[{"Name":"Introduction to Financial Accounting and Reporting","TopicPlaylistFirstVideoID":0,"Duration":null,"Videos":[{"Watched":false,"Name":"What is Accounting","Duration":"11m 36s","ChapterTopicVideoID":28784,"CourseChapterTopicPlaylistID":289087,"HasSubtitles":true,"ThumbnailPath":"https://www.proprep.uk/Images/Videos_Thumbnails/28784.jpeg","UploadDate":"2022-04-17T17:38:51.0870000","DurationForVideoObject":"PT11M36S","Description":null,"MetaTitle":"What is Accounting: Video + Workbook | Proprep","MetaDescription":"Introduction - Introduction to Financial Accounting and Reporting. Watch the video made by an expert in the field. Download the workbook and maximize your learning.","Canonical":"https://www.proprep.uk/general-modules/all/introduction-to-financial-accounting-and-reporting/introduction/introduction-to-financial-accounting-and-reporting/vid30291","VideoComments":[],"Subtitles":[{"Start":"00:00.000 ","End":"00:05.235","Text":"Hello. You are about to embark on your learning journey of accounting."},{"Start":"00:05.235 ","End":"00:10.800","Text":"These videos serve as an introduction to the video set."},{"Start":"00:10.800 ","End":"00:12.975","Text":"In the set of introductory videos,"},{"Start":"00:12.975 ","End":"00:14.355","Text":"we will look at firstly,"},{"Start":"00:14.355 ","End":"00:17.175","Text":"what is accounting, secondly,"},{"Start":"00:17.175 ","End":"00:21.240","Text":"the users of accounting information and financial statements,"},{"Start":"00:21.240 ","End":"00:26.050","Text":"and thirdly, an overview of accounting regulation."},{"Start":"00:26.150 ","End":"00:29.625","Text":"First then, what is accounting?"},{"Start":"00:29.625 ","End":"00:33.353","Text":"Accounting is a form of communication,"},{"Start":"00:33.353 ","End":"00:38.915","Text":"and that communication is between what we\u0027re going to call entities."},{"Start":"00:38.915 ","End":"00:46.715","Text":"An accounting entity could be any firm that any business or government body, for example."},{"Start":"00:46.715 ","End":"00:51.215","Text":"The communication there\u0027s going to be between those entities and"},{"Start":"00:51.215 ","End":"00:55.120","Text":"anybody who has an interest in either the,"},{"Start":"00:55.120 ","End":"00:58.490","Text":"we refer to as the financial performance or"},{"Start":"00:58.490 ","End":"01:02.435","Text":"the financial position of that particular entity,"},{"Start":"01:02.435 ","End":"01:06.380","Text":"the entity who is going to be reporting information."},{"Start":"01:06.380 ","End":"01:11.435","Text":"You will see later on that financial performance will be"},{"Start":"01:11.435 ","End":"01:17.198","Text":"represented in a document which we will call the income statement,"},{"Start":"01:17.198 ","End":"01:21.469","Text":"and the financial position will be reported in the document,"},{"Start":"01:21.469 ","End":"01:24.550","Text":"which we will call the balance sheet."},{"Start":"01:24.550 ","End":"01:29.143","Text":"Some people refer to accounting is the language of business,"},{"Start":"01:29.143 ","End":"01:31.970","Text":"because it is the language by which businesses"},{"Start":"01:31.970 ","End":"01:37.850","Text":"communicate to those who have an interest in information about the business."},{"Start":"01:37.850 ","End":"01:41.720","Text":"This particular language is governed by certain rules and"},{"Start":"01:41.720 ","End":"01:46.385","Text":"those rules are set by accounting standard setting bodies."},{"Start":"01:46.385 ","End":"01:56.160","Text":"You\u0027ll learn in later videos that the 2 primary standard setting bodies are the IASB,"},{"Start":"01:56.260 ","End":"02:06.200","Text":"which stands for the International Accounting Standards Board and also the FASB,"},{"Start":"02:06.200 ","End":"02:09.230","Text":"the Financial Accounting Standards Board."},{"Start":"02:09.230 ","End":"02:14.330","Text":"Now the IASB has worldwide acceptance,"},{"Start":"02:14.330 ","End":"02:18.470","Text":"the FASB is based in and"},{"Start":"02:18.470 ","End":"02:23.495","Text":"relates to financial reporting standards in the United States of America."},{"Start":"02:23.495 ","End":"02:27.140","Text":"This concept of worldwide acceptance will"},{"Start":"02:27.140 ","End":"02:30.260","Text":"require some further discussion because although"},{"Start":"02:30.260 ","End":"02:37.925","Text":"the IASB is predominantly the primary standard setting body in the world,"},{"Start":"02:37.925 ","End":"02:40.700","Text":"there are certain countries that do not follow,"},{"Start":"02:40.700 ","End":"02:45.050","Text":"specifically International Accounting Standards Board standards."},{"Start":"02:45.050 ","End":"02:47.435","Text":"1 of those bodies is, in fact,"},{"Start":"02:47.435 ","End":"02:49.850","Text":"the FASB in the United States,"},{"Start":"02:49.850 ","End":"02:54.184","Text":"which doesn\u0027t follow international accounting standards"},{"Start":"02:54.184 ","End":"02:57.270","Text":"set by the International Accounting Standards Board."