Стандарты финансовой отчетности в корпоративном бизнесе. Практикум на английском языке

concerning preparation and accounts presentation for external users; aren't the standard and don't contain mandatory requirements and recommendations. If any provisions of standards contradict the Principles, then provisions of standards are applied.

The financial reporting – the structured submission of information on a financial position and results of company activity.

One of the principles which are been the basis for creation of balance is the group of active articles on degree of liquidity and nature of an origin.

Methods of submission of information on a financial position (balance):

-separation on flowing and not flowing (long-term articles);

-representation of assets and liabilities in decreasing order of liquidity. Two formats of the financial statement depending on are put into practice

on the basis of what accounting equation the reporting is constituted:

Net assets (assets – liabilities) = Equity Assets = Liabilities + Equity

A number of different measurement bases are employed to different degrees and in varying combinations in financial statements. They include the following:

a)Historical cost. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.

b)Current cost. Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.

c)Realisable (settlement) value. Assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal. Liabilities are carried at their settlement values; that is, the undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.

d)Present value. Assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business. Liabilities are carried at the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.

A complete set of financial statements comprises:

a)a statement of financial position as at the end of the period;

b)a statement of profit or loss and other comprehensive income for the

period;

c)a statement of changes in equity for the period;

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d)a statement of cash flows for the period;

e)notes, comprising a summary of significant accounting policies and other explanatory information;

f)a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

Statement of financial position

As a minimum, the statement of financial position shall include line items that present the following amounts:

(a)property, plant and equipment;

(b)investment property;

(c)intangible assets;

(d)financial assets (excluding amounts shown under (e), (h) and (i));

(e)investments accounted for using the equity method;

(f)biological assets;

(g)inventories;

(h)trade and other receivables;

(i)cash and cash equivalents;

(j)the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with IFRS 5 «Non-current

Assets Held for Sale and Discontinued Operations»;

(k)trade and other payables;

(l)provisions;

(m)financial liabilities (excluding amounts shown under (k) and (l));

(n)liabilities and assets for current tax, as defined in IAS 12 «Income

Taxes»;

(o)deferred tax liabilities and deferred tax assets, as defined in IAS 12;

(p)liabilities included in disposal groups classified as held for sale in accordance with IFRS 5;

(q)non-controlling interests, presented within equity;

(r)issued capital and reserves attributable to owners of the parent.

Statement of profit or loss and other comprehensive income

The statement of profit or loss and other comprehensive income (statement of comprehensive income) shall present, in addition to the profit or loss and other comprehensive income sections:

a)profit or loss;

b)total other comprehensive income;

c)comprehensive income for the period, being the total of profit or loss and other comprehensive income.

If an entity presents a separate statement of profit or loss it does not present the profit or loss section in the statement presenting comprehensive income.

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Statement of changes in equity

The statement of changes in equity includes the following information:

(a)total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests;

(b)for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8;

(c)for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:

- profit or loss;

- other comprehensive income;

- transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

Cash flow statement

Cash flow information provides users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows.

The statement of cash flows shall report cash flows during the period classified by operating, investing and financing activities.

An entity shall report cash flows from operating activities using either:

(a)the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or

(b)the indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.

Notes

The notes shall:

(a)present information about the basis of preparation of the financial statements and the specific accounting policies used;

(b)disclose the information required by IFRSs that is not presented elsewhere in the financial statements; and

(c)provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them.

The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. An entity considers the following factors in determining its functional currency:

a) the currency:

- that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled);

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-of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services.

b) the currency that mainly influences labour, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled).

The following factors may also provide evidence of an entity’s functional currency:

-the currency in which funds from financing activities (ie issuing debt and equity instruments) are generated;

-the currency in which receipts from operating activities are usually re-

tained.

A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency, including transactions arising when an entity:

(a) buys or sells goods or services whose price is denominated in a foreign currency;

(b) borrows or lends funds when the amounts payable or receivable are denominated in a foreign currency; or

(c) otherwise acquires or disposes of assets, or incurs or settles liabilities, denominated in a foreign currency.

At the end of each reporting period:

a) foreign currency monetary items shall be translated using the closing

rate;

b) non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate at the date of the transaction;

c) non-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise.

2. Tasks

T ask 1

Answer the following questions.

1. The company needs to refinance a long-term loan. Date of the balance sheet is June 30, it signs the agreement on refinancing in July and approves the financial reporting in August. This loan is reflected as:

a)short-term obligation;

b)long-term obligation;

c)contingent obligation.

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2.The company violates terms of the contract of a long-term loan, as a result the loan turns into category of subjects to immediate settlement at sight. Date of the balance sheet is June 30. The creditor agrees not to require settlement of a loan till June 30, providing, at least, 12 months for violation correction. This loan is reflected as:

a) short-term obligation; b) long-term obligation; c) contingent obligation.

