International Financial Reporting and Analysis

David Alexander, University of Birmingham Anne Britton, Leeds Metropolitan University Ann Jorissen, University of Antwerp, Belgium ISBN-13: 9781844802012 eISBN-13: 9781844808458 ISBN: 1844802019 eISBN: 1844808459 MARC Record [.mrc format] This third edition is designed to meet the rapidly emerging demand for coverage of new international financial reporting standards (IFRS) and the globalisation of accounting in advanced courses. The book is based on an IASB framework but the European directives, especially as regards detailed formats having no direct equivalent in IFRS, are discussed in detail. The European context and, in the case of important markets, the national context is recognised and contrasted with the international approach. Important non-European influences, especially those from the US, are included in order to provide a genuinely wide-ranging appreciation of the implications of accounting internationalism. Part 1 - Framework, Theory and Regulation - contains coverage of the theoretical underpinnings of financial reporting in an international context. It also describes the international, European and domestic regulatory framework of accounting. Part 2 - Annual Financial Statements - starts by analysing the legal background of the concept of capital and profit. The relevant parts of the second European directive are introduced and the contents of published financial statements described. The main problem areas of financial reporting as covered by IFRS are then analysed. The approach in these chapters consists of discussion of each problem area and its theoretical issues, discussion of the international regulation relating to the problem, and important national and regional representations or variations. Part 3 - Consolidated Accounts and the Multinational - covers group accounts in an international context. Part 4 - Financial Information and Analysis - discusses in depth the availability and transparency of financial information as published, and then the usage and interpretation of that information. The book is student oriented throughout, and contains activities, examples of reporting using IFRS from real companies' accounts, questions and answers.

