Index
4th EU Directive 61‘90 per cent test’ for finance leases 146
ACCA 35Accountancy and Actuarial Discipline
Board 36, 38accountancy bodies 35–40accountancy firms’ manuals and
guidance 14Accountancy Foundation 38accountants’ role in capital markets
transactions 42–43accounting
current trends 60–66as decision-making tool 4definition 3–5as source of management
information 4‘accounting mismatch’ in measuring
financial assets/liabilities 163accounting policies 91–92accounting principles in SI 2008/410 33accounting profit, adjustment
of 115–116example 120
accounting standards see also financialreporting standards (FRSs);international accountingstandards (IFRSs, IASs);statements of standard accountingpractices (SSAPs); see alsoentries for individual standards
ASB Forward to 30contrasting approaches of IASB, ASB
and FASB 63development in other countries 17EU structure for
standard-setting 20–21
expectations of effectiveness ofstronger standards 62
growth in volume of 61history 15in IFRS GAAP 13international structure for
standard-setting 18–19lists of 223–228as part of GAAP 13–14in UK GAAP 13UK structure for
standard-setting 15–16Accounting Standards Board (ASB) see
also ASB reporting statementsachievements 16approach to bottom line 56approach to standards contrasted to
FASB 63approval and issue of UITF
Abstracts 37development of FRSSE 31development of SORPs 17differences from ASC 16formation 35Forward to accounting standards 30harmonising standards, role in 15–17issue of standards 36issues and withdraws Reporting
Standard 1 205–207issues FRS 5 46list of statements 227as part of FRC 36plans to retain FRSs 6, 7 and 10 112role 17, 37Statement of Principles 131structure 37
Accounting Standards Committee (ASC)decline 36
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differences from ASB 16formation 15as part of CCAB 35
accounting terminology, need forprecision 59
accounting terms used in agreements 12accounts see also consolidated accounts;
individual entity accountscomponents 5–7composition of 80–81preparation, filing and distribution
CA 2006 requirement for 80‘corporate reporting supply
chain’ 54–55requirements for 52–54
presentation of 80–94APMs 57–58
reasons for changes in 60use and analysis of 58–59
accruals accounting 7, 33, 139, 148acquisitions 100–114 see also merger
acquisition accounting 101–102,105–106, 111
acquisition defined as transaction 43choice of acquisition accounting 75dividends out of pre-acquisition
profits, realised gains 191fair value of acquisition
expenses 106–107actuarial gains/losses
as comprehensive income 87, 152UK GAAP/IFRS approaches
contrasted 153–154actuarial profession, Morris Review
of 38actuarial variation, choice of accounting
policies for 95actuaries, role of 149adjusted earnings numbers see alternative
performance measures (APMs)adjusted EPS 98–99advertising, recognition on balance
sheet 124agriculture, fair value accounting 64AIM companies
AIM Rules 53consolidated accounts 71use of IFRS 21
alternative accounting rules in SI2008/410 33
Alternative Investment Market (AIM) seeAIM companies
alternative performance measures(APMs) 57–58
amortisation 128–129 see alsodepreciation; impairment
amortised cost method 163–164, 170financial assets/liabilities 163–164financial instruments 162goodwill 100, 101, 109–110
different approaches by UK GAAPand IFRS 3 105–106
under IFRS 57impairment instead of 129intellectual property 129
analysts 55, 56, 58–59‘annual report’, use of term 80annual reports see accountsAPB bulletins 41Application notes to FRS 5 46–47approval of accounts, CA 2006 rules 31ASB reporting statements 14
in IFRS GAAP 13in UK GAAP 13
assets 124–129 see also amortisation;depreciation; fixed assets;intangibles; liabilities; tangiblefixed assets
carried at valuation 33classification and
presentation 126–127current assets, definition 127current assets, IAS 1
classification 127for current tax, on balance sheet 89for deferred tax, on balance sheet 89definition asset 124depreciation 127–129disclosure 129fair value of net assets
acquired 107–108impairment 125–126intra-group transactions, realised
profits 192–193measurement of 125in merger accounting 101
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assets (cont.)mixed model for stating at cost and fair
value 64non-current assets, IAS 1
classification 127not recognised 124–125pension scheme assets,
valuing 150–151presentation on balance sheet 88–90recognition of 124–125SI 2008/410 formats, shown in 32
assets held for sale, on balance sheet 89associated companies, SI 2008/410
rules 34associates
consolidated accounts 77–78equity accounting 78relative importance to joint
ventures 79share of profit or loss entered on
income statement 82‘audit certificates’ 41audit committee 54
Smith Report guidance on committeereport 198
audit firm’s name on reports 42Audit Inspection Unit 38audit partner’s name on reports 42audit reporting
Companies Act 2006 40IAS Regulation 40
Auditing Practices Board (APB)bulletins 41formation 35guidance on presentation of APMs in
accounts 58as part of CCAB 38as part of FRC 36replaced by FRC 16role 38transfer from Accountancy Foundation
to FRC 38Auditing Practices Committee (APC) 35auditors
directors’ report, role in 40–41limited liability 42as part of ‘corporate reporting supply
chain’ 55
auditors’ opinion 40–42auditors’ report
definition 5standardised wording 41
balance sheet 88–90accordance with substance 33approach to defined benefit
schemes 150assets recognised/not recognised
on 124–125IFRS balance sheet 127
CA 2006 rules 29classification of shares 158–159consolidated accounts, example 70example of 8in historical cost accounting 63IAS 1 rules 29increased emphasis on 65integrated presentation of individual
entity and consolidated 93–94liabilities shown on 135in merger accounting 101, 104purpose 6SI 2008/410 formats 32, 90summary format 130
banksconsolidated accounts 71FRRP’s focus on 39–40SI 2008/410 rules 32
bargain purchase where negativegoodwill 110
basic EPS 85, 95–97basic rule of consolidation 34BERR 122–123bid-defence costs 84binomial model of option pricing 174biological assets
on balance sheet 89measurement of value 125
Black-Scholes-Merton model of optionpricing 174
Board for Actuarial Standards (BAS) 36,38
‘boiler plating’ in accounting policies 92bonus scheme, deferred tax
(example) 117–118book-keeping, definition 3–4
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bottom line 55–56brands
