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Giáo trình báo cáo và tài chính kế toán Financial accounting and reporting 18e by ellliot Giáo trình báo cáo và tài chính kế toán Financial accounting and reporting 18e by ellliot Giáo trình báo cáo và tài chính kế toán Financial accounting and reporting 18e by ellliot Giáo trình báo cáo và tài chính kế toán Financial accounting and reporting 18e by ellliot Giáo trình báo cáo và tài chính kế toán Financial accounting and reporting 18e by ellliot Giáo trình báo cáo và tài chính kế toán Financial accounting and reporting 18e by ellliot
FINANCIAL ACCOUNTING AND REPORTING ‘Clear, up-to-date and understandable coverage of important issues from the international perspective Overall, an excellent text.’ Suzanne McCallum, University of Glasgow The 18th edition of this market-leading text provides a comprehensive overview of financial accounting and reporting, with the aim of ensuring you are able to prepare and also critically discuss IFRS-compliant financial statements With balanced coverage of theoretical principles and up-to-date practical application of current international standards, the authors provide essential knowledge for advancing your studies and career New to this edition: • • • To aid logical progression through the text, Chapters and now form Part and provide a basic introduction to the subject, and Chapters to 11 on the Regulatory Framework have been brought forward to follow Chapters to Chapter 14 ‘Financial instruments’ (IFRS 9) and Chapter 18 ‘Leasing’ (IFRS 16) have been rewritten Chapter 30 ‘An introduction to digital financial reporting’ has been expanded to assist readers who might wish to delve deeper into the access and use of XBRL company data Chapter 32 ‘Integrated reporting: sustainability, environmental and social’ has been rewritten to reflect the growing interest in and importance of integrated reporting Updated and revised exercises Fully updated coverage of IFRS and IAS including the latest IFRS and 16 Inclusion of potential Brexit implications where appropriate Key features: • • • • Exercises of varying difficulty including questions from past examination papers of professional accounting bodies Illustrations taken from real-world international company reports and accounts Extensive references included at the end of chapters For lecturers, complete solutions to all exercises in the book are available on the Pearson website About the authors Barry Elliott is a training consultant He has extensive teaching experience at undergraduate, postgraduate and professional levels in China, Hong Kong, New Zealand and Singapore He has wide experience as an external examiner in higher education and at all levels of professional education Jamie Elliott is a director with Deloitte Prior to this, he lectured on undergraduate degree programmes and as Assistant Professor on MBA and executive programmes at the London Business School MyAccountingLab • • Join over10 million students benefiting from Pearson MyLabs Use the power of MyAccountingLab to accelerate your learning You need both an access card and a course ID to access Is your lecturer using MyAccountingLab? Ask your lecturer for your course ID Has an access card been included with the book? Check the inside back cover of the book If you have a course ID but no access card, go to: http://www myaccountinglab.com/ to buy access to this interactive study programme www.pearson-books.com Cover image: PM Images/Getty Images CVR_ELLIOTT_18_62409.indd ELLIOTT & ELLIOTT Key features: • A personalised study plan • Usable either following the chapter-by-chapter structure or by learning objective • Worked solutions show you how to solve difficult problems • Limitless opportunities to practise BARRY ELLIOTT JAMIE ELLIOTT MyAccountingLab: EIGHTEENTH EDITION This title can be supported by MyAccountingLab, an online homework and tutorial system designed to test and build your understanding MyAccountingLab provides a personalised approach, with instant feedback and numerous additional resources to support your learning An eText for quick reference Case studies to help you apply what you’ve learned FINANCIAL ACCOUNTING AND REPORTING • • • • FINANCIAL ACCOUNTING AND REPORTING EIGHTEENTH EDITION 16/01/2017 15:59 Financial Accounting and Reporting F01 Financial Accounting and Reporting 62409 Contents.indd 17/01/2017 14:57 At Pearson, we have a simple mission: to help people make more of their lives through learning We combine innovative learning technology with trusted content and educational expertise to provide engaging and effective learning experiences that serve people wherever and whenever they are learning From classroom to boardroom, our curriculum materials, digital learning tools and testing programmes help to educate millions of people worldwide – more than any other private enterprise Every day our work helps learning flourish, and wherever learning flourishes, so people To learn more, please visit us at www.pearson.com/uk F01 Financial Accounting and Reporting 62409 Contents.indd 17/01/2017 14:57 Financial Accounting and Reporting EIGHTEENTH EDITION Barry Elliott and Jamie Elliott Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong Tokyo • Seoul • Taipei • New Delhi • Cape Town • São Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan F01 Financial Accounting and Reporting 62409 Contents.indd 17/01/2017 14:57 Pearson Education Limited Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk First published 1993 (print) Second edition 1996 (print) Third edition 1999 (print) Fourth edition 2000 (print) Fifth edition 2001 (print) Sixth edition 2002 (print) Seventh edition 2003 (print) Eighth edition 2004 (print) Ninth edition 2005 (print) Tenth edition 2006 (print) Eleventh edition 2007 (print) Twelfth edition 2008 (print) Thirteenth edition 2009 (print) Fourteenth edition 2011 (print) Fifteenth edition 2012 (print and electronic) Sixteenth edition 2013 (print and electronic) Seventeenth edition 2015 (print and electronic) Eighteenth edition 2017 (print and electronic) © Pearson Education Limited 2000, 2011 (print) © Pearson Education Limited 2012, 2013, 2015, 2017 (print and electronic) The rights of Barry Elliott and Jamie Elliott to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 The print publication is protected by copyright Prior to any prohibited reproduction, storage in a retrieval system, distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable copyright law Any unauthorised distribution or use of this text may be a direct infringement of the authors’ and the publisher’s rights and those responsible may be liable in law accordingly ISBN: 978-1-292-16240-9 (print) 978-1-292-16243-0 (PDF) 978-1-292-16242-3 (ePub) British Library Cataloguing-in-Publication Data A catalogue record for the print edition is available from the British Library Library of Congress Cataloging-in-Publication Data 10 9 8 7 6 5 4 3 2 1 18 17 16 15 14 Front cover image: PM Images/GettyImages Print edition typeset in 10/12 pt Ehrhardt MT Std by SPi Global Printed and bound in Malaysia NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION F01 Financial Accounting and Reporting 62409 Contents.indd 17/01/2017 14:57 Brief contents Preface xxi Publisher’s acknowledgements xxvii Part Introduction to accounting on a cash flow and accrual accounting basis Accounting and reporting on a cash flow basis Accounting and reporting on an accrual accounting basis 21 Part Preparation of internal and published financial statements 31 Preparation of financial statements of comprehensive income, changes in equity and financial position Annual report: additional financial disclosures Statements of cash flows 33 70 102 Part Regulatory framework – an attempt to achieve uniformity 129 Financial reporting – evolution of global standards Concepts – evolution of an international conceptual framework Ethical behaviour and implications for accountants 131 155 173 Part Income and asset value measurement systems 199 Income and asset value measurement: an economist’s approach 10 Accounting for price-level changes 11 Revenue recognition 201 220 253 F01 Financial Accounting and Reporting 62409 Contents.indd 17/01/2017 14:57 vi • Brief contents Part Statement of financial position – equity, liability and asset measurement and disclosure 277 12 Share capital, distributable profits and reduction of capital 13 Liabilities 14 Financial instruments 15 Employee benefits 16 Taxation in company accounts 17 Property, plant and equipment (PPE) 18 Leasing 19 Intangible assets 20 Inventories 21 Construction contracts 279 303 326 359 386 410 443 465 493 519 Part Consolidated accounts 543 22 Accounting for groups at the date of acquisition 23 Preparation of consolidated statements of financial position after the date of acquisition 24 Preparation of consolidated statements of income, changes in equity and cash flows 25 Accounting for associates and joint arrangements 26 Introduction to accounting for exchange differences 545 565 579 601 627 Part Interpretation 649 27 Earnings per share 28 Review of financial ratio analysis 29 Analysis of published financial statements 30 An introduction to digital financial reporting 651 677 713 755 Part Accountability 779 31 Corporate governance 32 Integrated reporting: sustainability, environmental and social 781 817 Index 853 F01 Financial Accounting and Reporting 62409 Contents.indd 17/01/2017 14:57 Contents Preface xxi Publisher’s acknowledgements xxvii Part Introduction to accounting on a cash flow and accrual accounting basis 1 Accounting and reporting on a cash flow basis 3 1.1 Introduction 1.2 Shareholders 1.3 What skills does an accountant require in respect of external reports? 