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Regular version of the site

Financial Reporting

2020/2021
Academic Year
ENG
Instruction in English
8
ECTS credits
Course type:
Elective course
When:
3 year, 1-4 module

Course Syllabus

Abstract

The course is designed to introduce a number of theoretical approaches to financial accounting and develop background for preparing financial statements of the company under alternative accounting conventions (mainly under International Financial Reporting Standards (IFRSs)). The course describes a number of regulatory issues relating to financial accounting and explores the detailed issues and problems of financial reporting. It provides basic skills in recording and interpretation of financial data and covers basic techniques of financial analysis. The course requires the knowledge of basics of accounting and microeconomics. This is a two-semester course designed to prepare students for UoL examination. If taken as part of a BSc degree, the following course must be passed before this course may be attempted: Principles of accounting.
Learning Objectives

Learning Objectives

  • The student should be able to prepare consolidated financial statements for the group of companies.
  • The student should be able to use financial, accounting and other information contained in the statements of enterprises of various forms of ownership, organizations, departments, etc., for making management decisions.
Expected Learning Outcomes

Expected Learning Outcomes

  • discuss the character and role of accounting in society
  • explain and discuss the implications of the IASB
  • discuss the arguments for and against accounting standards
  • discuss accounting regulation
  • define a conceptual framework
  • identify the main efforts by the USA, the IASC/IASB and the UK to introduce a conceptual framework
  • describe objectives of financial reporting as per IASB conceptual frameworks
  • elaborate upon what IAS1 and IAS7 of IASB prescribe in relation to the preparation and presentation of financial statements
  • explain the basic character in this context of the statement of financial position, the statement of income, the statement of other comprehensive income, the statement of changes of equity and the notes to the accounts
  • appreciate ethics in relation to accounting
  • explain the way ethics for accountants have been articulated in practice, based partly on issues deemed to arise
  • understand the concept of fair value (“exit price”) according to IFRS13
  • explain the basic ideas behind the move towards fair values (FV)
  • discuss the basis, the advantages and disadvantages of HCA
  • discuss why CPP was proposed as an alternative to HCA
  • describe the difference between monetary and non-monetary items
  • convert HCA to CPP by following the step-by-step guide
  • compute real gains and losses on monetary items
  • discuss replacement cost (RC), net realisable value (NRV) and present value (PV)
  • explain the concepts of current operating income and holding gains
  • discuss different concepts of capital maintenance and their implications for corporate reporting
  • prepare a statement of financial position and income statement using specific price indices, including calculating holding gains and losses
  • discuss tangible non-current assets, directly owned and leased and borrowing costs
  • explain the implications of revaluation on interpretation of the financial statements
  • understand the methods of accounting for investment property
  • describe both operating leases and finance leases under IAS17
  • demonstrate accounting for both operating and finance leases, and explain possible implications for accounts’ users
  • discuss off-statement of financial position financing in relation to operating leases
  • discuss the reactions of standard setters to mitigate against the potential distortions caused by operating leases and know the concept introduced by IFRS16
  • define intangible assets, R&D and goodwill
  • describe and explain the accounting treatment of intangibles, R&D and goodwill
  • describe the effect of intangible assets, R&D and goodwill for both the consolidated accounts and ratio analysis
  • compare and contrast the various historical approaches (capitalization with no follow-up expensing of goodwill; immediate write-off; capitalisation and amortisation of goodwill) with the current approach to test periodically for impairment
  • define inventories, describe and explain the accounting treatment of inventories
  • define construction contracts
  • describe and explain the accounting treatment of construction contracts
  • explain the character of financial instruments and the accounting issues involved
  • understand the "business model" concept and SPPI test concept
  • explain the approaches taken by IAS 39 and IFRS 9 in the measurement and recognition of financial instruments in key areas
  • discuss capital and reserves
  • demonstrate the accounting treatment for an equity issue (and show how the interaction with equity financing and debt financing impacts on accounting ratios
  • account for compound instruments according to IAS32
  • appreciate the difference between short-term and long-term employee benefits and key aspects of the prescribed accounting for these benefits in IAS 19
  • appreciate key aspects of the treatment of share-based payments under IFRS 2
  • discuss provisions, contingent liabilities and contingent assets
  • demonstrate the accounting treatment for provisions, contingent liabilities and contingent assets
  • explain the importance of events after the balance sheet date
  • know how to distinguish adjusting and non-adjusting subsequent events
  • explain how different non-current asset investments are distinguished and accounted for
  • describe a “group”, the composition of the group
  • describe the rationales used to develop different models of consolidation (acquisition, merger, equity, proportional)
  • be aware of the main ideas underpinning the now disallowed merger method
  • explain why the definition of a subsidiary is important
  • prepare consolidated accounts (statement of financial position and profit and loss or income statements) using the acquisition method
  • compute the value of goodwill and non-controlling (minority) interest
  • appreciate the importance of the transaction date and the difference between pre- and post-transaction profits/income in consolidated accounts
  • describe associates and joint ventures and how to account for them in consolidation
  • prepare consolidated accounts (statement of financial positions and income statements) using the equity methods
  • explain why foreign currency translation is necessary
  • explain the importance of the exchange rate and how to treat exchange differences
  • discuss the different treatment of foreign subsidiaries and branches
  • describe and use both the closing rate and the temporal method of foreign currency translation
  • discuss some of the fundamental differences between tax bases and tax systems
  • describe and apply the basic workings of the UK imputation system
  • explain the difference between accounting profit and taxable profit
  • prepare an income statement and statement of financial position entries for the three approaches for accounting for deferred tax
  • explain the difference between permanent and timing differences
  • describe the three approaches to accounting for deferred tax
  • explain differences between the deferred versus liability approach under the full provision method
  • interpret a set of accounts using a number of techniques
  • apply the pyramid of ratios and other ratios to a set of accounts
  • perform trend and vertical analysis
Course Contents

