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FINANCIAL REPORTING PROBLEM
(a) According to Note 1—Accounting Policies, “Revenue comprises sales of
goods to customers outside the Group less an appropriate deduction for
actual and expected returns, discounts and loyalty scheme vouchers,
and is stated net of value added tax and other sales taxes. Revenue is
recognized when goods are delivered to our franchise partners or
customers and the significant risks and rewards of ownership have been
transferred to the buyer.”
market value of pension assets are disclosed.
(c) Examination of the auditor’s report. Also, M&S discusses a number of
new accounting pronouncements issued or effective during the fiscal
year (e.g., IFRS 7, IFRIC 11, IFRIC 14). M&S indicates that they have had
or are expected to have a material impact on the financial statements.
(d) According to the discussion of “Critical accounting estimates and
judgements”:
Refunds, gift cards and loyalty scheme accruals
Accruals for sales returns, deferred income in relation to loyalty scheme
redemption and gift card and credit voucher redemptions are estimated
on the basis of historical returns and redemptions. These are recorded so
COMPARATIVE ANALYSIS CASE
(a) Both companies use the Euro as their currency. Since both companies use the
same currency, comparability is enhanced.
(c) Both companies value inventory at lower of cost or net realizable value, using
the average cost method. Therefore, comparability is enhanced.
(d) adidas reported the following with respect to new accounting standards:
FINANCIAL STATEMENT ANALYSIS CASE—NOKIA
(a) The IASB’s framework indicates that revenue is to be recognized
when it is probable that future economic benefits will flow to the
1. For revenue related to sales, Nokia indicates that the criteria are
met when it is probable that economic benefits associated with
2. Revenue from contracts is recognized on the percentage of com-
pletion basis, when the outcome of the contract can be estimated
(b) A number of estimates are required in applying these revenue recogni-
tion policies. For example, sales may materially change if manage-
ment’s assessment of such criteria was determined to be inaccurate.
FINANCIAL STATEMENT ANALYSIS CASE—NOKIA (Continued)
With respect to revenue from contracts, recognized revenues and
profits are subject to revisions during the project in the event that the
assumptions regarding the overall project outcome are revised.
(c) Even if all phone-makers use the same policy, it still might be difficult
to compare their revenue numbers. As indicated in (b), management
makes a number of judgments and estimates in determining whether
ACCOUNTING, ANALYSIS AND PRINCIPLES
ACCOUNTING
CADDIE SHACK DRIVING RANGE
Statement of Financial Position
May 31, 2019
Assets
Owners’ equity
Building
$ 6,000
Contributed capital
$20,000
Equipment
800
Retained earnings
1,650
ANALYSIS
The income measure of $2,450 is most relevant for assessing the future
profitability and hence the payoffs to the owners. For example, charging
the cost of the building and equipment to expense in the first month of
ACCOUNTING, ANALYSIS AND PRINCIPLES (Continued)
PRINCIPLES
IFRS income is the accrual income computed above as $2,450. The key
concept illustrated in the difference between the loss of $4,900 and profit of
RESEARCH CASH
Search Strings: “materiality”, “completeness”
the financial statements.
(b) According to the Conceptual Framework, (chapter 3, paras. QC12–
QC13):
To be a perfectly faithful representation, a depiction would have
three characteristics. It would be complete, neutral and free from
error. Of course, perfection is seldom, if ever, achievable. The
RESEARCH CASE (Continued)
(c) According to the Conceptual Framework (chapter 1, par. OB17):
Financial performance reflected by accrual accounting
Accrual accounting depicts the effects of transactions and other events
GAAP CONCEPTS and APPLICATION
2.1. Both the IASB and FASB have similar measurement principles, based
on historical cost and fair value. The boards issued converged fair
2.2. The IASB framework identifies 5 elements: ASSETS, LIABILITIES,
EQUITY, INCOME, and EXPENSES. The U.S. GAAP framework has the
following additional elements – which expand on equity-related items.
INVESTMENTS BY OWNERS.
Increases in net assets of a particular enterprise resulting from
transfers to it from other entities of something of value to obtain or
REVENUES.
Inflows or other enhancements of assets of an entity or settlement of
its liabilities (or a combination of both) during a period from delivering
or producing goods, rendering services, or other activities that
constitute the entity’s ongoing major or central operations.
COMPREHENSIVE INCOME.
GAAP CONCEPTS and APPLICATIONS (Continued)
GAINS.
Increases in equity (net assets) from peripheral or incidental
transactions of an entity and from all other transactions and other
events and circumstances affecting the entity during a period except
those that result from revenues or investments by owners.
2.3. The IASB and the FASB face a difficult task in attempting to update,
modify, and complete a conceptual framework. There are many
challenging issues to overcome. For example, how do we trade off
characteristics such as highly relevant information that is difficult to
verify? How do we define control when we are developing a definition
of an asset? Is a liability the future sacrifice itself or the obligation to