1.4 Managers 1.5 What skills does an accountant require in respect of internal reports? 1.6 Procedural steps when reporting to internal users 1.7 Agency costs 1.8 Illustration of periodic financial statements prepared under the cash flow concept to disclose realised operating cash flows 1.9 Illustration of preparation of statement of financial position 13 1.10 Treatment of non-current assets in the cash flow model 14 1.11 What are the characteristics of these data that make them reliable? 15 1.12 Reports to external users 16 Summary 17 Review questions 18 Exercises 18 Notes 20 Accounting and reporting on an accrual accounting basis 21 2.1 Introduction 2.2 Historical cost convention 2.3 Accrual basis of accounting 2.4 Mechanics of accrual accounting – adjusting cash receipts and payments 2.5 Reformatting the statement of financial position 2.6 Accounting for the sacrifice of non-current assets 2.7 Published statement of cash flows F01 Financial Accounting and Reporting 62409 Contents.indd 21 22 22 23 24 24 27 17/01/2017 14:57 viii • Contents Summary 28 Review questions 28 Exercises 29 Notes 30 Part Preparation of internal and published financial statements 31 Preparation of financial statements of comprehensive income, changes in equity and financial position 33 3.1 Introduction 33 3.2 Preparing an internal statement of income from a trial balance 33 3.3 Reorganising the income and expenses into one of the formats required for publication 36 3.4 Format 1: classification of operating expenses and other income by function 37 3.5 Format 2: classification of operating expenses according to their nature 40 3.6 Other comprehensive income 40 3.7 How non-recurring or exceptional items can affect operating income 41 3.8 How decision-useful is the statement of comprehensive income? 43 3.9 Statement of changes in equity 43 3.10 The statement of financial position 44 3.11 The explanatory notes that are part of the financial statements 45 3.12 Has prescribing the formats meant that identical transactions are reported identically? 48 3.13 Fair presentation 51 3.14 What does an investor need in addition to the primary financial statements to make decisions? 52 Summary 56 Review questions 57 Exercises 58 Notes 68 Annual report: additional financial disclosures 70 4.1 Introduction 70 4.2 IAS 10 Events after the Reporting Period 70 4.3 IAS Accounting Policies, Changes in Accounting Estimates and Errors 73 4.4 What segment reports provide? 75 4.5 IFRS Operating Segments 75 4.6 Benefits and continuing concerns following the issue of IFRS 79 4.7 Discontinued operations – IFRS Non-current Assets Held for Sale and Discontinued Operations 82 4.8 Held for sale – IFRS Non-current Assets Held for Sale and Discontinued Operations 83 4.9 IAS 24 Related Party Disclosures 85 Summary 90 Review questions 90 Exercises 91 Notes 101 F01 Financial Accounting and Reporting 62409 Contents.indd 17/01/2017 14:57 Contents • ix 5 Statements of cash flows 102 5.1 Introduction 102 5.2 Development of statements of cash flows 102 5.3 Applying IAS (revised) Statements of Cash Flows 103 5.4 Step approach to preparation of a statement of cash flows – indirect method 106 5.5 Additional notes required by IAS 109 5.6 Analysing statements of cash flows 110 5.7 Approach to answering questions with time constraints 116 5.8 Preparing a statement of cash flows when no statement of income is available 118 5.9 Critique of cash flow accounting 120 Summary 120 Review questions 121 Exercises 121 Notes 128 Part Regulatory framework – an attempt to achieve uniformity 129 Financial reporting – evolution of global standards 131 6.1 Introduction 131 6.2 Why we need financial reporting standards? 131 6.3 Why we need standards to be mandatory? 132 6.4 Arguments in support of standards 134 6.5 Arguments against standards 135 6.6 Standard setting and enforcement by the Financial Reporting Council (FRC) in the UK 135 6.7 The International Accounting Standards Board 138 6.8 Standard setting and enforcement in the European Union (EU) 139 6.9 Standard setting and enforcement in the US 142 6.10 Advantages and disadvantages of global standards for publicly accountable entities 144 6.11 How reporting requirements differ for non-publicly accountable entities? 145 6.12 IFRS for SMEs 146 6.13 Why have there been differences in financial reporting? 146 6.14 Move towards a conceptual framework 150 Summary 151 Review questions 151 Exercises 152 Notes 153 Concepts – evolution of an international conceptual framework 155 7.1 Introduction 7.2 Different countries meant different financial statements 7.3 Historical overview of the evolution of financial accounting theory F01 Financial Accounting and Reporting 62409 Contents.indd 155 155 156 17/01/2017 14:57 www.downloadslide.net 862 • Index High Pay Centre 797 historical costs accounting (HCA) 204–5 acceptance 156 illustrations 223–7 problems 220–1 profits 240–1 convention 22 measurement 166 principles 207 valuations, agricultural activities 512 HIV, South Africa 832 HM Revenue and Customs 203, 761 HMV 208 Hoffman, Charles 766 holding gains 227, 233–4, 239–40 Holmen AB 510 horizontal analysis 681–2 HSBC 725 HTML (Hyper Text Mark-up Language) 758–9 Hugo Boss 478 human activities, environmental impacts 825 human assets 829 human capital 826 human resources valuation 482 Hyper Text Mark-up Language (HTML) 758–9 hyperinflation 241–2, 638–9 IAASB (International Auditing and Assurance Standards Board) 793–4 IAS see International Accounting Standards IASB see International Accounting Standards Board IASC see International Accounting Standards Committee IBM 720 ICAEW see Institute of Chartered Accountants in England and Wales ICAS see Institute of Chartered Accountants of Scotland ICD (intellectual capital disclosures) 480–1 ICMA (International Capital Market Association) 184 identified assets, leases 449 IFAC see International Federation of Accountants IFAD (International Forum on Accountancy Development) 156 IFIAR (International Forum of Independent Audit Regulators) 794 IFRIC (International Financial Reporting Interpretations Committee) 135 IFRS see International Financial Reporting Standards IFS see Institute for Fiscal Studies IIA see Institute of Internal Auditors IIRC (International Integrated Reporting Council) 825, 837 IMI 798–9 Z01 Financial Accounting and Reporting 62409.indd 862 immaterial information 168 impairment 85, 341–3, 423–8, 474, 475–6, 584, 605–7 Improvement Project, IASB 668 imputation system, corporation tax 388–9 Imtech 74 inappropriate organisational cultures 820 incentives 786 construction contracts payments 521 income accountants’ view 204–6 classification 37–40 comprehensive 40–1, 44 concept of 204 deferred, grants as 430–1 definition 165 economic 208–14 economists’ view 208–14 expected 211 grants as 430–1 information 202 as means of control 202–3 as means of prediction 203 measurement 201–16 operating 41–3, 227 recognition 164 replacement cost 214–15 smoothing, inventories 494, 495 statements see statements of comprehensive income streams 423, 424–5 see also earnings; gains; profits income approach to valuation of intangibles 481 income tax 386 incurred losses 342 indefinite lives, intangible assets 468 independence auditors 809 ethics and 177 Independent Audit Regulators, International Forum of (IFIAR) 794 independent directors 803, 805 India, IFRS adoption 139 indirect method see cash flow statements indirect overheads 499, 500 individual ethical guidelines 173–4 Indonesia, XBRL use 762 inflation 241–2, 433, 638–9, 741 inflation accounting 220–44 influence, significant 601–2 information environmental 817 financial see financial information flows financial reporting post-XBRL 759–60 financial reporting pre-XBRL 757–8 immaterial 168 needs financial statements 160–1 of internal users 3, 5–8 of managers 3, 4–5 of shareholders 3–4, 714–16 social 817 unaudited, published