SESSION 1 A THEORETICAL FRAMEWORK
Development of Accounting • Stewardship accounting - to prevent fraud • Financial accounting - provision of financial information to shareholders in annual statements • Management accounting - detailed information for decision -making by management
Drivers for change • Need for comparability of financial information from country to country • “Creative” accounting might be misleading • Development of new performance indicators • New users require different types of information e.g. “green” accounting
Result • Continuous evolution of accounting procedures
Users of financial information • • • • • • • •
Shareholders Management Government/their agencies Lenders - banks Suppliers Local communities - public Customers Employees
Accounting Theory Framework • Elements - Assets, Liabilities, Capital, Revenue, Expenses • Concepts - Entity, Money measurement, Going Concern, Cost, Realization, Accrual, Matching, Periodicity, Consistency, Prudence • Procedures - Recording, Classifying, Summarizing, Reporting Transactions, Interpreting Reports
Three fundamental financial statements • Income Statement(Profit and loss account) • Balance Sheet • Cash Flow Statement
FKI plc • FKI plc is a major international diversified engineering group quoted on the London Stock Exchange. – FKI Logistex –automated material handling systems – Lifting products and services – Window hardware and storm and screen door hardware. – Energy technology - turbogenerators
FKI plc Annual Report 2007
• Can be found at
http://www.fki.co.uk/investorrelations/
• • • •
Chairman’s statement Operating and financial review Corporate social responsibility report Governance – Director’s report
• Group financial statements • Company financial statements • Other information
Group Financial Statements • • • • •
Independent auditor’s report Consolidated income statement Consolidated balance sheet Consolidated cash flow statement Consolidated statement of recognised gains and losses • Notes to the consolidated financial statements
The Balance Sheet • Asset (IASC) - a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise • Fixed assets - not intended for resale • Current assets - expected to be transformed into cash within one year • Current liabilities - amounts owed and due for payment within one year
Income statement (Profit and loss account) • Report on the flows of revenue and expenses in a period • Based on matching a period’s sales revenue earned with the expenses incurred in earning those revenues. NOT cash receipts and payments.
Cash flow statement • Classifies sources and uses of cash flow from different business activities: – Operating activities – Investing activities – Financing activities