Advanced financial accounting

Cover

Advanced Financial Accounting, 7th ed.

ISBN 0273658492

Brief contents

Contents

Preface

PART 1 The framework of financial reporting

  Chapter 1: The search for principles
      Introduction
      Accounting theory
      The FASB conceptual framework project
            o SFAC No. 1 Objectives of Financial Reporting by Business Enterprises
            o SFAC No. 2 Qualitative Characteristics of Accounting Information
            o SFAC No. 6 Elements of Financial Statements (superseded SFAC No. 3)
            o SFAC No. 5 Recognition and Measurement in Financial Statements of Business Enterprises
            o SFAC No. 7 Using Cash Flow Information and Present Value in Accounting Measurements
      The IASC/IASB framework
      The ASB\'s Statement of Principles
            o The first attempt
            o The revised exposure draft
            o The Statement of Principles
                 # Chapter 1 The objective of financial statements
                 # Chapter 2 The reporting entity
                 # Chapter 3 The qualitative characteristics of financial information
                 # Chapter 4 The elements of financial statements
                 # Chapter 5 Recognition in financial statements
                 # Chapter 6 Measurement in financial statements
                 # Chapter 7 Presentation of financial information
                 # Chapter 8 Accounting for interests in other entities
            o An evaluation of the ASB Statement of Principles
      Summary
  Chapter 2: Sources of authority: the United Kingdom
      Introduction
      Legislation
            o Background
            o The current position
      Stock Exchange rules
      Accounting concepts
            o Recommendations and freedom of choice
      Standardisation
            o From 1970 to 1990
            o The current regime - structure
            o The current regime - progress
            o Advantages and disadvantages of standardisation
      The Government\'s proposals
      Summary
  Chapter 3: Sources of authority: the rise of international standards
      International standardisation
            o Introduction
            o The International Accounting Standards Committee
            o The International Accounting Standards Board
      Harmonisation in the European Union
            o The use of Directives
            o The Fourth Directive
            o The Seventh Directive
      The EU Regulation of 2002 and the problems that it poses
            o The EU Regulation of 2002
            o The EU Regulation - some problems
                 # Lack of understanding
                 # Considerable differences and the need for convergence
                 # Differential enforcement
                 # The endorsement mechanism
                 # One or two sets of standards in each member state
                 # Conclusion
      Summary
  Chapter 4: What is profit?
      Introduction
      Present value of the business
      Measurement of wealth by reference to the valuation of individual assets
            o Historical cost
            o `Adjusted\' historical cost
            o Replacement cost
            o Net realisable value
            o Present value
      Capital maintenance
            o Money financial capital maintenance
            o Real financial capital maintenance
            o Operating capital maintenance
                 # Different profit concepts
      The usefulness of different profit measures
      How do we choose?
      The limitations of historical cost accounting
            o Control
            o Consumption
            o Taxation
            o Valuation
      Interim summary
      Distributable profits
      Realised profits
            o Do the provisions make sense?
            o The ASB approach
      Summary

