Drafting Financial Statements

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Drafting Financial Statements

• Andrew Harrington
• 23 April 2008

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Drafting Financial Statements

• Common exam moans
• That was much harder than all the past papers
• That was completely different to all the past
  papers
• The AAT have stitched us up again, just to get
  more exam fees out of us
• I cant do the past papers again because I just
  remember all the answers

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Drafting Financial Statements

• Unit 11 Drafting Financial Statements
• Section 1 Drafting Financial Statements
• Section 2 Interpreting Financial Statements
• The first section accounts for 70 of the
  assessment
• the second section accounts for 30!

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Drafting Financial Statements

• Typical tasks in section 1
• Preparing consolidated accounts
• Adjusting balances and preparing accounts for a
  single company
• Preparing a cash flow statement for a single
  company

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Drafting Financial Statements

• Consolidated Accounts
• Parent and subsidiary are defined in terms of
  control
• Consolidated accounts show parent and subsidiary
  as if they were one entity
• Key workings are goodwill, consolidated reserves,
  and minority interest
• Inter-company balances/transactions should be
  eliminated
• (and profit that is unrealised from the group
  perspective)
• Associates are included using equity accounting

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Drafting Financial Statements

• Adjusting Balances and Preparing Accounts
• Journals must be prepared based on information
  given
• (closing inventories, accruals and prepayments,
  application of standards)
• Income statement and balance sheet must be
  drafted based on adjusted balances
• Other statements/notes may be required

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Drafting Financial Statements

• Preparing a Cash Flow Statement
• Analyses cash flows for the period under
  prescribed headings
• Operating activities
• Investing activities
• Financing activities
• Profit from operations must be reconciled to net
  cash flow from operating activities
• Some interpretation may be required

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Drafting Financial Statements

• Typical tasks in section 2
• Calculating and interpreting ratios
• Tasks based on the Framework for the Preparation
  and Presentation of Financial Statements

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Drafting Financial Statements

• Calculating and Interpreting Ratios
• Calculations may be required for ratios concerned
  with profitability, liquidity, efficient use of
  resources, financial position
• Ratios in isolation are of little use
• When interpreting the figures, keep the original
  purpose of the exercise in mind

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Drafting Financial Statements

• The Framework for the Preparation and
  Presentation of Financial Statements
• Explaining the purpose of financial statements
• Defining the elements of financial statements
• The balance sheet equation

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Drafting Financial Statements

• Looking ahead
• On 6 September 2007, the IASB issued a revised
  IAS 1 Presentation of Financial Statements.
• The balance sheet will be renamed statement of
  financial position
• The income statement becomes the statement of
  comprehensive income
• The cash flow statement will become the
  statement of cash flows
• The revised IAS 1 is effective for annual periods
  beginning on or after 1 January 2009.
• Entities are NOT REQUIRED to use the new titles
  in their financial statements!