co&ple1it% is a((resse( ,% Accrual Basis of Accountin %ransactions 2li7e re)en!es an( e1penses4 are recorded when they occur 25 not /hen cash is e1change(4 and are reported in FS of the period to which they relate >his is &ore appropriate than cash ,asis for calculation of profits ,eca!se it lea(s to matchin of re!enues with e&penses It infor&s !sers of not onl% past cash transactions ,!t also f!t!re )en!es of cash receipts 2A=R4 an( pa%&ents 2A=P' $oan repa%&ent4
    B

    Concept!al Fra&e/or7 for Financial Reporting

    Accountin con!entions Ethics 'ualitati!e Characteristics of accountin Information

    E#EME(%S of Financial Statements

    )B*EC%I+E of Financial ,eportin

    +,-ecti)es of Financial Reporting


    >he )b-ecti!e of Financial ,eportin is >o pro)i(e financial infor&ation a,o!t the reporting entit% that is !sef!l to present an( potential e#!it% in)estors' len(ers an( other cre(itors >o ,e !sef!l for &a7ing (ecisions in their capacit% as capital pro)i(ers

    0ifferent !sers ha)e (ifferent' (i)erse infor&ation nee(s. Infor&ation that is (ecision !sef!l to capital pro)i(ers &a% also ,e !sef!l to other !sers 0ecision-!sef!l infor&ation helps !sers 1. Assess Cash Flow "rospects 2. Assess Mana ement.s Stewardship

    'ualitati!e Characteristics / 0ierarchy

    Financial reporting infor&ation often res!lts fro& appro1i&ate rather than acc!rate &eas!res
    10

    F!n(a&ental .!alitati)e Characteristics


    ,ele!ance &eans that the infor&ation has the a,ilit% to infl!ence (ecisions. Infor&ation &!st ha)e: 1. "redicti!e !alue &eans that it /ill help capital pro)i(ers &a7e (ecisions a,o!t the f!t!re. 2. Confirmati!e !alue &eans that it /ill help (eter&ine if e1pectations ha)e ,een &et Faithful ,epresentation &eans that the financial reporting &!st ,e a relia,le (epiction of /hat an entit% p!rports to represent. Infor&ation &!st ,e: 1. Complete E incl!(es all infor&ation nee(e( for a relia,le (ecision 2. Neutral -free fro& ,ias 3. Free from material error - &eets a &ini&!& le)el of acc!rac%' (oes not (istort /hat the infor&ation (epicts

    11

    "nhancing .!alities :
    .!alitati)e Characteristics that Co&ple&ent Infor&ation .!alit%
    Comparability$ >he #!alit% that ena,les !sers to i(entif% si&ilarities an( (ifferences ,et/een t/o sets of econo&ic pheno&ena. +erifiability$ >he #!alit% that helps assure !sers that infor&ation as presente( can ,e s!,stantiate( %imeliness$ >he #!alit% that ena,les the !ser to recei)e infor&ation in ti&e to infl!ence a (ecision. 3nderstandability$ >he #!alit% that ena,les !sers to co&prehen( the &eaning of the infor&ation the% recei)e Presentation: Aggregation an( Classification' clear an( concise ?sers capa,ilit%: Reasona,le Fno/le(ge' Gillingness

    12

    "le&ents of Financial State&ents 2 S4: Assets


    Asset$ A reso!rce controlled ,% an entit% as a res!lt of past events an( fro& /hich future economic benefits are e1pecte( to flo/ to the entit% 1. 2. 3. a4 ,4 c4 (4 F!t!re "cono&ic enefit is pro,a,le to flo/ in : Can ,e in the for& of (irect or in(irect cash inflo/ Control : Right to !se the ite& to the e1cl!sion of others Res!lt of a past e)ent

    Is In)est&ent in shares of a co&pan% /hich )anishe( after IP+ an asset 6 Is Salar% pai( to e&plo%ees an asset 6 Is intention to p!rchase an e#!ip&ent an asset 6 Are patents o/ne( ,% an entit% an asset 6 "1: !il(ing' Plant an( Machiner%' In)entories' Acco!nts recei)a,les' Cash
    13

