The document discusses financial reporting standards and their implications for financial analysis. It covers several topics:
1) The objectives of financial reporting standards are to provide comparability between firms while allowing some flexibility. Standards bodies set accounting rules and regulations that governments enforce.
2) Analysts must understand the accounting methods used to construct financial statements and how choices affect reported figures. Earnings computed under aggressive vs conservative methods may warrant different valuation multiples.
3) Financial statements have constraints that prioritize some qualities like reliability over relevance. Standards also involve tradeoffs between balance sheet and income statement relevance. Analysts must consider these effects.
The document discusses the components and presentation of the balance sheet. It explains that the balance sheet presents a company's assets, liabilities, and equity. Assets are resources owned that will provide future economic benefits, like cash, inventory, or property/equipment. Liabilities are obligations that will require future outflows, such as debt. Equity is the residual claim on assets after deducting liabilities belonging to owners. Current assets and liabilities are expected to be converted to cash within one year, while non-current are longer term. The balance sheet provides a snapshot of a company's financial position at a point in time.
The document discusses financial statement analysis and key financial ratios. It provides an overview of the purpose of financial statement analysis, the major components of financial statements, and frameworks for analyzing a firm's financial needs, condition, profitability, and risk. It then defines and provides examples of calculating various ratios to evaluate a company's liquidity, financial leverage, coverage, activity, and profitability. These ratios are used to analyze trends over time and compare a company's performance to industry averages.
This document provides an overview and key points about cash, receivables, and notes receivable covered in Chapter 7. It discusses the nature and reporting of cash, accounting for accounts receivable using direct write-off and allowance methods, and differences between accounts and notes receivable such as interest elements for notes. The document also covers topics like discounts, estimating uncollectible accounts, short and long-term notes receivable, and imputing interest rates for zero-interest notes.
This document outlines accounting standards for government grants. It discusses key principles such as how grants should be recognized, presented in financial statements, and disclosed. Government grants can be presented by either deducting the grant from the asset value or treating it as deferred income. Grants for revenue or promoters' contributions should be credited to income or capital reserve. If refundable, grants are treated as extraordinary items. Financial statements should disclose the accounting policy and nature/extent of recognized grants.
The document discusses accounting for equity. It covers:
1. The key components of equity including contributed capital, retained earnings, and treasury shares.
2. The accounting procedures for issuing shares, whether par value or no-par shares, including allocation of proceeds when shares are issued with other securities.
3. Accounting for shares issued in non-cash transactions, using either the fair value of assets received or shares issued, whichever can be determined more reliably.
Ch03-financial reporting and accounting standardsVivi Tazkia
ย
The document provides an overview of the key concepts and steps covered in Chapter 3 of Intermediate Accounting (IFRS 2nd Edition) by Kieso, Weygandt, and Warfield. It outlines 8 learning objectives for the chapter, which include understanding basic accounting terminology, the double-entry system, the accounting cycle, journalizing and posting transactions, adjusting entries, and preparing financial statements. The chapter also discusses the accounting equation, T-accounts, the different types of accounts, and the accounting process from recording transactions to the adjusted trial balance.
(a) 1% of net sales:
Net credit sales = $750,000
Bad debt expense = 1% x $750,000 = $7,500
Bad Debt Expense 37,500
Allowance for Doubtful Accounts 37,500
(b) 5% of accounts receivable:
Accounts receivable = $750,000
Bad debt expense = 5% x $750,000 = $37,500
LO 5
7-47
1. Identify items considered cash.
2. Indicate how to report cash and related items.
3. Define receivables and identify the different
types of receivables.
4. Explain accounting issues
This document discusses the concept and importance of working capital management. It defines working capital as the capital required for day-to-day operations of a business, including funds used for purchasing raw materials, paying salaries and other expenses. There are two concepts of working capital - quantitative, which refers to total current assets, and qualitative, which refers to current assets minus current liabilities. Proper management of working capital is important to ensure smooth business operations, maximize profits and avoid failure due to lack of funds.
The document discusses the components and presentation of the balance sheet. It explains that the balance sheet presents a company's assets, liabilities, and equity. Assets are resources owned that will provide future economic benefits, like cash, inventory, or property/equipment. Liabilities are obligations that will require future outflows, such as debt. Equity is the residual claim on assets after deducting liabilities belonging to owners. Current assets and liabilities are expected to be converted to cash within one year, while non-current are longer term. The balance sheet provides a snapshot of a company's financial position at a point in time.
The document discusses financial statement analysis and key financial ratios. It provides an overview of the purpose of financial statement analysis, the major components of financial statements, and frameworks for analyzing a firm's financial needs, condition, profitability, and risk. It then defines and provides examples of calculating various ratios to evaluate a company's liquidity, financial leverage, coverage, activity, and profitability. These ratios are used to analyze trends over time and compare a company's performance to industry averages.
This document provides an overview and key points about cash, receivables, and notes receivable covered in Chapter 7. It discusses the nature and reporting of cash, accounting for accounts receivable using direct write-off and allowance methods, and differences between accounts and notes receivable such as interest elements for notes. The document also covers topics like discounts, estimating uncollectible accounts, short and long-term notes receivable, and imputing interest rates for zero-interest notes.
This document outlines accounting standards for government grants. It discusses key principles such as how grants should be recognized, presented in financial statements, and disclosed. Government grants can be presented by either deducting the grant from the asset value or treating it as deferred income. Grants for revenue or promoters' contributions should be credited to income or capital reserve. If refundable, grants are treated as extraordinary items. Financial statements should disclose the accounting policy and nature/extent of recognized grants.