},{"Start":"02:58.780 ","End":"03:05.585","Text":"The main form of communication between entities and those who have an interest,"},{"Start":"03:05.585 ","End":"03:09.170","Text":"and it\u0027s also probably important that now those who have"},{"Start":"03:09.170 ","End":"03:14.005","Text":"an interest are referred to as the users of financial statements,"},{"Start":"03:14.005 ","End":"03:17.975","Text":"and the communication comes in the form of financial statements,"},{"Start":"03:17.975 ","End":"03:20.210","Text":"which as I set out above,"},{"Start":"03:20.210 ","End":"03:25.760","Text":"the 2 primary financial statements are the income statement and the balance sheet."},{"Start":"03:25.760 ","End":"03:28.850","Text":"Now the financial statements sit"},{"Start":"03:28.850 ","End":"03:33.184","Text":"inside a document which is referred to as the annual report."},{"Start":"03:33.184 ","End":"03:37.535","Text":"Now over here you see the front cover of annual reports of"},{"Start":"03:37.535 ","End":"03:43.950","Text":"a well-known British retailer called M\u0026S or Marks \u0026 Spencer,"},{"Start":"03:43.950 ","End":"03:48.950","Text":"and it\u0027s the front cover of their 2019 annual report."},{"Start":"03:48.950 ","End":"03:56.494","Text":"The annual report of a listed entity, listed meaning listed on the stock exchange,"},{"Start":"03:56.494 ","End":"03:58.070","Text":"is a lengthy document,"},{"Start":"03:58.070 ","End":"04:06.200","Text":"this one stretches to over 164 pages and has a wealth of information about the company."},{"Start":"04:06.200 ","End":"04:08.840","Text":"For example, how much managers have earned,"},{"Start":"04:08.840 ","End":"04:10.160","Text":"how much they were paid,"},{"Start":"04:10.160 ","End":"04:14.915","Text":"and so on, along with many and lots of other information."},{"Start":"04:14.915 ","End":"04:18.260","Text":"Important information today is environmental information,"},{"Start":"04:18.260 ","End":"04:20.585","Text":"how the company is reacting to"},{"Start":"04:20.585 ","End":"04:22.850","Text":"the environment and what it\u0027s doing to make sure"},{"Start":"04:22.850 ","End":"04:25.180","Text":"it\u0027s products are environmentally friendly."},{"Start":"04:25.180 ","End":"04:26.930","Text":"Now we said in the previous slide,"},{"Start":"04:26.930 ","End":"04:30.110","Text":"the financial statements are prepared under accounting rules,"},{"Start":"04:30.110 ","End":"04:35.990","Text":"those rules developed by the accounting standard setting bodies but as I\u0027ve just said,"},{"Start":"04:35.990 ","End":"04:41.544","Text":"the financial statements are a subset of the annual report."},{"Start":"04:41.544 ","End":"04:45.425","Text":"So of these 164 pages of annual report,"},{"Start":"04:45.425 ","End":"04:48.830","Text":"you could probably find the financial statements guessing,"},{"Start":"04:48.830 ","End":"04:50.870","Text":"yeah, I haven\u0027t looked at M\u0026S specifically,"},{"Start":"04:50.870 ","End":"04:57.620","Text":"they will probably run to about 30-40 pages of the 164 pages,"},{"Start":"04:57.620 ","End":"05:01.345","Text":"and the rest will be other information about the company."},{"Start":"05:01.345 ","End":"05:03.920","Text":"Turning to the accounting process,"},{"Start":"05:03.920 ","End":"05:06.680","Text":"here you see a customer shopping, for example,"},{"Start":"05:06.680 ","End":"05:11.885","Text":"shopping in a M\u0026S supermarket and a transaction takes place,"},{"Start":"05:11.885 ","End":"05:15.860","Text":"whereby the customer comes to the cash tool and either"},{"Start":"05:15.860 ","End":"05:22.385","Text":"the cashier swipes the goods over a reader or the customer will do it him or herself."},{"Start":"05:22.385 ","End":"05:24.350","Text":"2 things happen over here,"},{"Start":"05:24.350 ","End":"05:26.930","Text":"they\u0027ll be a recording of the information,"},{"Start":"05:26.930 ","End":"05:29.720","Text":"they\u0027ll be a recording of a sale by"},{"Start":"05:29.720 ","End":"05:35.125","Text":"the entity and there will be a recording of the cost of that sale."},{"Start":"05:35.125 ","End":"05:38.480","Text":"We\u0027ll learn in later videos the accounting entries to"},{"Start":"05:38.480 ","End":"05:41.750","Text":"record the sale and the cost of the sale."},{"Start":"05:41.750 ","End":"05:43.445","Text":"At a supermarket as well,"},{"Start":"05:43.445 ","End":"05:45.110","Text":"it\u0027s going to be payment made,"},{"Start":"05:45.110 ","End":"05:50.480","Text":"so there will be a recording of the cash received by the entity."},{"Start":"05:50.480 ","End":"05:54.845","Text":"Now, all those transactions are"},{"Start":"05:54.845 ","End":"05:59.000","Text":"summarized according to these accounting rules which we\u0027ll be learning"},{"Start":"05:59.000 ","End":"06:02.510","Text":"about and then there are finally reported in"},{"Start":"06:02.510 ","End":"06:08.630","Text":"the financial statements via the income statement and via the balance sheet."},{"Start":"06:08.630 ","End":"06:12.200","Text":"Looking at this diagram about a business,"},{"Start":"06:12.200 ","End":"06:14.915","Text":"a business will acquire resources,"},{"Start":"06:14.915 ","End":"06:19.220","Text":"those resources could be materials to use in production,"},{"Start":"06:19.220 ","End":"06:23.780","Text":"labor, to work on the factory floor, and other services."