PART 2 Financial reporting in practice

  Chapter 5: Assets I
      Introduction
            o The nature of assets
            o Tangible and intangible assets
            o A multiplicity of standards
            o The nature of the issues
      The basis of valuation
            o Value to the business
            o Fair value
      Tangible fixed assets
            o The initial cost of a tangible fixed asset
            o The capitalisation of borrowing costs
            o FRED 29
            o The writing down of new tangible fixed assets to their recoverable amounts
            o Subsequent expenditure
            o The revaluation of tangible fixed assets
            o Classification of tangible fixed assets
            o Frequency
            o Who should make the valuations?
            o Bases of valuation
                 # Assets other than properties
                 # Properties
                 # Valuation of specialised properties
                 # Valuation of non-specialised properties
            o Reporting losses and gains on revaluation
            o Reporting losses and gains on disposal
            o Disclosures relating to revaluation
      Depreciation
            o FRS 15 and depreciation
                 # General principles
                 # Interest methods of depreciation
                 # Depreciation and materiality
                 # Changes in the method of depreciation
                 # Changes in estimated useful remaining life and residual value
                 # Combined assets
                 # Renewals accounting
                 # Disclosure requirements relating to depreciation
            o FRED 29 and depreciation
                 # Compliance with International Accounting Standards
      Investment properties
      Intangible assets
            o FRS 10 and its treatment of intangible assets
                 # The nature of intangible assets
                 # Initial carrying value
                 # Depreciation of intangible fixed assets
                 # Revaluation of intangible assets
                 # Disclosure requirements
                 # Compliance with international accounting standards
      Differences in the treatment of tangible and intangible fixed assets
      Impairment reviews
            o FRS 11 Impairment of Fixed Assets and Goodwill
                 # When to perform an impairment review
                 # The calculation of recoverable amount
                 # Income-generating units
                 # The estimation of the cash flows
                 # Discount rate
                 # The allocation of impairment losses
                 # Subsequent monitoring of cash flows
                 # Disclosure requirements
                 # Compliance with international accounting standards
      Summary
  Chapter 6: Assets II
      Introduction
      Stocks and long-term contracts
            o SSAP 9
                 # Stocks other than long-term contracts
                 # Stock valuation methods
                 # The writing down of stock
                 # The alternative accounting rules
                 # Long-term contracts
                 # Definition of long-term contracts
                 # Turnover, related costs and attributable profit
                 # Long-term contracts and the balance sheet
                 # Foreseeable losses
            o FRED 28
                 # Revenue recognition
      Research and development
            o SSAP 13 Accounting for Research and Development
                 # Capitalisation of development expenditure
                 # Disclosure requirements
                 # Compliance with international standards
      Government grants
            o SSAP 4 The Accounting Treatment of Government Grants
                 # Revenue-related grants
                 # Capital-related grants
                 # Disclosure requirements
                 # Compliance with international standards
      Summary
  Chapter 7: Liabilities
      Introduction
            o The three sources of funding
                 # Grants and gifts
                 # Debt and equity
      Liabilities
            o The nature of liabilities
            o The recognition of liabilities
            o The measurement of liabilities
      Provisions and contingencies
            o FRS 12 Provisions, Contingent Liabilities and Assets
                 # The need for a standard
            o Provisions
                 # Recognition of provisions
                 # The measurement of provisions
                 # Present values
                 # Changes in provisions
                 # Provisions and the recognition of assets
                 # Disclosure requirements
            o Contingent assets and liabilities
            o Contingent assets
                 # Contingent assets: disclosure requirements
                 # Contingent liabilities
                 # Contingent liabilities: disclosure requirements
            o Compliance with international standards
      Summary
  Chapter 8: Financial instruments
      Introduction
      FRS 4 Capital Instruments
            o Balance sheet presentation
            o Allocation of finance costs
            o Finance costs for non-equity shares
            o Issue costs
            o Use of the share premium account
            o The distinction between shareholders\' funds and liabilities
                 # Warrants
            o The distinction between equity and non-equity
            o The distinction between convertible and non-convertible liabilities
            o Debt maturity
            o FRS 4 and consolidated financial statements
            o Disclosure requirements
            o Application notes
      Hedge accounting
            o FRED 23 Financial Instruments: Hedge Accounting
                 # Hedges for net investment on foreign operations
                 # An ineffective hedge
                 # Terminated hedges
      Derivatives
      The valuation of financial instruments
            o FRS 13 Derivatives and other Financial Instruments
                 # Disclosures
                 # Scope and objective
                 # Risks associated with financial instruments
                 # The structure of FRS 13
                 # Mode of presentation
                 # Main elements to be disclosed
      FRED 30 and the convergence programme
            o Changes to UK practice and remaining differences between UK and international standards
                 # Recognition
                 # Measurement, including hedge accounting
                 # Presentation (disclosure)
                 # Disclosure
                 # Conclusion
      Summary
