accounting and auditing responsibilities of sme's
TRANSCRIPT
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
1/129
2012 BICPA
Accounting and
AuditingResponsibilities of
SMEsWorkshop
i-Centre, Anggerek Desa, Bandar Seri Begawan
February 28, 2012
Presented by: Pg Hj Moksin
President
BICPA
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
2/129
2012 BICPA
Ours is the Age of Machine.
Also, it is the Age of the Accountant.A little literacy in accounting has
become a prime necessity.
Paul A. SamuelsonNobel Prize Economist
2
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
3/129
2012 BICPA
Introduction
Objectives of attending
3
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
4/129
2012 BICPA
OBJECTIVES
TO ENHANCE YOUR ROLE AND
UNDERSTANDING AS DIRECTORS OF
COMPANIES
ROLE OF ACCOUNTANTS
ROLE OF AUDITORS
ROLE OF TAX AGENTS
4
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
5/129
2012 BICPA
TODAYS PROGRAMME
0900hrs WORKSHOP COMMENCES 1030hrs WORKSHOP CONCLUDES
1100-1200hrs CLINIC
5
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
6/129
2012 BICPA
Topics
Directors duties
Accountants role
Auditors role
Tax agents role
Income tax
Understanding financial statements
Assumptions underlying financial statements Accounting standards
Ratio analysis
Limitations of financial analysis/statements
6
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
7/129
2012 BICPA
Role of
directors, accountants,auditors and
tax agents
7
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
8/129
2012 BICPA
Who is a director?
A person appointed to direct and manage
a companys affairs.
8
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
9/129
2012 BICPA
Director
Board
Appointment
Disqualification
Removal
Duties
9
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
10/129
2012 BICPA
Board of Directors
A body of directors whose powers can be
exercised only, collectively, at properly
constituted board meetings.
10
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
11/129
2012 BICPA
Appointment of director
He must consent and register with the RoC
11
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
12/129
2012 BICPA
Disqualification of directors:
Bankruptcy
An undischarged bankrupt except with the leave of the Court
Unfit directors of insolvent companies
A person who has been an unfit director of an insolvent company which has
gone into liquidation
What is unfit?
The Court will look into the following:
Any misfeasance or breach of fiduciary duty or other duty owed by a director
Any misapplication or retention of money or property of the company
The extent of the directors responsibility for the causes of company failuresPersistent default
A person who has been persistently in default in delivering
documents to the ROC.
Also, a person who has been convicted of any offence involving fraud
or dishonesty 12
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
13/129
2012 BICPA
Removal of directorsA director may resign at any time provided there
are at least two directors remaining on the
board.
A director may be removed by the company ingeneral meeting by an ordinary resolution.
Division of powers between the Board and the
General Meeting
The division of powers between the board and
the company in general meeting depend on the
construction of the articles of association. 13
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
14/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
15/129
2012 BICPA
Directors duties:
Most of the companys powers are vested in the board of
directors. Directors exercise these powers either directly or
through managers appointed by them.
As trustees
Because of their fiduciary position with the company,
directors are always considered as trustee.
As agents
As agent, a director must be obedient to carry out his
principals instructions and not depart from them.
15
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
16/129
2012 BICPA
The duties of directors can conveniently
be classified under 3 headings:
Fiduciary duties of loyalty and good faith
Duties of care and skill
Statutory duties
16
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
17/129
2012 BICPA
Fiduciary Duties
17
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
18/129
2012 BICPA
Fiduciary duties
Bona fideDirectors must act bona fide in what they consider is in the
interests of the company.
Proper purpose
Directors must exercise their powers for a proper purpose.
Unfettered discretion
Directors must not fetter their discretion in the exercise of their
powers.
Conflict of duty and interest
As fiduciaries, directors must not place themselves in a position
in which there is conflict between their duties to the company
and their personal interests.18
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
19/129
2012 BICPA
Fiduciary Duties
Contracts with the company
A director must disclose his interest in any contract made by the company so
that the company has the opportunity to ratify or repudiate it.
Secret profits
Directors being fiduciaries cannot use their position to make a personal gain
(secret profit) without the assent of the company.
Abuse of confidence
Directors cannot use for their own purposes anything entrusted to them for use
on behalf of the company.
