Effects of Changes to International Accounting Standards

cause of Changes to International Accounting StandardsCONTENTS PAGE (Jump to)(1)(a) REQUIRED CHANGES downstairs world-wide business relationship STANDARDS(1)(b) MERITS AND DEMERITS OF EXTINCTION OFEXTRAORDINARY ITEMS(1)(c) RECOGNISED GAINS AND losings AND HISTORICALcost(1)(d) CLASSIFICATION OF PREFERENCE SHARESAND DIVIDENDS(2)(a) OBJECTIVES OF IAS 7 AND DISTINCTIONBETWEEN IAS 7 federal official(2)(b) PREPARATION OF A hard capital hunt STATEMENT UNDERA DIRECT METHOD UNDER IAS7 FRS(2)(c) ASSESSMENT OF THE COMPANYS LIQUIDITY INACCORDANCE WITH THE education ON THE CASH FLOWBIBLIOGRAPHYThis report relates to the recent changes in the International Accounting Standards. Furtherto a greater extent, it underlines the primary principles that shift Corpo proportionalityn essential comply with.(1)(a) REQUIRED CHANGES UNDER INTERNATIONAL ACCOUNTING STANDARDSAfter the introduction of the International Accountant Standards, tout ensemble public extra companies essential(prenominal) comply with these provisions. slash Corporation must bandage to the IAS 1, trenchant on all(a) pecuniary statements dating on and from 1st January 2005. In effect the Sky plc will have to prep ar its monetary statements on a going concern basis unless thither is an intension to cop the entity, accrual basis of invoice must be used in the preparation of monetary statements except for hard cash flow statements, reachation and com expositmentalization of items must be obtained from one period to the next, material class of exchangeable items must be familiarizeed separately and dissimilar items must be include separately unless they atomic number 18 immaterial, items (individually or collectively) that are likely to influence the frugal decision of the user must not be omitted or misstated, assets, liabilities, income and expenses must not be offset unless approved by an IFRS, financial statements must be benefactioned at least annually, all essences relating to comp arative information must be disclosed in financial statements.Furthermore, Sky must adhere to the disclosure requirements on the face of or in the notes to the eternal sleep tabloid BS, income statement and statement of changes in equity. actual and non-current assets and liabilities must be present as separate classification on the face of the BS. Additionally, financial statements must include specified disclosure in relation to information, judgements, estimations, uncertainties and accounting policies.At present, Skys accountant made a statement indicating that the financial statements in the forthcoming November 2005 accounts will comply with the principles of IAS. In addition, the comp eithers financial statements included audited reconciliation of the 2005 Income Statement, Balance Sheet and Cash run away to UK GAAP from IFRS detailing the impact of the Companys new accounting policies, and unaudited quarterly 2005 Income Statements to provide comparatives for 2006.(1)(b) MERITS AND DEMERITS OF EXTINCTION OF EXTRAORDINARY ITEMSISA 1 regarding the founding of financial statements was spotd in December 2003 and is applicable for annual periods beginning on or after 1 January 2005. International Accounting Standard (IAS 1) prescribes the grounds for presentation of general-purpose financial statements, to ensure compar tycoon both with entitys financial statements of previous periods and with financial statements of other entities.ISA 1 does not serve any application to interim financial statements prepared in accordance with the ISA 34. chthonic the SSAP 6 ungodly items are material items which are transaction that pass off outside the ordinary activities of the fraternity and thus not pass judgment to repair frequently or regularly. By excluding extraordinary items from the PL, this will reflect on the EPS. Exclusion of extraordinary items will benefit the current operating performance. As far as Sky Communications Plc is, concern there appea rs to be no extraordinary items in their PL account. Additionally, EPS will be greater than expected if extraordinary items were included since the EPS is used by investors to calculate PE ratio. The exclusion of extraordinary items could also lead to an increase in corporation tax.(1)(c) RECOGNISED GAINS AND LOSSES AND HISTORICAL COSTSUnder the FRED 22 (revision of FRS3)which aim to reflect the planetary shift, makes provisions for reporting comprehensive income such as reporting all recognised gains and losses in a sole statement kind of of splitting these gains and losses between the performance statement and the STRGL. There is a need for the display of recognised gains and losses as they are part of the companys operating activities and some are financial in nature. There is a list of recognised gains and losses that should appear in the treasury section of the performance statement. According to Skys accounts for 2004 and 2005, there were no recognised gains or losses in eit her course of study other than those included within the acquire and loss account.Primarily, statement of amount recognised gains and losses are financial statements that enable users to consider all recognised gains and losses of a reporting company in assessing the companys overall performance.Notes of historical costs are necessary as it identifies the resources acquired by the company at their original price. In effect, this identifies how the items are rattling measured over a period. Additionally, it services with the understanding of capital maintenance adjustments. Firstly, assets are recorded at the value of the consideration given to acquire them at the time of acquisition. Liabilities are recorded at the amount of proceeds authorized in exchange for the obligation. The purpose for this is to measure the process of determining the monetary amounts in which the element of the financial statements are to be recognised and carried in the balance opinion poll and in the income statement.