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A Framework For Financial Statement Analysis
A Framework For Financial Statement Analysis
Loan creditors ie, existing and The amount will be paid when due and for potential holders of debentures and continuation of the business. loan stock, and providers of shortterm loans Employees (existing, potential and Interested in stability and profitability for past) employment opportunities, remuneration and retirement benefits. Business contacts including Whether the payment of loan will be made in due customers, trade creditors, dates and enable sustainability of business for future competitors and potential take-over business with the enterprise. bidders Government, including tax Interested in allocation of resources and also to authorities, government departments regulate the activities of an enterprise and and local authorities determining tax policies and as a basis for national income. Public, including tax payers, Trends and recent development in the prosperity of ratepayers and environmental groups the entity and range of its activities.
Trend statements
Basic Assumptions
Business Entity
The concept of Business Entity means that business or entity is a separate and distinct from the owners of the entity for which financial statements are prepared
The going-concern assumption is that the entity will remain in the business for an indefinite period of time, provides viewpoint on the future of the entity. This assumption deliberately disregards the possibility that the entity will go bankrupt or liquidated. If a particular entity is in fact threatened with bankruptcy or liquidation then going concern assumption should be dropped.
The only accurate way to account for the success or failure of an entity is to accumulate all transactions from the opening of the business until the business eventually liquidates. Accountants needs some standard of measure to bring financial transactions together in a meaningful way. Accountant should specify the unit of measure i.e $ or PKR according to the country in which statements is prepared.
Time Period
Monetary Unit
Consistency of Presentation
The presentation and classification of items in the financial statements shall be retained from one period to the next unless: it is apparent, following a significant change in the nature of the entitys operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies.
Accountants need to recognize the costs associated with the recognized revenue. The basic intent is to determine the revenue first and then match the appropriate costs against this revenue. Cost of inventory can be easily matched with revenue.
Realization
While preparing FS, Accountants need to determine that when it is practical to recognize revenue.
Full Disclosure
The accounting report must disclose all facts that may influence the judgment of an informed reader. Several method of disclosure exit such as footnotes and cross references.
Basic Assumptions
Materiality and Aggregation Each material class of similar items shall be presented separately in the financial statements. Items of a dissimilar nature or function shall be presented separately unless they are immaterial.
Off setting Assets and liabilities, and income and expenses, shall not be offset unless required or permitted by a Standard or an Interpretation. Comparative Information Except when a Standard or an Interpretation permits or requires otherwise, comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements. Comparative information shall be included for narrative and descriptive information when it is relevant to an understanding of the current periods financial statements.
Insurance Companies
Modarba
Tom Rourke
Why
Do
We Audit Statements
Financial
In this section we look at the following: Need for audit Objective of the audit
Information asymmetry and conflict of interest lead to information risk for the principle
Directors
Auditor
Objective of Audit
The objective of the audit is to express an opinion on the financial statements whether or not the financial statements present fairly.
End