Financial Accounting and Reporting

Höfundar: Jamie Elliott; Barry Elliott; Jo Watkins (Útgáfa: 21)
Financial Accounting and Reporting

Kaup valmöguleikar

Financial Accounting and Reporting, 21st edition provides a complete overview of this demanding subject, equipping you with the knowledge to understand, prepare and critically discuss IFRS-compliant financial statements with reference to the wider context and practice of financial reporting. By covering technical areas using step-by-step worked examples, and drawing out the commercial implications, this comprehensive and detailed textbook can become a companion to your modules in financial accounting and reporting across more than one stage of your course.

Including both theoretical principles and up-to-date practical applications of international standards, this textbook provides you with a foundation to develop the skills you need to advance your career. Pair this text with MyLab® Accounting MyLab Accounting is the teaching and learning resource available to support this title. It combines trusted author content with quizzes and assessments, and supportive self-study capabilities.

The MyLab for this edition includes over 1575 auto-graded questions for students to attempt, a new-look style of homework assignment, new videos and more. MyLab Accounting is not included with this title. If you would like to purchase both the physical textbook and MyLab Accounting (which also comes with the eBook), search for: 9781292471129 Financial Accounting and Reporting 21st Edition 'MyLab Package' which consists of: Print textbook ETextbook MyLab Accounting Students, MyLab should only be purchased when required by an instructor.

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Útgefandi
Pearson International Content
ISBN
9781292739144
Print ISBN
9781292739137
Format
ePub
Útgáfa
21
Höfundar
Jamie Elliott; Barry Elliott; Jo Watkins
Tungumál
English
Útgefið
2025-06-16
Prent takmörkun á líftíma
100
Prent takmörkun
2
Afritunar takmörkun
2

Kaflar

  • Cover
  • Prelims
  • Title
  • Mission statement
  • Title page
  • Copyright
  • Preface
  • Authors’ acknowledgements
  • Part 1 Introduction to accounting on a cash flow and accrual accounting basis
  • Part 1 Introduction to accounting on a cash flow and accrual accounting basis
  • Chapter 1 Accounting and reporting on a cash flow basis
  • Accounting and reporting on a cash flow basis
  • 1.1 Introduction
  • 1.1 Introduction
  • 1.2 Shareholders
  • 1.2 Shareholders
  • 1.3 What skills does an accountant require in respect of external reports?
  • 1.3 What skills does an accountant require in respect of external reports?
  • 1.4 Managers
  • 1.4 Managers
  • 1.5 What skills does an accountant require in respect of internal reports?
  • 1.5 What skills does an accountant require in respect of internal reports?
  • 1.5.1 Accountants’ reporting role
  • 1.6 Procedural steps when reporting to internal users
  • 1.6 Procedural steps when reporting to internal users
  • 1.7 Agency costs
  • 1.7 Agency costs
  • 1.8 Illustration of periodic financial statements prepared under the cash flow concept to disclose realised operating cash flows
  • 1.8 Illustration of periodic financial statements prepared under the cash flow concept to disclose realised operating cash flows
  • 1.8.1 Appraisal of the initial investment decision
  • 1.8.2 Preparation of periodic financial statements under the cash flow concept
  • 1.9 Illustration of preparation of statement of financial position
  • 1.9 Illustration of preparation of statement of financial position
  • 1.9.1 Stewardship
  • 1.9.2 Working capital policies
  • 1.10 Treatment of non-current assets in the cash flow model
  • 1.10 Treatment of non-current assets in the cash flow model
  • 1.11 What are the characteristics of these data that make them reliable?
  • 1.11 What are the characteristics of these data that make them reliable?
  • 1.11.1 Prudence characteristic
  • 1.11.2 Neutrality characteristic
  • 1.11.3 Completeness characteristic
  • 1.11.4 Faithful representation characteristic
  • 1.11.5 Substance over form
  • 1.12 Reports to external users
  • 1.12.1 Stewardship orientation
  • 1.12.2 Prediction orientation
  • 1.12.3 Going concern
  • 1.12.4 Tax authorities
  • 1.13 Micro businesses
  • 1.13 Micro businesses
  • 1.13.1 Effect of pandemic
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 2 Accounting and reporting on an accrual accounting basis
  • Accounting and reporting on an accrual accounting basis
  • 2.1 Introduction
  • 2.1 Introduction
  • 2.1.1 Objective of financial statements
  • 2.1.2 Statements making up the financial statements published for external users
  • 2.2 Historical cost convention
  • 2.2 Historical cost convention
  • 2.3 Accrual basis of accounting
  • 2.3 Accrual basis of accounting
  • 2.3.1 Accrual accounting is a better indicator than cash flow accounting of ability to generate cash
  • 2.4 Mechanics of accrual accounting – adjusting cash receipts and payments
  • 2.4 Mechanics of accrual accounting – adjusting cash receipts and payments
  • 2.5 Reformatting the statement of financial position
  • 2.5 Reformatting the statement of financial position
  • 2.6 Accounting for the sacrifice of non-current assets
  • 2.6 Accounting for the sacrifice of non-current assets
  • 2.6.1 Going concern assumption
  • 2.6.2 Financial capital maintenance concept
  • 2.6.3 Summary of views on accrual accounting
  • 2.7 Published statement of cash flows
  • 2.7 Published statement of cash flows
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Part 2 Accountability
  • Part 2 Accountability
  • Chapter 3 Corporate governance
  • Corporate governance
  • 3.1 Introduction
  • 3.1 Introduction
  • 3.2 A systems perspective
  • 3.2 A systems perspective
  • 3.2.1 Good corporate governance – investor perspective
  • 3.2.2 Good corporate governance – other stakeholder perspective
  • 3.2.3 Good corporate governance – stakeholder pressure on Boards of Directors
  • 3.2.4 Good corporate governance – all sectors
  • 3.3 Different jurisdictions have different governance priorities
  • 3.3 Different jurisdictions have different governance priorities
  • 3.3.1 Companies identifying bribery and corruption risk management in their Annual Reports.
  • 3.4 The effect on capital markets of good corporate governance
  • 3.4 The effect on capital markets of good corporate governance
  • 3.5 Risk management
  • 3.5 Risk management
  • 3.5.1 Strategic risks
  • 3.5.2 Operational risks
  • 3.5.3 Legal and regulatory risks
  • 3.5.4 IASB Practice statement management commentary
  • 3.6 The role of internal control, internal audit and audit committees in corporate governance
  • 3.6 The role of internal control, internal audit and audit committees in corporate governance
  • 3.6.1 Adequate internal control
  • 3.6.2 Effective internal audit
  • 3.6.3 Effective audit committees
  • 3.7 External audits in corporate governance
  • 3.7 External audits in corporate governance
  • 3.7.1 Investor confidence
  • 3.7.2 Auditor independence
  • 3.7.3 Professional scepticism and competence
  • 3.7.4 Professional competence
  • 3.7.5 The profession’s and regulator’s approach to maintaining performance
  • 3.7.6 Auditor to report clearly
  • 3.8 Detection of fraud
  • 3.8 Detection of fraud
  • 3.8.1 Stakeholders’ expectations
  • 3.8.2 Auditors’ expectations
  • 3.8.3 The Regulator’s position
  • 3.9 The Regulator’s approach to promoting improved disclosures
  • 3.9 The Regulator’s approach to promoting improved disclosures
  • 3.9.1 Inspections
  • 3.9.2 Encouragement
  • 3.9.3 Penalties
  • 3.10 International perspective (IFIAR)
  • 3.10 International perspective (IFIAR)
  • 3.11 The future of audit
  • 3.11 The future of audit
  • 3.11.1 The Kingman Report published in 2018
  • 3.11.2 The Brydon Report published in 2019
  • 3.11.3 The Competition and Markets Authority (CMA) final report published in 2019
  • 3.11.4 The future of the FRC
  • 3.12 Executive remuneration in the UK
  • 3.12 Executive remuneration in the UK
  • 3.12.1 UK government response
  • 3.12.2 What is fair?
  • 3.12.3 How to set criteria – in principle
  • 3.12.4 Where do accountants feature in setting directors’ remuneration?
