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Book Details
Abstract
The fully updated International Edition of Elliott and Elliott’s market-leading 'Financial Accounting and Reporting' uses the latest International Accounting Standards as its framework. It offers a unique balance of theoretical and conceptual coverage with up-to-date practical applications and illustrations taken from real world international company reports and accounts.
The text is ideal for any undergraduate student doing a second level course in financial accounting or on an MBA and MSC course.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Cover | Cover | ||
| Financial Accounting, Reporting and Analysis: International Edition | i | ||
| Brief Contents | v | ||
| Full Contents | vii | ||
| Preface and acknowledgements | xviii | ||
| Part 1 Regulatory framework – an attempt to achieve uniformity | 1 | ||
| Financial reporting – evolution of international standards | 3 | ||
| Introduction | 3 | ||
| National differences | 3 | ||
| Reasons for differences in financial reporting | 4 | ||
| Classification of national accounting systems | 8 | ||
| Attempts to reduce national differences | 9 | ||
| The work of international bodies in harmonising and standardising financial reporting | 9 | ||
| Arguments in support of standards | 16 | ||
| Arguments against standards | 17 | ||
| US GAAP | 18 | ||
| Reconciliations and supplementary statements | 20 | ||
| Summary | 21 | ||
| Review questions | 21 | ||
| Exercises | 21 | ||
| References | 22 | ||
| Conceptual framework | 24 | ||
| Introduction | 24 | ||
| Historical overview of the evolution of financial accounting theory | 25 | ||
| IASC Framework for the Presentation and Preparation of Financial Statements | 28 | ||
| ASB Statement of Principles 19995 | 30 | ||
| AICPA Improving Business Reporting – A Customer Focus: Meeting the Information Needs of Investors and Creditors | 40 | ||
| ICAS Making Corporate Reports Valuable | 41 | ||
| Summary | 42 | ||
| Review questions | 44 | ||
| Exercises | 45 | ||
| References | 48 | ||
| Published accounts of companies | 49 | ||
| Introduction | 49 | ||
| A public company’s financial calendar | 50 | ||
| Criteria for information appearing in a published income statement and balance sheet | 51 | ||
| The prescribed formats – the income statement | 51 | ||
| What information is required to be disclosed in Format 1 and Format 2? | 52 | ||
| Cost of sales | 53 | ||
| Distribution costs | 57 | ||
| Administrative expenses | 57 | ||
| Other income | 57 | ||
| What costs and income are brought into account after calculating the trading profit in order to arrive at the profit on ordinary activities before tax? | 57 | ||
| Does it really matter under which heading a cost is classified in the income statement provided it is not omitted? | 58 | ||
| Discontinued operations disclosure in the income statement | 58 | ||
| Items requiring separate disclosure | 61 | ||
| The prescribed formats – the balance sheet | 61 | ||
| Statement of changes in equity | 65 | ||
| Reporting comprehensive income | 67 | ||
| Segment reporting | 70 | ||
| The fundamental accounting principles underlying the published income statement and balance sheet | 71 | ||
| Disclosure of accounting policies | 71 | ||
| Fair view treatment | 76 | ||
| Additional information in the annual report | 78 | ||
| What information do companies provide to assist comparison between companies reporting under different reporting regimes? | 80 | ||
| Summary | 84 | ||
| Review questions | 84 | ||
| Exercises | 86 | ||
| References | 93 | ||
| Preparation of published accounts | 94 | ||
| Introduction | 94 | ||
| Stage 1: preparation of the internal income statement from a trial balance | 94 | ||
| Stage 2: preparation of the income statement of Illustrious SpA in Format 1 style | 96 | ||
| Stage 3: preparation of the balance sheet | 99 | ||
| Preparation of accounts in Format 1 following IAS 8 and IFRS 5 | 100 | ||