},{"Start":"06:23.780 ","End":"06:29.900","Text":"Services, for example could be the acquisition of and payment for light and water,"},{"Start":"06:29.900 ","End":"06:31.805","Text":"rates and taxes, cleaning,"},{"Start":"06:31.805 ","End":"06:33.425","Text":"advertising, and so on."},{"Start":"06:33.425 ","End":"06:36.785","Text":"The business then has outputs,"},{"Start":"06:36.785 ","End":"06:40.625","Text":"it produces products and or offer services,"},{"Start":"06:40.625 ","End":"06:44.526","Text":"and retailing as a deed will simply sell goods to customers."},{"Start":"06:44.526 ","End":"06:46.725","Text":"Then cash will come into the business,"},{"Start":"06:46.725 ","End":"06:51.680","Text":"the receipts that the business receives for any goods it sells,"},{"Start":"06:51.680 ","End":"06:54.680","Text":"or any services it might provide."},{"Start":"06:54.680 ","End":"06:56.860","Text":"Then the business has to pay cash,"},{"Start":"06:56.860 ","End":"06:59.630","Text":"pays cash for those resources,"},{"Start":"06:59.630 ","End":"07:01.415","Text":"pays cash for materials,"},{"Start":"07:01.415 ","End":"07:04.480","Text":"for labor, and for other services."},{"Start":"07:04.480 ","End":"07:08.960","Text":"The role of accounting and all of this is to provide information"},{"Start":"07:08.960 ","End":"07:13.955","Text":"that helps users make decisions about the business."},{"Start":"07:13.955 ","End":"07:16.400","Text":"Those decisions, and we will see later on,"},{"Start":"07:16.400 ","End":"07:18.590","Text":"could be, for example, for an investor,"},{"Start":"07:18.590 ","End":"07:21.440","Text":"whether the investor should buy or sell shares or"},{"Start":"07:21.440 ","End":"07:24.605","Text":"hold shares in the business or for a lender,"},{"Start":"07:24.605 ","End":"07:27.425","Text":"where the lender should in fact provide credit,"},{"Start":"07:27.425 ","End":"07:30.330","Text":"provide funds to the business."},{"Start":"07:30.580 ","End":"07:34.550","Text":"Looking at the importance of accounting for business,"},{"Start":"07:34.550 ","End":"07:39.620","Text":"accounting goes back more than 500 years and in fact was created"},{"Start":"07:39.620 ","End":"07:42.620","Text":"around 1400 AD in Italy by"},{"Start":"07:42.620 ","End":"07:47.455","Text":"a Venetian monk to keep records of trades and commercial deals."},{"Start":"07:47.455 ","End":"07:49.195","Text":"This Venetian monk was in fact"},{"Start":"07:49.195 ","End":"07:54.610","Text":"a Franciscan friar and mathematician known as Luca Pacioli,"},{"Start":"07:54.610 ","End":"07:59.140","Text":"who is widely regarded as the father of accounting because he was"},{"Start":"07:59.140 ","End":"08:03.565","Text":"the first to codify this accounting system in his book,"},{"Start":"08:03.565 ","End":"08:06.710","Text":"which is in fact published in 1494."},{"Start":"08:06.710 ","End":"08:08.395","Text":"His book, published in Latin,"},{"Start":"08:08.395 ","End":"08:14.244","Text":"the title translates into English as the collected knowledge of arithmetic,"},{"Start":"08:14.244 ","End":"08:18.625","Text":"geometry, proportion, and proportionality."},{"Start":"08:18.625 ","End":"08:24.990","Text":"Nowadays, record keeping it automatically done by accounting packages."},{"Start":"08:24.990 ","End":"08:32.440","Text":"This all follows the principles laid out by Pacioli in the 1400s."},{"Start":"08:32.440 ","End":"08:38.480","Text":"Writing in Latin, Pacioli named the act of interesting,"},{"Start":"08:38.480 ","End":"08:41.015","Text":"which gave rise to the word credit,"},{"Start":"08:41.015 ","End":"08:46.160","Text":"meaning to entrust and the corresponding obligation,"},{"Start":"08:46.160 ","End":"08:48.665","Text":"debit, meaning in Latin,"},{"Start":"08:48.665 ","End":"08:51.070","Text":"or the translation from Latin to owe."},{"Start":"08:51.070 ","End":"08:53.660","Text":"That from the point of view of the firm,"},{"Start":"08:53.660 ","End":"08:56.735","Text":"he could see that this principle of duality"},{"Start":"08:56.735 ","End":"09:01.650","Text":"held true for every financial transaction entered into."},{"Start":"09:01.790 ","End":"09:08.610","Text":"This duality and double entry is followed in accounting up to today."},{"Start":"09:08.990 ","End":"09:13.070","Text":"Accounting gives us all the financial information we need in order"},{"Start":"09:13.070 ","End":"09:16.220","Text":"to make business decisions about"},{"Start":"09:16.220 ","End":"09:23.810","Text":"the current status of the entity and also the projected future health of the business."},{"Start":"09:23.810 ","End":"09:25.610","Text":"Now if you think about that,"},{"Start":"09:25.610 ","End":"09:32.375","Text":"if the business has a year-end of 31 December of 2021, for example,"},{"Start":"09:32.375 ","End":"09:35.990","Text":"any use of financial statements can look at"},{"Start":"09:35.990 ","End":"09:41.270","Text":"the existing income statement and the existing balance sheet at,"},{"Start":"09:41.270 ","End":"09:43.100","Text":"as I said, this year-end,"},{"Start":"09:43.100 ","End":"09:45.980","Text":"of 31 December 2021."