Competition
A director of one company is at liberty to become a director of a rival company
so long as he does not divulge confidential information.
19
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
20/129
2012 BICPA
Duties of Care and Skill
20
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
21/129
2012 BICPA
Duties of Care and SkillA director must show that a degree of care and skill which
might reasonably be expected from a person of his
knowledge and experience
A director is not bound to give continuous attention to
the affairs of his company. His duties are of an intermittent
nature, to be performed at periodical board meetings. He
is not bound to attend all such meetings but should attend
whenever in the circumstances he is reasonably able to do
so.
In the absence of suspicious circumstances, a director
may trust another company official to carry out those
duties which may properly be delegated.21
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
22/129
2012 BICPA
Statutory duties
22
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
23/129
2012 BICPA
Statutory dutiesA director must at all times act honestly and use reasonable diligence in
the discharge of the duties of his office. Failure to exercise diligence may
be an indication of dishonesty.
Honesty
In the discharge of his duties, a director must act honestly andwith utmost good faith for the benefit of the company. A director
should not take into consideration his personal or outside
interests.
Diligence
A director is obliged to use reasonable diligence in his attention to
the business of the company. The exercise of discretion and care
is essential.
Other statutory duties
The law creates many duties and imposes many liabilities on
directors23
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
24/129
2012 BICPA
Other Statutory duties 1/3S107 Annual returns to be made by company having a share capital
within 28 days of first or only general meeting
S111 An AGM shall be held once at the least in every year penalty
B$2,500
S112 To hold a statutory meeting and furnish statutory report before
commencement of business penalty $2,500
S117 Registration of certain resolutions (e.g. special, extraordinary)
within 15 days of the resolutions being passed penalty B$15 B$50.
S119 Minutes of proceedings of meeting and directors meetings to be
kept in books kept for such purposes. These should be made available for
members inspection.
24
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
25/129
2012 BICPA
Other Statutory duties 2/3
S121 Books of accounts to be properly kept failure to keep will be
liable to $5,000 fine or 2 years imprisonment (if found to commit wilfully).
S122 Profit and Loss accounts and balance sheet to be tabled at general
meeting. Failure - liable to $5,000 fine or 2 years imprisonment (if found
to commit wilfully).
S127 Accounts tabled to contain particulars as to loans to and
remuneration (not salary) of directors etc.
S128 Every balance sheet has to be signed by directors and publicationof balance sheet not signed and not accompanied with auditors report
will be liable to B$5,000 fine.
S129 every member of a company is entitled to receive copies of
balance sheet and auditors report.25
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
26/129
2012 BICPA
Other Statutory duties 3/3
S131 Every company shall appoint at each AGM the companys auditor to hold
office until the next AGM.
S138 Minimum number of directors is 2. At least half should be Bruneians.
Amended Order allows 100% foreigners with certain conditions.
S142 Acts of directors are valid notwithstanding any defects in their
appointment.
S143 Register of directors to be maintained within 14 days of amendments.
S146 Statement of directors remunerations to be furnished to shareholders
penalty B$1,000.
S147 Disclosure of directors interests in contracts penalty B$2,000.26
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
27/129
2012 BICPA
Who is an accountant?
A person responsible on the collating,
recording, reporting and communicatingof financial information and the
preparation of analysis for decision
making purposes.
27
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
28/129
2012 BICPA
Role of an accountant
28
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
29/129
2012 BICPA
WHAT IS BOOKKEEPING?
Process of keeping ful l , accurate, up-to-datebusiness
records.
To provide a systematic method & permanent record of all
transactions. Proper bookkeeping enable businesses to:
(a) Effectively manage cash flow;
(b) Determine the main sources of his profits or cause for
his losses.
(c) Determine the exact financial position of his business
i.e. his assets and liabilities.
(d) Develop plans for the future based on financial trends.29
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
30/129
2012 BICPA
Who is an auditor?
A person or firm appointed to carry outan audit of an organisation.
To be eligible the person must hold
appropriate qualifications and continue
to maintain the appropriate level of
competence.
30
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
31/129
2012 BICPA
What is an auditors report?
