Financial Accounting and Reporting 19th Edition

Book Preface

What is financial accounting and reporting?
Financial accounting is the accurate recording of all transactions and combining these into a statement which shows the performance for an accounting period which is normally a year and a statement which shows the resources and liabilities at the end of the period.
Financial reporting presents the performance, the resources and liabilities to the stakeholders in accordance with International Financial Reporting Standards. It is a dynamic area, intellectually demanding and full of interest. We see it as extremely important that the text should reflect this and be kept current.
A self-contained introduction
This book gives a self-contained introduction to financial accounting and reporting and has been widely adopted on:
● second-year undergraduate courses for Accounting, Business and Management Studies;
● final-year undergraduate courses for Accounting, Business and Management Studies;
● MBA courses;
● specialist MSc courses; and
● professional and accredited courses preparing students for professional accountancy examinations.
Accountants are working in a fast-changing world
In today’s world there are many risks that a company faces and where accountants need to exercise commercial understanding and technical competence. These risks include:
● The risk of failure as seen with the collapse of the British construction and services giant Carillion Group going into administration. The company tendered at an unrealistically low price and suffered when there were cost overruns. This came about due to management decisions; however, accountants and auditors have both been heavily criticised with the chair of the parliamentary business committee commenting Carillion’s annual reports were ‘worthless as a guide to the true financial health of the company’.

● The risk associated with technical problems such as that experienced by Rolls Royce with its Trent 1000 engines (see https://www.reuters.com/article/us-rolls-royce-hldgtrent1000/rolls-royce-says-tripling-capacity-to-fix-trent-1000-engine problemsidUSKCN1IU2NY), which has ultimately resulted in a need for the firm to increase its capacity to investigate the issue, re-deploying a significant number of employees to inspect the problem. Accountants have the task of assessing the impact on future cash flow and profits following the measures taken by Rolls Royce to triple its maintenance capacity.
● Incurring material environmental costs such as those arising when decommissioning offshore oil and gas installations. Accountants are involved in calculating the costs and financial reserves that will be required in the future.
● Public pressure for sustainability impacts on many industries. For example, publishers are under pressure to use sustainable forests for their paper. The accountants’ role is to provide investors with a narrative explanation of the steps being taken. This is seen with the growing interest in Integrated Reporting, with the financial report supported by explanations to make environmental and social impacts more transparent.
Accountants must be prepared with both academic understanding and for the practical demands of employers in the real world
You must develop your ability to satisfy (a) technical challenges; (b) judgemental challenges; and (c) ethical challenges. a. Technical challenges The old view of accountants as ‘bean counters’ living in their own world of double-entry book-keeping is so very far from the real world. A thorough understanding of double entry and accrual accounting is the foundation but then you need to satisfy the technical challenges, for example, how to account for decommissioning costs.
b. Judgemental challenges These require critical analysis and the exercise of soft skills when presenting relevant information in discussion and report writing.
● Critical analysis
In financial accounting and reporting you might calculate numerous performance, activity and cash based ratios. It is not, of course, sufficient to comment that there has been a movement up or down – the skill is to identify those which are relevant to the decision-making requirements of individual stakeholder groups such as equity investors, loan creditors and employees.
● Soft skills of discussion and report writing These are becoming increasingly important when seeking employment.
c. Ethical challenges These may range from fairly clear inappropriate requests such as a request to conceal improper expense claims put in by a senior manager to a request to produce a more optimistic profit forecast to support the share price. How to decide when there is a conflict between confidentiality and whistleblowing?

How does our book help?
Our objective is to provide a balanced and comprehensive framework to enable you as students to acquire the requisite knowledge and skills to appraise current practice critically and to evaluate proposed changes from a theoretical base. To this end, the text contains:
● IASB Standards:
● extracts from current IASs and IFRSs
● explanation and example applications of IFRSs.
● Real-life examples:
● illustrations from published accounts and other sources.
● Encouragement to look beyond the text:
● a range of review questions and links to assist recall and understanding, which also encourage critical thinking and interest in exploring topics in greater depth
● Activities of varying difficulty to use to encourage discussion or to test students’ ability to apply concepts
● Exercises include exam questions from professional accountancy bodies as a measure of the level required in the profession
● Opportunity to develop the soft skills that are becoming more and more important in professional life:
● exercises requiring soft skills such as commenting, advising, explaining, critically examining, writing reports, discussing; technical questions, ethical dilemmas, corporate governance, environmental and social developments.
MyLab Accounting is also available for this text:
● If your lecturer recommends the use of MyLab Accounting to accompany the text, you will find there large banks of additional questions and the ability to monitor your progress. These questions enable you to reflect on your learning and on where additional work is required.