Financial Reporting and Analysis Notes and question Answer for Bcom hons/MBA

 Financial Reporting and Analysis

Financial Accounting

Financial Reporting and Analysis Notes and question Answer for B.com hons/MBA

• Definition
• Three Activities,
• Generally Accepted Accounting Principles.
• Balance Sheet,
• Income Statement and Retained Earnings
• Cash Flow Statement

Accounting and its importance

Accounting is the process of identifying, gathering, measuring and communicating financial information about a company's operations.

Accounting is essential to business decision making and monitoring of its activities.

The two main purposes are:

• To report the financial position of a company

• To assess the performance of the company vis-à-vis a defined period

The most common measurement of performance is profit

Accounting Year

Financial health of a company is assessed with respect to a period

- Monthly; Quarterly; Half yearly; Annual

- A Financial year: any 12 month period used for accounting

- This need not coincide with a calendar year.

- Different countries follow different financial year

- Financial year followed by most Indian companies

April 1st to March 31st

Various Financial Statements

Profit & loss statement

Income	What a company earns through business
Expenses	Cost incurred to procure or consume any goods or services

Cash flow statement

Inflow	Funds flowing into the company
Outflow	Funds flowing out of the company

Balance Sheet

Liabilities	Obligation to repay someone for funds, goods and services procured
Assets	Any tangible or intangible resources owned by a company

Reporting Standards

Preparation of accounting information and its presentation on the financial statements is guided by the 'Generally Accepted Accounting Principles' (GAAP) prevailing in the geography in which the company is incorporated. When a company lists shares on the stock exchanges of other geographies, it is required to comply with the GAAP prevailing in that respective geography by preparing another set of financial statements complying with such GAAP. Adherence to GAAP makes the financial statements of the company comparable with other companies in the same geography

GAAP is not a single accounting rule, but rather the aggregate of many rules on how to account for various transactions.

Reporting Standards

What are the Principal Qualitative characteristics of GAAP?

Four principal qualitative characteristics that make the financial information useful:

• Understandability
• Relevance
• Comparability
• Reliability 

• Faithful representation 
• Substance over form
• Neutrality 
• Prudence 
• Completeness

IFRS

A recent development in this field has been the introduction of IFS or 'International

Financial Reporting Standards'.

IFRS - a framework for reporting and accounting treatment of various items, was introduced by International Accounting Standards Board to provide uniformity to global accounting practices : and thus to make financial statements comparable across geographies.

For Example, Plant and Machinery is classified as fixed assets in India, but non-current assets in some other geographies. These kind of differences will go away under IFS.

Remember

Remember, however, that accounting fundamentals don't change irrespective of these differences. Accounting revolves around six simple concepts: asset, liability, income, expense, inflow and outflow. Once we master them, the rest is easy.