ACADEMIA DE STUDII ECONOMICE DIN BUCURESTI FACULTY OF BUSINESS ADMINISTRATION IN FOREIGN LANGUAGES (WITH ENGLISH TEACHING)

GRADUATION PAPER FINANCIAL STATEMENTS REPORTING _ A COMPARATIVE STUDY

Scientifi c Coordinator: Professor. Ph. D. Adriana Dufescu

Graduate:

Anda Cristina Cioroianu

Bucharest 2008

Table of Contents

Abbreviations...... CHAPTER I TNTRODUCTION

Index of

...'-...--..4

......)
...........1
.

l.l.Financial Statements: Users and Information...

1.2. Financial Statements Infonnation

Features

..

.....7

CHAPTER II FINANCIAL STATEMENTS' REPORTING

2.1. General

WORLDWIDE.

... ......9

Acknowledgements-... 2.2-ConvergencetolAsB... 2.3. US GAAP versus IFRS- Components....... 2.4. Financial Statements According to the National Legislation 2.4.l.TheBalance Sheet........ 2.4.2-Thelncome Statement.. 2.4.3.TheStatement Of Changes In Equity. 2.4.4.The Cash Flow Statement.. 2.4.5-Explanatory Notes.....-. 2.5. Financial Statements According to IFRS.. 2.5.1. The Balance Sheet......-. 2.5-2.The Profit and Loss Account... 2.5-3. The Cash Flow Statement..
2.5.4. The Statement Of Changes in

..-....9

..........10 -..-.....'13
' . . . ..- 16

-....16 -.....17

....."17
.

... . .... l8

......21
....22

'....22
.

...24

.......'.25
.---....-26
-. .. -27

Shareholders'Equity-..... -..-.-..25

2.5.5.TheExplanatoryNotes... 2.6. Financial Staternents According to GAAP. 2.6.l.TheBalanceSheet....... 2.6.2.Thelncome Statement-. Equity 2.6.4.TheStatement Of Recognised gains and Losses. 2.6.5. The Cash Flow Staternent..
2.6.3. The Statement of Changes in Shareholders'

......28
.......29
..

....'30

..-.....'.30
.

....31

CHAPTER III CASE STUDY ... 3.1. The Company.

3.2. Financial Reporting under IFRS........ 3.2.1. The Balance Sheet...

....... ....31
.. ' . ..3 I

......33
.....34

LossAccount.... 3.3. Conclusions and Recommendations....

3.2.2.TheProfit and Bibliography Appendices

.......38 .......44

INDEX OF ABBREVIATIONS:
IASB
IAS

International Accounting Standard Board

International Accounting Standard

IASC

International Accounting Standards Committee

- General Accepted Accounting Principles FASB - Financial Accounting Standards Board IFRS - International Financial Reporting Standards SEC - Securities and Exchange Commission US - United States of Arnerica EU - European Union AICPA - American Institute of Certified Public Accountants Q&As - Questions and Answers FAS - Financial Accounting Standards PPE - Property, plant and equipment
GAAP

CHAPTER

INTRODUCTION

1.1. Financial Statements: Users and

Information

The objective of financial statements is to provide information about the financial strength,
performance and changes in financial position of an enterprise that is useful to a wide range

of

users in making economic decisions." Financial statements should be understandable, relevant,

reliable and comparable. Reported assets, liabilities and equity are directly related
organization's financial position. Reported income and expenses

to an are directly related to an

and

organization's financial performance. Financial statements are intended to be understandable

by readers who have "a reasonable knowledge of business and economic activities
accounting and who are willing to study the information diligently."

Economic information is the rnain source used in the management process because it allows a
deep examination and analysis of the way in which all the resources in the company are being

used, thus enabling the decision making process. The main data source

of the

economic

information system and one of its main components, is accounting". Accounting provides a

vital service by supplying the information decision makers need to make reasoned choices
among altemative uses of scarce resources in the conduct of business and economic activities.

Accounting is an activity whose main users' interests may encompass divergent and even
contradictory phenomena; that is:

The company's managers

Professional accountants- the people who have the responsibility of organizing and conducting the accounting process and of assuring the credibility of the accounting information

The users of the information supplied by the accountants in order to diagnose and

make decisions, such as associates, stockholders, suppliers, clients, creditors,

employees, fiscal entities.