| Additional information value of IFRS 5 | 104 | ||
| Additional information value of IAS 24 | 105 | ||
| Summary | 107 | ||
| Review questions | 108 | ||
| Exercises | 109 | ||
| References | 116 | ||
| Part 2 Balance sheet – equity, liability and asset measurement and disclosure | 117 | ||
| Share capital, distributable profits and reduction of capital | 119 | ||
| Introduction | 119 | ||
| Total owners’ equity: an overview | 121 | ||
| Total shareholders’ funds: more detailed explanation | 122 | ||
| Accounting entries on issue of shares | 124 | ||
| Creditor protection: capital maintenance concept | 125 | ||
| Creditor protection: why capital maintenance rules are necessary | 126 | ||
| Creditor protection: how to quantify the amounts available to meet creditors’ claims | 127 | ||
| Issued share capital: minimum share capital | 127 | ||
| Distributable profits: general considerations | 128 | ||
| Distributable profits: how to arrive at the amount using relevant accounts | 129 | ||
| When may capital be reduced? | 129 | ||
| Writing off part of capital which has already been lost and is not represented by assets | 130 | ||
| Repayment of part of paid-in capital to shareholders or cancellation of unpaid share capital | 136 | ||
| Purchase of own shares | 136 | ||
| Summary | 139 | ||
| Review questions | 140 | ||
| Exercises | 140 | ||
| References | 143 | ||
| Off balance sheet finance | 144 | ||
| Introduction | 144 | ||
| Primary financial statements: their interrelationship | 144 | ||
| Primary financial statements: changes in their interrelationship | 145 | ||
| Reasons that companies borrow | 145 | ||
| Capital gearing and its implications | 146 | ||
| Off balance sheet finance | 148 | ||
| Substance over form | 149 | ||
| Impact of converting to IFRS | 152 | ||
| Balance sheet as valuation document | 155 | ||
| Why companies take steps to strengthen their balance sheets | 156 | ||
| Definitions cannot remove uncertainty: IAS 10 and IAS 37 | 157 | ||
| Summary | 165 | ||
| Review questions | 166 | ||
| Exercises | 167 | ||
| References | 169 | ||
| Financial instruments | 171 | ||
| Introduction | 171 | ||
| IAS 32 Financial Instruments: Disclosure and Presentation1 | 171 | ||
| IAS 39 Financial Instruments: Recognition and Measurement | 181 | ||
| Summary | 187 | ||
| Review questions | 187 | ||
| Exercises | 188 | ||
| References | 189 | ||
| Employee benefits | 190 | ||
| Introduction | 190 | ||
| Financial reporting implications | 191 | ||
| Types of scheme | 191 | ||
| Defined contribution pension schemes | 193 | ||
| Defined benefit pension schemes | 194 | ||
| IAS 19 (revised) Employee Benefits | 196 | ||
| The liability for pension and other post-retirement costs | 196 | ||
| The income statement | 199 | ||
| Comprehensive illustration | 199 | ||
| Plan curtailments and settlements | 201 | ||
| Multi-employer plans | 202 | ||
| Disclosures | 202 | ||
| Other long-service benefits | 203 | ||
| Short-term benefits | 203 | ||
| Termination benefits8 | 204 | ||
| IAS 26 Accounting and Reporting by Retirement Benefit Plans | 205 | ||
| Summary | 208 | ||
| Review questions | 208 | ||
| Exercises | 210 | ||
| References | 211 | ||
| Taxation in company accounts | 212 | ||
| Introduction | 212 | ||
| Corporation tax | 212 | ||
| Corporation tax systems – the theoretical background | 213 | ||
| Corporation tax systems – avoidance and evasion | 214 | ||
| Corporation tax – the system from 6 April 1999 | 216 | ||
| IFRS and taxation | 218 | ||
| IAS 12 – accounting for current taxation | 219 | ||
| Deferred tax | 221 | ||
| FRS 19 (the UK standard on deferred taxation) | 228 | ||
| A critique of deferred taxation | 229 | ||
| Examples of companies following IAS 12 | 232 | ||
| Value added tax (VAT) | 234 | ||
| Summary | 235 | ||
| Review questions | 236 | ||
| Exercises | 236 | ||
| References | 237 | ||
| Property, plant and equipment (PPE) | 239 | ||