The document discusses accounting for equity. It covers:
1. The key components of equity including contributed capital, retained earnings, and treasury shares.
2. The accounting procedures for issuing shares, whether par value or no-par shares, including allocation of proceeds when shares are issued with other securities.
3. Accounting for shares issued in non-cash transactions, using either the fair value of assets received or shares issued, whichever can be determined more reliably.
Ch03-financial reporting and accounting standardsVivi Tazkia
ย
The document provides an overview of the key concepts and steps covered in Chapter 3 of Intermediate Accounting (IFRS 2nd Edition) by Kieso, Weygandt, and Warfield. It outlines 8 learning objectives for the chapter, which include understanding basic accounting terminology, the double-entry system, the accounting cycle, journalizing and posting transactions, adjusting entries, and preparing financial statements. The chapter also discusses the accounting equation, T-accounts, the different types of accounts, and the accounting process from recording transactions to the adjusted trial balance.
(a) 1% of net sales:
Net credit sales = $750,000
Bad debt expense = 1% x $750,000 = $7,500
Bad Debt Expense 37,500
Allowance for Doubtful Accounts 37,500
(b) 5% of accounts receivable:
Accounts receivable = $750,000
Bad debt expense = 5% x $750,000 = $37,500
LO 5
7-47
1. Identify items considered cash.
2. Indicate how to report cash and related items.
3. Define receivables and identify the different
types of receivables.
4. Explain accounting issues
This document discusses the concept and importance of working capital management. It defines working capital as the capital required for day-to-day operations of a business, including funds used for purchasing raw materials, paying salaries and other expenses. There are two concepts of working capital - quantitative, which refers to total current assets, and qualitative, which refers to current assets minus current liabilities. Proper management of working capital is important to ensure smooth business operations, maximize profits and avoid failure due to lack of funds.
This document provides an overview of various financial ratios that can be used to analyze the financial performance and health of a social enterprise. It discusses ratios in four categories: profitability and sustainability, operational efficiency, liquidity, and leverage. Specific ratios are defined that measure aspects such as sales growth, reliance on revenue sources, operating self-sufficiency, profit margins, asset and inventory turnover, current ratios, debt-to-equity, and interest coverage. The document emphasizes that ratios should be calculated consistently over time and in comparison to benchmarks to help identify organizational strengths and weaknesses.
The document discusses key concepts in financial statement analysis including:
1) The components of a classified balance sheet such as current assets, long-term investments, property and equipment.
2) Ratios to analyze profitability, liquidity, and solvency using the income statement, balance sheet, and statement of cash flows.
3) Financial reporting concepts like GAAP, assumptions, principles, and constraints that guide financial statement preparation.
Financial Statement Analysis: Learn The Best Tricks And Tips!Andrew Li
ย
Learn how to read financial statements and SEC filings like an investing pro!
Also, check out the last 2 pages for an amazing and exclusive discount offer for my Udemy course on financial statement analysis!
Sources of Funds:
Transactions which result in an increase in the amount of fund or working capital are called sources of fund.
The following are the sources of funds:
Funds from operations, operating profit or trading profit.
Non operating incomes.
Refund of Income Tax (received).
Issue of Shares for cash or for any other current asset.
Issue of debentures for cash or for any other current asset.
Long term and medium term loans borrowed.
Long term or medium term deposits accepted.
Sale of long term investments for cash or for any other current asset.
Sale of fixed assets for cash or for any other current asset.
- The document discusses partnership liquidation, including definitions, procedures, and accounting treatments.
- A simple partnership liquidation involves one cash distribution where partners receive amounts equal to their pre-distribution capital account balances.
- Priority rankings for distributing assets in liquidation are: 1) amounts owed to non-partner creditors and partners other than for capital and profits, and 2) amounts due to partners based on remaining assets after liabilities are paid.
morgan stanley Morgan Stanley and Co. Incorporatedfinance2
ย
Morgan Stanley & Co. Incorporated provided its consolidated statement of financial condition as of May 31, 2008. The statement showed total assets of $579.5 billion, including cash and securities, financial instruments owned and collateralized agreements, and total liabilities and stockholder's equity of $579.5 billion. Morgan Stanley & Co. is a wholly owned subsidiary of Morgan Stanley and provides various financial services including securities underwriting, financial advisory services, sales and trading of securities, and brokerage and investment services. The notes to the financial statement provide additional details on related party transactions, accounting policies, and fair value measurement.
Equity method investments and Joint venturesDau Thanh Hai
ย
This document provides guidance on accounting for equity method investments and joint ventures. It discusses determining whether the equity method of accounting is appropriate based on an entity having significant influence over or joint control of the investee. It also covers the criteria for applying the equity method to various types of investments in common stock, partnerships, limited liability companies and other entities. Specifically, it addresses (1) evaluating whether significant influence exists, (2) identifying a joint venture by defining joint control, and (3) applying the equity method of accounting to qualifying investments.
the cost of capital of a company describes the return expected by creditors of funds to companies. It includes the cost of equity, debt, hybrid and WACC
1. Cash Flow statement
2. Permanent & Temporary Working Capital
3. Cash Flow and Common Size Statement
4. EOQ & Safety Stock
5. Return on Equity & Return on Capital Employed
The document discusses the requirements for cash flow statements in India according to IAS-7 and AS-3. It states that in India, AS-3 currently covers the provisions of IAS-7, and the ICAI has issued an exposure draft of a revised AS-3 that aligns with IAS-7 and will be effective from April 1, 2011. It also provides details on the key requirements and differences between IAS-7 and the existing and revised versions of AS-3.
This document provides answers to questions about governmental entities' special funds and government-wide financial statements. It discusses:
1. The differences between special revenue funds, capital projects funds, debt service funds, and internal service funds, including their purpose, accounting basis, and required financial statements.