  • 3.12.5 Performance criteria
  • 3.12.6 Institutional investor guidelines
  • 3.12.7 Institutional investors’ statements of principles
  • 3.13 Corporate governance – ways to make directors accountable
  • 3.13 Corporate governance – ways to make directors accountable
  • 3.13.1 Legislation
  • 3.13.2 The UK Corporate Governance Code 2018
  • 3.13.3 Non-executive directors (NEDs)
  • 3.13.4 Shareholder activism
  • 3.13.5 Employee involvement
  • Summary
  • Summary
  • Review questions
  • Review Questions
  • Exercises
  • Exercises
  • Chapter 4 Ethical behaviour and implications for accountants
  • Ethical behaviour and implications for accountants
  • 4.1 Introduction
  • 4.1 Introduction
  • 4.2 The meaning of ethical behaviour
  • 4.2 The meaning of ethical behaviour
  • 4.2.1 Individual ethical guidelines
  • 4.2.2 Professional ethical guidelines
  • 4.3 The accounting standard-setting process and ethics
  • 4.3 The accounting standard-setting process and ethics
  • 4.3.1 Ethics and neutrality
  • 4.4 The International Code of Ethics for Professional Accountants 2018
  • 4.4 The International Code of Ethics for Professional Accountants 2018
  • 4.4.1 Acting in the public interest
  • 4.4.2 Fundamental principles
  • 4.4.3 Problems arising for accountants in practice
  • 4.4.4 Problems arising for accountants in business
  • 4.4.5 Threats to compliance with the fundamental principles
  • 4.5 Implications of ethical values for the principles – versus rules-based approaches to accounting standards
  • 4.5 Implications of ethical values for the principles – versus rules-based approaches to accounting standards
  • 4.5.1 The principles-based approach and ethics
  • 4.5.2 The problem of defining principles and standards where there are cultural differences
  • 4.5.3 Research into the impact of different cultural characteristics on behaviour
  • 4.6 Ethics in the accountant’s work environment – a research report
  • 4.6 Ethics in the accountant’s work environment – a research report
  • 4.6.1 A student’s perspective
  • 4.7 Implications of unethical behaviour for stakeholders using the financial reports
  • 4.7 Implications of unethical behaviour for stakeholders using the financial reports
  • 4.7.1 Increased cost of capital
  • 4.7.2 Hidden liabilities
  • 4.7.3 Effect of ethical collapse in an organisation
  • 4.7.4 Auditor reaction to risk of unethical behaviour
  • 4.7.5 Action by professional accounting bodies to assist members
  • 4.7.6 Action taken by governments
  • 4.7.7 Action by companies – company codes of ethics
  • 4.7.8 Conflict between codes and targets
  • 4.7.9 Multinationals face special problems
  • 4.7.10 The support given by professional bodies in the designing of ethical codes
  • 4.8 The increasing role of whistle-blowing
  • 4.8 The increasing role of whistle-blowing
  • 4.8.1 Seeking advice
  • 4.8.2 Whistle-blowing – protection in the UK
  • 4.8.3 Anonymous whistle-blowing
  • 4.8.4 Proportionate response
  • 4.8.5 Government support
  • 4.8.6 Immunity to the first party to report
  • 4.8.7 Breach of confidentiality
  • 4.8.8 Whistle-blowing – protection in the EU
  • 4.9 Legal requirement to report – national and international regulation
  • 4.9 Legal requirement to report – national and international regulation
  • 4.9.1 Money laundering – overview
  • 4.9.2 Money laundering – implications for accountants
  • 4.9.3 Money laundering – the Financial Action Task Force (FATF)
  • 4.9.4 UK government
  • 4.10 Why should students learn ethics?
  • 4.10.1 Survival of the profession
  • 4.10.2 A future role for accountants in ethical assurance
  • 4.10.3 Implications for training
  • 4.10.4 How will decisions be viewed?
  • 4.10.5 What if there are competing solutions?
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 5 Integrated reporting: sustainability, environmental and social
  • Integrated reporting: sustainability, environmental and social
  • 5.1 Introduction
  • 5.1 Introduction
  • 5.2 Environmental and social disasters, the adverse consequences that can follow and the lessons to be learnt
  • 5.2 Environmental and social disasters, the adverse consequences that can follow and the lessons to be learnt
  • 5.2.1 Environmental disasters
  • 5.2.2 Social disasters
  • 5.2.3 The lessons
  • 5.3 Management accountability for environmental and social responsibility
  • 5.3 Management accountability for environmental and social responsibility
  • 5.3.1 Shareholder primacy
  • 5.3.2 Stakeholder theory
  • 5.3.3 Management obligations
  • 5.4 Integrated reporting concepts
  • 5.4 Integrated reporting concepts
  • 5.4.1 The International Framework
  • 5.4.2 The benefits of integrated reporting
  • 5.5 The historical context of the evolution of integrated reporting including the drivers of this movement
  • 5.5 The historical context of the evolution of integrated reporting including the drivers of this movement
  • 5.5.1 Attempts to tackle limitations in financial reporting by academics and the profession
  • 5.5.2 Drive by more socially aware management
  • 5.6 The seriousness of current threats: sustainability – climate change and pollution
  • 5.6 The seriousness of current threats: sustainability – climate change and pollution
  • 5.6.1 Climate change
  • 5.6.2 Pollution
  • 5.6.3 Consumption
  • 5.7 The efforts on which integrated reporting builds
  • 5.7 The efforts on which integrated reporting builds
  • 5.7.1 The Global reporting initiative
  • 5.7.2 The SASB and the ISSB
  • 5.7.3 The task force on climate-related financial disclosures
  • 5.7.4 The Eco-management and audit scheme (EMAS)
  • 5.7.5 The Association of British Insurers (ABI)
  • 5.8 The contribution of accountants
  • 5.8 The contribution of accountants
  • 5.8.1 Strategic planning
  • 5.8.2 Control systems
  • 5.8.3 Management accountants
  • 5.8.4 Financial accountants
  • 5.8.5 Other areas that may be monitored
  • 5.9 Integrated reporting – its impact on the future development of financial reporting and accounting
  • 5.9 Integrated reporting – its impact on the future development of financial reporting and accounting
  • 5.9.1 Approaching an Annual Report with the six types of capital in mind
  • 5.10 Reporting to stakeholders to account for stewardship
  • 5.10 Reporting to stakeholders to account for stewardship
  • 5.10.1 Hard copy
  • 5.10.2 Digital version
  • 5.11 Reporting to stakeholders to assist decision making
  • 5.11 Reporting to stakeholders to assist decision making
  • 5.11.1 Ratios on the company’s own website
  • 5.11.2 Making an investor’s own calculation – using Excel
  • 5.11.3 Commercial databases
  • 5.11.4 XBRL taxonomies
  • 5.11.5 How might XBRL assist the user?
  • 5.11.6 Audit report or Assurance Report?
  • 5.12 Real-time reporting
  • 5.12 Real-time reporting
  • 5.12.1 Long-term view
  • 5.12.2 Short-term view
  • 5.12.3 The form of interim reporting
  • 5.12.4 Survey results
  • 5.13 Other means of communication with stakeholders
  • 5.13 Other means of communication with stakeholders
  • 5.13.1 Webcast, videos, audio, webinars, social media platforms and blogs
  • 5.14 The way forward for improved sustainability disclosure
  • 5.14 The way forward for improved sustainability disclosure
  • Summary
  • Summary
  • Review Questions
  • Review Questions
  • Exercises
  • Exercises
  • Part 3 Preparation of internal and published financial statements
  • Part 3 Preparation of internal and published financial statements
  • Chapter 6 Preparation of financial statements of profit or loss and other comprehensive income, changes in equity and financial position
  • Preparation of financial statements of profit or loss and other comprehensive income, changes in equity and financial position
  • 6.1 Introduction
  • 6.1 Introduction
  • 6.2 Preparing an internal statement of profit or loss from a trial balance
  • 6.2 Preparing an internal statement of profit or loss from a trial balance
  • 6.2.1 The trial balance of Wiggins SA
  • 6.2.2 Identify the year-end adjustments
  • 6.2.3 Calculate the year-end adjustments
  • 6.2.4 Prepare an internal statement of profit or loss after making the year-end adjustments
  • 6.3 Reorganising the income and expenses into one of the formats required for publication
  • 6.3 Reorganising the income and expenses into one of the formats required for publication
  • 6.4 Format 1: classification of operating expenses and other income by function
  • 6.4 Format 1: classification of operating expenses and other income by function
  • 6.4.1 Cost of sales
  • 6.4.2 Distribution costs
  • 6.4.3 Administrative expenses
  • 6.4.4 Other operating income or expense
  • 6.4.5 Finance costs
  • 6.4.6 An analysis of expenses by function
  • 6.4.7 Accounting for current tax
  • 6.4.8 The statement of profit or loss using Format 1
  • 6.5 Format 2: classification of operating expenses according to their nature
  • 6.5 Format 2: classification of operating expenses according to their nature
  • 6.6 Other information to be presented in the profit or loss section
  • 6.6 Other information to be presented in the profit or loss section
  • 6.7 Other comprehensive income
  • 6.7.1 Definition of other comprehensive income (OCI)
  • 6.7.2 Reporting of other comprehensive income
  • 6.7.3 Analysing other comprehensive income
  • 6.8 Presentation of non-recurring items and their effect on operating income
  • 6.8 Presentation of non-recurring items and their effect on operating income
  • 6.8.1 Exceptional items
  • 6.8.2 Extraordinary items
  • 6.9 How decision-useful is the statement of profit or loss and other comprehensive income?
  • 6.9 How decision-useful is the statement of profit or loss and other comprehensive income?
