pwc financial statements
TRANSCRIPT
Financial Statements
http://www.cc.cec/budg/
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Overview of session
1. Introduction
3. Questions
2. Components and elements of financial statements
Financial statements
1. Introduction
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Framework for preparing F/S
Why have a framework? Purpose
What does it cover? Scope
Does it have constraints? Limitations
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Framework for preparing F/S
Qualitative characteristics of
financial statements
Components and elements of
financial statements
Objectives of financial statements
Net assets and net assets maintenance
Section 2
This section
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Purpose of F/S
• F/S are a structured representation of the financial position and of the transactions undertaken by an entity that is useful to a wide range of users in making and evaluating decisions about the allocation of resources.
• Specifically, the objectives of F/S in the public sector are to provide information useful for decision-making, and to demonstrate the accountability of the entity for the resources entrusted to it.
• F/S can also have a predictive/prospective role, providing information useful in predicting the level of resources required for continued operations and the resources that may be generated by them.
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Scope of the E.C. F/S
• The E.C. financial statements will:
– Consolidate those of entities controlled (e.g. Agencies and
institutions)
– Proportionately consolidate those of jointly controlled entities (e.g.
Galileo)
– Report its share in the result and net assets of entities in which it
has a significant influence using the equity method of accounting
(e.g. European Investment Fund)
• All entities concerned will have to report to the E.C. using the E.C. accounting rules
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Qualitative characteristicsof F/S
Main objective of FS: Provide reliable information on financial position,performance and changes in financial position
Main characteristic: Decision usefulness
Major qualitative Understandability Comparabilitycharacteristics:
Relevance Reliability(Materiality)
Substance over form Prudence
True and fair view
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Constraints
Main objective of FS:Main objective of FS: Provide reliable information on financial position,Provide reliable information on financial position,performance and changes in financial positionperformance and changes in financial position
Main characteristic:Main characteristic: Decision usefulnessDecision usefulness
Major qualitativeMajor qualitative UnderstandabilityUnderstandability ComparabilityComparabilitycharacteristics:characteristics:
RelevanceRelevance ReliabilityReliability(Materiality)(Materiality)
Substance over formSubstance over form PrudencePrudence
Constraints: Timeliness Cost-benefit balance
True and fair viewTrue and fair view
Financial statements
2. Components and elements of financial
statements
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Components of F/S
IPSAS European Communities (FR)
• Statement of financial position Balance sheet
• Statement of financial performance Economic outturn account
(including segment reporting)
• Statement of changes in net assets Statement of changes in net
assets
• Cash flow statement Cash flow table
• Accounting policies and notes to the
financial statements
Notes to the financial statements
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Balance sheet elements
Assets Net assets and Liabilities
Net assets
Liabilities
Total Assets Total Net Assets and Liabilities
• Resources• Controlled as a result from past events• Embodying future economic benefits or service potential
The residual interest
• Present obligations• Resulting from past events• The settlement of which is expected to result in an outflow of resources embodying economic benefits or service potential
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Balance sheet
Assets Net assets and Liabilities
Non-current assets Net assets
Non-current liabilities
Current assets Current liabilities
Total assets Total net assets and liabilities
Increasing liquidity
To be realised in the normal course of the E.C.s’ operatingcycle or within 12 months + cash and cash equivalents
Aggregated –Detailed
in the notes
This year +prior year
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Balance sheet
• Detailed structure
– See financial report 2005 page 15
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Economic outturn account elements
Income Expenses
Increases in economicbenefits
Decreases in economicbenefits
- =Economic
result of the year
The net assets maintenance concept:The excess of income over expense
translates into an increase in the residual interest
(the excess of assets over liabilities) – and vice-versa
• Where assets and liabilities are not equal, a residual figure for net assets/equity will be reported;
• If > 0, can be interpreted as the net resources that may be applied for the provision of goods or services in the future (= the community’s investment in the entity);
• If < 0, may be viewed as the amount of future taxation or other revenues which are already committed to paying off debt and other liabilities.
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Economic outturn account
• Detailed structure
– See financial report 2005 page 19
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Extraordinary items
Net Surplus or Deficit
= Surplus or Deficit from ordinary activities and extraordinary items
Extraordinary =
• Rare• Unusual• Outside control of entity• Material
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Statement of changes in net assets
• Detailed structure
– See financial report 2005 page 33
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Cash flow table
• Detailed structure
– See financial report 2005 page 29
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Notes to the financial statements
1. Accounting policies
2. Impact of the transition to accrual accounting
3. Notes to the Balance Sheet
4. Notes to the Economic Outturn Account
5. Notes to the Cashflow table
6. Off-Balance Sheet and notes
7. Financial risk management
8. Related party disclosures
9. Events after the balance sheet date
10. Consolidated entities
11. Non-consolidated entities
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Accounting policies
• IPSAS-compliant when ruled out by IPSAS
• Options retained when an IPSAS allows one or more alternative accounting policies
• Internally-developed when no specific requirement exists
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Changes in accounting policies
• Changes in accounting policies = change from one allowed basis of accounting to another allowed basis of accounting
• Example: the initial adoption of a policy to carry assets at revalued amounts
• Normally applied retrospectively (restate comparative information)
• Fundamental errors
• Changes in accounting estimates
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Fundamental errors
• Significant errors in a prior year’s financial statements as a result of mathematical mistakes, mistakes in applying accounting policies, misinterpretation of facts, fraud or oversights
• Example: omission of a major class of expenses in the financial statements
• Normally correct retrospectively: restate comparative information
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Changes in accounting estimates
• Many financial statement items cannot be measured with precision but can only be estimated. The estimation process involves judgments based on the latest information available.
– Estimates may be required, for example, of GNI-based revenue
revenue due by Member States, bad debts arising from
uncollected receivables, or the useful lives of depreciable assets
• Accounting estimates by their nature are approximations that may need revision as additional information becomes known
• Recognise the effect in the period of the change
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Segment information
• A distinguishable activity or group of activities of an entity for which it is appropriate to separately report financial information for the purpose of evaluating past performance and for making decisions about the future allocation of resources
• « Service segments » are naturally aligned with activities identified in budget documentation
– E.g. At a national « whole-government » level financial
information is generally aggregated and reported in a manner
which reflects major economic classifications of activities
undertaken and/or portfolio responsibilities of individual ministers:
health, defence, education, …
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The E.C.s’ segment information
Expenses
Operating assets
Operating liabilities
Reconciliation to total amounts
reported
Accounting policies
Agriculture
Regional policy
Humanitarian Aid
Internal Market
External Relations
Others
Current PriorE.C. policy areas e. g.
Financial statements
3. Questions
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