2BM190: Advanced Financial Reporting

WRITTEN ASSIGNMENT

Name: Luong Duc Tung Son

Student ID: YSJ17031

Introduction:

Currently, there are many types of financial statements such as balance

sheet, income statement, cash flow statement, etc. I am particularly
impressed with the two types of financial statements which are balance
sheet and report revenue results. The characteristic feature of these two
types of reports is to evaluate the performance of the company and to
determine profit. The financial statements show the results of quarterly
and annual production and business activities of the company.
Companies are required to submit reports to the SSC State Securities
Commission.

To seriously consider which one can meet the needs of financial report
users, we need to go into a detailed analysis of each type. You can gather
much useful information from an annual report of the company. It will
point out the company's products and services, thereby giving you a
better overview of the company. If you are looking to invest in a company
but are not sure that you understand its business model, try reading
annual reports - which may help you brighten up many things. For
example, you may not have thought of yourself or anyone else investing
in a pharmaceutical company, but after reading your annual report and
learning about its main drugs, why do people If you need medicine and
how it affects the human body, you can find out that you understand
more than you think. However, if you still lose after these studies, you
should ignore that stock.

Moreover, of course, the financial statements also include the financial

data that investors need to analyze, such as revenue, costs, net income,
total assets, total debt ... Financial statements It also makes it easy to
compare these figures over time by providing both historical and current
data. For example, looking at Amazon's financial statements, Amazon's
net revenue has increased over the past five years, from $ 10,711 million
in 2006 to $ 34,204 million in 2010. If you want to see the data. Before
long, you can also look at the annual reports from previous years.
Historical data needs to be analyzed to determine growth prospects and
make future forecasts.
Financial statements can also tell you a lot about the weaknesses of a
company. For example, the annual report of the Amazon 2010
mentioned: "We have a business model that is constantly developing and
the company's stock price also often fluctuates greatly," "We follow the
Responsibility. Fair compensation for defective products if there is a
person or property that is compromised by the products we sell," and
"We also have legal Responsibility for fraudulent or illegal activities
salesman's". As an investor, do you see these weaknesses as significant
threats to your profitability when you invest in Amazon?

Also, when considering the financial statements of a company, you also

need to consider both the Balance Sheet and the report of its business
results. They will give you lots of numbers needed for your analysis.

In this article, I will analyze two types of financial statements, Balance

Sheet and Income Statement. Also, I will do reviews based on my own
opinion to choose which financial statements are capable of meeting
user needs. In this article, I will illustrate the definition and description
of each type of financial report. After that, I will study the advantages
and disadvantages of both types of financial statements. Finally, I would
like to express my opinion on the usefulness of each type and can better
meet user requirements between the two types of financial statements.

Main Body:
I. Balance Sheet

We will first delve into the balance sheet analysis. The balance sheet is
one of the three fundamental financial statements and is the key to both
financial and accounting models. The balance sheet displays the total
assets of the company and how these assets are funded, through debt
or Equity. It is a quick financial report on what a company owns and
owes, as well as the investment amount of its shareholders. It is used in
conjunction with other relevant financial statements such as income
statements and cash flow statements in conducting fundamental
analysis or calculating financial ratios.

The balance sheet is based on fundamental equations: Assets = Liabilities

+ Equity.

Assets, liabilities and Equity of each shareholder include several smaller

accounts that clarify the specifics of the company's financial situation.
These accounts vary widely by industry, and similar terms may have
different meanings depending on the nature of the business.

Because the balance sheet informs readers about a company's financial

situation at a time, it allows someone like a creditor to see the company
as well as what they owe. for other parties from the date stated in the
title. This is valuable information for bank employees who want to
determine whether a company is eligible for additional credit or loans.
Others will be interested in balance sheets including current investors,
potential investors, company managers, suppliers, some customers,
competitors, government agencies — moreover, union.

