Lecture 2 IFA1 <ul><li>Chapter 5  </li></ul><ul><li>Regulation of accounting and financial reporting </li></ul><ul><li>Cha...
Chapter 5 Regulation of reporting and financial reporting <ul><li>Financial Accounting and Reporting -  </li></ul><ul><li>...
Major topics <ul><li>International Accounting Standards Board </li></ul><ul><li>Annual report </li></ul><ul><li>Presentati...
1 International Accounting Standards Board <ul><li>Necessity of financial reporting standards </li></ul><ul><li>The Intern...
Figure 5.1  Overview (source: www.iasb.org) Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Editi...
<ul><li>New terminology </li></ul><ul><ul><li>International Accounting Standards Board  – IASB - replaces the  Internation...
2 Annual report <ul><li>Document published annually by: </li></ul><ul><ul><li>listed companies </li></ul></ul><ul><ul><li>...
Content of the annual report (example) <ul><li>Business reporting </li></ul><ul><ul><li>Key financial information </li></u...
3 Figure 5.2  Presentation of the balance sheet Use with  Financial Accounting and Reporting: A Global Perspective,  3rd E...
Figure 5.3  Vertical format Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Edition , ISBN 1-4080...
Figure 5.4  Horizontal format Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Edition , ISBN 1-40...
Difference between single-step and multiple-step Use with  Financial Accounting and Reporting: A Global Perspective,  3rd ...
Table 5.3  Balance sheet (Examples of ‘multiple-step’ vertical format) Use with  Financial Accounting and Reporting: A Glo...
Table 5.4  Balance sheet by term (in increasing liquidity and maturity) Use with  Financial Accounting and Reporting: A Gl...
Table 5.5  Balance sheet by term (in decreasing liquidity and maturity) Use with  Financial Accounting and Reporting: A Gl...
Table 5.6  Balance sheet by nature Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Edition , ISBN...
Table 5.8  UK Format Multiple-step vertical balance sheet Use with  Financial Accounting and Reporting: A Global Perspecti...
Table 5.9  Single-step vertical balance sheet  Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Ed...
4 Figure 5.6  Presentations of the income statement Use with  Financial Accounting and Reporting: A Global Perspective,  3...
Figure 5.7  Vertical versus horizontal presentations Use with  Financial Accounting and Reporting: A Global Perspective,  ...
Table 5.11  Vertical income statement (multiple-step) Use with  Financial Accounting and Reporting: A Global Perspective, ...
Table 5.12  Vertical income statement (by nature) Use with  Financial Accounting and Reporting: A Global Perspective,  3rd...
Table 5.13  Vertical income statement (by function) Use with  Financial Accounting and Reporting: A Global Perspective,  3...
Table 5.17  U.S. multiple-step income statement Use with  Financial Accounting and Reporting: A Global Perspective,  3rd E...
Table 5.18  Comparison between income statement by nature and by function Use with  Financial Accounting and Reporting: A ...
5 Notes to financial statements <ul><li>Clarification and a supplement to the balance sheet,  income statement and stateme...
Table 5.19  Example of information found in the notes Use with  Financial Accounting and Reporting: A Global Perspective, ...
6 Table 5.20  Accounting terminology differences!  <ul><li>See page 199 and 200 </li></ul>Use with  Financial Accounting a...
Chapter 6 Revenue recognition issues <ul><li>Financial Accounting and Reporting -  </li></ul><ul><li>A Global Perspective ...
Major topics <ul><li>1 Issues of revenue recognition (focus today) </li></ul><ul><li>2 Deferred taxation (focus today) </l...
1 Issues of revenue recognition <ul><li>To recognize revenue = to record the impact of a transaction on the revenue compon...
Sale of goods <ul><li>Conditions satisfied: </li></ul><ul><ul><li>transfer of the significant risks and rewards of ownersh...
Rendering of services <ul><li>Conditions: </li></ul><ul><ul><li>amount of revenue measured reliably </li></ul></ul><ul><ul...
Interest, royalties and dividends <ul><li>Interest : proportionately to the length of the period during which the asset wa...