2. The accounting for donations, capital assets, long-term debt, and component units in governmental fund statements versus government-wide statements.
3. Reconciliation requirements between governmental fund statements and government-wide statements. It also covers major funds determination and required supplementary information like budgetary comparisons.
The document is intended to help students understand specialized accounting topics for governmental and not-for-profit entities. It provides definitions
This document outlines the process for forecasting financial performance over multiple years. It discusses:
1. Developing a 5-7 year detailed forecast with complete income statements and balance sheets linked to operating drivers, followed by a simplified forecast for remaining years focusing on key variables.
2. The forecasting process includes preparing historical financials, building revenue forecasts, forecasting the income statement and balance sheet by estimating ratios and multiplying by revenue forecasts, calculating return on invested capital and free cash flow.
3. Additional considerations include using non-financial drivers, distinguishing fixed and variable costs, and accounting for inflation. An example case study forecasts Heineken's performance under different strategic scenarios.
the ppt is about the Journal entries made to record issue of debenture under companies act 1956. It covers issue of debenture as per different situations. Hope you people find it helpful. you are welcome for any query.
The document describes the key components of financial statements and annual reports. It explains that financial statements include the income statement, balance sheet, statement of cash flows, and retained earnings statement. It also discusses the three types of business activities - financing, investing, and operating. The annual report contains financial statements, management discussion and analysis, notes to the financial statements, and the auditor's report.
Solution Manual Advanced Financial Accounting by Baker 9th Edition Chapter 16Saskia Ahmad
ย
Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,
The document discusses key concepts in accounting, including assumptions, principles, and definitions. It states that accounting involves recording, compiling, analyzing, and interpreting financial data to determine a business's financial outcomes and position. The main assumptions in accounting are the going concern assumption and the monetary unit assumption. The key principles are cost principle, revenue recognition principle, and matching principle. Accounting principles provide agreed upon rules for recording transactions and preparing financial reports.
This document provides an overview of chapter 1 of an accounting textbook, including a table of topics covered in the chapter and case/question assignments. It also includes sample solutions to codification exercises and answers to questions about the development of accounting standards and standard-setting bodies in the United States.
The implementation of the MAR in 2010 will
provide a valuable opportunity for insurers
to assess the effectiveness of their internal
controls and the accuracy of their financial
reporting. Insurers must promptly develop a
strategy for compliance with the MAR if they
have not done so already. A set of corporate
norms for complying with the new MAR
has yet to develop, but actuaries have the
knowledge and skills to assist in many aspects
of the process and can help determine the set
of best practices moving forward.
The SEC staff provided guidance on key topics discussed at a recent SEC conference:
1) The SEC expects registrants' disclosures to evolve over time to reflect new accounting standards and emerging risks like Brexit and the LIBOR transition.
2) On revenue recognition, the SEC commented on significant judgment areas in ASC 606 and encouraged continued improvement of disclosures.
3) The SEC will seek input on reducing quarterly reporting burdens while maintaining investor protections.
In depth: New financial instruments impairment modelPwC
ย
On June 16, 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments โ Credit Losses (Topic 326) (the โASUโ). The ASU introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets.
This document provides an overview of various financial ratios that can be used to analyze the financial performance and health of a social enterprise. It discusses ratios in four categories: profitability and sustainability, operational efficiency, liquidity, and leverage. Specific ratios are defined that measure aspects such as sales growth, reliance on revenue sources, operating self-sufficiency, profit margins, asset and inventory turnover, current ratios, debt-to-equity, and interest coverage. The document emphasizes that ratios should be calculated consistently over time and in comparison to benchmarks to help identify organizational strengths and weaknesses.
The document discusses key concepts in financial statement analysis including:
1) The components of a classified balance sheet such as current assets, long-term investments, property and equipment.
2) Ratios to analyze profitability, liquidity, and solvency using the income statement, balance sheet, and statement of cash flows.
3) Financial reporting concepts like GAAP, assumptions, principles, and constraints that guide financial statement preparation.
Financial Statement Analysis: Learn The Best Tricks And Tips!Andrew Li
ย
Learn how to read financial statements and SEC filings like an investing pro!
Also, check out the last 2 pages for an amazing and exclusive discount offer for my Udemy course on financial statement analysis!
Sources of Funds:
Transactions which result in an increase in the amount of fund or working capital are called sources of fund.
The following are the sources of funds:
Funds from operations, operating profit or trading profit.
Non operating incomes.
Refund of Income Tax (received).
Issue of Shares for cash or for any other current asset.
Issue of debentures for cash or for any other current asset.
Long term and medium term loans borrowed.
Long term or medium term deposits accepted.
Sale of long term investments for cash or for any other current asset.
Sale of fixed assets for cash or for any other current asset.
- The document discusses partnership liquidation, including definitions, procedures, and accounting treatments.
- A simple partnership liquidation involves one cash distribution where partners receive amounts equal to their pre-distribution capital account balances.
- Priority rankings for distributing assets in liquidation are: 1) amounts owed to non-partner creditors and partners other than for capital and profits, and 2) amounts due to partners based on remaining assets after liabilities are paid.
morgan stanley Morgan Stanley and Co. Incorporatedfinance2
ย
Morgan Stanley & Co. Incorporated provided its consolidated statement of financial condition as of May 31, 2008. The statement showed total assets of $579.5 billion, including cash and securities, financial instruments owned and collateralized agreements, and total liabilities and stockholder's equity of $579.5 billion. Morgan Stanley & Co. is a wholly owned subsidiary of Morgan Stanley and provides various financial services including securities underwriting, financial advisory services, sales and trading of securities, and brokerage and investment services. The notes to the financial statement provide additional details on related party transactions, accounting policies, and fair value measurement.