  • 6.10 Statement of changes in equity
  • 6.10 Statement of changes in equity
  • 6.11 The statement of financial position
  • 6.11 The statement of financial position
  • 6.11.1 Current/non-current classification
  • 6.12 The explanatory notes that are part of the financial statements
  • 6.12 The explanatory notes that are part of the financial statements
  • 6.12.1 Accounting policies
  • 6.12.2 Notes giving greater detail of the make-up of statement of financial position figures
  • 6.12.3 Notes giving additional information to assist prediction of future cash flows
  • 6.12.4 Notes giving information that is of interest to other stakeholders
  • 6.13 Has prescribing the formats meant that identical transactions are reported identically?
  • 6.13 Has prescribing the formats meant that identical transactions are reported identically?
  • 6.13.1 Differences arising from the choice of the inventory valuation method
  • 6.13.2 Differences arising from the choice of depreciation method and estimates
  • 6.13.3 Differences arising from management attitudes
  • 6.13.4 Differences arising from the capability of the accounting system to provide data
  • 6.14 Fair presentation
  • 6.14 Fair presentation
  • 6.14.1 Legal opinions
  • 6.14.2 Fair presentation override
  • 6.15 What does an investor need in addition to the primary financial statements to make decisions?
  • 6.15 What does an investor need in addition to the primary financial statements to make decisions?
  • 6.15.1 IFRS mandatory disclosures
  • 6.15.2 Subjective nature of unusual items
  • 6.15.3 IFRS Management Commentary
  • 6.15.4 Strategic Report
  • 6.15.5 Chairman’s Statement
  • 6.15.6 Directors’ Report
  • 6.15.7 Developments in meeting narrative reporting needs for the future
  • 6.15.8 Changes to financial performance statements’ structure
  • 6.16 IFRS 18 Presentation and Disclosure in Financial Statements
  • 6.16 IFRS 18 Presentation and Disclosure in Financial Statements
  • 6.16.1 Primary financial statements.
  • 6.16.2 Management-defined performance measures (MPMs)
  • 6.16.3 Presentation of ‘unusual’ items
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Exercises continued
  • Chapter 7 Annual report: additional financial disclosures
  • Annual report: additional financial disclosures
  • 7.1 Introduction
  • 7.1 Introduction
  • 7.2 IAS 10 Events after the Reporting Period
  • 7.2 IAS 10 Events after the Reporting Period
  • 7.2.1 Adjusting events
  • 7.2.2 Non-adjusting events
  • 7.2.3 Going concern issues
  • 7.3 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
  • 7.3 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
  • 7.3.1 Accounting policy changes
  • 7.3.2 Prior period adjustments including both errors and fraud
  • 7.3.3 Accounting estimates
  • 7.4 What do segment reports provide?
  • 7.4 What do segment reports provide?
  • 7.5 IFRS 8 Operating Segments
  • 7.5 IFRS 8 Operating Segments
  • 7.5.1 Identification of segments
  • 7.5.2 Identifying reportable segments
  • 7.5.3 Measuring segment information
  • 7.5.4 Disclosure requirements for reportable segments
  • 7.5.6 Sample disclosures under IFRS 8
  • 7.6 Benefits and continuing concerns following the issue of IFRS 8
  • 7.6.1 The benefits of segment reporting
  • 7.6.2 Post-implementation Review: IFRS 8 Operating Segments
  • 7.6.3 Constraints on comparison between entities
  • 7.7 Discontinued operations – IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
  • 7.7 Discontinued operations – IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
  • 7.7.1 Criteria
  • 7.7.2 Disclosure in the statement of profit or loss and other comprehensive income
  • 7.8 Held for sale – IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
  • 7.8 Held for sale – IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
  • 7.8.1 IFRS 5 – implications of classification as held for sale
  • 7.9 IAS 24 Related Party Disclosures
  • 7.9 IAS 24 Related Party Disclosures
  • 7.9.1 How to determine what is ‘arm’s length’
  • 7.9.2 IAS 24 disclosures required
  • 7.9.3 Definition of ‘related party’ when the party is a person
  • 7.9.4 Definition of ‘related party’ when the party is another entity
  • 7.9.5 Identifying related parties is not always clear
  • 7.9.6 Parties deemed not to be related parties
  • 7.9.7 Disclosure of controlling relationships
  • 7.9.8 Exemption from disclosures re government-related entities
  • 7.9.9 Disclosure of compensation of key management personnel
  • 7.9.10 Disclosure of related party transactions
  • 7.9.11 Possible impact of transactions with related parties
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 8 Statements of cash flows
  • Statements of cash flows
  • 8.1 Introduction
  • 8.1 Introduction
  • 8.2 Development of statements of cash flows
  • 8.2 Development of statements of cash flows
  • 8.2.1 Statements of cash flows – their benefits
  • 8.3 Applying IAS 7 (revised) Statement of Cash Flows
  • 8.3.1 IAS 7 format
  • 8.3.2 The two methods of presenting cash flows from operating activities
  • 8.3.3 Statement of cash flows illustrated using the direct method
  • 8.3.4 Statement of cash flows illustrated using the indirect method
  • 8.3.5 Appraising the use of the direct method
  • 8.3.6 Appraising the use of the indirect method
  • 8.3.7 Cash equivalents
  • 8.4 Step approach to preparation of a statement of cash flows – indirect method
  • 8.4 Step approach to preparation of a statement of cash flows – indirect method
  • 8.4.1 The statement of cash flows
  • 8.5 Additional notes required by IAS 7
  • 8.5 Additional notes required by IAS 7
  • 8.6 Analysing statements of cash flows
  • 8.6 Analysing statements of cash flows
  • 8.6.1 Cash generated from operations
  • 8.6.2 Future cash flows from operations
  • 8.6.3 Evaluating the investing activities cash flows
  • 8.6.4 Free cash flow (FCF)
  • 8.6.5 Evaluating the financing cash flows
  • 8.6.6 Reconciliation of net cash flows to net debt
  • 8.6.7 Voluntary disclosures
  • 8.6.8 Potential changes due to proposed revision of IAS 1
  • 8.7 Approach to answering questions with time constraints
  • 8.7 Approach to answering questions with time constraints
  • 8.8 Preparing a statement of cash flows when no statement of income is available
  • 8.8 Preparing a statement of cash flows when no statement of income is available
  • 8.8.1 Flow Ltd – an example
  • 8.8.2 Solution to Flow Ltd
  • 8.9 Critique of cash flow accounting
  • 8.9 Critique of cash flow accounting
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 9 Accounting for price-level changes
  • Accounting for price-level changes
  • 9.1 Introduction
  • 9.1 Introduction
  • 9.2 Review of the problems of historical cost accounting (HCA)
  • 9.2 Review of the problems of historical cost accounting (HCA)
  • 9.3 Inflation accounting
  • 9.3 Inflation accounting
  • 9.4 The concepts in principle
  • 9.4 The concepts in principle
  • 9.4.1 Current purchasing power accounting (CPPA)
  • 9.4.2 Current entry or replacement cost accounting (RCA)
  • 9.4.3 Current exit cost or net realisable value accounting (NRVA)
  • 9.5 The four models illustrated for a company with cash purchases and sales
  • 9.5 The four models illustrated for a company with cash purchases and sales
  • 9.5.1 Financial capital maintenance concept
  • 9.5.2 Operating capital maintenance concept
  • 9.5.3 Capacity to adapt concept under the NRVA model
  • 9.5.4 The four models compared
  • 9.6 Critique of each model
  • 9.6 Critique of each model
  • 9.6.1 HCA
  • 9.6.2 CPP
  • 9.6.3 RCA
  • 9.6.4 NRVA
  • 9.7 Measurement bases
  • 9.7 Measurement bases
  • 9.8 The IASB position where there is hyperinflation
  • 9.8.1 What do we mean by hyperinflation?
  • 9.8.2 What rate indicates that hyperinflation exists?
  • 9.8.3 How are financial statements adjusted?
  • 9.9 Future developments
  • 9.9 Future developments
  • 9.9.1 Increasing use of fair values
  • 9.9.2 The move to defining how to measure fair value
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Further reading
  • Further reading
  • Part 4 Regulatory framework – an attempt to achieve uniformity
  • Part 4 Regulatory framework – an attempt to achieve uniformity
  • Chapter 10 Financial reporting – evolution of global standards
  • Financial reporting – evolution of global standards
  • 10.1 Introduction
  • 10.1 Introduction
  • 10.2 Why do we need financial reporting standards?
  • 10.2 Why do we need financial reporting standards?
  • 10.3 Why do we need standards to be mandatory?
  • 10.3 Why do we need standards to be mandatory?
  • 10.3.1 GEC takeover of AEI in 1967
  • 10.3.2 Pergamon Press
  • 10.3.3 Public view of the accounting profession following such cases
  • 10.3.4 Does the need for standards and effective enforcement still exist in the twenty-first century?