amortisation 129recognition on balance sheet 124
Brown, Gordon 205business combinations
definition 101IASB/FASB projects on 100, 108
business developments, effects onaccounting 60–61
business review 5–6
Cadbury Code 196capital allowances 115–116
example 118–119capital injections as total comprehensive
income 87capital markets transactions, accountants’
role in 42–43cash dividends 180cash equivalents, definition 91cash flow
difference to profit 7–9division into operating, investing and
financing 91cash flow hedge 166, 167
gains/losses 87cash flow statement 6–7, 90–91
example of 8in merger accounting 101merger accounting 104
cash flow statement, CA 2006 rules 29cash on balance sheet 89cash-settled share-based payment
transactions 175–176chairman’s report 5charities’ choice of IFRS or UK
GAAP 28Chartered Institute of Management
Accountants (CIMA) 35Chartered Institute of Public Finance and
Accountancy (CIPFA) 35choice of accounting policies, actuarial
variation 95choice of dates for fair value
purposes 106choice of IFRS or UK GAAP 17, 24,
28
by charities 28listed groups 28by non-listed/non-AIM groups 25
‘clean opinion’ see unqualified auditreport
closure of business, profit or loss asextraordinary item 84
Combined Code on CorporateGovernance 36
disclosures 196–199on role of audit committee 54
commercial property sector, FRRP’sfocus on 39–40
Committee of European SecuritiesRegulators (CESR) 40
recommendations on presentation ofAPMs 58
Committee on Accounting for SmallerEntities (CASE) 37
Committee on Corporate Governance36
Companies Act 1981 rules on formats foraccounts 61
Companies Act 1985 26, 27, 111definition: profit 186disclosure of fair value of
derivatives 170disclosure of share capital and
debentures 170TECH 01/08 based on 185transactions with directors,
disclosures 212Companies Act 1989
acquisition and mergeraccounting 111
consolidated accounts 45–46Companies Act 2006 12, 13, 26–32
application to IFRS and UKGAAP 28–32
approval, distribution and filing ofaccounts 31
audit reporting, general rules 40choice of IFRS or UK GAAP 123consolidated accounts 46, 72content and scope of accounts and
reports requirements 27definition associates and joint
ventures 77
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Companies Act 2006 (cont.)definition fixed assets and current
assets 127directors’ report 201–205directors’ responsibilities 90directors’ ‘safe harbour’ as to
untrue/misleading statements205
disclosure of directors’remuneration 207–208
distributions 180–181, 185equity shares 159–160exemptions 31–32group accounts 29–30group reconstruction relief
112–114individual accounts rules 28–29interim and initial accounts 183merger relief 112–114requirement to prepare, file
and distribute accounts 52,80
s. 615 relief 113–114segment disclosure 214share premium 112–114statement of directors’
responsibilities 200summary financial statements 53–54table of origins 229–231timing of consolidated
accounts 71–72transactions with directors,
disclosures 212treasury shares 168true and fair view 30–31
Companies Act group accounts 29Companies Act individual accounts see
individual entity accountscompanies’ decisions, effect of earnings
expectations on 56–57Companies House 52, 53‘comply or explain’ culture of the
Combined Code 196comprehensive income 87
actuarial gains/losses recognisedin 152
definition 183
consolidated accountsassociates 77–78basic rule of consolidation 34CA 2006 29–30after changes in composition of
group 75Companies Acts rules 45–46definition 29EU Regulation 17, 20–22exclusion of subsidiaries 74exclusions 73exemption for holding company
income statement 74–75FASB project to reform rules on
62full or proportional consolidation,
choice of 75harmonisation of accounting policies
in merger accounting 104intra-group transactions, elimination
of 76–77joint ventures 77–78, 78–79
proportional consolidation 75minimum requirements for
IFRS 53–54minority interests 75, 76non-listed/non-AIM 25presentation with or separate to
individual entity accounts 93–94purpose 69–70, 76techniques 75–77what to consolidate 72–74when to consolidate 71–72
‘consolidation packs’ 24constructive obligations 132–133Consultative Committee of Accountancy
Bodies (CCAB) 35contingent consideration in acquisition
accounting 106contingent liabilities
definition contingent liability 135disclosure 134–136fair value 108
continuing operationsbasic and diluted EPS 85basic EPS 97diluted EPS 98
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contractsaccounting terms in 12as financial liabilities 157–158
‘contribution holiday’ 150control
control v. ownership 73, 75definition 72–73IASB statement on de facto control 73
convertible debt 98convertible loan stock, diluted EPS 98copyrights, amortisation 129corporate governance
disclosures 194–199trends towards increasing 63
corporate governance report 5‘corporate reporting supply chain’ 54–55corporation tax rates 116‘corridor’ method of pensions
accounting 151–152cost basis for tangible fixed assets 91–92credit crunch 39–40, 165current assets
classification 127definition 127IAS 1 89measurement of value 125
current liabilitiesclassification of 133–134definition 134IAS 1 89role in business finance 134
current tax 117assets and liabilities for, on balance
sheet 89‘cushion’, adding further amount to
estimate as 133
Dearing Committee report 15, 36debt and equity see also gearing
convertible debt 98debt issue defined as transaction 43distinction between 158
decisions by companies, effect ofearnings expectations on 56–57
declared, definition 86declared dividends on income
statement 86
defective accounts, CA 2006 rules forrevision of 31
deferred tax 117–121assets and liabilities for, on balance
sheet 89defined benefit schemes 153permanent differences 120
defined benefit schemesaccounting for 149–150actuarial gains/losses as
comprehensive income 87deferred tax 116, 153definition and description 149differences between IFRS and UK
GAAP 153–154distributable profits 153–154in notes 93
defined contribution schemes 148–149definitions
‘90 per cent test’ 146accounting 3–5accounting profit 115accounts 80accruals accounting 7asset 124associates 77auditors’ report 5basic EPS 96book-keeping 3–4bottom line 55business combination 101cash equivalents 91cash flows 91cash-settled share-based payment