Owners and managers require financial statements to make important business decisions that

affect its continued operations. Financial analysis is then performed on these statements to
provide management with a more detailed understanding of the figures. These statements are also used as part of management's report to its stockholders, as

it form part of its Annual

{

Report. There certainly doesn't exist only one accounting truth, but we may say that
accounting provides each interested person with the truth he/she needs. According to the General Financial Statements Reporting Framework designed by the International Accounting
Standards Board (IASB), the users of the accounting information are:

a)

Present and potential investors, focused on the inherent risk the benefits that their investments

ofthe transactions and on in order to decide

will bring. They

need information

whether they have to buy or to sell, or in order to evaluate the company's ability to pay dividends
b) Employees and their representatives (labour unions) which are interested

in obtaining

information regarding the evaluation of the company's capability of making payments,

pensions and other advantages, as

well

as

professional opportunities.

c) Financial creditors, who are interested in the information that

will allow them to assess

whether the credits

the payments

as

well

as the interest

- they granted will be fully recovered and

will be done at the due date.

in estimating if the company can

d) Suppliers and other commercial creditors, interested

pay the amounts

it

owes at the due term. Their interest is in shorter-term information

than the financial creditors, excepting the case when they depend on the company's continuous activity as the main client.
e)

Clients, whose interest is in the infbrmation regarding the continuous activity of the company, especially when they have a long-term collaboration with the respective
company or they depend on the company.

The government and its institutions, which are interested in the resource allocation
and,

implicitly in the companies' activities, in order to determine the fiscal policies, the

computation of macro economic indicators. s) The general public, that is interested in many ways in the companies' activities, such
as their

job openings, current evolutions and the tendencies regarding the prosperity of

the companies.

1.2 Financial Statements

Information Features

The qualitative features of the information in the financial statements determine their utility. According to the Accounting Framework of IASB there are four qualitative characteristics of
the accounting infbrmation. Thus, the information should be:

tr Understandabilitv D Relevance tr Reliability tr Comparable

Understandability : Information should be presented in a way that is readily understandable

by users who have a reasonable knowledge of business and economic activities

and

accounting and who are willing to study the information diligently. An essential quality of the

infbrmation provided by the financial statements is that it is easily understood by its users. It is
assumed that these users have enough knowledge regarding business and economic activities,

accounting concepts and have the desire

to analyse the information with the appropriate

exigence. This doesn't mean that some complex issues that should be included in the financial
statements due to their relevance in the decision making process, should be excluded based on

the assumption that for some users they would be difficult to understand. For the infbrmation

to be useful, it has to be relevant for the users' needs of decision making. The information is
relevant as long as

it influences the economic decisions of the users, helping them to evaluate

past, present and future events, by confirming or correcting their previous evaluations. The

infbrmation about the financial position or previous performance are frequently used as a basis for forecasting the future financial position and performance as well as the other issues such as dividend and salary payments, the ability of the company to pay its due liabilities.

Relevance: Information in financial statements is relevant when

decisions

it

influences the economic

of users. It can do that both by (a) helping them evaluate past, present, or future

events relating to an enterprise and by (b) confirming or correcting past evaluations they have

made. Materiality is a component

of relevance. Information is material if its omission or

misstatement could influence the economic decisions

of

users. Timeliness

is

another

component of relevance. To be useful, information must be provided to users within the time period in which it is most likely to bear on their decisions.

Reliabilittt: Information in financial statements is reliable

if it is free from

material error and

bias and can be depended upon by users to represent events and transactions faithfully.

Information is not reliable when

it is purposely

designed

to influence users' decisions in

particular direction. There is sometimes a trade-off between relevance and reliability

and

judgement is required to provide the appropriate balance. Reliability is affected by the use of
estimates and

by uncertainties associated with items recognised and measured in financial

statements. These uncertainties are dealt with, in part, by disclosure and, in part, by exercising

prudence in preparing financial statements. Prudence is the inclusion of a degree of caution in

the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, prudence can only be exercised within the context

qualitative characteristics
representation overstatement

in the Framework, particularly relevance

statements. Prudence does not

of the other and the faithful

justify
deliberate income,

of transactions in financial

of liabilities or expenses or

deliberate understatement

of

assets

or

because the financial statements would not be neutral and, therefore, not have the quality

of

reliability. ComparabiliU: Users must be able to compare the financial statements of an enterprise over
time so that they can identifo trends in its financial position and performance. Users must also
be able to compare the financial statements of different enterprises. Disclosure

of accounting

policies is essential for comparability. Thus, the measurement and the presentation of the
financial effect of the same transactions and events should be done consistently and over time for that company and consistently for different companies.

