Presentation on theme: "PwC Financial Statements"— Presentation transcript:
PwC Financial Statements
2 PwC Overview of session 1. Introduction 3. Questions 2. Components and elements of financial statements
PwC Financial statements 1. Introduction
4 PwC Framework for preparing F/S Why have a framework? Purpose What does it cover?Scope Does it have constraints?Limitations
5 PwC Framework for preparing F/S Qualitative characteristics of financial statements Components and elements of financial statements Objectives of financial statements Net assets and net assets maintenance Section 2 This section
6 PwC Purpose of F/S F/S are a structured representation of the financial position and of the transactions undertaken by an entity that is useful to a wide range of users in making and evaluating decisions about the allocation of resources. Specifically, the objectives of F/S in the public sector are to provide information useful for decision-making, and to demonstrate the accountability of the entity for the resources entrusted to it. F/S can also have a predictive/prospective role, providing information useful in predicting the level of resources required for continued operations and the resources that may be generated by them.
7 PwC Scope of the E.C. F/S The E.C. financial statements will: –Consolidate those of entities controlled (e.g. Agencies and institutions) –Proportionately consolidate those of jointly controlled entities (e.g. Galileo) –Report its share in the result and net assets of entities in which it has a significant influence using the equity method of accounting (e.g. European Investment Fund) All entities concerned will have to report to the E.C. using the E.C. accounting rules
8 PwC Qualitative characteristics of F/S Main objective of FS:Provide reliable information on financial position, performance and changes in financial position Main characteristic:Decision usefulness Major qualitative UnderstandabilityComparability characteristics: RelevanceReliability (Materiality) Substance over formPrudence True and fair view
9 PwC Constraints Main objective of FS:Provide reliable information on financial position, performance and changes in financial position Main characteristic:Decision usefulness Major qualitative UnderstandabilityComparability characteristics: RelevanceReliability (Materiality) Substance over formPrudence Constraints:TimelinessCost-benefit balance True and fair view
PwC Financial statements 2. Components and elements of financial statements
11 PwC Components of F/S IPSASEuropean Communities (FR) Statement of financial positionBalance sheet Statement of financial performance Economic outturn account (including segment reporting) Statement of changes in net assets Cash flow statementCash flow table Accounting policies and notes to the financial statements Notes to the financial statements
12 PwC Balance sheet elements AssetsNet assets and Liabilities Net assets Liabilities Total AssetsTotal Net Assets and Liabilities Resources Controlled as a result from past events Embodying future economic benefits or service potential The residual interest Present obligations Resulting from past events The settlement of which is expected to result in an outflow of resources embodying economic benefits or service potential
13 PwC Balance sheet AssetsNet assets and Liabilities Non-current assetsNet assets Non-current liabilities Current assetsCurrent liabilities Total assetsTotal net assets and liabilities Increasing liquidity To be realised in the normal course of the E.C.s’ operating cycle or within 12 months + cash and cash equivalents Aggregated – Detailed in the notes This year + prior year
15 PwC Economic outturn account elements IncomeExpenses Increases in economic benefits Decreases in economic benefits -= Economic result of the year The net assets maintenance concept: The excess of income over expense translates into an increase in the residual interest (the excess of assets over liabilities) – and vice-versa Where assets and liabilities are not equal, a residual figure for net assets/equity will be reported; If > 0, can be interpreted as the net resources that may be applied for the provision of goods or services in the future (= the community’s investment in the entity); If < 0, may be viewed as the amount of future taxation or other revenues which are already committed to paying off debt and other liabilities.
20 PwC Notes to the financial statements 1.Accounting policies 2.Impact of the transition to accrual accounting 3.Notes to the Balance Sheet 4.Notes to the Economic Outturn Account 5.Notes to the Cashflow table 6.Off-Balance Sheet and notes 7.Financial risk management 8.Related party disclosures 9.Events after the balance sheet date 10.Consolidated entities 11.Non-consolidated entities
21 PwC Accounting policies IPSAS-compliant when ruled out by IPSAS Options retained when an IPSAS allows one or more alternative accounting policies Internally-developed when no specific requirement exists
22 PwC Changes in accounting policies Changes in accounting policies = change from one allowed basis of accounting to another allowed basis of accounting Example: the initial adoption of a policy to carry assets at revalued amounts Normally applied retrospectively (restate comparative information) Fundamental errors Changes in accounting estimates
23 PwC Fundamental errors Significant errors in a prior year’s financial statements as a result of mathematical mistakes, mistakes in applying accounting policies, misinterpretation of facts, fraud or oversights Example: omission of a major class of expenses in the financial statements Normally correct retrospectively: restate comparative information
24 PwC Changes in accounting estimates Many financial statement items cannot be measured with precision but can only be estimated. The estimation process involves judgments based on the latest information available. –Estimates may be required, for example, of GNI-based revenue revenue due by Member States, bad debts arising from uncollected receivables, or the useful lives of depreciable assets Accounting estimates by their nature are approximations that may need revision as additional information becomes known Recognise the effect in the period of the change
25 PwC Segment information A distinguishable activity or group of activities of an entity for which it is appropriate to separately report financial information for the purpose of evaluating past performance and for making decisions about the future allocation of resources « Service segments » are naturally aligned with activities identified in budget documentation –E.g. At a national « whole-government » level financial information is generally aggregated and reported in a manner which reflects major economic classifications of activities undertaken and/or portfolio responsibilities of individual ministers: health, defence, education, …
26 PwC The E.C.s’ segment information Expenses Operating assets Operating liabilities Reconciliation to total amounts reported Accounting policies Agriculture Regional policy Humanitarian Aid Internal Market External Relations Others CurrentPrior E.C. policy areas e. g.