transactions 175comprehensive income 183consolidated accounts 29constructive obligations 132contingent liability 135control 72–73current liabilities 134‘declared’ 86defined contribution scheme 148depreciation 128derivative 166discontinued operations 83earnings 55
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definitions (cont.)earnings per share 55, 95equity instrument 158equity-settled share-based payment
transactions 173–175exceptional items 83fair value 107, 165fair value defined 107fair value less costs to sell 126finance costs 81finance lease 138financial accounting/reporting 4financial asset 157financial instrument 157financial liability 157–158financial statements 80GAAP 12–14gains 186gearing 59, 134goodwill 109–110group accounts 29identifiable 109IFRS 14, 20IFRS GAAP 13individual accounts 28intangible asset 109joint venture 77lease term 144liability 130, 131long-term incentive plan (LTIP) 208management accounting 4merger relief 112minimum lease payments 143‘net assets’ 180net realisable value (NRV) 126‘non-subsidiary subsidiaries’ 45operating lease 138potential ordinary shares 98present fairly 30‘present value’ 126profit 186provisions 131qualifying consideration 187quasi-subsidiaries 46‘readily convertible to cash’ 188realised profits and losses 184, 187‘recoverable amount’ 125
‘recycling’ of gains 11related party 210remuneration 208share-based payment transaction 172share option 208SOCIE 11SORIE 11statement of comprehensive
income 11–12subsidiary 72subsidiary undertaking 72‘substantially all’ 146tax base 118total comprehensive income 87, 184transaction 42–43transaction costs 161true and fair view 44UK GAAP 12–13value in use 126‘whisper number’ 56‘worth’ 125
demergers, IASB project on 108Department for Business Enterprise and
Regulatory Reform (BERR)122–123
depreciation 127–129 see alsoamortisation
in adjusting accountingprofit 115–116
cost basis and valuation basis 91–92definition 128example 118–119examples 120, 128
derivatives 65–66, 166–167definition derivative 166disclosure under CA 1985 and
SI2008/410 170‘fair value through profit and loss’
167response to large-scale losses 62
developing countries, use of IAS by 18diluted EPS 85, 95–96, 97–98directors see also non-executive
directors; statement of directors’responsibilities
responsibilities to present accounts 93responsibilities under CA 2006 90
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transactions with, disclosures 212untrue/misleading statements by, ‘safe
harbour’ as to 205directors’ remuneration
disclosures 207–210trends towards greater disclosure
63directors’ remuneration report 5,
208–209requirement for 40
directors’ report 5–6auditors’ role 40–41disclosures 201–205extension of FRRP’s remit to
204–205extension of FRRP’s role to cover
58Listing Rules disclosures 204SI 2008/410 disclosures 196
Disclosure and Transparency Rules(DTR) 14, 52
directors’ statement(example) 202–203
disclosures 195–196disclosures under 7in IFRS GAAP 13requirement for statement of directors’
responsibilities 200–201in UK GAAP 13
disclosures 7, 93assets 129audit committee report, Smith Report
guidance 198–199Combined Code on Corporate
Governance 196–199corporate governance
disclosures 194–199directors’ remuneration 207–210directors’ report 201–205Disclosure and Transparency
Rules 195–196expenses 82fair value of derivatives 170financial instruments 169internal control statement 198–199KPIs 207liabilities 134–136
Listing Rules 195directors’ report 204
note disclosures 194–215OFR 205–207related party relationships and
transactions 210–212Reporting Statement 1 206–207segment disclosure 212–215share-based payments 177share capital and debentures 170SI 2008/410 33statement of directors’
responsibilities 199–201taxation, other comprehensive
income 87transactions with directors 212trend towards greater 62–63
discontinuance of IFRS accounts,exceptions allowing 28
discontinued operationsbasic EPS 97diluted EPS 98on income statement 82, 83–84
discounting, deferred tax 121distributable profits 179–193
consolidated and individual entityaccounts distinguished 70–71
defined benefit schemes 153–154effect of pension costs 154–155examples 182taxation 24–25
distribution of accounts, CA 2006rules 31
distributions, rules on 180–181dividends
IAS 1 disclosure 85intra-group transactions, realised
profits 192out of pre-acquisition profits, realised
gains 191as total comprehensive income 87types of 180
dividends per share 85–86due-diligence, accountants’ role in 43
earn-out clause in sale and purchaseagreement 59
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earnings 55at constant exchange rates 57effect of expectations on company
decisions 56–57before exceptional items 57before goodwill amortisation 57before goodwill amortisation and
exceptional items 57before interest, tax, depreciation and
amortisation (EBITDA) 57‘earnings game’ 55–57earnings per share (EPS) 55, 85–86,
95–99‘economic hedges’ 167effective interest (amortised cost)
method 163–164, 170embedded derivatives 167Emerging Issues Task Force (EITF)
(US) 14, 22emoluments 208‘emphasis of matter’ paragraph 42employee benefits, note disclosures 93employee share ownership trusts 168,
177–178Enron scandal 62entities, types of 69entity accounts see individual entity
accountsenvironmental damage, constructive
obligations arising from 132equity accounting
associates 78investments shown on balance
sheet 89equity instrument, definition 158equity-settled share-based payment
transactions 173–175equity shares, CA 2006
regulations 159–160estimations in note disclosures 93EU Regulation 1606/2002/EC 28
requirement to use IFRS forconsolidated accounts 61
European Unionaccounting regulation 20–22
effect of 61capital markets policy 20
structure for accounting standardssetting 20–21
examplesadjustment of accounting profit 116,
120amortisation of financial
assets/liabilities 163–164analysis of changes in shareholders’
equity 184analysis of pension fund
deficit 151–152annual charges for operating lease
139balance sheet 8calculation of basic EPS 97calculation of temporary
differences 120capital allowances 118–119cash flow statement 8consolidated balance sheet 70constructive obligations 132deferred tax 117–118deferred tax on revaluation gains 122depreciation 118–119, 120, 128difference between pension scheme
opening/closingsurplus/deficit 151
directors’ statement, DTR 202–203distributable profits 182finance leases, accounting