Reporting for revenue recognition <ul><li>Accounting policies adopted for the recognition of revenue </li></ul><ul><li>Amo...
2 Deferred taxation <ul><li>Pre-tax income and taxable income </li></ul><ul><ul><li>Depreciation </li></ul></ul><ul><ul><l...
Figure 6.1 Differences between taxable and pre-tax income Use with  Financial Accounting and Reporting: A Global Perspecti...
Table 6.1 Method 1: Direct computation Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Edition , ...
Table 6.2 Method 2 – Reconciliation in year X1 Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Ed...
Table 6.3 Permanent differences Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Edition , ISBN 1-...
Figure 6.2 Temporary differences and income Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Editi...
Table 6.4  Examples of expenses that are tax deductible in a period later than they are recorded under financial accountin...
Case 1, method 1, Table 6.5 Effect of a provision when local GAAP do not allow deferred tax accounts Use with  Financial A...
Case 1, method 2, Table 6.6 Accounting for deferred income taxes Use with  Financial Accounting and Reporting: A Global Pe...
Figure 6.3 Recording a deferred tax asset in the financial accounting (GAAP-based) books Use with  Financial Accounting an...
Case    – Revenues or gains that are taxable in an earlier period than they are recognizable under financial accounting r...
Case    – Expenses (or losses) that are deductible in earlier periods for tax purposes than they are recorded under finan...
Illustration Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Edition , ISBN 1-4080-2113-2  © 2010...
Table 6.7 Case of an expense which is tax deductible earlier than under GAAP (method 1) Use with  Financial Accounting and...
Table 6.8 Accounting for deferred income taxes (method 2) Use with  Financial Accounting and Reporting: A Global Perspecti...
Figure 6.4 Recording a deferred tax liability Use with  Financial Accounting and Reporting: A Global Perspective,  3rd Edi...
Case    – Revenues (or gains) that are taxable in later periods than they are recognized under GAAP   <ul><li>Examples: <...
Accounting for and reporting income taxes <ul><li>Taxes payable accounting (or flow-through method or integrated model) </...
Deferred taxation <ul><li>Recognition of a net deferred tax asset: see Appendix 6.1 </li></ul><ul><li>Accounting for net o...
3 Long-term contracts <ul><li>Construction contracts (IASB terminology – IAS 11) </li></ul><ul><li>Principles: two types o...
4 Extraordinary and exceptional items <ul><li>Former distinctions:  </li></ul><ul><ul><li>Extraordinary/Ordinary </li></ul...
5 Reporting accounting changes <ul><li>Changes in accounting policies </li></ul><ul><li>Changes in accounting estimates </...
Why a change in accounting policies? <ul><li>‘ Required by an IFRS; or  </li></ul><ul><li>Results in the financial stateme...
Changes in accounting policies <ul><li>Adjustment to the opening balance of retained earnings </li></ul><ul><li>Prescribed...
Changes in accounting estimates <ul><li>Estimation process involves judgments </li></ul><ul><li>Estimates required (bad de...
Prior period errors <ul><li>Possible errors: </li></ul><ul><ul><li>mathematical mistakes </li></ul></ul><ul><ul><li>mistak...
6 Comprehensive income <ul><li>No definition of ‘comprehensive income’  per se  by the   IASB </li></ul><ul><li>‘ Total co...
Figure 6.5 Components of the total comprehensive income Use with  Financial Accounting and Reporting: A Global Perspective...
Annual report Heineken   2009 Intermediate Financial Accounting I
Content <ul><li>Consolidated balance sheet </li></ul><ul><li>Consolidated income statement </li></ul><ul><li>Consolidated ...
In miljoenen EURToelichting 2008 A angepast* Activa Materiële vaste activa 14 6.314 4.673 Immateriële activa 15 7.109 2.11...