| Introduction | 239 | ||
| What is PPE? | 240 | ||
| How is the cost of PPE determined? | 241 | ||
| What is depreciation? | 243 | ||
| What are the constituents in the depreciation formula? | 246 | ||
| How is the useful life of an asset determined? | 246 | ||
| Residual value | 247 | ||
| Calculation of depreciation | 247 | ||
| Measurement subsequent to initial recognition | 252 | ||
| IAS 36 Impairment of Assets | 254 | ||
| IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations | 259 | ||
| Disclosure requirements | 260 | ||
| Government grants towards the cost of PPE | 261 | ||
| Investment properties | 262 | ||
| Effect of accounting policy for PPE on the interpretation of the financial statements | 263 | ||
| Summary | 265 | ||
| Review questions | 266 | ||
| Exercises | 266 | ||
| References | 270 | ||
| Leasing | 271 | ||
| Introduction | 271 | ||
| Background to leasing | 271 | ||
| IAS 17 (and its national equivalents) – the controversy | 273 | ||
| IAS 17 – classification of a lease | 275 | ||
| IAS 17 – accounting for leases by lessees | 277 | ||
| Accounting for the lease of land and buildings | 282 | ||
| Leasing – a form of off balance sheet financing | 283 | ||
| Accounting for leases – a new approach | 284 | ||
| Accounting for leases by lessors | 285 | ||
| Summary | 286 | ||
| Review questions | 287 | ||
| Exercises | 288 | ||
| References | 290 | ||
| R&D; goodwill and intangible assets; brands | 291 | ||
| Introduction | 291 | ||
| Accounting treatment for research and development | 291 | ||
| Research and development | 293 | ||
| Introduction to goodwill and intangible assets | 297 | ||
| Application of IAS 38 Intangible Assets | 297 | ||
| Is there a correct treatment for amortising goodwill? | 301 | ||
| Other types of intangible asset under IAS 38 | 306 | ||
| Disclosure of intangible assets under IAS 38 | 307 | ||
| Brand accounting | 307 | ||
| Intellectual property | 309 | ||
| Summary | 313 | ||
| Review questions | 314 | ||
| Exercises | 316 | ||
| References | 320 | ||
| Inventories | 322 | ||
| Introduction | 322 | ||
| Inventory defined | 322 | ||
| The controversy | 323 | ||
| IAS 2 Inventories | 324 | ||
| Inventory valuation | 325 | ||
| Work-in-progress | 332 | ||
| Inventory control | 334 | ||
| Creative accounting | 335 | ||
| Audit of the year-end physical inventory count | 337 | ||
| Published accounts | 339 | ||
| Summary | 340 | ||
| Review questions | 341 | ||
| Exercises | 342 | ||
| References | 344 | ||
| Construction contracts | 345 | ||
| Introduction | 345 | ||
| Identification of contract revenue | 345 | ||
| Identification of contract costs | 346 | ||
| Recognition of contract revenue and expenses | 346 | ||
| Public-private partnerships (PPPs) | 349 | ||
| Summary | 354 | ||
| Review questions | 355 | ||
| Exercises | 355 | ||
| References | 359 | ||
| Part 3 Consolidated accounts | 361 | ||
| Accounting for groups at the date of acquisition | 363 | ||
| Introduction | 363 | ||
| The definition of a group | 363 | ||
| Consolidated accounts and some reasons for their preparation | 363 | ||
| The definition of control | 365 | ||
| Alternative methods of preparing consolidated accounts | 366 | ||
| The treatment of positive goodwill | 367 | ||
| The treatment of negative goodwill | 368 | ||
| The comparison between an acquisition by cash and an exchange of shares | 368 | ||
| Minority interests | 368 | ||
| The treatment of differences between a subsidiary’s fair value and book value | 370 | ||
| How to calculate fair values | 371 | ||
| Summary | 372 | ||
| Review questions | 372 | ||
| Exercises | 374 | ||
| References | 379 | ||
| Preparation of consolidated balance sheets after the date of acquisition | 380 | ||
| Introduction | 380 | ||
| Pre- and post-acquisition profits/losses | 380 | ||
| Inter-company balances | 382 | ||
| Unrealised profit on inter-company sales | 384 | ||
| Provision for unrealised profit affecting a minority | 388 | ||
