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

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FINANCIAL REPORTING AND ETHICSIf the proportion of fixed interest capital of ordinary sharecapital is high, the company’s capital structure is said to behighly geared, that is, there is a great burden of interestpayment on the company’s resources. Whereas, if the proportionof fixed interest capital to ordinary share capital is low, thecompany’s capital structure is said to be lowly geared, that is,there is not much burden of interest payment on the company’sresources. Where, however, the classes of capital are of an equalproportion, there is a neutral gear.4.7.5.2 Proprietary RatioThis is the ratio of shareholders’ funds to total assets. This ratioprovides a measure of the adequacy of security to pay allliabilities. It serves as a test of long term financial stability andcushion for creditors. It is calculated as:Shareholder’s FundsTotal Assetsx 100%The higher this percentage, the better the security for the creditorsin case of liquidation4.8 COMPARAARATIVE ANALYSIS OF FINANCIAL STATEMENTSTEMENTSComparative analysis could be done in various ways including vertical andhorizontal analysis, trend analysis and inter-firm analysis. Comparison canbe between firms or between periods.4.8.1 Vertical and Horizontal AnalysisVertical analysis of financial statements involves expressing opinionon the various items in the financial statements, that is, incomestatement or balance sheet as a percentage and in relation to a commonbase within the particular statement. Hence, it is seen as analysis ofproportional changes. In the case of the income statement, the salesfigure is regarded as the common base made equivalent to 100% whileall other items are calculated as percentage of sales. This is also referredto as common-size profit and loss account. As regards the balance sheet,the total assets or total capital figure is regarded as the common baseof 100% while other balance sheet items are expressed as percentagesof total assets or total capital. This is illustrated below:82
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTSILLUSTRAUSTRATION TION 4.1Comparative Profit and Loss oss Account (Vertical Analysis)2008 2009Turnover 100.00 100.00Less: Cost of Sales (71.53) (67.96)Gross Profit 28.47 32.04Less: Distrib. And Admin. Expenses (19.61) (16.98)8.86 15.06Add: Other Operating Income 1.10 0.98Earnings before interest and tax 9.96 16.04Less: Interest (5.62) (8.31)Profit before Tax 4.34 7.73Taxation (0.33) (0.24)Profit After Tax 4.01 7.49NHorizontal analysis is the simplest method of analysing financial statements.It involves the comparison of the current year with the previous year, notingany significant changes, that require further explanation. The change in eachof the items of the income statement and balance sheet is analysed in aggregateform and also as percentages of the previous year’s figures, and shown inseparate columns. This is illustrated below:ILLUSTRAUSTRATION TION 4.2Comparative profit and loss account (Horizontal Analysis)2008 2009 Change% Change’m’m ’mTurnover 11,421 11,987 +566 + 4.96%Cost of Sales (8,169) (8,147) - 22 - 0.27%Gross Profit 3,252 3,840 +588 18.08%Distribution andAdmin. Exp. (2,240) (2,036) - 204 - 9.11%1012 1,804 + 792 78.26%Other OperatingIncome 126 107 - 19 -15.08%Operating Profit 1,138 1,911 + 773 + 67.93%Interest and OtherCharges (642) (996) + 354 x + 55.14%Profit before Tax 496 915 + 419 x + 84.48%Taxation (38) (29) + 9 x - 23.68%Profit after Tax 458 886 428 93.45%83
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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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AMALGAMATION, ABSORPTION AND RECONS
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Page 113 and 114: 6ETHICAL FRAMEWORK, CONCEPTSAND VAL
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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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