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Chapter Abstracts Ch. 1 The Basics of financial reporting Chapter One covers the scope of accounting in general and of financial reporting in particular; the major types of user of published financial information and the implications of their different needs; the characteristics of accounting information that are likely to maximize its usefulness; the traditional conventions applied in financial reporting and the internal coherence or inconsistency of these conventions Ch. 2 International accounting differences Chapter Two covers how provision of finance, the legal system, the system of taxation and cultural values influenced the development of financial reporting and the existing accounting system in a country; the influence of cultural values on accounting values; how different systems of accounting regulation could develop and the purpose of country classification exercises to appraise whether these country classification exercises are still relevant today Ch. 3 The process of harmonization Chapter Three covers the role of the European Union in the development of accounting harmonization; the history and changing role of the International Accounting Standards Committee/Board in the development of accounting; how to describe in your own words the different steps in the due process of standard setting of the IASB and the current developments and their implications Ch. 4 Economic valuation concepts Chapter Four covers the context of the asset valuation debate; the definitions and interrelationships of income, capital and value; the variety of alternatives that need to be explored within the parameters of the valuation debate; the concepts of income developed by Fisher and Hicks contrast ex ante and ex post economic income and the scope of economic thinking in this area Ch. 5 Current entry values Chapter Five covers the effects and implications of using current entry values to record the possession and usage of economic resources, the necessary technical manipulation and the strengths, usefulness and weaknesses of the resulting information Ch. 6 Current exit value and mixed values Chapter Six covers explain the effects and implications of using current exit values to record the possession and usage of economic resources, outline the implications of using an ad hoc mixture of valuation methods, the effects and implications of deprival values as the basis of recording the possession and usage of economic resources, the overall relevance of current values and outline the concept of fair value Ch. 7 Current purchasing power accounting Chapter Seven covers the concept of general inflation and its implications for accounting measurement, the mechanisms for taking account of general inflation in financial reporting especially, but not exclusively, in the context of historical cost accounting, theoretical arguments, and practical considerations, for and against current purchasing power accounting and present attitudes to the whole changing prices and inflation debate Ch. 8 Accounting theory and conceptual frameworks Chapter Eight covers what accounting theory is, the main attempts at constructing an accounting theory, current developments in the area, the contents of the IASB Framework, the quality and usefulness of the IASB Framework in the context of its self-declared purposes, the parts of IAS 1 relating to accounting concepts and policies and the overall effect of the Framework and comparable parts of IAS 1 Ch. 9 Structure of published financial statements Chapter Nine covers the format requirements of the EU Fourth Directive, the format and disclosure requirements of IAS 1, the adequacy of the disclosure requirements of IAS 1 and the EU Fourth Directive and possible alterations thereto Ch. 10 Additional disclosure statements Chapter Ten covers the need for additional statements to be included in a reporting package, possible additional statements and reports which could be included in a reporting package including corporate responsibility reports and management commentary, the issue of corporate governance in respect of financial reporting and ethics and the accountant Ch. 11 Basics of Interpretation of Financial Statements Chapter Eleven covers the needs of users wishing to make use of accounting information, the technique of ratio analysis and calculate appropriate ratios and what each of the ratios means, and discuss their limitations Ch. 12 Fixed (non-current) tangible assets Chapter Twelve covers the principles, concepts and major methods of providing for depreciation, what depreciation does and does not do, the issues involved in determining appropriate treatments for government grants, the requirements of IAS 20, relating to government grants, the issues involved in determining appropriate treatments for borrowing costs, the requirements of IAS 23 relating to borrowing costs, the requirements of IAS 16, Property, Plant and Equipment, alternative treatments for investment properties and the requirements of IAS 40 related to investment properties Ch. 13 Intangible assets Chapter Thirteen covers intangible assets, and goodwill, the requirements of IAS 38 relating to intangible assets, alternative possible treatments for purchased goodwill and the requirements of IFRS 3 relating to purchased goodwill Ch. 14 Impairment and disposal of assets Chapter Fourteen covers the requirements of IAS 36 relating to impairment of assets, what is meant by non-current assets held for sale, how non-current assets held for sale should be recognized and measured in accordance with IFRS, the purpose of issuing information on discontinuing operations, and how such information should be disclosed Ch. 15 Leases Chapter Fifteen covers the issues underlying the accounting treatment of leases, alternative accounting treatments for leases of various types, the requirements of IAS 17 in relation to leased assets for lessor and lessee and ongoing debates concerning the treatment of leases in financial statements Ch. 16 Inventories and construction contracts Chapter Sixteen covers the composition of inventories, five inventory cost assumptions, i.e. unit cost, first in first out (FIFO), last in, first out (LIFO), weighted average and base inventory, the effect on annual profit and profit trends of using different inventory cost assumptions, IAS 2 requirements relating to inventories, construction contracts, attributable profit and foreseeable losses, appraise IAS 11 requirements relating to construction contracts, amounts to be disclosed in financial statements relating to construction contracts, IAS 2 and 11 with other GAAP requirements and the disclosure requirements of IAS 2 and 11 Ch. 17 Financial Instruments Chapter Seventeen covers how to describe a financial instrument, the need to account for them, the history of accounting for financial instruments, the scope of IASs regarding financial instruments, the requirements of the IASB for financial instruments, the current requirements and current international accounting requirements for insurance contracts - IFRS 4 Ch. 18 Revenue Chapter Eighteen covers revenue and what type of transactions it arises from, when it should be recognized by an entity, how it should be measured, IAS 18 in relation to revenue recognition and measurement, the disclosure requirements in respect of revenue in accordance with IAS 18 and IAS GAAP with other GAAPs Ch. 19 Provisions, contingent liabilities and contingent assets Chapter Nineteen covers the issues IAS 37 attempts to address, provisions and contingencies, provisions and contingencies in accordance with IAS 37, the recognition and measurement criteria of IAS 37, the presentation requirements in relation to provisions and contingencies and the likely changes to IAS 37 Ch. 20 Income taxes Chapter Twenty covers deferred tax, the arguments for and against providing for deferred tax, possible methods of accounting for deferred tax, the requirements of IAS 12, Income Taxes, the IAS approach and the possible amendments to IAS 12 Ch. 21 Employee benefits Chapter Twenty One covers how short-term employee benefits have to be accounted for, the difference between defined contribution pension plans and benefit pension plans, the purpose and function of actuarial cost or funding methods, actuarial assumptions and discuss their impact on the pension cost and pension benefit obligation, the concept of total pension cost according to IAS 19, the concept of a defined benefit liability according to IAS 19, what is meant by pension plan assets, what is meant by the 'corridor' approach, how equity-settled share-based payment transactions have to be accounted for, how cash-settled share-based payment transactions have to be accounted for and the contents of a pension plan report according to IAS 26 Ch. 22 Changing prices and hyperinflationary economies Chapter Twenty Two covers regulatory requirements in relation to the issues of accounting for inflation and changing prices discussed in Chapters 4-7, the requirements of IAS 29 concerning hyperinflationary economies and the implications of adjusting, or not adjusting, for changes in general purchasing power in economies with material inflation Ch. 23 Cash flow statements Chapter Twenty Three covers the difference between funds flow and cash flow, why the IASB found it necessary to require cash flow rather than funds flow statements, the requirements of IAS 7, Cash Flow Statements (revised), cash flow statements, problems in relation to cash flow statements and different GAAPs for cash flow statements Ch. 24 Presentation issues Chapter Twenty Four covers the purpose of segmental reporting, what is meant by a business segment, what is meant by a geographical segment and what is meant by an operating segment, the criteria for the determination of a reportable segment, what is meant by a post-balance sheet event, the difference between an adjusting event and a non-adjusting event, the selection process of an accounting policy, the treatment when an accounting policy is changed, the treatment of a change in an accounting estimate, the treatment of an error in the financial statements, basic earnings per share, diluted earnings per share, the contents and appraise the statement IAS 33 on earnings per share and the main issues of interim financial reporting under IAS 34 Ch. 25 Consolidated financial statements I - the concepts Chapter Twenty Five covers the need for consolidated financial statements, business combination, the entity and proprietary/parent concept, the concept of uniting of interests, the mechanics of preparing consolidated financial statements using different concepts, an associated undertaking and a joint venture and the mechanics of accounting for an associated undertaking and a joint venture Ch. 26 Consolidated financial statements II - accounting in practice Chapter Twenty Six covers the requirements of IAS 27, Consolidated and Separate Financial Statements, the requirements of IFRS 3, Business Combinations, the requirements IAS 28, Investments in Associates, and IAS 31, Interests in Joint Ventures, the issues surrounding IAS 24, Related Party Disclosures, the preparation of consolidated financial statements involving inter-entity trading, unrealized profits, pre-acquisition profits and inter-entity balances under current extant International Standards Ch. 27 Foreign currency translation Chapter Twenty Seven covers the necessity for foreign currency conversion and translation, the IAS regulations in respect of foreign currency transactions for individual entities, the position where foreign currency investments and borrowings are matched, the IAS regulations in respect of translation of the accounts of foreign branches and subsidiaries etc., accounts of foreign entities and the disclosure requirements of IAS regulations in respect of foreign currency translation Ch. 28 Interpretation of financial statements Chapter Twenty Eight covers how industry analysis can be useful in the context of financial analysis, why knowledge of the corporate strategy is important for financial analysis, the different incentives for annual accounts' management, the practices which are used for annual accounts' management purposes, the purpose of entity analysis, what is meant by quality of disclosure and what is meant by accounting quality Ch. 29 Techniques of financial analysis Chapter Twenty Nine covers potential red flags that obstruct comparability of financial accounting data and the following types of analysis and the results: trend analysis, common size analysis, ratio analysis, segmental analysis and cash flow analysis

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