Chapter2 Accounting income and assets

单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,浙商大财会学院 叶会,*,单击此处编辑母版标题样式,2,CHAPTER,Accounting income and assets: the accrual concept,1,浙江工商大学财务与会计学院 叶会,Main content,Income measurement,Income statement,Nonrecurring items,Balance sheet,Statement of shareholders equity,2,浙商大财会学院 叶会,Economic Income:,Two measures reflect the economic concept,economic income,permanent income,Income Measurement,3,浙商大财会学院 叶会,Economic Income,Economic earnings =cash flow + the change in net asset value.,Economic income = the rate of return,the opening value of the assets.,Measures change in shareholder valuereflecting the financial effects of all events in a comprehensive manner,Includes both recurring and nonrecurring,4,浙商大财会学院 叶会,Permanent Income,*,= the market value of assets,the firms required rate of return,Equals stable average income that a company is expected to earn over its life,Reflects a long-term focus,d,irectly proportional to company value,*Also called sustainable earning power, or sustainable or normalized earnings,5,浙商大财会学院 叶会,Economic Income:,Two measures reflect the economic concept,economic income,permanent income,Difficult to apply in practice due to measurement and asset valuation,6,浙商大财会学院 叶会,Accounting Income,Based on accrual accounting,net income = operating cash flow + accruals,Capture aspects of both economic income and permanent income,Suffers from measurement problemsyields accounting analysis,7,浙商大财会学院 叶会,Economic Income and Accounting Income reflect similar concepts,BUT:,Accounting income is a product of the financial reporting,environmentaccounting standards, enforcement,mechanisms, managers incentives, etc.,HENCE:,Accounting income can diverge from economic,income (yielding accounting distortions),Economic Income vs. Accounting Income,8,浙商大财会学院 叶会,Permanent Component-the recurring component expected to persist indefinitely,Transitory Component-the transitory (or non-recurring),component not expected to persist,(,Note: The concept of economic income includes both permanent and transitory components.),Value Irrelevant Component-value irrelevant components have no economic content; they are accounting distortions,Accounting Income consists of,9,浙商大财会学院 叶会,Adjusting accounting income is important task,Necessary to specify analysis objectives,-e.g.,determining economic income,or permanent income or sustainable,earning power,Adopt an inclusive approach,including recurring and non-recurring components,Analysis Implications,10,浙商大财会学院 叶会,Income,statement,Two main components of accounting income:,Revenues (gains),Expenses (losses),11,浙商大财会学院 叶会,Revenues and Gains,Revenues are earned inflows or prospective inflows of cash from operations*,Gains are recognized inflows or prospective inflows of cash from non-operations*,*Revenues are expected to recur,*Gains are non-recurring,Expenses and Losses,Expenses are incurred outflows, prospective outflows, or allocations of past outflows of cash from operations,Losses are decreases in a companys net assets arising from non-operations,Expenses and losses are resource consumed, spent, or lost in pursuing revenues and gains,12,浙商大财会学院 叶会,Sample Income Statement Format,Revenues from the sales of goods and services:,+ Other income and revenues,- Operating expenses,Financing costs,+/- Unusual or infrequent items,= Pretax earnings from continuing operations,- Income tax expense,= Net income from continuing operations,+/- Income from discontinued operations (net of tax) ,+/- Extraordinary items (net of tax) ,+/- Cumulative effect of accounting changes (net of tax) ,= Net income,Per share amounts are reported for each of these items,The sample format may not be useful for analysis,13,浙商大财会学院 叶会,Suggested Format,Revenues from the sales of goods and services,- Operating expenses,= Operating income from continuing operations,+ Other income and revenues,= Recurring income before interest and taxes from,continuing operations,- Financing costs,= Recurring (pretax) income from continuing operations,+/- Unusual or infrequent items,= Pretax earnings from continuing operations,- Income tax expense,=,Net income from continuing operations,+/- Income from discontinued operations,+/- Extraordinary items (net of tax),+/- Cumulative effect of accounting changes (net of tax),= Net income,Independent of capital structure,14,浙商大财会学院 叶会,Two major income dimensions:,operating versus non-operating,recurring versus non-recurring*,*Motivated by need to separate permanent and transitory components,15,浙商大财会学院 叶会,What constitutes the correct measure of income for analysis purposes?,Recurring income from continuing operation have predictive value for future earnings and cash flow.,16,浙商大财会学院 叶会,Role of income statement,Evaluate (forecast) firms