Accounting Principles for Non Executive Directors Law Practitioner Series 1st Edition by Peter Holgate,Elizabeth Buckley 9780521509787 0521509785

PART I: The accounting environment

1 Introduction

Aim of this book

What is accounting?

The components of a company?s annual report

The difference between profit and cash flow

Performance statements

The use of accounting terms in agreements

What is GAAP?

2 Accounting in the UK and the effects of international harmonisation

The UK?s Accounting Standards Board

International harmonisation

The International Accounting Standards Board

The EU Regulation for harmonisation within Europe

Convergence with US GAAP

Implications for the UK

Growing convergence

BERR and entity accounts

Tax and distributable profits

In a nutshell where are we now?

3 The legal framework for accounting

Introduction: the Companies Act 1985 and the Companies Act 2006

The Companies Act 2006: accounts and reports

Application of the Companies Act to IFRS and UK GAAP companies

Accounting provisions of the Act applying to IFRS and UK GAAP companies

The requirement for individual accounts

The requirement for group accounts

Annual accounts and the true and fair view

Approval, distribution and filing of accounts

Exemptions and special provisions

Accounting provisions of SI 2008/410 applying to UK GAAP companies only

Introduction

Schedule 1

Schedule 6

4 The accountancy profession and the regulatory framework for accounting and auditing

The accountancy profession

The Financial Reporting Council

The Board

The Accounting Standards Board

The Urgent Issues Task Force

The Financial Reporting Review Panel

Professional Oversight Board

The Auditing Practices Board

Board for Actuarial Standards

Accountancy and Actuarial Discipline Board

The Financial Reporting Review Panel

Audit reporting

Limitation of liability for auditors

The role of accountants in capital markets transactions

5 Substance over form

Form v. substance

Early examples

Emergence of the off-balance-sheet industry in the UK

FRS 5 ?Reporting the substance of transactions?

Quasi-subsidiaries

Specific applications

Examples of FRS 5 in practice in the UK

Failed sale of an asset

Warehousing of stock

Trusts and SPVs

The future of FRS 5 in UK GAAP

Does substance over form have a place in IFRS?

6 Communicating accounting information

Background

Summary financial statements

The corporate reporting supply chain

The reality of the ?earnings game?

Alternative performance measures

Users and analysis of accounting information

7 Current trends in accounting

Why all the change?

Developments in business

Activities of standard-setters

Legislation and EU Regulation

Response to scandals

Current trends in thinking

Greater disclosure

Principles v. rules

Use of fair value

Smoothing v. volatility

Part II: Some specifics

8 Individual entity and consolidated financial statements

The distinction between individual entity financial statements and consolidated financial statements

General distinction

Distributable profits

Entity focus for tax purposes

When to consolidate

General approach

What to consolidate

The spectrum of interests in other companies

Definitions of parent and subsidiary undertaking

Exclusions from consolidation

Special purpose entities and quasi-subsidiaries

Exemption re holding company income statement

Techniques of consolidation

Changes in composition of a group

Full v. proportional consolidation

Minority interests or non-controlling interests

Elimination of intra-group transactions

Associates and joint ventures

Definitions of associate and joint venture

Accounting treatment of associates in consolidated financial statements

Accounting treatment of JVs in consolidated accounts

9 Presentation of financial statements

Introduction

Statement of comprehensive income

Overview

Disclosure on the face of the income statement

Disclosure on the face of the income statement or in the notes

Exceptional items

Discontinued operations

Columns and boxes

Earnings per share and dividends per share

Statement of comprehensive income or statement of recognised income and expense

Balance sheet

Cash flow statement

Accounting policies

Notes

Individual entity and consolidated financial statements: combined or separate

10 Earnings per share

Introduction

Summary

Basic EPS

Diluted EPS

Adjusted EPS

11 Mergers and acquisitions

Introduction

Overview of acquisition and merger accounting

Introduction

Summary of acquisition accounting

Summary of merger accounting

Application of IFRS 3

Merger accounting banned

Acquisition accounting under IFRS 3

Fair value of the consideration given

Fair value of the net assets acquired

Future developments in IFRS

Goodwill and other intangibles

UK accounting in overview

Merger accounting

Legislative requirements ? acquisition and merger accounting

Group reconstructions

Future developments in UK GAAP

Share premium, merger relief and group reconstruction relief

12 Interaction of accounting with tax

Introduction

Accounting profit and its adjustment

Accounting for current and deferred tax

Current tax

Deferred tax

HM Revenue & Customs and the move to IFRS

13 Assets

Introduction

Definition of an asset

Recognition of assets

Measurement of assets

Impairment of assets

Classification and presentation of assets

Depreciation

Amortisation

Disclosure

14 Liabilities

Introduction

Definition of a liability

Recognition of liabilities

Measurement of liabilities

Presentation of liabilities on balance sheets

Disclosure, including contingent liabilities

15 Leases

Introduction

Leases under IFRS

Definitions

Treatment of operating leases

Treatment of finance leases

Classification of leases into finance or operating

Sale and leaseback transactions

Disclosures

Leases under UK GAAP

The way forward

16 Pensions

Introduction

Defined contribution and defined benefit schemes

Defined contribution schemes

Defined benefit schemes

Accounting for defined benefit schemes

IAS 19

Differences between IFRS and UK GAAP

The effect of pensions on realised and distributable profits

17 Financial instruments

Introduction

Background

Definitions

Debt and equity

The distinction

Types of shares and balance sheet classification

Equity shares in the Companies Act

Issue of shares

Categories of financial instrument

Introduction

Initial measurement

Subsequent measurement

Fair value through profit or loss

Amortised cost

Fair value

Derivatives and embedded derivatives

Hedge accounting

Recognition and de-recognition

Other matters

Treasury shares

Disclosures

Accounting under UK GAAP

18 Share-based payment

Introduction

Accounting under IFRS

Overview

What is a ?share-based payment transaction??

Basic principle of the standard

Accounting for equity-settled share-based payment transactions

Accounting for cash-settled share-based payment transactions

Other requirements: IFRIC 8

Other requirements: IFRIC 11

Disclosure requirements

Trusts

Accounting for share-based payment under UK GAAP

19 Realised and distributable profits

Introduction

?Realised? and ?distributable?

General rules on distributions

Relevant accounts

Relationship with reporting of performance

TECH 01/08

Introduction

Principles of realisation

Definitions

Effects of TECH 01/08

Changes in circumstances

General examples of realised profits

Pension deficits

Fair value accounting: gains and losses

Share-based payment

Preference shares presented as liabilities

Dividends out of pre-acquisition profits

Intra-group transactions

20 Disclosures in published annual reports

Introduction

Corporate governance disclosures

Listing Rules

Disclosure and Transparency Rules

Combined Code

Statement of directors? responsibilities

Directors? report

Operating and financial review

Recent government action

ASB Reporting Statement

Directors? remuneration

Directors? remuneration report

Notes to the accounts

Related-party relationships and transactions

Transactions with directors

Segment disclosure

Appendices

Appendix 1 50 questions for non-executive directors to ask

Appendix 2 List of international accounting standards (IFRSs and IASs) and IFRIC interpretations as

International Accounting Standards

IASB statements

Interpretations ? SICs and IFRICs

Appendix 3 List of UK accounting standards (FRSs and SSAPs), Statements and UITF Abstracts as at 30

Financial Reporting Standards

Statements of Standard Accounting Practice

ASB statements

UITF Abstracts

Appendix 4 Table of origins for CA 2006 references