Barry Elliott - Financial Accounting & Reporting

At Pearson, we have a simple mission: to help people make more of their lives through learning.

We combine innovative learning technology with trusted content and educational expertise to provide engaging and effective learning experiences that serve people wherever and whenever they are learning.

From classroom to boardroom, our curriculum materials, digital learning tools and testing programmes help to educate millions of people worldwide more than any other private enterprise.

Every day our work helps learning flourish, and wherever learning flourishes, so do people.

To learn more, please visit us at www.pearson.com/uk

TWENTIETH EDITION

Jamie Elliott and Barry Elliott

PEARSON EDUCATION LIMITED

KAO Two

KAO Park

Harlow CM17 9NA

United Kingdom

Tel: +44 (0)1279 623623

Web: www.pearson.com/uk

Previously published 1993, 1996, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2011 (print); 2012, 2013, 2015, 2017, 2019 (print and electronic)

Twentieth edition published 2022 (print and electronic)

Pearson Education Limited 1993, 1996, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2011 (print)

Pearson Education Limited 2012, 2013, 2015, 2017, 2019, 2022 (print and electronic)

The rights of Barry Elliott and Jamie Elliott to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

The print publication is protected by copyright. Prior to any prohibited reproduction, storage in a retrieval system, distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd, Barnards Inn, 86 Fetter Lane, London EC4A 1EN.

The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable copyright law. Any unauthorised distribution or use of this text may be a direct infringement of the authors and the publishers rights and those responsible may be liable in law accordingly.

All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners.

Pearson Education is not responsible for the content of third-party internet sites.

This publication contains copyright material of the IFRS Foundation in respect of which all rights are reserved. Reproduced by Pearson Education, Ltd with the permission of the IFRS Foundation. No permission granted to third parties to reproduce or distribute. For full access to IFRS Standards and the work of the IFRS Foundation please visit http://eifrs.ifrs.org

The International Accounting Standards Board, the IFRS Foundation, the authors and the publishers do not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise.

ISBN: 978-1-292-39980-5 (print)

978-1-292-40105-8 (PDF)

978-1-292-40106-5 (ePub)

British Library Cataloguing-in-Publication Data

A catalogue record for the print edition is available from the British Library

Library of Congress Cataloging-in-Publication Data

A catalog record for the print edition is available from the Library of Congress

10 9 8 7 6 5 4 3 2 1

26 25 24 23 22

Cover design by Michelle Morgan, At the Pop Ltd

Cover image zhihao/Moment/Getty Images

Print edition typeset in 10/12 pt Ehrhardt MT Std by Straive

Printed in Slovakia by Neografia

NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION

Brief contents

Contents

Preface

Financial accounting is the accurate recording of all transactions and combining these into a statement which shows the performance for an accounting period which is normally a year and a statement which shows the resources and liabilities at the end of the period.

Financial reporting presents the performance, the resources and liabilities to the stakeholders in accordance with International Financial Reporting Standards. It is a dynamic area, intellectually demanding and full of interest. It aims to inform and provide the information in way that holds management to account and is decision useful by making inter-period and inter-firm comparisons more accessible. We see it as extremely important that the text should reflect this and be kept current.

This book gives a self-contained introduction to financial accounting and reporting and has been widely adopted on:

• second-year undergraduate courses for Accounting, Business and Management Studies;
• final-year undergraduate courses for Accounting, Business and Management Studies;
• MBA courses;
• specialist MSc courses; and
• professional and accredited courses preparing students for professional accountancy examinations.

In todays world there are many risks that both companies and the accounting profession face.

This means that accountants need to have commercial understanding and technical competence. This is why in this 20th edition we have significantly updated two of the chapters in the final part of this book on Accountability. The risks that companies face include:

• The risk of a company failing as seen with the collapse of the British construction and services giant Carillion Group going into liquidation. The company had tendered at an unrealistically low price and suffered when there were cost overruns. This came about due to management decisions. However, accountants and auditors have both been heavily criticised with the chair of the Parliamentary Business Committee commenting that Carillions annual reports were worthless as a guide to the true financial health of the company.
• The risk of Professional negligence claims against auditors for audit failures.

  Auditors have seen increased pressure from the regulators to improve their performance and the operational split of audit and consultancy work.

• The risk associated with technical problems such as that experienced by Rolls Royce with its Trent 1000 engines.

  Accountants have the task of assessing the impact on future cash flows and profits following the measures taken by Rolls Royce to triple its maintenance capacity.

• The risk following public pressure to provide for material environmental costs such as those arising when decommissioning offshore oil and gas installations.