Equity method investments and Joint venturesDau Thanh Hai
ย
This document provides guidance on accounting for equity method investments and joint ventures. It discusses determining whether the equity method of accounting is appropriate based on an entity having significant influence over or joint control of the investee. It also covers the criteria for applying the equity method to various types of investments in common stock, partnerships, limited liability companies and other entities. Specifically, it addresses (1) evaluating whether significant influence exists, (2) identifying a joint venture by defining joint control, and (3) applying the equity method of accounting to qualifying investments.
the cost of capital of a company describes the return expected by creditors of funds to companies. It includes the cost of equity, debt, hybrid and WACC
1. Cash Flow statement
2. Permanent & Temporary Working Capital
3. Cash Flow and Common Size Statement
4. EOQ & Safety Stock
5. Return on Equity & Return on Capital Employed
The document discusses the requirements for cash flow statements in India according to IAS-7 and AS-3. It states that in India, AS-3 currently covers the provisions of IAS-7, and the ICAI has issued an exposure draft of a revised AS-3 that aligns with IAS-7 and will be effective from April 1, 2011. It also provides details on the key requirements and differences between IAS-7 and the existing and revised versions of AS-3.
This document provides answers to questions about governmental entities' special funds and government-wide financial statements. It discusses:
1. The differences between special revenue funds, capital projects funds, debt service funds, and internal service funds, including their purpose, accounting basis, and required financial statements.
2. The accounting for donations, capital assets, long-term debt, and component units in governmental fund statements versus government-wide statements.
3. Reconciliation requirements between governmental fund statements and government-wide statements. It also covers major funds determination and required supplementary information like budgetary comparisons.
The document is intended to help students understand specialized accounting topics for governmental and not-for-profit entities. It provides definitions
This document outlines the process for forecasting financial performance over multiple years. It discusses:
1. Developing a 5-7 year detailed forecast with complete income statements and balance sheets linked to operating drivers, followed by a simplified forecast for remaining years focusing on key variables.
2. The forecasting process includes preparing historical financials, building revenue forecasts, forecasting the income statement and balance sheet by estimating ratios and multiplying by revenue forecasts, calculating return on invested capital and free cash flow.
3. Additional considerations include using non-financial drivers, distinguishing fixed and variable costs, and accounting for inflation. An example case study forecasts Heineken's performance under different strategic scenarios.
the ppt is about the Journal entries made to record issue of debenture under companies act 1956. It covers issue of debenture as per different situations. Hope you people find it helpful. you are welcome for any query.
The document describes the key components of financial statements and annual reports. It explains that financial statements include the income statement, balance sheet, statement of cash flows, and retained earnings statement. It also discusses the three types of business activities - financing, investing, and operating. The annual report contains financial statements, management discussion and analysis, notes to the financial statements, and the auditor's report.
Solution Manual Advanced Financial Accounting by Baker 9th Edition Chapter 16Saskia Ahmad
ย
Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,
The document discusses key concepts in accounting, including assumptions, principles, and definitions. It states that accounting involves recording, compiling, analyzing, and interpreting financial data to determine a business's financial outcomes and position. The main assumptions in accounting are the going concern assumption and the monetary unit assumption. The key principles are cost principle, revenue recognition principle, and matching principle. Accounting principles provide agreed upon rules for recording transactions and preparing financial reports.
This document provides an overview of chapter 1 of an accounting textbook, including a table of topics covered in the chapter and case/question assignments. It also includes sample solutions to codification exercises and answers to questions about the development of accounting standards and standard-setting bodies in the United States.
The implementation of the MAR in 2010 will
provide a valuable opportunity for insurers
to assess the effectiveness of their internal
controls and the accuracy of their financial
reporting. Insurers must promptly develop a
strategy for compliance with the MAR if they
have not done so already. A set of corporate
norms for complying with the new MAR
has yet to develop, but actuaries have the
knowledge and skills to assist in many aspects
of the process and can help determine the set
of best practices moving forward.
The SEC staff provided guidance on key topics discussed at a recent SEC conference:
1) The SEC expects registrants' disclosures to evolve over time to reflect new accounting standards and emerging risks like Brexit and the LIBOR transition.
2) On revenue recognition, the SEC commented on significant judgment areas in ASC 606 and encouraged continued improvement of disclosures.
3) The SEC will seek input on reducing quarterly reporting burdens while maintaining investor protections.
In depth: New financial instruments impairment modelPwC
ย
On June 16, 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments โ Credit Losses (Topic 326) (the โASUโ). The ASU introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets.
The Conceptual Framework was issued by the IASB in September 2010. It superseded the Framework for the Preparation and Presentation of Financial Statements. For details visit http://www.helpwithassignment.com/
This document provides an overview of the Conceptual Framework for Financial Reporting issued by the IASB in September 2010. It discusses the objective of general purpose financial reporting, which is to provide useful financial information to existing and potential investors, lenders, and other creditors. Such information helps users assess the prospects for future net cash inflows to the entity. The document also describes the types of information provided in financial reports, including information about a reporting entity's economic resources, claims, and changes in resources and claims resulting from financial performance and other transactions.
The document provides guidelines for Asset-Liability Management (ALM) systems in banks, with a focus on interest rate risk and liquidity risk management. It outlines the key pillars of ALM as ALM information systems, organization, and processes. It describes approaches for measuring liquidity mismatches and interest rate sensitivity through tools like maturity ladder/gap analysis. It provides detailed guidance on classification of assets/liabilities into time buckets, monitoring liquidity ratios, and setting internal prudential limits for managing risks. Banks are expected to establish robust ALM functions and risk management systems to pre-empt potential risks to profitability and viability from volatility in markets.