A report by the auditors appointed to audit the
accounts of a company or organisation
The auditors of a limited company are required to
form an opinion as to whether the annual accounts
of the company give a true and fair view of its
profit or loss for the period under review and of
the state of affairs at the end of period.
31
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
32/129
2012 BICPA
List of Authorised Auditors(Ministry of Finance website @ 27/2/2012 (updated 27/7/2010))
1. Pengiran Haji Moksin Bin Pengiran Haji Yusof2. Ng Hui Hua
3. Lim Teck Guan
4.Kong Ee Pin
5. Lim Hoon Hui
6. Katherine Lee Chin Fei
7. Lucy Wong Kie Nyuk
8. Hj Shazali bin Dato Hj Sulaiman
9. Diane Wendy Wei
10. Mohd Raman Shah Bin Mohd Shariff
11. Lee Yun Chin
12. Lee Kin Chee13. Lee Kim Yan
14. Lau Kui Hwa
15. Cheng Chew Seng
16. Pengiran Izam Ryan PLKDR Pg Hj Bahrin
17. Sylvester Leong Kian Hock
18. Cynthia Kong Bit Min 32
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
33/129
2012 BICPA
Who is a tax agent?
A person or firm appointed to act as an agent
of a company with regards to its tax
compliance matters.
No academic or professional qualifications
nor certain experience being set by the tax
authority on who can serve as a tax agent.
33
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
34/129
2012 BICPA
Income Tax
Applicable to companies registered under
Companies Act in Brunei Darussalam or elsewhere
All companies are required to submit their tax
returns by April 1/June 30.
No notice of assessment to be issued and tax to be
paid on the basis of return.
34
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
35/129
2012 BICPA
Income Tax
Rates of tax22%
Newly incorporated companiesFirst B$100k
exempt from tax for three years
Tax thresholds1st B$100k only 25% taxed and
next B$150k only 50% taxed
The withholding tax scope has been expanded to
include certain payments made to non tax residents
and tax withheld has to be paid within 14 days
35
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
36/129
2012 BICPA
Income Tax
All complete returns to be automatically accepted under
self assessment
Non/short payment of tax and non submission ofaudited accounts makes the returns invalid/incomplete
Incentives on export sectorfixed tax @1% on
approved exports
Tax credit for TAP contributionadditional credit of
10% on excess of contribution made last year36
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
37/129
2012 BICPA
Understanding Financial Statements
37
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
38/129
2012 BICPA
Short accounts make long friends.
Honore De BalzacFrench novelist & playwright
38
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
39/129
2012 BICPA
Assets and liabilities
Financial statementsDebits and Credits
39
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
40/129
2012 BICPA
Assets, liabilities and owners equity
40
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
41/129
2012 BICPA
Assets
Assets are the economic resources of the
business that can be expressed in
monetary terms.
Assets may take many forms e.g.
physical characteristics (land &
buildings), claims for payment or
services or prepayments41
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
42/129
2012 BICPA
ASSETS
Assets which often change their forms during the course of
business are known as current assets. Circulating or
floating assets are current assets.
Assets which are bought for use, not for re-sale, and are
lasting are called fixed assets.
42
Li biliti
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
43/129
2012 BICPA
Liabilities
Liabilities, or creditors equity, are
obligations or debts that the company
must pay in money or services at sometime in the future.
They represent creditors claims on thecompanys assets
43
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
44/129
2012 BICPA
Liabilities
Creditors whose value often changes are called current
liabilities. Examples of current liabilities are trade creditors
and bank overdrafts.
Liabilities which do not change their value frequently arecalled long-term liabilities. Examples of long -term
liabilities are loans and mortgages. Mortgages are loans
secured on one or more fixed assets.
Capital is classified as a liability of a business because it
represents what the business owes to the proprietor.
44
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
45/129
2012 BICPA
Equity
45
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
46/129
2012 BICPA
Equity
The owners equity is the net assets of
the business i.e. a residual claim to theassets remaining after debts to creditors
have been discharged.
46
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
47/129
2012 BICPA
Working capitalThe part of capital that is employed in its
trading operations. It consists of current
assets less current liabilities.