  Chapter 9: Substance over form and leases
      Introduction
      Reflecting the substance of transactions
            o FRS 5 Reporting the Substance of Transactions
                 # Scope of FRS 5
                 # The structure of FRS 5
                 # Summary of FRS 5
                 # FRS 5 application notes
                 # Compliance with international accounting standards
                 # Postscript to FRS 5
      Leases
            o Leasing and hire purchase agreements
            o Basic accounting principles
                 # Operating leases
                 # Finance leases
                 # The principles illustrated
                 # An illustration of the basic principles of accounting for a finance lease in the accounting records of a lessee
                 # The impact of residual values
                 # Illustration of capitalisation of finance lease involving more frequent rental payments
            o Barriers to the introduction of a standard
            o SSAP 21 Accounting for Leases and Hire Purchase Contracts
                 # Scope
                 # Distinction between finance and operating leases
                 # Hire purchase contracts
                 # Accounting by lessees
                 # Disclosure requirements in the financial statements of lessees and hirers
                 # Accounting for finance leases by lessors - general principles
                 # The actuarial method after tax
                 # Alternative approaches to accounting for finance leases and hire purchase contracts
                 # Accounting for operating leases by lessors - general principles
                 # Disclosure requirements for the lessor in respect of finance and operating leases and hire purchase contracts
                 # Sale and leaseback transactions
            o Compliance with international standards
      Beyond SSAP 21
            o Accounting for Leases: A New Approach (1996)
            o Leases: Implementation of a New Approach (1999)
                 # The cash flows on which the capitalisation is based
                 # The discount rate to be used by the lessee
                 # The recognition of lease-related assets in the books of the lessor
                 # The next step
      Summary
  Chapter 10: Pension costs
      Introduction
            o The issues
                 # Actuarial gains and losses
            o Valuation of pension fund assets and liabilities
            o SSAP 24 and FRS 17- the differences in outline
      SSAP 24 Accounting for Pension Costs
            o The accounting principles underlying SSAP 24
            o Bases of the actuarial methods
            o Experience surpluses or deficiencies
            o Changes in actuarial assumptions and methods and retroactive changes to the scheme
            o Discretionary pension increases
            o Related issues
                 # The effect of discounting
                 # Group schemes
                 # Foreign schemes
                 # Scope
            o Disclosure requirements
      From SSAP 24 to FRS 17
      FRS 17 Retirement Benefits
            o Actuarial methods
            o Should account be taken of the time value of money in determining the current service charge?
            o Should account be taken of salary increases to which the employer is not yet committed?
                 # Likely benefits
                 # Basis for the contributions
            o At what rate should the liabilities be discounted?
            o Frequency of actuarial valuations
            o FRS 17 and the recognition of the costs of retirement benefits schemes
                 # The nature of the costs
                 # Where should the costs be recognised?
            o Disclosure requirements
                 # Defined benefits schemes
            o The rationale underpinning FRS 17
            o The reaction to, and implementation of, FRS 17
            o Compliance with the international standard
      Summary
  Chapter 11: Reporting financial performance
      Part A Reconfiguring the financial statements Reporting financial performance
            o SSAP 6 Extraordinary Items and Prior Year Adjustments
            o FRS 3 Reporting Financial Performance
                 # Exceptional and extraordinary items
                 # Prior-period adjustments
                 # Prior-period adjustments and disclosure requirements
                 # Reflecting the results of discontinued operations
                 # Taxation
                 # Minority interests
                 # The statement of total recognised gains and losses
                 # Two additional notes
      Review of FRS 3
            o Reporting financial performance: proposals for change
            o FRED 22 Revision of FRS 3
                 # Proposed performance statement
                 # Recycling
                 # Discontinued operations
                 # Extraordinary items
                 # Notes to the financial statements
            o Compliance with international standards
            o Post-FRED 22 developments
      Segmental reporting
            o The requirements of the Stock Exchange and company law
            o SSAP 25 Segmental Reporting
            o Compliance with the international standard
      Part B Extending the financial reporting envelope Accounting for post balance sheet events
            o SSAP 17 Accounting for Post Balance Sheet Events
            o FRED 27 Events after the Balance Sheet Date
                 # Dividends no longer adjusting events
                 # Dividends from subsidiaries and associates declared after the balance sheet date
                 # Adverse events and prudence
            o Compliance with the international standard
      Earnings per share
            o FRS 14 Earnings per Share
                 # Scrip issue
                 # Issue at full market price
                 # Rights issue
                 # Dilution
                 # Contingently issuable shares
            o FRED 26 Earnings per Share
            o Compliance with the international standard
      Related party disclosures
            o FRS 8 Related Party Disclosures
            o The definition of related parties
                 # Materiality
            o FRED 25 Related Party Transactions
            o Compliance with the international standard
      Part C Share-based payments
      Different types of share-based payment
            o Existing practice
            o FRED 31 Share-based Payments
                 # Equity-settled share-based payment transaction
                 # Cash-settled share-based payment transactions
                 # Other aspects of FRED 31