The balance sheet is invaluable information for investors and analysts;

However, it has some disadvantages. Since it is just a snapshot in time, it
can only use the difference between this time and another time in the
past. Because it is static, many financial ratios are based on data in both
the balance sheet and the income statement and the more powerful
cash flow statement to draw a complete picture of what is going on out
with the company's business. Various accounting systems and how to
handle depreciation and inventory will also change the data posted on
the balance sheet. Because of this, managers have some ability to
regulate numbers so that the balance sheet figures show that the
company's business looks more favourable. The balance sheet helps
reflect the book value of assets, established according to the first price
principle, so it is challenging to match the book value of assets with a
book value in the market. The balance sheet only reflects the data at the
time of the financial statement (usually at the beginning or the end of
the period), so it is difficult to evaluate based on the balance sheet
figures only. Several factors affect the movement of assets and funds in
either period or period. Also, past financial performance, good or bad, is
not an unavoidable accurate prediction of future performance,
managers can rely on data to assess risks latent in the financial activities
of the company.

The balance sheet is a picture that represents the financial status of the
company at a time. In itself, it cannot give a feeling or change in trends
that are going on for a longer time. For this reason, the balance sheet
should be compared over time and period. It should also be compared
with other businesses in the same industry because different industries
have different financial approaches. The balance sheet consists of two
parts, one side represents total assets, and the other represents the total
liabilities and Equity of the company. Total assets include cash and cash
equivalents; investments; receivables, inventory; Deferred tax assets;
Invisible treasure; commercial advantage; tangible assets, factories and
equipment and other assets. Each company may have different types of
assets, so these accounts will therefore not be the same for all
companies.

The company's debt shows short-term payables, cumulative debt,

convertible debt, long-term debt, fixed debt, and any other debt the
company may have. The equity portion of the balance sheet reflects how
much money is invested in the company in addition to the retained
earnings. Like assets, these sub-accounts will not be the same for all
companies because different companies also have different types of
debts.

Some ratios can be taken from the balance sheet, helping investors
understand the healthiness of a company. These include debt-to-equity
ratios and current solvency ratios, along with many other ratios. Income
statements and cash flow statements also provide value for the financial
evaluation of the company.

II. Income Statement

The next part I want to analyze is Income statement. A comprehensive

income statement is a report that shows the financial performance by
listing all profits and losses and other company earnings in a given time.
Reports are usually prepared and presented monthly, quarterly and
annually. It may include all revenues, interest, expenses and losses
incurred over some time as well as unrealized gains and losses in an
accounting period. It, therefore, provides external users with a complete
and detailed view of all accounts affecting equity in a specified period.
This report combined with the balance sheet and cash flow statement
creates the key to the company's operations. Besides, income
statements are called profits and losses, also known as revenue and
expense reports, which show revenues and costs in a particular period.
When viewing reports, managers can find profits easily. The bottom line
of the income statement includes Revenue, cost, interest and loss.
Providing information on Income or profit is the primary purpose of
income reporting. It does not include revenues - money received from
company activities. It starts with details about Revenue and jobs to
calculate net Income or profit. Besides, the Income Statement shows the
result that the net Revenue that the company recognizes is converted
into profit or loss.

Profits are calculated by Revenue minus expenses such as salaries and

wages of employees, water charges, ground rent, Depreciation of fixed
assets, related expenses, etc.

The equation for calculating profit of income statement:

Sales – COGS = gross profit – expenses = net profit

When determining net Revenue (Revenue) and cost, we will calculate

interest (loss or profit) from the income statement.

Revenue is the cost of providing services or providing products. In the

accrual account basis, Revenue is recognized at the time of service or
goods receipt, even if cash is not received at the same time of delivery.
Income terms are often used instead of Revenue (Harold Averkamp-CPA,
MBA, 2014).
For example, revenue accounts include Sales, Service revenue, Fee
income, Interest income, Income. If A significant activity of the business
makes Revenue, it is considered to be operating Revenue. If Revenue is
generated from secondary activity, this is considered to be inactive
Income. Cost is the cost consistent with Revenue on the income
statement. Costs have some excellent examples such as Cost of Goods
sold, which are costs from sales, Wages and salaries, Interest expenses,
Administrative costs, etc.

The cost is matched with the period in the title of the income report.
Costs related to the company's primary operations are called operating
costs. (Harold Averkamp from CPA, MCA, 2014)

The advantages and benefits of income statements can be mentioned as:

- Provide detailed information about the company's Revenue at the

specified time. Income reports provide detailed data on Revenue by
month, period or year. In addition to the usual costs such as cost of goods
sold, staff costs, operating costs, it also accounts for additional costs such
as applied taxes.