    "le&ents of Financial State&ents 2 S4: $ia,ilities


    #iability$ Present o,ligation of the entit% arising fro& past e)ents' the settle&ent of /hich is e1pecte( to res!lt in an o!tflo/ fro& the enterprise of reso!rces e&,o(%ing econo&ic ,enefits 1. "cono&ic ,enefit is e1pecte( to flo/ o!t of the entit% to settle the lia,ilit% Settle&ent can occ!r thro!gh pa%&ent of cash' transfer of asset' pro)ision of ser)ice' replace&ent /ith other lia,ilit% 2. >est : Assess /hether the fir& has an% realistic alternati)e ,!t to settle the o,ligation H; If no' lia,ilit% 3. Res!lt of past o,ligating e)ent Contract!al 2 orro/ings' cre(itors4' Arising fro& operation of la/ 2ta1 pa%a,le' penalt% i&pose(4 ' "1a&ples: orro/ings' on(s= 0e,ent!res' A()ances fro& c!sto&ers' Acco!nts Pa%a,le' Gages o!tstan(ing' >a1es pa%a,le
    1:

    "le&ents of Financial State&ents 2 S4: Sharehol(ers9 "#!it%


    Shareholders. E4uity $ >he o/ner9s f!n(s in)este( an( earne( in the ,!siness. It is the resi(!al interest or clai&s of the o/ners in the assets of the entit% after (e(!cting all its lia,ilities Contri,!te( Capital 2+riginal I Je/4 I Retaine( "arnings 2Profits less 0istri,!tions to e#!it% hol(ers4 ,etained Earnin s$ Meas!re of !n(istri,!te( profits of a ,!siness Retaine( "arnings ,alance H 2C!&!lati)e s!& of profits earne( since inception4 E 2C!&!lati)e s!& of (i)i(en( (istri,!te( since inception4 5i!idends$ 0istri,!tion to the o/ners o!t of the profits earne( ,% the ,!siness Re)en!es increase R"' "1penses an( 0i)i(en(s (ecrease R". Increase in assets /itho!t an% change in lia,ilities -; increases e#!it% 0ecrease in assets /itho!t an% change in lia,ilities -; (ecreases e#!it%
    1<

    "le&ents of Financial State&ents 2IS4: Re)en!es


    ,e!enues$ "cono&ic reso!rces earne( ,% an entit% (!ring a gi)en acco!nting perio( >hese res!lt fro& earning acti)ities an( in)ol)e increase in econo&ic ,enefits in the for& of Inflo/ or enhance&ent of assets 2A=R4 or Settle&ent of lia,ilities or A co&,ination of ,oth "1a&ple: For a &an!fact!rer - Sale of goo(s to c!sto&ers' For an ins!rance co&pan% E Pre&i!&s fro& polic% hol(ers an7s 6 $a/%ers 6 >he% res!lt in increase in Retaine( "arnings an( hence increase +/ners9 "#!it%
    1@

    "le&ents of Financial State&ents 2IS4: "1penses


    E&penses$ Reso!rces cons!&e( in the process of generating re)en!e (!ring a gi)en acco!nting perio( >hese are inc!rre( in the process of creating re)en!es 5 in)ol)e (ecrease in econo&ic ,enefits in the for& of : +!tflo/ or cons!&ption of assets or Inc!rrence of lia,ilities or A co&,ination of ,oth "1a&ple: Cost of sales' /ages etc >he% res!lt in (ecrease in retaine( earnings an( hence +" So' if an entit% has Re)en!es ; "1penses' It has &a(e a profit an( the sa&e goes to Increase o/ners9 e#!it% >his profit can ,e calle( Jet inco&e or Jet earnings !t' if Re)en!es K "1penses' it has &a(e a Jet $oss
    1B

    Acco!nting Con)entions
    Consistency$ +nce an entit% has (eci(e( !pon a partic!lar acco!nting &etho( o!t of se)eral possi,le' it sho!l( !se the sa&e &etho( for all s!,se#!ent e)ents of sa&e character' !nless it has fo!n( a so!n( reason to change the &etho( An% change if necessar% nee(s to ,e -!stifie(' its effect on profits to ,e #!antifie( 5 (isclose( Facilitates co&parison o)er ti&e
    Full disclosure 6%ransparency7$ Re#!ires that financial state&ents an( their notes present all infor&ation rele)ant to !sers "1planator% Jotes : "1planations to 7eep FS fro& ,eing &islea(ing Man(ator% 0isclos!re :
    Acco!nting Policies !se( in preparing FS li7e Re)en!e recognition polic%' 0epreciation acco!nting' In)entor% *al!ation Significant ")ents after ,alance sheet (ate 2halt in constr!ction4

