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www.TeachMeNow.net Drafting Financial Drafting Financial Statements Statements Andrew Harrington Andrew Harrington 23 April 2008 23 April 2008
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Drafting Financial Drafting Financial StatementsStatements
Andrew HarringtonAndrew Harrington
23 April 200823 April 2008
www.TeachMeNow.net
Drafting Financial StatementsDrafting Financial Statements
Common exam moans…Common exam moans…
““That was much harder than all the past papers”That was much harder than all the past papers”
““That was completely different to all the past That was completely different to all the past papers”papers”
““The AAT have stitched us up again, just to get The AAT have stitched us up again, just to get more exam fees out of us”more exam fees out of us”
““I can’t do the past papers again because I just I can’t do the past papers again because I just remember all the answers”remember all the answers”
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Drafting Financial StatementsDrafting Financial Statements
Unit 11: Drafting Financial Statements…Unit 11: Drafting Financial Statements…
Section 1 – Drafting Financial StatementsSection 1 – Drafting Financial Statements
Section 2 – Interpreting Financial Section 2 – Interpreting Financial StatementsStatements
The first section accounts for 70% of the The first section accounts for 70% of the assessment…assessment…
……the second section accounts for 30%!the second section accounts for 30%!
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Drafting Financial StatementsDrafting Financial Statements
Typical tasks in section 1:Typical tasks in section 1:
Preparing consolidated accountsPreparing consolidated accounts Adjusting balances and preparing Adjusting balances and preparing
accounts for a single companyaccounts for a single company Preparing a cash flow statement for a Preparing a cash flow statement for a
single companysingle company
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Drafting Financial StatementsDrafting Financial Statements
Consolidated AccountsConsolidated Accounts
Parent and subsidiary are defined in terms of Parent and subsidiary are defined in terms of controlcontrol
Consolidated accounts show parent and subsidiary Consolidated accounts show parent and subsidiary as if they were one entityas if they were one entity
Key workings are goodwill, consolidated reserves, Key workings are goodwill, consolidated reserves, and minority interestand minority interest
Inter-company balances/transactions should be Inter-company balances/transactions should be eliminatedeliminated(and profit that is unrealised from the group (and profit that is unrealised from the group perspective)perspective)
Associates are included using equity accountingAssociates are included using equity accounting
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Drafting Financial StatementsDrafting Financial Statements
Adjusting Balances and Preparing Adjusting Balances and Preparing AccountsAccounts
Journals must be prepared based on Journals must be prepared based on information giveninformation given
(closing inventories, accruals and (closing inventories, accruals and prepayments, application of standards)prepayments, application of standards)
Income statement and balance sheet must Income statement and balance sheet must be drafted based on be drafted based on adjustedadjusted balances balances
Other statements/notes may be requiredOther statements/notes may be required
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Drafting Financial StatementsDrafting Financial Statements
Preparing a Cash Flow StatementPreparing a Cash Flow Statement
Analyses cash flows for the period under Analyses cash flows for the period under prescribed headingsprescribed headings
Operating activitiesOperating activitiesInvesting activitiesInvesting activitiesFinancing activitiesFinancing activities
Profit from operations must be reconciled to net Profit from operations must be reconciled to net cash flow from operating activitiescash flow from operating activities
Some interpretation may be requiredSome interpretation may be required
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Drafting Financial StatementsDrafting Financial Statements
Typical tasks in section 2:Typical tasks in section 2:
Calculating and interpreting ratiosCalculating and interpreting ratios Tasks based on the Framework for Tasks based on the Framework for
the Preparation and Presentation of the Preparation and Presentation of Financial StatementsFinancial Statements
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Drafting Financial StatementsDrafting Financial Statements
Calculating and Interpreting RatiosCalculating and Interpreting Ratios
Calculations may be required for ratios Calculations may be required for ratios concerned with profitability, liquidity, concerned with profitability, liquidity, efficient use of resources, financial efficient use of resources, financial positionposition
Ratios in isolation are of little useRatios in isolation are of little use When interpreting the figures, keep When interpreting the figures, keep
the original purpose of the exercise in the original purpose of the exercise in mindmind
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Drafting Financial StatementsDrafting Financial Statements
The Framework for the The Framework for the Preparation and Presentation of Preparation and Presentation of Financial StatementsFinancial Statements
Explaining the purpose of financial Explaining the purpose of financial statementsstatements
Defining the elements of financial Defining the elements of financial statementsstatements
The balance sheet equationThe balance sheet equation
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Drafting Financial StatementsDrafting Financial StatementsLooking ahead…Looking ahead…
On 6 September 2007, the IASB issued a revised IAS 1 On 6 September 2007, the IASB issued a revised IAS 1 Presentation of Financial StatementsPresentation of Financial Statements..
The balance sheet will be renamed “statement of financial The balance sheet will be renamed “statement of financial position”position”
The income statement becomes the “statement of The income statement becomes the “statement of comprehensive income”comprehensive income”
The cash flow statement will become the “statement of cash The cash flow statement will become the “statement of cash flows”flows”
The revised IAS 1 is effective for annual periods beginning on or The revised IAS 1 is effective for annual periods beginning on or after 1 January 2009.after 1 January 2009.
Entities are NOT REQUIRED to use the new titles in their financial Entities are NOT REQUIRED to use the new titles in their financial statements!statements!
