Contents of the book

Part one: Framework, Theory and Regulation

Part two: Annual Financial Statements
Part three: Consolidated Accounts and the
Multinational
Part four: Financial Analysis

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Chapter 1
Basics of financial reporting

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Contents

Users of financial reports

Characteristics of useful information
Need for communication
Coherent framework
International dimension
Terminology and the English language

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Learning objectives
Explain and discuss the scope of
accounting in general and of financial
reporting in particular
Describe the major types of user-published financial
information and discuss the implications of their
different needs
List and discuss the characteristics of accounting
information that are likely to maximize its usefulness
Describe and apply the traditional conventions
applied in financial reporting
Discuss and illustrate the internal coherence or
inconsistency of these conventions
International Financial Reporting and Analysis, 5th edition
David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Accounting

The provision of figures

about the performance and
the financial position of
an entity
International Financial Reporting and Analysis, 5th edition
David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Therefore accounting needs:

An effective and efficient data handling and recording
system
The ability to use that system to provide something
useful to somebody

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Three fundamental issues

Who are the users of the accounting statements?

What is the purpose for which each particular type of
user requires the information?
How can we provide the user with the information
best suited to their needs?

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Different types of users

Shareholders,
investors
Loan creditor group
Employee group
Analyst-adviser
group
Suppliers and trade
creditors

Customers
Competitors
Government
The public

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

What kind of information do these

users want?

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Different users different

needs
Shareholders

Loan creditors

Employees

Return on the
investment and risk
involved
Possibility to repay
loans and pay interest
Stability and profitability
of the firm, employment
and remuneration
opportunities

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Different users different

needs
Financial analysts

Suppliers and trade

creditors
Customers
Competitors

Information to advise
whether to hold, buy or
sell shares
Ability to pay the
amounts due
Going concern of the
enterprise, corporate
responsibility
Performance of the
competition

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Different users different

needs
Government

The public

To determine taxable
income, to supervise
regulation, to judge
efficient allocation of
resources
The viability of the
company, the
corporate
responsibility
International Financial Reporting and Analysis, 5th edition
David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Summary of user needs

Many, although not all, of the information
requirements are essentially forward looking
Different users, with different purposes, may
require different information about the same
items
Different users will require different degrees of
complexity and depth
Not all the information required is likely to be
included in financial accounts
International Financial Reporting and Analysis, 5th edition
David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Characteristics of
useful information

Relevance
Understandability
Reliability
Completeness
Objectivity
Timeliness
Comparability
International Financial Reporting and Analysis, 5th edition
David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Accounting information needs to be

understood by the user

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Accounting communication is
improved through the use of
conventions

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Financial Accounting
Conventions
Business entity
Duality
Monetary
measurement
Cost
Continuity (going
concern)
Conservatism
(prudence)

Consistency
Materiality
Objectivity
Realization of
revenue
Matching

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Accounting conventions are grouped

in a coherent framework

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Many standard setters develop a

conceptual framework from which
they derive the accounting standards

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

Communication of accounting
information

Within one jurisdiction

Within the global economy: more problems to make
accounting information understandable

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA

International Financial Reporting and Analysis, 5th edition

David Alexander, Anne Britton and Ann Jorissen
ISBN 978-1-4080-3228-2 2011 Cengage Learning EMEA