Accounting and Auditing Responsibilities of Sme's

8/12/2019 Accounting and Auditing Responsibilities of Sme's

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Accounting and

AuditingResponsibilities of

SMEsWorkshop

i-Centre, Anggerek Desa, Bandar Seri Begawan

February 28, 2012

Presented by: Pg Hj Moksin

President

BICPA


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Ours is the Age of Machine.

Also, it is the Age of the Accountant.A little literacy in accounting has

become a prime necessity.

Paul A. SamuelsonNobel Prize Economist

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Introduction

Objectives of attending

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OBJECTIVES

TO ENHANCE YOUR ROLE AND

UNDERSTANDING AS DIRECTORS OF

COMPANIES

ROLE OF ACCOUNTANTS

ROLE OF AUDITORS

ROLE OF TAX AGENTS

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TODAYS PROGRAMME

0900hrs WORKSHOP COMMENCES 1030hrs WORKSHOP CONCLUDES

1100-1200hrs CLINIC

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Topics

Directors duties

Accountants role

Auditors role

Tax agents role

Income tax

Understanding financial statements

Assumptions underlying financial statements Accounting standards

Ratio analysis

Limitations of financial analysis/statements

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Role of

directors, accountants,auditors and

tax agents

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Who is a director?

A person appointed to direct and manage

a companys affairs.

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Director

Board

Appointment

Disqualification

Removal

Duties

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Board of Directors

A body of directors whose powers can be

exercised only, collectively, at properly

constituted board meetings.

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Appointment of director

He must consent and register with the RoC

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Disqualification of directors:

Bankruptcy

An undischarged bankrupt except with the leave of the Court

Unfit directors of insolvent companies

A person who has been an unfit director of an insolvent company which has

gone into liquidation

What is unfit?

The Court will look into the following:

Any misfeasance or breach of fiduciary duty or other duty owed by a director

Any misapplication or retention of money or property of the company

The extent of the directors responsibility for the causes of company failuresPersistent default

A person who has been persistently in default in delivering

documents to the ROC.

Also, a person who has been convicted of any offence involving fraud

or dishonesty 12


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Removal of directorsA director may resign at any time provided there

are at least two directors remaining on the

board.

A director may be removed by the company ingeneral meeting by an ordinary resolution.

Division of powers between the Board and the

General Meeting

The division of powers between the board and

the company in general meeting depend on the

construction of the articles of association. 13


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Directors duties:

Most of the companys powers are vested in the board of

directors. Directors exercise these powers either directly or

through managers appointed by them.

As trustees

Because of their fiduciary position with the company,

directors are always considered as trustee.

As agents

As agent, a director must be obedient to carry out his

principals instructions and not depart from them.

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The duties of directors can conveniently

be classified under 3 headings:

Fiduciary duties of loyalty and good faith

Duties of care and skill

Statutory duties

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Fiduciary Duties

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Fiduciary duties

Bona fideDirectors must act bona fide in what they consider is in the

interests of the company.

Proper purpose

Directors must exercise their powers for a proper purpose.

Unfettered discretion

Directors must not fetter their discretion in the exercise of their

powers.

Conflict of duty and interest

As fiduciaries, directors must not place themselves in a position

in which there is conflict between their duties to the company

and their personal interests.18


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Fiduciary Duties

Contracts with the company

A director must disclose his interest in any contract made by the company so

that the company has the opportunity to ratify or repudiate it.

Secret profits

Directors being fiduciaries cannot use their position to make a personal gain

(secret profit) without the assent of the company.

Abuse of confidence

Directors cannot use for their own purposes anything entrusted to them for use

on behalf of the company.

Competition

A director of one company is at liberty to become a director of a rival company

so long as he does not divulge confidential information.

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Duties of Care and Skill

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Duties of Care and SkillA director must show that a degree of care and skill which

might reasonably be expected from a person of his

knowledge and experience

A director is not bound to give continuous attention to

the affairs of his company. His duties are of an intermittent

nature, to be performed at periodical board meetings. He

is not bound to attend all such meetings but should attend

whenever in the circumstances he is reasonably able to do

so.

