Corp reporting

• What methods have managers used to inflate accounting earnings?


  • ·  Advanced recognition of revenues

   • ·  Deferred recognition of expenses 

  • ·  Inflation of assets 

  • ·  Reduction or avoidance of liabilities 

  • ·  Big bath

  • ·  Sale and leaseback techniques 

  • ·  Use of lease accounting (operating v finance) 

  • ·  Asset stripping 

  • ·  Changing accounting policies
• Provision – the amount and timing are uncertain: it is unclear how long employees will continue to serve in company A’s employ and this affects whether or not they become eligible for long service leave.
• Liability. This event falls within the reporting period and the amount and timing are certain.
• what are the uses of ratio analysis?

  • Comparing performance. 

  • Used to predict future performance or failure.

  • Ratios are used as targets to be achieved.

  • Easier to understand ratios than absolute measures of money values
• What are the limitations of ratio analysis?

  • Impact of inflation on financial data - distorts analysis.

  • Availability of a suitable basis for comparison.

  • Ratios alone fail to take into account the context of firm.

  • Absolute sizes of profits, sales, etc. are important as well. 

  • Non – financial performance assessment (ignored by ratio analysis) is crucial too. 

  • Focus on past performance
• What is ISA 37?

  IAS 37 defines a provision as:

  • a liability 

  • of uncertain timing or amount. 
• Dividend per share?


  (total dividends/number of ordinary shares)x 100
• dividend yield?


  (dividend per share/market share price)x100
• Dividend cover?


  Profit for ordinary shareholders/total dividend
• Earnings per share?


  (Profit for ordinary shareholders/number of ordinary shares)x100
• price earnings ratio?

  Market share price/earnings per share
• Return on equity?

  (Profit for ordinary shareholders/equity)x100
• Return on capital employed?


  (operating profit/equity + ncl) x100
• ROE V ROCE?


  Roe takes long term borrowing into account whilst Roce does not.
• Capital turnover?


  Revenue/ equity +ncl
• Operating profit margin?


  (operating profit/revenue)x100
• Gross profit margin?


  (gross profit/revenue)x100
• Current ratio?


  Current assets/current liabilities
• Acid test?


  Current assets-inventories/current liabilityes
• Inventory holding period?


  (inventory/cost of sales)x12
• Trade receivables collection period?

  (TR/revenue)x12
• Trade payables payment period?

  (Trade payables/cost of sales)x12
• debt equity ratio?


  (Non current liabilities/equity)x100
• interest cover?


  operating profit/interest payable
• What is IFRS 15?
• What is IFRS 15?

  treatment of contracts revenue.

  Identification of contracts

  identification of performance obligations

  determine transaction price

  allocate price to performance obligation.

  Recognize revenue when obligations are met.
• What are the methods of IFRS 15?


  Input/output method

  profit v loss making
• Difference between liability and contingent liability?

  Technical feasibility

  Intention to complete and sell

  Ability to use or sell

  Existence of a market

  Availability of resources

  Ability to measure costs reliably
• How does cash flow statement provide further information?

  CFS provides information about the cash flows from financing activities, cash flows from investing activities and cash flows from operating activities. Increase the information available to stakeholders in more detail – in particular what operating activities, financing activities and investing activities are and how they relate to firm performance.
• How would stakeholders use cash flow statements in decision making?

  Stakeholders can use the finer information provided in the CFS to make predictions about the liquidity and solvency of the firm before making their investment decisions. Furthermore, CFS is less prone to management manipulation / more difficult to ‘fiddle’.

   
• customer is defined as by ifrs 15?

  • a party that has contracted with an entity

  • to obtain goods or services

  • that are an output of the entity's ordinary activities

  • in exchange for consideration
• A contract defined as?

  • a party that has contracted with an entity

  • to obtain goods or services

  • that are an output of the entity's ordinary activities

  • in exchange for consideration
• A contract defined as?

  • an agreement between two or more parties

  • that creates enforceable rights and obligations
• When is revenue recognized in ifrs 15?

  Revenue is recognised when the performance obligations inherent in the contract have been satisfied, allowing the entity to be entitled to that revenue.
• 5 step model in ifrs for revenue?

  Step 1: Identify a contract with a customer

  Step 2: Identify the performance obligations in the contract

  Step 3: Determine the transaction price

  Step 4: Allocate the transaction price to the performance obligations in the contract

  Step 5: Recognise revenue when or as the entity satisfies a performance obligation.
• what is a contract asset?

  A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time. A receivable is the right to receive payment per IFRS 9, where that right in the context of IFRS 15 arises out of the satisfaction of a performance obligation.
• What criteria meet for a contract?

  • It must be approved by all parties who are also committed to fulfilling their obligations.

  • Each party’s rights to the goods and/or services must be identifiable.

  • The payment terms must be identifiable.

  • The contract must have commercial substance.

  • It must be probable that the entity will collect the consideration to which it expects to be entitled.