 
 
 
 
 
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Lecture 2 ifa1 2011(1)(1)(1)

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Lecture 2 ifa1 2011(1)(1)(1)

  1. 1. Lecture 2 IFA1 <ul><li>Chapter 5 </li></ul><ul><li>Regulation of accounting and financial reporting </li></ul><ul><li>Chapter 6 </li></ul><ul><li>Revenue recognition issues </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  2. 2. Chapter 5 Regulation of reporting and financial reporting <ul><li>Financial Accounting and Reporting - </li></ul><ul><li>A Global Perspective (third edition) </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  3. 3. Major topics <ul><li>International Accounting Standards Board </li></ul><ul><li>Annual report </li></ul><ul><li>Presentation balance sheet </li></ul><ul><li>Presentation income statement </li></ul><ul><li>Notes to financial statements </li></ul><ul><li>Terminology </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  4. 4. 1 International Accounting Standards Board <ul><li>Necessity of financial reporting standards </li></ul><ul><li>The International Accounting Standards Board </li></ul><ul><ul><li>Objectives of the IASB </li></ul></ul><ul><ul><li>History of the IASB </li></ul></ul><ul><ul><li>Structure (see Fig. 5.1) </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  5. 5. Figure 5.1 Overview (source: www.iasb.org) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  6. 6. <ul><li>New terminology </li></ul><ul><ul><li>International Accounting Standards Board – IASB - replaces the International Accounting Standards Committee – IASC </li></ul></ul><ul><ul><li>IAS (International Accounting Standard) / IFRS (International Financial Reporting Standard) </li></ul></ul><ul><li>Implementation of IFRS/IAS </li></ul><ul><li>The relationship IASB/SEC </li></ul><ul><li>IFRS/IAS in the USA? </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  7. 7. 2 Annual report <ul><li>Document published annually by: </li></ul><ul><ul><li>listed companies </li></ul></ul><ul><ul><li>some non-listed but large companies </li></ul></ul><ul><li>Content, order and terminology of the information included in the annual report may vary across countries </li></ul><ul><li>See example of components of an annual report (Table 5.2) </li></ul><ul><li>Traditional structure: </li></ul><ul><ul><li>Business reporting </li></ul></ul><ul><ul><li>Financial reporting </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  8. 8. Content of the annual report (example) <ul><li>Business reporting </li></ul><ul><ul><li>Key financial information </li></ul></ul><ul><ul><li>Letter from the President </li></ul></ul><ul><ul><li>Management report </li></ul></ul><ul><li>Financial reporting </li></ul><ul><ul><li>Consolidated financial statements </li></ul></ul><ul><ul><li>Notes to the consolidated financial statements </li></ul></ul><ul><ul><li>Report of the auditors </li></ul></ul><ul><ul><li>Financial statements of the parent company </li></ul></ul><ul><ul><li>Information on shares </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  9. 9. 3 Figure 5.2 Presentation of the balance sheet Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  10. 10. Figure 5.3 Vertical format Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding <ul><li>Vertical format = Report form </li></ul><ul><li>Single-step: assets at the top, liabilities and shareholders’ equity at the bottom </li></ul>
  11. 11. Figure 5.4 Horizontal format Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding <ul><li>Horizontal format = account form </li></ul><ul><li>Assets on the left, liabilities and shareholders’ equity on the right </li></ul>
  12. 12. Difference between single-step and multiple-step Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding Difference refers to the two different ways to write the basic business equation (see Chapter 2)
  13. 13. Table 5.3 Balance sheet (Examples of ‘multiple-step’ vertical format) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding <ul><li>Multiple-step format: list of subsets of the three main categories of assets and liabilities and shareholders’ equity </li></ul><ul><li>Example 1: A - L = SE </li></ul>
  14. 14. Table 5.4 Balance sheet by term (in increasing liquidity and maturity) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding <ul><li>Less liquid assets (fixed assets) at the top and most liquid assets (cash) at the bottom </li></ul><ul><li>Less mature items (shareholders equity) at the top and most mature (current liabilities) at the bottom </li></ul>
  15. 15. Table 5.5 Balance sheet by term (in decreasing liquidity and maturity) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding <ul><li>Most liquid assets (cash) at the top and less liquid assets (fixed assets) at the bottom </li></ul><ul><li>Most mature items (current liabilities) at the top and less mature (shareholders’ equity) at the bottom </li></ul>
