PART 2 (published financial reports) Flashcards
Management accounting
Focusses on the internal financial processes of the organization for the organization itself
Financial accounting
Presenting results of the past period to the outside world
Annual report consists of (3)
- Financial report
- Report of the executive board
- Additional data
Financial report consists at least of (3) :
- balance sheet
- Income statement
- explanatory notes (accounting principles used)
Additional data’s main feature
report by the external auditor
executive board’s report
comments from the management on the company’s activities in past, present and future, public relations tool, highlight ‘good side’.
Agency theory
The main feature of public companies is that there is a separation between ownership (principal) and the management (agent)
Agency costs (3)
- Monitoring costs
- Bonding costs
- Residual costs
Monitoring costs
When stockholder tries to assess management’s efforts
Bonding costs
costs related to management’s efforts to convince the stockholders of their best intentions
Residual costs
Loss of economic value because of the different interests of managers and stockholders
Whose interest should the management serve?
- Anglo Saxon Approach
- Rhineland Approach
- Act in stockholders’ best interest
- Management is accountable to all stakeholders
Direct method of preparation (cash flow statement)
making a list of all cash payments and receipts during the year
Indirect method of preparation (cash flow statement)
cash flow statement is derived from the balance sheet and income statement
Three main groups of cash flows (3)
- Cash flows from:
- operating activities
- investing activities
- financing activities