for 140–142form v. substance 47–50gearing 134goodwill in merger accounting 102group reconstruction relief 113hedging 166income statement 8, 10
declared dividends 86exceptional items 84, 85
initial measurement of financialassets/liabilities 162
intangibles 109issue of shares 160–161liabilities shown on balance sheet
135measurement of liabilities 133merger relief 112–113
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modified grant date method of optionpricing 176
option-pricing models inputs 174realised profits 189–193realised/unrealised profits 179–180recording investment at fair value 113revaluation gains and deferred tax 122s. 615 relief 114share premium account 112shareholders’ equity statement 9statement of comprehensive
income 88statement of directors’
responsibilities 202tax computation 116
exceptional items 83entered on income statement 82,
98–99executive remuneration packages
response to scandals over size of 62share options as part of 171
expenses, disclosure of 82exposure draft of IFRS for SMEs 32Extensible Business Reporting Language
(XBRL) as part of ‘corporatereporting supply chain’ 55
external reportingcompliance aspect 4decision-making aspect 4–5
extraordinary items, banned by FRS3 84, 98
failed sale of asset, form v. substanceapplied to 47–49
fair valueacquisition accounting 103, 106–110contingent liabilities 108deferred tax 121definition 107, 165definition: fair value defined 107derivatives, Companies Act 1985
disclosure 170equity-settled share-based payment
transactions 174fair value hedge 166, 167‘fair value option’ for financial
instruments 163
‘fair value through profit and loss’,method for derivatives 167
financial assets/liabilities 165–166financial instruments 161–163goodwill and intangibles in acquisition
accounting 108–110greater use of 6IASB’s objectives 166less costs to sell 125–126marking to model v. marking to
market 166measurement of assets 125in merger accounting 102, 103merger accounting 104modified grant date method of option
pricing 175of net assets acquired 107–108realised gains/losses in fair value
accounting 190recording investment at (example)
113reliable measurement of
intangibles 109reorganisation costs 107–108SI 2008/410 33trends towards greater use of 63–65
filing of accounts, CA 2006 rules 31final salary schemes see defined benefit
schemesFinance and Leasing Association (FLA)
SORP 147finance costs, inclusion on income
statement 81finance leases 137
accounting for (example) 140–142definition finance lease 138disclosures 145under IFRS 139–142leases classified as 142–144minimum lease payments 143, 146substantially all, definition 146
financial accounting/reporting,definition 4
Financial Accounting Standards BoardFASB (US) 14
approach to standards contrasted toIASB and ASB 63
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FASB (US) (cont.)joint project with IASB on business
combinations 100project to reform rules on
consolidations 62relationship with IASB 22–23role and structure 22
financial assets/liabilities‘accounting mismatch’ in
measuring 163amortisation 163–164on balance sheet 89categories of financial assets 161,
162categories of financial liability 163definition financial asset 157definition financial liability 157–158fair value 165–166‘fair value option’ 163held for trading 163initial measurement 161–162recognition/derecognition 168subsequent measurement 162
financial instruments 156–170accounting standards 156amortisation 162definition financial instrument
157disclosures 169fair value accounting 64, 161–163fair values, greater volatility through
greater use of 65–66growth of 60in notes 93scope of 156strengthening of standards on 62under UK GAAP 169–170
Financial Reporting Council (FRC)Board 36–37formation and structure 36–38opinion of Martin Moore QC to
30–31preamble to Combined Code 196replaces APB 16role 15
Financial Reporting Review Panel(FRRP)
annual report 2007 92, 93
extension of remit to directors’reports 204–205
extension of role to cover directors’reports 58
on further note disclosures forestimates 93
as part of FRC 36press release on choice of dates for fair
value purposes 106report on implementation of IFRS 58,
92role 15–16role and activities 39–40statement on Wiggins Group Plc case,
on revenue recognition 90–91financial reporting standards (FRSs) 16,
226 see also entries for individualstandards
issue of 16in UK GAAP 13
Financial Services Authority (FSA) 52see also Disclosure andTransparency Rules (DTR);Listing Rules
summary of CESR recommendationson presentation of APMs 58
financial statements see accountsfinancial statements, definition 80financing cash flow 91fixed assets see also tangible fixed assets
definition 127IAS 1 classification 127impairment 65
fixed rate interest rate swapgains/losses 87
fixed to floating interest rate swaps 166floating to fixed swap 166foreign currency forwards 166foreign currency gains/losses as
comprehensive income 87foreign subsidiaries, translation of net
assets of 87form v. substance 44–51
leases 137formats for accounts
CA 1981 61SI 2008/410 32
forward contracts 166
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Framework for the Preparation andPresentation of FinancialStatements (IASB) 30, 124, 131
FRS 2 73FRS 3 56, 82, 83, 84FRS 4 169–170FRS 5 45–51, 74, 131, 137, 146
Application notes 46–47FRS 6 100, 110–111, 112FRS 7 100, 108, 112FRS 8 210, 211–212FRS 9 77–78, 78, 78–79FRS 10 100, 108, 109, 112, 128, 129FRS 11 65FRS 12 65, 130, 131, 132–133FRS 15 92, 128FRS 16 117FRS 17 148, 150, 152, 153, 189, 190
TECH 50/04 guidance 154FRS 18 92FRS 19 121FRS 20 171, 178, 191FRS 25 33, 169FRS 26 64, 125, 169–170FRS 29 169–170FRSSE 24, 25, 31–32
GAAP, definition 12–14gains
definitions 186reporting in STRGL 10–11
gearingdefinition 134as ratio in loan agreement 59
GEC/AEI takeover 62going concern status, doubts about,
‘modified’ audit reports 41–42goodwill
acquisition accounting 103–104,108–110
amortisation 100exception to 129under IFRS 57
bargain purchase where negativegoodwill 110
definition 109–110different accounting approaches
109
different approaches by UK GAAPand IFRS 3 105–106
impairment 65, 105–106, 128measurement of value 125in mergers and acquisitions 100, 101,
104positive and negative goodwill 110under UK GAAP 100–101written off to reserves 70
‘gross equity method’ 79‘grossing-up’ in acquisition
accounting 103group accounts see consolidated accountsgroup reconstruction relief 112–114group reconstructions