  • 10.4 Arguments in support of standards
  • 10.4 Arguments in support of standards
  • 10.4.1 Credibility
  • 10.4.2 Discipline
  • 10.4.3 Comparability
  • 10.5 Arguments against standards
  • 10.5 Arguments against standards
  • 10.5.1 Consensus-seeking
  • 10.5.2 Overload
  • 10.6 The Financial Reporting Council (FRC) as a regulatory body
  • 10.6 The Financial Reporting Council (FRC) as a regulatory body
  • 10.6.1 Creative accounting
  • 10.6.2 Risk-based proactive approach to enforcement
  • 10.6.3 Cooperative approach to enforcement
  • 10.7 The International Accounting Standards Board
  • 10.7 The International Accounting Standards Board
  • 10.7.1 The Framework for the Preparation and Presentation of Financial Statements
  • 10.8 Standard setting and enforcement in the European Union (EU)
  • 10.8 Standard setting and enforcement in the European Union (EU)
  • 10.8.1 The new Accounting Directive
  • 10.8.2 Enforcement of standards in Europe
  • 10.8.3 The importance of enforcement
  • 10.8.4 What might the impact be on financial reporting following Brexit
  • 10.9 Standard setting and enforcement in the US
  • 10.9 Standard setting and enforcement in the US
  • 10.9.1 Standard setting by the FASB and other bodies
  • 10.9.2 Enforcement by the SEC
  • 10.9.3 SOX (the Sarbanes–Oxley Act 2002)
  • 10.9.4 Progress towards adoption by the USA of international standards
  • 10.10 Advantages and disadvantages of global standards for publicly accountable entities
  • 10.10 Advantages and disadvantages of global standards for publicly accountable entities
  • 10.10.1 Advantages
  • 10.10.2 Disadvantages
  • 10.11 How do reporting requirements differ for non-publicly accountable entities?
  • 10.11 How do reporting requirements differ for non-publicly accountable entities?
  • 10.12 IFRS for SMEs
  • 10.12 IFRS for SMEs
  • 10.13 Why have there been differences in financial reporting?
  • 10.13 Why have there been differences in financial reporting?
  • 10.13.1 The character of the national legal system
  • 10.13.2 The way in which industry is financed
  • 10.13.3 The relationship of the tax and reporting systems
  • 10.13.4 The influence and status of the accounting profession
  • 10.13.5 The extent to which accounting theory is developed
  • 10.13.6 Accidents of history
  • 10.13.7 Language
  • 10.14 Move towards a conceptual framework
  • 10.14 Move towards a conceptual framework
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 11 Concepts – evolution of an international conceptual framework
  • Concepts – evolution of an international conceptual framework
  • 11.1 Introduction
  • 11.1 Introduction
  • 11.2 Different countries meant different financial statements
  • 11.2 Different countries meant different financial statements
  • 11.2.1 Reactive process
  • 11.2.2 Need for global standards
  • 11.2.3 Development of financial accounting theory
  • 11.3 Historical overview of the evolution of financial accounting theory
  • 11.3 Historical overview of the evolution of financial accounting theory
  • 11.3.1 An empirical inductive approach
  • 11.3.2 A deductive approach
  • 11.3.3 A conceptual framework approach
  • 11.4 Developing the Framework for the Preparation and Presentation of Financial Statements
  • 11.4 Developing the Framework for the Preparation and Presentation of Financial Statements
  • 11.4.1 The primary user group
  • 11.4.2 Revising the Framework for the Preparation and Presentation of Financial Statements
  • 11.5 Conceptual Framework for Financial Reporting 2018
  • 11.5 Conceptual Framework for Financial Reporting 2018
  • 11.5.1 Chapter 1 – The objective of general-purpose financial reporting
  • 11.5.2 Chapter 2 – Qualitative characteristics of useful financial information
  • 11.5.3 Chapter 3 – Financial statements and the reporting entityFinancial statements
  • 11.5.4 Chapter 4 – The elements of financial statements
  • 11.5.5 Chapter 5 – Recognition and de-recognition
  • 11.5.6 Chapter 6 – Measurement
  • 11.5.7 Chapter 7 – Presentation and disclosure
  • 11.5.8 Chapter 8 – Concepts of capital and capital maintenance
  • 11.5.9 Overall analysis of the new Framework
  • 11.6 Current developments – concept of materiality
  • 11.6.1 The issue
  • 11.6.2 The latest IASB proposals
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Part 5 Accounting for the elements of the financial statements
  • Part 5 Accounting for the elements of the financial statements
  • Chapter 12 Share capital, distributable profits and reduction of capital
  • Share capital, distributable profits and reduction of capital
  • 12.1 Introduction
  • 12.1 Introduction
  • 12.2 Common themes
  • 12.2 Common themes
  • 12.3 Total owners’ equity: an overview
  • 12.3 Total owners’ equity: an overview
  • 12.3.1 Right to issue shares
  • 12.3.2 Types of share
  • 12.3.3 Non-distributable reserves
  • 12.3.4 Distributable reserves
  • 12.4 Total shareholders’ funds: more detailed explanation
  • 12.4.1 Ordinary shares – risks and rewards
  • 12.4.2 Ordinary shares – powers
  • 12.4.3 Methods and reasons for issuing shares
  • 12.4.4 Types of preference shares
  • 12.5 Accounting entries on issue of shares
  • 12.5.1 Shares issued at nominal (par) value
  • 12.5.2 Shares issued at a premium
  • 12.6 Creditor protection: capital maintenance concept
  • 12.6 Creditor protection: capital maintenance concept
  • 12.7 Creditor protection: why capital maintenance rules are necessary
  • 12.7 Creditor protection: why capital maintenance rules are necessary
  • 12.7.1 Unincorporated businesses
  • 12.7.2 Incorporated limited liability companies
  • 12.8 Creditor protection: how to quantify the amounts available to meet creditors’ claims
  • 12.8 Creditor protection: how to quantify the amounts available to meet creditors’ claims
  • 12.9 Issued share capital: minimum share capital
  • 12.9 Issued share capital: minimum share capital
  • 12.10 Distributable profits: general considerations
  • 12.10 Distributable profits: general considerations
  • 12.10.1 Distributable profits: general rule for private companies
  • 12.10.2 Realised profits need defining
  • 12.10.3 Distributable profits: general rule for public companies
  • 12.10.4 Investment companies
  • 12.11 Distributable profits: how to arrive at the amount using relevant accounts
  • 12.11 Distributable profits: how to arrive at the amount using relevant accounts
  • 12.11.1 Effect of fair value accounting on decision to distribute
  • 12.12 When may capital be reduced?
  • 12.12 When may capital be reduced?
  • 12.13 Writing off part of capital which has already been lost and is not represented by assets
  • 12.13 Writing off part of capital which has already been lost and is not represented by assets
  • 12.13.1 Accounting treatment for a capital reduction to eliminate accumulated trading losses
  • 12.14 Repayment of part of paid-in capital to shareholders or cancellation of unpaid share capital
  • 12.14 Repayment of part of paid-in capital to shareholders or cancellation of unpaid share capital
  • 12.15 Purchase of own shares
  • 12.15 Purchase of own shares
  • 12.15.1 Redemption of preference shares
  • 12.15.2 Buyback of own shares – intention to cancel
  • 12.15.3 Buyback of own shares – treasury shares
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 13 Property, plant and equipment (PPE)
  • Property, plant and equipment (PPE)
  • 13.1 Introduction
  • 13.1 Introduction
  • 13.2 PPE – concepts and the relevant IASs and IFRSs
  • 13.2 PPE – concepts and the relevant IASs and IFRSs
  • 13.2.1 IAS 16 and IAS 23
  • 13.2.2 Other relevant international accounting standards and pronouncements
  • 13.3 What is PPE?
  • 13.3 What is PPE?
  • 13.3.1 Problems that may arise
  • 13.4 How is the cost of PPE determined?
  • 13.4.1 Components of cost
  • 13.4.2 Self-constructed assets
  • 13.4.3 Capitalisation of borrowing costs
  • 13.4.4 Subsequent expenditure
  • 13.5 What is depreciation?
  • 13.5 What is depreciation?
  • 13.5.1 Allocation of depreciable amount
  • 13.5.2 Useful life
  • 13.5.3 Freehold land
  • 13.6 What are the constituents in the depreciation formula?
  • 13.6 What are the constituents in the depreciation formula?
  • 13.6.1 How is the useful life of an asset determined?
  • 13.6.2 Other factors affecting the useful life figure
  • 13.6.3 Residual value
  • 13.7 Calculation of depreciation
  • 13.7 Calculation of depreciation
  • 13.7.1 Arguments in favour of the straight-line method
  • 13.7.2 Arguments in favour of the diminishing balance method
  • 13.7.3 Other methods of depreciating
  • 13.7.4 Which method should be used?