account limitations 717 XBRL processes for outputting 763–6 Infosys Technologies 482 initial direct costs, leases 452, 455 Inline XBRL (iXBRL) 761, 770–1 Inman, M.L 732 input method, construction contract earnings 525 insider trading 786 instance documents, XBRL 764, 765, 766–7 Institute for Fiscal Studies (IFS) 391 Countering Tax Avoidance in the UK: Which Way Forward? (discussion paper 2009) 392 Institute of Chartered Accountants in England and Wales (ICAEW) Ethics Advisory Service 184 The Future Shape of Financial Reports 102 intellectual capital disclosures research report 480 risk reporting 714 Support Members Scheme 188 Technical Release 02/10 Determination of realised profits and losses in the context of distributions under the Companies Act 2006: 288 Institute of Chartered Accountants of Scotland (ICAS) ethics 191 ‘Taking Ethics to Heart’ (discussion paper report) 181–3, 184 The Future Shape of Financial Reports 102 The implementation of IFRS in the UK, Italy and Ireland (research report 2008) 145 Institute of Directors of Southern Africa (IoDSA) 831 Institute of Internal Auditors (IIA) Model Audit Committee Charter 790 institutional investors 148–9, 799–800, 806–8 institutional users of XBRL 766 Institutional Voting and Information Service (IVIS) 805 insurable risks 788 insurance companies 148–9 intangible assets 465 accounting treatment 467–8 acquisitions 556 amortisation 467–8 brands 477–9 definition 465 disclosures 468 examples of 466 fair values 481–2 finite lives 467–8 goodwill see goodwill human resources valuation 482 identifying to reduce amount of goodwill 473–4 IFRS for SMEs 471–2 impairment 476, 468 16/01/2017 17:11 www.downloadslide.net Index • 863 identified under IAS 38, review of implementation 481–2 indefinite lives 468 intellectual capital 480–1 internally generated 471, 480–1 measurement 466 recognition criteria 466–71 research and development 468–71 useful economic lives 467–8 valuation 481–2 integrated reporting 817 accountants’ contributions 837–43 benefits 828 concepts 825–8 drivers 828–32 evolution historical context 828–32 to financial capital suppliers 825–7 impact on future development of financial reporting and accounting 843–5 South Africa 825, 831–2 Integrated Reporting Council, International (IIRC) 825, 837 integrity 175 Intel 473–4, 481 intellectual capital 826 disclosures (ICD) 480–1 intellectual property transfers, revenue recognition 267 inter-company performance 757 inter-company transactions 568–71, 579–80 inter-period performance 757 InterContinental Hotels Group 41–2, 72 interest compound 209 consolidated accounts 580, 583–4 costs, pension schemes 366 cover 111, 692 present values and 210 rates 694 revenue recognition 255 interests in associates 613 non-controlling see non-controlling interests in joint operations and joint ventures 613 in subsidiaries 612–13 vested 132 interim dividends 72 interim financial reporting 772 internal accounting, XBRL 771 internal auditors 839–40 Internal Auditors, Institute of (IIA) see Institute of Internal Auditors internal audits 789–90, 832 internal conditions 792 internal control 789–90 internal rate of return (IRR) 7–8, 730 internal reporting 4–8 internal statements of income from trial balances 33–6 internally generated goodwill 472 internally generated intangible assets 471, 480–1 Z01 Financial Accounting and Reporting 62409.indd 863 International Accounting Standards (IAS) Presentation of Financial Statements cash and cash equivalents 106 exceptional items 53 fair presentation 51–2 formats of statements of income 36–40 other comprehensive income 40–1 statements of comprehensive income 40–1 statements of financial position 44–7 tax rules and 387 Inventories agricultural produce 510, 511 definition 493–4 development expenditure 470 disclosure requirements 509–10 properties held for sale 432 self-constructed assets 412 valuations 495–502 work in progress 502 Statement of cash flows 27–8, 102–20 Accounting Policies, Changes in Accounting Estimates and Errors 46, 51, 73–4, 161, 393, 547 10 Events After the Reporting Period 70–3, 569 11 Construction Contracts 519–23 12 Income Taxes 386, 393–402, 430 14 Segment Reporting 81 16 Property, Plant and Equipment 395, 411–23, 432, 475, 510, 511–12, 566 17 Leases 432, 447, 448 18 Revenue 254–5, 256–7, 519 19 Employee Benefits 317, 359–80, 377 20 Accounting for Government Grants and Disclosure of Government Assistance 411, 432, 512 21 The Effects of Changes in Foreign Exchange Rates 627, 628, 631–4 23 Borrowing Costs 411, 412–13 24 Related Party Disclosures 85–9 26 Accounting and Reporting by Retirement Benefit Plans 359, 377–80 27 Separate Financial Statements 612, 613–14 28 Investments in Associates 602, 603, 610, 611–12, 613, 614 29 Financial Reporting in Hyperinflationary Economies 241, 638–9 30 Disclosures in the Financial Statements of Banks 346 31 Interests in Joint Ventures 609 32 Financial Instruments: Disclosure and Presentation 329–35, 346 32 Financial Instruments: Presentation 327 33 Earnings per Share 146, 652–3, 666–8 34 Interim financial reporting 146 35 Discontinuing Operations 428 36 Impairment of assets 85, 411, 423–8, 468, 554, 605 37 Provisions, Contingent Liabilities and Contingent Assets 303 constructive obligations 316 contingent assets 312, 315 contingent consideration 547 contingent liabilities 311, 312, 314–15 disclosures for non-financial liabilities 317–18 disclosures for provisions 310–11 ED/2010/1 Measurement of Liabilities in IAS 37: 319 ED (exposure draft) Non-financial Liabilities 305, 312–18 environmental assets and liabilities 839 ex gratia pension arrangements 360 leases, lessee accounting 452 legal obligations 316 measurement of provisions 306–7 onerous contracts 268, 317 present values 316 property, plant and equipment 412 recognition of provisions 305–6 restructuring 317, 556 subsequent measurement and derecognition 316 warranties 265 38 Intangible Assets 315, 465–71, 476, 479 review of implementation of identified intangibles under 481–2 39 Financial Instruments: Recognition and Measurement 327–9, 346–8 fair values 288 40 Investment property 411, 432–3 41 Agriculture 432, 510–12 harmonisation 253–4 list 140 see also International Financial Reporting Standards International Accounting Standards Board (IASB) accrual accounting 27 Conceptual Framework for Financial Reporting 138, 159 accrual accounting 23 capital maintenance 167 current developments: materiality 167–8 deferred taxation 397 definition of elements 24, 165 derecognition 166 disclosures 167, 168 elements of financial statements 165 errors 168 faithful representation 166 financial statements and reporting entities 165 goodwill 475 joint project with FASB 159 latest proposals 168 measurement 164, 166–7 misstatements 168 16/01/2017 17:11 www.downloadslide.net 864 • Index International Accounting Standards Board (continued) objective of financial statements 21–2, 160–1 objective of general purpose financial reporting 165 omissions 168 presentation 167, 168 qualitative characteristics of useful financial information 165 recognition 164, 166 relevance 166 qualitative characteristics of useful financial information 161–3 summary of approach 164 taxation 387, 403 Convergence Project 668 Disclosure Initiative project 717 exposure drafts ED/2010/1 Measurement of Liabilities in IAS 37: 319 ED/2013/10 Equity Method in Separate Financial Statements 613–14 ED/2015/3 Conceptual Framework for Financial Reporting 164, 168 ED Non-financial Liabilities 305, 312–18 fair values 242 financial crisis (2008) and 327–8 financial statements composition 22 governance 328 hyperinflation accounting approach 241–2 IAS 37 Research Project (2015 staff paper) 319 IFRS post-implementation review 81–2 Improvement Project 668 lease accounting joint project with FASB 448 Management Commentary (IFRS Practice Statement) 54, 112, 787, 788 Norwalk Agreement 144 objective of financial statements 21–2 political pressures 328–9 Practice Statement 168 revenue recognition 253–4 small and medium-sized entities 146 work of 138–9 International Accounting Standards Committee (IASC) Framework for the Presentation and Preparation of Financial Statements 138–9, 158–9, 163 assets 315 financial capital maintenance 27 liabilities 313, 315 measurement bases 499 research expenditure 469 revision 159 underlying assumptions 163 International Auditing and Assurance Standards Board (IAASB) 793–4 Z01 Financial Accounting and Reporting 62409.indd 864 International Capital Market Association (ICMA) 184 International Federation of Accountants (IFAC) Code of Ethics for Professional Accountants 175–8 Developing and Reporting Supplementary Financial Measures – Definition, Principles, and Disclosures 717 International Financial Reporting Interpretations Committee (IFRIC) 135 International Financial