The document provides an overview of conceptual frameworks in accounting. It discusses what a conceptual framework is, its objectives and importance. Key points include:
- A conceptual framework establishes the concepts and principles that underlie the standards, providing consistency and guidance for standard-setting.
- Objectives of conceptual frameworks include consistency, reducing complexity, and providing accountability for standard-setters.
- However, conceptual frameworks have been criticized for being descriptive rather than prescriptive, and for circular reasoning where concepts depend on undefined rules.
- There are debates around conceptual frameworks taking a scientific versus normative approach, and whether accounting qualifies as a science given its mixed empirical and policy elements.
The Sarbanes-Oxley Act (SOX) aims to improve accuracy and reliability of corporate disclosures. For telecom companies, SOX compliance can help address revenue leakages through initiatives to analyze sources of loss and strengthen internal controls. Telecom companies can leverage SOX to optimize processes, accelerate revenue assurance programs, and enhance transparency in financial reporting.
Financial statements are not perfectly reliable for investors due to several issues:
1. Inconsistencies between accounting standards like US GAAP and IFRS make comparisons difficult.
2. Estimates and judgments in financial reporting can be significantly inaccurate, even when made in good faith.
3. Managers have strong incentives to deliberately misrepresent financial statements through fraudulent reporting.
While standards boards are working to address issues like revenue recognition and fair value measurement, investors still need to carefully examine assumptions and estimates used in financial statements. Fraudulent reporting also continues to evolve in harder to detect ways like manipulating operations rather than direct reporting. Vigilance from investors remains important.
By 1st December 2015, BCBS-IOSCO rules mean that all eligible financial and non-financial counterparties must be able to exchange bilateral Variation Margin (VM) and Initial Margin (IM) with their OTC derivatives counterparties. The consequences of this extend far beyond methodology, requiring a re-evaluation of the whole end to end workflow.
Proposed Guidance: COSO Internal Controls for Integrated ReportingWorkiva
ย
This document summarizes a presentation given at IMA's Annual Conference & Expo in Las Vegas in 2016. The presentation discussed proposed guidance on applying the COSO framework to integrated reporting and integrated thinking. It covered how COSO applies to non-financial information in integrated reports, how to map COSO controls to the integrated reporting framework, and challenges of assurance for integrated reports. The presentation aimed to help participants understand and apply the proposed guidance on internal controls for integrated reporting.
This document provides an overview of topics, questions, and cases related to accounting standards and financial reporting. It includes:
1. An assignment classification table that matches topics in the chapter to related questions and cases.
2. An assignment characteristics table that describes different accounting cases, their level of difficulty, and estimated time to complete.
3. The answers to several questions about the objectives of financial reporting, the role of standards-setting bodies like the FASB and SEC, and the process for developing accounting standards.
JAMES OKARIMIA The Fundamental Review Of The Trading Book (FRTB)JAMES OKARIMIA
ย
The Fundamental Review of the Trading Book (FRTB) aims to tighten regulations around banks' trading activities and capital requirements in response to issues during the 2008 financial crisis. The FRTB imposes stringent new capital rules, removing Value-at-Risk and increasing controls between trading and banking books. Banks face significant challenges implementing the new requirements by 2019, including restructuring data and risk reporting to satisfy multiple sub-trading book requirements, ensuring independent profitability of trading desks under new capital charges, and demonstrating adequate internal controls for each trading book.
James Okarimia - Fundamental Review Of The Trading Book (FRTB)JAMES OKARIMIA
ย
The Fundamental Review of the Trading Book (FRTB) aims to tighten regulations around banks' trading activities and capital requirements in response to issues during the 2008 financial crisis. The FRTB imposes stringent new capital rules, removing Value-at-Risk and increasing controls between trading and banking books. Banks face significant challenges implementing the new requirements by 2019, including restructuring data reporting at the trading desk level, reviewing profitable trading strategies, and demonstrating adequate internal controls for multiple trading books.
James Okarimia - Fundamental Review Of The Trading Book (FRTB)JAMES OKARIMIA
ย
The Fundamental Review of the Trading Book (FRTB) aims to tighten regulations around banks' trading activities and capital requirements in response to issues during the 2008 financial crisis. The FRTB imposes stringent new capital rules, removing Value-at-Risk and increasing controls between trading and banking books. Banks face significant challenges implementing the new requirements by 2019, including restructuring data reporting at the trading desk level, reviewing profitable trading strategies, and demonstrating adequate internal controls for multiple trading books.
This document provides an overview of key concepts in financial accounting, including:
1) The components of an annual report and qualitative characteristics of financial information such as relevance and reliability.
2) The conceptual framework that guides financial accounting standards, including statements on objectives, qualitative characteristics, and elements of financial statements.
3) Key principles of accounting like historical cost, realization, and matching; and the need for ethics in accounting governed by professional codes.
๐๐ง๐ฏ๐๐ข๐ฅ ๐ญ๐ก๐ ๐ ๐ฎ๐ญ๐ฎ๐ซ๐ ๐จ๐ ๐๐ง๐๐ซ๐ ๐ฒ ๐๐๐๐ข๐๐ข๐๐ง๐๐ฒ ๐ฐ๐ข๐ญ๐ก ๐๐๐๐๐๐๐๐โ๐ฌ ๐๐๐ญ๐๐ฌ๐ญ ๐๐๐๐๐ซ๐ข๐ง๐ ๐ฌ
Explore the details in our newly released product manual, which showcases NEWNTIDE's advanced heat pump technologies. Delve into our energy-efficient and eco-friendly solutions tailored for diverse global markets.