},{"Start":"09:45.980 ","End":"09:47.990","Text":"But what\u0027s more important or is"},{"Start":"09:47.990 ","End":"09:52.720","Text":"important is to look at what\u0027s going to happen in the future,"},{"Start":"09:52.720 ","End":"09:57.515","Text":"what will happen when we get to December of 2022?"},{"Start":"09:57.515 ","End":"10:00.170","Text":"That projection is part of"},{"Start":"10:00.170 ","End":"10:06.260","Text":"the usefulness of the information provided by the accounting information system."},{"Start":"10:06.260 ","End":"10:09.155","Text":"There\u0027s a lot of information that is provided,"},{"Start":"10:09.155 ","End":"10:10.895","Text":"how much money in the bank,"},{"Start":"10:10.895 ","End":"10:13.610","Text":"will there be enough to pay suppliers and employees,"},{"Start":"10:13.610 ","End":"10:17.720","Text":"for example, to cover the cost of sales?"},{"Start":"10:17.720 ","End":"10:21.800","Text":"We\u0027ll learn much more about accounting for sales and cost of sales later."},{"Start":"10:21.800 ","End":"10:26.365","Text":"Is the inventory level sufficient for future sales and"},{"Start":"10:26.365 ","End":"10:31.285","Text":"keeping a record of the entity\u0027s assets, liabilities, and equity?"},{"Start":"10:31.285 ","End":"10:34.915","Text":"We will learn more about these important terms, assets,"},{"Start":"10:34.915 ","End":"10:36.850","Text":"liabilities, and equity later on,"},{"Start":"10:36.850 ","End":"10:38.380","Text":"but briefly for the moment,"},{"Start":"10:38.380 ","End":"10:42.100","Text":"you can think of assets as resources of"},{"Start":"10:42.100 ","End":"10:48.475","Text":"the entity and liabilities as obligations of the entity."},{"Start":"10:48.475 ","End":"10:54.295","Text":"Equity then becomes the interests of the owners in the business."},{"Start":"10:54.295 ","End":"10:59.155","Text":"You will see later on equity or in fact the assets less liabilities,"},{"Start":"10:59.155 ","End":"11:02.830","Text":"the accounting value for the business."},{"Start":"11:02.830 ","End":"11:05.650","Text":"There are many ways to define accounting."},{"Start":"11:05.650 ","End":"11:12.800","Text":"One way is to look at accounting as a decision tool for users that identifies, measures,"},{"Start":"11:12.800 ","End":"11:17.390","Text":"and communicates financial information about the entity to"},{"Start":"11:17.390 ","End":"11:22.445","Text":"permit informed judgments and decisions by users of the information."},{"Start":"11:22.445 ","End":"11:27.670","Text":"The important words to focus on here is that there is information provided,"},{"Start":"11:27.670 ","End":"11:30.240","Text":"the information is about the entity,"},{"Start":"11:30.240 ","End":"11:36.480","Text":"and it allows users to make those informed decisions."}],"ID":30291},{"Watched":false,"Name":"Users","Duration":"5m 21s","ChapterTopicVideoID":28785,"CourseChapterTopicPlaylistID":289087,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.930 ","End":"00:04.500","Text":"In this video, we will look at theusers of accounting information"},{"Start":"00:04.950 ","End":"00:06.600","Text":"and financial statements."},{"Start":"00:07.590 ","End":"00:11.370","Text":"Turning now to the users ofaccounting information, we can"},{"Start":"00:11.370 ","End":"00:13.740","Text":"identify two types of users."},{"Start":"00:14.640 ","End":"00:20.190","Text":"Those refer to as external users,and those refer to as internal users."},{"Start":"00:21.900 ","End":"00:28.320","Text":"Now, external users can be regarded asthe primary or secondary external users."},{"Start":"00:29.430 ","End":"00:34.380","Text":"Now the conceptual framework definesthe primary users as the entity\u0027s"},{"Start":"00:34.710 ","End":"00:40.110","Text":"potential and existing investors,lenders, and other creditors."},{"Start":"00:41.280 ","End":"00:45.210","Text":"These users rely on financialreports for most of the financial"},{"Start":"00:45.215 ","End":"00:46.530","Text":"information that they need."},{"Start":"00:47.670 ","End":"00:51.720","Text":"However, further information needsto be obtained from other sources."},{"Start":"00:52.200 ","End":"00:56.350","Text":"For example, information aboutpolitical, economic, and industry"},{"Start":"00:56.355 ","End":"00:58.470","Text":"conditions, secondary, external."},{"Start":"00:59.645 ","End":"01:07.235","Text":"It could be users such as customersof the entity, could be employees,"},{"Start":"01:08.235 ","End":"01:14.205","Text":"and it could be in fact, students ofaccounting information who are all"},{"Start":"01:14.205 ","End":"01:16.425","Text":"secondary, but also external users."},{"Start":"01:18.735 ","End":"01:23.595","Text":"Now, what differentiates the externalusers from the internal users is"},{"Start":"01:23.595 ","End":"01:27.885","Text":"that external users will not haveaccess to this detailed inform."},{"Start":"01:29.460 ","End":"01:35.039","Text":"But they do need, therefore, in placeof that some kind of report, which gives"},{"Start":"01:35.039 ","End":"01:39.840","Text":"them information about the financialperformance, which we know is referred to"},{"Start":"01:39.845 ","End":"01:45.149","Text":"as the income statement and the financialposition refer as the balance sheet."