Intangible asset
Asset with a value but which cannot betouched
47
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
48/129
2012 BICPA
Financial statements
48
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
49/129
2012 BICPA
Financial statements
Balance sheet
Profit and Loss statement
Statement of changes in equityCash flow statement
Notes to the accounts
49
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
50/129
2012 BICPA
Balance Sheet
The balance sheet is a listing of a
companys assets, liabilities and owners
equity on a given date.
50
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
51/129
2012 BICPA
SAMPLE - COY A SDN BHD
(Incorporated in Brunei Darussalam)
BALANCE SHEET
DECEMBER 31, 2009
Note 2009 2008$ $
ASSETS
Current assets:Cash 4 733,454 926,595Trade receivables 43,845 90,198Other receivables 5 1,957,229 1,768,680Inventories 6 3,998,679 3,954,424
Total current assets 6,733,207 6,739,897
Property, plant and equipment 7 1,252,313 1,552,965
7,985,520 8,292,862
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:Trade payables 8 1,988,291 2,087,452Other payables 9 2,643,358 3,473,609Income tax payable 405,278 227,402
Total current liabilities 5,036,927 5,788,463
Long term liability:Hire purchase payables 10 8,458 -
Shareholders equity:Issued capital 11 2,200,000 2,200,000Accumulated profit 740,135 304,399
Net shareholders equity 2,940,135 2,504,399
7,985,520 8,292,862
_________________________________ _____________________________DIRECTOR DIRECTOR
See accompanying notes to the financial statements.
51
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
52/129
2012 BICPA
Profit and Loss Account
Shows the results of operations for a
period and how it is earned
52
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
53/129
2012 BICPA
SAMPLE - COY A SDN BHD
(Incorporated in Brunei Darussalam)
PROFIT AND LOSS STATEMENT
YEAR ENDED DECEMBER 31, 2009
Note 2009 2008$ $
Revenue 1 24,220,285 23,701,188
Cost of sales (19,552,379) (18,876,683)
Gross profit 4,667,906 4,824,505
Other operating income 12 392,751 393,867
Administrative expenses (4,407,922) (4,440,728)
Profit from operations 652,735 777,644
Finance costs 13 (36,000) (43,146)
Profit before income tax 14 616,735 734,498
Income tax expense 15 (180,999) (224,281)
Net profit for the year 435,736 510,217
53
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
54/129
2012 BICPA
Statement of Changes in Equity
Shows the movement of the ownersequity
54
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
55/129
2012 BICPA
SAMPLE - COY A SDN BHD(Incorporated in Brunei Darussalam)
STATEMENT OF CHANGES IN EQUITY
YEAR ENDED DECEMBER 31, 2009
Issued Accumulatedcapital (losses) profit Total
$ $ $
Balance as at January 1, 2008 2,200,000 (205,818) 1,994,182
Net profit for the year - 510,217 510,217
Balance as at December 31, 2008 2,200,000 304,399 2,504,399
Net profit for the year - 435,736 435,736
Balance as at December 31, 2009 2,200,000 740,135 2,940,135
55
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
56/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
57/129
2012 BICPA
SAMPLE - COY A SDN BHD
(Incorporated in Brunei Darussalam)
CASH FLOW STATEMENT
YEAR ENDED DECEMBER 31, 2009
2009 2008
$ $
Cash flows from operating activities:Profit before income tax 616,735 734,498Adjustments for:
Depreciation 356,144 350,342Interest expense 36,000 43,146Gain on disposal of property, plant and equipment - (444)Interest income (6,300) (6,022)
Operating profit before changes in working capital 1,002,579 1,121,520
Trade receivables 46,353 (149)
Other receivables (188,549) (431,647)Inventories (44,255) (804,027)Trade payables (99,161) 477,791Other payables (844,751) (480,960)
Cash (used in) generated from operations (127,784) (117,472)
Income tax paid (3,123) -Interest paid (36,000) (43,146)Interest received 6,300 6,022
Net cash (used in) generated from operating activities (160,607) (154,596)
Cash flows from investing activities:
Purchases of property, plant and equipment (55,492) (27,191)Proceeds from disposal of property, plant and equipment - 1,481
Net cash (used in) generated from investing activities (55,492) (25,710)
Cash flows from financing activities:Hire purchase payable 22,958 -
Net (decrease) increase in cash (193,141) (180,306)Cash at the beginning of the year 926,595 1,106,901
Cash at the end of the year 733,454 926,595
57
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
58/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
59/129
2012 BICPA
Cash Flow Statement
A statement of cash flows classifies cashreceipts and payments into three major
categories of activities:
operatinginvesting
financing59
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
60/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
61/129
2012 BICPA
Investing ActivitiesTransactions involving acquisition and disposal of
assets and investments
Cash Inflows
1. Receipts from sales of
fixed assets
2. Receipts from sales of
investments
3. Receipts from repayment
of loans by borrowers
Cash Outflows
1. Payments to purchase
assets
2. Payments to purchase
investments
3. Payment made to lend
money to borrowers
61
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
62/129
2012 BICPA
Financing Activities
Transactions involving obtaining resources fromowners, borrowing from creditors and repaying
amounts borrowed
Cash Inflows
1. Receipts from issuing
shares/capital
2. Receipts from issuing
bonds payable
Cash Outflows
1. Payments to reacquire
treasury bonds
2. Payments of dividends
3. Payment to settle
outstanding bonds
62
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
63/129
2012 BICPA
Usefulness of Statement of Cash Flow1. Shows the periodic cash effects of a companys
operating, investing and financing activities.
