FINANCIAL STATEMENT ANALYSIS

Dr. Ika Pratiwi Simbolon

Assignment 1

Arranged by:
1. Anggelina Ariresta (008201900008)
2. Aulia Oktafiana Setiawati (008201900001)
3. Auliya Shabrina P.E (008201900037)
4. Arinjani Novita Sari (008201900013)
5. Bryan Lesmadi (008201900058)

Group 2 Auditing and Taxation Class

President University
Jababeka Education Park. Jl. Ki Hajar Dewantara, Kota Jababeka, Cikarang Baru, Bekasi 17550,
Indonesia. Tel: +62-21 89109763. Ext. 112-115. Email: info@president.ac.id
1. Discuss the role of the formulation of accounting principles in Indonesia, United States and
also the International principles.

Every country has a financial reporting standard. Indonesia has the Indonesian Accountants
Association which issued the Financial Accounting Standards Statement as the only standard
accepted as 'business language' of companies in Indonesia. US has the Generally Accepted
Accounting Principles (GAAP) released by the Financial Accounting Standard Board (FASB).
The European Union has an International Accounting Standard (IAS) issued by the International
Accounting Standard Board (IASB). So far the leading standard reference is International
Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board
(IASB).
a. Can present information about financial information, achievements, and activities of the
company. Information compiled based on common accounting standards is expected to have
clear, consistent, reliable and comparable characteristics.
b. Give guidelines and regulations to work for accountants so that they can carry out their duties
carefully, independently, and can apply their expertise and honesty through the preparation of
accounting reports after going through an accountant examination.
c. Providing a data base to the government about various information that is considered important
in tax calculation, regulations about the company, planning and economic regulation, and
increasing economic efficiency and other macro objectives. Can attract severe experts and
practitioners in the field of accounting theory and standards. The more standards that are issued,
the more controversy and the more excited it is to debate, polemic and conduct research.
2. How does the concept of consistency aid in the analysis of financial statements? What type
of accounting disclosure is required if this concept is not applied?

The concept of consistency means that same accounting principles should be used for preparing
financial statements for different periods. It enables the management to draw important
conclusions regarding the working of the concern over a longer period. The financial statements
of a company should assume the same accounting procedure, practices, methods, and principles in
every period of accounting. Accountants are advised to apply consistency every accounting year
to avoid any manipulation on the statements of finance. Consistency allows for the same
accounting principle from period to period. A change in principle requires statement disclosure.
3. The only accurate way to account for the success or failure of an entity is to
accumulate all transactions from the opening of business until the business eventually
liquidates. Comment on whether this is true. Discuss the necessity of having completely
accurate statements.

It is true that the only accurate way to account for the success or failure of an entity is to
accumulate all transactions from the opening of business until the business eventually liquidates.
But it is not necessary that the statements be completely accurate in order for them to be
meaningful.

4. Countries have had problems with the stability of their money. Briefly describe the problem
caused for financial statements when money does not hold a stable value.

Accounting needs some standard to measure, to bring financial transaction together in a

meaningful way. By comparing all the different standards of measure, accountants have found
that money is the best for the purpose of measuring financial transactions. Different countries call
 their monetary units by different names. Different countries also attach different values to their
money for example 1 dollar is equal to 1 yen. Hence, financial transactions may be measured in
terms of money in each of the countries, but the financial statements from several countries
cannot be compared directly until they are converted to one common monetary unit.

Many countries do not have stability of their money. The loss in value of money is called
inflation. In countries where inflation has been, significant financial statements are adjusted by an
inflation factor that restores the significance of money as a measuring unit. However, a
completely acceptable restoration of money as a measuring unit cannot be made is such cases
because of the problems involved in determining an accurate index.

5. Inventory that has a market value below the historical cost should be written down in order
to recognize a loss. Comment.
Inventories that have a market value below historical cost should be written down to recognize
losses. this is done based on the concept of conservatism. Reasonably anticipated losses should be
made to reflect the least favorable impact on net income for the period
6. Discuss why the concept of full disclosure is difficult to apply.
Difficulty in the application of full disclosure:
a) It is very hard to keep up with all the information since many operations take place in a
business, some of them slip out.
b) It is a time-consuming process because summarizing every transaction takes time.
c) This concept is non-economical as a lot of money can be wasted on recording, which can be
used for other purposes.
7. Many important events that influence the prospect for the entity are not recorded in the
financial records. Comment and give an example.

Many important events occur and affect the prospects of the entity itself. This is related because
the financial statements contain all transactions that affect the performance of the company. This
is identical to quantitative data where the company only records events that occur if there is an
increase or decrease in assets, liabilities, and equity.

However, there are several important events that affect the performance of the entity but in the
form of qualitative data. This is contrary to the character of financial statements because they
cannot be numbered or journalized with the appropriate accounts and are available in the financial
statements. This event is usually described in the annual report of the company itself because it is
considered an external factor from the financial statement but affects the financial statement itself.

An example of an important event that is not recorded in a financial statement is the covid
pandemic which causes a decline in sales, this cannot be explained explicitly by the accountant.
The second is the number of wrong transaction records that cause the account to be recorded
overstated because of an error in the internal control system. And third, inventory damage due to
flooding, fire, or accident.

8. An entity may choose between the use of the accrual basis of accounting and the cash basis.
Comment.
 An entity is generally free to choose either method for any reason at all. Many small businesses
use cash accounting because it's easier. If you're looking to raise funds, outside investors often
prefer to see books using the accrual method so they can view the big picture of the company's
financials. You must use the accrual method if :
a) Your average annual gross receipts over three years exceed $5million
b) You hold products in inventory and your gross receipts exceed $1million per year
c) You are a publicly traded company that is required to follow Generally Accepted
Accounting Principles (GAAP)

9. Would an accountant record the personal assets and liabilities of the owners in the accounts
of the business? Explain.

Personal assets of the owner are not recorded in balance sheet because a business and the owner
itself is a separate entity, only assets and liabilities of the related to the business itself are shown
in the balance sheet.