},{"Start":"01:47.160 ","End":"01:51.600","Text":"Now, internal users of themanagement of the entity, they have"},{"Start":"01:51.604 ","End":"01:53.100","Text":"access to all information that\u0027s."},{"Start":"01:54.675 ","End":"01:58.665","Text":"And they need detailed information aboutcosts, products, and personnel, for"},{"Start":"01:58.665 ","End":"02:01.215","Text":"example, in order to run the business."},{"Start":"02:03.705 ","End":"02:08.775","Text":"So why do you think that investors,lenders, and creditors who identified"},{"Start":"02:08.775 ","End":"02:16.425","Text":"up here as a primary external user, whywere identified as the primary users?"},{"Start":"02:16.875 ","End":"02:17.445","Text":"This is."},{"Start":"02:18.329 ","End":"02:23.250","Text":"Investors, lenders and creditors havethe most critical and immediate need for"},{"Start":"02:23.250 ","End":"02:29.609","Text":"financial information, and as I said,they are unable to require the entity to"},{"Start":"02:29.609 ","End":"02:32.310","Text":"provide that information directly to them."},{"Start":"02:33.270 ","End":"02:39.030","Text":"And any further information that doesmeet the needs of investors, lenders,"},{"Start":"02:39.030 ","End":"02:44.880","Text":"and creditors is most likely to meetthe needs of all other secondary"},{"Start":"02:44.885 ","End":"02:47.730","Text":"users of financial statements."},{"Start":"02:48.570 ","End":"02:53.220","Text":"This diagram over here takes a look againat the users of accounting information."},{"Start":"02:54.780 ","End":"02:56.220","Text":"You\u0027ll see the business in the middle."},{"Start":"02:56.790 ","End":"03:01.170","Text":"You\u0027ll see a dotted line whichencircles the business and the managers."},{"Start":"03:01.860 ","End":"03:07.470","Text":"This is emphasizing that managers are,as we said earlier on, internal users"},{"Start":"03:09.210 ","End":"03:14.310","Text":"of accounting information, and all theusers outside of this, this dotted line,"},{"Start":"03:14.700 ","End":"03:17.310","Text":"are referred to as the external users."},{"Start":"03:18.030 ","End":"03:22.350","Text":"Now on the one side over here, wesee the primary external users."},{"Start":"03:24.210 ","End":"03:28.740","Text":"As you said before, the investors,lenders, and other creditors."},{"Start":"03:30.570 ","End":"03:36.510","Text":"Now, what distinguishes investorsfrom lenders and other creditors?"},{"Start":"03:38.130 ","End":"03:44.160","Text":"Will investors have an ownershipinterest in the ? Typically,"},{"Start":"03:45.300 ","End":"03:49.110","Text":"investors will have their ownershipinterest for the holding of."},{"Start":"03:51.660 ","End":"03:57.240","Text":"They invest economic resources in the formof cash in a company with an expectation"},{"Start":"03:57.240 ","End":"04:00.690","Text":"receiving a return on that investment."},{"Start":"04:02.640 ","End":"04:08.670","Text":"Now looking at lenders and looking atother creditors, these two groups of"},{"Start":"04:08.670 ","End":"04:15.240","Text":"primary users have a financial interestin the entity, but not an ownership."},{"Start":"04:15.240 ","End":"04:19.320","Text":"Interest lenders providefunding to an entity."},{"Start":"04:19.785 ","End":"04:24.765","Text":"By lending its economic resources inthe form of cash, typically, and lenders"},{"Start":"04:24.825 ","End":"04:30.075","Text":"expect to receive a return in the formof interest and obviously ultimately"},{"Start":"04:30.135 ","End":"04:32.235","Text":"the repayment of their borrowings."},{"Start":"04:33.165 ","End":"04:39.135","Text":"As I said, other creditors alsohave a financial interest, but no"},{"Start":"04:39.225 ","End":"04:40.695","Text":"ownership interest in the business."},{"Start":"04:41.745 ","End":"04:46.445","Text":"They provide resources as a consequenceof their relationship with the."},{"Start":"04:48.284 ","End":"04:54.645","Text":". For example, employees who couldbe another creditor provide human"},{"Start":"04:54.645 ","End":"05:01.005","Text":"capital in exchange for salary orother compensation suppliers will"},{"Start":"05:01.010 ","End":"05:03.615","Text":"extend credit to facilitate a sale."},{"Start":"05:05.205 ","End":"05:05.414","Text":"Here."},{"Start":"05:05.420 ","End":"05:09.795","Text":"On the other side, we have thesecondary group of external users,"},{"Start":"05:10.245 ","End":"05:14.115","Text":"such as clients or customers,competitors, and the government."}],"ID":30292},{"Watched":false,"Name":"Accounting Regulation","Duration":"11m 58s","ChapterTopicVideoID":28786,"CourseChapterTopicPlaylistID":289087,"HasSubtitles":true,"ThumbnailPath":null,"UploadDate":null,"DurationForVideoObject":null,"Description":null,"MetaTitle":null,"MetaDescription":null,"Canonical":null,"VideoComments":[],"Subtitles":[{"Start":"00:00.590 ","End":"00:06.075","Text":"In this video, we will have a look at an overview of accounting regulation."