Published Company Accounts 2014

Documents required to be published annually by Directors  Income Statement  Statements of changes in Equity  Statement of Financial Position/ Balance Sheet  Statement of Cash Flow  Note s to the Financial statements  Directors` report  Auditors` report  Statement of the company's Accounting policies Published Company Accounts 2014

The Directors must ensure that the company`s accounting records contain: Details of all monetary transactions Disclose the financial position of the company with reasonable accuracy ( details of Assets & Liabilities) Ensure that the Income statement and Statement of Financial show a true and fair view of the company`s financial position Published Company Accounts 2014 Principles Governing the Disclosure Requirements

Window Dressing It is an attempt by Directors of a company to present information in Financial statements so that the position appears to be better or worse than it really is. Eg 1 cheques are paid to creditors on the last day of year but the cheques are not send to creditors until the next financial year, this artificial reduce liabilities Eg 2 An attempt to inflate the profit figure by including unrealisable profits in the Income Statement Published Company Accounts 2014 Lower intest rate Lower income tax Increase share price Boots profit sharing bonuses Improve debt rating

Reasons why business might wish to window dress their accounts To fend off a takeover bid=making a company stronger than it really is ie a well performing company is more expensive to buy. To attract investment=by exaggerating the financial strength of the business. To increase the market price of shares To lower the market price of shares To reduce taxation Published Company Accounts 2014

Accounting principles and bases IAS 1 Accounting principles are the concepts applied to the preparation of financial statements and these are The going –concern concept Accruals concept The concept of consistency Materiality Prudence Business entity Money measurement Historical Duality Substance over form Accounting base are the method of applying the principles to the financial statements to reduce subjectivity by applying acceptable methods such as Methods of depreciation Methods of stock valuation etc The general is that once an entity adopts an accounting policy then it must be applied consistently for similar transaction Any changes must be applied retrospectively ie previous figure must be changed as well. Published Company Accounts 2014

Requirements provided by IAS 1 Are intended to ensure that the FSs of an entity are a faithful presentation of its Financial position, Financial performance and Cash Flow Fair presentation and compliance with IFRSs Going concern Accrual basis of accounting Consistency and presentation Materiality and aggregation Published Company Accounts 2014

Going concern IAS 1, § 23 states that FSs shall be prepared on a going concern basis unless management intends to either liquidate the entity or cease trading, or has no realistic alternative but to do so When management is aware of any material uncertainties that cast doubt upon the entity’s ability to continue as a going concern, those uncertainties must be disclosed When FSs are not prepared on a going concern basis, that fact must be disclosed Published Company Accounts 2014

Requirements provided by IAS 1 Accrual basis of accounting: FSs must be prepared using the accrual basis of accounting Consistency of presentation IAS 1, § 27 requires that: The presentation and classification of items in the FSs shall be retained from one period to the next When such a change is made, the comparative information must also be reclassified Financial institutions (such as Banks) frequently use the presentation in order of liquidity Published Company Accounts 2014

IAS sets out four qualitative characteristics of the financial statements Relevance :the information may be used to influence economic decisions of users. Reliability:the information is free from material error and bias. Comparability :– the information enables comparisons over time to identify and evaluate trends. Understandability :the information is readily understandable by users Published Company Accounts 2014

Users of Accounting Information Who are the users and why do they use accounting information? - Banks-assess performance in relation to security of loan - Creditors- assess the ability to pay the debts - Customers - Employees - Managers - Government - Investors- assess the past performance on basis for future investment - Community Published Company Accounts 2014

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Main issues addressed in IAS 8; Selecting and applying accounting policies Distinguishing between accounting policies, accounting estimates and errors Changes in accounting policies Changes in accounting estimates Correction of errors Published Company Accounts 2014

Selecting and applying accounting policies AS 8, § 5 defines “accounting policies” as The specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting FSs IFRSs prescribe accounting policies for certain topics, transactions or events IAS 8 deals with areas where there are no accounting standards, and set outs the principles that entities must apply in selecting appropriate accounting policies Published Company Accounts 2014

Selecting and applying accounting policies IAS 8, § 10 In the absence of a Standard or an Interpretation that specifically applies to a transaction or other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is: a) relevant to the economic decision-making needs of users; and b) reliable, in that the FSs: i) represent faithfully the financial position, financial performance and cash flows of the entity; ii) reflect the economic substance of transactions, other events and conditions, and not merely the legal form iii) are neutral, i.e. free from bias; iv) are prudent; and v) are complete in all material respects Published Company Accounts 2014