  16. 16. Table 5.6 Balance sheet by nature Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding <ul><li>The term has no importance </li></ul>
  17. 17. Table 5.8 UK Format Multiple-step vertical balance sheet Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  18. 18. Table 5.9 Single-step vertical balance sheet Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding Most continental European firms tend to report this format
  19. 19. 4 Figure 5.6 Presentations of the income statement Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  20. 20. Figure 5.7 Vertical versus horizontal presentations Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  21. 21. Table 5.11 Vertical income statement (multiple-step) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding <ul><li>Revenues and expenses are mixed </li></ul><ul><li>Determination of intermediate levels of income </li></ul>
  22. 22. Table 5.12 Vertical income statement (by nature) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding <ul><li>Simple method </li></ul><ul><li>No allocation of expenses </li></ul><ul><li>Personnel expense: typical line item (see next slide) </li></ul><ul><li>Depreciation expense also found in the format by function </li></ul>
  23. 23. Table 5.13 Vertical income statement (by function) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding Presentation closer to managerial accounting
  24. 24. Table 5.17 U.S. multiple-step income statement Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  25. 25. Table 5.18 Comparison between income statement by nature and by function Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  26. 26. 5 Notes to financial statements <ul><li>Clarification and a supplement to the balance sheet, income statement and statement of cash flows </li></ul><ul><li>Notes are required by the IASB (IAS 1, IASB 2007: § 10): ‘A complete set of financial statements comprises: (…) (e) notes, comprising a summary of significant accounting policies and other explanatory information’ </li></ul><ul><li>‘ Notes provide narrative descriptions or disaggregation of items presented in those statements and information about items that do not qualify for recognition in those statements’ (IAS 1: § 7) </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  27. 27. Table 5.19 Example of information found in the notes Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding Notes = qualitative and quantitative comments or specification of hypotheses
  28. 28. 6 Table 5.20 Accounting terminology differences! <ul><li>See page 199 and 200 </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  29. 29. Chapter 6 Revenue recognition issues <ul><li>Financial Accounting and Reporting - </li></ul><ul><li>A Global Perspective (third edition) </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  30. 30. Major topics <ul><li>1 Issues of revenue recognition (focus today) </li></ul><ul><li>2 Deferred taxation (focus today) </li></ul><ul><li>3 Long-term contracts </li></ul><ul><li>4 Extraordinary items </li></ul><ul><li>5 Reporting accounting changes </li></ul><ul><li>6 Comprehensive income </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  31. 31. 1 Issues of revenue recognition <ul><li>To recognize revenue = to record the impact of a transaction on the revenue component of the income statement </li></ul><ul><li>Rules for three categories of transactions and events: </li></ul><ul><ul><li>sale of goods </li></ul></ul><ul><ul><li>rendering of services </li></ul></ul><ul><ul><li>interest, royalties and dividends </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  32. 32. Sale of goods <ul><li>Conditions satisfied: </li></ul><ul><ul><li>transfer of the significant risks and rewards of ownership of the goods </li></ul></ul><ul><ul><li>no managerial involvement or effective control over the goods sold </li></ul></ul><ul><ul><li>amount of revenue measured reliably </li></ul></ul><ul><ul><li>probability of economic benefits </li></ul></ul><ul><ul><li>costs related to the transaction measured reliably </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  33. 33. Rendering of services <ul><li>Conditions: </li></ul><ul><ul><li>amount of revenue measured reliably </li></ul></ul><ul><ul><li>probability of economic benefits </li></ul></ul><ul><ul><li>stage or percentage of completion of the transaction on the balance sheet date measured reliably </li></ul></ul><ul><ul><li>costs related to the transaction measured reliably </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  34. 34. Interest, royalties and dividends <ul><li>Interest : proportionately to the length of the period during which the asset was actually made available and on the basis of the agreed upon interest rate </li></ul><ul><li>Royalties : on an accrual basis in accordance with the substance of the relevant agreement </li></ul><ul><li>Dividends : when the shareholder’s right to receive payment is established (decision of the shareholders’ General Assembly) </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  35. 