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Learning area 4

Learning area 4

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Learning area 4

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  1. Learning area 4 Chapter 7: Introduction to accounts

  2. Define accounting terms • Reasons why companies are required to produce annual reports and financial statements • Accounting framework • Users of AFS • List and describe the financial statements to be prepared Objectives

  3. Statement of Comprehensive Income How much profit? • Statement of Financial Position Assets, Liabilities and Shareholders funds • Cashflow statement How was cash generated and used during the year? • Statement of changes in equity Changes in equity • Notes to the AFS • Auditors report • Directors report Financial Statements p2 - 6

  4. Why AFS? p2-3

  5. Companies Act of 1973, was replaced by New Companies Act (Act 71 of 2008) and regulations promulgated in 2011 • International Accounting Standards (IFRS) • Stock exchange requirements (JSE) • Other legislation e.g. King III, LTIA, STIA, FAIS, FICA Sources of Regulation page 5

  6. A report, usually at the first/second page of the AFS by the directors. • Contain: • Detail about companies’ activities • Summary of financial decisions by the directors e.g dividend proposed, donations etc. • Details of who were directors, their shareholding and interests in the company • hollard-financial-report-2013.pdf Directors report p7

  7. Accounting standards – International Financial Reporting Standards (IFRS) • IASB no authority to comply, but other regulations e.g. Johannesburg Stock Exchange • In SA: GAAP / gaap (General Accepted Accounting Standards). Large companies: GAAP (= IFRS) • Why would companies use a standard set of ‘rules’ how to report financial issues? (Arguments for and against p10) International Accounting Standards Board p9

  8. Arguments FOR Arguments AGAINST The sets of rules may not always be appropriate to all companies in all circumstances. Standard-setting may not be entirely objective. Standards often allow more than one alternative treatment, which negates the attempt to ensure conformity between companies. Some standards are so general as to be meaningless, while others are far to detailed. • Eliminate variations between companies in the way they prepare accounts. • The discussion process on standard being issued focusses attention on particular areas for debate about accounting practice. • They oblige companies to disclose more information that that required by national law. • Allows some degree of flexibility.

  9. All widely held companies and some other companies should appoint an auditor to report on the AFS • Appointed by the shareholders • Shareholders approve the auditors’ fee • Auditors must comment on whether, in their opinion, the AFS have been properly prepared in accordance with the Companies Acts and relevant accounting standards, and whether, in their opinion, the accounts give a true and fair view • The fundamental purpose of the audit report is to add credibility to the AFS • Read p14 and 15 – an example of an auditor’s report 4. The auditor’s report p13

  10. 4. The auditor’s report p16: Various opinions

  11. Companies Act • Auditing Practice Board – International Auditing Standards • SA: IRBA (Independent Regulatory Board for Auditors), may only sign off if a registered auditor • Regulator (FSB) needs to approve auditor (insurance industry) • NB that an auditor is independent from the company! Regulation of auditors p17-18

  12. REMEMBER!!!!! • CHAPTER 2: SELF STUDY • MONDAY 17 FEBRUARY 2014: CLASS TEST ON CHAPTER 1 and 2 CLASS TEST: CHAPTERS 1 & 2