This is a summary of the Accounting II course in the 2nd year of the Economics and Business Economics study. The summary is about all the financial and management accounting material you need to know before the exam.
Who are the users of financial statements:
o Shareholders main focus of IFRS (international financial reporting standards)
o Bank / creditors main focus of IFRS
o Customers/suppliers
o Employees
o Government
o ‘Society’
Financial reporting and capital markets
Financial reporting entails the disclosure of financial (and related) information about a
company’s financial performance in a certain period. Financial statements are the chief
instrument to do that.
Recap accounting I: what is financial reporting?
Financial statements measure and summarize the economic cocnsequences of business
activities
o Reported on an annual, semi-annual an/or quarterly basis
Financial statements comprise:
o Statement of comprehensive income; income statement
o Statement of financial position; balance sheet
o Cash flow statement
, o Statement of changes in equity
o Notes
o
Beyond accounting I: influences on financial reporting
We focus on two major themes (or influences on financial reporting)
o Accrual accounting and discretion
o Managers’ influence on financial statements
Other factors that affect financial reporting:
o Accounting conventions and standards
European listed firms apply IFRS
o Auditing and the regulatory framework
Key takeaway: accounting is not ‘objective’, and there is no ‘true’ outcome
Theme 1: accrual accounting and discretion
IFRS defines the following statement elements
o Revenues, expenses (income statement)
o Assets, liabilities, equity (balance sheet)
Financial reports are prepared using accrual accounting
o Transactions are recorded when they occur, rather than at the time of a cash flow
For example: revenue recognition, depreciation
Net income = cash flow + accruals (discretion!)
Accrual accounting means that there is a trade-off due to:
o Accounting estimates: what is the right number?
o Flexibility in standards: how much discretion to choose a number?
, o Imperfect rules: do the rules still reflect the current environment?
o Managers’ incentives: do they want to present the right number?
Theme II: management incentives
Management has superior knowledge of a firm’s business:
o Using accounting, it can communicate insider information to investors
For example:
Useful lives of assets
Revenue recognition
o However there are also incentives to distort accounting numbers
Management compensation
Debt contracts
o As a result there is a trade-off surrounding management discretion
ESG reporting & stakeholder orientation
Three pillars of ESG reporting
o
Major ESG focus on reporting greenhouse gas emissions
o Scope 1:
All direct emissions within organization’s control
o Scope 2:
Indirect emissions from purchased electricity, heat, steam, or cooling
o Scope 3:
Other indirect emissions in entire value chain
Greatest share of a firm’s carbon footprint
Income statement expense/loss, revenue/gain (change in equity)
Accounting for non-current assets:
Property, plant and equipment
o Cost of property, plant and equipment is
recognized as an asset if, and only if:
• it is probable that future economic
benefits associated with the item
will flow to the entity; and
• the cost of the item can be
measured reliably.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller femkehillen04. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.62. You're not tied to anything after your purchase.