- As a database for investors to assess potential risks: This is an essential

document for investors who need detailed information to decide to
invest in a company. All data from sales to profits, business performance,
are shown in the income statement. All of this helps investors get a clear
view of how the business is and how it works.

- As a tool for forecasting: Income statements become the foundation

for forecasting future accounting periods. These forecasts are used to
create a backup budget for a company that can last up to 12 months. ,
five years or even ten years, depending on what is assessed. These
reports are used to predict problems and risks that may occur in the
future, allowing the company to create a plan to respond to situations
where income reports indicate possible and severely affected the
company.

Besides these advantages, the income statement also has the following
shortcomings:

- Can misjudge the efficiency of the company: Income statement includes

not only revenue from sales but also money from receivables that
customers have not paid, in fact, it includes debts because costs have not
been paid. Also, significant expenses or revenue can make income
increase or decrease significantly compared to reality. This leads to a
deviation of the company's success.

- Do not evaluate non-revenue factors to be successful: Income reports

only focus on the revenue results of activities in addition to considering
how the company earns sales from its customers. It does not consider
the salary paid compared to similar businesses in the region. Many
practices can improve or reduce the reputation of a business that is not
reflected in the data presented in the income statement.

Financial statements are intended to be easily understood by readers

who know about economics and business knowledge. There are two
main types of users using financial statements. Those who use
accounting information use financial statements for a wide range of
meaningful business goals and they will analyze and come up with
strategies for the company. It will make there the right ways to grow and
help them succeed in the financial world. Users of different financial
statements include:

Internal users are directly related to the organization within the

company. It may consist of Managers and Owners, Employees, Directors,
etc.

The last one is that external users pay more attention to the profitability
of each company, including:

Investors, shareholders, Government, Suppliers, Debtors, Auditors, etc.

People or outsiders of companies need financial statements to make
decisions for specific companies

In that case, I will talk more about external users, because I will compare
with the profit aspect. Moreover, the financial statements must follow
the standards of the accounting profession, including some typical
components:

+ Easy to understand: Users need knowledge of accounting. (IASB-209).

+ Comparison: Comparing must use the consistency of accounting

methods and maturity procedures.

+ Relevance: Information or data is considered appropriate when it helps

users evaluate the past (Authentication), Future (Predict) (IASB-209).

+ Reliability: Standards are essential quality characteristics (IASB, 2009)

+ Timeliness, consistency, honesty, conservative presentation, etc. are

standards for the accounting profession

+ About profit:

For every company, benefits always play an essential role, which is the
life of the company. Following benefits, we can see the results of
operating operations, see it as a loss or a high gain. Through it, the
manager will analyze and provide a way to help the company spend on
different situations.
The Income statement is a natural basis for accounting

Explanation: Regarding structure, see the income statement

+ Easy to understand and calculate

Description: Based on revenue and cost, the income statement has been
displayed along with the vertical analysis. The record of cost revenue, we
can easily see the company's profit each year.

+ Income reporting approach based on proper revenue and revenue

recognition and expiration

+ Information and data of accounting is clear and complete:

+ Income report focuses on calculating revenue, costs, taxes and profits

of this company. Therefore, if according to the profit aspect, we should
choose an income statement

A better conceptual framework:

The content of the balance sheet represents assets, debt and capital. So
if we want to know the profit of this company, the balance sheet does
not show the results on the report. We must calculate with the net asset
closing technique minus the opening of net assets:

Issues of balance plate model application:

+ More challenging to mark the market and mark the model

+ The difference between the real company and financial market

+ Assets and responsibilities are re-evaluated each period

The change in property and accountability makes it challenging to

calculate.

+ Unpredictable market value, there may be fluctuations in value.

Conclusion:

In summary, the Income Statement and the Balance Sheet are all critical
reports in the financial statements. Each report represents different
meanings, but the main content helps users understand more about the
specific company as well as the strategy to help the company develop
ideally.

LIST OF REFERENCES:

- Brandon Gaille, Sep 26, 2018.18 Income Statement Advantages and Disadvantages
Available at: https://brandongaille.com/18-income-statement-advantages-and-
disadvantages/
- Johnston Walker, Business advantages and disadvantages of balance sheet Available
at: https://quizlet.com/82602035/business-advantages-and-disadvantages-of-balance-
sheet-by-johnston-walker-flash-cards/