Course Contents

  • 1. Introduction to the course. Rationale for financial reporting and its regulation.
    Financial accounting theory. Financial accounting and its role. Financial accounting regulation. Accounting standards. Descriptions of accounting and its regulation. UK accounting regulation and the influence of international accounting standards. Institutional setting for accounting regulation: the UK. Statutory regulation: IASs/IFRSs gained force of law. Mandatory regulation: standard-setting and the case of the UK.
  • 2. Conceptual framework.
    Definition of a conceptual framework. Rationale for a conceptual framework. Advantages claimed for a conceptual framework. The US, IASC and UK initiatives compared. Objectives of financial reporting. Qualitative characteristics of accounting information. Elements of financial statements. Presentation of financial information. Review of the conceptual framework.
  • 3. Preparation of financial statements.
    Main forms of statements in financials. Statement of financial position. Income statement. Statement of other comprehensive income. Statement of changes in equity. Cash flow statement. Correlation between the main forms.
  • 4. Ethics for accountants.
    Personal ethics. Professional ethics. Corporate social responsibility.
  • 5. Fair value and other accounting systems of price adjustments. Accounting for changing prices/values.
    Fair value concept. IFRS 13. Measurement process. Disclosure. Characteristics of HCA. Advantages and disadvantages of HCA. Alternatives to HCA. Introducing CPP accounting. General and specific changes in price. Profit recognition and capital maintenance. Assessing CPP accounting. Converting from HCA to CPP: a step-by- step guide. Worked example and explanation of CPP. Advantages and disadvantages of CPP. Introduction to current value accounting (CVA). Replacement cost accounting (RCA). Advantages and disadvantages of replacement cost. Net realisable value (NRV). Present value (PV). Deprival value (DV). Advantages and disadvantages of deprival value. Holding gains and current operating profit. Capital maintenance concepts. Current value accounting using replacement cost. Worked example and explanation of CVA. Combined CPP/CVA system.
  • 6. Accounting for tangible non-current assets.
    Tangible non-current assets (owned). Measurement of tangible non-current assets. Borrowing costs. Measurement after recognition: revaluation. Depreciation. Investment property. Reclassifications. Change of intention regarding use of non-current asset. Tangible non-current assets (not owned): leases. IAS 17. Classification of lease. Accounting by lessees. Accounting by lessors. Sale and leaseback transactions.
  • 7. Accounting for intangible assets.
    Goodwill: history of accounting approaches. Intangible assets (other than goodwill). Impairment: IAS 36. Research and development. International differences.
  • 8. Accounting for inventories and construction contracts.
    Components of inventory. Implications of inventory for the accounts. Inventory valuation: definitions. Implications of fair value accounting. Construction contracts. Profit recognition methods.
  • 9. Accounting for financial instruments.
    IFRS 9. Definition of financial instrument. Recognition and derecognition of financial instruments. Categories of financial assets and liabilities. Measurement of financial instruments.
