oR WKS rer O> SID Crp Maret Graduate Ting Programme 30 October 2003 Module 3: Intermediaries ofthe Malayicn Capital Market e SESSION 11 ACCOUNTANCY AND AUDITING IN THE CAPITAL MARKET ® gia, Qiay vi rah ner 0\2- RK 6AD Gillian Ng Nagin tice Coufal Pw dene (MICPA)Capital Market Graduate Training Scheme Accountancy and Auditing in the Capital Market by Ms. Gillian Ng October 10, 2003 “The globalisation of capital markets has resulted in an increased demand for high quality, internationally comparable financial information.”Categories of financial information Financial information takes many different forms, eg. = special purpose financial reports « general purpose financial reports = other financial information General purpose financial statements «= Primary financial = Notes to the financial statements statements, ¢.g. «= Statement of = Accounting policies financial position = Analyses of figures = Statement of in the primary performance financial statements = Statement of changes _—_» Information about in equity uncertainties = Cash flow statement affecting recognised assets and liabilitiesGeneral purpose financial statements = Accompanying = Non-accounting and information, e.g. non-financial = Chairman’s information statement = Directors? report = Auditors’ report « Historical summaries and trend information General purpose financial reports = Other general purpose = Other information, e.g. financial reports, e.g. = Analysts’ reports = Letters to « Economic statistics shareholders » News articles about = Press releases and the company UV similar media announcementsFinancial Statements Financial statements are the principal means through which financial information is communicated to those outside the enterprise. Objective of financial statements Financial statements provide information about the financial position, performance and changes in financial position of an enterprise that js useful to a wide range of users in making economic decisions.Qpcurmenk—=txes Useful to a wide range of users = There are many people interested in an enterprise’s financial statements, e.g. investors, employees, lenders, creditors, customers, the Government and their agencies, and the public. = However, it does not mean that financial statements are prepared specifically for all these interested persons. Useful to a wide range of users = General purpose financial statements are normally prepared by focusing on the information needs of present and potential investors.Biorroraggmecd @ Gomer CWE ANA Her vong, eragny WOES — dont nqieecogy ae (Cone. cHiuns ~ Limitations of financial statements = They focus on the financial effects of transactions and other events and do not focus to any significant extent on their non-financial effects or on non- financial information; Limitations of financial ier gves statements ye ‘a oy = They provide information that is at exo largely historical and therefore do. not reflect future events and_ transactions that may enhance or impair the company’s operations, nor do they anticipate the impact of potential changes in the economic environment;Ctra BES oo ws \nore Gear Limitations of financial statements = They are a representation of transactions and other events that involve a substantial degree of classification and aggregation and the allocation of the effects of continuous operations to discrete reporting periods. faih fur Aru rare Ay My dexikioheo Information required by investors = Financial performance =return company obtains on its resources = components of that return = characteristics of those componentsInformation required by investors «= Financial position economic resources controlled by the company = financial structure liquidity and solvency = capacity to adapt to changes in environment oe. edacehonr Comers si aoa. WIL ROA AC, urisk profile ~~ An Aeh7 Do & Zona wr d¢ WOCKZE Information required by investors = Generation and use of cash = Financial adaptabilityUnderlying assumptions General purpose financial statements are prepared based on certain underlying assumptions. They include: = accrual basis X ater a going concern ~ (Uo WOT IVS © = periodicity assumption A. oll guvive xX Qualitative characteristics ‘The purpose of financial statements is to provide information useful for making economic decisions. ‘The qualities that make financial statements useful are: «= Understandability = Relevance = Reliable = ComparabilityQualitative characteristics = Understandability QB = Relevance (i.e. (ie. the significance information that of the information has the ability to can be perceived) influence decisions = users’ abilities = predictive value = aggregation and = confirmatory classification value = timeliness = materiality UR ae Qualitative characteristics 2) a Reliability (i.e. information that is a complete and faithful _—_differences can be representation discerned) = verifiability = consistency = faithful = accounting policies representation <0 AW KS. = substance over form Gouger = neutrality = prudence ompleteness:Constraints Trade off required = Timeliness (C croro dor Arvcl Cogs) = Balance between benefit and cost = Relevance and reliability tre agement = Neutrality and prudence = Understandability Ww “2 v%y\ wn Elements of financial statements Financial statements portray the financial effects of transactions and other events on a company’s financial position and financial performance. This involves a high degree of classification and aggregation. Order is imposed on this process by specifying and defining the elements of financial statements that capture the key aspects of those transactions and events.Elements of financial statements = Financial position _ yeve We (6.8 m assets Quo ( Ss = liabilities = equity (or ownership interests) = Financial performance a wing aqme ( oy = income “i , me » §aU = expenses \ Asset An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. he a i Cones ~ pene Quy rag Aah On bee. Cages Clore) Vpdated ‘ca! iS Fxek BorgLiability A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. — GUYS Yn M0 good mary, vedhOS - \oanS ssid Yes SaA- aur wht ural Cow — Equity — Xw%, reaves Fay Vertue Shee Equity is the residual interest in the assets of the enterprise after deducting all its liabilities.Income Income is increases in economic benefits during an accounting period in the form of inflows or enhancements of assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity participants. Expenses 7 Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those resulting in distributions to equity participants. $-e=T Uses ds {oan Coremet Adds Sas