Published Company Accounts 2014
Documents required to be
published annually by Directors
 Income Statement
 Statements of changes in
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Published Company Accounts 2014
Equity
Statement of Financial
Position/ Balance Sheet
Statement of Cash Flow
Note s to the Financial
statements
Directors` report
Auditors` report
Statement of the
company's Accounting
policies
Principles Governing the Disclosure
Requirements
The Directors must ensure that
the company`s accounting
records contain:
 Details of all monetary
transactions
 Disclose the financial
position of the company with
reasonable accuracy ( details
of Assets & Liabilities)
 Ensure that the Income
statement and Statement of
Financial show a true and fair
view of the company`s
financial position
Published Company Accounts 2014
Window Dressing
 It is an attempt by Directors of a
Lower
income
tax
Increase
share
price
Boots
profit
sharing
bonuses
Improve
debt
rating
Lower
intest rate
company to present information
in Financial statements so that
the position appears to be better
or worse than it really is.
 Eg 1 cheques are paid to
creditors on the last day of year
but the cheques are not send to
creditors until the next financial
year, this artificial reduce
liabilities
 Eg 2 An attempt to inflate the
profit figure by including
unrealisable profits in the
Income Statement
Published Company Accounts 2014
Reasons why business might wish
to window dress their accounts
 To fend off a takeover
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Published Company Accounts 2014
bid=making a company
stronger than it really is ie
a well performing company
is more expensive to buy.
To attract investment=by
exaggerating the financial
strength of the business.
To increase the market
price of shares
To lower the market price
of shares
To reduce taxation
Accounting principles and bases
IAS 1
 Accounting principles are the
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concepts applied to the
preparation of financial
statements and these are
The going –concern concept
Accruals concept
The concept of consistency
Materiality
Prudence
Business entity
Money measurement
Historical
Duality
Substance over form
 Accounting base are the
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Published Company Accounts 2014
method of applying the
principles to the financial
statements to reduce subjectivity
by applying acceptable methods
such as
Methods of depreciation
Methods of stock valuation etc
The general is that once an
entity adopts an accounting
policy then it must be applied
consistently for similar
transaction
Any changes must be applied
retrospectively ie previous figure
must be changed as well.
Requirements provided by IAS 1
 Are intended to ensure that the FSs of an entity are a
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faithful presentation of its Financial position,
Financial performance and Cash Flow
Fair presentation and compliance with IFRSs
Going concern
Accrual basis of accounting
Consistency and presentation
Materiality and aggregation
Published Company Accounts 2014
Going concern
IAS 1, § 23 states that
 FSs shall be prepared on a going concern basis unless
management intends to either liquidate the entity or
cease trading, or has no realistic alternative but to
do so
 When management is aware of any material
uncertainties that cast doubt upon the entity’s ability
to continue as a going concern, those uncertainties
must be disclosed
 When FSs are not prepared on a going concern basis,
that fact must be disclosed
Published Company Accounts 2014
Requirements provided by IAS 1
 Accrual basis of
accounting:
 FSs must be prepared using
the accrual basis of
accounting
 Consistency of
presentation IAS 1, § 27
requires that:
 The presentation and
classification of items in the
FSs shall be retained from
one period to the next
 When such a change is
made, the comparative
information must also be
reclassified
 Financial institutions (such
as Banks) frequently use the
presentation in order of
liquidity
Published Company Accounts 2014
IAS sets out four qualitative
characteristics of the financial
statements
 Relevance :the information may be used to influence
economic decisions of users.
 Reliability:the information is free from material error
and bias.
 Comparability :– the information enables
comparisons over time to identify and evaluate trends.
 Understandability :the information is readily
understandable by users
Published Company Accounts 2014
Users of Accounting Information
 Who are the users and why do they use accounting
information?
- Banks-assess performance in relation to security of loan
- Creditors- assess the ability to pay the debts
- Customers
- Employees
- Managers
- Government
- Investors- assess the past performance on basis for future
investment
- Community
Published Company Accounts 2014
IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors
 Main issues addressed in IAS 8;
 Selecting and applying accounting policies
 Distinguishing between accounting policies,
 accounting estimates and errors
 Changes in accounting policies
 Changes in accounting estimates
 Correction of errors
Published Company Accounts 2014
Selecting and applying accounting
policies
 AS 8, § 5 defines “accounting policies” as
 The specific principles, bases, conventions, rules and
practices applied by an entity in preparing and
presenting FSs
 IFRSs prescribe accounting policies for certain topics,
transactions or events
 IAS 8 deals with areas where there are no accounting
standards, and set outs the principles that entities
must apply in selecting appropriate accounting
policies
Published Company Accounts 2014
Selecting and applying accounting
policies
IAS 8, § 10
 In the absence of a Standard or an Interpretation that specifically
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applies to a transaction or other event or condition, management
shall use its judgement in developing and applying an
accounting policy that results in information that is:
a) relevant to the economic decision-making needs of users; and
b) reliable, in that the FSs:
i) represent faithfully the financial position, financial
performance and cash flows of the entity;
ii) reflect the economic substance of transactions, other events
and conditions, and not merely the legal form
iii) are neutral, i.e. free from bias;
iv) are prudent; and
v) are complete in all material respects
Published Company Accounts 2014
IAS 10 Event After the BS Date
 IAS 10 defines these events as follow: Events after
the BS date are those events, favourable and
unfavourable, that occur between the BS date and the
date when the FSs are authorised for issue
 Usually the date at which FSs are authorised for issue
is the date on which the directors or other governing
body formally approve the FSs for issue to shareholders
and/or other users
Published Company Accounts 2014
IAS 10, 2 types of events can be
identified:
 Those that provide evidence of conditions that existed
at the BS date (adjusting events after the balance sheet
date); and
 Those that are indicative of conditions that arose after
the BS date (non-adjusting events after the balance
sheet date)
Published Company Accounts 2014
Adjusting events after the BS date
 The sale of inventories after the BS date may give evidence
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of their net realisable value at the BS date
The settlement after the BS date of a court case confirms
that the entity had a present obligation at the BS date
The purchase price or proceeds from sale of NCA
Assets where valuation shows impairment is required .