  • 10. Accounting for equity and liabilities.
    Share capital and reserves. Ordinary shares. Preference shares. Accounting issues: equity or liability? Off-balance sheet financing.
  • 11. Accounting for employee benefits.
    Short-term employee benefits. Post-employment benefits. Defined contribution plans. Defined benefit plans: recognition and measurement.
  • 12. Accounting for provisions, contingent assets, contingent liabilities. Events after reporting period.
    IAS 37. Recognition of a provision. Disclosure of contingent assets and contingent liabilities. IAS 10. Events after reporting period: adjusting and non-adjusting.
  • 13. Consolidated accounts. Business combinations.
    Key principles and rationales. Requirement for consolidated accounts. Different models of group accounting. Different types of relationships within a group. Concept of influence and control. Accounting for subsidiaries.
  • 14. Consolidated accounts. After date of acquisition.
    Post-acquisition profit. Intergroup transactions. Dividend elimination. Unrealised profit. Non-controlling interest. Goodwill impairment. Consolidated statement of total comprehensive income. Consolidated statement of changes in equity. Consolidated cash flow statement.
  • 15. Consolidated accounts. Associates and joint arrangements.
    IAS28. Significant influence concept. “Upstream” and “downstream” transactions. IFRS11. Joint ventures. Joint operations.
  • 16. Accounting for foreign currencies
    Foreign currency conversion: business transactions. Foreign currency translation: business transactions. Exchange rates that should be used to record foreign currency translations. Accounting for the closing rate method and the temporal method. Consolidation of foreign subsidiaries.
  • 17. Accounting for taxation
    An introduction to corporation tax systems. UK: corporation tax. Deferred taxation: taxable profit versus accounting profit. Approaches to the accounting treatment of deferred tax. Value-added tax (VAT).
  • 18. Analysis and interpretation of financial reports
    Introduction to the interpretation of financial statements. Ratio analysis – introduction. Trend analysis. Earnings per share. IAS33.
Assessment Elements

Assessment Elements

  • non-blocking MOCK exam
  • non-blocking winter internal exam
  • non-blocking written home assignments
  • blocking Final exam (spring internal exam or UoL exam)
  • non-blocking class participation
    Attendance and tests.
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.12 * class participation + 0.26 * MOCK exam + 0.5 * winter internal exam + 0.12 * written home assignments
  • Interim assessment (4 module)
    0.125 * class participation + 0.5 * Final exam (spring internal exam or UoL exam) + 0.25 * Interim assessment (2 module) + 0.125 * written home assignments
Bibliography

Bibliography

Recommended Core Bibliography

  • International financial reporting and analysis, Alexander, D., Britton, A., 2017

Recommended Additional Bibliography

  • Bakker, E. (2017). Wiley IFRS 2017 : Interpretation and Application of IFRS Standards. Hoboken, NJ: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1477431
  • Koppeschaar, Z. R., Rossouw, J., & Van Wyk, H. A. (2017). Introduction to IFRS (Vol. Seventh edition). Durban: LexisNexis SA. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2139934