In the absence of suspicious circumstances, a director

may trust another company official to carry out those

duties which may properly be delegated.21


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Statutory duties

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Statutory dutiesA director must at all times act honestly and use reasonable diligence in

the discharge of the duties of his office. Failure to exercise diligence may

be an indication of dishonesty.

Honesty

In the discharge of his duties, a director must act honestly andwith utmost good faith for the benefit of the company. A director

should not take into consideration his personal or outside

interests.

Diligence

A director is obliged to use reasonable diligence in his attention to

the business of the company. The exercise of discretion and care

is essential.

Other statutory duties

The law creates many duties and imposes many liabilities on

directors23


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Other Statutory duties 1/3S107 Annual returns to be made by company having a share capital

within 28 days of first or only general meeting

S111 An AGM shall be held once at the least in every year penalty

B$2,500

S112 To hold a statutory meeting and furnish statutory report before

commencement of business penalty $2,500

S117 Registration of certain resolutions (e.g. special, extraordinary)

within 15 days of the resolutions being passed penalty B$15 B$50.

S119 Minutes of proceedings of meeting and directors meetings to be

kept in books kept for such purposes. These should be made available for

members inspection.

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Other Statutory duties 2/3

S121 Books of accounts to be properly kept failure to keep will be

liable to $5,000 fine or 2 years imprisonment (if found to commit wilfully).

S122 Profit and Loss accounts and balance sheet to be tabled at general

meeting. Failure - liable to $5,000 fine or 2 years imprisonment (if found

to commit wilfully).

S127 Accounts tabled to contain particulars as to loans to and

remuneration (not salary) of directors etc.

S128 Every balance sheet has to be signed by directors and publicationof balance sheet not signed and not accompanied with auditors report

will be liable to B$5,000 fine.

S129 every member of a company is entitled to receive copies of

balance sheet and auditors report.25


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Other Statutory duties 3/3

S131 Every company shall appoint at each AGM the companys auditor to hold

office until the next AGM.

S138 Minimum number of directors is 2. At least half should be Bruneians.

Amended Order allows 100% foreigners with certain conditions.

S142 Acts of directors are valid notwithstanding any defects in their

appointment.

S143 Register of directors to be maintained within 14 days of amendments.

S146 Statement of directors remunerations to be furnished to shareholders

penalty B$1,000.

S147 Disclosure of directors interests in contracts penalty B$2,000.26


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Who is an accountant?

A person responsible on the collating,

recording, reporting and communicatingof financial information and the

preparation of analysis for decision

making purposes.

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Role of an accountant

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WHAT IS BOOKKEEPING?

Process of keeping ful l , accurate, up-to-datebusiness

records.

To provide a systematic method & permanent record of all

transactions. Proper bookkeeping enable businesses to:

(a) Effectively manage cash flow;

(b) Determine the main sources of his profits or cause for

his losses.

(c) Determine the exact financial position of his business

i.e. his assets and liabilities.

(d) Develop plans for the future based on financial trends.29


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Who is an auditor?

A person or firm appointed to carry outan audit of an organisation.

To be eligible the person must hold

appropriate qualifications and continue

to maintain the appropriate level of

competence.

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What is an auditors report?

A report by the auditors appointed to audit the

accounts of a company or organisation

The auditors of a limited company are required to

form an opinion as to whether the annual accounts

of the company give a true and fair view of its

profit or loss for the period under review and of

the state of affairs at the end of period.

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List of Authorised Auditors(Ministry of Finance website @ 27/2/2012 (updated 27/7/2010))

1. Pengiran Haji Moksin Bin Pengiran Haji Yusof2. Ng Hui Hua

3. Lim Teck Guan

4.Kong Ee Pin

5. Lim Hoon Hui

6. Katherine Lee Chin Fei

7. Lucy Wong Kie Nyuk

8. Hj Shazali bin Dato Hj Sulaiman

9. Diane Wendy Wei

10. Mohd Raman Shah Bin Mohd Shariff

11. Lee Yun Chin

12. Lee Kin Chee13. Lee Kim Yan

14. Lau Kui Hwa

15. Cheng Chew Seng

16. Pengiran Izam Ryan PLKDR Pg Hj Bahrin

17. Sylvester Leong Kian Hock

18. Cynthia Kong Bit Min 32


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Who is a tax agent?