  • 13.8 Measurement subsequent to initial recognition
  • 13.8.1 Choice of models
  • 13.8.2 The revaluation model
  • 13.8.3 Detailed requirements regarding revaluations
  • 13.8.4 Accounting for revaluations
  • 13.8.5 IFRS for SMEs
  • 13.9 IAS 36 Impairment of Assets
  • 13.9.1 IAS 36 approach
  • 13.9.2 Dividing activities into CGUs
  • 13.9.3 Indications of impairment
  • 13.9.4 Value in use calculation
  • 13.9.5 Treatment of impairment losses
  • 13.9.6 Illustration of data required for an impairment review
  • 13.9.7 Illustrating calculation of value in use
  • 13.9.8 Illustration determining the revised carrying amount
  • 13.10 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
  • 13.10 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
  • 13.10.1 Classification as ‘held for sale’
  • 13.10.2 Measurement and presentation of assets held for sale
  • 13.10.3 IFRS for SMEs
  • 13.11 Disclosure requirements
  • 13.11 Disclosure requirements
  • 13.12 Government grants towards the cost of PPE
  • 13.12 Government grants towards the cost of PPE
  • 13.12.1 IAS 20
  • 13.12.2 Arguments in favour of each approach
  • 13.12.3 IASB possible future action
  • 13.13 Investment properties
  • 13.13 Investment properties
  • 13.13.1 Definition of an investment property
  • 13.13.2 Accounting models
  • 13.14 Effect of accounting policy for PPE on the interpretation of the financial statements
  • 13.14 Effect of accounting policy for PPE on the interpretation of the financial statements
  • 13.14.1 Effect of inflation on the carrying value of the asset
  • 13.14.2 Effect of revaluation on ratios
  • 13.14.3 Choice of depreciation method
  • 13.14.4 Inherent imprecision in estimating economic life
  • 13.14.5 Mixed values in the statement of financial position
  • 13.14.6 IFRS for SMEs
  • 13.14.7 Different policies may be applied within the same sector
  • 13.14.8 Effect on the return on capital employed
  • 13.14.9 Effect on EPS
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 14 Intangible assets
  • Intangible assets
  • 14.1 Introduction
  • 14.1 Introduction
  • 14.2 Intangible assets defined
  • 14.2 Intangible assets defined
  • 14.2.1 Examples of intangible assets to be recognised and reported
  • 14.2.2 Recognition criteria illustrated
  • 14.2.3 Accounting treatment of recognised intangible assets at year-ends
  • 14.2.4 Disclosure of intangible assets under IAS 38
  • 14.3 Accounting treatment for research and development
  • 14.3 Accounting treatment for research and development
  • 14.3.1 Research activities
  • 14.3.2 Development activities
  • 14.4 Why is research expenditure not capitalised?
  • 14.4 Why is research expenditure not capitalised?
  • 14.5 Capitalising development costs
  • 14.5.1 Conditions to be satisfied
  • 14.5.2 What costs can be included?
  • 14.6 Disclosure of R&D
  • 14.6 Disclosure of R&D
  • 14.7 IFRS for SMEs’ treatment of intangible assets
  • 14.7.1 Internally generated intangible assets
  • 14.7.2 Separately purchased intangible assets
  • 14.8 Internally generated and purchased goodwill
  • 14.8 Internally generated and purchased goodwill
  • 14.8.1 Internally generated goodwill
  • 14.8.2 Purchased goodwill – how goodwill is calculated
  • 14.9 The accounting treatment of goodwill
  • 14.9 The accounting treatment of goodwill
  • 14.9.1 The current IFRS 3 treatment
  • 14.9.2 Identifying intangible assets to reduce the amount of goodwill
  • 14.9.3 Information helpful to investors – IASB proposals
  • 14.10 Critical comment on the various methods that have been used to account for goodwill
  • 14.10 Critical comment on the various methods that have been used to account for goodwill
  • 14.10.1 Reporting goodwill unchanged at cost
  • 14.10.2 Writing off the cost of the goodwill directly to reserves in the year of acquisition
  • 14.10.3 Amortising the goodwill over its expected useful life
  • 14.10.4 An annual impairment check
  • 14.10.5 Takeover specific goodwill
  • 14.10.6 Why has the IFRS 3 treatment of goodwill differed from the treatment of intangible assets in IAS 38?
  • 14.11 Negative goodwill/badwill
  • 14.11 Negative goodwill/badwill
  • 14.12 Brands
  • 14.12 Brands
  • 14.12.1 The importance of brands to particular sectors
  • 14.12.2 Justifications for reporting all brands as assets
  • 14.13 Accounting for acquired brands
  • 14.13 Accounting for acquired brands
  • 14.13.1 Accounting for internally generated brands
  • 14.13.2 How effective have IFRS 3 and IAS 38 been?
  • 14.14 Intellectual capital disclosures (ICDs) in the annual report
  • 14.14 Intellectual capital disclosures (ICDs) in the annual report
  • 14.14.1 The downside of not recognising ICDs in the statement of financial position
  • 14.14.2 Can internally generated intangibles continue to be unseen?
  • 14.15 Review of implementation of IFRS 3
  • 14.15 Review of implementation of IFRS 3
  • 14.15.1 Report and Feedback Statement
  • 14.16 Review of the implementation of identified intangibles under IAS 38
  • Review of the implementation of identified intangibles under IAS 38
  • 14.16.1 Treatment of unrealised profits/gains
  • 14.16.2 How might human resources be valued each year?
  • 14.16.3 Future developments
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 15 Inventories
  • Inventories
  • 15.1 Introduction
  • 15.1 Introduction
  • 15.2 Inventory defined
  • 15.2 Inventory defined
  • 15.3 The impact of inventory valuation on profits
  • 15.3 The impact of inventory valuation on profits
  • 15.3.1 A small change in inventory valuation may have a material impact on profit
  • 15.3.2 Income smoothing
  • 15.3.3 Management attitude when estimating need to reduce inventory to net realisable value
  • 15.4 IAS 2 Inventories
  • 15.4 IAS 2 Inventories
  • 15.5 Inventory valuation
  • 15.5 Inventory valuation
  • 15.5.1 Methods acceptable under IAS 2
  • 15.5.2 Methods rejected by IAS 2
  • 15.5.3 Procedure to ascertain cost
  • 15.5.4 What is meant by net realisable value?
  • 15.6 Work in progress
  • 15.6 Work in progress
  • 15.6.1 Direct materials
  • 15.6.2 Direct labour
  • 15.6.3 Appropriate overhead
  • 15.7 Inventory control
  • 15.7 Inventory control
  • 15.8 Creative accounting
  • 15.8 Creative accounting
  • 15.8.1 Year-end manipulations
  • 15.8.2 Net realisable value (NRV)
  • 15.8.3 Overheads
  • 15.8.4 Other methods of creative accounting
  • 15.9 Audit of the year-end physical inventory count
  • 15.9 Audit of the year-end physical inventory count
  • 15.9.1 Identification of inventory items
  • 15.9.2 Physical condition of inventory items
  • 15.9.3 Adjustment if inventory is taken after the year-end date
  • 15.9.4 Adjustment if errors are discovered
  • 15.10 Published accounts
  • 15.10 Published accounts
  • 15.11 Agricultural activity
  • 15.11.1 The overall problem
  • 15.11.2 The recognition and measurement of biological assets and agricultural produce
  • 15.11.3 An illustrative example
  • 15.11.4 Agricultural produce
  • 15.11.5 Land
  • 15.11.6 Minerals
  • 15.11.7 Government grants relating to biological assets
  • 15.11.8 Fair value or historic cost option?