IAS 10 Event After the BS Date IAS 10 defines these events as follow: Events after the BS date are those events, favourable and unfavourable, that occur between the BS date and the date when the FSs are authorised for issue Usually the date at which FSs are authorised for issue is the date on which the directors or other governing body formally approve the FSs for issue to shareholders and/or other users Published Company Accounts 2014

IAS 10, 2 types of events can be identified: Those that provide evidence of conditions that existed at the BS date (adjusting events after the balance sheet date); and Those that are indicative of conditions that arose after the BS date (non-adjusting events after the balance sheet date) Published Company Accounts 2014

Adjusting events after the BS date The sale of inventories after the BS date may give evidence of their net realisable value at the BS date The settlement after the BS date of a court case confirms that the entity had a present obligation at the BS date The purchase price or proceeds from sale of NCA Assets where valuation shows impairment is required. Trade Receivable where a customer has become insolvent Discovery of fraud or errors which shows the financial statement to be incorrect. Published Company Accounts 2014

Non-adjusting events after the balance sheet date IAS 10, A major business combination after the balance sheet date The destruction of property by fire, floods, or strike action of employees after the balance sheet date The issue of new share capital after the balance sheet date Commencing major litigation arising solely out of events that occurred after the balance sheet date Major purchase of Assets Dividend declared Cease of trading, not alter native to the course of action Published Company Accounts 2014

IAS 16 Property, Plant and Equipment This IAS deal with the NCA of PPE and it covers : The recognition of assets The determination of carrying amount The depreciation charges Their impairment loses Published Company Accounts 2014

Property, Plant and Equipment These are tangible assets held for use in the production or supply of goods or services or for rental to other business and for administrative purposes. They are expected to be used more than a year Cost of PPE include : Purchase price Any import duties, taxes to bring asset to present location and condition The cost of preparing the site Initial delivery and handling cost Installation and assembly cost Cost of testing the asset Professional fees, say architects or legal fees Published Company Accounts 2014

Definition of terms related to PPE Depreciation : is the lost of value of and asset or is the allocation of the cost of an asset over its useful life. Depreciable amount: is the cost or valuation of the asset less the residual value or amount Useful life : is the length of time for which the asset is expected to be used. Residual value : is the amount that a company expect to obtain from an asset less any disposal costs at the end of its useful life. Fair value : is the amount for which the NCA could be sold less any cost incurred in the sale Carrying amount : is the cost or valuation of NCA less aggregate depreciation to date Value in use: is calculated by discounting the future cash inflows generated by the use of a NCA or the present value of future cash flows Recoverable amount : Is the higher of the fair value and the value in use ie compare the two which is higher is the recoverable amount. Published Company Accounts 2014

IAS 37 Provision, Contingent Liabilities Items that represent uncertainties at the time final accounts are prepared They should be accounted for on a consistent basis so that the users can understand Provisions- is a liability of uncertain amount or timing eg Provision for bad debts Liability is the present of an obligation, a business has to pay money.eg Creditors Contingent liability is a possible liability to the business which arises from past events or when a decision has been made eg court case & damages have to paid Contingent is not recorded in the accounts but it is disclosed as way of notes Published Company Accounts 2014

IAS 37 cont contingent Asset Contingent asset is a possibility of an asset arising from past events which will materialised when something has happened, company not in complete control of the event. A contingent asset should never be recognised in the accounts, it should recorded when it certain IAS uses three words when it talks about Provision, contingent assets and liabilities A. Proble > 50 % chance that it will occur: Shown as note B. Possible < 50 % chance that it will occur : shown as a note ( only for liabilities nothing for assets) C. Remote – little or no chance of the event occurring. Published Company Accounts 2014

IAS 38 Intangible assets These are non- monetary assets without physical substance eg Goodwill which is either purchased of internally generated Only purchased intangible (goodwill) is recorded in the accounts Internally intangible (goodwill) or brand names cannot be recognised in the accounts Goodwill=Purchase price –NBV of assets taken over Intangible assets include: Computer software, Licence, Trademarks, Patents, Films, Copyrights Customer list or suppliers and Import quotas Research expenditure is written of as an expense in the IS Development expenditure needs to meet a certain criteria to be an intangible asset eg if the asset can be sold otherwise it is written of as an expense Published Company Accounts 2014

Director`s report Principle activities of the company and any significant changes Review of Company activities +likely developments research & development activities Names of Directors and their shareholdings Proposed dividends Significant difference between NBV and market value of Land and buildings Political and charitable donation made by the company Company`s policy on disable people Health and safety at work of employees Company ` s policy on payment of suppliers Published Company Accounts 2014