课件教程分析msc fa1lecture

1、1MN 50318 Financial Accounting 1 Lecture 1David BenceOctober 20142What is Accounting? History of Accounting The Differences between Financial Accounting, Management Accounting and AuditingThe Practice of Financial Accounting international accounting standards, companies Act, Stock Exchange requireme

2、nts, ethical standardsToday - The Theory of Financial AccountingCritical e.g. Accountants partisanshipPositive e.g. agency theory, positive accounting theory, capital market researchNormative e.g. Conceptual frameworks Preamble3Critical researchers challenge conventional accounting research which th

3、ey say is deterministic, reductionist and pseudo-scientificThey highlight the failures of accounting e.g. bank collapses, auditor scandals, environmental disasters etc.They adopt post modern philosophy e.g. Foucault and reject positive economicsThey adopt alternative research strategies e.g. they wr

4、ite poems and sing songsAn interesting paper is Hines (1988), Financial accounting: In communicating reality, we construct reality, Accounting, Organisations and Society, Vol.13, pp.251-261We will return to critical accounting in lecture 11 Critical Perspectives on Accounting4“Critical Perspectives

5、on Accounting aims to provide a forum for the growing number of accounting researchers and practitioners who realize that conventional theory and practice is ill-suited to the challenges of the modern environment, and that accounting practices and corporate behaviour are inextricably connected with

6、many allocative, distributive, social, and ecological problems of our era. From such concerns, a new literature is emerging that seeks to reformulate corporate, social, and political activity, and the theoretical and practical means by which we apprehend and affect that activity.”Critical Perspectiv

7、es on Accounting5Analysis of principal agent relations, Jensen and Meckling, 1976.“ . most organisations are simply legal fictions which serve as a nexus for a set of contracting relationships between individuals”Principals: lenders and ownersAgents: management and auditorsAgents maximise their own

8、utility e.g. will diversify to reduce the risk of unemployment, have nice offices, company aeroplanes, smooth e etcPrincipals anticipate the self interest of agents and try to protect themselves.Basis of Positive Accounting Theory Principal/Agent Analysis6Contracts serve to align incentivesCosts of

9、contracting1. Costs of structuring contracts (legal fees, time)2. Costs of enforcing the contractMonitoring costs (e.g. auditing)Bonding costs (corporate governance)3. Residual loss pensated transfer of wealth from principalto agent. Occurs where incentives are misalignedor where costs of contractin

10、g exceed anticipated residual losses PRINCIPAL AGENT ANALYSIS7PRINCIPAL AGENT ANALYSISMechanisms for aligning incentives between owners and managersPerformance related pay (part fixed salary, part commission) (carrot)Manager behaves to maximise utility from on-the -job perquisitesShare options (carr

11、ot)Audited financial statements (stick)8Conflicts between owners and lendersMarket value (MV) of a levered firm = MVdebt + MVequityIn the case of levered firms incentives exist for equity to gain from pensated wealth transfers from bondholders by means of:Adopt high risk projectsAsset spin offsDivid

12、end distributionsTherefore lenders will impose covenants e.g. restrict debt/equity ratio or ask for security (fixed/floating charges over assets)We will return to agency theory in week 11.9FRAMEWORK FOR THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTSRegulatory FrameworkConceptual Framework

13、of Accounting101. REGULATORY FRAMEWORKThree Sources of Accounting Rules:Company Law Companies Act 2006The Stock Exchange Listing RequirementsAccounting Standards Accounting Standards Board (ASB) in the UKInternational Accounting Standards Board (IASB) We study this!Financial Accounting Standards Boa

14、rd (FASB) in US11IASB EvolutionInternational Accounting Standards1213IAS and IFRSInternational Accounting Standards (IAS) were issued by IASC and have been adopted or amended by IASBInternational Financial Reporting Standards (IFRS) have been issued by the IASBList of current standards is available

15、at: We will spend most of this unit looking at specific international accounting standards.142. IASB FRAMEWORKWhat is a conceptual framework?Statements of principles for financial reporting that set out the concepts that underlie the preparation and presentation of financial statements for external

16、users.Their primary purpose is to provide a coherent frame of reference for standard setters to use in the development and review of accounting standards. In particular, the framework provides a basis for choosing between alternative accounting treatments. Empirical evidence is not provided they are

17、 normative statements of intent15IASB FRAMEWORK FOR THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTSPurposeTo assist IASB in setting standardsTo serve as a basis for harmonisationTo assist national standard-settersTo assist preparers, auditors and usersTo assist in understanding of standard-

18、setting16IASB FRAMEWORKScopeObjective of general purpose financial statementsQualitative characteristics that determine usefulness of informationDefinition, recognition and measurement of the elements of financial statementsConcepts of capital and capital maintenance17IASB FRAMEWORKStatus - non auth

19、oritative Accounting standards prevailAim of IASB is to reduce conflicts between Framework and StandardsLiving document Conceptual Framework for Financial Reporting 2010 18IASB Framework ChaptersThe objective of financial statementsThe Reporting EntityQualitative characteristics of financial informa

20、tionDefinition, recognition and measurement of the elements of financial statementsConcepts of capital and capital maintenance19IASB FRAMEWORKChapter 1. OBJECTIVE OF FINANCIAL STATEMENTS“to provide information about the financial position, performance and changes in financial position that is useful

21、 to a wide range of users in making economic decisions”20Financial PositionPosition = Statement of Financial PositionNet book assets - economic resources controlledWorking capital Financial structure debt/equityChanges in Position = Statement of Cash FlowsShows liquidity and solvencyCash is not prof