Trade Receivable where a customer has become insolvent
Discovery of fraud or errors which shows the financial
statement to be incorrect.
Published Company Accounts 2014
Non-adjusting events after the
balance sheet date
IAS 10,
 A major business combination after the balance sheet date
 The destruction of property by fire, floods, or strike action
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of employees after the balance sheet date
The issue of new share capital after the balance sheet date
Commencing major litigation arising solely out of events
that occurred after the balance sheet date
Major purchase of Assets
Dividend declared
Cease of trading , not alter native to the course of action
Published Company Accounts 2014
IAS 16 Property, Plant and
Equipment
 This IAS deal with the NCA of PPE and it covers :
 The recognition of assets
 The determination of carrying amount
 The depreciation charges
 Their impairment loses
Published Company Accounts 2014
Property, Plant and Equipment
 These are tangible assets held for use in the production or supply
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of goods or services or for rental to other business and for
administrative purposes.
They are expected to be used more than a year
Cost of PPE include :
Purchase price
Any import duties, taxes to bring asset to present location and
condition
The cost of preparing the site
Initial delivery and handling cost
Installation and assembly cost
Cost of testing the asset
Professional fees, say architects or legal fees
Published Company Accounts 2014
Definition of terms related to PPE
 Depreciation : is the lost of value of and asset or is the allocation of the cost of
an asset over its useful life.
 Depreciable amount: is the cost or valuation of the asset less the residual
value or amount
 Useful life : is the length of time for which the asset is expected to be used .
 Residual value : is the amount that a company expect to obtain from an asset
less any disposal costs at the end of its useful life.
 Fair value : is the amount for which the NCA could be sold less any cost
incurred in the sale
 Carrying amount : is the cost or valuation of NCA less aggregate depreciation
to date
 Value in use: is calculated by discounting the future cash inflows generated by
the use of a NCA or the present value of future cash flows
 Recoverable amount : Is the higher of the fair value and the value in use ie
compare the two which is higher is the recoverable amount.
Published Company Accounts 2014
IAS 37 Provision , Contingent
Liabilities
 Items that represent uncertainties at the time final
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accounts are prepared
They should be accounted for on a consistent basis so that
the users can understand
Provisions- is a liability of uncertain amount or timing eg
Provision for bad debts
Liability is the present of an obligation, a business has to
pay money.eg Creditors
Contingent liability is a possible liability to the business
which arises from past events or when a decision has been
made eg court case & damages have to paid
Contingent is not recorded in the accounts but it is
disclosed as way of notes
Published Company Accounts 2014
IAS 37 cont contingent Asset
 Contingent asset is a possibility of an asset arising from
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past events which will materialised when something has
happened, company not in complete control of the event.
A contingent asset should never be recognised in the
accounts, it should recorded when it certain
IAS uses three words when it talks about Provision ,
contingent assets and liabilities
A. Proble > 50 % chance that it will occur: Shown as note
B. Possible < 50 % chance that it will occur : shown as a
note ( only for liabilities nothing for assets)
C. Remote – little or no chance of the event occurring.
Published Company Accounts 2014
IAS 38 Intangible assets
 These are non- monetary assets without physical substance eg
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Goodwill which is either purchased of internally generated
Only purchased intangible (goodwill) is recorded in the
accounts
Internally intangible (goodwill) or brand names cannot be
recognised in the accounts
Goodwill=Purchase price –NBV of assets taken over
Intangible assets include: Computer software, Licence ,
Trademarks, Patents, Films, Copyrights Customer list or
suppliers and Import quotas
Research expenditure is written of as an expense in the IS
Development expenditure needs to meet a certain criteria to be
an intangible asset eg if the asset can be sold otherwise it is
written of as an expense
Published Company Accounts 2014
Director`s report
 Principle activities of the company and any significant
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changes
Review of Company activities +likely developments
research & development activities
Names of Directors and their shareholdings
Proposed dividends
Significant difference between NBV and market value of
Land and buildings
Political and charitable donation made by the company
Company`s policy on disable people
Health and safety at work of employees
Company ` s policy on payment of suppliers
Published Company Accounts 2014