A person or firm appointed to act as an agent

of a company with regards to its tax

compliance matters.

No academic or professional qualifications

nor certain experience being set by the tax

authority on who can serve as a tax agent.

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Income Tax

Applicable to companies registered under

Companies Act in Brunei Darussalam or elsewhere

All companies are required to submit their tax

returns by April 1/June 30.

No notice of assessment to be issued and tax to be

paid on the basis of return.

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Income Tax

Rates of tax22%

Newly incorporated companiesFirst B$100k

exempt from tax for three years

Tax thresholds1st B$100k only 25% taxed and

next B$150k only 50% taxed

The withholding tax scope has been expanded to

include certain payments made to non tax residents

and tax withheld has to be paid within 14 days

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Income Tax

All complete returns to be automatically accepted under

self assessment

Non/short payment of tax and non submission ofaudited accounts makes the returns invalid/incomplete

Incentives on export sectorfixed tax @1% on

approved exports

Tax credit for TAP contributionadditional credit of

10% on excess of contribution made last year36


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Understanding Financial Statements

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Short accounts make long friends.

Honore De BalzacFrench novelist & playwright

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Assets and liabilities

Financial statementsDebits and Credits

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Assets, liabilities and owners equity

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Assets

Assets are the economic resources of the

business that can be expressed in

monetary terms.

Assets may take many forms e.g.

physical characteristics (land &

buildings), claims for payment or

services or prepayments41


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ASSETS

Assets which often change their forms during the course of

business are known as current assets. Circulating or

floating assets are current assets.

Assets which are bought for use, not for re-sale, and are

lasting are called fixed assets.

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Li biliti


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Liabilities

Liabilities, or creditors equity, are

obligations or debts that the company

must pay in money or services at sometime in the future.

They represent creditors claims on thecompanys assets

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Liabilities

Creditors whose value often changes are called current

liabilities. Examples of current liabilities are trade creditors

and bank overdrafts.

Liabilities which do not change their value frequently arecalled long-term liabilities. Examples of long -term

liabilities are loans and mortgages. Mortgages are loans

secured on one or more fixed assets.

Capital is classified as a liability of a business because it

represents what the business owes to the proprietor.

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Equity

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Equity

The owners equity is the net assets of

the business i.e. a residual claim to theassets remaining after debts to creditors

have been discharged.

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Working capitalThe part of capital that is employed in its

trading operations. It consists of current

assets less current liabilities.

Intangible asset

Asset with a value but which cannot betouched

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Financial statements

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Financial statements

Balance sheet

Profit and Loss statement

Statement of changes in equityCash flow statement

Notes to the accounts

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Balance Sheet

The balance sheet is a listing of a

companys assets, liabilities and owners

equity on a given date.

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SAMPLE - COY A SDN BHD

(Incorporated in Brunei Darussalam)

BALANCE SHEET

DECEMBER 31, 2009

Note 2009 2008$ $

ASSETS

Current assets:Cash 4 733,454 926,595Trade receivables 43,845 90,198Other receivables 5 1,957,229 1,768,680Inventories 6 3,998,679 3,954,424

Total current assets 6,733,207 6,739,897

Property, plant and equipment 7 1,252,313 1,552,965

7,985,520 8,292,862

LIABILITIES AND SHAREHOLDERS EQUITY

Current liabilities:Trade payables 8 1,988,291 2,087,452Other payables 9 2,643,358 3,473,609Income tax payable 405,278 227,402

Total current liabilities 5,036,927 5,788,463

Long term liability:Hire purchase payables 10 8,458 -

Shareholders equity:Issued capital 11 2,200,000 2,200,000Accumulated profit 740,135 304,399

Net shareholders equity 2,940,135 2,504,399

7,985,520 8,292,862

_________________________________ _____________________________DIRECTOR DIRECTOR

See accompanying notes to the financial statements.

