MG 224

FINANCIAL ACCOUNTING
BBA 2
 COURSE OUTLINE
COURSE INSTRUCTOR Name Amna Arsalan Arsalan
INFORMATION
email ID amna.farooqui@nu.edu.pk
Course
Category Credit
Code Title
C- Core/ E- hours
Elective
MG 224 Financial 3
C
Accounting
E INFORMATION

Fundamentals of
Prerequisite MG 108 3
Accounting
 Edition
Title of Book Intermediate Accounting
14
Author(s) Donald Kieso
TEXT BOOK INFORMATION

Publisher John Wiley & Sons Inc.

Title of Book Financial & Managerial Accounting, 17 Ed

1. Imprint Williams, Haka, Bettner, Carcello
details
Title of Book Business Accounting 2, 12 Ed
2. Imprint Frank Wood
Book (s)

details
International Financial Reporting: A Practical
Title of Book
Guide
 The course builds on the core accounting concepts
learned in the previous course, Fundamentals of
Accounting. The course aims to provide the students an
understanding of the theory and practice of intermediate
financial accounting techniques. The students will learn
Brief Description of Course:

how to prepare and present financial accounting

information that forms the basis of decisions taken by
investors, policy makers and regulators for allocation of
resources in society. The primary focus is on accounting
for long-term inter-corporate investments, particularly
methods of consolidation accounting (pre-acquisition,
intra-group transactions, non-controlling interest). There
is also coverage of lease accounting, and accounting for
not-for-profit organizations, and the preparation and
analysis of cash flow statements.
COURSE CONTENTS:
Weeks Contents/Topics
Week-01 Course Introduction and Introduction to IFRS
Week-02 Shareholders’ Equity Accounts
Week-03 Long term Debt / Intangible Assets
Week-04 Income and Changes in Retained earnings
Week-05 Statement of Cash Flows
Week-06 Statement of Cash Flows
Week-07 Statement of Cash Flows
Week-08 Lease Accounting
Week-09 Lease Accounting
Week-10 Lease Accounting
Week-11 NGOs / Organizations not for Profit
Week-12 Consolidated and Separate Financial Statements
Week -13 Consolidated and Separate Financial Statements
Week 14 Consolidated and Separate Financial Statements
Week-15 Consolidated and Separate Financial Statements
Week-16 Review & Revision & Project Submission
 Marks Distribution

Particulars % Marks Planned Course Events

1. Assignments 8 Particulars Planned

2. Pop Quizzes 10
1. Quizzes >/= 3
3. First Terminal Exam 15
2.
4. Second Terminal Exam 15 >/ = 3
Assignments
5. Project(s) 7
3.
=1
6. Final Exam 45 Presentations

Total 100
 SPECIAL
I N S T R U C T I O NS
Students are expected to bring all assigned material to
each class, so that they can actively participate in
discussions and problem solving.

A simple calculator is essential in each class, as

borrowing disrupts the class, and does not allow first
hand learning.

It is recommended that a separate journal/ register be

maintained for this course, since an essential
requirement for conceptual learning is continuous
practice of problem solution.
FINANCIAL
ACCOUNTING
Accounting
The provision of figures about the
performance and the financial position of
an entity

Therefore accounting needs:

◦ An effective and efficient data handling and
recording system
◦ The ability to use that system to provide
something useful to somebody
Financial Accounting Conventions
Business entity
Historical Cost
Continuity (going concern)
Conservatism (prudence)
Consistency
Materiality
Objectivity
Realization of revenue
Matching
Three fundamental issues
Who are the users of the accounting
statements?
What is the purpose for which each
particular type of user requires the
information?
How can we provide the user with the
information best suited to their needs?
Different types of users
Shareholders, investors
Loan creditor group
Employee group
Analyst-adviser group
Suppliers and trade creditors
Customers
Competitors
Government
The public
 Different users – different needs
Users Needs
Shareholders Return on investment and risk
Loan creditors Ability to repay loans and pay interest
Employees Stability and profitability of the firm, employment and
remuneration opportunities
Financial analysts Information to advise whether to hold, buy or sell shares
Suppliers/ trade Ability to pay the amounts due
creditors
Customers Going concern of the enterprise, corporate responsibility
Competitors Performance of the competition
Government To determine taxable income, to supervise regulation, to
judge efficient allocation of resources
The public The viability of the company, the corporate responsibility
Summary of user needs
Many, although not all, of the information
requirements are essentially forward looking
Different users, with different purposes, may
require different information about the same
items
Different users will require different degrees
of complexity and depth
Not all the information required is likely to
be included in financial accounts
Characteristics of useful information
To be useful, there is a list of attributes or
characteristics that financial information should
have.
The list includes the attributes of:
◦ Relevance
◦ Understandability
◦ Reliability
◦ Completeness
◦ Objectivity
◦ Timeliness
◦ Comparability
 Characteristics of useful information
RELEVANCE A report must give the user what he or she wants.
Know who the user is, what their purpose is, and what information he/she
is looking for to meet that purpose
UNDERSTAND- Different users have different levels of ability to understand accounting
ABILITY information
The reports should match the abilities and knowledge of the users
concerned
RELIABILITY User should have a high degree of confidence in the information
Information should be factually correct, plus as believable as possible
It should be independently verified, e.g. by an independent, qualified
auditor.

