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Module 3 - Introduction!

The Language and


Tools of Financial Analysis"
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Accounting Principles and
Financial Decision-Making"
(Trust in numbers)"
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Presenter:! Paul Kofman!
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Caveat emptor!

Financial analysts rely crucially on the


accuracy of accounting information!
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Internal and external auditing of the firms
accounts aim to establish trust!
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But trust is challenged:!
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Conflicts of interest (internal and
external auditors)!
Its getting more complicated!
Its ambiguous!
Arent there rules?!

Global accounting standards!

Corporations operate globally and have


global ownership!
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All the more reason to speak a single
accounting language!
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Generally Accepted Accounting Principles
(GAAP) differ across countries, but!
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International Financial Reporting Standards
(IFRS) are becoming the global standard!

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Ambiguity!

Market value or book value!


Accrual or cash accounting!
Profit or wealth creation!
What goes in goodwill?!

Accounting scandal headlines!

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BALANCE SHEET / WIKIMEDIA FRDERGESELLSCHAFT
ASSETS 2011 2010 LIABILITIES 2011 2010
Fixed assets Equity
Intangible Subscribed capital 25,000.00 25,000.00
assets Retained earnings
(software) 15,808.33 0.00 Reserves (according to the statutes) 3,297,239.21 211,017.87

Current assets Provisions


Receivables and other Provisions for
assets 362,063.20 98,280.47 financial statements and audit 3,650.00 1,650.00

Cash assets, Liabilities


with banks 2,956,948.99 1,250,412.90 Liabilities for
supplies and services 8,931.31 0.00
Overdraft 0.00 8.50
Other liabilities
with a remaining term
of up to one year 0.00 1,111,017.00
Total assets 3,334,820.52 1,348,693.37 3,334,820.52 1,348,693.37
Audit statement, P&L, bankruptcy!
STATEMENT OF PROFIT AND LOSS / WIKIMEDIA FRDERGESELLSCHAFT
INCOMEUmsatzerlse 2011 2010 EXPENSES 2011 2010
Revenues 3,850,119.63 1,082,828.76 Other operating
Donations 3,764,823.16 1,082,828.76 expenditures 93,995.92 872,007.62
Corporate donations 85,296.47 0.00 Ordinary operating exp.
Repairs and maintenance 10,199.03 0.00
Advertising and travel costs 99.00 0.00
Other interest Various operational costs 83,697.89 872,007.62
and similar income 12,732.99 196.73
Interest and similar
Use of/ expenditures 182.25 0.00
appropriation to reserves
Use of Appropriation to reserves
operational reserves 108,283.00 0.00 Appr. to operating reserves 220,000.00 108,283.00

Forwarded funds 3,656,957.45 102,734.87


Retained earnings 0.00 0.00

BANKRUPT
$4.23 billion: Jefferson County collapse largest in US history


The Birmingham News
Thursday, November 10, 2011

Trust Loss and restoration!

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Source list!
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! Slide 6: EnronStockPriceAug00Jan02 By Nehrams2020 (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via
Wikimedia Commons (http://commons.wikimedia.org/wiki/File%3AEnronStockPriceAug00Jan02.jpg)!
Slide 6: Committee on Homeland Security and Governmental Affairs, United States Senate, Wall Street and the Financial Crisis: Anatomy of
a Financial Collapse (2011) [Public domain]
(http://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf?attempt=2)!
Slide 7: Analyzing Financial Data by Dave Dugdale (www.learningvideo.com) [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/
2.0/)] (https://flic.kr/p/8LCNW2)!
Slide 7: STATEMENT OF PROFIT AND LOSS / WIKIMEDIA FRDERGESELLSCHAFT in Wikimedia Deutschland Annual Report 2011, p
34 [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0/deed.de)]
(https://www.wikimedia.de/w/images.homepage/7/7a/WMDE_2011_Annual_Report_web.pdf).!
Slide 7 / overlay image: US BANKRUPTCY COURT by Fried Dough [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0/)] (
https://flic.kr/p/aPJzyp)!
Slide 7: Headline sourced from The Birmingham News, Thursday 10 November 2011!
Slide 8: Percent rating profession very high/high on honesty and ethics by Thomas Szoka and Indika Lovell the University of Melbourne.
Data sourced from http://www.gallup.com/poll/1654/honesty-ethics-professions.aspx, April 2015.!
Additional overlay images / video sourced from:iStock.com/ arturchmiel; iStock.com/shulz.!