FRS 6 111IASB project on 108merger accounting 104, 105
group reserves in merger accounting 104‘group returns’ 24groups
composition of 69, 72consolidated accounts following
changes in 75listed groups 28measures to restrict mixed use of UK
GAAP and IFRS 122–123use of merger accounting in
reconstructions 100guarantee as obligation 132
half-yearly financial reportAIM Rules for Companies 53FSA Rules 52
harmonisation of standardsASB’s role in 15–17as continuing process 61current situation in UK 25dividends out of pre-acquisition
profits, realised gains 192in EU 20–22form v. substance 50IASB/FASB agreements 22–23implications for UK 23–25income statement 86international harmonisation 17–18merger accounting 112UK GAAP with IFRS 24
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hedge accounting 167hedging, examples 166hedging instruments’ gains/losses as
comprehensive income 87held for trading, financial
assets/liabilities 163hire purchase
contract as lease 138form v. substance 44
historical cost accounting 63HM Revenue & Customs
acceptance of IFRS 24–25, 121–123tax assessment by 71
holding company income statement,exemption fromconsolidation 74–75
housebuilders, FRRP’s focus on 39–40
IAS 1 90actuarial gains/losses as
comprehensive income 152balance sheet 88–89
requirement for 29cash flow statement 92classification of current/non-current
assets 127composition of accounts 80–81current assets and liabilities 89disclosure of dividends 85disclosure of material items of income
and expense 213equity accounting 78exceptional items 83IASB ‘Basis of conclusions’ 82liabilities 134note disclosures 93override for true and fair view 31performance statements pre- and
post-amendment 11–12revised version 56, 86statement of comprehensive
income 81–82, 88statement of comprehensive income,
requirement for 29IAS 7 89, 91IAS 8 51, 92IAS 12 89, 117, 118, 119, 120–121, 134
IAS 16 91–92, 128IAS 17
allocation of interest income 141compared with SSAP 21 51, 137,
145–146definitions of finance/operating
lease 138disclosures 145guidance on classifying leases into
finance or operating 142–143IFRIC 4 guidance on 138sale and leaseback
transactions 144–145IAS 18 92IAS 19 148, 150, 150–153, 153–154,
190TECH 50/04 guidance 154
IAS 22 105IAS 24 210, 210–211IAS 27 72, 72–73, 73IAS 28 77, 77–78, 210IAS 31 75, 77, 78, 210IAS 32 19, 33, 50–51, 156–158, 159,
169IAS 33 85–86, 95, 95–96, 98, 98–99IAS 34 52IAS 36 65IAS 37 65, 130, 131, 132–133IAS 38 108, 128IAS 39 19, 125, 157–158
Application Guidance 165categories of financial
assets/liabilities 161definition fair value 165equivalents in UK GAAP 169–170hedge accounting use criteria 167mixed model approach 64recognition/derecognition of financial
assets/liabilities 168used in boiler plating 92
IAS 40 64, 180, 183IAS 41 125IAS group accounts 29IAS individual accounts see individual
entity accountsIAS Regulation, audit reporting under 40ICAEW 35
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guidance on accounting for goods soldsubject to reservation of title 45
guidance on off-balance sheetfinance 45
release of TECH 7/03 184TECH 50/04 154website 185
ICAEW Recommendations 15ICAI 35ICAS 35
release of TECH 7/03 184TECH 50/04 154
identifiable, definition 109IFRIC 4 138, 146IFRIC 8 177IFRIC 11 177, 178IFRIC interpretations
equivalence to UITF Abstracts 37list of 224
IFRSacceptance by HMRC 24–25,
121–123adoption 20, 22amortisation of goodwill 57application of 80assets on balance sheet 127authority 20CA 2006 applied to 28–32defined benefit schemes, contrast with
UK GAAP 153–154definition 14, 20fair value measurement of assets,
contrast with UK GAAP 125finance leases 139–142form v. substance in 50–51FRRP report on implementation by
listed companies 58, 92leases 138–145minimum requirements for
consolidated accounts 53–54mixture of UK GAAP and 122–123obligation to continue using 29operating leases 138–139preparation of ‘group returns’ and
‘consolidation packs’ 24SEC reform permitting use of 23share-based payments 172–178
for SMEs 24, 25, 32use by AIM companies 21
IFRS 1 ‘First time adoption ofInternational Financial ReportingStandards’ 22
rules for converting to 70IFRS 2 62, 171, 172, 191
disclosures 177employee share ownership trusts
178IFRIC 8 on scope of 177modified grant date method of option
pricing 174–175IFRS 3 100, 101, 103
application of 104–108revised version 100, 101
IFRS 5 73, 89, 134IFRS 7 157, 169IFRS 8 63, 213IFRS accounts, exceptions allowing
discontinuance 28IFRS GAAP
components 13definition 13reporting of performance under 6, 11UK GAAP aligned with
gains, reporting of 11immaterial information, omission of, SI
2008/410 rules 33impairment see also amortisation
assets 125–126goodwill 103–104, 109–110, 128instead of amortisation 129review 101
impairment of assets 65impairment write-downs 83income statement 6, 12 see also profit
and loss (P&L) account;statement of comprehensiveincome
combining into statement ofcomprehensive income 81
content 81–82example of 8, 10exemption from consolidation for
holding companies 74–75focus of 7
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income statement (cont.)under IFRS 11in merger accounting 101merger accounting 104presentation of items 84–85UK GAAP/IFRS alignment 86
individual accounts requirements of CA2006 28–29
individual entity accounts 25distinguished from consolidated
accounts 69–71presentation with or separate to
consolidated accounts 93–94retention of UK GAAP for 94tax assessed on 71
industry practice 14information distributors as part of
‘corporate reporting supplychain’ 55
information technologies as part of‘corporate reporting supplychain’ 55
initial accounts 181–182initial public offering defined as
transaction 42insurance companies
consolidated accounts 71SI 2008/410 rules 32
intangiblesacquisition accounting 108–110amortisation 129on balance sheet 89definition: intangible asset 109different approaches by UK GAAP
and IFRS 3 105examples 109impairment 65measurement of value 125reliable measurement of fair value
109intellectual property, amortisation 129interest rate swap 166interest rate swap, gains/losses for fixed
rate 87interim accounts 181–183interim management statement 52–53interim report see half-yearly financial
report
internal control disclosures in TurnbullReport 198–199
internal control statementdisclosures 198–199
International Accounting StandardsBoard (IASB) 13
approach to standards contrasted toFASB 63
