Financial Accounting and Reporting: A 3-day Introductory Course

This course can also be presented in-house via live webinar.

Financial Accounting and Reporting Course Content:

Regulatory environment

  • Companies Act 2006 categories of company and the basic framework; SME, other private and listed
  • What is defined as ‘listed’ for different reporting purposes; Companies Act, APB, ASB
  • Summary of listing requirements for annual and interim reports for Full, AIM and Plus listed companies
  • IFRS/ UKGAAP options and the implications of joining and moving between markets
  • Accounting changes – update on option to move to IFRS and planned concessions for qualifying subsidiaries
  • Options within IFRS and UKGAAP Standards – overview
  • Latest changes to accounting for business combinations – the ‘new test for control

Narrative reports

  • Accounting policies and uncertainties – the basic requirements
  • Directors report contents and the review of the business
  • Operating and financial reviews
  • Other additional statements and summaries – regulatory framework and reporting obligations
  • Review of latest proposals for strategic report

Directors and management information

  • Directors’ interests, changes in directors, loans and other transactions with directors and other key reportable events
  • The directors’ remuneration report; legal, listing and accounting disclosure obligations – including for share option arrangements
  • Proposal for high level summary remuneration report
  • Corporate governance statements and the obligations of management and advisors

Additional listed company statements

  • Segmental reporting obligations
    • Single segment businesses; and
    • Information that is commercially damaging
  • Interim reports
    • Required format and contents
    • Variations from year end policies permitted

Other reporting concessions and options

  • Related party transactions and the exemption for wholly owned subsidiaries
  • Consolidated and individual company statements of cash flow
  • Group and holding company profit and loss statements
  • Statutory concessions and exemptions from consolidation for example
  • Planned concession from audit for qualifying subsidiaries

Concluding points

  • Future developments and plans – the future for UKGAAP (overview)
  • Key contentious issues for advisors

Objective of financial accounting and reporting

To record, in an orderly and systematic way, historic transactions and other events that may

  • provide information that is relevant to the amount, timing and uncertainty of the entity’s future cash flows;
  • have effects on the entity that are reliably measurable in financial terms and
  • be useful to external stakeholders in making decisions about the future, and specifically in decisions to provide financial resources to the entity.

Basic conventions of financial accounting and reporting

  • The entity principle: the entity has definite boundaries and is separate from its owners, managements, controllers and sponsors
  • The accruals principle: transactions are recorded when the entity becomes a party to them, and not when any associated cash flows might occur
  • The going concern principle: it is assumed that the entity will not have to liquidate or curtail its operations in the near future
  • The reliable measurement principle: transactions and events are usually recorded only when and to the extent that their impact can be reliably measured in financial terms. This is a severely limits the ability of financial accounts to present what is commonly called ‘the whole picture’ of an entity

Distinction from management accounting

  • Financial accounting is primarily designed to inform outsiders about the implications of historic transactions and events on the financial condition (balance sheet), financial performance (income statement) and cash position (cash flow statement) of the entity;
  • Management accounting is primarily designed to assist management in running the entity more profitably and efficiently, and is therefore not confined to financial measures but contains much non-financial information, e.g. about the volumes and make-up of goods and services, the time taken by processes etc

The method of financial accounting (so-called ‘double-entry bookkeeping’)[1]:

  • Financial accounting is a process that traces
    • the inflow and outflow of resources (assets) into and out of the entity;
    • increases and decreases in the entity’s obligations (liabilities) to third parties; and
    • the impact of a) and b) on the entity’s owners’ residual economic interest in it (equity)
  • Every transaction or other relevant event impacts the entity’s resources and/or the entity’s obligations and/or the entity’s owners’ residual interest in it, in two separate ways

Exhaustive practical exercises in the basic recording of a wide range of transactions and events:

  • Sales: for cash, on credit, and prepaid
  • Purchases and other direct costs incurred: for cash, on credit, and prepaid
  • Resources and obligations that impact more than one accounting period (capex and depreciation, prepayments, accruals and deferred income)
  • Real estate transactions: purchases, sales, sales and leasebacks, rent and other incentives
  • Obligations that are uncertain in timing or amount (provisions)
  • Changes in the economic value of resources (writedowns of inventory and receivables, revaluation of real estate and other assets)
  • Intangible assets and the special restrictions on their recognition
  • Sales taxes and taxes on the entity’s own profit
  • Reconciling external confirmations to internal records, e.g. bank statements

Preparing the period-end financial statements:

  • The income statement
    • Sales and direct expenses, leading to gross profit
    • Other operating income and expense, leading to operating profit
    • Finance income/expense, leading to pretax profit
    • Taxation charge for the period, leading to net income
  • The balance sheet (components, definitions and layout)
    • Assets
      • Current
      • Noncurrent
    • Liabilities
      • Current
      • Noncurrent
    • Net assets
    • Shareholders’ equity
      • Share capital and premium
      • Retained earnings
    • The cash flow statement
      • Method of preparation
        • Direct
        • Indirect
      • Structure
        • Cash flow from operating activities
        • Cash flow from investing activities
        • Cash flow from financing activities

An introduction to elementary financial analysis

  • The uses and limitations of financial ratios: developing simple metrics to track
    • Operating profitability (e.g. gross and operating profit, return on sales)
    • Operating efficiency (asset turnover/utilisation)
    • Overall profitability (e.g. return on capital employed, return on equity)
    • Liquid assets and liabilities: volume and velocity of conversion/circulation)
    • Cash flow coverage of fixed charges
    • Solvency: leverage and gearing

[1] The course deliberately sidelines arcane and stuffy terms such as ‘debit’ and ‘credit’, preferring to use terms that resonate more strongly with commonsense concepts such as ‘resource’, ‘benefit’ and ‘obligation’.

Financial Accounting and Reporting Course Summary:

Participants Will:

  • provides an introduction to the basic principles and practice of financial accounting and reporting
  • combines theoretical rigour with a strong element of everyday commercial reality and a wealth of practical detail
  • is slanted towards the needs of users rather than preparers

It is therefore not only a beginner’s course in bookkeeping for historic transactions, but also a primer on the objectives, conventions, methods and limitations of financial reporting, as a future-orientated aid to decision making by external stakeholders, such as equity shareholders, investment analysts, lenders, and credit risk managers;

  • assumes no prior technical knowledge of accounting or bookkeeping

However, participants are expected to have a general appreciation of the concept of profit and loss, and of a business or other organisation as a legal entity (referred to as “the entity” in what follows) distinct and separate from its owners or controllers

  • is presented at a basic level where the nuances of the differences between IFRS, US GAAP and other national accounting frameworks rarely matter

But in the interest of consistency and transparency, it is presented throughout in accordance with the principles and terminology of IFRS. This can of course be adjusted in the light of the specific situation and preference of the client.

 

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