2. It helps users to compare, evaluate and predict cash flows
enabling them to assess its ability to settle liabilitiesand pay dividends.
3. Tells users the managements investing and financing
policies.
4. Provides information in evaluating the companysfinancial flexibility i.e. to generate sufficient amounts of
cash to respond to unanticipated needs and opportunities.
63
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
64/129
2012 BICPA
Happiness is . Positive Cash Flow
Frederick R AdlerNew York lawyer
64
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
65/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
66/129
2012 BICPA
Notes to the accounts
Guides the readers on the basis ofpreparations and the additional
information on the figures reflected in
the various statements
66
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
67/129
2012 BICPA
SAMPLE - COY A SDN BHD
(Incorporated in Brunei Darussalam)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009
1 OPERATIONS
The principal activities of the company are as operators of retail stores and supermarkets.
There have been no significant changes in the nature of these activities during the financial
year.
Revenue represents sales at invoiced values, net of discounts and returns.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTINGThe financial statements have been prepared in accordance with
the historical cost convention, with the provisions of the Brunei Darussalam Companies Act,
Cap. 39 and generally accepted accounting principles in Brunei Darussalam, and are expressed
in Brunei Darussalam dollars.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out) and estimated
net realisable value.
DEPRECIATION - Depreciation is calculated to write off the cost of property, plant and
equipment over their estimated useful lives by the straight-line method. The annual rates of
depreciation are as follows: -
Motor vehicles 20%
Furniture and fittings 10%Office equipment 10%
Equipment and appliances 10%
Electrical fittings 10%
Air-conditioners 20%
Freezers and refrigerators 20%
Cash registers 20%
Fully depreciated property, plant and equipment are retained in the financial statements until
they are no longer in use.
Annual rentals on other leases are charged to the profit and loss statement.67
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
68/129
2012 BICPA
Debits and Credits
The terms debit and credit are used to
describe the left-hand and the right-hand sides of an account
(any type of account)
Credit
Always the right side
Debit
Always the left side
68
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
69/129
2012 BICPA
Debits and Credits
The system of recording debits and credits
is known as double-entry i.e. each
transaction will have its dr. and cr.
The terms debit and credit are not
synonymous with the words increase and
decrease.
69
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
70/129
2012 BICPA
Debits and Credits
Debit always refers to the left side of any account; credit refersto the right side
Increases in assets and expenses are debit entries, while increases
in liability, owners equity and revenue are credit entries
Decreases are logically recorded on the opposite side of
increases
The normal balance of any account is on the side on which
increases are recordedasset and expense accounts normally
have debit balances whilst liabilities, owners equity and revenue
have credit balances/70
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
71/129
2012 BICPA
What advantages does the Merchant derive
by Book-keeping by double-entry? It is
amongst the finest inventions of the humanmind.
