1、2010/09 Introduction to Paper F7 Financial ReportingLinks with other papers Corporate Business Reporting(P2) Analysis (P3)Corporate & Financial Audit & Business Law (F4) Reporting (F7) Assurance (F8) Financial Accounting (F3),The syllabus of Paper F7 Financial ReportingA: A conceptual framework for
2、financial reporting :chapter 1, chapter 15 ,chapter22B: A regulatory framework for financial reporting: chapter 2 C: Financial statements : chapter 3-chapter 7, chapter 12-chapter18, chapter 21D: Business combinations : chapter 8-11E: Analyzing and interpreting financial statements: chapter 19-20,Ex
3、am paperQuestion 1 : 25mPreparation of group financial statement and/or extracts thereof, often including an associate, and normally including a short discussion elementQuestion 2: 25mPreparation/restatement of non-group financial statements, including adjustments on other areas of the syllabusQuest
4、ion 3: 25mAppraisal of an entitys performance and/or cash flow statements and interpretation thereofQuestion 4 : 15mQuestion 5 : 10mWill test the remainder of the syllabus,The conceptual framework,Chapter 1Paper F7 Financial Reporting ( International stream ),1.1 The search for a conceptual framewor
5、k A conceptual framework is a statement of generally accepted theoretical principles, which form the frame of reference for financial reporting. 概念框架是对公认会计原则的理论阐述，是构成财务报告这门学问的基本架构。The purpose of a financial reporting conceptual framework is twofold. Its theoretical principles provide the basis for:
6、The development of new reporting practices, and The evaluation of existing ones.,1 Conceptual framework and GAAP,1.2 Advantages and disadvantages of a conceptual framework Advantages(a) A consistent conceptual base should lead to standardized consistent accounting practices.(b) The development of st
7、andards is less subject to political pressure. eg. Political interference(c) A consistent balance sheet driven or income statement driven approach is used. (d) Avoids a fire-fighting (or patchwork quilt) approach to setting standards.,1 Conceptual framework and GAAP,Disadvantages (a) Different users
8、 have different needs. The needs of all users cannot be considered. (b) Different purposes or uses may require different conceptual bases. (c) A conceptual framework does not necessarily make preparing standards any easier, and may hamper their development. Eg. Financial instruments recognized.1.3 G
9、enerally accepted accounting practice (GAAP) National company law ; National accounting standards Local stock exchange requirementsNon-mandatory sourcesIASsStatutory requirements in other countriesGAAP is a dynamic concept: it changes constantly as circumstances alter through new legislation, standa
10、rds and practice.,1 Conceptual framework and GAAP,Accounting and Capital Allocation,Resources are limited. Efficient use of resources often determines whether a business thrives.,Financial Reporting,Information to help users with capital allocation decisions.,Users,Investors, creditors, and other us
11、ers,Capital Allocation,The process of determining how and at what cost money is allocated among competing interests.,High-quality standards,Objectives of the IASB to develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require
12、 high quality, transparent and comparable information in general purpose statements to promote the use and rigorous application of those standardsto work actively with national standard setters to bring about convergence of national accounting standards and IFRS to high quality solutions.,High-quali
13、ty standards,International Accounting StandardsTwo sets of standards accepted for international use:,U.S. GAAP, issued by the FASBInternational Financial Reporting Standards (IFRS), issued by the IASB,FASB and IASB recognize that global markets will best be served if only one set of GAAP is used.,Fr
14、amework for the Preparation and Presentation of Financial Statements issued by IASB,2.IASBs Conceptual Framework Contents,Seven sections:(a) The objective of financial statements(b) Underlying assumptions(c) Qualitative characteristics of financial statements(d) The elements of financial statements(
15、e) Recognition of the elements of financial statements(f) Measurement of the the elements of financial statements(g) Concepts of capital and capital maintenance,First Level: Basic Objectives,Second Level: Fundamental Concepts,Third Level: Recognition and Measurement,Special issues,Recognition criter
16、iaMeasurement attributes:,Qualitative characteristicsEelements,2.2.2 Scope : IASBs Conceptual Framework,(a)The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users
17、in making economic decisions.,(b) Financial position, performance and changes in financial positionFinancial position information :Balance sheetPerformance information: Income StatementChanges in financial position : Statement of cash flows,3.First Level: Basic Objectives,Accruals basis Going concer
18、n,4. First Level: Underlying assumptions,Qualitative Characteristics,“The IASB identified the Qualitative Characteristics of accounting information that distinguish better (more useful) information from inferior (less useful) information for decision-making purposes.”Illustration Hierarchy of Accoun
19、ting Qualities,5. Second Level: Fundamental Concepts,5. Second Level: Qualitative Characteristics,Hierarchy of Accounting Qualities,5 Qualitative characteristics of financial informationThe qualitative characteristics of financial information are those that make the information useful to the users.