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 16 Liabilities
  • Liabilities
  • 16.1 Introduction
  • 16.1 Introduction
  • 16.2 Provisions – a decision tree approach to their impact on the statement of financial position
  • 16.2 Provisions – a decision tree approach to their impact on the statement of financial position
  • 16.3 Treatment of provisions
  • 16.3 Treatment of provisions
  • 16.4 The general principles that IAS 37 applies to the recognition of a provision
  • 16.4 The general principles that IAS 37 applies to the recognition of a provision
  • 16.4.1 Present obligation
  • 16.4.2 Past event
  • 16.4.3 Probable transfer of economic benefits
  • 16.5 Management approach to measuring the amount of a provision
  • 16.5 Management approach to measuring the amount of a provision
  • 16.5.1 Avoiding excessive provisions
  • 16.5.2 Approach when time value of money is material
  • 16.6 Application of criteria illustrated
  • 16.6.1 Scenario 1
  • 16.6.2 Scenario 2
  • 16.7 Provisions for specific purposes
  • 16.7 Provisions for specific purposes
  • 16.7.1 A provision for future operating losses
  • 16.7.2 Onerous contracts
  • 16.7.3 Restructuring provisions
  • 16.7.4 Environmental liabilities and decommissioning costs
  • 16.7.5 Disclosures required by IAS 37 for provisions
  • 16.8 Contingent liabilities
  • 16.8 Contingent liabilities
  • 16.9 Contingent assets
  • 16.9 Contingent assets
  • 16.10 Criticisms of IAS 37
  • 16.10 Criticisms of IAS 37
  • 16.11 Future progress
  • 16.11 Future progress
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 17 Leasing
  • Leasing
  • 17.1 Introduction
  • 17.1 Introduction
  • 17.2 Need for an accounting standard on leasing
  • 17.2 Need for an accounting standard on leasing
  • 17.2.1 Impact on gearing ratio
  • 17.2.2 Statements of financial performance and position assuming asset was leased
  • 17.2.3 Compare financial statements under both lease and purchase options
  • 17.2.4 Impact on return on capital employed
  • 17.2.5 2017 examples of lease accounting under the previous rules
  • 17.2.6 Example of a company in distress
  • 17.3 Terms and conditions of a lease
  • 17.3 Terms and conditions of a lease
  • 17.3.1 Determining whether a contract is a lease under IFRS 16
  • 17.3.2 Separating out the lease component
  • 17.4 Leases in the financial statements of lessees under IFRS 16
  • 17.4 Leases in the financial statements of lessees under IFRS 16
  • 17.4.1 A numerical example (based on one of the IFRS 16 illustrative examples)
  • 17.4.2 Lease modifications
  • 17.4.3 A simplified approach for short-term or low-value leases
  • 17.4.4 Presentation and disclosures in the lessee financial reports
  • 17.5 Leases in the financial statements of lessors
  • 17.5.1 Introduction
  • 17.5.2 Finance leases in the books of the lessor
  • 17.6 Sale and leaseback transactions
  • 17.6.1 Introduction to sale and leaseback
  • 17.6.2 Transaction constituting a sale
  • 17.6.3 A numerical example (based on one of the IFRS 16 illustrative examples)
  • 17.6.4 Transaction not constituting a ‘sale’
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 18 Revenue recognition
  • Revenue recognition
  • 18.1 Introduction
  • 18.1 Introduction
  • 18.1.1 Adverse effect on capital markets
  • 18.1.2 Adverse effect on staff prospects
  • 18.1.3 Harmonisation of accounting standards
  • 18.2 The issues involved in developing the new standard
  • 18.2 The issues involved in developing the new standard
  • 18.3 IFRS 15 Revenue from Contracts with Customers
  • 18.3.1 Effective date
  • 18.3.2 Definition of revenue
  • 18.3.3 Transactions falling outside the IFRS 15 definition
  • 18.4 Five-step process to identify the amount and timing of revenue
  • 18.4 Five-step process to identify the amount and timing of revenue
  • 18.4.1 Identify the contract with a customer (Step a)
  • 18.4.2 Separate performance obligations within the same contract (Step b)
  • 18.4.3 Pricing the transaction (Step c)
  • 18.4.4 Allocate the transaction price to the separate performance obligations in the contract (Step d)
  • 18.4.5 Recognise revenue when (or as) the entity satisfies a performance obligation (Step e)
  • 18.4.6 Modification of the terms of contracts
  • 18.5 Disclosures
  • 18.5 Disclosures
  • 18.5.1 Disaggregate revenue
  • 18.5.2 Disaggregate assets
  • 18.5.3 Disclose terms and conditions
  • 18.5.4 Disclose judgements
  • 18.6 Performance obligations satisfied over time: construction contracts
  • 18.6 Performance obligations satisfied over time: construction contracts
  • 18.6.1 Construction contracts
  • 18.6.2 IFRS 15 treatment of construction contracts
  • 18.6.3 Recognise revenue when control passes
  • 18.6.4 Disclosure
  • 18.6.5 Accounting for a contract – an example
  • 18.6.6 Illustration – loss-making contract using the step approach
  • 18.7 Public–private partnerships
  • 18.7 Public–private partnerships
  • 18.7.1 How does PFI operate?
  • 18.8 Requirements of IFRIC 12 Service Concession Arrangements
  • 18.8 Requirements of IFRIC 12 Service Concession Arrangements
  • 18.8.1 The nature of the asset
  • 18.8.2 Recognition of income
  • 18.8.3 Worked example of service concession accounting
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 19 Taxation in company accounts
  • Taxation in company accounts
  • 19.1 Introduction
  • 19.1 Introduction
  • 19.2 Corporation tax
  • 19.2 Corporation tax
  • 19.3 Corporation tax systems – the theoretical background
  • 19.3 Corporation tax systems – the theoretical background
  • 19.3.1 The classical system
  • 19.3.2 The imputation system
  • 19.3.3 The partial imputation system
  • 19.3.4 Common basis
  • 19.4 Dividends pre- and post-2016
  • 19.4 Dividends pre- and post-2016
  • 19.5 Corporation tax systems – avoidance and evasion
  • 19.5 Corporation tax systems – avoidance and evasion
  • 19.5.1 The tax gap
  • 19.5.2 Government measures taken to combat tax avoidance and evasion
  • 19.5.3 The aim is to have a progressive tax system
  • 19.5.4 Tax evasion
  • 19.5.5 Tax avoidance
  • 19.5.6 The problem of distinguishing between avoidance and evasion
  • 19.5.7 Countering tax avoidance
  • 19.5.8 International approaches
  • 19.5.9 UK measures to deter tax avoidance/evasion
  • 19.5.10 Responsible tax strategy
  • 19.6 IAS 12 – accounting for current taxation
  • 19.6 IAS 12 – accounting for current taxation
  • 19.6.1 Statement of comprehensive income disclosure
  • 19.6.2 Statement of financial position disclosure
  • 19.6.3 The treatment of tax losses
  • 19.6.4 The relationship between tax expense and accounting profit
  • 19.7 Deferred tax
  • 19.7.1 IAS 12 – background to deferred taxation
  • 19.7.2 IAS 12 – deferred taxation
  • 19.8 A critique of deferred taxation
  • 19.8 A critique of deferred taxation
  • 19.8.1 Accrual accounting assumption
  • 19.9 Value added tax (VAT)
  • 19.9 Value added tax (VAT)
  • 19.9.1 The effects of the standard
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 20 Employee benefits
  • Employee benefits
  • 20.1 Introduction
  • 20.1 Introduction
  • 20.2 Greater employee interest in pensions
  • 20.2 Greater employee interest in pensions
  • 20.3 Financial reporting implications
  • 20.3 Financial reporting implications
  • 20.4 Types of scheme
  • 20.4.1 Ex gratia arrangements
  • 20.4.2 Defined contribution schemes
  • 20.4.3 Defined benefit schemes
  • 20.4.4 Equity compensation plans
  • 20.5 Accounting for defined contribution pension schemes
  • 20.5 Accounting for defined contribution pension schemes
  • 20.5.1 Illustration of Andrew plc defined contribution pension scheme costs
  • 20.6 Accounting for defined benefit pension schemes
  • 20.6 Accounting for defined benefit pension schemes
  • 20.7 IAS 19 Employee Benefits
  • 20.7 IAS 19 Employee Benefits
  • 20.8 The asset or liability for pension and other post-retirement costs
  • 20.8 The asset or liability for pension and other post-retirement costs
  • 20.8.1 Obligations of the fund
  • 20.8.2 Fair value of plan assets
  • 20.9 Changes in the pension asset or liability position
  • 20.9 Changes in the pension asset or liability position
  • 20.9.1 Current service cost
  • 20.9.2 Interest cost
  • 20.9.3 Past service costs and the effect of curtailments and settlements
  • 20.9.4 Actuarial gains and losses
  • 20.9.5 Differences in actual and expected return on plan assets
  • 20.10 Comprehensive illustration
  • 20.10 Comprehensive illustration
  • 20.10.1 Illustration
  • 20.10.2 Impact of curtailment or settlement
  • 20.11 Multi-employer plans
  • 20.11 Multi-employer plans
  • 20.12 Disclosures
  • 20.12 Disclosures
  • 20.13 Other long-service benefits
  • 20.13 Other long-service benefits
  • 20.14 Short-term benefits
  • 20.14 Short-term benefits
  • 20.14.1 Compensated absences
  • 20.14.2 Profit-sharing and bonus plans
  • 20.15 Termination benefits
  • 20.15 Termination benefits
  • 20.15.1 Recognition
  • 20.15.2 Measurement
  • 20.16 IFRS 2 Share-based Payment
  • 20.16 IFRS 2 Share-based Payment
  • 20.16.1 Should an expense be recognised?
