Other Features of Financial Statements

Question 1

Annual Report: Components

Answer 1

1) Strategic Report: Narrative on business activity, risks, and future outlook

2) Directors’ Report: Company’s financial position, compliance, and governance

3) Remuneration Report: Details of directors’ compensation

4) Corporate Governance Statement: Explains governance practices

5) Auditor’s Report: Auditor’s opinion on the financial statements

Question 2

Strategic Report: Components

Answer 2

1) Overview of business performance and risks

2) Going concern assessment

3) Environmental, social, and employee-related disclosures (esp. for quoted companies)

Question 3

Notes to the FS (IAS 1)

Answer 3

Provides further detail, explains figures and provides breakdowns

Include disclosures on:

Contingent liabilities (IAS 37)
Capital commitments
Financial instruments (IFRS 7)
Related party transactions (IAS 24)

Question 4

Substance of Transactions

Answer 4

Relevant where:

Sale and leaseback arrangements

Consignment stock (inventory not legally owned but controlled)

Debt factoring (sale of receivables with/without risk transfer)

Question 5

Limitations of FS

Answer 5

Despite being regulated, published FS have some limitations:

1) Based on historical cost – may not reflect current values

2) Creative accounting and intra-group transactions may distort accuracy

3) Non-financial factors (e.g., customer satisfaction, ESG performance) excluded

4) Not forward-looking

5) Affected by seasonality

6) May lack comparability across companies or periods

7) Only reflect a snapshot in time