            o The response to the Discussion Paper and FRED 31
      Summary
  Chapter 12: Taxation: current and deferred
      Introduction
      Current taxation
            o Corporation tax
            o Tax credits
            o Withholding tax
            o Overseas taxation
            o FRS 16 Current Tax
            o IAS 12 Income Taxes
      Deferred taxation
            o Timing differences
            o Attempts at standardisation: ED 11 to SSAP 15
            o FRS 19 Deferred Tax
                 # Discounting
                 # Presentation and disclosure
            o The international accounting standard: IAS 12
                 # Realised gains on disposal of fixed assets
                 # Unrealised gains on revaluation of fixed assets
                 # Unremitted earnings
      Summary
  Chapter 13: Business combinations and goodwill
      Business combinations
            o Introduction
            o Some reasons for combining
                 # Purchase of undervalued assets
                 # Economies of scale
                 # Elimination or reduction of competition
                 # Reduction of risk
                 # Use of price/earnings ratios
                 # Managerial motives
            o Methods of combining
                 # Combinations which result in a group structure
                 # Combinations not resulting in a group structure
                 # Preference for group structure
                 # Choice of consideration
            o Accounting for business combinations
            o Acquisition and merger accounting
            o Development of an accounting standard
                 # The Companies Act 1981
                 # Criteria for use of the merger method
                 # The approach of SSAP 23
                 # Experience of SSAP 23
                 # FRS 6 Acquisitions and Mergers
            o The international accounting standard
      Goodwill
            o Introduction
            o Accounting for goodwill
                 # Some possibilities
                 # The approach of SSAP 22
                 # Experience of SSAP 22
                 # Towards a new standard
                 # ASB pronouncements
            o FRS 10 Goodwill and Intangible Assets
                 # Impairment reviews
                 # Negative goodwill
                 # Disclosure requirements
            o The international accounting standards
            o Conclusion
      Summary
  Chapter 14: Investments and groups
      Introduction
      Investments
            o Individual company financial statements
            o The international accounting standards
      Accounting for groups
            o What is a group?
            o The compass of group accounts
            o Changes in the composition of a group
                 # Treatment of an acquisition
                 # Treatment of disposals
      Summary
  Chapter 15: Associates and joint ventures
      Introduction
      Possible methods of accounting
            o Associates and acquisition accounting
                 # Date of acquisition
                 # Consistent accounting periods and policies
                 # Use of fair values
                 # Purchased goodwill and amortisation
                 # Unrealised intercompany profits
      The regulatory framework in the United Kingdom
            o The legal background
            o FRS 9 Accounting for Associates and Joint Ventures
                 # Joint ventures and the gross equity method
                 # Approach where no consolidated financial statements are prepared
                 # Large investments in associates and joint ventures
            o Summary of the UK position
      The international accounting standards
            o Associates
            o Joint ventures
            o Proposed changes
      Summary
  Chapter 16: Overseas involvement
      Introduction: the problems identified
      Accounting for foreign currency transactions
            o Summary
                 # 1 Non-monetary assets shown on basis of historical cost
                 # 2 Non-monetary assets shown on basis of a revalued amount
                 # 3 Unsettled monetary items
                 # 4 Treatment of exchange gains and losses
      Translation of the financial statements of an overseas subsidiary
            o The SSAP 20 solution
            o Closing rate/net investment method
            o Temporal method
            o A critical look at the two methods
                 # Some substantial differences
                 # Advantages and disadvantages
                 # One aspect of a larger problem
            o A more complex example
                 # The closing rate/net investment method
      The international accounting standard
      The proposed new standards
      Summary
  Chapter 17: Expansion of the annual report
      Introduction
      Cash flow statements
            o Background
            o FRS 1 and the individual company
                 # Net cash flow from operating activities
                 # Dividends received from associates and joint ventures
                 # Returns on investments and servicing of finance
                 # Taxation
                 # Capital expenditure and financial investment
                 # Acquisitions and disposals
                 # Equity dividends paid
                 # Management of liquid resources
                 # Financing
            o Groups, associates and joint ventures
                 # Groups
                 # Associates and joint ventures
            o Foreign currency differences
            o The international accounting standard
            o Usefulness and limitations of the cash flow statement
      The operating and financial review
            o Exposure draft
            o The White Paper, Modernising Company Law
      The historical summary
      Reporting about and to employees
      Summary financial statements
      Interim reports and preliminary announcements
            o Interim reports
            o Preliminary announcements
      Summary
  Chapter 18: Capital reorganisation, reduction chapter and reconstruction
      Introduction
      Redemption and purchase of shares
            o Purchase not out of capital2
            o Purchase out of capital5
                 # The permissible capital payment
                 # Further safeguards
      Capital reduction
      The proposed simplification of capital reduction
      The legal background to other reorganisations
      Capital reconstruction
            o Distribution on liquidation
            o Design of a capital reconstruction scheme
            o Evaluation of a capital reconstruction scheme
      Summary