22、it!21Financial PerformancePerformance = Statement of Comprehensive eTransaction gains and lossesChanges in values of assets and liabilitiesVariability over time indicates riskGains and losses are indicators of future cash flows22Users and Information NeedsInvestorsEmployeesLendersSuppliers and other

23、 trade creditorsCustomersGovernments and their agenciesPublic23Decision Useful InformationAll of these categories of users rely on financial statements to help them in making various kinds of economic and public policy decisions. Investors need to decide whether to buy, sell, or hold shares. Lenders

24、 need to decide whether to lend and at what price. Suppliers need to decide whether to extend credit. Employees need to make rational career decisions. Information is decision-useful if it helps these people make their decisions. 24Decision Useful InformationBecause lenders and investors are provide

25、rs of risk capital to the enterprise, financial statements that meet their needs will also meet most of the general financial information needs of the other classes of users. Common to all of these user groups is their interest in the ability of an enterprise to generate cash and cash equivalents an

26、d of the timing and certainty of those future cash flows. 25Decision Useful InformationThe Framework notes that financial statements cannot provide all the information that users may need to make economic decisions. For one thing, financial statements show the financial effects of past events and tr

27、ansactions, whereas the decisions that most users of financial statements have to make relate to the future. Further, financial statements provide only a limited amount of the non-financial information needed by users of financial statements. 26Decision Useful InformationFinancial statements cannot

28、meet all of the diverse information needs of these user groups. However, there are information needs that are common to all users, and general purpose financial statements focus on meeting those needs. While the concepts in the Framework are likely to lead to information that is useful to the manage

29、ment of a business enterprise in running the business, the Framework does not purport to address their information needs. Managers can receive internal management accounts! Regulators such as governments are users but can also make up new rules!27IASB FRAMEWORKChapter 2. THE REPORTING ENTITYChapter

30、2 is still under discussion and not released yetRelates to definitions of subsidiary, associate, joint ventureIdentification of off-balance sheet special purpose vehicles (SPVs)28Chapter 3. QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATIONThe qualitative characteristics of useful financial report

31、ing identify the types of information are likely to be most useful to users in making decisions about the reporting entity on the basis of information in its financial report. Financial information is useful when it is relevant and represents faithfully what it purports to represent. The usefulness

32、of financial information is enhanced if it is comparable, verifiable, timely and understandable.29Chapter 3 - QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATIONRelevanceRelevant financial information is capable of making a difference in the decisions made by users. Financial information is capable

33、 of making a difference in decisions if it has predictive value, confirmatory value, or both. The predictive value and confirmatory value of financial information are interrelated. Materiality is an entity-specific aspect of relevance based on the nature or magnitude (or both) of the items to which

34、the information relates in the context of an individual entitys financial report.30Chapter 3 - QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATIONRepresentational FaithfulnessTo be useful, financial information must not only be relevant, it must also represent faithfully the phenomena it purports t

35、o represent. This fundamental characteristic seeks to maximise the underlying characteristics of completeness, neutrality and freedom from error. Information must be both relevant and faithfully represented if it is to be useful. However, there is a trade off between relevance and freedom from error

36、 e.g. a doubtful debt provision31Enhancing Qualitative CharacteristicsComparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented. Comparability Information about a reporting ent

37、ity is more useful if it can be compared with a similar information about other entities and with similar information about the same entity for another period or another date. Comparability enables users to identify and understand similarities in, and differences among, items. Verifiability Verifiab

38、ility helps to assure users that information represents faithfully the economic phenomena it purports to represent. Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful

39、 representation. 32Enhancing Qualitative CharacteristicsTimeliness Timeliness means that information is available to decision-makers in time to be capable of influencing their decisions. Understandability Classifying, characterising and presenting information clearly and concisely makes it understan

40、dable. While some phenomena are inherently complex and cannot be made easy to understand, to exclude such information would make financial reports plete and potentially misleading. Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who re

41、view and analyse the information with diligence. 33Student ActivityTalk to your neighbour for three minutes and try to identify how the qualitative characteristics might contradict one another34IASB FRAMEWORKChapter 4. ELEMENTS OF FINANCIAL STATEMENTS Chapter 4 covers the elements of financial state

42、ments, their recognition in financial statements and the measurement of profitThe IASB has adopted the IASCs 1989 Framework as a temporary measureChapter 4 will be revised over the next ten years!35IASB FRAMEWORK4a. ELEMENTS OF FINANCIAL STATEMENTS Assets tangible & intangibleLiabilities legal or co

43、nstructiveEquity residual interest (assets less liabilities = equity) e increases in economic benefitsExpenses decreases in economic benefits36Definitions of Assets and LiabilitiesAn asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits a

44、re expected to flow to the enterpriseA liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits37IASB FRAMEWORK4b. RECOGNITION OF THE ELEMENTSProbability of f

45、uture economic benefitsReliability of measurement Recognition of assetsRecognition of liabilitiesRecognition of e and expenses explained in terms of changes in assets and liabilities38IASB FRAMEWORK4c. MEASUREMENT OF THE ELEMENTSBases of measurementHistorical cost (amount paid)Fair Value (IFRS13 May

46、 2011)There is a general movement away from historical cost towards fair value as some assets and liabilities do not have an historical cost e.g. promises to buy or sell39IFRS13 Fair Value MeasurementFair Value is the price that would be received to sell an asset or paid to transfer a liability in a

47、n orderly transaction between market participants at the measurement dateThere are three levels:Level 1 = quoted price in an active marketLevel 2 = net replacement cost Level 3 = present value (discounted future cash flow)- Try to use level 1 method first. If cannot, use level 2 method. If cannot, use level 3 method. Full disclosure is required.40Student ActivityOn 1st January 20X1 a business buys a car for a salesperson for 10,000. It expects the car to l