20、The four principal characteristics are: 5.1 Understandability 5.2 Relevance (including materiality) 5.3 Reliability Faithful representation / Substance form (reading chapter 15 p. 247) / Neutrality/Prudence / Completeness5.4 Comparability 5.5 Constraints on relevant and reliable information5.6 True
21、and fair view / fair presentation,5.1 Understandability,A company may present highly relevant and reliable information, however it was useless to those who do not understand it.,Second Level: Qualitative Characteristics,Second Level: Qualitative Characteristics,Primary Qualities:,5.2 Relevance makin
22、g a difference in a decision.Predictive valueFeedback valuemateriality5.3 ReliabilityFaithful representationSubstance formNeutrality/Prudence / Completeness,Second Level: Qualitative Characteristics,Secondary Qualities:,5.4 Comparability Information that is measured and reported in a similar manner
23、for different companies is considered comparable. 5.4 Consistency - When a company applies the same accounting treatment to similar events from period to period.,Second Level: Qualitative Characteristics,5.5 Constraints on relevant and reliable informationTimeliness Balance between benefits and cost
24、 Balance between qualitative characteristics5.6True and fair view / fair presentation,Second Level: The elements of financial statements,(a)The elements of the financial statements:Assets;Liabilities;Equity.(b) The elements of the Income statements:Income ( Revenue and gain)Expense (loss),Third Leve
25、l: Recognition and Measurement,Recognition criteria:An item is recognized in the balance sheet or the income statement when: (a) It meets the definition of an element of the financial statements; and(b) It is probable that any future economic benefit associated with the item will flow to or from the
26、 entity; and(c) The item has a cost or value that can be measured with reliability.,Third Level: Recognition and Measurement,Measurement attributes:Historical cost Realizable ( settlement )valueCurrent costPresent value,25,HC,PV,Four Measurement attributes,CC,RV,Concepts of capital maintenance Finan
27、cial capital maintenance Under this concept, a profit is only earned if the financial (or money) amount of net assets at the end of the period exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to, and contributions from, owners du
28、ring the period. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.,Special issues,Third Level: Recognition and Measurement,Net assets, end of year $ 115,000Less: Net assets, beginning of year 82,500 32,500 Less: Owners investment du
29、ring year 10,000Plus: Dividends declared and issued 8,500Profit for year $31,000,Concepts of capital maintenance Physical capital maintenance Under this concept, a profit is earned only if the physical productive capacity (or operating capability) of the entity (or the resources or funds needed to a
30、chieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period.,Special issues,Chapter 2 The regulatory framework,2 International accounting standards Board
31、 (IASB)2.3 Objectives of the IASB(a) to develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in general purpose statements(b) to promote the use and rigorous applica
32、tion of those standards(c) to work actively with national standard setters to bring about convergence of national accounting standards and IFRS to high quality solutions,2.4 The structure of IASB2.5 Other international influences 2.5.1 IASB and European Commission (EC)/intergovernmental bodies2.5.2
33、United Nations2.5.3 International Federation of Accountants ( IFAC)2.5.4 IASB and OECD2.8 /3.4 The IASB and current standards,Chapter 3 Presentation of published financial statements,Exam Context This chapter provides the fundamental approach to dealing with the 25 mark financial statement preparati
34、on question that will appear in the exam. Later chapters will then cover adjustments that could appear in that question. Exam OverviewIFRS financial statementsFormatsFinancial statement preparation questions,1 IFRS financial statements IAS 1: Presentation of financial statements The financial statem
35、ents include: (a) Statement of financial position (Balance sheet )(b) Statement of comprehensive Income (Realized profits and un-realized profits)(c) A statement of changes in equity(d) Statement of Cash flows(e) Notes to the financial statements2 Statement of financial position2.1 Statement of fina