},{"Start":"00:06.075 ","End":"00:11.220","Text":"Most listed companies, that is companies on a listed stock exchange"},{"Start":"00:11.220 ","End":"00:18.550","Text":"follow what is known as International Financial Reporting Standards or simply IFRS."},{"Start":"00:19.550 ","End":"00:24.540","Text":"The IFRS are set by a body which happens to be"},{"Start":"00:24.540 ","End":"00:29.010","Text":"based in London that\u0027s called the International Accounting Standards Board,"},{"Start":"00:29.010 ","End":"00:34.630","Text":"or abbreviated to the IASB."},{"Start":"00:34.850 ","End":"00:40.675","Text":"Now the overarching conceptual underpinning of accounting is"},{"Start":"00:40.675 ","End":"00:46.460","Text":"determined and set out in the document referred to as the conceptual framework."},{"Start":"00:46.460 ","End":"00:52.070","Text":"This conceptual framework provides an agreed-upon set of guiding principles and"},{"Start":"00:52.070 ","End":"00:57.575","Text":"conventions which we will refer to throughout this course and these videos."},{"Start":"00:57.575 ","End":"00:59.840","Text":"An important starting point of"},{"Start":"00:59.840 ","End":"01:05.090","Text":"the conceptual framework is to state the objective of financial reporting."},{"Start":"01:05.090 ","End":"01:08.540","Text":"The conceptual framework states that the objective of"},{"Start":"01:08.540 ","End":"01:14.270","Text":"financial reporting is to provide financial information that is"},{"Start":"01:14.270 ","End":"01:24.125","Text":"useful to users in making decisions related to providing resources to the entity."},{"Start":"01:24.125 ","End":"01:29.075","Text":"Now, as I said, this is the starting point of the conceptual framework."},{"Start":"01:29.075 ","End":"01:34.295","Text":"Addresses the question of why financial reports are prepared."},{"Start":"01:34.295 ","End":"01:40.340","Text":"To reiterate, financial reports are prepared to provide"},{"Start":"01:40.340 ","End":"01:45.095","Text":"that useful information to a group of users"},{"Start":"01:45.095 ","End":"01:51.010","Text":"who we have spoken about for decision-making purposes."},{"Start":"01:51.010 ","End":"01:53.630","Text":"These decisions include, for example,"},{"Start":"01:53.630 ","End":"01:56.540","Text":"decisions taken by investors to buy, sell,"},{"Start":"01:56.540 ","End":"01:58.580","Text":"or hold shares and entity,"},{"Start":"01:58.580 ","End":"02:00.650","Text":"and by lenders, for example,"},{"Start":"02:00.650 ","End":"02:02.825","Text":"to loan funds to the entity."},{"Start":"02:02.825 ","End":"02:06.830","Text":"Investors also need to make decisions related to"},{"Start":"02:06.830 ","End":"02:11.300","Text":"voting or otherwise influencing management actions."},{"Start":"02:11.300 ","End":"02:16.945","Text":"As mentioned previously, the IASB\u0027s conceptual framework"},{"Start":"02:16.945 ","End":"02:23.405","Text":"focuses on the primary group of external users: investors,"},{"Start":"02:23.405 ","End":"02:25.710","Text":"current and potential shareholders,"},{"Start":"02:25.710 ","End":"02:28.745","Text":"lenders such as bank or bondholders,"},{"Start":"02:28.745 ","End":"02:32.010","Text":"and creditors, for example, suppliers."},{"Start":"02:32.320 ","End":"02:38.585","Text":"Finally remember that although accounting information is used internally,"},{"Start":"02:38.585 ","End":"02:43.570","Text":"remember we used that is information used by management."},{"Start":"02:43.580 ","End":"02:46.155","Text":"The reporting standards,"},{"Start":"02:46.155 ","End":"02:50.120","Text":"those standards prepared by the IASB are geared at"},{"Start":"02:50.120 ","End":"02:54.350","Text":"the information needs of external parties."},{"Start":"02:54.350 ","End":"02:57.470","Text":"To reiterate, management is responsible for preparing"},{"Start":"02:57.470 ","End":"03:02.885","Text":"financial reports rather than being a recipient of those reports."},{"Start":"03:02.885 ","End":"03:06.215","Text":"We mentioned earlier the FASB,"},{"Start":"03:06.215 ","End":"03:10.370","Text":"the American Financial Accounting Standards Board."},{"Start":"03:10.370 ","End":"03:17.815","Text":"Now the IFRS, International Financial Reporting Standards are set by the IASB,"},{"Start":"03:17.815 ","End":"03:20.170","Text":"International Accounting Standards Board,"},{"Start":"03:20.170 ","End":"03:28.270","Text":"are widely adopted because users all over the world thus speak the same language."},{"Start":"03:28.270 ","End":"03:36.865","Text":"For example, an investor in the UK which uses the IFRS put up by the IASB,"},{"Start":"03:36.865 ","End":"03:40.000","Text":"can understand an annual report published,"},{"Start":"03:40.000 ","End":"03:43.120","Text":"for example in Korea as long as it is in English,"},{"Start":"03:43.120 ","End":"03:49.375","Text":"which will also use IFRS as published by the IASB."},{"Start":"03:49.375 ","End":"03:51.415","Text":"But as mentioned already,"},{"Start":"03:51.415 ","End":"03:58.705","Text":"not all countries have adopted the IFRS and a notable exception is the United States."},{"Start":"03:58.705 ","End":"04:02.770","Text":"US companies follow generally accepted"},{"Start":"04:02.770 ","End":"04:07.630","Text":"accounting principles referred to as G-A-A-P or GAAP,"},{"Start":"04:07.630 ","End":"04:11.275","Text":"set by the American FASB,"},{"Start":"04:11.275 ","End":"04:14.290","Text":"the American Financial Accounting Standards Board."},{"Start":"04:14.290 ","End":"04:19.150","Text":"Now there are a lot of differences between US GAAP and IFRS."},{"Start":"04:19.150 ","End":"04:24.175","Text":"But principles and some of the rules are similar."},{"Start":"04:24.175 ","End":"04:30.850","Text":"In this course, we will focus on IFRS because these IFRS standards are required"},{"Start":"04:30.850 ","End":"04:37.365","Text":"for use by all or most domestic publicly traded entities,"},{"Start":"04:37.365 ","End":"04:44.950","Text":"in other words, entities on the stock exchange in around 166 countries across the world."},{"Start":"04:48.370 ","End":"04:51.560","Text":"There\u0027s a lot of academic research indicating that"},{"Start":"04:51.560 ","End":"04:57.180","Text":"accounting numbers play an important role in capital markets."},{"Start":"04:57.850 ","End":"05:00.950","Text":"But looking at some anecdotal evidence,"},{"Start":"05:00.950 ","End":"05:06.560","Text":"we can consider the financial statements of Marks \u0026 Spencer for the 2019 year."},{"Start":"05:06.560 ","End":"05:12.205","Text":"Now, these were released on 22nd of May 2019."},{"Start":"05:12.205 ","End":"05:16.940","Text":"We will see a graph in the following slide that looks at the behavior of"},{"Start":"05:16.940 ","End":"05:22.940","Text":"the shares on a yellow line and the amount of trade in those shares on a blue line."},{"Start":"05:22.940 ","End":"05:25.025","Text":"Now when you look at this graph,"},{"Start":"05:25.025 ","End":"05:30.775","Text":"bear in mind the 2019 results of M\u0026S were in fact disappointing."},{"Start":"05:30.775 ","End":"05:37.390","Text":"Sales are flat over 5 years and the profit is very low for 2 years running."},{"Start":"05:37.390 ","End":"05:40.075","Text":"What you see over here is the date"},{"Start":"05:40.075 ","End":"05:46.180","Text":"Wednesday 22nd of May 2019 when the annual report was released."},{"Start":"05:46.180 ","End":"05:53.125","Text":"You will see a sharp decline in the share price on the release date,"},{"Start":"05:53.125 ","End":"05:57.460","Text":"consistent with investors\u0027 disappointments upon learning that M\u0026S"},{"Start":"05:57.460 ","End":"06:02.405","Text":"has performed poorly again during the recent financial year."},{"Start":"06:02.405 ","End":"06:10.895","Text":"It also shows a spark in trading on the release date and in subsequent dates as well."},{"Start":"06:10.895 ","End":"06:14.600","Text":"Now higher trading arises when investors react to"},{"Start":"06:14.600 ","End":"06:19.580","Text":"new information and take position by either selling or buying shares,"},{"Start":"06:19.580 ","End":"06:24.480","Text":"depending upon their view of future performance and the current price."},{"Start":"06:25.280 ","End":"06:31.180","Text":"Then looking at the days beyond the release date,"},{"Start":"06:31.180 ","End":"06:35.900","Text":"both the trends and price and volume suggest investors digest"},{"Start":"06:35.900 ","End":"06:41.840","Text":"the news over several days following the release of the financial statements."},{"Start":"06:41.840 ","End":"06:47.525","Text":"That explanation I\u0027ve just given you has summarized on this last slide."},{"Start":"06:47.525 ","End":"06:50.945","Text":"Looking now at another aspect of the conceptual framework"},{"Start":"06:50.945 ","End":"06:55.445","Text":"referred to as the fundamental qualities of accounting information."},{"Start":"06:55.445 ","End":"07:01.010","Text":"You\u0027ve already learned that the objective of financial reporting is to provide"},{"Start":"07:01.010 ","End":"07:06.725","Text":"information about the entity to users that is useful in making decisions."},{"Start":"07:06.725 ","End":"07:11.970","Text":"Now the qualitative characteristics are those attributes that"},{"Start":"07:11.970 ","End":"07:17.615","Text":"make the information provided in financial statements useful to users."},{"Start":"07:17.615 ","End":"07:21.680","Text":"The conceptual framework distinguishes between 2 types of"},{"Start":"07:21.680 ","End":"07:29.765","Text":"qualitative characteristics referred to as the fundamental qualities of information."},{"Start":"07:29.765 ","End":"07:36.935","Text":"These 2 fundamental qualities are referred to as relevance and faithful representation."},{"Start":"07:36.935 ","End":"07:42.170","Text":"Faithful representation means information is complete,"},{"Start":"07:42.170 ","End":"07:45.425","Text":"neutral, and free from error."},{"Start":"07:45.425 ","End":"07:48.875","Text":"Completeness implies the disclosure of"},{"Start":"07:48.875 ","End":"07:53.985","Text":"all information necessary for a user to understand what is being reported."},{"Start":"07:53.985 ","End":"07:57.280","Text":"For example, information on inventory."},{"Start":"07:57.280 ","End":"08:00.910","Text":"For that to be complete may require disclosure of"},{"Start":"08:00.910 ","End":"08:05.860","Text":"the description of inventory and the amount of inventory,"},{"Start":"08:05.860 ","End":"08:09.370","Text":"and also how the amount was calculated and the"},{"Start":"08:09.370 ","End":"08:13.405","Text":"comparative information of inventory for the prior year."},{"Start":"08:13.405 ","End":"08:19.120","Text":"Neutrality means fairness and freedom from bias."},{"Start":"08:19.120 ","End":"08:24.370","Text":"This implies that the information is not emphasized or"},{"Start":"08:24.370 ","End":"08:30.610","Text":"de-emphasized or otherwise manipulated to influence users\u0027 decisions."},{"Start":"08:30.610 ","End":"08:38.314","Text":"Neutrality is also supported by the exercise of a very important concept called prudence."},{"Start":"08:38.314 ","End":"08:40.490","Text":"What does prudence mean?"},{"Start":"08:40.490 ","End":"08:45.590","Text":"In essence, prudence means the exercise of caution."},{"Start":"08:45.590 ","End":"08:49.820","Text":"In other words, prudence does not allow for"},{"Start":"08:49.820 ","End":"08:54.290","Text":"the overstatement or understatement of assets,"},{"Start":"08:54.290 ","End":"08:57.320","Text":"liabilities, income, or expenses."},{"Start":"08:57.320 ","End":"09:06.170","Text":"Free from error or bias means no inaccuracies or omissions in the financial statements."},{"Start":"09:06.170 ","End":"09:12.875","Text":"However, note it does not mean that the financial information is perfectly accurate."},{"Start":"09:12.875 ","End":"09:18.140","Text":"Estimates are an essential part of the preparation of"},{"Start":"09:18.140 ","End":"09:24.515","Text":"financial statements and do not undermine the usefulness of the information."},{"Start":"09:24.515 ","End":"09:28.730","Text":"It is obviously almost impossible to achieve"},{"Start":"09:28.730 ","End":"09:33.020","Text":"perfectly faithful representation because"},{"Start":"09:33.020 ","End":"09:37.640","Text":"of inherent uncertainties, estimates, and assumptions."},{"Start":"09:37.640 ","End":"09:44.719","Text":"The conceptual framework also refers to enhancing qualities of accounting information."},{"Start":"09:44.719 ","End":"09:51.410","Text":"Enhancing characteristics of comparability, verifiability, timeliness,"},{"Start":"09:51.410 ","End":"09:55.585","Text":"and understandability are intended to enhance,"},{"Start":"09:55.585 ","End":"09:57.845","Text":"hence the word enhancing,"},{"Start":"09:57.845 ","End":"10:03.515","Text":"both relevant and faithfully represented financial information."},{"Start":"10:03.515 ","End":"10:08.735","Text":"In other words, enhance the fundamental qualitative characteristic."},{"Start":"10:08.735 ","End":"10:10.965","Text":"Looking at comparability,"},{"Start":"10:10.965 ","End":"10:14.135","Text":"this allows users to identify similarities"},{"Start":"10:14.135 ","End":"10:17.885","Text":"and differences among financial statement items,"},{"Start":"10:17.885 ","End":"10:24.215","Text":"both between different periods of 1 company and also across different companies."},{"Start":"10:24.215 ","End":"10:28.370","Text":"Verifiability helps to assure users that"},{"Start":"10:28.370 ","End":"10:33.570","Text":"the information represents faithfully what it purports to represent."},{"Start":"10:35.530 ","End":"10:41.395","Text":"For all financial information is supported by evidence and"},{"Start":"10:41.395 ","End":"10:48.290","Text":"individuals can check to see whether such information is faithfully represented."},{"Start":"10:48.290 ","End":"10:54.334","Text":"In other words, information is verifiable if it can be audited."},{"Start":"10:54.334 ","End":"10:57.260","Text":"We know the auditing and the audit profession play"},{"Start":"10:57.260 ","End":"11:02.645","Text":"a very important part in ensuring the quality of accounting information."},{"Start":"11:02.645 ","End":"11:07.520","Text":"Looking at timeliness, this means providing information"},{"Start":"11:07.520 ","End":"11:13.760","Text":"to decision-makers in time to be capable of influencing their decisions."},{"Start":"11:13.760 ","End":"11:17.300","Text":"Clearly delays in publishing financial information"},{"Start":"11:17.300 ","End":"11:21.289","Text":"reduce the usefulness of that information."},{"Start":"11:21.289 ","End":"11:25.305","Text":"Finally, understandability."},{"Start":"11:25.305 ","End":"11:29.795","Text":"This requires financial information to be comprehensible"},{"Start":"11:29.795 ","End":"11:34.535","Text":"to users with reasonable knowledge of business and economics."},{"Start":"11:34.535 ","End":"11:42.700","Text":"It is not requiring all users to be totally skilled in financial accounting and finance."},{"Start":"11:42.700 ","End":"11:48.650","Text":"To be understandable, the information should be presented both clearly and concisely,"},{"Start":"11:48.650 ","End":"11:52.025","Text":"but also note it\u0027s not appropriate to exclude"},{"Start":"11:52.025 ","End":"11:58.680","Text":"complex items just to make financial reports simple and understandable."}],"ID":30293}],"Thumbnail":null,"ID":289087}]

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