  • 20.17 Scope of IFRS 2
  • 20.17 Scope of IFRS 2
  • 20.18 Recognition and measurement
  • 20.18 Recognition and measurement
  • 20.19 Equity-settled share-based payments
  • 20.19 Equity-settled share-based payments
  • 20.19.1 Employee options
  • 20.20 Cash-settled share-based payments
  • 20.20 Cash-settled share-based payments
  • 20.21 Transactions which may be settled in cash or shares
  • 20.21 Transactions which may be settled in cash or shares
  • 20.21.1 Supplier/employee choice
  • 20.21.2 Entity choice
  • 20.22 IAS 26 Accounting and Reporting by Retirement Benefit Plans
  • IAS 26 Accounting and Reporting by Retirement Benefit Plans
  • 20.22.1 Defined contribution plans
  • 20.22.2 Defined benefit plans
  • 20.22.3 All plans – disclosure requirements
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 21 Financial instruments
  • Financial instruments
  • 21.1 Introduction
  • 21.1 Introduction
  • 21.2 Financial instruments – the IASB’s problem child
  • 21.2 Financial instruments – the IASB’s problem child
  • 21.2.1 Rules versus principles
  • 21.2.2 The 2008 financial crisis
  • 21.3 IAS 32 Financial Instruments: Disclosure and Presentation
  • 21.3 IAS 32 Financial Instruments: Disclosure and Presentation
  • 21.3.1 Scope of the standards
  • 21.3.2 Definition of terms
  • 21.3.3 Presentation of instruments in the financial statements
  • 21.3.4 Calculation of finance costs on liability instruments
  • 21.3.5 Offsetting financial instruments
  • 21.4 IFRS 9 Financial Instruments
  • 21.4 IFRS 9 Financial Instruments
  • 21.4.1 Scope of the standard
  • 21.4.2 Recognition of financial instruments
  • 21.4.3 Classification and measurement of financial instruments
  • 21.4.4 Embedded derivatives
  • 21.4.5 Impairment of financial assets
  • 21.4.6 Hedging
  • 21.5 IFRS 7 Financial Instruments: Disclosure
  • 21.5.1 Introduction
  • 21.5.2 Main requirements
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Part 6 Consolidated accounts
  • Part 6 Consolidated accounts
  • Chapter 22 Accounting for groups at the date of acquisition
  • Accounting for groups at the date of acquisition
  • 22.1 Introduction
  • 22.1 Introduction
  • 22.2 Preparing consolidated accounts for a wholly owned subsidiary
  • 22.2 Preparing consolidated accounts for a wholly owned subsidiary
  • 22.3 IFRS 10 Consolidated Financial Statements
  • 22.3 IFRS 10 Consolidated Financial Statements
  • 22.3.1 IFRS 10 definition of a group
  • 22.3.2 IFRS 10 definition of control
  • 22.3.3 Requirement to use fair values
  • 22.4 Fair values
  • 22.4 Fair values
  • 22.4.1 Fair value of the consideration
  • 22.4.2 Fair value of the net assets
  • 22.5 Illustration where there is a wholly owned subsidiary
  • 22.5 Illustration where there is a wholly owned subsidiary
  • 22.6 Preparing consolidated accounts when there is a partly owned subsidiary
  • 22.6 Preparing consolidated accounts when there is a partly owned subsidiary
  • 22.6.1 How is a non-controlling interest measured?
  • 22.6.2 Illustration where there is a partly owned subsidiary using Method 1
  • 22.6.3 Illustration where there is a partly owned subsidiary using Method 2
  • 22.7 The treatment of differences between a subsidiary’s fair value and book value
  • 22.7 The treatment of differences between a subsidiary’s fair value and book value
  • 22.8 The parent issues shares to acquire shares in a subsidiary
  • 22.8 The parent issues shares to acquire shares in a subsidiary
  • 22.9 IFRS 3 Business Combinations treatment of goodwill at the date of acquisition
  • 22.9 IFRS 3 Business Combinations treatment of goodwill at the date of acquisition
  • 22.9.1 The treatment of positive goodwill
  • 22.9.2 The treatment of a bargain purchase
  • 22.10 When may a parent company not be required to prepare consolidated accounts?
  • 22.10 When may a parent company not be required to prepare consolidated accounts?
  • 22.11 When may a parent company exclude or not exclude a subsidiary from a consolidation?
  • 22.11.1 Exclusion permitted
  • 22.11.2 Exclusion not permitted
  • 22.12 IFRS 13 Fair Value Measurement
  • 22.12 IFRS 13 Fair Value Measurement
  • 22.12.1 Treatment of future liabilities
  • 22.12.2 Treatment of future losses
  • 22.12.3 Treatment of contingent liabilities
  • 22.12.4 Treatment of intangible assets
  • 22.12.5 Why revalue net assets?
  • 22.12.6 Post-implementation review
  • 22.13 What advantages are there for stakeholders from requiring groups to prepare consolidated accounts?
  • 22.13 What advantages are there for stakeholders from requiring groups to prepare consolidated accounts?
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 23 Preparation of consolidated statements of financial position after the date of acquisition
  • Preparation of consolidated statements of financial position after the date of acquisition
  • 23.1 Introduction
  • 23.1 Introduction
  • 23.2 Uniform accounting policies and reporting dates
  • 23.2 Uniform accounting policies and reporting dates
  • 23.3 Pre- and post-acquisition profits/losses
  • 23.3.1 Pre-acquisition profits
  • 23.3.2 Post-acquisition profits
  • 23.4 The Bend Group – assuming there have been no inter-group transactions
  • 23.4 The Bend Group – assuming there have been no inter-group transactions
  • 23.5 Inter-company transactions
  • 23.5 Inter-company transactions
  • 23.5.1 Adjustment when inter-company sales include a profit loading
  • 23.5.2 Eliminating inter-company current account balances
  • 23.5.3 Inter-company dividends payable/receivable
  • 23.6 The Prose Group – assuming there have been inter-group transactions
  • 23.6 The Prose Group – assuming there have been inter-group transactions
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 24 Preparation of consolidated statements of profit or loss, changes in equity and cash flows
  • Preparation of consolidated statements of profit or loss, changes in equity and cash flows
  • 24.1 Introduction
  • 24.1 Introduction
  • 24.2 Eliminate inter-company transactions
  • 24.2 Eliminate inter-company transactions
  • 24.2.1 Inter-company sales
  • 24.2.2 Unrealised profit
  • 24.2.3 Dividends and interest
  • 24.2.4 Group profits before tax
  • 24.3 Preparation of a consolidated statement of profit or loss – the Ante Group
  • 24.3 Preparation of a consolidated statement of profit or loss – the Ante Group
  • 24.4 The statement of changes in equity (SOCE)
  • 24.4 The statement of changes in equity (SOCE)
  • 24.4.1 Dividends paid
  • 24.5 Other consolidation adjustments
  • 24.5 Other consolidation adjustments
  • 24.5.1 Depreciation adjustment when fair value is higher than book value
  • 24.5.2 Depreciation adjustment when transfer has been at cost plus a profit loading
  • 24.5.3 Dividends or interest paid by the subsidiary out of pre-acquisition profits
  • 24.5.4 Goodwill
  • 24.6 A subsidiary acquired part-way through the year
  • 24.6 A subsidiary acquired part-way through the year
  • 24.6.1 Illustration of a subsidiary acquired part-way through the year – Tight plc
  • 24.7 Published format statement of profit or loss
  • 24.7 Published format statement of profit or loss
  • 24.8 Consolidated statements of cash flows
  • 24.8 Consolidated statements of cash flows
  • 24.8.1 Adjustments to changes between opening and closing statements of financial position
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 25 Accounting for associates and joint arrangements
  • Accounting for associates and joint arrangements
  • 25.1 Introduction
  • 25.1 Introduction
  • 25.2 Definitions of associates and of significant influence
  • 25.2 Definitions of associates and of significant influence
  • 25.3 The treatment of associated companies in the financial statements of the investor
  • 25.3 The treatment of associated companies in the financial statements of the investor
  • 25.4 The Brill Group – group accounts with a profit-making associate
  • 25.4 The Brill Group – group accounts with a profit-making associate
  • 25.4.1 Consolidated statement of financial position
  • 25.4.2 Consolidated statement of profit or loss
  • 25.4.3 The treatment of unrealised profits and fair value adjustments
  • 25.5 The Brill Group – group accounts with a loss-making associate
  • 25.5 The Brill Group – group accounts with a loss-making associate
  • 25.5.1 Losses
  • 25.5.2 Impairment
  • 25.6 The acquisition of an associate part-way through the year
  • 25.6 The acquisition of an associate part-way through the year
  • 25.6.1 The Puff Group
  • 25.7 Joint arrangements
  • 25.7 Joint arrangements
  • 25.7.1 Consolidated financial statements
  • 25.7.2 The accounting treatment required where the investment is a subsidiary, associate, joint venture and joint operation
  • 25.8 Disclosure in the financial statements
  • 25.8 Disclosure in the financial statements
  • 25.8.1 Interests in subsidiaries disclosures
  • 25.8.2 Interests in joint arrangements and associates disclosures
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 26 Introduction to accounting for exchange differences
  • Introduction to accounting for exchange differences
  • 26.1 Introduction
  • 26.1 Introduction
  • 26.2 How to record foreign currency transactions in a company’s own books
  • 26.2 How to record foreign currency transactions in a company’s own books
  • 26.2.1 Defining foreign transactions
  • 26.2.2 The amount recorded on entering into a transaction
  • 26.2.3 The accounting treatment of exchange differences when the transaction is settled within the current accounting period
  • 26.2.4 The accounting treatment of exchange differences at the year-end when settlement is to occur in the next accounting period
  • 26.2.5 The accounting treatment of exchange differences when settlement occurs in a yet later accounting period
  • 26.2.6 Hedging a foreign currency transaction to crystallise the amount of any exchange difference
  • 26.3 Boil plc – a more detailed illustration
  • 26.3 Boil plc – a more detailed illustration
  • 26.3.1 Translating monetary accounts
  • 26.3.2 Accounting treatment of other balances
  • 26.4 IAS 21 Concept of Functional and Presentation Currencies
  • 26.4 IAS 21 Concept of Functional and Presentation Currencies
  • 26.4.1 The functional currency
  • 26.4.2 The presentation currency
  • 26.5 Translating the functional currency into the presentation currency
  • 26.5 Translating the functional currency into the presentation currency
  • 26.6 Preparation of consolidated accounts
  • 26.6 Preparation of consolidated accounts
  • 26.6.1 Pau Group draft consolidated accounts
  • 26.7 How to reduce the risk of translation differences
  • 26.7 How to reduce the risk of translation differences
  • 26.8 Critique of the use of presentational currency
  • 26.8 Critique of the use of presentational currency
  • 26.9 IAS 29 Financial Reporting in Hyperinflationary Economies
  • 26.9 IAS 29 Financial Reporting in Hyperinflationary Economies
  • 26.9.1 Determining when an economy is hyperinflationary
  • 26.9.2 How to restate financial statements
  • 26.9.3 Restatement treatment of statements of profit or loss and financial position
  • 26.9.4 Disclosures
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Part 7 Interpretation
  • Part 7 Interpretation
  • Chapter 27 Earnings per share
  • Earnings per share
  • 27.1 Introduction
  • 27.1 Introduction
  • 27.2 Why is the earnings per share figure important?