operating result and profitability;,Evaluate (forecast) firms solvency ability;,Help manager to make operation decision;,Asses management performance.,17,浙商大财会学院 叶会,But the important role of income statement rely on the quality of information listed in income.,The quality of income rely on:,Revenue recognition method,Expense recognition method,Other component of income recognition method,Nonrecurring item also decrease the role of income statement,18,浙商大财会学院 叶会,Revenue,Revenue growth,and volatility,Revenue recognition is the frequently used in earning management.,Foundation of operation cash flow;,evaluate quality of core earnings,Security valuation;,Investment decision,19,浙商大财会学院 叶会,GAO(,美国审计总署,),的研究,:1997-2002,报表粉饰手法比例：,收入确认手法,37.9,；,成本费用手法,5.7,；,资产减值手法,8.9,；,收购兼并手法,5.9,证券计价法,5.4,；,重分类手法,5.1,未完工研发费用法,3.6,关联交易法,3.0,其他,14.1,20,浙商大财会学院 叶会,Revenue and Expense Recognition,SFAC,（财务会计概念公告）,No.5 specifies two conditions to recognize revenue:,completion of the earnings process,Assurance of payment,General rule: Revenue can be recognized when goods or services have been provided and their cost can be reliably determined,21,浙商大财会学院 叶会,Revenue recognition method:,Sales method,（销售法）,: recognize when delivery service or goods,Installment method,（分期付款销售法）：,recognize when receive cash; apply to noncurrent asset and real estate,Production method,（生产法）：,recognize prior to sale or delivery when product process is completed, such as oil and agriculture product,Percentage-of-completion,（完工百分比）：,recognize in proportion to work is completed,Completed contract,（完工成本法）：,recognize at the end of contract,Cost recovery,（成本补偿法）,:recognize revenue and profit when cash receipts exceed all costs,Transportation method,（运输法）：,recognize when transport,22,浙商大财会学院 叶会,Comparison of Percentage-of-Completion and Completed Contract Methods,The percentage-of-completion method provides a better measure of operating activity and is a better indicator of trends in earning power.,Under the percentage-of-completion method:,Total assets are higher,Liabilities are lower,Stockholders equity is higher,The ratio of liabilities to equity is lower,23,浙商大财会学院 叶会,Issues in Revenue Recognition,Revenue recognition,advance,Defer,Revenues from operation,Revenues from non-operation,Revenues from segment A,Revenues from segment B,Conceal connected revenues,Forge revenues,（伪造收入）,disguise,24,浙商大财会学院 叶会,Some warning signs,Increasing speed of receivable higher than that of revenues,Huge bad debt expense,：,深中华,Fluctuate of gross profit,（毛利率）,Sales disproportion to production capacity,：,银广夏,Huge return of goods,：纵横国际,Sales deviation from CFO,：长虹,25,浙商大财会学院 叶会,Issues in Expense Recognition,The following accounting issues affect the amount and/or timing of expense recognition:,deferral of marketing expenses and sales commissions;,deferral of the cost of periodic major maintenance projects;,bad debt expense;,warranty expense.,Advance, defer, or capitalization?,26,浙商大财会学院 叶会,Classification Issues,Including costs such as discounts, marketing costs, shipping and handling costs (COGS) in operating expense.,Classification boost gross margins without affecting operating income,27,浙商大财会学院 叶会,Nonrecurring item,Unusual or infrequent items,Extraordinary items,Discontinued,operation,s,Accounting changes,Above the line,Presented pretax,Below the line,Reported net of tax,28,浙商大财会学院 叶会,Infrequent/unusual items,Unusual,Items-transactions and events that are unusual,in nature,or infrequent,in occurrence,Challenges for analysis,Economic implications are complex,Discretionary nature serves,EM,aims,Two major types,Asset impairments (write-offs),Restructuring charges,29,浙商大财会学院 叶会,Asset Impairmentwhen asset fair value is below carrying (book) value,Some reasons for impairments,Decline in demand for asset output,Technological obsolescence,Changes in company strategy,Accounting for impairments,Report at the lower of market or cost,Flexibility in determining when and how much to write-off,No plan required for asset disposal,30,浙商大财会学院 叶会,Restructuring Chargescosts usually related to major changes in company business,Examples of these major changes include,Extensive reorganization,Divesting business units,Terminating contracts and joint ventures,Discontinuing product lines,Worker retrenchment,(,删除）,Management turnover,Accounting for estimated costs of restructuring program,Establish a provision (liability) for estimated costs,Charge estimated costs to current income,Actual costs involve adjustments against the provision when incurred,31,浙商大财会学院 叶会,Infrequent/unusual items,Analyzing,unusual,items is challenging and important,Challenges arise from,lack of guidance in accounting standards,understanding the economics of special items,Importance relates to the frequency and impact