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

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FINANCIAL REPORTING AND ETHICS(a)(b)A progressively increasing amount of fixed assets without acorresponding increasing net profit; a fair inference is that theassets are not profitably employed either because of underutilization of such assets or because selling prices have not beenappropriately adjusted to cover the enhanced cost of such assets.Where short term liabilities, like bank overdraft or bank loan, donot decrease or actually increases – a fair inference is that thefirm’s position has not been sufficiently attractive to support theissue of shares or debentures to fund the firm’s operations.4.5 TOOLS OF ANALYSIS AND INTERPRETATION TION OF FINANCIAL STATEMENTSTEMENTSAnalysts and interpreters of financial statements will usually employ acombination of the following items:(a) Ratios(b) Cash Flow Statement(c) Value Added Statement(d) Profit and Loss Account(e) Balance Sheet(f) Notes to the AccountsIn making use of the above, the following approaches may be employed:(i) Comparison of absolute/raw figures as shown in the financial statements,for example figures may indicate that sales have increased by 250,000,fixed assets by 300,000, etc.(ii) Ratio Analysis: This is the most widely used tool in the analysis andinterpretation of financial statements.(iii) The Cash Flow Statement will assist in revealing the true liquidityposition of an enterprise. This is because the statement provides aninsight into the ability of an enterprise to generate cash and cashequivalents as well as the pattern of utilization.(iv) Value Added Statement, on the other hand, helps in measuring theefficiency of the enterprise in terms of value added per employee orper naira.4.6 PROCESS OF INTERPRETATION TION OF FINANCIAL STATEMENTSTEMENTSThe process of interpretation of financial statement entails the following:(a) Calculating the ratios considered to be appropriate and relevant for thepurpose of the analysis.(b) Comparison of the ratios with similar ratios which could be the firm’sown past ratios, target ratios (projected ratios), industry or competitor’sratios.(c) Trend analysis or time series analysis of the ratios so calculated.(d) Vertical and horizontal analysis of financial statements.(e) Inter-firm analysis.72
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS(f)Preparation of a written report on the analysis and interpretation of thefinancial statements of a chosen reporting entity, drawing reasonableconclusions based on the purpose of the exercise and the appreciationof steps (a) to (e) above.An analyst will find any other information about a firm in the Chairman’sStatement and Directors’ Report or even in the financial press relating to thecompany or the industry in which the company operates.4.7 CLASSIFICAASSIFICATION OF RATIOSFinancial ratios can be classified into various groups according to the purposefor which they are intended to be used. While some will assist in measuringthe firm’s profitability, others are useful in assessing the liquidity and solvencyof the firm. Yet, others aid in appraising the financial structure of the firm.Adequate knowledge of the types of ratios will guide readers in the choice ofratios to use in answering questions on relevant topics or supporting viewpoints. It is important to note that it is only when the question calls for the useof ratios that such should be calculated and used. In some cases, even whenthe use of ratios is called for, the readers would be at liberty on the choice ofratios. For instance, if the question merely states that you are required to give“a report on the financial performance of the company with appropriatecomparative ratios,” the ratios to be calculated should be those that closelylinked the issue at stake. The ratios that are frequently used to test financialperformance of the reporting entity are profit margin (gross and net), returnon capital employed, current and liquid ratios, and turnover ratios.For the purpose of analysis, financial ratios can be classified into the followinggroups:(a) Profitability Ratios(b) Liquidity and Efficiency Ratios(c) Investment Ratios(d) Turnover or Activity Ratios(e) Financial Structure or Leverage Ratios4.7.1 Profitability RatiosThese ratios measure the overall performance and effectiveness ofcompanies. Profit is the difference between income and expenses overa period of time (usually one year). Profit is the ultimate objective of acompany and a company will have no future if it fails to make sufficientprofit.The profitability of a firm can be expressed in relation to the capitalemployed or its total reve5nue, that is, sales or gross earnings. Ratiosthat are used to test profitability or the overall performance of a reportingentity include the following:73
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FINANCIAL REPORTING AND ETHICS1.3.3
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ACCOUNTING AND REPORTING POLICIESsu
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ACCOUNTING AND REPORTING POLICIES(j
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ACCOUNTING AND REPORTING POLICIES(i
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ACCOUNTING AND REPORTING POLICIES2.