‘Basis of conclusions’ re IAS 1 82development of IFRS for SMEs 31formation 37formation, role and structure 18Framework 14, 30Framework for the Preparation and
Presentation of FinancialStatements 124, 131
level of work compared to IASC 19list of statements 224objective of greater use of fair
value 166project for new guidance on lease
accounting 147project on business combinations 100,
108, 112relationship with FASB 18, 19, 22–23statement on de facto control 73
International Accounting StandardsCommittee Foundation(IASCF) 18
International Accounting StandardsCommittee (IASC) 13, 18
international accounting standards(IFRSs, IASs) see also entries forindividual standards
continued use and revision 19in IFRS GAAP 13lists of 223–225use by developing countries 18use by international capital markets 18
international capital markets, use of IASby 18
International Financial ReportingInterpretations Committee(IFRIC)
interpretations 14 see also entries forindividual IFRICs
in IFRS GAAP 13role 19
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international financial reporting standards(IFRSs) see entries for individualstandards
international GAAP see IFRSintra-group transactions
elimination in consolidatedaccounts 76–77
merger accounting 105realised profits 191–193
inventorieson balance sheet 89measurement of value 125
investing cash flow 91investment companies, SI 2008/410
rules 33investment properties
on balance sheet 89carrying at valuation or cost 64measurement of value 125
investmentsaccounted for using equity method 89measurement of value 125
investorsas part of ‘corporate reporting supply
chain’ 55use of accounts by 58–59
ISA 700 41issued capital shown on balance sheet
89
Joint Monitoring Unit 38joint ventures
consolidated accounts 77–78, 78–79proportional consolidation 75relative importance to associates 79share of profit or loss entered on
income statement 82SI 2008/410 34
key performance indicators (KPIs)in business review 5disclosures 207
land and buildings leases 144, 146leases 137–147 see also finance leases;
operating leasesclassification into finance or
operating 142–144
disclosures 145finance leases 137FLA SORP 147form v. substance 45future accounting developments 147IASB project for new guidance on
147under IFRS 138–145land and buildings 144, 146lease term, definition 144operating leases 137sale and leaseback
transactions 144–145under UK GAAP 145–147
leasing industry, changes in, effects onaccounting 60
legal agreements, accounting terms in12
legislation, changes in, effect onaccounting 61
leisure and travel sectors, FRRP’s focuson 39
liabilities 130–136 see also assets;contingent liabilities; obligation
classification as currentliabilities 133–134
for current tax, on balance sheet 89for deferred tax, on balance sheet
89definition: liability 130, 131disclosure 134–136measurement 133in merger accounting 101need for an obligation 131preference shares presented as,
realised loss 191presentation on balance sheet 88–90,
133–134recognition 131–133role of current, non-current and
long-term liabilities in businessfinance 134
SI 2008/410 formats, shown in 32limited liability for auditors 42listed companies, consolidated
accounts 71listed groups, choice of IFRS or UK
GAAP 28
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Listing Rules 14, 52disclosure of directors’
remuneration 207–208disclosures 195disclosures under 7in IFRS GAAP 13related party relationships and
transactions, disclosures 212in UK GAAP 13
lists of accounting standards 223–228loan obligations, initial measurement
of 162loan stock (convertible) and diluted
EPS 98London Stock Exchange 53long-term finance, ‘gearing’ relationship
with long-term liabilities 134long-term incentive plans (LTIPs) 168,
172–173definition 208
long-term liabilities, role in businessfinance 134
lossesentered on income statement 82equivalence to net cash flow 90
management accounting, definition 4management’s role in ‘earnings
game’ 56Manual of Accounting – Management
Reports and Governance 2008(PricewaterhouseCoopersLLP) 207
marking to model v. marking tomarket 166
‘Memorandum of Understanding’(IASB/FASB) 23
merger accounting 104banning of 75, 100choice of 75not permitted under IFRS 101, 105under UK GAAP 100, 110–114use in group reconstructions 100
merger relief 112–114merger reserve 113, 186mergers, defined as transaction 43minimum lease payments 146
definition 143
minority interest 75, 76acquisition accounting 103on balance sheet 89profit attributable to 96–97share of profit or loss entered on
income statement 82total comprehensive income 87
mixed model (assets at cost and fairvalue) 64
‘modified’ audit reports 41–42modified grant date method of option
pricing 174–175example 176
Monte-Carlo simulation model of optionpricing 174
Moore QC, Martin 30–31Morris Review of the actuarial
profession 38
names of audit firm and audit partner onreports 42
natural disasters, costs as extraordinaryitem 84
negative goodwill 110net assets
acquired, fair value 107–108definition 180
net cash flow, equivalence profit orloss 90
net investment hedge 167net realisable value (NRV) 125–126non-controlling interest see minority
interestnon-current assets see fixed assetsnon-current liabilities, role in business
finance 134non-executive directors
on audit committees 54questions to ask 219–222
non-GAAP numbers see alternativeperformance measures (APMs)
non-listed/non-AIM companies,consolidated accounts 71–72
‘non-subsidiary subsidiaries’ 45Northern Ireland, CA 2006 extending
to 26‘Norwalk agreement’ 22–23note disclosures see disclosures
248
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obligationconstructive obligations 132–133as prerequisite for liability 131recognition of 132
off-balance sheet finance 45operating and financial review (OFR) 5
disclosures 205–207Reporting Statement 1 206–207withdrawal of statutory
requirement 205operating cash flow 91operating leases 137
annual charges for, example 139definition operating lease 138disclosures 145under IFRS 138–139leases classified as 142–144
operating profit 56, 84entered on income statement 82
operating segments 213opinion see auditors’ opinionoption-pricing models 174ordinary shares
balance sheet classification 159in calculating basic EPS 96–97potential ordinary shares 98
other comprehensive income 56 see alsototal recognised gains and losses