(1)(d) CLASSIFICATION OF PREFERENCE SHARES AND DIVIDENDSAccording to the IAS 1 preference shares are reclassified to borrowings and the preference dividends are reclassified to finance costs. However, when preference shares are non-redeemable, the appropriate classification is determined by the rights attached to the preference shares. miscellany is dependent upon an assessment of the substance of the contractual arrangements, equity instrument and the definition of financial liability. Furthermore, the classification of preference shares as an equity instrument or a financial liability is unaffected by a bill of making distributions and an intention to make distribution in the future.Under IAS 10, a company must not recognise a liability for dividends in respect of dividends declared after the balance sheet meet as it is not a current liability at the balance sheets date under IAS 37. In the event that a company purchases its preference shares for cancellation for more than their carrying amount (premium) then this should be treated as preferred dividend in the calculation of EPS.(2)(a) OBJECTIVES OF IAS 7 AND DISTINCTION BETWEEN IAS 7 FRS1The structure of the IAS 7 had an influence on the revision of FRS 1. The objective of IAS 7 is that a cash flow statement of a company must gybe to the requirements and identifications under IAS1. In addition, the cash flow must identify military campaign in cash and cash equivalents during the financial period (cash equivalents are fiddling term and highly liquid investments). Furthermore, there must be a provision identifying and classifying the changes in cash and cash equivalents to operating, investing and financing activities.In a number of cases, there are conflicting factors between the cloth of the Financial Reporting Standards and the International Accounting Standards. In the event of conflict, the framework of the International Accounting Standards prevails over the Financial Reportin g Standards.IAS 7 requires companies to present cash flow statements as part of a companys financial statement. International Accounting Standards (IAS 7) is a mechanism that provide spare information on the companys business activities, assess the present fluidity of the business activities, demonstrate substantial cash flow sources, assist with the estimation of future cash flows and finally will identify cash flow accumulated from trading activities rather than sources of finance.(2)(b) PREPARATION OF A CASH FLOW STATEMENT UNDER A DIRECT METHOD UNDER IAS7 FRS1The following is a cash flow for Sky plc prepared in accordance with the direct method IAS 7Notes for Guidance(1) Net profit before tax is taken from the take away of the income statement.(2) Depreciation is shown as a note to the income statement.(3) Loss on sale of the non-current asset proceeds subtraction (cost less depreciation to date) see note A1 below.(4) Interest expense is shown on income statement.Changes in W orking Capital StructureInventory, receivables and payables are differences in theory and closing balances shown on the balance sheet.Disposal Account(000s) Non-Current AssetsNotes (A2, A3 and A4)The interest salaried is the net interest cost shown on the income statement and is the 10% accusal on add notes shown on the balance sheet for June 2000.The dividend and tax pay in the year are those shown on the 1999 balance sheet extract under the heading Current Liabilities.(A5) Purchase of Non-Current Assets(A6 A7)Proceeds from the issue of shares and loan notes are the increases shown on the difference between the two balance sheet casts for 2004 and 2005.(A8)This is the net effect from operating activities 7,975, net cash used in investing activities (8,525) and the net cash flow from financing activities 1,550.(A9)This is the bank building figure under current assets 2004 balance sheet.(A10)Bank balance on 2005 balance sheet.(2)(c) ASSESSMENT OF THE COMPANYS LIQUIDITY IN ACC ORDANCE WITH THE INFORMATION ON THE CASH FLOW.Having examined the accounts and financial statements of Sky plc, there is clear consequence reflecting on the companys liquidity level. Firstly, the measurement of the liquidity ratio revealed that the company was in healthy liquid position.Current Ratio= Current Assets / Current LiabilitiesCurrent Ratio of Sky = current assets 1,830m/ current liabilities 1,481m= 1.24 clockThe current ratio measures a companys ability to meets its financial obligations as they fall due. A normal current ratio is two. Skys current ratio is relatively stable considering the type of diligence of Sky plc. virulent Ratio= Current Assets- stock/current liabilitiesAcid Ratio of Sky= Current Assets 1,830m- Stock 627m/ Current liabilities 1,482m=0.81 timesThe corrosive ratio clearly indicate that Sky has a high levels of chain reactor and this also demonstrates that the current ratio overstated Skys ability to meet its financial obligations because of the i nclusion of the stock in the numerator.The information provided in the cash flow, demonstrated clear evidence of liquidity in the flowing of cash. For example, there was a dramatic net increase in cash and cash equivalents of 1,000m over a year. Furthermore, this indicate that the companys sparing activities are performing well in comparison to the previous year.However, amount 8525m was invested in investing activities, this figure being greater than the companys net cash flow from operating activities amounting to 7975m. Nevertheless, the short fall in the financing of investing activity was meet by new issue of shares 50m and issue of bank loans 1500m. Inevitably, the bank loan increases companys debt and the cogwheel level of the company. Nevertheless, over a year companys bank balance increased from 1250 to 2250m.In conclusion, the accounts of Sky plc indicate substantial phylogenesis but there are great expenditure resulting from investment in activities. However, there is not a real concern over the liquidity of the company nor any chances of bankruptcy.BIBLIOGRAPHYCox .D. 1999 Business Accounts 2nd Edt Osborn BusinessNaylor.J. 1999 precaution Financial Times Prentice HallPendlebury. M Groves .R . 2000 Company Accounts, Analysis, edition and Understanding 5th Edt ThompsonRussell. D et al 2002 Cost Accounting an natural Guide Financial Times Prentice Hall.Watson . D Head. A. 2001 Corporate pay Principles and Practice 2nd Edt Financial Times Prentice Hall.