COMPLETENESS The user should get a total picture of events as far as possible

OBJECTIVITY The information should be objective or unbiased ; any personal opinion

included should be unbiased/ neutral personal opinion
TIMELINESS Information should be made available to user in time for him/her to make
use of it ; It should be as up to date as possible
COMPARABILITY Comparisons of information of same business for a different period; or
with a different business for the same or different time period
FINANCIAL
ACCOUNTING
STANDARDS
Financial accounting standards
The ultimate purpose of accounting
standards is to establish a common set of
procedures and rules in preparing
financial statements, thereby preventing
misunderstandings between and among
the preparers and users of accounting
information.
GAAP
Economic and environmental differences
lead to differences in accounting systems
(e.g. regulation)
These accounting systems produce different
national or domestic accounting standards.
Generally accepted accounting principles or
GAAP are rules, conventions, procedures,
and standards that are accepted in a
community. 
International Accounting Standards Board-
IASB
Since different regions have their own GAAP,
a step towards harmonization was taken, so
that accounting as a profession becomes
streamlined to as much a degree as possible.
Reduction in differences in accounting
standards and systems is not easy, and still an
on-going process.
Efforts made in this direction has made the
IASB more significant.
IASB
The IASB is head-quartered in London,
England and is an independent and
privately-funded accounting standard-
setter (International accounting standards,
2010). The board consists of
representatives from nine different
countries and is designed to achieve
convergence in accounting standards
around the world
FASB & IASB
The United States of America is currently the
only country in the world that does not
follow International Financial
Reporting Standards (IFRS) or the
International Accounting
Standards Board (IASB), but rather follows
Generally Accepted Accounting Principles
(GAAP) that are developed according to the
Financial Accounting Standards Board
(FASB).
IASB
The IASB:
◦ Is solely responsible for issuing International
Accounting Standards (IASs)
◦ These standards are now called International
Financial Reporting Standards (IFRSs)
◦ They were previously called International
Accounting Standards, or IASs
The regulatory system
Monitoring Board
(Approve and oversee
trustees)

The IASC Foundation(Appoint,

oversea, review effectiveness and
funding)

IASB
Set technical agenda, approve
standards, exposure drafts and
interpretations
IFRS
IFRS Advisory Interpretations
Council Committee
The IASB and national standards setters
The intentions of the IASB are:
◦ To develop a single set of understandable and
enforceable high quality worldwide accounting
standards
◦ However, the IASB cannot enforce compliance with
its standards
◦ Therefore, it needs the co-operation of national
standards setters
In order to achieve this, the IASB works in
partnership with the major national standards
setting bodies
Development of an IFRS
The procedure for development of an IFRS is as
follows:
◦ The IASB identifies a subject and appoints
an advisory committee to advise on the issue
◦ The IASB publishes an exposure draft for
public comment. This is s draft version of
the intended standard
◦ The comments received are considered, and
the IASB publishes the final text of the IFRS
◦ At any stage, the IASB may issue a
discussion paper to encourage comment
Status of IFRSs
Neither the IFRC Foundation, the IASB nor
the accountancy profession has the power to
enforce compliance with the IFRSs
Still, some countries adopt IFRSs as their local
standards
Others ensure that there is minimum
difference between their standards and IFRSs.
In recent years, the status of the IASB and its
standards has increased, so IFRSs carry
considerable persuasive force worldwide
Benchmark Treatment and Allowed
Alternative Treatment
Some older IASs have two choices of
treatment of items in the financial
statements:
◦ The benchmark treatment
◦ The allowed alternative treatment
In future IFRSs:
◦ If different treatments are allowed, they will be
given equal status
◦ No treatment will be designated as the
benchmark treatment
The IASB and national standards setters
As far as possible, future international
standards will be more rigorous than
previously and will no longer allow
alternative treatments
All major national standard-setters are
now committed to international
convergence.
International accounting differences
National accounting differences obstruct
financial communication between
countries
The following are some examples of these
differences