How MJ Global Leads the Packaging Industry.pdfMJ Global
ย
MJ Global's success in staying ahead of the curve in the packaging industry is a testament to its dedication to innovation, sustainability, and customer-centricity. By embracing technological advancements, leading in eco-friendly solutions, collaborating with industry leaders, and adapting to evolving consumer preferences, MJ Global continues to set new standards in the packaging sector.
Event Report - SAP Sapphire 2024 Orlando - lots of innovation and old challengesHolger Mueller
ย
Holger Mueller of Constellation Research shares his key takeaways from SAP's Sapphire confernece, held in Orlando, June 3rd till 5th 2024, in the Orange Convention Center.
Storytelling is an incredibly valuable tool to share data and information. To get the most impact from stories there are a number of key ingredients. These are based on science and human nature. Using these elements in a story you can deliver information impactfully, ensure action and drive change.
The 10 Most Influential Leaders Guiding Corporate Evolution, 2024.pdfthesiliconleaders
ย
In the recent edition, The 10 Most Influential Leaders Guiding Corporate Evolution, 2024, The Silicon Leaders magazine gladly features Dejan ล tancer, President of the Global Chamber of Business Leaders (GCBL), along with other leaders.
Navigating the world of forex trading can be challenging, especially for beginners. To help you make an informed decision, we have comprehensively compared the best forex brokers in India for 2024. This article, reviewed by Top Forex Brokers Review, will cover featured award winners, the best forex brokers, featured offers, the best copy trading platforms, the best forex brokers for beginners, the best MetaTrader brokers, and recently updated reviews. We will focus on FP Markets, Black Bull, EightCap, IC Markets, and Octa.
Easily Verify Compliance and Security with Binance KYCAny kyc Account
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Use our simple KYC verification guide to make sure your Binance account is safe and compliant. Discover the fundamentals, appreciate the significance of KYC, and trade on one of the biggest cryptocurrency exchanges with confidence.
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1. ยฉ PASSMAX. All Rights Reserved.
6.20 FINANCIAL REPORTING STANDARDS
6.20.a(i) THE OBJECTIVE OF FINANCIAL STATEMENTS
The objective of accounting standards is to create some measure of comparability
between the financial statements of different firms and that for a firm over time. At the
same time, the standards must allow for some degree of flexibility in order for the
financial statements to better reflect the underlying nature of the firm. For example, the
depreciation standard allows for any one of a number of depreciation methods to be used.
This flexibility would allow a firm to choose the method which best reflects how it uses
its asset. The result then is to allow for some flexibility, but limiting the range of
accounting methods which may be used in order to preserve some measure of consistency
across firms and over time. Therefore, the financial statement of two companies
undertaking the same set of transaction should be comparable, but not necessarily
identical.
6.20.a(ii) THE IMPORTANCE OF REPORTING STANDARDS IN SECURITY
ANALYSIS AND VALUATION
Financial reports are intended to provide information to a wide range of potential users.
Therefore, it is not specifically designed to meet the needs of investors (who may be
more interested in determining a market value for the company). Nevertheless, the
financial reports provide many of the elements and information required in order for the
analyst to construct a fair value estimate for the firm (and its securities).
Therefore, an analyst must have a clear understanding of the accounting methods and
assumptions that were used in order to construct the financial statements, and the effects
those choices had on the reported figures. For example, if an analyst deems company
value as a multiple of its earnings, then earnings reported by a firm using aggressive
accounting methods might be assigned a lower multiple relative to a firm whose earnings
were computed using a more conservative set of accounting methods and assumptions.
6.20.b THE ROLE OF STANDARD SETTING BODIES AND REGULATORY
BODIES
Accounting standard are generally set by independent, not-for-profit, private sector
entities. Therefore, accounting standards are not generally set by governments or their
agencies. The two main standard setting bodies are:
1. The International Accounting Standards Board (IASB), which issues the International
Financial Reporting Standards (IFRS), and
2. The Financial Accounting Standards Board (FASB), which issues the Statements of
Financial Accounting Standards (SFAS), effectively, US GAAP.
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While these private sector entities set the standards, the regulatory authorities (which are
arms of the government) enforce them as generally accepted reporting rules. However,
regulatory authorities are not legally bound to enforce these standards. In fact, they may
even overrule these private sector standards and establish their own set of standards
(however, this is the exception rather than the rule).
Now letโs look at these players in a little more detail.
The stated goals of the IASB are as follows:
a) Develop a high quality set of standards which facilitates transparency and
comparability, and thus assist the users in making better economic decisions.
b) Promote the use of these standards. In fact, all publicly listed companies in the
EU (European Union) are now mandated to use IFRS.
c) Take into account the special reporting needs of small to mid size companies, and
for those companies which are situated in emerging markets.
d) Bring about convergence among the various national accounting standards.
In order to be able to achieve its objectives, an accounting standards setting body should
have adequate resources and competencies. In other words, it must have the budget and
the expertise to investigate the implementation of new standards or changes in existing
ones. While such a body is right to listen to input from various parties that may be
affected by a new (or a change in) standard, ultimately, the standard setting body must
retain its independence when reaching its decision.
The International Organization of Securities Commissions (IOSCO): is a membership of
national securities regulators, which collectively oversee more than 90% of the worldโs
capital markets. The stated goals of the IOSCO are as follows:
a) Protect the investor.
b) Ensure that the markets are fair, efficient, and transparent.
c) Reduce systematic risk.