35. Reporting for revenue recognition <ul><li>Accounting policies adopted for the recognition of revenue </li></ul><ul><li>Amount of each significant category of revenue recognized during the period including revenue </li></ul><ul><li>Amount of revenue arising from exchanges of goods or services included in each significant category of revenue </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  36. 36. 2 Deferred taxation <ul><li>Pre-tax income and taxable income </li></ul><ul><ul><li>Depreciation </li></ul></ul><ul><ul><li>Warranty costs </li></ul></ul><ul><ul><li>Expenses benefiting several years </li></ul></ul><ul><li>Permanent differences and temporary differences </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  37. 37. Figure 6.1 Differences between taxable and pre-tax income Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  38. 38. Table 6.1 Method 1: Direct computation Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  39. 39. Table 6.2 Method 2 – Reconciliation in year X1 Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  40. 40. Table 6.3 Permanent differences Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding Impact of permanent differences
  41. 41. Figure 6.2 Temporary differences and income Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  42. 42. Table 6.4 Examples of expenses that are tax deductible in a period later than they are recorded under financial accounting rules |(see also Case 1 on the next slide) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  43. 43. Case 1, method 1, Table 6.5 Effect of a provision when local GAAP do not allow deferred tax accounts Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  44. 44. Case 1, method 2, Table 6.6 Accounting for deferred income taxes Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  45. 45. Figure 6.3 Recording a deferred tax asset in the financial accounting (GAAP-based) books Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  46. 46. Case  – Revenues or gains that are taxable in an earlier period than they are recognizable under financial accounting rules <ul><li>Examples: </li></ul><ul><ul><li>A latent gain on marketable securities </li></ul></ul><ul><ul><li>Cash received in advance for rent is sometimes taxable in the year received while it generally must be accrued under the local GAAP </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  47. 47. Case  – Expenses (or losses) that are deductible in earlier periods for tax purposes than they are recorded under financial accounting rules <ul><li>Examples: </li></ul><ul><ul><li>Expenses spread over several years according to the local GAAP (in application of the matching principle) but that are tax deductible for the full amount in the year initially incurred </li></ul></ul><ul><ul><li>Greater depreciation for tax purposes than for financial reporting purposes in the early periods of an asset’s life </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  48. 48. Illustration Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  49. 49. Table 6.7 Case of an expense which is tax deductible earlier than under GAAP (method 1) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  50. 50. Table 6.8 Accounting for deferred income taxes (method 2) Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  51. 51. Figure 6.4 Recording a deferred tax liability Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  52. 52. Case  – Revenues (or gains) that are taxable in later periods than they are recognized under GAAP <ul><li>Examples: </li></ul><ul><ul><li>The revenue from credit sales (that give rise to an account receivable) may be fully recognized under GAAP when the sale takes place, but only be taxable for tax purposes on a cash basis, i.e., only when the customer settles his/her debt </li></ul></ul><ul><ul><li>Interest revenue is generally received in arrears and is included in GAAP accounting profit on a time-apportioned accrual basis (in application of the matching principle) but is included in taxable profit only on a cash basis </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  53. 53. Accounting for and reporting income taxes <ul><li>Taxes payable accounting (or flow-through method or integrated model) </li></ul><ul><li>Deferred taxation accounting (or full provision method or deferred tax model) </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  54. 54. Deferred taxation <ul><li>Recognition of a net deferred tax asset: see Appendix 6.1 </li></ul><ul><li>Accounting for net operating losses </li></ul><ul><ul><li>Loss carry-back </li></ul></ul><ul><ul><li>Loss carry-forward </li></ul></ul><ul><ul><li>See Table 6.9 and Appendix 6.2 </li></ul></ul><ul><li>Changes in tax rates: see Appendix 6.3 </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  55. 