Financial and Management Accounting 8th Edition

Book Preface

This book uses the international Conceptual Framework (as revised in 2018) and International Financial Reporting Standards (IFRS) as its primary focus. It enables students in their early stages of study to understand and analyse the published annual reports and financial statements of our largest businesses and public sector institutions. IFRS are now applied in many aspects of government, local authority and other public sector accounting. Where relevant it also refers to the approach used in small and medium-sized businesses where the traditions of UK GAAP continue to be applied.

The book is written for the first level of undergraduate degree study in accounting and business studies, or equivalent introductory accounting courses for any professional training where an understanding of accounting is a basic requirement. While UK listed companies apply IFRS in their published financial statements, the remainder of the annual report is governed by UK-based regulations and codes. All UK companies operate under the Companies Act 2006. Their annual reports are influenced by the regulatory process applied to listed companies in the UK. This eighth edition is thoroughly revised to reflect these regulatory changes, particularly the restructuring of the Financial Reporting Council to take responsibility for the standards previously issued by the UK Accounting Standards Board, and the introduction of the strategic report.

All ‘Real World’ case studies at the start of each chapter have been updated to reflect current conditions. The underlying pedagogy of previous editions has been retained in response to encouraging comments from reviewers and from users of the book.

As academic institutions come under increasing scrutiny for the quality of the teaching and learning experience offered, a textbook must do more than present the knowledge and skills of the chosen subject. It must make explicit to the students what targets are to be achieved and it must help them to assess realistically their own achievements of those targets. It must help the class lecturer prepare, deliver, explain and assess the knowledge and skills expected for the relevant level of study. This is achieved by stating learning outcomes at the start of each chapter and by ensuring that the chapter headings and the end-of-chapter questions address the stated outcomes.

The management accounting chapters continue the approach of previous editions in taking some of the newer costing techniques into mainstream discussion, reflecting their increasing acceptance in management accounting practice. Business strategy and competitive position are recurring themes. A student who has completed this first-level study of management accounting will be aware of many of the day-to-day practices of management accounting in business and the relevance of those practices. It also provides a self-contained, broad introduction to management accounting for business students who do not need to develop specialist knowledge.

An accompanying website at www.pearsoned.co.uk/weetman provides the lecturer with a complete resource pack for each chapter. Student handouts containing a skeleton outline of each chapter, leaving slots for students to complete; powerpoints that match the lecture handouts; additional multiple-choice questions and further graded questions in application of knowledge and in problem solving; all are features for this eighth edition.

End-of-chapter questions are graded according to the skills being assessed. There are tests of retained knowledge, tests of application of knowledge in straightforward situations and tests of problem solving and evaluation using the acquired knowledge in less familiar situations.

Overall the aim of the eighth edition is to provide an introduction to financial accounting and management accounting which engages the interest of students and encourages a desire for further study. It also contributes to developing the generic skills of application, problem solving, evaluation and communication, all emphasised by employers.

The eighth edition has been updated throughout. It aims to provide a full understanding of the key aspects of the annual report, concentrating in particular on companies in the private sector but presenting principles of wider application which are relevant also to organisations operating in the public sector.

Distinctive approach

An international perspective reflects the convergence in accounting standards across the European Union for listed companies. Features specific to the UK are retained where these continue to be relevant to other enterprises.
Concepts of financial accounting are identified by applying the principles enunciated by the International Accounting Standards Board in its Conceptual Framework. The Conceptual Framework emphasises the desirability of meeting the needs of users of financial statements and it takes a balance-sheet-oriented approach. That approach is applied consistently throughout the book, with some indication of the problems which may arise when it is clear that the established emphasis on the matching of revenues and costs may give a more rational explanation of existing practice.

User needs are explained in every chapter and illustrated by including first-person commentary from a professional fund manager, holding a conversation with an audit manager. The conversations are based on the author’s research in the area of communication through the annual report.

The accounting equation is used throughout the financial accounting section for analysis and processing of transactions. It is possible for students who do not seek a technical specialism to complete the text without any reference to debit and credit bookkeeping. It is, however, recognised that particular groups of students may wish to understand the basic aspects of debit and credit bookkeeping and for this purpose the end-of-chapter supplements revisit, on a debit-and-credit-recording basis, material already explored in the chapter. Debit and credit aspects of management accounting are not covered since these are regarded as best reserved for later specialist courses if the student so chooses.
Practical illustration is achieved by drawing on the financial information of a fictitious major listed company, taking an overview in early chapters and then developing the detailed disclosures as more specific matters are explored.
Interpretation of financial statements is a feature of all financial reporting chapters, formally brought together in Chapters 13 and 14. The importance of the wider range of corporate communication is reinforced in Chapter  14. This chapter also includes a discussion of some current developments that are under debate in the context of international convergence.

A running case study example of the fictitious company Safe and Sure plc provides illustration and interpretation throughout the chapters. Safe and Sure plc is in the service sector. The Instructor’s Manual contains a parallel example, Craigielaw plc, in the manufacturing sector. In the Instructor’s Manual there are questions on Craigielaw to accompany most of the chapters.

Self-evaluation is encouraged by setting learning outcomes at the start of each chapter and reviewing these in the chapter summaries. Activity prompts are placed at the ends of the main sections of each chapter. The activities are designed to develop student learning by: recognising assumptions; evaluating arguments; and drawing conclusions through expressing an opinion. Self-testing questions at the end of each of the main sections of the chapter may be answered by referring again to the text. Further end-of-chapter questions provide a range of practical applications. Group activities are suggested at the end of each chapter with the particular aim of encouraging participation and interaction. Answers are available to all computational questions, either at the end of the book or in the Instructor’s Manual.

A sense of achievement is engendered in the reader of the financial accounting section by providing a general understanding of the entire annual report by the end of Chapter 7. Thereafter specific aspects of the annual report are explored in Chapters 8–12. Lecturers who wish to truncate a first-level course or leave specific aspects to a later level will find Chapters 8–12 may be used on a selective basis.

A spreadsheet approach to financial accounting transactions is used in the body of the relevant chapters to show processing of transactions using the accounting equation. The author is firmly convinced, after years of trying every conceivable approach, that the spreadsheet encourages students to apply the accounting equation analytically, rather than trying to memorise T-account entries. Furthermore, students now use spreadsheets as a tool of analysis on a regular basis and will have little difficulty in applying suitable software in preparing spreadsheets. In the bookkeeping supplementary sections, the three-column ledger account has been adopted in the knowledge that school teaching is moving increasingly to adopt this approach which cuts out much of the bewilderment of balancing T-accounts. Computerised accounting systems also favour the three-column presentation with continuous updating of the balance.