Reporting Standards (IFRS) First-time Adoption of International Financial Reporting Standards 144 Share-Based Payments 359, 372–7 Business Combinations brands 479 fair values 242, 547, 555–6 goodwill 472–7, 479, 554 non-controlling interests 549 review of implementation of 481 Insurance contracts 146 Non-current Assets Held for Sale and Discontinued Operations 82–5, 146, 411, 428, 602 Exploration for and Evaluation of Mineral Resources 415, 432 Financial Instruments: Disclosures 326, 345–51, 614 Operating Segments 75–9, 110, 146, 555 Financial Instruments 326, 335, 337– 41, 459, 610, 613, 630 10 Consolidated Financial Statements 545–7, 565, 611 11 Joint Arrangements 608, 609–10, 612, 613, 614 12 Disclosure of Interests in Other Entities 612 13 Fair Value Measurement 243–4, 421, 481, 555–6 15 Revenue from Contracts with Customers 254, 256–69, 404, 457 construction contracts 520, 524–6 16 Leases 447, 448, 449–60 adoption by countries 138–9 EU adoption 142 EU endorsement 142 harmonisation 253–4 IFRS for SMEs government grants 432 intangible assets 471–2 investment properties 434 issue 135, 145 measurement 423 non-current assets held for sale 429 property, plant and equipment 413, 423, 429, 432, 434 impact of adoption by countries 138–9 The implementation of IFRS in the UK, Italy and Ireland (ICAS research report 2008) 145 list 140 production of 138–9 United States and 144 XBRL and 764 see also International Accounting Standards International Forum of Independent Audit Regulators (IFIAR) 794 International Forum on Accountancy Development (IFAD) 156 International Integrated Reporting Council (IIRC) 825, 837 International Framework 826, 828, 835 International Standards on Auditing (ISA) 540 Auditing Accounting Estimates, including Fair Value Accounting Estimates, and Related Disclosures 724 701 Communicating Key Audit Matters in the Independent Auditor’s Report 790 International Valuation Standards Council (IVSC) 479 intimidation threats 178 introductory reviews, ratio analysis 680–2 inventories 493 adjusting events 71 agricultural activities 510–12 control 504–5 costs ascertainment 499–501 creative accounting 505–7 current cost accounting 231 cut-off dates 505 definition 493–4 disclosures 509–10 deterioration 502 errors 505, 508 foreign exchange differences 629 identification of items 508 inaccurate records 506 income smoothing 494, 495 obsolescence 502, 507 physical condition 508 profits, valuation impact on 494–5 shrinkage 504 turnover ratios 688, 695 unmarketable 507 valuation 45, 48–9, 204–5, 494–502 work-in-progress 502–4 year-end count 507–8 investing activities, cash flows 104, 106, 109, 113 investment companies, distributable profits 287 investment, direct 821–2 investment funds 822 investment property 432–3 investments held-to-maturity 337 investor-specific ratios 724–7 investors corporate governance perspective 781–2 decision-making needs 52–6 IFRS 8, views on 81–2 institutional 148–9, 799–800, 806–8 16/01/2017 17:11 www.downloadslide.net Index • 865 protection 557 Sarbanes-Oxley Act, USA 143–4 Investors Forum 808 IoDSA (Institute of Directors of Southern Africa) 831 Ireland The implementation of IFRS in the UK, Italy and Ireland (ICAS research report 2008) 145 legal system 147 IRR (internal rate of return) 7–8, 730 ISA see International Standards on Auditing Islamic Indices 720 ISO 14001: 836 Italy The implementation of IFRS in the UK, Italy and Ireland (ICAS research report 2008) 145 IVIS (Institutional Voting and Information Service) 805 IVSC (International Valuation Standards Council) 479 iXBRL (Inline XBRL) 761, 770–1 James Hardie Group 183–4 Japan finance of industry 148 legal system 147 XBRL use 762 Jennings, M.M 184 Johannesburg Stock Exchange 832 John Lewis 42, 48 Johnson Matthey 131–2, 522 joint operations 608–14 joint ventures 608–14 journal adjustments 506 Kay Review 808–9 key management personnel compensation 88 key performance indicators (KPI) 54–5, 56, 717 King, Mervyn A (Baron King of Rothbury)) 837 King, Mervyn E (King Committee on Corporate Governance, South Africa) 831–2 Kingfisher 114, 797 KPI (key performance indicators) 54–5, 56, 717 KPMG 145, 177, 795 labour, direct 499, 503 land agricultural 511 freehold 415 language, and accounting systems 150 Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013: 798, 800 large-block investors see institutional investors last-in-first-out (LIFO) 495, 498–9 lawyers 786 Z01 Financial Accounting and Reporting 62409.indd 865 leases 443 amortised cost principles 453 carrying amounts 453 contract terms 450–1 definition 449 depreciation 452, 453 extension options 454 identified assets 449 initial direct costs 452, 455 finance leases 447–8, 451–2, 455–6 financial liabilities 452 financial statements 446 lessees 451–5 lessors 455–7 gearing impact 445 IAS 17: 447, 448 IFRS 16: 447, 449–60 liabilities 452–3 low-value 455 manufacture of leased assets by lessors 456 modifications 453–4 need for accounting standard 444–7 operating leases 447–8, 451–2, 457 purchase and leasing compared 444–7 purchase of leased assets by lessors 456 return on capital employed impact 446–7 revenue recognition 266 right of use assets 452–3 short-term 455 statements of financial performance 445 statements of financial position 445, 446 statements of profit or loss 446 substance over form 448 substitution rights 449 use of assets 449–51 legal obligations 316 legal risks 788 legal systems, national 147 Lehman Bros 257, 795 Lend Lease Group 523 Lenovo 477 lessees and lessors see leases Lev & Schwartz model 482 leverage see gearing Lexmark 507 liabilities 303 adjusting events 71 auditors 795 capital maintenance and 285–6 changes in 110 consolidated accounts 548–9, 550, 567 contingent see contingent liabilities definitions 24, 165, 312 equity and 330–1 financial see financial liabilities future 556 hidden, unethical behaviour and 183–4 leases 452–3 non-financial 312–18 pension scheme changes 365–9 recognition 164 liability method, deferred tax provisions 396–7 LIFO (last-in-first-out) 495, 498–9 limitations published accounts see published accounts traditional financial reporting 830–1 limited liability companies creditor protection 285 limited liability partnerships (LLP), auditors 795 Linde AG 546, 555 liquidity disclosures 116 ratios 690–3 listed companies see public companies Listing Authority, UK Disclosure Transparency Rules 789 Lloyds TSB 756 LLP (limited liability partnerships), auditors 795 loan creditors 279, 291 loans convertible 331 covenants 721–4 financial assets 346, 347 related parties 89 see also borrowings local currencies 638 Logitech 785 long-service benefits 370 see also pension schemes long-term contracts, revenue recognition 266, 522 Lonmin 723, 724 looting 795 losses actuarial, pension schemes 367 associates 605 consolidated accounts 565–6 eliminating capital reduction 288–94 expected 342–3 future 556 impairment 425–6 incurred 342 inflation accounting 227 operating 309 statements of see statements of profit or loss tax losses 393–4 unused 401–2 unrealised 40 in value of assets 72 low-value leases 455 Lufthansa 729 machine-hour method, depreciation 418–19, 420 macroeconomic concept 202–3 macroeconomic effects, accounting standards 175 Magnum Hunter Resources Corporation 789 maintainable post-tax earnings 653–4 Maloney, Michael 786 16/01/2017 17:11 www.downloadslide.net 866 • Index management accountability for environmental and social responsibility 821–5 attitudes 50 changes, unquoted companies, share valuations 741 commentaries 54 compensation of key management personnel 88 decisions, brands and 478–9 defects 735 environmental 819 EVA use attitudes 729 by objectives 186 obligations, environmental and social 823–5 orientation 226 performance 730–1 reporting to 3, 4–5 representations 793 reviews of financial statements for purposes of 677–99 socially aware 829–30 USA 143 management accountants 838 Management Commentaries 772 managers see management Manchester City Football Club 311 mandatory standards 132–4 Mandela, Nelson 831 manufacture of leased assets by lessors 456 manufactured capital 826 manufacturers’ warranties 265–6 mapping, XBRL 764, 765 margin ratios 684–6 market approach to valuation of intangibles 481 market positioning 55 market-related vesting conditions 376 market share, key performance indicators 55 marketing, ethics and 177 marketing-related intangible assets 466 markets morals and, realignment 180 Marks and Spencer 731, 827 matching concept 414 materiality 73, 141, 161–2, 167–8, 555 measurement Accounting Directive 140–1 agricultural produce 510–11 assets 166 bases, inflation accounting 241 biological assets 510–11 conceptual framework 164 contingent liabilities 315 expected credit losses 342 fair values 166, 243–4 financial assets 337 financial capital maintenance 27 financial instruments 