CHAPTER
2.

II

FINANCIAL STATEMENTS REPORTING STANDARDS WORLDWIDE

l. General Acknowledgements

The acronym "IAS" stands for International Accounting Standards. This is a set of accounting

standards set

by the International Accounting Standards Committee (IASC), located in

London, England. The IASC has a number

of different

bodies, the main one being the

International Accounting Standards Board (IASB), which is the standard-setting body of the IASC. The acronym "GAAP" stands for Generally Accepted Accounting Principles.

The IASC does not set GAAP, nor does it have any legal authority over GAAP. The IASC can

be thought of as merely a very influential group of people who love making up accounting
rules. However, a lot of people actually do listen to what the IASC and IASB have to say on matters

of accounting. When the IASB

sets a brand new accounting standard, a number

of

countries tend to adopt the standard, or at least interpret

it, and fit it into their individual

each particular country. For

country's accounting standards. These standards, as set by each particular country's accounting
standards board,

will in tum influence what becomes GAAP for

example,

in the United

States, the Financial Accounting Standards Board (FASB) makes up

the rules and regulations, which become GAAP.

The best way to think of GAAP is as a set of rules that accountants follow. Each country has

its own GAAP, but on the whole, there aren't many differences between countries
interpretations might vary from country company can't

to country, but everyone tends to agree that a simply make up billions of dollars worth of revenue and put it on its books.

Every country,

in turn,

influences the other countries that follow GAAP. International

Accounting Standards (now known as International Financial Reporting Standards

- IFRS) as

the single body of internationally accepted accounting standards. This movement affects the
environment in which all companies operate, including those in the United States.

Globally, thousands of companies will be moving to IFRS as their primary basis of financial

reporting over the next several years. In Europe, for example, the European Commission
recently issued a regulation that, with a few exceptions, requires all publicly listed companies

domiciled within the European Union to prepare their consolidated financial statements in
accordance

with IFRS by 2005. This requirement will affect approximately 7,000 enterprises,

including the subsidiaries, associates and joint ventures of these entities. Another example is Australia, where the government is considering a proposal that IFRS be adopted as Australian GAAP.

Other key developments surrounding the use and acceptability

of IFRS include the

restructuring of the Intemational Accounting Standards Committee, the US Securities and Exchange Commission's Concept Release, International Accounting Standards, and the
endorsement of International Accounting Standards by both the International Organization

of

Securities Commissions and the Basel Committee. These developments have enhanced the

credibility of IFRS, resulting in their increased use.

Companies in the United States are becoming increasingly affected by IFRS. Additionally, the

work of the International Accounting Standards Board (the IASB, formerly the Board of the
Intemational Accounting Standards Committee)

will

affect the nature and scope of national

standard -setters, including the US Financial Accounting Standards Board

- FASB.

2.2 Convergence to IASB

The primary focus of the IASB is convergence of accounting standards worldwide. In order to

facilitate convergence of accounting standards, the IASB has seven members who serve

as

official liaisons to national standard-setters. Countries with formal liaisons are Australia
(including New Zealand), Canada, France, Germany, Japan, the United Kingdom, and the
United States.

The liaison function is significant because the IASB, unlike its predecessor (the IASC Board),

is now formally linked to national standard-setters. As a result, the liaison Board members
maintain close contact with their respective national standard-setters and are responsible for coordinating agendas and ensuring that the IASB and national bodies are working towards
convergence.

The International Accounting Standards Board and the US Financial Accounting Standards
Board have been committed to converging IFRS and US GAAP since the Norwalk Accord

of
10

2002. Many commentators have called for convergence to simplify financial reporting and

reduce the compliance burden for listed companies, especially those

with stock market listings

in more than one jurisdiction and those who participate in

transactions.

cross-border, capital market

A major step in the movement to one set of global accounting

standards is the Securities and

Exchange Commission's 2007 proposal to drop the requirement for a US GAAp reconciliation

by foreign private issuers that prepare their primary financial

Another significant step

statements under

full

IFRS. US

is the 2007 SEC Concepts

Release

on allowing domestic

registrants to use IFRS as an altemative to US GAAP. These potential changes,

if they come

to fruition, will significantly alter the intemational landscape of accounting.