gains and losses reported as 64other recognised gains and losses 64override, true and fair
acquisition and mergeraccounting 111
CA 2006 30in IAS 1 31
‘own shares’ see treasury sharesowners of parent company 87
issued capital and reserves on balancesheet 89
profit attributable to 96–97ownership, convergence with control
73
parent companiesretention of UK GAAP for individual
entity accounts 94as subsidiaries, exemption from
consolidating accounts 71
Parmalat Scandal 62patents, amortisation 129Penrose Report on Equitable Life 16pension defects, realised profits 190pensions 148–155 see also defined
benefit schemes; definedcontribution schemes
analysis of pension fund deficit(example) 151–152
changes in accounting treatment 189‘corridor’ method of
accounting 151–152difference between pension scheme
opening/closing surplus/deficit(example) 151
effect of pension costs on reserves155
effect on realised and distributableprofits 154–155
option to recognise actuarial gain/lossin other income 152
projected unit credit method forvaluing scheme assets 150–151
performance statements 6, 9–12two-statement approach 12
permanent differences 120phantom share option schemes 175‘phantom share options’ 173positive goodwill 110potential ordinary shares 98pre-acquisition reserves, merger
accounting 104precision in accounting terminology,
need for 59preference shares
balance sheet classification158–159
in calculating basic EPS 96–97presented as liabilities, realised
loss 191preliminary announcements 52present fairly, IFRS requirement to 30present value, definition 126presentation of items
APMs 57–58in balance sheet 90cash flow statement 91in income statement 84–85
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price-sensitive information, trendstowards earlier disclosure 63
PricewaterhouseCoopers LLP, Manual ofAccounting – ManagementReports and Governance 2008207
‘principle v. rules’ debate 63privately held companies, application of
IFRS for SMEs to 32pro-forma numbers see alternative
performance measures (APMs)professional bodies’ statements and
recommendations 14Professional Oversight Board (POB)
as part of FRC 36roles 38
profitfrom continuing operations, diluted
EPS 98definition 186difference to cash flow 7–9from discontinued operations, diluted
EPS 98dividends out of pre-acquisition
profits, realised gains 191entered on income statement 82equivalence to net cash flow 90realised and distributable
profits 179–193references in agreements to 12before and after tax 56before tax 84total profit and diluted EPS 98
profit and loss, decreasing emphasis oncalculation of 65
profit and loss (P&L) account 6 see alsoincome statement
accordance with substance 33CA 2006 rules 29SI 2008/410 formats 32–33
projected unit credit method forvaluing pensions schemeassets 150–151
property, plant and equipment seetangible fixed assets
proportional consolidation 75similarity to equity accounting 78
provisionson balance sheet 89definition 131
Public Companies Accounting OversightBoard 62
qualified opinion 41qualifying consideration 187quasi-subsidiaries 46, 74questions for non-executive
directors 219–222quoted companies
accounts on website, requirement topost 52, 53
minimum requirements for IFRSconsolidated accounts 53–54
requirement to prepare directors’remuneration report 40
withdrawal of proposal for statutoryOFR for 5
‘readily convertible to cash’definition 188fair value gains 190
realised profits 179–193changes in accounting
treatment 188–190definition 184definition: realised profit 187effect of pension costs 154–155examples 189–193TECH 01/08 185–186
reconstructions, use of mergeraccounting 100
recoverable amount, definition 125‘recycling’ of gains 11regulators as part of ‘corporate reporting
supply chain’ 55related party relationships and
transactionsAIM Rules for Companies 53definition related party 210disclosures 210–212Listing Rules disclosures 212
relevant accounts 181–183reliable measurement of fair value of
intangibles 109
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remuneration, definition 208reorganisations
constructive obligations arisingfrom 132
fair value in accounting forcosts 107–108
‘report and accounts’, use of term 80Reporting Standard 1 205–206Reporting Statement 1 206–207reputation of company, recognition on
balance sheet 124research and development expenditure,
recognition on balance sheet125
reservation of title, goods sold subject to,form v. substance 45
reserveson balance sheet 89effect of pension costs 155merger accounting 104undistributable reserves 180
restructuring expenses 83as extraordinary item 84
retail sector, FRRP’s focus on 39revaluation gains
deferred tax 121example 122
revaluation gains/losses, ascomprehensive income 87
revenue, inclusion on incomestatement 81
revenue recognitionFRRP statement on Wiggins Group Plc
case as to 90–91increasing complexity of 60–61
revision of accounts, CA 2006 rules31
rights issues as total comprehensiveincome 87
Romalpa case 45‘roughly right rather than exactly
wrong’ 126
s. 615 relief 113–114‘safe harbour’, directors’ 205sale and leaseback transactions
144–145
sale and purchase agreement, earn-outclause in 59
sale of business, profit or loss asextraordinary item 84
Sarbanes-Oxley Act (‘Sarbox’) 62scandals, effect on accounting 62‘scrip dividends’ 180secondary listing of shares, defined as
transaction 42Securities and Exchange Commission
(SEC), reforms to accountspreparation and filing rules 23
segment disclosure 212–215operating segments 213
segment reporting 63share awards 174share-based payments 171–178
cash-settled share-based paymenttransactions 175–176
definition share-based paymenttransaction 172
IFRIC 11 177IFRIC 8 177under IFRS 172–178in notes 93realised gains/losses 190–191through trusts 177under UK GAAP 178
share capital and debentures,disclosure 170
share capital, raising of, defined astransaction 42
share optionscost of 171definition share option 208as part of executive remuneration
171‘phantom share options’ 173, 175pricing models 174role in executive remuneration
scandals 62share premium 112–114shareholders’ equity 130
analysis of changes (example) 184role in gearing 134
shareholders’ equity statement, exampleof 9
251
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shares see also ordinary shares;preference shares; share options
equity shares and CA 2006 159–160issue by group following merger 104issue of 160–161potential ordinary shares 98types and balance sheet
