CHAPTER 3:
Annual reports
© Ediciones Pirámide
BEYOND FIGURES: Introduction to Financial Accounting
CAMACHO-MIÑANO, M.M.; AKPINAR, M.; RIVERO-
MENÉNDEZ, M.J.; URQUIA.GRANDE, E. and ESKOLA,
A. (2012).
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Financial accounting 1.Chapter 3, Apuntes de Contabilidad Financiera
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CHAPTER 3:
Annual reports
© Ediciones Pirámide BEYOND FIGURES: Introduction to Financial Accounting
CAMACHO-MIÑANO, M.M.; AKPINAR, M.; RIVERO- MENÉNDEZ, M.J.; URQUIA.GRANDE, E. and ESKOLA, A. (2012).
MOTIVATION OF THE CHAPTER 3
© Ediciones Pirámide BEYOND FIGURES: Introduction to Financial Accounting
Telefonica Corporation, a company that operates mainly in telecommunications, media and contact center industries, disclosures every year the following documents belonging to its Annual reports:
- How is the Board of Directors structured?
- Does Telefonica have any long-term debt?
- Is this company profitable?
- Is it possible for a company to have profits but a decrease in cash-flow?
- How was the behavior of cash-flow related to operating activities?
- Has the Company made any investments related to environment?
Discussion point! After reading the Telefonica corporation statements you will be able to answer the following questions:
Index
3.1. Concept of annual report.
3.2. Financial statements.
3.3. Other reports.
© Ediciones Pirámide BEYOND FIGURES: Introduction to Financial Accounting
3.1. Concept of annual report
© Ediciones Pirámide BEYOND FIGURES: Introduction to Financial Accounting
An Annual Report is an annual publication about the activities made
by a corporation during an accounting period.
This report comprises the financial statements:
Income Statement/Comprehensive income statement.
Balance Sheet.
Cash-flow statement.
Statement of change in equity.
Explanatory notes.
and also other documents such as:
Report from the chairman.
Profile of the company.
The report of the independent auditors.
Management report or management commentary.
Corporate responsibility report….
3.2. Financial Statements (II)
© Ediciones Pirámide BEYOND FIGURES: Introduction to Financial Accounting
Income statement/ Comprehensive income
ΣRevenues − ΣExpenses =
Revenues > Expenses = Profits Revenues < Expenses = Losses
Increases in Equity (^) Decreases in Equity
Balance sheet/ statement of financial position
Based on the basic accounting equation: Assets = Liability + Equity
Assets: Resources owned or controlled by a business. Liabilities: Claims against assets by creditors. Debts. Equities: Owners’ wealth; it is the difference between assets and liabilities.
3.2. Financial Statements (III)
© Ediciones Pirámide BEYOND FIGURES: Introduction to Financial Accounting
Cash-flow statement Initial cash +/-^ Changes of CF = Final cash
Operating activities Financing activities Investing activities
Collections – Payments
Statement of changes in equity
Initial Equity ± Changes in Equity = Final Equity
Statement of total recognized gains and losses Statement of total changes in equity:
General information (firm name, activity, sector, legal form…) Accounting policies. Risks, contingencies…
Relevant information about:
Explanatory Notes
3.2. Financial Statements (IV)
Example of the Income statement:
© Ediciones Pirámide
3.2. Financial Statements (IV)
Structure of the Balance sheet:
© Ediciones Pirámide
3.2. Financial Statements (IV)
Structure of Cash-flow statement:
© Ediciones Pirámide
3.2. Financial Statements (IV)
Example of Cash-flow statement:
© Ediciones Pirámide
3.3. Other reports (I)
© Ediciones Pirámide BEYOND FIGURES: Introduction to Financial Accounting
Auditing reports
Review of the financial statements of a firm. Kinds of opinions: unqualified, qualified, adverse and disclaimer report.
Management report
Management’s view about what happened in the past and also what management believes it is going to happen in the entity’s future, so it is quiet subjective.
Explain of the company’s policies, principles and actions that could have environmental impacts. Describes the investments made by the company to improve the social conditions of their employees.
Corporate social responsability report
Corporate governance report
Describes its process and policies to manage and organize its performance.
Summary
© Ediciones Pirámide BEYOND FIGURES: Introduction to Financial Accounting
Annual report is an annual publication that: summarizes the corporation’s past performance and its future expectation during an accounting period. comprises the financial statements and also other documents such as: report from the chairman, audit report, management report, corporate responsibility report and corporate governance report. The financial statements include: balance sheet, income statement, cash flow statement, statement of changes in equity and explanatory notes. Balance sheet represents the firm’s wealth in a concrete moment. It is divided into current assets, non-current assets, owners’ equity, non-current liabilities and current liabilities. The income statement represents the firm’s wealth produced in a period of time. There are revenues and expenses. Cash-flow statement disclosure the changes made in cash during a period of time. Statement of changes in equity informs about changes produced in owner’s wealth during an accounting period. The explanatory notes disclosure the basis of preparation of financial statement, significant accounting policies and additional information to better understand the other financial statement documents.