337–41 financial liabilities 337 historical costs 166 IASB Conceptual Framework 164, 166–7 Z01 Financial Accounting and Reporting 62409.indd 866 income 201–16 intangible assets 466 non-controlling interests 549–51 non-current assets held for sale 428–9 non-financial liabilities 315, 316, 319 pension assets or liabilities 366 property, plant and equipment 421–3 provisions 306–7 segment information 77 share-based payments 373 statements of financial position 166 termination benefits 371 trade receivables 337 value in use 166 medium-sized companies see small and medium-sized enterprises Member State Options (MSO), EU 139–40 Merck 114 mergers see acquisitions; business combinations; consolidated accounts Metrogroup 72 Mexico Gulf of Mexico oil rig disaster 819 micro-economic effects, accounting standards 175 micro-undertakings regulatory burden on 141 Microsoft 477 Minefinders Corporation 307 minerals 415, 511 minimum share capital 286 mining assets 415 Miniscribe Corporation 506 minority interests see non-controlling interests misappropriation 785 misrepresentation 785 misstatements 74, 168 mistakes see errors Mitsubishi Logistics Corporation 555 Model Audit Committee Charter 790 modification leases 453–4 terms of contracts, revenue recognition 268–9 monetary items 227, 629, 639 monetary working capital adjustment (MWCA) 232–3, 235–9 money capital 214, 215 money laundering 190 Monitoring Committee, FRC 136, 137 monitoring performance 731, 824–5 Moody’s 736 morals 180 see also ethics Morrisons 727 Mothercare 72 MSCI Barra 721 MSO (Member State Options), EU 139–40 multinational companies ethics 181, 187 tax avoidance and 392 multiple capitals 843–5 Munksjo AB 565, 569 Muslim countries corporate governance 783 shariah compliance 720–1 MWCA (monetary working capital adjustment) 232–3, 235–9 NAPF see National Association of Pension Funds narrative reporting Brexit possible effects 743 National Association of Pension Funds (NAPF) remuneration principles 800 national differences conceptual framework 155–6 financial reporting 146–50 legal systems 147 natural capital 827 NED (non-executive directors) 803–5 negative covenants 722 negative goodwill 476–7, 554 negligence, auditors 810 Nemetschek AG 628, 633 Nestlé 46, 720 net asset value per share 799 net assets 206, 547–8, 556, 566, 567 net cash positions 16 net debt/EBITDA ratios 718 net investment hedges 344–5 net operating profit after tax (NOPAT) 728, 729 net present value (NPV) 7, 9, 333–4 net profits earnings per share 652 impact on IFRS adoption 144–5 margin ratios 684–5 net realisable value accounting (NRVA) 222, 223–6, 228, 244 net realisable values (NRV) 494–5, 496, 501–2, 506 Netherlands accounting profession 149 accounting standards 145 accounting theory 150 tax and reporting systems 149 tax avoidance 392 neutrality 15–16, 162, 175 New York v Ernst & Young (2010) 256 New Zealand legal system 147 tax imputation system 388 Next 294, 501 Nike 186 Nixon, B 470 nominal monetary units measurement of financial capital maintenance 27 nominal values, shares 283 non-adjusting events 71–2 non-cash transactions 109–10 non-controlling interests 549–51, 553, 555, 566–8, 571, 636 non-cumulative preference shares 283 non-current assets accrual accounting 24–7 adjusting events 71 16/01/2017 17:11 www.downloadslide.net Index • 867 capital reductions and 290–4 cash flow model 14–15 classification 44–5, 132 consolidated accounts 553, 583 held for sale 428–9 impairment 423–8 turnover ratios 687 see also intangible assets non-distributable reserves 280, 281, 283–4, 285 non-executive directors (NED) 803–5 non-financial liabilities 312–18 non-institutional users of XBRL 766 non-monetary assets 205–6, 233–4, 638 non-monetary items 227, 230–1, 629, 639 non-recurring items 41–3 non-registered traders, VAT 404 non-voting shares 282 NOPAT (net operating profit after tax) 728, 729 Noranda Aluminium Holding Corp 497 normal activity model, inventory valuation 501 normalised earnings 179 normalised earnings per share 799 normative statements 157 norms, societal 178 Norwalk agreement 144 Norway, accounting system 150 notes to cash flow statements 109–10, 115 notes to financial statements 42–3, 45–8, 135, 509 Novartis 720 NPV (net present value) 7, 9, 333–4 NRV see net realisable values NRVA see net realisable value accounting objectives financial reporting 165, 755–7 financial statements 21–2, 160–1, 677 management by 186 objectivity 12, 175, 204, 205, 226 obligating events 306, 308 obligations contingent liabilities 314, 316 management, environmental and social 823–5 pension funds 365 performance, revenue recognition 260, 262–4 provisions 305–6, 308, 316 obsolescence, inventories 502, 507 Occupy Wall Street 840 OCI (other comprehensive income) 40–1 OECD see Organization for Economic Co-operation and Development offers for subscription of shares 282 offsetting financial instruments 334–5 Oftel 203 Ofwat 203 Ok Tedi mine, Papua New Guinea 819 Oman, C 781 omissions 74, 168 onerous contracts 268, 309, 317, 525 operating activities, cash flows 103–10 operating capacity capital 214 Z01 Financial Accounting and Reporting 62409.indd 867 operating capital maintenance 225, 229–40 operating expenses classification 37–40 ratios 685–6 operating income 41–3, 227 operating leases see leases operating losses 309 operational risks 788 operations cash flows 104, 109, 111–12 scale of 793 opportunity costs 228 options share-based payments 372–7 shares 663, 666, 799, 801 ordinary shares 280, 281–2, 653 organisational cultures corporate governance 784–5 inappropriate 820 Organization for Economic Cooperation and Development (OECD) corporate governance 784, 809 Report on Abuse of Charities for Moneylaundering and Tax Evasion (2009) 391 small and medium-sized companies 138 Orion Bank of Naples 786 other comprehensive income (OCI) 40–1 other operating income or expense 38 output method, construction contract earnings 525 outsourcing 834 over-optimism 785 overheads 37, 499–501, 503–4, 506–7 see also costs; expenses overstated quantities 507 own shares, purchase of 294–6 owners capital transactions with 44 P/E ratios see price/earnings ratios Papua New Guinea 819, 832 par values, shares 283 parent companies equity method use in separate financial statements 613–14 parents, ethical influences of 173 Parmalat 795 partial imputation system, corporation tax 388–9 partially exempt traders, VAT 404 participating preference shares 280, 283 partly owned subsidiaries 549–51 partnerships, capital maintenance 284–5 PAS-score (performance analysis score) 734 past events 306, 308, 314 past service costs, pension schemes 366–7 patents limitations of traditional financial reporting 831 pay ratio, USA 843 payables see trade payables payments deferred, revenue recognition 261–2 PBIT (profit before interest and tax) 683–4, 695 PCaW (Public Concern at Work) 188 PDF files 756, 757 PE ratios see price/earnings ratios peer comparisons, financial statement analysis 695–6 peer groups, ethical influences of 174 penalty clauses, construction contracts 521 pension funds 148–9 pension schemes assets actual and expected returns 367 changes 365–9 current service costs 366 curtailments 366–7 deferred tax 399–400 defined benefit schemes 361–2, 363–4, 378–9 defined contribution schemes 361, 363, 378, 379–80 disclosures 369, 379–80 employee interest 359–60 equity compensation plans 362 ex gratia arrangements 360 fund obligations 365 illustrations 363, 365, 368–9 interest costs 366 liability for costs 364–7 multi-employer plans 369 settlements 366–7 percentage of completion method 520–1 performance actual 202 bonuses, revenue recognition 261 directors 799 entity-wide cash-based measures 717–20 future 3, 203 inter-company 757 inter-period 757 key performance indicators 54–5, 56, 717 monitoring 731, 824–5 obligations, revenue recognition 260, 262–4 poor, rewards for 786 predicted 202 remuneration related to 730–1 stewardship 202 performance analysis score (PAS-score) 734 Pergamon Press 132, 133 permanent differences, deferred taxation 394 perpetual debt 332 personal ethics 173–4 Petroleo Brasileiro 720 PFI (private finance initiative) 531–4 Pfizer 282 physical concept of capital 164 PI NAVIGATOR 757 placings of shares 282 planned activity model, inventory valuation 501 16/01/2017 17:11 www.downloadslide.net 868 • Index planning, strategic 837–8 plant see property, plant and equipment policies accounting see accounting policies depreciation 434 dividends 203 ethics 182–3 uniform, consolidated accounts 565 pollution 830 poor performance, rewards for 786 Portsmouth FC 111 position, key performance indicators 55 positive NPV possible obligations 314 post retirement costs 364–7 potential consumption capital 214, 215 potential ordinary shares 653 PPE see property, plant and equipment PPP (public–private partnerships) 