Financial Reporting and Ethics - The Institute of Chartered ...

FINANCIAL REPORTING AND ETHICS(a)(b)Consolidated Balance Sheet, dealing with the state of affairs (financialposition) of the reporting company and all its subsidiaries that havebeen consolidated in the group accounts.A consolidated profit and loss account, dealing with the profit and lossof the company and those of the subsidiaries”.This means that Consolidated Balance Sheet and Consolidated Profitand Loss Account shall combine the information contained in theseparate balance sheets and profit and loss accounts of the holdingcompany and of the subsidiaries, but with such adjustments (if any) asthe directors of the holding company might think necessary.The contents of group accounts, therefore, are:(a) Holding company’s balance sheet(b) Holding company’s profit and loss account, unless advantage is takenof section 335(10) of CAMA which is about disclosure of facts in a noteto the consolidated accounts.(c) Consolidated Balance Sheet, and(d) Either Consolidated profit and loss account, or Holding company’s profitand loss account framed as a consolidated profit and loss account and/or a statement of the holding company’s share of the profit of thesubsidiaries not consolidated.4.4 PURPOSE OF ANALYSIS AND INTERPRETATION TION OF FINANCIALSTATEMENTSTEMENTSAnalysis of financial statements entails a careful identification of key financialvariables in the opening and closing balance sheets and income statements ofa firm with a view to establishing meaningful relationships between thevariables so identified. The relationships are usually established throughaccounting or financial ratios.Interpretation, on the the other hand, involves giving meaning to the variousratios with a view to ascertaining the financial strengths, weaknesses,opportunities and threats of the firm. This is for the purpose of assessing thefinancial position and commercial soundness of the reporting entity to whichthose variables relate. It is believed that, all things being equal, accountingratios should have resemblance from period to period, hence a major variancebetween one period and another, would attract attention and comments.The financial strength or weakness of a reporting entity could be in respect ofits operation, financial position and/or prospect. Most often financial statementsare interpreted for the purpose of assessing the operations of a business. Thisis done either on a short term basis, which is for one year, or on a long termbasis, which goes beyond one year. In the former, the analysis will take theform of explanation of and comment on past year’s result and the financialposition of the reporting entity at the end of the current year, making suchdeductions as are possible in relation to the trend of the past one or two years.70