| Uniform accounting policies and reporting dates | 388 | ||
| How is the investment in subsidiaries reported in the parent’s own balance sheet? | 388 | ||
| Summary | 388 | ||
| Review questions | 389 | ||
| Exercises | 389 | ||
| References | 391 | ||
| Preparation of consolidated income statements | 392 | ||
| Introduction | 392 | ||
| Preparation of a consolidated income statement – the Ante Group | 392 | ||
| Dividends or interest paid by the subsidiary out of pre-acquisition profits | 395 | ||
| A subsidiary acquired part of the way through the year | 396 | ||
| Published format income statement | 399 | ||
| Summary | 399 | ||
| Review questions | 400 | ||
| Exercises | 400 | ||
| References | 409 | ||
| Accounting for associated companies | 410 | ||
| Introduction | 410 | ||
| Definitions of associates and of significant influence | 410 | ||
| The treatment of associated companies in consolidated accounts | 411 | ||
| The Brill Group – the equity method illustrated | 411 | ||
| The treatment of provisions for unrealised profits | 414 | ||
| The acquisition of an associate part-way through the year | 414 | ||
| Joint ventures | 416 | ||
| Summary | 417 | ||
| Review questions | 418 | ||
| Exercises | 418 | ||
| References | 424 | ||
| Accounting for the effects of changes in foreign exchange rates under IAS 21 | 425 | ||
| Introduction | 425 | ||
| The difference between conversion and translation and the definition of a foreign currency transaction | 425 | ||
| The functional currency | 426 | ||
| The presentation currency5 | 426 | ||
| Monetary and non-monetary items | 427 | ||
| The rules on the recording of foreign currency transactions | 427 | ||
| The treatment of exchange differences on foreign currency transactions | 427 | ||
| Foreign exchange transactions in the individual accounts of companies illustrated – Boil plc | 428 | ||
| The translation of the accounts of foreign operations where the functional currency is the same as that of the parent | 429 | ||
| Granby Ltd illustration | 429 | ||
| The use of a presentation currency other than the functional currency | 436 | ||
| Granby Ltd illustration continued | 436 | ||
| Implications of IAS 21 | 438 | ||
| Summary | 439 | ||
| Review questions | 439 | ||
| Exercises | 439 | ||
| References | 441 | ||
| Part 4 Interpretation | 443 | ||
| Earnings per share | 445 | ||
| Introduction | 445 | ||
| Why is the earnings per share figure important? | 445 | ||
| How is the EPS figure calculated? | 446 | ||
| The use to shareholders of the EPS | 447 | ||
| Illustration of the basic EPS calculation | 448 | ||
| Adjusting the number of shares used in the basic EPS calculation | 448 | ||
| Rights issues | 451 | ||
| Adjusting the earnings and number of shares used in the diluted EPS calculation | 456 | ||
| Procedure where there are several potential dilutions | 458 | ||
| Exercise of conversion rights during financial year | 460 | ||
| Disclosure requirements of IAS 33 | 461 | ||
| The Improvement Project | 463 | ||
| Summary | 463 | ||
| Review questions | 464 | ||
| Exercises | 465 | ||
| References | 469 | ||
| Cash flow statements | 470 | ||
| Introduction | 470 | ||
| Development of cash flow statements | 470 | ||
| Applying IAS 7 (revised) Cash Flow Statements | 471 | ||
| IAS 7 (revised) format of cash flow statements | 473 | ||
| Consolidated cash flow statements | 477 | ||
| Analysing a cash flow statement | 480 | ||
| Critique of cash flow accounting | 482 | ||
| Summary | 483 | ||
| Review questions | 484 | ||
| Exercises | 484 | ||
| References | 494 | ||
| Review of financial ratio analysis | 495 | ||
| Introduction | 495 | ||
| Accounting ratios and ratio analysis | 496 | ||
| Six key ratios | 497 | ||
| Description of the six key ratios | 499 | ||
| Description of subsidiary ratios | 501 | ||
| Application of pyramid of ratios to JD Wetherspoon plc | 507 | ||
| Segmental analysis | 510 | ||
| Inter-firm comparisons and industry averages | 516 | ||