531–4 pre-acquisition losses 565–6 pre-acquisition profits 565–6, 583–4 pre-contract bid costs 522 predicted performance 202 prediction consolidated accounts 557 income as means of 203 orientation 16 ratios for, caution when using 697–9 predictive values 12, 161 preference shares see shares Premier Foods 83 premiums, shares 283–4, 553–4 present obligations 305–6, 308, 314 present values (PV) 206, 208–10, 214, 307, 316 see also net present value presentation Accounting Directive 141 exceptional items 43 financial instruments 330–2 IASB Conceptual Framework 167, 168 non-current assets held for sale 428–9 presentation currencies 627, 631, 632–3, 638 price/earnings (PE) ratios 202, 281, 494, 651–2, 725–6 price index systems 221–2, 226 see also general price indices price-level changes, accounting for 220–44 prices changing 215, 156 see also inflation; inflation accounting shares 724 PricewaterhouseCoopers (PwC) 145, 786 pricing transactions, revenue recognition 260–2 Primark 820 Prince of Wales 837 principles-based approaches 178–81, 327 prior period adjustments 43 prior period errors 73–4 private companies 280–1 distributable profits 286–7 share capital reductions 288 private finance initiative (PFI) 531–4 Z01 Financial Accounting and Reporting 62409.indd 868 produce, agricultural 510–12 professional behaviour 176 professional bodies ethics 174, 184–5, 187–8 see also accounting profession professional competence 175–6 professional oversight, auditors 810 professional scepticism, auditors 724, 792–3 profit and loss accounts see statements of comprehensive income; statements of profit or loss profit before interest and tax (PBIT) 683–4, 695 profit-sharing 371 profitability, future 116 profits capital profits 207 concept of 204 consolidated accounts 565–6, 583–4, 580 current purchasing power 227 distributable 286–8 gross, margin ratios 685 inflation accounting 231–3 inter-company sales 568 inventories valuation impact on 494–5 maximisation 178, 821–3 net see net profits post-acquisition 566 pre-acquisition 565–6, 583–4 private finance initiative 533 realisation 207 retained 205–6 statements of see statements of profit or loss unrealised 207, 482, 605 see also earnings; gains; income projected unit credit method 365 promotion costs 37 property, plant and equipment (PPE) 410–11 cost of 412–13 current cost accounting 230 definition 411 depreciation see depreciation disclosures 429–30 financial statements interpretation 433–5 government grants 430–2 impairment of assets 423–8 investment properties 432–3 measurement subsequent to initial recognition 421–3 operating leases in books of lessors 457 revaluations 421–3 statements of financial position explanatory notes 46–7 subsequent expenditure 413–16 see also land; leases proportionate consolidation 615 proportionate share method 549–51 prospective changes to financial statements 73, 74 provisions creation, decision tree 304–5 decommissioning costs 310 decreases 310 deferred tax 395–7 definition 305, 313 ED IAS 37 approach 313 environmental liabilities 310 increases 310 measurement 306–7 onerous contracts 309 operating losses 309 recognition 305–6 restructuring 309–10 treatment 305 unrealised profits 605 prudence 15, 141, 207, 501–2 public companies 280–1 distributable profits 287 share capital reductions 288 Public Concern at Work (PCaW) 188 public interest 176 Public Interest Disclosure Act 1999: 188–9 public–private partnerships (PPP) 531–4 published accounts additional entity-wide cash-based performance measures 717–20 analysis 713–43 formats for 36–40, 48–50 inventories 509–10 limitations for interpretation purposes lack of detail 716–17 unaudited information 717 preparation 33–57 reliability of financial information 715–16 users, educating 796 see also annual reports; financial reporting; financial statements purchase and leasing compared 444–7 purchase of leased assets by lessors 456 purchased goodwill 472, 478, 548–9 purchasing power 222, 225 PV see present values PwC (PricewaterhouseCoopers) 145, 786 pyramid approach, ratios 684 qualitative characteristics 159, 161–3, 165 quality of earnings 41–2 quick ratios 691–2, 695–6 R&D (research and development) 468–71, 831 R&R Ice Cream plc 50 ratios acid test 502, 691–2 administrative expenses 685 analysis benefits 678 case study 679–80 cautionary notes 678–9 commercial databases 757 cost structures of companies 682 financial databases 757 financial structures of companies 681–2 horizontal 681–2 16/01/2017 17:11 www.downloadslide.net Index • 869 introductory reviews 680–2 vertical 681, 682 asset turnover 687–9, 695–6 brand effects on 478 cash 693 cash conversion (CCR) 114–15 cash dividend coverage (CDCR) 112, 114–15 cash flow 692–3 current 690–1, 695–6 debt covenants 721–4 debt/equity 693–5 debt service coverage 718, 720 distribution costs 686 EBITDA-based 718–19 EBITDA/interest 719, 720 ED/2010/1 potential impact on 319 EV (enterprise value)/EBITDA 718 external factors 697–8 financing 693–5 gearing 693–5 gross profit margin 685 hedge 345 financial performance 683–90 interest cover 692 internal factors 698 inventory turnover 688, 695 investor-specific 724–7 liquidity 690–3 margin 684–6 net debt/EBITDA 718 net profit margin 684–5 non-current assets revaluation effects on 433 turnover 687 operating expenses 685–6 peer comparisons 695–6 predictive use 697–9, 732–4 price/earnings see price/earnings ratios profit before interest and tax (PBIT) 683–4, 695 pyramid approach 684 quick 691–2, 695–6 reports based on 696–7 restrictive loan covenants 721–4 return on capital employed (ROCE) see return on capital employed return on equity (ROE) 683, 724–5 return on investment (ROI) 683, 836 revaluation effects 433 scepticism 699 shariah compliance 720–1 trade payables 689 trade receivables 688–9 volume analysis 687–90 working capital 688–90 raw materials, inflation accounting 226 RBS 840 RCA (replacement cost accounting) 222, 223–6, 227–8, 498–9 real capital 215 real terms system, inflation accounting 239–40 real-time financial reporting 771–2 receivables Z01 Financial Accounting and Reporting 62409.indd 869 financial assets 346, 347 trade see trade receivables recognition Accounting Directive 141 agricultural produce 510–11 assets 164 biological assets 510–11 expenses 164 financial instruments 335–6 foreign currency transactions 628 IASB Conceptual Framework 164, 166 income 164 intangible assets 466–71 liabilities 164 pension assets or liabilities 366 property, plant and equipment measurement subsequent to 421–3 provisions 305–6 revenue see revenue share-based payments 372, 373 termination benefits 371 see also derecognition reconstructions 289–94 redeemable preference shares 283 redemption of shares 72 redundancy costs 317 refunds, annual, revenue recognition 260 registered traders, VAT 404 Registrar of Companies (Companies House), XBRL use 761, 769–70 regulatory risks 788 reimbursements 316 related party disclosures 85–9 relevance 161, 166 relevant accounts 288 reliability 15–16, 715–16 religions, ethical influences of 174 remuneration directors 796–800 ethics and 177 excessive 786 executive 796–800 performance criteria 730–1 rendering, XBRL 766–7 replacement cost 203 accounting (RCA) 222, 223–6, 227–8, 498–9 income 214–15 inventory valuation 498–9 reporting accountants’ roles entities, conceptual framework 161 internal 4–8 see also annual reports; financial reporting; integrated reporting; published accounts research and development (R&D) 468–71, 831 research costs 469–70 deferred tax 400 reservation of title revenue recognition 266 reserves consolidated accounts 549, 551, 567, 571 current cost 231–9 distributable 280, 281, 285 goodwill, writing off to 472, 474, 478 non-distributable see non-distributable reserves revaluation 44, 433 share premiums 283–4, 553–4 residual values 415–16, 417 restrictive loan covenants 721–4 restructuring 72, 309–10, 317, 556 retail inventory valuation method 497–8 retail price index (RPI) 222, 226 retained profits 205–6 retention of title see reservation of title retirement benefits see pension schemes retirement funds 148–9 retrospective changes to financial statements 73 return on assets (ROA) 805 return on capital employed (ROCE) 435, 446–7, 509, 557, 683–5 return on equity (ROE) 683, 724–5 return on investment (ROI) 683, 836 revaluations assets 205, 400–1, 433, 556 property, plant and equipment 421–3 reserves 44, 433 revenue accrual accounting 22–3 assets disaggregation 269 Brexit possible effects 742 construction contracts 521 definition 255, 257 disaggregation 269 grants 430–2 investment, unquoted companies, share valuations 741 recognition 253–4 accounting standard development issues 255–6 amounts identification 258–69 annual refunds 260 challenges 256–7 construction contracts 524–5 contracts 259–60, 262–4 disclosures 269 dividends 255 equally