classification 158–159SI 2008/374, consolidated accounts
rules 53SI 2008/409 27SI 2008/410 27
acquisition and mergeraccounting 111
application on change to IFRS 28associates and joint ventures 34banks and insurance’s companies,
requirements for 32basic rule of consolidation 34carrying of assets, alternative rules
for 33consolidated accounts 71–72derivatives, disclosure of fair
value 170directors’ report disclosures 196disclosure of share capital and
debentures 170fair value 33formats for accounts 82, 90formats for balance sheet and P&L
account 32–33group accounts 30in IFRS GAAP 13immaterial information, omission
of 33investment companies 33notes to financial statements 33in UK GAAP 12UK GAAP-only requirements 32–34
SIC 12 50, 73–74, 177–178SIC 15 137, 139SIC 27 137–138, 146SIC interpretations, list of 224–225‘single entity’ see individual entity
accountssmall companies rate of corporation
tax 116
SMEs see also FRSSEfiling of abbreviated accounts 52FRSSE 24, 25IFRS for 24, 25
Smith Report guidance on auditcommittee report disclosures 198
smoothed results 55smoothing v. volatility 65–66software industry, revenue
recognition 60–61‘solus’ see individual entity accountssolus accounts see individual entity
accountsSORIE 86–88
combining into statement ofcomprehensive income 81
‘special’ dividends 180special purpose entities (SPEs)
consolidated accounts 73–74stronger US rules for disclosure and
consolidation 62SPVs, form v. substance applied to 50SSAP 16
development 15in UK GAAP 13withdrawal 15
SSAP 19 64SSAP 21 51, 137
differences to IAS 17 145–146Guidance Notes 147
SSAP 24 189SSAP 25 214–215standardised wording, usefulness of
92Standards Advisory Council (SAC) 19standards-setting bodies
continuing work of 61as part of ‘corporate reporting supply
chain’ 55statement of accounting policies 7statement of changes in equity (SOCIE),
definition 11statement of comprehensive income 6,
81–88 see also income statementdefinition 11–12IAS 1 rules 29in merger accounting 101
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statement of directors’ responsibilitiesdisclosures 199–201example 202
statement of financial position 6Statement of Principles (ASB) 131statement of total recognised gains and
losses (STRGL) 6, 10–11, 29,64
actuarial gains/losses in 153similarity to statement of
comprehensive income 88statement of total recognised income and
expenses (SORIE) 6definition 11
statements of recommended practice(SORPs) 17
FLA 147statements of standard accounting
practice (SSAPs) see also entriesfor individual standards
list of 226–227statutory requirement for OFR,
withdrawal of proposal for 5stock (convertible) and diluted EPS 98stronger standards, expectations of
effectiveness against futurescandals 62
subsidiariesdefinition subsidiary 72definition subsidiary undertaking 72exclusion from consolidated
accounts 74IASB project on spin-offs 108
substance, accordance with 33substance over form see form v.
substancesubstantially all, definition 146summary financial statements 53–54
regulation permitting 52
table of origins for CA 2006 229–231tangible assets, impairment 65tangible fixed assets
on balance sheet 89choice of measurements for 91–92measurement of value 125in notes 93
revaluation gains/losses ascomprehensive income 87
stating at value 64tax base of assets and liabilities 118taxation 115–123 see also current tax
assessment on individual entityfinancial statements 71
corporation tax rates 116current tax 117deferred tax 117–121distributable profits 24–25example of computation 116expense entered on income
statement 82liabilities shown on balance sheet 134on other comprehensive income 87
TECH 01/08 35–36, 154, 184–193TECH 02/07 186, 188, 190TECH 2/07 185TECH 50/04 154TECH 64/04 190TECH 7/03 184, 185, 186, 188, 190temporary/timing difference 116, 118,
119, 120–121calculation of (example) 120
third-party transactions, mergeraccounting 104
‘through the eyes of management’approach 213
total comprehensive income 87,183–184
total profit, diluted EPS 98total recognised gains and losses 56, 64
see also other comprehensiveincome
TR 481 184TR 482 184trade and other payables, on balance
sheet 89trade and other receivables, on balance
sheet 89transactions
costs 161definition transaction 42–43
Transparency Directive, requirement forstatement of directors’responsibilities 200
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travel and leisure sectors, FRRP’s focuson 39
treasury shares, CA 2006 rules 168true and fair view see also override
CA 2006 rules 30–31definition 44form v. substance 44
Trustee Appointments AdvisoryGroup 19
trustsform v. substance applied to
50share-based payments
through 177–178Turnbull Report, internal control
disclosures 198–199turnover see revenueTweedie, Sir David 18two-statement approach to reporting
performance 12
UITF 13 178UITF 17 178, 190UITF 38 190UITF abstracts 14, 15
approval, issue and status 37equivalence to IFRIC
interpretations 37list of 227–228in UK GAAP 13
UK GAAPalignment with IFRS as to reporting of
gains 11CA 2006 applied to 28–32components 12–13composition of accounts 81continuing use of 17deferred tax 121defined benefit schemes, contrast with
IFRS 153–154definition 12–13fair value measurement of assets,
contrast with IFRS 125financial instruments 169–170future of 25leases 145–147merger accounting 110–114
differences to IFRS 3 105future developments 112
mixture of IFRS and 122–123reporting of performance under 6retention for parent company
accounts 94share-based payments 178SI 2008/410 rules solely to 32–34
undistributable reserves 180unqualified audit report 41Urgent Issues Task Force (UITF) see also
UITF abstractsas part of ASB 37as part of FRC 36role 37
US GAAPpros and cons 22reconciliation, SEC reform 23
use of accounts for analysis andinvestment 58–59
valuation basis for tangible fixedassets 91–92
value in use, definition 126volatility in results, trend towards
65–66
warehousing of stock, form v. substanceapplied to 49–50
websiteICAEW 185posting of accounts on, requirement
for 52, 53‘whisper number’ 56wholly owned subsidiaries of privately
held companies, application toIFRS for SMEs to 32
Wiggins Group Plc, FRRP statement oncase as to revenuerecognition 90–91
workforce, recognition on balancesheet 124
WorldCom scandal 62worth, definition 125
XBRL as part of ‘corporate reportingsupply chain’ 55
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