The IOSCO aims to achieve these goals by requiring full disclosure from publicly listed
companies. While each member state has their own unique set of regulations, the aim of
the IOSCO is to eventually have a uniform set of regulations.
The Securities and Exchange Commission (SEC) is the regulatory authority that oversees
the capital market in the U.S. It is charged with enforcing all applicable securities
legislation, including:
a) The Securities Act: which requires all publicly listed companies to periodically
report their financial statements, as well as any material information.
b) Sarbanes-Oxley Act: which oversees auditors (to ensure that they maintain their
independence from the firms that they are auditing), and requires senior managers
(the CEO and the CFO) of the reporting entity to certify that their financial
statements are indeed presented fairly.
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6.20.c(i) THE INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS) FRAMEWORK
Framework refers to the set of principles used in creating specific accounting standards
(rules). To illustrate, most accounting frameworks incorporate conservatism as one of
their principles. This in turn has led to the creation of a number of standards which
impose a more stringent set of criteria to either recognize revenue early or to defer
expenses to later periods. The point is that financial statements are created in accordance
with a set of accounting standards, which are in turn shaped by a set of accounting
principles (the framework). While the IASB and the FASB may have very similar
frameworks, the two resulting set of standards are not necessarily the same.
6.20.c(ii) THE OBJECTIVES OF FINANCIAL STATEMENTS
The objectives of financial statements include the following:
a) Presentation of the firmโs financial position as of a point in time.
b) Presentation of the firmโs performance over the reporting period.
c) Presentation of the firmโs cash position and how that position changed over the
period.
6.20.c(iii) QUALITATIVE CHARACTERISTICS OF FINANCIAL
STATEMENTS
The qualitative characteristics of an ideal set of financial statements include the
following:
1. Relevance: the information is timely and detailed enough to help the end user make
well-informed decision. As well, the information must be material (i.e. it could be used in
making a decision).
2. Faithful Representation: which in turn incorporates the following 3 features:
a) Completeness: there is enough information to allow the user to understand the
underlying nature of the firmโs activities.
b) Neutrality: the information is free from bias. For example, the information
does not deliberately over report or under report current earnings.
c) Free from error.
In addition to Relevance and Faithful Representation, the following qualities will also
enhance the usefulness of financial statements:
1. Comparability: The information is presented in a consistent manner over time and
across peer groups. For example, it would help the end user tremendously if Mega Auto
Co. used the same inventory reporting method that it has used in the past and that its peer
companies use as well.
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2. Understandability: The information should be presented in a clear manner so that even
users with a basic understanding of business and accounting will be able to comprehend
it. Information should not be excluded just because it is deemed to be complex.
3. Verifiability: Informed users would be able to agree that the information does correctly
reflect underlying economic events at the firm.
4. Timeliness: The information is made available early enough to enable the end user to
make a decision soon after economic events take place at the firm. However, timeliness
may come at the expense of verifiability. For instance, when an exploration company
makes a discovery, it may take months to get a proper estimate with respect to the
potential size of the discovery. While this delay in reporting would certainly make the
information more verifiable, it will nonetheless make it less timely. On the other hand, if
the firm chose to release its findings too soon (thus making the information more timely),
then it would be less verifiable (as the initial estimates of the finding would be less
certain).
6.20.c(iv) CONSTRAINTS IN PREPARING FINANCIAL STATEMENTS
A number of constraints or tradeoffs will be faced whenever a firm prepares its set of
financial statements. For example, the current market value of a firmโs assets would be
more relevant to the reader; however, because fair value estimates require a lot of
subjectivity, they would not be as reliable as their historic cost amounts. A second
example of the tradeoff which exists between reliability and relevance occurs when a
firm makes a sale on credit and is therefore required to make an estimate of the portion
which will not likely be collected in the future. By making a provision for bad debts
(estimated uncollectible amounts) at the time of sale, the income statement becomes more
relevant, as it now takes into account the likely amount of collectible revenue. However,
because the allowance for bad debts is an estimate, the information becomes less reliable.
We can see then how financial statements cannot incorporate all the required qualitative
characteristics simultaneously. Often times, these characteristics are in conflict with each
other.
Firms must also take into account the cost of providing reliable information. For
example, asset write-downs are based on management estimates of how much the assetโs
fair value has fallen below its book value. To increase reliability, one supposes that the
firm could spend thousands of dollars in obtaining multiple consultant estimates of fair
value for the asset. However, this would not make economic sense. Furthermore, since
assets are typically recorded at historic cost, financial statements omit the true economic
value of the firm (although the firmโs economic value will eventually be reflected
through its future earnings). Consequently, the reader must be aware of these limitations
when examining the financial statements of a firm.
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6.20.c(v) ASSUMPTIONS IN PREPARING FINANCIAL STATEMENTS
There are two main assumptions used in the preparation of financial statements:
i) Accrual: is a process which reflects transactions as they occur, and not when the
associated cash flow takes place.
ii) Going concern: allows the reporting of balance sheet items at values other than
liquidation values.
These two assumptions determine how financial statement items are recognized and how
their respective amounts are measured.
6.20.c(vi) REQUIRED REPORTING ELEMENTS
There are 5 reporting elements which appear in 2 financial statements:
1. Balance Sheet includes: a) Assets, b) Liabilities, and c) Ownersโ Equity
2. Income Statement includes: a) Revenue and b) Expenses.
An item is generally recognized in the financial statements if the following conditions are
met:
i) Itโs probable that an economic benefit associated with the item will flow to or
from the firm, and
ii) The item has a cost or value which can be measured reliably.
If an item does not meet these criteria, then it may instead be disclosed in the footnotes.