Johann Wolfgang Von GoetheGerman novelist
71
BOOKKEEPING PROCESS
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
72/129
2012 BICPA
RECORDED
POSTED
EXTRACT
PREPAREPROFIT &
LOSS STATEMENTBALANCE SHEET
Trial Balance
Records/Books:Journal BookSales BookPurchases BookCash Book (Payments/Receipts)Petty Cash Book
General ledger
Source Documents:Sales and Purchase invoices
Credit and Debit notesReceipts, Payments vouchers, Journal vouchers
FINANCIAL STATEMENTS
72
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
73/129
2012 BICPA
Debit & Credits?
BANK STATEMENT(BANK)
CHEQUE ISSUED DEBIT
CASH BANK - IN CREDIT
BANK ACCOUNT
(COMPANY)MONEY RECEIVED DEBIT
MONEY PAID CREDIT73
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
74/129
2012 BICPA
Terminology:
CAPITAL = ASSETS - LIABILITIES
Owners claim = Business resources Outsiders claim
74
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
75/129
2012 BICPA
Creditors have better memories than debtors.
Benjamin FranklinUS President
75
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
76/129
2012 BICPA
Assumptions underlying financial statements
76
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
77/129
2012 BICPA
Every why hath a wherefore.
William ShakespeareEnglish poet
77
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
78/129
2012 BICPA
Accounting concepts
Accounting standards
78
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
79/129
2012 BICPA
Accounting concepts
The basic theoretical ideas devised tosupport the activity of accounting.
79
A ti t
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
80/129
2012 BICPA
Accounting concepts
Accounting entityeach entity should be accounted for separately
Accrualsrecording income and expenses as they accrue
Accounting periodaccounting reports relate to specific periods,typically, one year
Materialityaccounting transactions so insignificant that they
would not affect the actions of financial statement users arerecorded as is most expedient
Revenue recognitionrecognising revenue at the point of sale.80
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
81/129
2012 BICPA
Accounting concepts
Prudenceaccounting measurements take place in a contextof significant uncertainties and possible errors in
measurement of net assets and income should tend toward
understatement rather than overstatement
Consistencyunless otherwise disclosed, accounting reports
are prepared on a basis consistent with the preceding period
Objectivitywhenever possible, accounting entries must be
based on objectively determined evidence
Full disclosure all information necessary for the users
understanding of the financial statements must be disclosed
81
Accounting concepts
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
82/129
2012 BICPA
Going concernin the absence of evidence to the contrary, a business isassumed to have an indefinite life
Measuring unitthe unit of measure in accounting is the basic unit of
money
Historical costaccounting measures are primarily based on historical
costs
Matching expenses with revenueto the extent possible, all expenses
related to given revenue are matched with and deducted from that revenue
for the determination of periodic income
Full disclosure all information necessary for the users understanding of
the financial statements must be disclosed.
Accounting concepts
82
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
83/129
2012 BICPA
83
Basic Accounting Concepts/Principles
Accounting entity Going concern
Accounting period Measuring unit
Materiality Historical costConservatism/Prudence Matching expenses with revenue
Consistency Revenue recognition at point of sale
Objectivity Full disclosure
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
84/129
2012 BICPA
Accounting concepts
Going concernAccruals
Consistency
PrudenceMatching
84
i
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
85/129
2012 BICPA
Going Concern
The going concern concept is based on the presumption that abusiness will continue indefinitely and will not be sold or
liquidated.
This assumption permits the accountant to carry certain
incurred costs as plant assets and supplies into future periodsand to reflect them as costs of operation when items are used
in operations.
The concept also supports the cost principle because it
assumes that such assets will be used in operating the
business rather than sold; hence it is rational to use cost rather
than market price or liquidation value as the basis for
measurement.
85
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
86/129
2012 BICPA
Accrual basis
In accrual accounting, expenses incurred are
matched with related revenue earned todetermine a meaningful net income figure for
a particular period. The revenue and expenses
for determining net income do not depend on
when cash is actually received or expended.
86
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
87/129
2012 BICPA
Consistency
Consistency means the same accounting methods are
used from one accounting period to the next.
Consistency enhances the utility of financial
statements when comparative data for a company areanalysed.
In cases where accounting method is changed, such
change should be communicated.
87
P d /C i
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
88/129
2012 BICPA
Prudence/Conservatism
Conservatism is the accountants reaction to
situations in which significant uncertainties exist
about the outcomes of transactions still in progress.