US capital-market parlicipants have already started to show a much greater interest in IFRS,

realizingthat it may replace US GAAP

as the accounting language

underlying future financial

reporting and capital-market activity. This will not happen immediately. In the meantime, we hope that you

will find this publication useful in helping you identify the key

differences

between IFRS and US GAAP.

More than 12,000 companies in almost 100 nations have adopted IFRS, including listecl companies in the European Union. Other countries, including Canada and India, are expected

to transition to IFRS by 2011. Some estimate that the number of countries requiring or accepting IFRS could grow to 150 in the next few years. I Other countries, such as.lapan and
Mexico, have plans to converge (elirninate significant differences) their national standards.

Many people believe that acceptance of IFRS in the United States by the SEC for public
companies is inevitable. For many years the SEC has been expressing its support for a core set of accounting standards that could serve as a framework for financial reporting

in cross-

border offerings.

In

recent years,

it

has supported efforts

of the Financial Accounting

Standards Board (FASB) and the

IASB to develop a common set of high-quality, global

standards. And most recently,

it

issued a Concept Release seeking input on allowing U.S.

public companies to use IFRS when preparing financial statements.

Viewed from a distance, the notion of unified international standards for financial reporting
makes good sense. Many emerging markets,

for example, have little structure and few

1l

regulatory mechanisms in place to monitor financial activity.

All

developed markets, on the

other hand, have historically applied their own versions of GAAP. However, "local GAAP" guidelines were fraught with localized exceptions, making financial reporting tools across nations.

it difficult to maintain consistent

When

it

chose to embrace IFRS

in 2005, the EU effectively conceded that the benefits of

unified reporting system outweighed the need for local exceptions. Countries that move
forward with adopting IFRS or substantially similar standards likely recognize the benefits of transparent accounting standards,

a common accounting language and the need to

help

developing countries establish credible local capital markets to attract investors and capital flows.

The EU's decision that all publicly traded European companies should use IFRS for
consolidated financial statements, as from

January 2005, has resulted in major changes in

financial reporting. The successful implementation of IFRS should have very positive benefits. There should be a reduction in costs for multi-national groups as a multitude

of national

GAAPs are swept away and comparability between financial statements should be enhanced.

In consequence, lower costs for raising capital, better access to funding, better opporlunities for customers and investors and a more efficient allocation of fundins resources should be
seen.

Nevertheless, not all countries are ready to abandon their time-proven national standards and

adopt IFRS. The U.S. GAAP

will likely

remain in force for the foreseeable future, but the

long-term distinction may be in name only.

2.3. US GAAP versus IFRS : Components US GAAP comprises:

Level

A: FASB Statements, FASB

Interpretations, Accounting Principles Board Opinions,

Accounting Research Bulletins, SEC Staff Accounting Bulletins

Level B: FASB Technical Bulletins, AICPA Industry Guides, AICPA Statements of Position

Level C: Emerging Issues Task Force Consensuses, AICPA Accounting Standards Executive Committee Practice Bulletins

t2

Level
more

D: FASB Staff Implementation Guides,

Derivatives Implementation Group

Consensuses,

FASB Staff Positions, FASB Concepts Statements, AICPA lssues Papers, and

Categoryt

a: AICPA

Accounting Research Bulletins and Accounting Principles Board

Opinions that are not superseded by action of the FASB, FASB Statements of Financial Accounting Standards and Interpretations, FASB Statement 133 Implementation Issues, and
FASB Staff Positions.
Categoryt

b: FASB Technical Bulletins and,

if

cleared by the FASB, AICPA Industry Audit

and Accounting Guides and Statements of Position.

Categoryt c:

AICPA Accounting Standards Executive Committee Practice Bulletins that have

been cleared by the FASB and consensus positions of the FASB Emerging Issues Task Force

(EITF).
Category

d: Implementation

guides (Q&As) published by the FASB staft, AICPA accounting

interpretations, and practices that are widely recognized and prevalent either generally or in
the industry.