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3AMALGAMATION, ABSORPTION ANDRECONS
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ETHICAL FRAMEWORK, CONCEPTS AND VAL
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7THE ENVIRONMENT: CORPORATE,PROFESS
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THE ENVIRONMENT: CORPORATE, PROFESS
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8PROFESSIONAL ETHICS8. 0 LEARNING O
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PROFESSIONAL ETHICSobjectivity are
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PROFESSIONAL ETHICS(c)(d)The type o
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PROFESSIONAL ETHICSabout conflicts
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PROFESSIONAL ETHICS(d)(e)Confidenti
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PROFESSIONAL ETHICSA. III onlyB. II
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9DECISION MAKING IN ETHICS9. 0 LEAR
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DECISION MAKING IN ETHICS9.2 A FRAM
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ETHICAL THREATS AND SAFEGUARDS(d)We
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DECISION MAKING IN ETHICS4. A perso
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10ETHICAL THREATS TS AND SAFEGUARDS
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ETHICAL THREATS AND SAFEGUARDS(iv)(
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ETHICAL THREATS AND SAFEGUARDSto th
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ETHICAL THREATS AND SAFEGUARDSpayab
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ETHICAL THREATS AND SAFEGUARDS(a)Fi
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ETHICAL THREATS AND SAFEGUARDSimmin
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ETHICAL THREATS AND SAFEGUARDSHowev
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ETHICAL THREATS AND SAFEGUARDS(iii)
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11CORPORATE GOVERNANCE11.0 LEARNING
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CORPORATE GOVERNANCE11.3.1 Nature(a
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CORPORATE GOVERNANCEThe company sho
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CORPORATE GOVERNANCEtrust, possible
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CORPORATE GOVERNANCEAn agent has im
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CORPORATE GOVERNANCE(a)(b)(c)(d)(e)
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CORPORATE GOVERNANCE11.6.1 The law
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CORPORATE GOVERNANCEILLUSTRAUSTRATI
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CORPORATE GOVERNANCEimitated. They
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CORPORATE GOVERNANCE(a)(b)Greenbury
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CORPORATE GOVERNANCE11.9.2 Boards d
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CORPORATE GOVERNANCErelationship wi
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CORPORATE GOVERNANCE(e)(f)(g)(h)(i)
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CORPORATE GOVERNANCE(vi)Inquisitive
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CORPORATE GOVERNANCE(e)ConsultancyA
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CORPORATE GOVERNANCEThe incoming au
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CORPORATE GOVERNANCEIn summary, acc
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CORPORATE GOVERNANCEAccording to Th
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CORPORATE GOVERNANCE3. A body corpo
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12SOCIAL AND ENVIRONMENTALISSUES IN
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SOCIAL AND ENVIRONMENTAL ISSUES IN
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APPENDIX ISUGGESTED SOLUTIONS TO RE
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SUGGESTED SOLUTIONS TO REVISION QUE
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SUGGESTED SOLUTIONS TO REVISION QUE
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APPENDIX IICOMPREHENSIVE QUESTIONS
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COMPREHENSIVE QUESTIONS AND SUGGEST
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APPENDIX IIICASE STUDY 1Karsashi, a
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CASE STUDIES(iii)(iv)The floor sale
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CASE STUDIESShare price and dividen
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CASE STUDIESSUGGESTED SOLUTION(A) A
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CASE STUDY 3The following informati
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CASE STUDIESCASE STUDY 4Ologobojo i
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APPENDIX IVTable 1:SUMMARY OF INTER
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SUMMARY OF INTERNATIONAL ACCOUNTING
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APPENDIX VGLOSSARY OF TERMSAbsorpti
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GLOSSARY OF TERMSEthical Objectivis
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APPENDIX VIBIBLIOGRAPHYChambers Ham
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APPENDIX VIISTUDY AND EXAMINATION T
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STUDY AND EXAMINATION TECHNIQUES7.3
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INDEXAAbsorption, 17, 19, 39, 40, 4
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INDEXProfessional Behaviour, 136, 1
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