International accounting

International accounting

Introduction

The purpose of a business is to create value for its stakeholders. Financial value is created by increasing its net present value

Stakeholders (parties prenantes) and needs:

• Employees:  job security, salary negotiations
• Management: understand performance and position
• Competitors: to assess competitive situation
• Customers: financial stability
• Suppliers: credit worthiness
• Governments: policy development
• Tax authority: tax planning
• Investors: risk – ability to repay plus interest
• Shareholders: increase in value
• Regulators (central bank): anti-trust, profiteering
• The community: impact of society and the environment

Accounting communicates the performance and the position of an entity.

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Accounting information is the means by which economic events are measured and communicated.

Different types of accounting: financial accounting and management accounting

Management accounting

Helps an organization in the value creation process using accounting, finance and other corporate data.

Financial accounting

Involves the preparation of financial statements showing the current state and past performance of the organization.

The purpose: to provide information about the reporting entity that is useful to present and potential equity investors, lenders and other creditors in their capacity as capital providers.

How is it used?

• Measure past and potential performance
• Communicate the activity of the organization
• Management planning and control
• Decision making process

What are the financial report:

• Income statement (statement of financial performance)
• Balance sheet (statement of financial position)
• Statement of cash flows
• Other comprehensive income
• Changes in equity
• Notes

Income statement:

Also known as profit and loss statement or a statement of financial performance

The accounting period is generally twelve months per one year

The income statement is the record of all revenues and expenses recognized by the business over an accounting period.

Balance sheet:

Also known as a statement of financial position. The balance sheet is a statement which shows the assets held by the organization and how they are funded.

Actif = assets

Passif = equity and liabilities

Statement of cash flows:

The cash flow statement shows the cash recipients (inflows) and disbursements (outflows) of a business for the accounting period.

It categorises these flows under three main headings:

1. Operating activities: principal revenue generating activities
2. Investing activities: acquisition/disposal of long-term assets
3. Financing activities: share issues/ redemptions, borrows and loan repayments

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The accounting equation

Assets = liabilities+ equity

Asset: a resource that is owned or controlled by a business with expectation of generating future economic benefits

Liabilities: are the debts or obligations of the business

Equity: is the part of the assets owned by the shareholders (assets less liabilities)

Revenue generating resources = long-term borrowing and debts + share capital and retained earnings

Les passifs financiers = liabilities

Les capitaux propres = equity

Total revenue and gain – total expenses and losses = net income (or loss)

Capturing transactions: double-entry accounting

Business transactions include two parts

• Giving
• Receiving

Accounting based on a double-entry system: each transaction affects at least two accounts

Assets:

• Cash
• Accounts receivable
• Inventory
• Prepaid expenses
• Land
• Buildings
• Equipment
• Furniture & fixtures

Liabilities:

• Accounts payable
• Loan notes
• Accrued liabilities

Accounting principles

Accounting standards guide practitioners and users of accounting in the Recognition, Measurement and Disclosure of an entities financial transactions.

Assumptions:

• Economic entity: company keeps its activity separate from its owners and other businesses
• Going concern: company to last long enough to fulfill objectives and commitments
• Monetary unit: money is the common denominator
• Periodicity: company can divide its economic activities into time periods

Principle: measurement

• Cost principle: assets recorded at their cost-verifiable, fair value can be used
• Fair value principle: assets and liabilities are reported at fair value

Qualitative characteristics:

Relevance:

• The information makes a difference in the decision-making process
• Predicative and confirmatory values

Faithfull (or fair) representation:

• The information matches what really existed or happened
• Completeness
• Neutrality
• Free from error (reliability)

Enhancing qualities:

• Comparability
• Reliability
• Timeliness
• Understandability

Balance sheet

The balance sheet is the accounting equation

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