PART 3 Accounting and price changes

  Chapter 19: Accounting for price changes
      Introduction
      The progress of accounting reform
      Current purchasing power accounting
            o Introduction
            o Monetary assets and liabilities
            o The computation of gains and losses on a company\'s net monetary position
            o The nature of the loss or gain on a company\'s net monetary position
            o Strengths and weaknesses of the CPP model
      Summary
  Chapter 20: Current cost accounting
      Introduction
      Theoretical roots
            o The distinction between holding and operating gains
            o The distinction between realised and unrealised holding gains
            o The relationship between historical cost profit and business profit
            o Which `current value\'?
            o Deprival value/Value to the business
      The basic elements of current cost accounting
            o The current cost balance sheet
            o The current cost profit and loss account
                 # Operating capital maintenance
                 # Monetary working capital adjustment (MWCA)
                 # The current cost operating profit and operating capability
                 # The gearing adjustment
                 # The current cost accounts
                 # Financial capital maintenance
      Summary
  Chapter 21: Beyond current cost accounting
      The utility of current cost accounts
            o Control
            o Taxation
            o Consumption
            o Valuation
      Interim summary
      CPP and CCA combined
      A real alternative - Making Corporate Reports Valuable
            o More contextual information
            o Market capitalisation
            o A net realisable value accounting model
            o MCRV\'s structure for financial statements
                 # Assets and liabilities statement
                 # Operations statement
                 # Statement of changes in financial wealth
                 # Distributions statement
                 # Additional statements
      The evolution of the ASB\'s thinking
            o Conclusion
      Summary

Index