Accountants follow conservative accounting
procedures when they are unsure of proper measure
to use.
For example, if two estimates of future amounts to
be received are about equally likely, the lessoptimistic estimate will be used. Thus possible errors
in measuring net assets and income should tend
toward understatement rather than overstatement.88
M hi
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
89/129
2012 BICPA
Matching
Procedures relating expenses and revenue for incomedetermination through matching process.
1. Costs that relate to specific revenue are recognised
as expenses whenever the related revenue is
recognised.
2. Costs that relate to the revenue of several
accounting periods are expensed in a systematic andrational manner throughout these periods.
3. Costs that relate only to current periods overall
revenue are expensed immediately.89
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
90/129
2012 BICPA
Conceptual Framework
The conceptual framework is a cohesiveset of interrelated objectives and
fundamentals for external financial
reporting.
90
Conceptual Framework
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
91/129
2012 BICPA
Recognition Criteria
1. Fits element definition
2. It is measurable
3. Achieves qualitative
characteristics of accounting
information
Qualitative Characteristics of Accounting
Information
1. Relevance2. Reliability
Useful
ExternalFinancial
Statements
Financial Statement Elements
1. Assets
2. Liabilities
3. Revenue
4. Expenses
Financial reporting Objectives
1. Provide information useful fordecisions
2. Provide information helping in
assessing future cashflows
3. Provide information about firms
resources etc
are built from meetmu
stmeet
91
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
92/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
93/129
2012 BICPA
Assumptions underlying financial statements
The accounting equation,Assets = Liabilities + Owners Equity
represents the basic structure of the balance
sheet and holds true after each accountingtransaction.
93
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
94/129
2012 BICPA
Accounting standards
94
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
95/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
96/129
2012 BICPA
Accounting Standardsin Brunei Darussalam
Generally accepted accounting principles
in Brunei Darussalam
96
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
97/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
98/129
2012 BICPA
What can you do with financial
statements?
98
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
99/129
2012 BICPA
RATIO ANALYSIS
99
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
100/129
2012 BICPA
Why ratio analysis?
100
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
101/129
2012 BICPA
The best prophet of the future is the past.
Lord ByronEnglish poet
101
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
102/129
2012 BICPA
How do profits compare with those of
previous years?
With those of other companies?
What rate of return is being given?
102
Ratio Analysis
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
103/129
2012 BICPA
Ratio Analysis
Horizontal Analysis
and
Vertical Analysis
103
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
104/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
105/129
Anyco Sdn Bhd
Profit and loss account
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
106/129
2012 BICPA
Dec-31 2009 2008 Inc/(Dec)
%
Change
$ $
Net Sales 415,000 320,000 95,000 30%
Cost of goods sold (290,000) (230,000) (60,000) 26%
Gross Profit 125,000 90,000 35,000 39%
Selling and administrative expenses
Selling expenses (39,500) (27,300) (12,200) 45%
Administrative expenses (49,640) (32,600) (17,040) 52%
Total (89,140) (59,900) (29,240) 49%
Income before interest expense and income taxes 35,860 30,100 5,760 19%
Interest expense (3,000) (2,400) (600) 25%
Income before Income Taxes 32,860 27,700 5,160 19%
Income Taxes expense (14,100) (12,300) (1,800) 15%
Net Income 18,760 15,400 3,360 22%
Earnings per share
$
5.28
$
5.21
Dividends per share
$
1.44
$
0.81 106
Ratio Analysis
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
107/129
2012 BICPA
Ratio Analysis
Vertical Analysis
This analysis is useful in determining
the relative importance of various items
as percentages of a key figure or total
fora single year.
107
Anyco Sdn BhdProfit and loss account
D 31 2009
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
108/129
2012 BICPA
Dec-31 2009
$
Net Sales 415,000 100%
Cost of goods sold (290,000) 70%
Gross Profit 125,000 30%
Selling and administrative expenses
Selling expenses (39,500) 10%
Administrative expenses (49,640) 12%
Total (89,140) 21%
Income before interest expense and income taxes 35,860 9%
Interest expense (3,000) 1%
Income before Income Taxes 32,860 8%
Income Taxes expense (14,100) 3%
Net Income 18,760 5%108
Ratio Analysis
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
109/129
2012 BICPA
Ratio Analysis
Rate of return
A measure of the companys profitability
in relation some base e.g. assets, equity
or sales
Return on Assets
Return on Equity
Return on Sales109
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
110/129
2012 BICPA
Return on Assets
RoA = Income before Interest and Tax
Average Total Assets
Useful in comparing similar companies
operating in the same industry. Also ingauging the effectiveness of its use of assets.