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Profit and Loss Account

Shows the results of operations for a

period and how it is earned

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PROFIT AND LOSS STATEMENT

YEAR ENDED DECEMBER 31, 2009

Note 2009 2008$ $

Revenue 1 24,220,285 23,701,188

Cost of sales (19,552,379) (18,876,683)

Gross profit 4,667,906 4,824,505

Other operating income 12 392,751 393,867

Administrative expenses (4,407,922) (4,440,728)

Profit from operations 652,735 777,644

Finance costs 13 (36,000) (43,146)

Profit before income tax 14 616,735 734,498

Income tax expense 15 (180,999) (224,281)

Net profit for the year 435,736 510,217

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Statement of Changes in Equity

Shows the movement of the ownersequity

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SAMPLE - COY A SDN BHD(Incorporated in Brunei Darussalam)

STATEMENT OF CHANGES IN EQUITY


Issued Accumulatedcapital (losses) profit Total

$ $ $

Balance as at January 1, 2008 2,200,000 (205,818) 1,994,182

Net profit for the year - 510,217 510,217

Balance as at December 31, 2008 2,200,000 304,399 2,504,399

Net profit for the year - 435,736 435,736

Balance as at December 31, 2009 2,200,000 740,135 2,940,135

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CASH FLOW STATEMENT


2009 2008

$ $

Cash flows from operating activities:Profit before income tax 616,735 734,498Adjustments for:

Depreciation 356,144 350,342Interest expense 36,000 43,146Gain on disposal of property, plant and equipment - (444)Interest income (6,300) (6,022)

Operating profit before changes in working capital 1,002,579 1,121,520

Trade receivables 46,353 (149)

Other receivables (188,549) (431,647)Inventories (44,255) (804,027)Trade payables (99,161) 477,791Other payables (844,751) (480,960)

Cash (used in) generated from operations (127,784) (117,472)

Income tax paid (3,123) -Interest paid (36,000) (43,146)Interest received 6,300 6,022

Net cash (used in) generated from operating activities (160,607) (154,596)

Cash flows from investing activities:

Purchases of property, plant and equipment (55,492) (27,191)Proceeds from disposal of property, plant and equipment - 1,481

Net cash (used in) generated from investing activities (55,492) (25,710)

Cash flows from financing activities:Hire purchase payable 22,958 -

Net (decrease) increase in cash (193,141) (180,306)Cash at the beginning of the year 926,595 1,106,901

Cash at the end of the year 733,454 926,595

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Cash Flow Statement

A statement of cash flows classifies cashreceipts and payments into three major

categories of activities:

operatinginvesting

financing59


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Investing ActivitiesTransactions involving acquisition and disposal of

assets and investments

Cash Inflows

1. Receipts from sales of

fixed assets

2. Receipts from sales of

investments

3. Receipts from repayment

of loans by borrowers

Cash Outflows

1. Payments to purchase

assets

2. Payments to purchase

investments

3. Payment made to lend

money to borrowers

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Financing Activities

Transactions involving obtaining resources fromowners, borrowing from creditors and repaying

amounts borrowed

Cash Inflows

1. Receipts from issuing

shares/capital

2. Receipts from issuing

bonds payable

Cash Outflows

1. Payments to reacquire

treasury bonds

2. Payments of dividends

3. Payment to settle

outstanding bonds

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Usefulness of Statement of Cash Flow1. Shows the periodic cash effects of a companys

operating, investing and financing activities.

2. It helps users to compare, evaluate and predict cash flows

enabling them to assess its ability to settle liabilitiesand pay dividends.

3. Tells users the managements investing and financing

policies.

4. Provides information in evaluating the companysfinancial flexibility i.e. to generate sufficient amounts of

cash to respond to unanticipated needs and opportunities.

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Happiness is . Positive Cash Flow

Frederick R AdlerNew York lawyer

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Notes to the accounts

Guides the readers on the basis ofpreparations and the additional

information on the figures reflected in

the various statements

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NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2009

1 OPERATIONS

The principal activities of the company are as operators of retail stores and supermarkets.

There have been no significant changes in the nature of these activities during the financial

year.

Revenue represents sales at invoiced values, net of discounts and returns.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTINGThe financial statements have been prepared in accordance with

the historical cost convention, with the provisions of the Brunei Darussalam Companies Act,

Cap. 39 and generally accepted accounting principles in Brunei Darussalam, and are expressed

in Brunei Darussalam dollars.

INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out) and estimated

net realisable value.

DEPRECIATION - Depreciation is calculated to write off the cost of property, plant and

equipment over their estimated useful lives by the straight-line method. The annual rates of

depreciation are as follows: -

Motor vehicles 20%

Furniture and fittings 10%Office equipment 10%

Equipment and appliances 10%

Electrical fittings 10%

Air-conditioners 20%

Freezers and refrigerators 20%

Cash registers 20%

Fully depreciated property, plant and equipment are retained in the financial statements until

they are no longer in use.

Annual rentals on other leases are charged to the profit and loss statement.67


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Debits and Credits

The terms debit and credit are used to

describe the left-hand and the right-hand sides of an account

(any type of account)

Credit

Always the right side

Debit

Always the left side

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Debits and Credits

The system of recording debits and credits

is known as double-entry i.e. each

transaction will have its dr. and cr.

The terms debit and credit are not

synonymous with the words increase and

decrease.

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Debits and Credits

Debit always refers to the left side of any account; credit refersto the right side

Increases in assets and expenses are debit entries, while increases

in liability, owners equity and revenue are credit entries

Decreases are logically recorded on the opposite side of

increases

The normal balance of any account is on the side on which

increases are recordedasset and expense accounts normally

have debit balances whilst liabilities, owners equity and revenue

have credit balances/70


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What advantages does the Merchant derive

by Book-keeping by double-entry? It is

amongst the finest inventions of the humanmind.

Johann Wolfgang Von GoetheGerman novelist

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BOOKKEEPING PROCESS


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RECORDED

POSTED

EXTRACT

PREPAREPROFIT &

LOSS STATEMENTBALANCE SHEET

Trial Balance

Records/Books:Journal BookSales BookPurchases BookCash Book (Payments/Receipts)Petty Cash Book

General ledger

Source Documents:Sales and Purchase invoices

Credit and Debit notesReceipts, Payments vouchers, Journal vouchers

FINANCIAL STATEMENTS

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Debit & Credits?

BANK STATEMENT(BANK)

CHEQUE ISSUED DEBIT

CASH BANK - IN CREDIT

BANK ACCOUNT

(COMPANY)MONEY RECEIVED DEBIT

MONEY PAID CREDIT73


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Terminology:

CAPITAL = ASSETS - LIABILITIES

Owners claim = Business resources Outsiders claim

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Creditors have better memories than debtors.

Benjamin FranklinUS President

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Assumptions underlying financial statements

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Every why hath a wherefore.

William ShakespeareEnglish poet

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Accounting concepts

Accounting standards

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Accounting concepts

The basic theoretical ideas devised tosupport the activity of accounting.

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A ti t


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Accounting concepts

Accounting entityeach entity should be accounted for separately

Accrualsrecording income and expenses as they accrue

Accounting periodaccounting reports relate to specific periods,typically, one year

Materialityaccounting transactions so insignificant that they

would not affect the actions of financial statement users arerecorded as is most expedient

Revenue recognitionrecognising revenue at the point of sale.80


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Accounting concepts

Prudenceaccounting measurements take place in a contextof significant uncertainties and possible errors in

measurement of net assets and income should tend toward

understatement rather than overstatement

Consistencyunless otherwise disclosed, accounting reports

are prepared on a basis consistent with the preceding period

Objectivitywhenever possible, accounting entries must be

based on objectively determined evidence

Full disclosure all information necessary for the users

understanding of the financial statements must be disclosed

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Accounting concepts


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Going concernin the absence of evidence to the contrary, a business isassumed to have an indefinite life

Measuring unitthe unit of measure in accounting is the basic unit of

money

Historical costaccounting measures are primarily based on historical

costs

Matching expenses with revenueto the extent possible, all expenses

related to given revenue are matched with and deducted from that revenue

for the determination of periodic income

Full disclosure all information necessary for the users understanding of

the financial statements must be disclosed.

