Transcript Presentation of financial statements

Presentation of
financial
statements
The auditor’s review
Presented by:
Tahmeen Ahmad (ACA)
Purpose of Financial
Statements
• Financial statements are:
“Structured representation of the financial position
and financial performance of an entity.”
• Objective:
To provide information about:
– the financial position,
– financial performance, and
– cash flows
of an entity that is useful to a wide range of users in
making economic decisions.
The Framework
• The International Financial Reporting
Standards (IFRS), in particular guidance
on presentation and disclosure
• Local statutory requirements
– The Companies’ Ordinance, 1984, in particular the
Fourth/ Fifth Schedule for presentation purposes
– Directives of the regulatory bodies
– Industry specific legislation
– Generally accepted accounting principles
Amendments of the
Finance Bill 2007-2008
• The AGM must now be held after three months of the end
of the accounting year. (previously 4 months)
• Power of FG to require additional matters in the auditors’
report now vested in Commission
• NBFCs to comply with minimum equity requirements
rather than minimum capital requirement for incorporation
• Penalty for failure to comply with NBFC laws enhanced
from Rs 5 m to Rs 50 m
• Mandatory for listed Co to have independent share
registrar
• Substantial share holder (12.5%) can apply for re election
of directors in the case of a listed company
Amendments of the Finance
Bill 2007-2008 (Contd.)
• Power of FG to specify business of banking companies
now vests in the SBP
• Perpetual non cumulative preference shares included in
definition of share capital of Banking Company
• Additional conditions for eligibility to pay dividends by
banking company
• Additional provisions for auditors: all significant matters
to be reported to SBP, SBP may revoke the appointment of
auditors
• New Act ‘Payment System for Electronic Fund Transfer
2007’ introduced
• Contract worker now entitled to benefits under the
Companies Profits (worker Participation) Act 1968, and
amount of profit no longer subject to audit adjustments
Responsibility for
Financial Statements
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•
Final responsibility for fair presentation
of financial statements rests with the
BoD.
Companies’ Ordinance 1984: directors
to present in the AGM annual accounts
that give a true and fair view of state of
affairs and Profit and loss of the
Company (u/s 233 & 234)
The Auditor’s Responsibility
“To express an opinion on financial statements
based on their audit”
• Audit is a statutory requirement for all
companies.
• Auditor to be Chartered Accountant for the
following:
– Public Cos.,
– Private Co that is a subsidiary of a public company, and
– Private Co having paid up share capital of Rs 3m or
more
• Auditors also issue reports on:
– Review of interim f/s (listed Cos.)
– Report on consolidated financial statements
– Report on changes in accounting policies (listed Cos.)
The Auditor’s
Responsibility (contd.)
– Review of compliance with Best Practices of
Code of Corporate Governance (Listed Cos.)
– Assets, liabilities, profits and losses, share
capital and its breakup value for prospectus
(Schedule II)
– Certification of financial information in
statutory report (for Co limited by shares etc)
– Significant issues identified during audits
(listed Cos)
– Industry specific reports (basel II, profit rate
verification, credit review reports etc)
Components of Financial
Statements
• General purpose financial statements
comprise of:
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Balance Sheet
Profit and loss account
Statement of changes in equity
Cash flow statement
Notes to the financial statements
Components of Financial
Statements (contd.)
Listed Cos .
– Balance sheet
– Profit and loss
– Statement of changes
in equity
– Cash flow
– Notes
• 4th schedule applies
• This includes private
companies and public
non-listed companies
that are subsidiaries
of listed companies
Non Listed Cos.
– Balance sheet
– Profit and loss
– Notes
• 5th schedule applies
The Annual Report –
other information
– Other information includes the following:
TYPE OF REPORT
REQUIREMENT OF:
Director’s report
Companies’ Ordinance 1984
Statement of Compliance
with Code of corporate
governance
Listing regulations
Company information
including financial progress
reports, management
structure etc
– The auditor may review the information in relation to the
accounts under audit
Review of the Financial
Statements
• Variation in presentation may arise
from difference in:
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Nature of business of the entity
Type of Company (listed, non-listed public, private)
Consolidated or unconsolidated accounts
Management judgement on matters not specified by
statute / standards
Review of the Financial
Statements (Contd.)
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Identification of each f/s component
Name of reporting entity
Specified if accounts related to group entity
Balance sheet date/period of account
Presentation currency
Level of rounding used in presenting amounts
Comparatives
F/s amounts supported by adequate notes
Each F/s component signed by director and chief
executive.
Review of Balance Sheet
Presentation
•
Please review the sample balance sheet:
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Our discussion will follow the line items:
ASSETS
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Fixed Assets
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Long term investments
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Long term loans and advances
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Long term deposits and prepayments
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Current assets
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Stores and spares
Stock in trade
Trade debts
Loans and advances
Trade deposits, prepayments
Interest accrued
Other receivables
Financial assets
Tax refunds
Cash and bank balances
Balance Sheet (Contd.)
SHARE CAPITAL & RESERVES
● Share capital
● Capital reserves
● Revenue reserves
● Surplus on revaluation of fixed assets
NON CURRENT LIABILITIES
● Long term financing
● Debentures
● Liabilities against assets subject to finance lease
● Long term Murabaha
● Long term Deposits
● Deferred Liabilities
Balance Sheet (Contd.)
CURRENT LIABILITIES
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Trade and other payables
Interest, profit, markup accrued
Short term borrowings
Current portion of long term borrowings
Current portion of long term murabaha
Provisions for taxation
CONTINGENCIES AND COMMITMENTS
Review of Income
Statement Presentation
• Please review the sample profit and loss account
• Line wise discussion follows:
TURNOVER
EXPENSES
• Cost of sales
• Distribution cost
• Administrative expenses
• Other operating expenses
• Finance cost
OTHER OPERATING INCOME
• Income from financial assets
• Income from investments/debts of related parties
• Income from assets other than financial assets
Review of Cash Flow
Presentation
• Please review sample cash flow statements
• Cash flows may be prepared under the indirect or direct
method.
• These methods affect the method of arriving at operating
cash flows only
• Discussion will follow the line items of the sample cash
flow:
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from operating activities
from investing activities
from financing activities
cash& equivalents
• Cash flows are prepared in accordance with the
requirements of IAS 7
Review of Statement of
Changes in Equity
• Please review sample statements of
changes in equity
• Statement may either show:
– All changes in equity
– Changes other than transactions with equity
holders
Variations for Industries
• Variations can be seen in presentation &
disclosures of f/s for different industries,
eg:
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Banking Companies
Manufacturing companies
Telecom industry
Petroleum exploration and production
Funds
Insurance companies
Leasing Companies and other NBFCs