For example, if the firm was fined a standard amount by regulators for violations that the
firm pleaded guilty to, then that pending liability must be recognized on the balance sheet
(since it is almost certain that the firm will pay the fine and its amount is fairly reliable).
On the other hand, if the firm is currently engaged in a legal fight over some patent
infringement, then all it could do is disclose this matter in its notes (since the outcome of
the case is uncertain and any estimate for the settlement amount would be unreliable). In
other words, it would not meet the criteria for inclusion in the financial statements.
6.20.d GENERAL REQUIREMENTS FOR FINANCIAL STATEMENTS
A complete set of financial statements would include the following:
a) Balance Sheet
b) Income Statement
c) Statement of Changes in Ownerโs Equity
d) Statement of Cash Flows
e) Notes.
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The principles that underlie the preparation of financial statements include the following:
a) Fair presentation (the methods and assumptions used fairly depict the underlying
business)
b) Going concern ( allows balance sheet account values to be carried over to future
reporting periods)
c) Accrual basis (as opposed to cash basis)
d) Consistency (across firms and over time)
e) Materiality (material items should be shown separately)
The presentation requirements are as follows:
a) Aggregation of similar items: however, items which are different in nature should be
presented separately, unless their amounts are immaterial.
b) No offsetting of elements: asset and liability amounts should be shown separately, not
netted against each other. The same principle applies to revenues and expenses on the
income statement.
c) Classified balance sheet: meaning that current accounts must be distinguished from
non-current accounts.
d) A minimum amount of information must appear on the face of the financial statements
(i.e. financial statements cannot be summarized into just a few accounts).
e) A minimum amount of information must be included in the notes: in order to help
explain how some of the figures in the financial statements were derived.
f) Comparative information must be provided: for example, firms often re-present prior
periodsโ financial statements in conjunction with those of the current period in order to
provide some basis for comparison over time.
In the notes section, the following items must be disclosed:
a) Accounting policies used, which includes:
i) measurement bases (ex. historic cost or fair value)
ii) accounting methods used (ex. straight line vs. accelerated depreciation)
iii) estimates and assumption used (ex. short vs. long useful life).
b) Key assumptions used which may have a significant risk of causing material changes
to the carry value reported on the financial statements.
c) Other disclosures: such as a description of the entity, the nature of its operations, etc.
6.20.e(i) IMPLICATION OF ALTERNATIVE FINANCIAL REPORTING
SYSTEMS FOR FINANCIAL ANALYSIS
The differences between accounting standards make it more difficult to compare financial
statements prepared under the different set of standards. However, with a good
understanding of the rules, methods, and assumptions and the impact that they have on
the reported values, an analyst should be able to adjust the financial statements in order to
facilitate some degree of comparison. The following are just some of the scenarios which
are possible:
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1. Valuation: Both IFRS and SFAS realize that some elements on the financial
statements are better reported using fair values, as opposed to historic cost. However,
fair value measurements are very subjective. Therefore, while fair value may be more
relevant, it is not as reliable as historic cost.
2. Differences in reporting standards. For example, reporting standards can be based on:
i) A set of principles (broad concepts): consequently, a lot of judgment would be required
in determining how to actually report an event within the broad scope of these principles.
ii) A set of rules (more specific than principles): yes and no reporting rules would exist
for most types of activities.
iii) A combination of principles and rules: also referred to as being objective oriented.
To demonstrate how these different systems function, suppose that a firm incurs some
research and development (R&D) expenditures, the future benefits of which are highly
uncertain. If the firm reported its activities using a set of principles, then it would be up
to the firm to determine how to allocate this R&D expenditure over the various periods. If
one of those principles should be related to conservatism, then this would guide the firm
to recognize more of that expenditure in the current period. On the other hand, if the
firm reported its activities using a set of rules, then surely there would be a rule
stipulating how to allocate R&D expenditures over time. IFRS relies more on principles,
whereas at least in the past, SFAS was more rule based. The SFAS has begun a
movement towards an objective based system.
3. Measurement: Often a tradeoff exists between either making the balance sheet or the
income statement more relevant. For example, suppose that a firm starts off the year with
2,000 units of inventory, each having been acquired for $5 apiece. During the year, the
firm purchases an additional 5,000 units at $7 apiece while only selling 2,000 units at $10
apiece. If the firm assumes that it was the initial units of inventory that were sold first
(first-in, first-out), then the cost of goods sold (income statement item) would be reported
at $10,000 (2,000 X $5) while the ending inventory (balance sheet item) would be
reported at $35,000 (5000 X $7). In other words, the ending inventory better reflects the
recent cost of the inventory, while the cost of goods sold is measured using outdated
inventory costs.
Had the firm assumed that it was the more recently purchased inventory units that were
sold first (last-in, first-out), then the cost of goods sold measurement would be more
timely, while the inventory balance would be left with the older cost amounts. In recent
years, the standard setters have been leaning more towards preserving the relevance of
the balance sheet.
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6.20.e(ii) MONITORING DEVELOPMENTS IN FINANCIAL REPORTING
STANDARDS
The implementation of a new standard can have a significant effect on the companyโs
reported financial statements. For example, once firms were required to expense
employee stock options, reported profits decreased, even if economically, nothing had
changed from how companies previously granted stock options. However, there is often
a lag from the time that a standard is proposed to the time that it becomes mandated,
creating an ample amount of time for an analyst to forecast how a proposed change in
accounting standards will impact the companyโs financial statements in the future, and
perhaps, its valuation. Usually, new standards are proposed when it becomes necessary
to facilitate the financial reporting of a new set of activities. For example, 50 years ago,
no one could have conceived that there would be a need for an accounting standard
related to the reporting of software development costs.