| Inter-firm comparisons: JD Wetherspoon and the brewing industry | 518 | ||
| World Wide Web pages for company information | 520 | ||
| Non-financial ratios | 522 | ||
| Interpretation problems when using ratios and consolidated financial statements | 522 | ||
| Summary | 524 | ||
| Review questions | 525 | ||
| Exercises | 526 | ||
| References | 536 | ||
| Trend analysis and multivariate analysis | 537 | ||
| Introduction | 537 | ||
| Horizontal analysis between two periods | 537 | ||
| Trend analysis over a series of periods | 539 | ||
| Historical summaries | 541 | ||
| Vertical analysis – common size statements | 541 | ||
| Multivariate analysis – Z-scores | 544 | ||
| H-scores | 546 | ||
| A-scores | 546 | ||
| Accounting policies | 548 | ||
| Balanced scorecards | 549 | ||
| Valuing shares of an unquoted company – quantitative process | 550 | ||
| Valuing shares of an unquoted company – qualitative process | 552 | ||
| Shareholder value analysis (SVA) | 553 | ||
| Measuring and reporting values in the annual report | 554 | ||
| Shareholder information needs | 559 | ||
| Professional risk assessors | 562 | ||
| Earnings management | 564 | ||
| Impact of differences between IASs and national standards on trend analysis | 565 | ||
| Summary | 566 | ||
| Review questions | 567 | ||
| Exercises | 569 | ||
| References | 576 | ||
| An introduction to financial reportingon the Internet | 577 | ||
| Introduction | 577 | ||
| What is XBRL? | 578 | ||
| What XBRL is not | 580 | ||
| How can it be used? | 580 | ||
| What is needed to use XBRL | 582 | ||
| Progress of XBRL | 584 | ||
| Companies currently using XBRL | 585 | ||
| Summary | 586 | ||
| Review questions | 586 | ||
| Exercises | 586 | ||
| Further reading | 588 | ||
| Part 5 Accountability | 589 | ||
| Corporate governance | 591 | ||
| Introduction | 591 | ||
| The need for corporate governance guidelines | 591 | ||
| Corporate governance in different countries | 592 | ||
| Corporate governance requirements | 594 | ||
| The UK Combined Code | 597 | ||
| Directors’ remuneration | 597 | ||
| Relations with shareholders | 607 | ||
| Institutional investors | 607 | ||
| Corporate governance – summary | 608 | ||
| Auditors | 609 | ||
| Summary | 616 | ||
| Review questions | 616 | ||
| Exercises | 618 | ||
| References | 621 | ||
| Environmental and social reporting | 622 | ||
| Introduction | 622 | ||
| Accountants’ role in a capitalist industrial society | 622 | ||
| Sustainability | 623 | ||
| Background to companies’ reporting practices | 624 | ||
| European Commission recommendations for disclosures in annual accounts | 625 | ||
| Evolution of stand-alone environmental reports | 627 | ||
| International charters and guidelines | 628 | ||
| Economic consequences of environmental reporting | 632 | ||
| Summary on environmental reporting | 632 | ||
| Environmental auditing: international initiatives | 633 | ||
| The activities involved in an environmental audit | 634 | ||
| Concept of social accounting | 636 | ||
| Background to social accounting | 638 | ||
| Corporate social responsibility (CSR) | 641 | ||
| Need for comparative data | 642 | ||
| International initiatives towards triple bottom line reporting | 645 | ||
| Summary | 648 | ||
| Review questions | 648 | ||
| Exercises | 650 | ||
| References | 656 | ||
| Further reading | 657 | ||
| Ethics for accountants | 659 | ||
| Introduction | 659 | ||
| The nature of business ethics | 659 | ||
| Ethical codes for businesses | 661 | ||
| The background to business ethics | 663 | ||
| The role of ethics in modern business | 664 | ||
| The role of professional accounting ethics | 667 | ||
| The role of the accountant as guardian of business ethics | 671 | ||
| Growth of voluntary standards | 672 | ||
| Summary | 675 | ||
| Review questions | 676 | ||
| References | 678 | ||
| Bibliography | 678 | ||
| Appendix Outline solutions to selected exercises | 679 | ||
| Index | 685 |