Course Description

This is an introductory course in financial reporting and analysis. Accordingly, the key objective of this course is to provide students with the basic concepts and practices of financial reporting and analysis. It also aims to prepare students for specialization courses on accounting and finance. First, it introduces the legal and practical aspects of financial accounting, handling of transactions and preparation of financial statements. It then discusses the accounting and disclosure of major components of financial statements. In the third module, the course covers the concepts and practice of the analysis and interpretation of financial statements including analysis for investment in securities. Specific objectives of this course are:

• To provide the students with the basic concepts and practices leading to preparation and presentation of financial statements.
• To familiarize the students with the financial statements of an organization as a user of management information.
• To introduce the students to the legal and practical aspects of accounting of major components of financial statements.
• To discuss the various concepts, tools and practices in analysis and interpretation of financial statements.

Course Contents

Introduction                                                                                                                    

The accounting cycle; Sources of accounting information; Forms of business organizations; Users of accounting information; The accounting profession; Desirable qualities of accounting information; Legal environment of accounting; Fundamental accounting assumptions; Branches of accounting.

Basics of Financial Reporting                                                                                     

How is accounting information communicated; Annual report: contents, structure, provisions in the company laws, relevant provisions of the Nepal Accounting Standards and the International Accounting Standards/International Financial Reporting Standards; Interim accounting reports.

Financial Statements                                                                                                      

Major financial statements: balance sheet, income statement, statement of retained earnings, cash flow statement; Preparation of financial statements; Legal provisions relating to presentation of financial statements; Provisions of Nepal Accounting Standards and International Accounting Standards on presentation of financial statements; Notes to accounts.

Business Transactions and Accounting Cycle                                                            

Entity, transactions and events; Accounting equation; Transactions analysis; Rules for debit and credit; Bases of accounting; Recording and posting of transactions; Preparation of unadjusted trial balance; Adjusting entries for accruals and deferrals; Adjusted trial balance; Worksheet; Closing entries; Preparation of financial statements with schedules.

Accounting and Reporting of the major Components of Financial Statements      

Current assets: Inventories – recording, costing methods; valuation, presentation in financial statements; Recording and presentation of bad and doubtful debts.

Non-current assets: Capital, revenue and deferred revenue expenditure; Capitalization process, Accounting and reporting of fixed assets and depreciation; Recording, amortization and presentation of intangible assets.

Bonds and debentures: Nature of bonds and debentures; When should a corporation issue bonds?; Accounting for issue, amortization and redemption of bonds.

Stockholders' equity: Nature; Accounting for issue of preferred and common stocks; Additional paid-in-capital; Dividends and retained earnings; Stock splits; Treasury stock.

Financial Statements Analysis

Introduction to financial statements analysis: Objectives, applications, precautions in statements analysis, limitations of financial statements, tools for analysis.

Analysis and interpretation of financial statements: Reading an annual report; Comparative and common-size statements: horizontal and vertical analysis; Ratio analysis and interpretation: liquidity, solvency, profitability and stock market ratios; Cash flow statement: operating, investing and financial activities.

Basic Book

Porter, Gary A. and Norton, Curtis L., Financial Accounting: The Impact on Decision Makers, New York: The Dryden Press.

References

Narayanaswamy, R: Financial Accountin:, A Managerial Perspective, New Delhi: Prentice Hall of India.

Koirala, Madhav Raj, Sharma, L P B., Sharma, N., Acharya, C., and Gautam, C. M, Financial Accounting, Kathmandu: Budha Academic Publishers and Distributors Pvt. Ltd

Wild, John J, Subramanyam, K R and Halsey, Robert F: Financial Statements Analysis, Singapore: McGraw Hill International Edition.

Relevant publications of International Accounting Standards Board and Accounting Standards Board of Nepal.

Acts relating to Securities Board of Nepal and Nepal Stock Exchange.