Professional, Practical, Proven

Academy 2019/2020

Advanced Financial AccountingLecture 1

The AFA Syllabus, Financial Statements and Theory Topics

BEFORE WE GET STARTED:

In space flight, “attitude” refers to orientation: which direction your

vehicle is pointing relative to the Sun, Earth and other spacecraft.

If you lose control of your attitude, two things happen: the vehicle starts

to tumble and spin, disorienting everyone on board, and it also strays

from its course, which, if you’re short on time or fuel, could mean the

difference between life and death. In Space we use every cue from

every available source—periscope, multiple sensors, the horizon—to

monitor our attitude constantly and adjust if necessary. We never want to

lose attitude, since maintaining attitude is fundamental to success.

There’s really just one thing I can control: my attitude during the journey,

which is what keeps me feeling steady and stable, and what keeps me

headed in the right direction.

Chris Hadfield

“An Astronaut’s Guide to life on earth”

1) Adv FA: Syllabus Content

2) Adv FA: Limited Company Financial Statements

3) Chapter 2

4) Practical Work

5) Recommended Work

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Advanced FA Syllabus Content

Accounting Standards

Incomplete Records (Ratios)

Property, Plant & Equipment

Inventories

Accounting for Lease Agreements

Accounting for Government Grants

Provisions, Contingent Liabilities and Contingent Assets

Events after the Reporting Period

The financial statements of Partnerships & Limited Companies

Manufacturing Accounts

Cash Flow Statements

Ratio Analysis

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Adv FA Syllabus Weighting

Conceptual and Regulatory Framework 30%

Financial Statements 50%

Interpretation of Financial Statements 20%

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The Non-Current Asset NoteShows the movement between opening and closing NBV of PPE (e.g. Depreciation, Acquisitions, Disposals, Revaluations)

Statement of Cash FlowsReconciliation between (1) reported profit and (2) the difference between the opening and closing Cash (& CEs) balances.

Statement of Financial PositionPosition: Assets (Non-current and Current) = Capital + Liabilities (Non-current and Current)

Statement of Changes in EquityExplains the movements in Equity (Retained earnings, Revaluations, Share Capital etc.) during the period.

Statement of Comprehensive Income Performance: Identifies the profit/loss (recognised and realised) during the period.

Manufacturing AccountIdentifies the “Cost of Factory Goods Produced” during the period.

Limited Company Financial Statements and other reports:

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Chapter 2 & 3 - Learning Outcomes:

• Difference between Financial and Management Accounting

• Why accounting regulations are important and required

• Need for/structure of:

• Professional regulation

• Company Law

• Stock Exchange Legislation

• EU Directives

• How different aspects of regulation coordinates and complements

• FRS102 & the Qualities of Accounting Information

• The process through which an accounting standard comes into being.

Accounting

Financial

Preparation of Financial Statements

Statement of Profit and Loss

Statement of Financial Position

Past Events

External e.g. Govt, Bank etc.

Management

Planning, Control and Decision Making

Budgets

Comparative Statements

Current and Future Events

Internal e.g. Management

1. Objective

2. Statements

3. Timeframe

4. Users

- v -

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• Active role in management and operation of the business

• Unlimited liability

• Financial information produced for tax authorities, bank reasons

Sole Traders

• Active role in management and operation of the business

• Typically do not enjoy limited liability

• Financial info produced for tax authorities, lenders, partners

Partnerships

• Liability limited to funds invested

• Owners are typically external

• More regulation

• Financial information required and necessary

Unlimited and Ltd (& European)

Companies

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GAAP

Professional Regulations

(Calculations: per Accountancy Bodies e.g. FRS102 issued by the FRC)

Company Law

(Presentation: Disclosure Requirements, Determines Company size & what the set of financial statements must include)

EU Regulations

(Harmonisation across member states, promotes cross border trade)

Stock Exchange Regulations

(Promotes Market fairness, applies to Companies which float on a regulated market)

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– Understandability

Presented in a way that can be comprehended

– Relevance

Timely and applicable i.e. suitable to its purpose,

Presented before it loses the capacity to influence decisions

– Materiality

By size or by nature

– Reliability

Faithful representation; Free from error, neutral

Qualities of Accounting Information:

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– Substance over Form

– Prudence

Exercising caution under conditions of uncertainty

(does not permit bias)

– Complete

Including everything material for faithful representation

– Comparability

To identify similarities and differences

– Timeliness

– Balance between benefit and cost

Qualities of Accounting Information:

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Structure of the Financial Reporting Council (FRC):

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Accounting Regulation:

Objective -

A “true and fair view” of

• Financial Performance

• Financial Position

• Cash Flows

Financial Accounting (Calculation) & Company Law (Presentation)

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Standard Setting:

The steps to setting a standard:

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Class Exercises

- Refer to Handout

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Recommended Work

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Suggested Reading & Work (Ongoing):

Chapter 2 – Adv Financial Accounting Manual

Chapter 3 – Adv Financial Accounting Manual

Chapter 15 – Adv Financial Accounting Manual

Review and attempt all ‘My Revision’ questions for these chapters.

DisclaimerCare has been taken to ensure that all data and information in Academy lectures is factual and that numerical values are accurate. To the best of our knowledge, all information in the Academy lectures is accurate at the time of publication. Accounting Technicians Ireland and its lecturers assume no responsibility for errors or misinterpretation of the information contained in these lectures or in its use.