    *ol!ntar% 0isclos!re : L!(g&ent


    >oo &!ch (isclos!re can create cl!tter an( ,e &islea(ing
    1C

    Acco!nting Con)entions
    Constraints to Financial ,eportin $ Materiality$ Relati)e I&portance or siAe of an ite& or e)ent An ite& is &aterial /hen its o&ission or &isstate&ent is li7el% to infl!ence the (ecision of a !ser of financial state&ents : L!(g&ent Materialit% assesse( ,ase( on the ma nitude 2)al!e of the ite& sa% M <N of Jet Inco&e4 5 nature 2>heft' ri,e4

    Cost/Benefit $ 8ol(s that the ,enefits of pro)i(ing acco!nting infor&ation 2that financial state&ent !sers /ill gain4 sho!l( e1cee( the costs of pro)i(ing it 2the costs that the co&panies /ill inc!r4 0iffic!lt to #!antif% Costs an( enefits : L!(g&ent
    1D

    Acco!nting Con)entions
    Conser!atism Ghen (ealing /ith &eas!re&ent uncertainties' if t/o esti&ates of so&e f!t!re a&o!nts are e#!all% li7el%' there sho!l( ,e preference for the s&aller n!&,er /hen &eas!ring assets an( re)en!es 5 for the larger n!&,er for lia,ilities an( e1penses "1a&ple: *al!ing closing stoc7 at cost or &ar7et )al!e /hiche)er is lo/er Anticipate no profits ,!t pro)i(e for all losses See7s to pre)ent o)erstate&ent of profits the possi,ilit% of s!ch o)erstate( profit ,eing (istri,!te( ,% /a% of (i)i(en( 8o/e)er' (eli,erate o)erstate&ent of lia,ilities=e1penses an( (eli,erate !n(erstate&ent of assets =inco&e (isco!rage( can ,ias the financial state&ents /ith hi((en reser)es
    20

    "thics in financial Reporting


    Fra!(!lent Financial Reporting: Intentional preparation of &islea(ing financial state&ents Can res!lt fro& the (istortion of recor(s 2e.g.' the &anip!lation of in)entor% recor(s4' falsifie( transactions 2e.g.' fictitio!s sales4' or the &isapplication of )ario!s acco!nting principles. Moti)es can ,e oosting share prices to &a1i&iAe the procee(s fro& stoc7 iss!e Meet or ,eat anal%sts consens!s or &anage&ent9s earnings forecast E &eeting &ar7et e1pectations +,taining loans' &a1i&iAing perfor&ance ,on!s Conse#!ences incl!(e in)estors losing their &one%' e&plo%ees losing their -o,s an( retire&ent ,enefits' the perpetrators getting penaliAe( /ith i&prison&ent an( fines
    21

    Pre)enting Fra!(!lent Financial Reporting : Corporate Go!ernance


    Sharehol(ers : In)ests &one% in shares of the co&pan% elects oar( : >a7es &a-or polic% (ecisions 2$oans' 0i)i(en(s4 Reports res!lts appoints

    Manage&ent : I&ple&ents policies' R!ns (a%-to-(a% operations Corporate Go!ernance 6CG7 incl!(es oar(9s responsi,ilit% of &onitoring &anagerial actions an( ethics Sarbanes 8)&ley Act of 2992 2passe( in ?S after "nron' Gorl(co&4 to strengthen CG : Re#!ires C"+ 5 CF+ to certif% acc!rac% an( co&pleteness of Financial State&ents I&poses hea)% cri&inal penalties on )iolation Re#!ires a s!,-co&&ittee of the oar( calle( A!(it Co&&ittee 2for&e( /ith financial e1perts an( in(epen(ent (irectors4 to ")al!ate &anage&ent perfor&ance' Appoint a!(itors 5 re)ie/ their /or7 "ns!re e1istence of a(e#!ate internal control s%ste&s
    22

    >han7 Oo!

    23

    You might also like