If

the accounting treatment for a transaction or event is not specified by a pronouncement

described

in categories (a)-(d), an enterprise shall consider accounting principles for similar

transactions or events and other accounting literature. Other accounting literature includes, for

example, FASB Concepts Statements; AICPA Issues Papers; Intemational Financial

Reporting Standards (IFRSs)
pronouncements

of the Intemational Accounting Standards Board

(IASB);

of

other professional associations

or

regulatory agencies; Technical

Information Service Inquiries and Replies included in AICPA Technical Practice Aids; and
accounting textbooks, handbooks, and articles. The appropriateness

of other accounting

literature depends on its relevance to particular circumstances, the specificity of the guidance,
and the general recognition of the issuer or author as an authority..

IFRS comprises:
Standards and interpretations approved

by the IASB; International Accounting

Standards

(IASs); SIC interpretations; IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors sets out the GAAP hierarchy under International Financial Reporting Standards:

l3

10. In the absence

of a Standard or an Interpretation that specifically applies to a transaction,

other event or condition, management shall use its judgment in developing and applying an
accounting policy that results in information that is: (a) Relevant to the economic decision-making needs of users; and

(b) Reliable, in that the financial statements:

(i)

Represent faithfully the financial position, financial performance and cash flows

of

the

entity;

(ii) Reflect the economic substance of

merely the legal form;

transactions, other events and conditions, and not

(iii) Are neutral, ie free from

(iv)Are prudent; and

bias;

(v) Are complete in all rnaterial respects.

ll.

In making the judgement described in paragraph 10, management shall ref'er to, and

consider the applicability of, the following sources in descending order:

(a) The requirements and guidance in Standards and Interpretations dealing with similar and
related issues; and

(b) The definitions, recognition criteria and measurement concepts for assets, liabilities,
income and expenses in the Framework.

12.ln making

the judgement described

in paragraph 10, management may also consider the

most recent pronouncements of other standard setting bodies that use a similar conceptual

Iiamework to develop accounting standards, other accounting literature and accepted industry
practices, to the extent that these do not conflict with the sources in paragraph I 1.

The definition of a subsidiary, for the purpose of consolidation, is an important distinction

between the two frameworks. IFRS focuses on the concept of control in determining whether a parent/subsidiary relationship exists. Control is the parent's ability to govern the financial and

operating policies of a subsidiary to obtain benefits. Control is presumed to exist when a parent owns, directly or indirectly through subsidiaries, more than one half

of an entity's

voting power. Control also exists when a parent owns half or less of the voting power but has

legal or contractual rights to control the majority of the entity's voting power or board of

directors. Entities acquired (disposed of) are included the date on which control passes.

in (excluded from) consolidation from

Regarding the reporting periods:

IFRS

- The

consolidated financial statements of the parent and the subsidiary are usually

drawn up at the same reporting date. However, the consolidation of subsidiary accounts can be drawn up at a different reporting date provided the difference between the reporling dates is no

more than three months. Adjustments are made for significant transactions that occur in the
gap period.

This work summarises some of the differences between IFRS and US GAAP. The summary
does not attempt to capture all of the differences between IFRS and US GAAP that exist or

may be material to a particular company's financial statements. We have focused on

differences that are commonly found in practice. Reference to the underlying accounting
standards and any relevant national regulations differences.

is essential in understanding the specific

The following table sets out some of the differences between International Financial Reporting
Standards (IFRS) and United States GAAP. The significance of these differences

and others

not included in this list

- will vary with respect to individual

1.

companies depending on such

factors as the nature of the company's operations, the industry in which

accounting policy choices it has made. See appendix

it

operates, and the

2.4. Financial Statements According to the National Legislation

This paperwork presents the financial statements in accordance with IAS

"The presentation

of the financial

statements" and with the Public Finances Ministry's Order no.l752 of the approval of accounting regulations in conformity with the European

17 -11.2005 regarding

directives. As such, the financial statements referred to are:

. . . .

The Balance Sheet The lncome Statement The statement of changes in equity The cash flow statement

l5

The summary of accounting policies Notes and explanations

2.4.1The Balance Sheet

It is a synthesis document, a summary of an organization's

assets,

liabilities and equity on

specific date, such as the end of its financial year. The assets and liabilities are grouped
according to their nature and liquidity, respectively according to their nature and exigibility.
The present regulations provide that:

a)

an asset is a resource controlled by the entity as a result ofpast events or transactions,

and which is expected to generate future economic benefits and whose cost can be credibly evaluated

b) a liability represents

an obligation of an entity arising from past transactions or events,

the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefrts in the future

c)

equity is the remaining interest in all assets after all liabilities are paid.
placed on assets do not exceed liabilities, negative equity exists.