on past, present, and future income,Should be excluded net of tax when analysis,32,浙商大财会学院 叶会,Financial effect of asset write-off,Asset write-offs suggest,prior depreciation or amortization were sufficient,and reported income before was overestimated,.,Result in an overestimation of future income and firms earning trend.,Have no cash flow effect.,33,浙商大财会学院 叶会,Extraordinary Items,Criteria,Unusual in nature,Infrequent in occurrence,Examples,Uninsured losses from a major casualty (earthquake, hurricane, tornado), losses from expropriation, and gains and losses from early retirement of debt,Disclosure,Classified separately,net of tax,in income statement,and effect on EPS,34,浙商大财会学院 叶会,Extraordinary items,Are non-recurring,Excluded when computing permanent income,Included when computing economic income,Can impact computation of sustainable earning power,Often Excluded when making comparisons over time or across firms,35,浙商大财会学院 叶会,Discontinued Operations,Criteria,be separable from firm physically and operationally,Gains or losses from discontinued operations are reported separately, net of tax,.,Discontinued operations will not contribute to future income and cash flows.,36,浙商大财会学院 叶会,For analysis of discontinued operations:,Adjust current and past income to remove effects of discontinued operations,Adjust assets and liabilities to remove discontinued operations,Retain cumulative gain or loss from discontinued operations in equity,37,浙商大财会学院 叶会,Accounting Changes,Accounting changes are of 3 types:,Accounting principle change,Accounting estimate change,Reporting entity change,38,浙商大财会学院 叶会,Accounting Changes,Accounting Principle Change,involves switch from one principle to another,Disclosure includes:,Nature of and justification for change,Effect of change on current income and,EPS,effects,on prior period,income and EPS,39,浙商大财会学院 叶会,Accounting Changes,Accounting Estimate Change,involves change in estimate underlying accounting,Prospective applicationa change is accounted for in current and future periods,Disclose effects on current income,and EPS,40,浙商大财会学院 叶会,Accounting Changes,Reporting Entity Change,involves initial publication of consolidated statements, or change in consolidation policy, or a pooling of interest,Restate all prior periods financial statements and disclos,e,the nature of change,41,浙商大财会学院 叶会,Analyzing,Accounting Changes,Are cosmetic and yield no cash flows,Can better reflect economic reality,Can reflect earnings management (or even manipulation),Impact comparative analysis,42,浙商大财会学院 叶会,Management discretion and earnings manipulation,The discretionary nature of income and Nonrecurring item with respect to:,timing of occurrence (the disposal of asset or the discontinuation of a segment),Classification of the item (ordinary, unusual or extraordinary),43,浙商大财会学院 叶会,Analysis of income statement,Net income: whether earn money?,Component of income: where do money from,？,The quality of income: do really earn?,Persistence (stability and trend of income),Focus on,：,Component of income;,Not only net income, but also operational income;,Gross profit,44,浙商大财会学院 叶会,Analysis of quality of income,Analysis the process of income,Operational income/ recurring income proportion,Period expense trend,Nonoperational income/nonrecurring income proportion,Analysis the outcome of income,The quality of asset,Cash ability of income,45,浙商大财会学院 叶会,Analyzing Revenues,: source,Analysis of revenues (sales) helps address questions such as:,What are the major sources of revenue?,How persistent are revenue sources?,How are revenues, receivables, and inventories related?,46,浙商大财会学院 叶会,Persistence (stability and trend) of revenues is important to profitability analysis,Analysis tools for assessing persistence in revenues include:,(1)trend percent analysis,(2) evaluation of Managements Discussion and Analysis,Analyzing Revenues,: persistence,47,浙商大财会学院 叶会,Trend percent analysis:,Revenues for a prior period are,set equal to 100 percent,Revenues for other periods are,compared to it,Revenue trends by segments are often:,Compared to industry norms,Compared to competitors,48,浙商大财会学院 叶会,Other analysis method,:,(Auto)correlations,of revenues across periods,Assess sensitivity of revenues to,business conditions,Customer analysisconcentration, dependence, and stability,Revenues concentration or dependence on one segment,Geographical diversification of market,Analyzing Revenues,: persistence,49,浙商大财会学院 叶会,Revenues and Accounts Receivable Relation,Bears on:,Earnings quality,Collectibility of receivables,Analyzing Revenues,: key relation,50,浙商大财会学院 叶会,Revenues and Inventories Relation,Bears on:,Future revenues,Analysis of operations,Analyzing Revenues,: key relation,51,浙商大财会学院 叶会,Profitability analysis must adjust for