36、ncial position example-Information to be presented on the face of BS as a minimum disclosure p.382.2 Information to be presented either on the face of BS or by notes -Specific disclosure items p.40,3 The current /non current distinction 3.1 Current assets/ Non-current distinctions- All assets and li
37、abilities should be presented in order of liquidity- Assets recovered or liabilities settled after more than 12 months must be disclosed. e. g installment sales- Working capital (net current assets) on the operating cycle must be disclosed.- It is highlighted that net current assets within the opera
38、ting cycle should be distinguished from Working capital ( net current net assets ) used in the long-term operation of the entity-Provides more relevant and reliable information. 3.2 Current assets -Definition Exception:Restricted cash in its use-Sinking funds for bonds payable,3.3 Current liabilitie
39、sSimilar to classification notes above-Definition -Offsets issues of Current liability-Overdraft/ income tax payable/ non-trade payable / current potion of interest-bearing liabilitiesItem should be classified as a non-current liability :-A Interest-bearing liabilities for working capital on long-te
40、rm financing basisItem should be classified as a current liability :-A non-current financial liability due to be settled within 12 months of BS date, even if an completed agreement to refinance , or to reschedule payments on long-term basis after balance sheet date.-Classification of a long-term fin
41、ancial liability on demand due to breaches.Exception:A period of grace provided by lender, classified as a non-current liability 4.Statement of comprehensive income(a) A single statement of comprehensive income P.43(b) A separate income statement and statement of other comprehensive income P44,5 Inc
42、ome Statement 5.1 Examples of Income Statements The classification of expenses by function 5.2 Information presented in the comprehensive income or separate Income Statements 5.3 Information to be presented either on the face of the IS or in the notes5.4 Dividends6 Revision of basic accountsQuestion
43、 p49 1 Read the requirements and the question. 2 Set up 3-4 pages as necessary: Income statement pro-forma Balance sheet pro-forma Workings : “T” accounts,3 Transfer the figures from the trial balance: - Unaffected figures may be entered directly on your pro-forma - Figures requiring adjustment can
44、either be put into “T” accounts. - Read the additional information given and make a mark by any items in the trial balance that are going to change. 4 Finally, work through the adjustments in the additional notes dealing with both sides of the double entry, balance off workings and transfer the figu
45、res to your pro-forma. 7. Changes in Equity 7.1 Format8 Notes to the financial statements,Chapter 4: Non-current assets,Exam Context A full question could appear in the exam on property, plant and equipment. The other standards are likely to form part of a question. Any of these areas could form an
46、adjustment in the financial statements preparation question and depreciation almost always comes up as an accounts preparation question adjustment. Exam Overview1 Property, plant & equipment PPE (IAS 16) Definition / Measurement at recognition / Measurement after recognition 2 Depreciation 3 Governm
47、ent grants ( IAS 20 ) 4 Investment property (IAS 40 )5 Borrowing costs ( IAS 23 ),1 Property, plant and equipment ( IAS 16 )1.2 DefinitionProperty, plant and equipment are tangible items that: (a) Are held by an entity for use in the production or supply of goods or services, for rental to others, o
48、r for administrative purposes; and (b) Are expected to be used during more than one period. 1.3 RecognitionProperty, plant and equipment are recognized when the Framework recognition criteria are met:It is probable that future economic benefits that are attributable to the asset will flow to the entity; andThe cost of the asset can be reliably measured.1.6 Initial Measurement at recognition 1.6.1 Components of costCost includes：Purchase price, including import duties and non-refundable purchase taxes, afterdeducting trade discounts or rebates.,