unperformed contracts 267 financial securities 267 IAS 18 Revenue 254–5, 256–7 identifying contracts with customers 259–60 IFRS 15 Revenue from Contracts with Customers 254, 256–69 intellectual property transfers 267 interest 255 judgements 269 leases 266 long-term contracts 266, 522 modification of terms of contracts 268–9 onerous contracts 268 payments deferred 261–2 performance bonuses 261 performance obligations 260, 262–4 pricing transactions 260–2 16/01/2017 17:11 www.downloadslide.net 870 • Index revenue (continued) reservation of title 266 royalties 255 sale of goods 254, 265 sales and repurchases 267 services 255, 265 time value of money 261–2 timing 256, 258–69 transaction price allocation 262–4 uncertainties 258 warranties 265–6 terms and conditions 269 reversal, deferred tax 395 reviews of financial statements for management purposes 677–99 Revsine, L 203, 214 reward systems 820 rewards to financiers 842 rights issues 282, 657–62 Rio Tinto 631 risk-based proactive approach accounting standards enforcement 137 risks analysis using XBRL 768 assessment 736–7 business, disclosures 714–15 costs and, trade-offs 822 disclosures 116 financial 788 financial instruments disclosures 348–51 legal 788 management, corporate governance 787–8 operational 788 regulatory 788 strategic 787–8 taking, excessive 786 ROA (return on assets) 805 RobcoSam Analyses 837 ROCE see return on capital employed Roche Holdings, Inc 425, 720 ROE (return on equity) 683, 724–5 Rohan plc 331–2 ROI (return on investment) 683, 836 Rolls-Royce 187, 327, 471, 494, 714–15 Romalpa clauses see reservation of title Roman law legal systems 147 Roosevelt, Franklin D 390 Royal Bank of Scotland 840 Royal Dutch Shell 839 Royal Liverpool Hospital 531 royalties, revenue recognition 255 RPI (retail price index) 222, 226 rules-based approaches 178–81, 327 Russia corporate governance 784 IFRS adoption 139 Ryanair 740 S&P see Standard & Poor’s SABMiller 468 Sainsbury’s 361, 362, 429, 496, 719 Sajjad, Afra 56 salaries see remuneration sale and leaseback transactions 457–60 Z01 Financial Accounting and Reporting 62409.indd 870 sales cost of 37, 231–2 of goods, revenue recognition 254, 265 inter-company 568, 579, 580–1 and repurchases, revenue recognition 267 Samsung Electronics 720 Sarbanes-Oxley Act 2002, USA 143–4, 185, 789, 800 SASB (Sustainability Accounting Standards Board) 833, 834–5 satisfaction 210 scale of operations 793 scepticism auditors 724, 792–3 ratios 699 screening, Shariah principles 720–1 second opinions, ethics and 177 Securities and Exchange Commission (SEC) compensation disclosures 797 enforcement by 143 fraud cases 785–6 reason for establishment 150, 155 XBRL and 761 securities, financial, revenue recognition 267 segment performance 718 segment reporting 75–9, 110 self-interest threats 178 self-review threats 178 selling costs 37 overheads 500 seniors’ perspectives of ethics 182 separate financial statements 612, 613–14 Serious Fraud Office (SFO) 187 services, revenue recognition 255, 265 set-off of inter-company balances 570–1 settlements, pension schemes 366–7 Seventh Directive 139 SFAS see Statements of Financial Accounting Standards SFO (Serious Fraud Office) 187 share-based payments 372–7 share capital consolidated accounts 549, 551, 566–7, 571 minimum 286 paid-in, repayment of part 294 reduction 288–96 unpaid, cancellation 294 see also capital maintenance shareholders activism 805–9 activity 822 capital, inflation accounting 227 capital reduction and 290–4 earnings per share and 653–4 funds 237, 281–3, 478 information needs 3–4, 714–16 non-voting 282 preference, capital reductions and 291 primacy 821–3, 824 private finance initiative 533–4 returns 730–1 total funds 281–3 total return (TSR) see total shareholder return value (SV) 730 shares accounting entries 283–4 beneficial ownership statistics 806 bonus issues 655, 661–2 buybacks 295–6, 657 exchanges 553–4 issuing 44, 72, 280–1, 282–4 new issues at full market value 656 nominal values 283 non-voting 282 offers for subscription 282 options 663, 666, 799, 801 ordinary 280, 281–2, 653 own, purchase of 294–6 par values 283 placings 282 preference 280, 281, 283, 292, 294, 330–1, 663–4 premiums 283–4, 553–4 prices 724, 800 redemption 72 rights issues 282, 657–62 splits 655–6 treasury shares 295–6 warrants 663 see also earnings per share; share capital shariah compliance 720–1 Shaw, D 509 Shell 827 Shoprite Holdings 497 short-term employee benefits 370–1 short-term leases 455 shrinkage, inventories 504 Siemens 720, 729 significant influence 601–2 Sinaloa 819 Singapore Accounting Corporate Regulatory Authority (ACRA) 761, 763 annual report disclosures 470 Code of Corporate Governance 800 XBRL 761, 763 single obligations 306 small and medium-sized enterprises (SME) borrowing costs 413 definition 146 failure prediction and 734 IFRS for see International Financial Reporting Standards: IFRS for SMEs regulatory burden on 141 reporting requirements 145 Valuation Index 738 small companies see small and mediumsized enterprises smaller listed companies co-operative approach to enforcement 138 SME see small and medium-sized enterprises Smith, Adam 178–9 16/01/2017 17:11 www.downloadslide.net Index • 871 SOCE (statements of changes in equity) 43–4, 160, 582 social accounting 837 social activities, expenditure on 821 social and relationship capital 826–7 social consequences 818–19 social dimension of sustainability 833 social disasters 818, 820 social groups, ethical influences of 174 social information 817 social issues, key performance indicators 55 social responsibilities management accountability for 821–5 see also corporate social responsibility socially aware management 829–30 societal norms 178 societal pressures operating against profit maximisation 821–3 software limitations of traditional financial reporting 831 sole traders, capital maintenance 284–5 solvency 103 South Africa apartheid regime 831 corporate governance 831–2 HIV (Aids) 832 IFRS adoption 139 integrated reporting 825, 831–2 sovereign wealth funds 148–9 SOX see Sarbanes-Oxley Act 2002 Spacek, Leonard 175 Special Purpose Entities (SPE) 795 Spirit Pub Company plc 309 splits, shares 655–6 SSAP see Statements of Standard Accounting Practice SSL International 431 stakeholders corporate governance 782–3 corporate social reporting approach 835–6 theory 823 using financial reports, unethical behaviour implications for 183–8 XBRL views 760, 763 Standard & Poor’s 736 Global Broad Market Index 837 Why inconsistent reporting of exceptional items can cloud underlying profitability (2014 study) 53 standard cost, inventory valuation 497 standards see accounting standards; Financial Reporting Standards; International Accounting Standards; International Financial Reporting Standards; Statements of Financial Accounting Standards; Statements of Standard Accounting Practice Starbucks 655–6 statements of cash flows see cash flow statements Z01 Financial Accounting and Reporting 62409.indd 871 statements of changes in equity (SOCE) 43–4, 160, 582 statements of comprehensive income accrual accounting 23 Brexit possible effects 742 cash flow statements preparation when not available 118–20 consolidated accounts 580–9, 604–5, 607, 634, 635 construction contracts 527, 529, 530 current cost accounting 237, 240 current taxation 393 decision-usefulness 43 deferred taxation 396 discontinued operations 82–3 foreign currencies and 634, 635 formats 586 hyperinflation 639 inflation accounting 231–3 information needs 160 internal 33–6 as linking statements 206 pension schemes 366, 368 real terms system 240 as statements of financial performance 167 tax expense 393–402 Statements of Financial Accounting Standards (SFAS) (USA) 109 Accounting for Income Taxes 398 128 Earnings per Share 668 131 Disclosures about Segments of an Enterprise and Related Information 80–1 statements of financial position 44–5 accrual accounting 23–6 brands 478 Brexit possible effects 743 cash flow accounting 13–14 consolidated accounts 565–71, 602–4, 606 construction contracts 522–3, 527, 529, 530 current cost accounting 229–31, 234–5, 238–9 current purchasing power 227 current taxation 393 depreciation effects 434 foreign currencies and 634, 636 goodwill, keeping in unchanged 472, 474 hyperinflation 639 inflation accounting 229–31, 234–5, 238–9 information needs 160 inventories 509 leases 445, 446 measurement 166 opening, restating to current cost 229–31 pension schemes 369 tax expense 393 statements of income see statements of comprehensive income statements of profit or loss 167 leases 446 Statements of Standard Accounting Practice (SSAP) Accounting for Value Added Tax 404 statutory audit reports 790 Stein Mart 497 Stern Review 825 stewardship 13–14, 15, 16, 21–2, 134, 202, 244, 755–6, 807–8, 809 stock see inventories; shares