Ultimate Guide to Creating and Presenting Financial Reports

The Ultimate Guide to Creating and Presenting Financial Reports discusses in detail on how to prepare and present financial reports in a corporate environment.

What comprise of Financial Statements?

Financial Statements

The Accounting Framework

Objective of Financial Reporting
The Reporting Entity
Qualitative Characteristics
Underlying Assumptions
Financial Statements – Framework

Qualitative Characteristics

Relevance
Faithful Presentation
Comparability
Verifiability
Timeliness
Understandability
Financial Statements – Presentation

IAS 1 Presentation of Financial Statements

Scope
Objective of Financial Statements
Components of Financial Statements
Fair Presentation & Compliance with IFRS
Going Concern
Accrual Basis of Accounting
Consistency
Materiality & Aggregation
Offsetting
Comparative Information
Reporting Period
Financial Statements – Presentation

IAS 1- Presentation of Financial Statements

Statement of Comprehensive Income
Statement of Financial Position
Cash Flow Statement
Statement of Changes in Equity
Notes to the Accounts
Financial Statements – Presentation

IAS 1- Presentation of Financial Statements

Statement of Comprehensive Income
- Format
- Presentation
- Other Comprehensive Income
- Consolidated Statement of Comprehensive Income
Financial Statements – IAS 2 Inventories

IAS 2- Inventories

OBJECTIVE:

The objective of this Standard is to prescribe the accounting treatment for inventories.

SCOPE: UMS 2 applies to all inventories, expect:

Work in progress arising under construction contracts, including directly related service contracts (see IAS 11 Construction Contracts)
Financial instruments (see IAS 39 Financial Instruments)
Biological assets related to agricultural activity and agricultural produce at the point of harvest (see IAS 41 Agriculture)
- Financial Statements – IAS 2 Inventories

IAS 2- Inventories

Financial Statements – IAS 2 Inventories
Financial Statements – IAS 7 Cash Flow

IAS 7- Cash Flow Statements

Financial Statements – IAS 7 Cash Flow

IAS 8-Accounting Policies, Changes in Accounting Estimates & Errors

IAS 8-Accounting Policies, Changes in Accounting Estimates & Errors
IAS 10- Events After The Reporting Period
IAS 16 – Property Plant & Equipment

Overview of The Ultimate Guide to Creating and Presenting Financial Reports

Objective and scope
Recognition
Measurement at recognition
Measurement after recognition (CM, RM)
Derecognition
Disclosure
IAS 16 – Recognition

Costs are recognized as PP&E only if:

probable that future economic benefits associated with the item will flow to the entity, and
the cost can be measured reliably.

Applies to costs at acquisition and after acquisition.

IAS 16 – Recognition

The asset can be recognized either on

Cost Model
Revaluation Model

Cost Model: The asset need to be recognized on Historical cost unless revalued or impaired.

Revaluation Model: The revaluation of the asset is optional for the organization subject to criteria set for revaluation.

IAS 17 – Lease

Lease is a long term financial obligation. There are two types of lease

Finance Lease
Operating Lease

Finance Lease Criteria

Risk & Reward
Lease period
The PV and the fair value of asset
Ownership at the end
Difference between the residual value of asset and residual value of lease
The specialized nature of asset.
IAS 18 – Revenue Recognition

Revenue recognition can be measured for

Sale of goods
Rendering of Services
Interest, royalties and dividends

Sale of Goods

Transfer of Risk & Reward of assets
Control over assets
Revenue can be measured reliably
Future economic benefits flow on organization
Difference between the residual value of asset and residual value of lease
Cost can be measured reliably
IAS 18 – Revenue Recognition

Revenue recognition can be measured for

Sale of goods
Rendering of Services
Interest, royalties and dividends

Rendering of Services

Amount of revenue can be measured reliably
Future economic benefit will flow on seller
Stage of Completion can be measured reliably
Costs incurred and to be incurred can be measured reliably
IAS 18 – Revenue Recognition

Revenue recognition can be measured for

Sale of goods
Rendering of Services
Interest, royalties and dividends

Interest, Royalties & Dividends

Amount of revenue can be measured reliably
Future economic benefit will flow on seller
Interest Criteria: Using effective interest method
Royalties Criteria : On accrual basis
Dividends Criteria: When shareholder’s right to receive payment is established.
IAS 23 – Borrowing Cost

Borrowing cost includes

Interest expense
Finance charges under finance lease obligations
Exchange differences arising as a result of foreign loans

Recognition Criteria: Cost directly attributable to acquisition, construction and production of a qualifying asset.

Qualifying Asset: Qualifying asset is an asset that takes a substantial time to get ready for its intended use.

Recognition : Borrowing cost directly attributable to qualifying asset qualifies for recognition. Incase of disruption in the continuation of contract due to management negligence, the capitalization need to be stopped immediately however this does not apply when it happens in usual course of business.

IAS 24 – Related Party Disclosure

Who are related parties?

A person or party related to a person or entity that is related to the entity preparing financial statements.
Related party incudes
- Entity and reporting entity are members of same group
- One entity is an associate or joint venture of other entity
- Both entities are joint venture of third party
- Entity is controlled or jointly controlled by a person identified.
- A person has significant influence over the entity or is a family member of key management personnel.
What is related party transaction?

Related party is a transfer of resources, services and obligations between related parties regardless of what price is charged.

IAS 33 – Earnings Per Share

How Earnings Per Share is Calculated

Earning Per Share = Earning Attributable to Ordinary Shareholders.

Weighted Average Number of Shares in Issue

How weighted Average number of shares are calculated?
What is the concept of diluted earnings per share?
IAS 34 – Interim Financial Reporting

Key Definitions:

Interim Periods: Periods shorter than one year.

Interim Financial Report: Report that contains complete or condensed financial statement.

Minimum Contents of Interim Financial Reporting

Condensed Statement of Comprehensive Income
Condensed Statement of Financial Position
Condensed Statement of Cash Flows
Condensed Statement of Changes in Equity
Selected Notes to The Accounts
IAS 36 – Impairment of Assets

What is Impairment?

Impairment Loss: The amount by which the carrying amount of asset of cash generating unit exceeds its recoverable amount.

Recoverable amount: The higher of assets fair value less cost of disposal

Value in use: The present value of future cash flows expected to be derived from an asset or cash generating unit.

Impairment Responsibility: It is the responsibility of Management to evaluate assets at the end of every year if there exists any sign that asset has been impaired.

Indication of Impairment :

External Sources: Decline in Market value, Negative changes in technology, market, economy or laws, Net assets of company higher than market capitalization.

Internal Sources: Obsolescence or physical damage, idle assets, worse economic performance of asset etc.

IAS 37 – Provision, Contingent Liabilities & Contingent Assets

What is a Provision?

Provision : A liability of uncertain timing or amount.

Contingent Liability : A possible obligation depending upon some uncertain future events exist.

Contingent Asset: A possible benefit which depend upon the occurrence of future event.

Recognition of Provision : Provision can only be recognized if

Present obligation has arisen as a result of past event
Payment is certain
Amount can be measured reliably

IFRS 8– Operating Segment

What is an Operating Segment?

An operating segment is a component of an entity

that engages in business activities from which it may earn

revenues and incur expenses

whose operating results are reviewed regularly by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and

for which discrete financial information is available
- Difference Between IFRS & GAAP
Difference Areas
Revenue Recognition
Share Based Payment
Research & Development Cost
Intangible Assets
Inventories
Lease
Long Lived Assets
Impairment
Extra Ordinary Items

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenseswhose operating results are reviewed regularly by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available Statement of Comprehensive Income