  • 27.2 Why is the earnings per share figure important?
  • 27.2.1 What factors affect the PE ratio?
  • 27.3 How is the EPS figure calculated?
  • 27.3 How is the EPS figure calculated?
  • 27.3.1 Basic EPS
  • 27.3.2 Diluted EPS
  • 27.4 The use to shareholders of the EPS
  • 27.4 The use to shareholders of the EPS
  • 27.4.1 How does a shareholder estimate future growth in the EPS?
  • 27.4.2 Limitations of EPS as a performance measure
  • 27.5 Illustration of the basic EPS calculation
  • 27.5 Illustration of the basic EPS calculation
  • 27.6 Adjusting the number of shares used in the basic EPS calculation
  • 27.6 Adjusting the number of shares used in the basic EPS calculation
  • 27.6.1 Bonus issues
  • 27.6.2 Share splits
  • 27.6.3 New issue at full market value
  • 27.6.4 Buybacks at market value
  • 27.7 Rights issues
  • 27.7 Rights issues
  • 27.7.1 Would the BEPS for the current and previous years be the same if the company had made a separate full market price issue and a separate bonus issue?
  • 27.8 Adjusting the earnings and number of shares used in the diluted EPS calculation
  • 27.8 Adjusting the earnings and number of shares used in the diluted EPS calculation
  • 27.8.1 What is dilution?
  • 27.8.2 Circumstances in which the number of shares used for BEPS is increased
  • 27.8.3 Circumstances in which the earnings used for BEPS are increased
  • 27.8.4 Procedure where there are share warrants and options
  • 27.8.5 Procedure where there are convertible bonds or convertible preference shares
  • 27.8.6 Convertible preference shares calculation
  • 27.8.7 Convertible bonds calculation
  • 27.9 Procedure where there are several potential dilutions
  • 27.9 Procedure where there are several potential dilutions
  • 27.10 Exercise of conversion rights during the financial year
  • 27.10 Exercise of conversion rights during the financial year
  • 27.10.1 Calculation of BEPS assuming that convertible loan has been converted and options exercised during the financial year
  • 27.11 Disclosure requirements of IAS 33
  • 27.11 Disclosure requirements of IAS 33
  • 27.11.1 Alternative EPS figures
  • 27.11.2 IAS 33 disclosure requirements
  • 27.12 Enhanced disclosures
  • 27.12 Enhanced disclosures
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 28 Review of financial ratio analysis
  • Review of financial ratio analysis
  • 28.1 Introduction
  • 28.1 Introduction
  • 28.2 Overview of techniques for the analysis of financial data
  • 28.2.1 The ‘golden rule of analysis’
  • 28.2.2 The benefits of ratio analysis
  • 28.2.3 Ratio analysis – some notes of caution
  • 28.3 Ratio analysis – a case study
  • 28.3 Ratio analysis – a case study
  • 28.3.1 Financial statements for the case study
  • 28.4 Introductory review
  • 28.4 Introductory review
  • 28.4.1 The company’s financial structure
  • 28.4.2 The company’s cost structure
  • 28.5 Financial statement analysis, part 1 – financial performance
  • 28.5 Financial statement analysis, part 1 – financial performance
  • 28.5.1 The Du Pont pyramid approach
  • 28.5.2 Margin and expense analysis
  • 28.5.3 Volume analysis – asset turnover
  • 28.6 Financial statement analysis, part 2 – liquidity
  • 28.6 Financial statement analysis, part 2 – liquidity
  • 28.6.1 The current ratio
  • 28.6.2 The quick ratio
  • 28.6.3 Cash flow ratios
  • 28.6.4 The cash ratio
  • 28.7 Financial statement analysis, part 3 – financing
  • 28.7 Financial statement analysis, part 3 – financing
  • 28.7.1 The gearing ratio
  • 28.7.2 How should a potential investor decide on an acceptable level of gearing?
  • 28.8 Peer comparison
  • 28.8 Peer comparison
  • 28.9 Report based on the analysis
  • 28.9 Report based on the analysis
  • 28.10 Caution when using ratios for prediction
  • 28.10 Caution when using ratios for prediction
  • 28.10.1 External factors
  • 28.10.2 Internal factors
  • 28.10.3 Degree of scepticism
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Chapter 29 Analysis of published financial statements
  • Analysis of published financial statements
  • 29.1 Introduction
  • 29.1 Introduction
  • 29.2 Alternative performance measures
  • 29.2 Alternative performance measures
  • 29.2.1 Permitted alternative earnings per share (EPS) figures
  • 29.2.2 Other alternative earnings figures
  • 29.3 EBITDA
  • 29.3.1 Caution when using EBITDA
  • 29.3.2 Ratios using EBITDA
  • 29.4 EBITDAR
  • 29.4.1 Rental expense
  • 29.5 EBITDARM
  • 29.5 EBITDARM
  • 29.6 Regulators’ reaction to use of an alternative management performance measure (APM)
  • 29.6 Regulators’ reaction to use of an alternative management performance measure (APM)
  • 29.6.1 The IASB view on EBIT and EBITDA
  • 29.7 Use of ratios as thresholds
  • 29.7.1 Use of ratios in restrictive loan covenants
  • 29.7.2 Affirmative and negative covenants
  • 29.7.3 What happens if a company is in breach of its debt covenants?
  • 29.7.4 Audit implications when there is a breach of a debt covenant
  • 29.7.5 Impact on share price
  • 29.7.6 Typical ratios used by bank considering making a loan
  • 29.8 Predicting corporate failure
  • 29.8 Predicting corporate failure
  • 29.8.1 What are Z-scores?
  • 29.8.2 Altman’s Z-score
  • 29.8.3 Other models
  • 29.9 Investor-specific ratios
  • 29.9 Investor-specific ratios
  • 29.9.1 Return on equity (ROE)
  • 29.9.2 Price/earnings (PE) ratio
  • 29.9.3 Earnings yield
  • 29.9.4 Earnings per share (EPS)
  • 29.9.5 Dividend cover
  • 29.9.6 Dividend yield
  • 29.9.7 Total shareholder return (TSR) approach
  • 29.9.8 Total shareholder return (TSR)
  • 29.9.9 Performance-based remuneration
  • 29.10 Published financial statements – their limitations for interpretation purposes
  • 29.10 Published financial statements – their limitations for interpretation purposes
  • 29.10.1 Limitation 1 – Lack of detail
  • 29.10.2 Limitation 2 – The impact of unaudited information
  • 29.11 Improvement of information for shareholders
  • 29.11 Improvement of information for shareholders
  • 29.11.2 Disclosure of business risk
  • 29.11.3 Risk of aggressive earnings management
  • 29.11.4 Improving the reliability of financial information
  • 29.12 Valuing shares of an unquoted company – quantitative process
  • 29.12 Valuing shares of an unquoted company – quantitative process
  • 29.12.1 Acquiring a majority holding
  • 29.12.2 Acquiring a minority holding
  • 29.13 Valuing shares of an unquoted company – qualitative process
  • 29.13 Valuing shares of an unquoted company – qualitative process
  • 29.13.1 Literature search of qualitative factors which can lead to improved or reduced valuations
  • 29.14 Possible effects of a pandemic (Covid-19)
  • 29.14 Possible effects of a pandemic (Covid-19)
  • 29.14.1 Financial reporting
  • 29.15 Possible effects of Brexit
  • 29.15 Possible effects of Brexit
  • 29.15.1 Effect of uncertainty
  • Summary
  • Summary
  • Review questions
  • Review questions
  • Exercises
  • Exercises
  • Animations
  • Animations
  • Operating cash cycle
  • Prepayment
  • Accrual
  • Bad debts
  • Cash flow
  • Depreciation methods
  • Footnotes
  • Glossary