1. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Contents of the book Part one: Framework, Theory and Regulation Part two: Annual Financial Statements Part three: Consolidated Accounts and the Multinational Part four: Financial Analysis

2. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Chapter 1 Basics of financial reporting

3. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Contents Users of financial reports Characteristics of useful information Need for communication Coherent framework International dimension Terminology and the English language

4. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Learning objectives Explain and discuss the scope of accounting in general and of financial reporting in particular Describe the major types of user-published financial information and discuss the implications of their different needs List and discuss the characteristics of accounting information that are likely to maximize its usefulness Describe and apply the traditional conventions applied in financial reporting Discuss and illustrate the internal coherence or inconsistency of these conventions

5. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Accounting The provision of figures about the performance and the financial position of an entity

6. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Therefore accounting needs: An effective and efficient data handling and recording system The ability to use that system to provide something useful to somebody

7. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Three fundamental issues Who are the users of the accounting statements? What is the purpose for which each particular type of user requires the information? How can we provide the user with the information best suited to their needs?

8. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Different types of users Shareholders, investors Loan creditor group Employee group Analyst-adviser group Suppliers and trade creditors Customers Competitors Government The public

9. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA What kind of information do these users want?

10. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Different users – different needs Shareholders Loan creditors Employees Return on the investment and risk involved Possibility to repay loans and pay interest Stability and profitability of the firm, employment and remuneration opportunities

11. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Different users – different needs Financial analysts Suppliers and trade creditors Customers Competitors Information to advise whether to hold, buy or sell shares Ability to pay the amounts due Going concern of the enterprise, corporate responsibility Performance of the competition

12. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Different users – different needs Government The public To determine taxable income, to supervise regulation, to judge efficient allocation of resources The viability of the company, the corporate responsibility

13. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Summary of user needs Many, although not all, of the information requirements are essentially forward looking Different users, with different purposes, may require different information about the same items Different users will require different degrees of complexity and depth Not all the information required is likely to be included in financial accounts

14. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Characteristics of useful information Relevance Understandability Reliability Completeness Objectivity Timeliness Comparability

15. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Accounting information needs to be understood by the user

16. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Accounting communication is improved through the use of conventions

17. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Financial Accounting Conventions Business entity Duality Monetary measurement Cost Continuity (going concern) Conservatism (prudence) Consistency Materiality Objectivity Realization of revenue Matching

18. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA

19. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Accounting conventions are grouped in a coherent framework

20. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Many standard setters develop a conceptual framework from which they derive the accounting standards

21. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Communication of accounting information Within one jurisdiction Within the global economy: more problems to make accounting information understandable

22. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA