Preface xiii
Part 1 · The framework of financial reporting
11 The search for principles
3Overview 3
Introduction 3
Accounting theory 5
The FASB conceptual framework project 8
The IASC/IASB framework 11
The ASB’s Statement of Principles 12
Summary 21
Recommended reading 21
Questions 22
2 Sources of authority: the United Kingdom
23Overview 23
Introduction 23
Legislation 24
Stock Exchange rules 27
Accounting concepts 28
Standardisation 31
The Government’s proposals 37
Summary 39
Recommended reading 39
Some useful websites 39
Questions 40
3 Sources of authority: the rise of international standards
42Overview 42
International standardisation 42
Harmonisation in the European Union 46
The EU Regulation of 2002 and the problems that it poses 50
Summary 55
Recommended reading 55
Some useful websites 56
Questions 56
Contents
4 What is profit?
59Overview 59
Introduction 59
Present value of the business 61
Measurement of wealth by reference to the valuation of individual assets 61
Capital maintenance 65
The usefulness of different profit measures 71
How do we choose? 73
The limitations of historical cost accounting 73
Interim summary 77
Distributable profits 77
Realised profits 81
Summary 86
Recommended reading 87
A useful website 87
Questions 87
Part 2 · Financial reporting in practice
935 Assets I
95Overview 95
Introduction 95
The basis of valuation 98
Tangible fixed assets 100
Depreciation 110
Investment properties 116
Intangible assets 118
Differences in the treatment of tangible and intangible fixed assets 122
Impairment reviews 122
Summary 127
Recommended reading 127
Questions 128
6 Assets II
133Overview 133
Introduction 133
Stocks and long-term contracts 134
Research and development 144
Government grants 146
Summary 149
Recommended reading 149
Questions 150
Contents ix
7 Liabilities
160Overview 160
Introduction 160
Liabilities 162
Provisions and contingencies 165
Summary 171
Recommended reading 171
Questions 171
8 Financial instruments
176Overview 176
Introduction 176
FRS 4 Capital Instruments 177
Hedge accounting 189
Derivatives 191
The valuation of financial instruments 193
FRED 30 and the convergence programme 197
Summary 201
Recommended reading 201
Questions 202
9 Substance over form and leases
205Overview 205
Introduction 206
Reflecting the substance of transactions 206
Leases 214
Beyond SSAP 21 236
Summary 238
Recommended reading 238
Questions 239
10 Pension costs
248Overview 248
Introduction 248
SSAP 24 Accounting for Pension Costs 252
From SSAP 24 to FRS 17 259
FRS 17 Retirement Benefits 260
Summary 271
Recommended reading 271
Questions 271
11 Reporting financial performance
276Overview 276
Part A · Reconfiguring the financial statements 277
Reporting financial performance 277
Review of FRS 3 291
Segmental reporting 296
Part B · Extending the financial reporting envelope 300
Accounting for post balance sheet events 300
Earnings per share 303
Related party disclosures 309
Part C · Share-based payments 313
Different types of share-based payment 314
Summary 318
Recommended reading 319
Questions 319
12 Taxation: current and deferred
337Overview 337
Introduction 337
Current taxation 339
Deferred taxation 343
Summary 355
Recommended reading 355
Questions 356
13 Business combinations and goodwill
359Overview 359
Business combinations 359
Goodwill 377
Summary 391
Recommended reading 392
Questions 392
14 Investments and groups
403Overview 403
Introduction 403
Investments 404
Accounting for groups 407
Summary 431
Recommended reading 431
Questions 432
15 Associates and joint ventures
447Overview 447
Introduction 447
Possible methods of accounting 448
The regulatory framework in the United Kingdom 453
Contents xi
The international accounting standards 464
Summary 466
Recommended reading 466
Questions 467
16 Overseas involvement
476Overview 476
Introduction: the problems identified 476
Accounting for foreign currency transactions 477 Translation of the financial statements of an overseas subsidiary 486
The international accounting standard 514
The proposed new standards 516
Summary 517
Recommended reading 518
Questions 518
17 Expansion of the annual report
526Overview 526
Introduction 526
Cash flow statements 528
The operating and financial review 549
The historical summary 552
Reporting about and to employees 554
Summary financial statements 555
Interim reports and preliminary announcements 557
Summary 560
Recommended reading 560
A useful website 561
Questions 561
18 Capital reorganisation, reduction and reconstruction
579Overview 579
Introduction 579
Redemption and purchase of shares 580
Capital reduction 591
The proposed simplification of capital reduction 594 The legal background to other reorganisations 595
Capital reconstruction 596
Summary 605
Recommended reading 605
A useful website 606
Questions 606
Part 3 · Accounting and price changes
61719 Accounting for price changes
619Overview 619
Introduction 619
The progress of accounting reform 621
Current purchasing power accounting 624
Summary 642
20 Current cost accounting
644Overview 644
Introduction 644
Theoretical roots 645
The basic elements of current cost accounting 656
Summary 665
21 Beyond current cost accounting
666Overview 666
The utility of current cost accounts 666
Interim summary 669
CCP and CCA combined 669
A real alternative – Making Corporate Reports Valuable 676
The evolution of the ASB’s thinking 686
Summary 689
Recommended reading 689
Questions 689
Index 703