3.The profit and loss statement shall contain the following articles:

a)revenue;

b)financing expenses;

c)the share of a financial result of associated companies, and also joint businesses determined on the basis of an equity method;

d)profit (loss) to the taxation by results of an asset retirement or settlement of the liabilities connected with the stopped activities;

a)tax expenses;

b)profit or loss.

4. Information below:

- reduction of inventory cost to a net realizable value or the cost of a property, plant and equipment to a recoverable amount (and also compensation of the specified write-offs);

- company activity restructuring (and recovery of allowances from which expenses on restructuring are covered);

- disposal of fixed asset objects; - investment disposal;

- the stopped activities;

- accomplishment of liabilities by results of legal procedure; - recovery of other allowances

it shall be provided:

a)directly in the profit and loss statement;

b)in notes;

c)or a), or b).

5. Accounting estimates are necessary for evaluation:

a)a recoverable amount on property, plant and equipment classes;

b)influences of impairment on assessment of inventories;

c)allowances of the forthcoming expenses on payments for legal claims;

d)long-term obligations on payment of employee benefits, for example according to pension plans;

e)receivables.

6. The following information shall be disclosed in notes if it wasn't reflected in any other sections of the financial reporting:

a) the amount of the dividends offered (announced) before approval of the financial reporting to representation, but which aren't reflected in quality of an

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appropriated profit between equity holders during the accounting period and also the corresponding amount of dividends counting on one share;

b)size of unaccounted cumulative preferred share dividends;

c)a legal address, a form of business;

d)description of nature and main activities of the company;

e)name of parent company and head parent company;

e) names of former directors of the company.

T ask 2

Do the examples (which are subject to reflection in the cash flow statement) belong to flows on operating, investing or financial activities?

1. Regular sales and purchases of goods, expenses on compensation, and also total overheads.

2. The company sells the machine and includes profit in the amount of 40000 Euros in calculation of a net profit. For the purposes of cash flow statement this income is subtracted from a net profit and considered in …. activities.

3.For the purpose of business expansion the company builds new factory an economic method. It capitalizes construction costs.

4.The company sells the building of the head office.

5.The o company buys business of the competitor and acquires all his

shares.

6.The company purchased goods from Japan by credit. It is an example … activities. Within 3 months she needs to pay for them in Yens. For the purpose of fixation of a purchase price in Yens it signed the forward agreement. Cash flows under this agreement belong to … activities.

7.The company leases the equipment. Lease represents a form of a loan. Each payment consists of two parts: percent and main amount of debt.

T ask 3

On March 12 the company received 600 000 US dollars. A functional currency is Euro. Dollar exchange rate on March 12: 1 Euros = 1,20 US dollars.

Evaluate the amount reflection of transaction with foreign currency for date of emergence of a cash flow.

T ask 4

On March 12 the company received 600 000 US dollars. A functional currency is Euro. Dollar exchange rate on March 12: 1 Euro = 1,20 US dollars. The weighted average rate for the accounting period: 1 Euro = 1,25 US dollars. Accounting policy provides use of the weighted average rate.

Evaluate the amount reflection of transaction with foreign currency for date of emergence of a cash flow.

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T ask 5

The company enclosed investments abroad 1,2 million US dollars. A functional currency is Euro. On January 1 the exchange rate: 1 Euro = 1,20 US dollars. On December 31 the exchange rate: 1 Euro = 1,25 US dollars.

Evaluate the amount reflection of transaction with foreign currency for date of emergence of a cash flow.

T ask 6

The company’s cash is 2,4 million US dollars. A functional currency is

Euro. Exchange rate on January 1: 1 Euro = 1,20 US dollars. Exchange rate on December 31: 1 Euro = 1,25 US dollars.

Evaluate the amount reflection of transaction with foreign currency for the end of the year.

T ask 7

The company pays 90 million Euros for target company. At the time of acquisition this company has a cash 60 million Euros.

Evaluate the amount of cash flow for the purchase price.

T ask 8

Tax payment 10 million Euros on operating activities, 2 million Euros on investing activities and 6 million Euros on financial activities is reflected in the cash flow statement.

Where the total amount of the paid taxes 18 million Euros shall be reflected?

T ask 9

The company settles securities 100 million Euros by a share issue of the same cost.

In what statement this amount shall be reflected?

T ask 1 0

On January 1, 2015 the bank purchased the equipment for recalculation of banknotes 1 million Euros. Initially the useful life (UL) of this asset was estimated in 10 years. In 2017 the management reviewed UL and decided that since this date UL shall constitute 10 years (12 years in total).

Is it necessary to adjust an asset value for reflection of UL change of this asset? If yes – what shall do? If no – what needs to be undertaken?

T ask 1 1

There are the following relations between the companies 1, 2, 3, 4, 5 and 6: the company 1 – misters A, B, C are the board members; mister D is the

largest shareholder (25%);

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the company 2 completely belongs to the company 1; the company 3 completely belongs to mister B;

the company 4 completely belongs to mister D; the chairman of the company is mister’s son; mister’s B wife is the employee of the company 6.

Determine the related parties to the company 1.

T ask 1 2

The bank gives the constriction company the loan providing 90% of its capital needs. The owner of this company is a friend of bank’s chief executives. The loan is given on the security of company’s property.

Is the construction company the related party?

T ask 1 3

The company T trades with the company K. They don't belong to one group of companies, but a major shareholder of their parent companies is the same person. Are the companies T and K the related parties?

T ask 1 4

Within the last 10 years administrative expenses were incorrectly capitalized by means of their inclusion in the cost of the software. However expense information and estimates of inventories exists only for the last 2 years.

Is it necessary to adjust the financial reporting and for what period?

T ask 1 5

The profit for 2015 was overevaluated, but this fact became known only in 2016. In 2016 wrong comparative data of 2015 are adjusted.

Is the action of a management right or wrong?

T ask 1 6

On January 31, 2016 the management of the company finishes the draft of the financial statements in a year ending on December 31, 2015.

On February 10, 2016 the board considers the financial statements and approves them for representation.

On February 16, 2016 the company announces the profit and a value of the major financial performance.

On March 19, 2016 the financial statements is brought to the attention of shareholders and other persons.

On April 24, 2016 shareholders approve the financial statements at an annual meeting.

On April 28, 2016 the approved financial statements goes to public author-

ities.

Determine the period concerning events after a reporting date.

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T ask 1 7

The company got the claim for abuse of regulations of use of the trademark. The provision 1 million Euros for a covering of the expenses connected with this legal proceeding is provided in the financial statements on December 31, 2016 (financial statements are not approved yet).

On January 10, 2017 the court made the decision on compensation of damage by the company 0,6 million Euros.

Reflect this event in the statement.

T ask 1 8

The company has a client who owes it 8 million Euros on December 31, 2016.

On January 9, 2017 the liquidation procedure against this client was begun. The company was informed that it won't receive anything due to liquidation.

Reflect this event in the statement.

T ask 1 9

The bank has accounts payable on the credits 5 million Euros. On December 31, 2016 their book value is equal to 1 million Euros, respectively, the company provides provision under losses 4 million Euros.

On February 8, 2017 these credits were sold for 1,7 million Euros. Reflect this event in the statement.

T ask 2 0

The management declared the intention to finish the main business on February 5, 2016. The financial statement was approved for publication on February 19, 2016.

Shall the management adjust the financial reporting in this situation in terms of the shareholders made the decision after a reporting date?

T ask 2 1

The financial statement on December 31, 2014 was made taking into account a rate of the income tax 24%. Liabilities on the deferred taxes in balance represent considerable item.

On January 30, 2015 the state announces a rate decrease of the income tax up to 20% since the beginning of 2016.

Is it necessary to adjust the financial statements and for what period?

3. Recommended literature: 1, 2, 3, 4, 5, 6, 7, 8, 14, 15.

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4. INTERNATIONAL FUNDAMENTAL

AND PRIVATE STANDARDS, SPECIAL STANDARDS

The purpose is studying the requirements to recognition of financial statement elements, and also standards on recognition revenue, inventories, income taxes and others.

Knowledge and skills: students have to know: methods and tools of the analysis of the financial reporting of corporations by the Russian rules and IFRS; Contents of the fundamental Russian and international standards of the financial reporting; to be able: on the basis of a complex economic and financial analysis to give an assessment of results and efficiency of financial and economic organization activity of corporate sector; to master: skills of the formulation of conclusions about the results and efficiency of financial and economic activities received during the analysis of the financial reporting of corporations.

1. Theoretical part

Revenue is an income from regular activities of the company. The income includes revenue of the company and other incomes. Revenue is recognized when there is a probability of receipt of future benefits by the company which can be estimated. According to IFRS 18 "Revenue", a revenue recognition is performed in the following order.

I. SALES OF GOODS

1.Sales according to the scheme "write out and postpone". The property right to goods passes to the buyer, but delivery is late. Revenue is recognized the seller at the time of transition of the property right to the buyer if:

- delivery will be performed;

- the goods are determined and ready to be shipped;

- the buyer confirms a condition about the postponed delivery; - usual conditions of payment are applied.

2.Installation and check. If terms of the contract provided delivery, installation and check of technical condition, the revenue recognition is possible only after all above-mentioned works are performed. As an exception revenue can be acknowledged at the time of delivery if installation and check of technical condition can be performed quickly and freely.

3.A revenue recognition when the buyer stipulated the limited right of return of goods. Revenue is recognized after acceptance by the buyer of goods or after the term of its return.

4.Transfer for a consignment by which the receiver (buyer) undertakes liabilities to sell goods on behalf of the supplier (seller). The agent resells goods before paying the seller. Revenue is recognized at the time of resale of goods.

5.Sales with cash payment when obtaining. Revenue is recognized, only when delivery is complete and a cash is paid.

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