different revenue recognition methods in:,Comparative,analysisboth temporal and cross-sectional,Forecasting revenues,revenue recognition criteria and measurement,discussed before,Analyzing Revenues,: revenue recognition,52,浙商大财会学院 叶会,Gross profit,or,gross margin,is measured as revenues less cost of sales,All other costs must be recovered from gross profit,Gross profit must finance essential futuredirected discretionary expenditures,Gross profits vary across industries depending on factors such as:,Competition,Capital investmen,n,Level of costs that must be,recovered from gross profit,Analyzing,gross profit,53,浙商大财会学院 叶会, Identification of factors driving gross profit yields, Improved business strategies, Better assessment of future performance,Analyzing,gross profit: interpreting,54,浙商大财会学院 叶会,Analyzing Expenses,: analysis tools,Common-size analysis,Commonsize income statements express expenses in terms of their percent relation with revenues,Traced over several periods or compared with competitors,Operating ratio analysis,Operating ratio measures the relation between operating expenses (or its components) and revenues,Equals,COGS,plus other operating expenses divided by net revenues,Interest and taxes are normally excluded from this measure due to its focus on operating efficiency (expense control) and not financing and tax management,Useful for analysis of expenses within and across companies,55,浙商大财会学院 叶会,Analysis of selling expenses focuses on three areas:,Evaluating the relation between key selling expenses and revenues,Assessing bad debts expense,Evaluating the trend and productivity of futuredirected marketing expenses,Analyzing Expenses,: selling expenses,56,浙商大财会学院 叶会,Analysis of G&A should focus on:,Trend in these expenses,Percent of revenues they consume,Analyzing Expenses,: general and administrative expenses,57,浙商大财会学院 叶会,Most are fixedexception is variable-rate interest,Most creditor financing is eventually refinanced and not removed,Interest expense often includes amortization of a premium or discount,Analyzing Expenses,: financing expenses,58,浙商大财会学院 叶会,案例分析大唐电信,大唐电信,2002-2004,年业绩趋势,亏损,1.8,亿,盈利,198,万,59,浙商大财会学院 叶会,2004,年利润总额结构：,利润总额,6238,万,60,浙商大财会学院 叶会,案例：,TCL,通讯,以会计处理和会计估计不当为由，,2001,年对高达,15485,万元的重大会计差错追溯调整。,调整前净利,调整后净利,61,浙商大财会学院 叶会,调整内容：,漏结转成本,2616,万；,少计销售费用,1992,万；,研发费用未计入当期损益,1200,万；,提前确认未实现销售收入,426,万；,提前确认所得税返还收益,300,万；,未抵消存货中未实现利润,840,万；,少计费用,220,万；,少提坏帐准备,4392,万；,少计存货准备,2813,万；,少计长期投资减值准备,685,万；,共,15485,万,62,浙商大财会学院 叶会,如此多的财务异常，决非单纯的,“,对会计准则理解的偏差造成的,”,，而是有意识利用会计手法操纵利润，从而导致,2000,年会计信息完全失真；,目的：避免二连亏、三连亏、四连亏：利用少计费用、少计成本、少提减值准备虚增利润,如果不追溯调整，,2001,年消化这些潜亏，而,2001,年要确保盈利，于是选择了让以前年度大亏的做法。,63,浙商大财会学院 叶会,The balance sheet,Use of the balance sheet,Evaluate firms solvency ability and capital structure,Evaluate firms earning-generating ability,Measure firms operating efficiency and return on investment with the income statement,64,浙商大财会学院 叶会,Limitations of the balance sheet,Selective reporting,Measurement limitation,Delayed recognition, such as employ benefit plans,Include estimations,Users should analyze dependently,65,浙商大财会学院 叶会,Current Asset Introduction,（,流动资产）,Account receivable,（应收账款）,arise from the sale of goods or services, or the loaning of money,reported at their,net realizable value,total amount of receivables less an allowance for uncollectible accounts,Management estimates the allowance for,uncollectibles,based on experience, customer fortunes, economy and industry expectations, and collection policies,66,浙商大财会学院 叶会,Assessment of earnings quality is often affected by an analysis of receivables and their,collect,i,bility,special analysis questions:,Collection Risk,and authenticity,：,Review allowance for,uncollectibles,in light of industry conditions,Determining competitors receivables as a percent of,Examining customer concentrationrisk increases when receivables are concentrated in one or a few customers,Investigating the age pattern of receivablesoverdue and for how long,67,浙商大财会学院 叶会,Prepaid expenses,are advance payments for services or goods not yet received that extend beyond the current accounting,Prepaid Expenses,Two analysis issues:,For reasons of expediency, noncurrent,prepaids,sometimes are included among prepaid expenses classified as current-when their magnitude is large, they warrant scrutiny,Any substantial changes in prepaid expenses warrant scrutiny,Analysis of,Prepaids,68,浙商大财会学院 叶会,A company is required to use the same accounting methods from period to period.,A change is only acceptable when it improves financial reporting.,Inventories,69,浙商大财会学院 叶会,Inventory must be reported at market value when,market,is,lower,than cost.,Defined as current replacement cost,(,not sales price,).,Can be applied three ways:,(1)separately to each individual item.,(2