110
Return on Equity
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
111/129
2012 BICPA
Return on Equity
Measures the ultimate profitability of the
investment to the shareholders.
RoE = Net IncomePreferred DividendsAverage Equity
111
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
112/129
2012 BICPA
Return on Sales
Measures the operating performance of a
company to compare similar companies in
the same industry or comparing differentperiods for the same company.
RoS = Net IncomeNet Sales
112
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
113/129
2012 BICPA
Earnings per share
Helps analysts and investors consider the
relationship of prices and earnings
EPS = Net IncomePreferred Dividend
Average number of shares
113
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
114/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
115/129
Dividend Payout Ratio
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
116/129
2012 BICPA
Dividend Payout Ratio
The payout ratio indicates whether a company has a
conservative or liberal dividend policy and may also
indicate whether the company is conserving funds for
internal financing of growth.
Dividend payout Ratio = Dividends per share
Earnings per share
Low payout ratios can have a depressing effect on the
market price of a share and reducing the payout ratio
may have a dramatic effect on the share price.116
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
117/129
Current Ratio
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
118/129
2012 BICPA
A measure of the companys ability to
meet its current obligations on time and
to have funds readily available for
current operations
Current ratio = Current Assets
Current Liabilities
118
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
119/129
2012 BICPA
Quick ratio
Another indicator of a companys ability
to meet current debts and to take
advantage of discounts offered bycreditors
Quick ratio = Cash + Receivables
Current liabilities119
I T
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
120/129
2012 BICPA
Inventory Turnover
Indicates whether the inventory amount is
disproportionate to the amount of sales
Inventory Turnover = Cost of Goods sold
Average Inventory
120
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
121/129
2012 BICPA
Average Collection Period
To measure the quality of a companys trade receivables
i.e. whether they are slow or overdue
Average Collection Period = Trade receivables X 365
Sales
121
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
122/129
2012 BICPA
Limitations of Financial Analysis
1.The ratios are merely the result of analytical techniques2.They may only isolate areas requiring further investigation
3. To interpret with due considerations4. Limitations of financial statement data
5. Problems of comparability
6. Companies using different accounting methods
7. Inflation may distort certain computations8. Factors such as company size, diversity of products
122
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
123/129
2012 BICPA
In investing money the amount of
interest you want should depend on
whether you want to eat well or sleep
well.
J K Morley - anonymous
123
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
124/129
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
125/129
2012 BICPA
Limitations of financial statements reports
125
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
126/129
2012 BICPA
Limitation of Financial Statements
1. A snapshot of the Companys health at the given date now could bedifferent
2. The non-availability of financial statements
3. Only companys result what about the competitors and industry
4.Bases for revenue recognitioncash/collection basis or installment
basis, percentage of completioncompleted or percentage of completion
5. Full disclosure?
6. Notes to the financial statementssummary of significant accounting
policies, explanations of complex or special transactions e.g. related
party, pension plan, details of reported amounts i.e. summary only notdetail, commitments or contractual obligations, contingencies, subsequent
events, managements discussion and analysis, comparative selected
financial data
126
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
127/129
2012 BICPA
List of Authorised Auditors(Ministry of Finance website @ 27/2/2012)
1. Deloitte & Touche
2. Ernst & Young
3. HH Lim & Company
4.Katherine Lee & Company
5. Parker Randall
6. KPMG
7. Lee & Raman
8. Lee Corporatehouse Associates
9. Lau Kui Hwa & Company
10. Pengiran Izam & Co
11. Sylvester Leong & Company
12. WKA and Associates
127
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
128/129
2012 BICPA
THE END.
THANK YOU
128
-
8/12/2019 Accounting and Auditing Responsibilities of Sme's
129/129
Everything ends that has a beginning