Accounting concepts

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Basic Accounting Concepts/Principles

Accounting entity Going concern

Accounting period Measuring unit

Materiality Historical costConservatism/Prudence Matching expenses with revenue

Consistency Revenue recognition at point of sale

Objectivity Full disclosure


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Accounting concepts

Going concernAccruals

Consistency

PrudenceMatching

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Going Concern

The going concern concept is based on the presumption that abusiness will continue indefinitely and will not be sold or

liquidated.

This assumption permits the accountant to carry certain

incurred costs as plant assets and supplies into future periodsand to reflect them as costs of operation when items are used

in operations.

The concept also supports the cost principle because it

assumes that such assets will be used in operating the

business rather than sold; hence it is rational to use cost rather

than market price or liquidation value as the basis for

measurement.

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Accrual basis

In accrual accounting, expenses incurred are

matched with related revenue earned todetermine a meaningful net income figure for

a particular period. The revenue and expenses

for determining net income do not depend on

when cash is actually received or expended.

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Consistency

Consistency means the same accounting methods are

used from one accounting period to the next.

Consistency enhances the utility of financial

statements when comparative data for a company areanalysed.

In cases where accounting method is changed, such

change should be communicated.

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P d /C i


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Prudence/Conservatism

Conservatism is the accountants reaction to

situations in which significant uncertainties exist

about the outcomes of transactions still in progress.

Accountants follow conservative accounting

procedures when they are unsure of proper measure

to use.

For example, if two estimates of future amounts to

be received are about equally likely, the lessoptimistic estimate will be used. Thus possible errors

in measuring net assets and income should tend

toward understatement rather than overstatement.88

M hi


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Matching

Procedures relating expenses and revenue for incomedetermination through matching process.

1. Costs that relate to specific revenue are recognised

as expenses whenever the related revenue is

recognised.

2. Costs that relate to the revenue of several

accounting periods are expensed in a systematic andrational manner throughout these periods.

3. Costs that relate only to current periods overall

revenue are expensed immediately.89


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Conceptual Framework

The conceptual framework is a cohesiveset of interrelated objectives and

fundamentals for external financial

reporting.

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Conceptual Framework


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Recognition Criteria

1. Fits element definition

2. It is measurable

3. Achieves qualitative

characteristics of accounting

information

Qualitative Characteristics of Accounting

Information

1. Relevance2. Reliability

Useful

ExternalFinancial

Statements

Financial Statement Elements

1. Assets

2. Liabilities

3. Revenue

4. Expenses

Financial reporting Objectives

1. Provide information useful fordecisions

2. Provide information helping in

assessing future cashflows

3. Provide information about firms

resources etc

are built from meetmu

stmeet

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Assumptions underlying financial statements

The accounting equation,Assets = Liabilities + Owners Equity

represents the basic structure of the balance

sheet and holds true after each accountingtransaction.

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Accounting standards

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Accounting Standardsin Brunei Darussalam

Generally accepted accounting principles

in Brunei Darussalam

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What can you do with financial

statements?

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RATIO ANALYSIS

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Why ratio analysis?

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The best prophet of the future is the past.

Lord ByronEnglish poet

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How do profits compare with those of

previous years?

With those of other companies?

What rate of return is being given?

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Ratio Analysis

Horizontal Analysis

and

Vertical Analysis

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Anyco Sdn Bhd

Profit and loss account


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Dec-31 2009 2008 Inc/(Dec)

%

Change

$ $

Net Sales 415,000 320,000 95,000 30%

Cost of goods sold (290,000) (230,000) (60,000) 26%

Gross Profit 125,000 90,000 35,000 39%

Selling and administrative expenses

Selling expenses (39,500) (27,300) (12,200) 45%

Administrative expenses (49,640) (32,600) (17,040) 52%

Total (89,140) (59,900) (29,240) 49%

Income before interest expense and income taxes 35,860 30,100 5,760 19%

Interest expense (3,000) (2,400) (600) 25%

Income before Income Taxes 32,860 27,700 5,160 19%

Income Taxes expense (14,100) (12,300) (1,800) 15%

Net Income 18,760 15,400 3,360 22%

Earnings per share

$

5.28

$

5.21

Dividends per share

$

1.44

$

0.81 106

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Ratio Analysis

Vertical Analysis

This analysis is useful in determining

the relative importance of various items

as percentages of a key figure or total

fora single year.