stock analysts 786 Stohl, C 186 straight-line methods amortisation of goodwill 475 depreciation 417–18, 421 strategic mistakes 735 strategic planning 837–8 Strategic Reports 54–5, 112, 714, 772, 787, 788, 824 strategic risks 787–8 Structural Dynamics Research Corporation 793 students, ethics and 182, 191–2 stylesheets, XBRL 764–5 subjectivity 228 subsidiaries acquired during year 584–6, 587–8 book values 552–3 disclosures 612–13 excluded 555 fair values 552–3 foreign currencies 632, 633, 637 partly owned 549–51 wholly owned 545, 548–9 see also acquisitions; business combinations; consolidated accounts substance of transactions 179 substance over form 15, 16, 330, 403, 448, 832 substitution rights, leases 449 sum of the units method, depreciation 418 Sunshine Holdings Ltd 723 superfairness 180 supplier-related intangible assets 466 suppliers key performance indicators 55 sustainability 833–5, 837, 843, 844 Sustainability Accounting Standards Board (SASB) 833, 834–5 sustainable earnings 179 SV (shareholder value) 730 Sweden, GRI report 833 symptoms of failure 735–6 T J Hughes 505 TAAR (targeted anti-avoidance rules) 389–90 Taffler’s Z-score 732, 733–4 tags, HTML, XML and XBRL 758–9 takeovers see acquisitions; business combinations; consolidated accounts Tanzania 187 targeted anti-avoidance rules (TAAR) 389–90 16/01/2017 17:11 www.downloadslide.net 872 • Index targets, ethical codes and, conflicts between 186–7 tax havens 391 tax losses see losses taxation accounting basis required 17 avoidance 389–92 corporation tax 386–403 current 38–9, 393–4 deferred 394–403 evasion 389–92 income measurement 203–4 national differences 149 value added tax 404 taxonomies, XBRL 763–4, 765 technical circulars 157 technical expertise technology 831 technology-related intangible assets 466 Technotrans 310–11 temporary differences, deferred taxation 395–8 tendering, construction contracts 522 termination benefits 371 termination costs 317 Tesco 48, 80, 106, 134, 162, 719 Thameslink 531 theoretical ex-rights calculations, rights issues 658–9 third party evidence (TPE) 259 threats to compliance with fundamental principles 178 ThyssenKrupp 731 time value of money 261–2 timeliness 10, 163 timing differences, deferred taxation 394–8 timing of revenue recognition 256, 258–69 title, reservation of see reservation of title total owners’ equity 280–1 TOTAL SA 720 total shareholder return (TSR) 727, 730–1, 799–800 total shareholders’ funds 281–3 TPE (third party evidence) 259 trade creditors see creditors trade payables 280 capital reductions and 291–4 ratios 689 trade receivables measurement 337 ratios 688–9 trademarks limitations of traditional financial reporting 831 trading conditions 792–3 losses, capital reduction 288–94 related parties 89 trainees’ perspectives on ethics 182 training, ethics and 191–2 transactions foreign currencies 627–40 related parties 89 substance of 179 Z01 Financial Accounting and Reporting 62409.indd 872 transferable risks 788 translation, foreign currencies 627, 628–31, 633, 637–8 transparency ED/2010/1 potential impact on 319 transport costs 37 Treadway Commission see Committee of Sponsoring Organizations of the Treadway Commission treasury shares 295–6 trial balances 33–6 triple bottom line 828, 831, 837 true and fair view 51–2, 179, 180 TSR see total shareholder return Tullow Oil 632 turnover asset turnover ratios 687–9, 695 non-current asset turnover ratios 687 Tweedie, Sir David 305 Tyco 795 UK Corporate Governance Code 800, 801–10 unaudited information, published account limitations 717 uncertainties Brexit possible effects 742 revenue recognition 258 see also provisions unconsumed costs of assets, values of 206 understandability 163 understated quantities 507 unethical behaviour 183–8, 785–6 Unilever 84, 89, 731 unincorporated businesses, capital maintenance 284–5 United Arab Emirates, XBRL use 762 United Kingdom accounting profession 149 accounting theory 150 agricultural accounting 512 Brexit 142, 742–3 Bribery Act 2010: 784 corporate governance 783, 784 executive remuneration 796–800 GAAP 142 The implementation of IFRS in the UK, Italy and Ireland (ICAS research report 2008) 145 legal system 147 Listing Authority see Listing Authority, UK management obligations 824 mandatory standards 132–4 own shares, buyback 296 regulatory framework 135–8 shareholder primacy 824 tax and reporting systems 149 treasury shares 296 UK Corporate Governance Code 800, 801–10 XBRL 761, 762 United Nations Global Compact 833, 834, 835 United States accounting profession 149 accounting standards 150, 476 accounting theory 150 American Institute of Certified Public Accountants (AICPA) 766, 771 Benefit Corporations 822 Certified Public Accountants (CPA) 191 corporate governance 783, 784 Delaware 392 Department of Justice 187 diesel cars pollution levels 819–20 finance of industry 148 Foreign Corrupt Practices Act 1977: 784 GAAP 143, 144, 155, 181, 328, 761, 766 Gulf of Mexico oil rig disaster 819 IFRS and 144 international standards, progress towards adoption 144 legal system 147 own shares, buyback 295 pay ratio 843 shareholder primacy 822 standard setting and enforcement 142–4 tax and reporting systems 149 XBRL 761, 762 see also Financial Accounting Standards Board; Securities and Exchange Commission; Statements of Financial Accounting Standards unquoted companies share valuations 737–42 see also private companies unrealised gains 40, 482 unrealised losses 40 unrealised profits 207, 482, 605 unused tax losses 401–2 URL 756 useful economic lives 414–16, 433–4, 467–8 users of financial statements education 796 needs 161 valuation accounting 242 Valuation Index, SMEs 738 Valuation Standards Council, International (IVSC) 479 valuations agricultural produce 512 errors 74 historical cost, agricultural activities 512 intangible assets 481–2 inventories see inventories pension schemes 379 see also revaluations value added statements 828–9, 840–2 value added tax (VAT) 404 value in use, measurement 166 values accountants’ view 204–6 capital 214–15 16/01/2017 17:11 www.downloadslide.net Index • 873 carrying 332–4 current value accounting (CVA) 221 determining value 727–31 economists’ view 208–14 ethical, implications for principles versus rules-based approaches to accounting standards 178–81 future 209 residual 415–16, 417 shareholder value (SV) 730 of unconsumed costs of assets 206 in use 424–5, 427 see also fair values; net realisable values; present values VAT (value added tax) 404 vendor specific objective evidence (VSOE) 259 verifiability 163 vertical analysis 681, 682 vested interests 132 vesting dates, share-based payments 374 Virgin Atlantic 190 Vodacom 756 Vodafone 473, 657 volatility 145, 714 Volkswagen 411, 819–20 Z01 Financial Accounting and Reporting 62409.indd 873 volume analysis, ratios 687–90 voluntary disclosures 116 VSOE (vendor specific objective evidence) 259 WACC (weighted average cost of capital) 728–9 warehousing costs 37 warning flags 792–3 warranties, revenue recognition 265–6 warrants, shares 663 Wassenan 145 Watford Association Football Club 312 wealth distribution 132 weighted average cost of capital (WACC) 728–9 weighted average number of ordinary shares 653, 659–60 Westwick, C 509 whistleblowing 188–9 wholly owned subsidiaries 545, 548–9 wider markets initiative (WMI) 531 Williams, Jerry 786 WIP (work-in-progress) 502–4 WMI (wider markets initiative) 531 work-in-progress (WIP) 502–4 working capital 14, 103, 104–5, 106, 109, 111, 113, 232–3, 688–90 WorldCom 735 WPP 479 writing off part capital 288–94 Wyatt, Arthur 794–5 XBRL (eXtensible Business Reporting Language) 756, 757–73 XBRL Foundation Certificate Program 766 XBRL International 759, 772–3 XML (eXtensible Mark-up Language) 758, 759 year-end adjustments 35–6 year-end manipulations 505–6 yields dividends 727 earnings 726 effective 340–1 unquoted companies, share valuations 738 Z-scores 732–4, 741 Zeta model 733 16/01/2017 17:11 www.downloadslide.net Z01 Financial Accounting and Reporting 62409.indd 874 16/01/2017 17:11 www.downloadslide.net Z01 Financial Accounting and Reporting 62409.indd 875 16/01/2017 17:11 www.downloadslide.net Z01 Financial Accounting and Reporting 62409.indd 876 16/01/2017 17:11 ... to accounting on a cash flow and accrual accounting basis Accounting and reporting on a cash flow basis Accounting and reporting on an accrual accounting basis 21 Part Preparation of internal and. .. www.pearson.com/uk F01 Financial Accounting and Reporting 62409 Contents.indd 17/01/2017 14:57 Financial Accounting and Reporting EIGHTEENTH EDITION Barry Elliott and Jamie Elliott Harlow, England • London... Introduction to accounting on a cash flow and accrual accounting basis M01 Financial Accounting and Reporting 62409.indd 16/01/2017 14:55 M01 Financial Accounting and Reporting 62409.indd 16/01/2017 14:55