55. 3 Long-term contracts <ul><li>Construction contracts (IASB terminology – IAS 11) </li></ul><ul><li>Principles: two types of contract </li></ul><ul><ul><li>a fixed price contract </li></ul></ul><ul><ul><li>a cost plus contract </li></ul></ul><ul><li>One recommended method (IAS 11, § 22): percentage of completion method </li></ul><ul><li>If the conditions for this method are not met => use of a variation of the percentage of completion </li></ul><ul><li>Alternative method not endorsed by the IASB: completed-contract method </li></ul><ul><li>See developments in Appendix 6.4 </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  56. 56. 4 Extraordinary and exceptional items <ul><li>Former distinctions: </li></ul><ul><ul><li>Extraordinary/Ordinary </li></ul></ul><ul><ul><li>Exceptional/Current (or usual or operating) </li></ul></ul><ul><li>IAS 1 (revised 2003): no ‘Extraordinary’ items </li></ul><ul><li>See developments in Appendix 6.6 </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  57. 57. 5 Reporting accounting changes <ul><li>Changes in accounting policies </li></ul><ul><li>Changes in accounting estimates </li></ul><ul><li>Prior period errors </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  58. 58. Why a change in accounting policies? <ul><li>‘ Required by an IFRS; or </li></ul><ul><li>Results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flow’ (IAS 8, IASB 2003: § 14) </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  59. 59. Changes in accounting policies <ul><li>Adjustment to the opening balance of retained earnings </li></ul><ul><li>Prescribed disclosure in the notes (IAS 8: § 29): </li></ul><ul><ul><li>nature of the change </li></ul></ul><ul><ul><li>reasons for the change </li></ul></ul><ul><ul><li>amount of the adjustment for the current period and for each period presented </li></ul></ul><ul><ul><li>amount of the adjustment relating to periods prior to those included in the comparative information </li></ul></ul><ul><ul><li>fact that comparative information has been restated or that it is impracticable to do so </li></ul></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  60. 60. Changes in accounting estimates <ul><li>Estimation process involves judgments </li></ul><ul><li>Estimates required (bad debts, inventory obsolescence or the useful life of depreciable assets) </li></ul><ul><li>Use of reasonable estimates </li></ul><ul><li>Change in accounting estimates </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  61. 61. Prior period errors <ul><li>Possible errors: </li></ul><ul><ul><li>mathematical mistakes </li></ul></ul><ul><ul><li>mistakes in applying accounting policies </li></ul></ul><ul><ul><li>misinterpretation of facts </li></ul></ul><ul><ul><li>fraud or oversights </li></ul></ul><ul><li>If significant effect on the financial statements: ‘prior period errors’ </li></ul><ul><li>Adjustment of opening retained earnings </li></ul><ul><li>Disclosure in the notes </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  62. 62. 6 Comprehensive income <ul><li>No definition of ‘comprehensive income’ per se by the IASB </li></ul><ul><li>‘ Total comprehensive income’: ‘change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners’ </li></ul><ul><li>‘ Other comprehensive income’: ‘Items of income and expense (including reclassification adjustments) that are not recognized in profit or loss as required or permitted by other IFRSs)’ (IAS 1, 2007: § 7) </li></ul>Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  63. 63. Figure 6.5 Components of the total comprehensive income Use with Financial Accounting and Reporting: A Global Perspective, 3rd Edition , ISBN 1-4080-2113-2 © 2010 H. Stolowy, M. J. Lebas and Y. Ding
  64. 64. Annual report Heineken 2009 Intermediate Financial Accounting I
  65. 65. Content <ul><li>Consolidated balance sheet </li></ul><ul><li>Consolidated income statement </li></ul><ul><li>Consolidated cash flow statement </li></ul><ul><li>Consolidated statement of changes in equity </li></ul>
  66. 66. In miljoenen EURToelichting 2008 A angepast* Activa Materiële vaste activa 14 6.314 4.673 Immateriële activa 15 7.109 2.110 Investeringen in geassocieerde deelnemingen en joint ventures 1.145 892 Overige investeringen 17 641 397 Vooruitbetalingen verstrekt aan afnemers 346 209 Latente belastingvorderingen 18 259 316 Totaal vaste activa 15.814 8.597 Voorraden 19 1.246 883 Overige investeringen 17 14 14 Handels- en overige vorderingen 20 2.504 1.769 Vooruitbetalingen en overlopende activa 231 110 Geldmiddelen en kasequivalenten 21 698 560 Activa geclassificeerd als aangehouden voor verkoop 7 56 21 Totaal vlottende activa 4.749 3.357 Totaal activa 20.563 11.954

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