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Anyco Sdn BhdProfit and loss account

D 31 2009


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Dec-31 2009

$

Net Sales 415,000 100%

Cost of goods sold (290,000) 70%

Gross Profit 125,000 30%

Selling and administrative expenses

Selling expenses (39,500) 10%

Administrative expenses (49,640) 12%

Total (89,140) 21%

Income before interest expense and income taxes 35,860 9%

Interest expense (3,000) 1%

Income before Income Taxes 32,860 8%

Income Taxes expense (14,100) 3%

Net Income 18,760 5%108

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Ratio Analysis

Rate of return

A measure of the companys profitability

in relation some base e.g. assets, equity

or sales

Return on Assets

Return on Equity

Return on Sales109


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Return on Assets

RoA = Income before Interest and Tax

Average Total Assets

Useful in comparing similar companies

operating in the same industry. Also ingauging the effectiveness of its use of assets.

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Return on Equity


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Return on Equity

Measures the ultimate profitability of the

investment to the shareholders.

RoE = Net IncomePreferred DividendsAverage Equity

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Return on Sales

Measures the operating performance of a

company to compare similar companies in

the same industry or comparing differentperiods for the same company.

RoS = Net IncomeNet Sales

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Earnings per share

Helps analysts and investors consider the

relationship of prices and earnings

EPS = Net IncomePreferred Dividend

Average number of shares

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Dividend Payout Ratio


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Dividend Payout Ratio

The payout ratio indicates whether a company has a

conservative or liberal dividend policy and may also

indicate whether the company is conserving funds for

internal financing of growth.

Dividend payout Ratio = Dividends per share

Earnings per share

Low payout ratios can have a depressing effect on the

market price of a share and reducing the payout ratio

may have a dramatic effect on the share price.116


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Current Ratio


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A measure of the companys ability to

meet its current obligations on time and

to have funds readily available for

current operations

Current ratio = Current Assets

Current Liabilities

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Quick ratio

Another indicator of a companys ability

to meet current debts and to take

advantage of discounts offered bycreditors

Quick ratio = Cash + Receivables

Current liabilities119

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Inventory Turnover

Indicates whether the inventory amount is

disproportionate to the amount of sales

Inventory Turnover = Cost of Goods sold

Average Inventory

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Average Collection Period

To measure the quality of a companys trade receivables

i.e. whether they are slow or overdue

Average Collection Period = Trade receivables X 365

Sales

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Limitations of Financial Analysis

1.The ratios are merely the result of analytical techniques2.They may only isolate areas requiring further investigation

3. To interpret with due considerations4. Limitations of financial statement data

5. Problems of comparability

6. Companies using different accounting methods

7. Inflation may distort certain computations8. Factors such as company size, diversity of products

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In investing money the amount of

interest you want should depend on

whether you want to eat well or sleep

well.

J K Morley - anonymous

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Limitations of financial statements reports

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Limitation of Financial Statements

1. A snapshot of the Companys health at the given date now could bedifferent

2. The non-availability of financial statements

3. Only companys result what about the competitors and industry

4.Bases for revenue recognitioncash/collection basis or installment

basis, percentage of completioncompleted or percentage of completion

5. Full disclosure?

6. Notes to the financial statementssummary of significant accounting

policies, explanations of complex or special transactions e.g. related

party, pension plan, details of reported amounts i.e. summary only notdetail, commitments or contractual obligations, contingencies, subsequent

events, managements discussion and analysis, comparative selected

financial data

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List of Authorised Auditors(Ministry of Finance website @ 27/2/2012)

1. Deloitte & Touche

2. Ernst & Young

3. HH Lim & Company

4.Katherine Lee & Company

5. Parker Randall

6. KPMG

7. Lee & Raman

8. Lee Corporatehouse Associates

9. Lau Kui Hwa & Company

10. Pengiran Izam & Co

11. Sylvester Leong & Company

12. WKA and Associates

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THE END.

THANK YOU

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Everything ends that has a beginning

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