Lecture 1

• Accounting concept


  The rule of accounting which are to be followed, while recording business transactions and preparing final accounts
• Users of accounting information


  • Business
  • Competitors
  • Lenders
  • Managers
  • Owners
  • Customers
  • Suppliers
  • Investment analysis
  • Community representatives
  • Government
  • Employees & their representatives
• Financial accounting


  External use, reporting the past, highly summarised, objectivity and verifiability, regulations apply, annual financial report
• Management accounting


  Internal use, past and future, detailed information, relevance and timeliness, do whatever is most useful, daily and monthly reports
• Conceptual framework


  A theory of accounting prepared by a standard-setting body against which practical problems can be tested objectively
• Purpose of conceptual framework


  • Establishing precise definitions of accounting issues
  • Providing guidance to accounting standard setters when developing and reviewing financial reporting rules
  • Helping to ensure that accounting standards are internally consistent
• Accounting principles


  • Going concern
  • Consistency
  • Prudence
  • Accruals
  • Realisation
  • Matching
• Accounting concepts


  • Entity
  • Periodicity
  • Dual aspect
  • Historic cost
  • Money measurement
  • Materiality
  • Substance over form
  • True and fair
• Accounting principles and concepts are applied


  Accounting information may not always be useful to users
• Qualities that influence the usefulness of accounting information

  • Relevance
  • Faithful representation
  • Confirmatory value
  • Predictive value
  • Neutrality
  • Completeness
  • Freedom from error
  • Comparability
  • Timeliness
  • Understandability
  • Verifiability
• Fundamental qualitative characteristics


  • Relevance
  • Faithful representation
  • Materiality threshold
• Enhancing qualitative characteristics


  • Comparability
  • Timeliness
  • Verifiability
  • Understandability
• Information in an annual report


  • Financial information (measured in monetary value, e.g. total revenue, cost of goods sold, net profit)
  • Non-financial information (e.g. environmental, social, and corporate governance, political situations)
• Corporate information in an annual report


  • Short history of company
  • Members of board of directors and key management personnel
  • Organisation structure
  • Awards and accolades
  • Key markets
• Information in annual report

  • Financial information (measured in monetary value, e.g. Total revenue, Cost of goods sold, Net profit)
  • Non-financial information (e.g. Environmental, Social, and Corporate governance (ESG) information, Political situations)
• Corporate Information


  • Short history of company
  • Members of board of directors and key management personnel
  • Organisation structure
  • Awards and accolades
  • Key markets and products
  • Operating statistics and financial highlights
• Analysis and commentaries


  • The letter from the chairman to shareholders
  • The commentaries allow users to see the company through the eyes of its directors and management, which facilitates the assessment of the company and its financial performance
• Other statements and disclosure

  • The letter from the corporate governance committee
  • This section provides information about corporate governance, which is the set of principles adopted or practiced by company to ensure that a company has clear corporate direction, and being managed accountability
• Set of Financial Statements

  • Notes
  • Auditor's Report
  • Acknowledgement by Directors
• Auditor's Report


  • Opinion as to whether the F/S comply with the applicable accounting standards and represent a true and fair reflection of the company's performance
  • 3 types of opinions: Unqualified, Qualified, Adverse
• Objective of financial reporting

  To provide financial information in the form of general purpose financial statements that is useful to existing and potential investors, lenders, and other creditors making decisions about providing resources to an entity
• General Presentation Requirements of Financial Statements

  • Labeling of Financial Statements
  • Fair presentation and compliance with IFRS
  • Going concern and accrual basis
  • Materiality and Aggregation
  • Offsetting
  • Frequency of reporting
  • Comparative information and consistency of information
• Comprehensive income


  Revenues, expenses, gains, and losses that are recognised because it is probable that any future economic benefit associated with the item will flow to or from the entity; and the item has a cost or value that can be measured with reliability
• Categorising Income Statement by

  • Function
  • Nature
• Assets


  Probable future economic benefits obtained or controlled by an entity as a result of past transactions or events
• Liabilities


  Probable future sacrifices of economic benefits arising from present obligations of the entity to transfer assets or provide services to other entities in the future as a result of past transactions
• Equity


  The claim of the owner against the business
• Statement of Financial Position formats

  • Account format
  • Report format
• Statement of Changes in Equity

  Reconciles the movement in total equity, from the beginning to the end of its financial period, which may come from transactions with owners and dividend payments, or the change may come from net income (or loss) for the period
• Key reconciling items in Statement of Changes in Equity

  • Beginning Equity
  • Share Issuance/Cancellation
  • Transactions with Owners
  • Dividends
  • Profit/Loss
  • Ending Equity
• Statement of Cash Flows

  Focuses on cash movements during the accounting period, broken down into key categories: Operating activities, Financing activities, Investing activities
• Statement of financial position at the start of the accounting period

  Equity, Cash and cash equivalents
• Statement of financial position at the end of the accounting period

  Equity, Cash and cash equivalents
• Income Statement


  Revenues, Expenses, Net income
• Statement of Changes in Equity


  Beginning equity, Net income, Cash dividends, Ending equity
• Statement of Financial Position

  Assets, Liabilities, Shareholders' equity
• Statement of Cash Flows

  Cash flows from operating activities, Cash flows from investing activities, Cash flows from financing activities, Net cash flows
• Notes to the Financial Statements

  Contain additional information of accounting policies, presented in a systematic manner, including summary of significant accounting policies, estimates, and assumptions used, additional supporting information for items on the F/S, and other disclosure requirements
• Example of information in Notes to the Financial Statements

  • Share capital
  • Income tax payable
  • Dividends
  • Income tax expense
  • Ending balance of retained earnings
  • Total assets
  • Long-term debt
  • Revenue
  • Cash spent to acquire the building
  • Selling, general & administrative expenses
  • Adjustments to reconcile net income to net cash by operations
  • Ending cash balance
  • Current liabilities
  • Net income
• The financial statements can be found in the following statements: Balance Sheet (Statement of Financial Position), Income Statement, Statement of Changes in Equity, and Statement of Cash Flows