If valuations

The format of the balance sheet is presented in Appendix2 and format. The elements of the balance sheet
Assets
I

it

can take a

list or an account

fulfil the fundamental equation:

- Liabilities: Equity

2.4.2. The Income Statement

According to these regulations, the following things have to be mentioned as components of

the Profit and Loss Account:

a)

the net turnover comprises the amounts resulted from the sale of products and the providing of the services within the current activity of the entity, after commercial
discounts and

VAT deductions, as well as the deduction of other taxes directly

connected with the turnover.

b) In the case of the entities whose main object of activity is the leasing, the turnover
includes also the interest related to these contracts, according to the reporting period

c)

of the company should be presented as "Extraordinary Revenues", respectively "

The revenues and expenses that emerge in activities other than the current activity Extraordinary Expenses". The extraordinary elements are those revenues and expenses

Officiat Journal. Ministryof Finance Orderno. ll52from31.ll.2005

that emerge from obvious different events and transactions from the current ones, and

which, consequently, are not expected to repeat on a frequent nor regular way. By
current activities

it is understood any activity that a company develops

as an integrant

part of its business as well as the auxiliary activities following the current ones or
which are determined by them. In order to establish whether an event or transaction is obviously different from the current activities of the company, is should be considered
the nature of the element or transaction related to the current activity of the company, rather than the frequency with which these elements are expected to happen. Except

for the case when the advanced revenues and expenses aren't material for the results
evaluation, the explanatory notes should comprise explanations about their value and
nature.

d)

The companies should show within the Explanatory Notes the proporlion/degree to which the profit tax influences the

"

Profit or Loss from Current Activities" and the

"Profit or Loss from Extraordinary Activities"

The format of the Profit and Loss Account is presented in Appendix 3.

2.4.3.The Statement of Changes in Equity The annual financial statements include, besides the Balance Sheet and the Profit

&

Loss

Account, the Statement of Changes in Equity. These changes should include: subscribed and

paid capital, share premium, revaluation reserves, legal reserves and other types of reserves,
the retained eamings, profit and loss of the current financial exercise and the total equity. The numerical data should be followed by information regarding
:

the nature of the modifications(changes)

the fiscal treatment.

if it's the case

the nature and the scope of constituting the reserves any other relevant information

The changes in equity are presented for both the previous and the current exercise.

t7

2.4.4.The Cash Flow Statement

Cash basis financial statements were common before accrual basis financial statements. The

"flow of funds" statements of the past were cash flow statements. In the United States in 1971,
the Financial Accounting Standards Board (FASB) defined rules that made it mandatory under

Generally Accepted Accounting Principles (US GAAP) to report sources and uses of funds, but the definition of "funds" was not clear. "Net working capital" might be cash or might be the difference between current liabilities and current assets. Frorn the late 1970 to the mid1980s, the FASB discussed the usefulness

of predicting future cash flows. hr 1987, FASB flow statements. In 1992, the

Statement No. 95 (FAS 95) mandated that firms provide cash

International Accounting Standards Board issued International Accounting Standard 7 (IAS 7), Cash Flow Statements, which became effective in 1994, mandating that firms provide cash

flow statements.
US GAAP and IAS 7 rules for cash flow statements are similar. Differences include:

IAS 7 requires that the cash flow statement include changes in both cash and
equivalents. US GAAP permits using cash alone or cash and cash equivalents.

cash

IAS 7 permits bank borrowings (overdraft) in ceftain countries to be included in cash

equivalents rather than being considered a part of financing activities.

IAS 7 allows interest paid to be included in operating activities or financing activities.

US GAAP requires that interest paid be included in operating activities.

US GAAP (FAS 95) requires that when the direct method is used to present the
operating activities of the cash flow statement, a supplemental schedule must also

present

cash

flow statement using the indirect method. The IASC

strongly

recommends the direct method but allows either method. The IASC considers the

indirect method less clear to users of financial statements. Cash flow statements are
most commonly prepared using the indirect method, which is not especially useful in projecting future cash flows The cash flow statement reflects a firm's liquidity or solvency and

it is intended to provide

information on a firm's liquidity and solvency and its ability to change cash flows in future
circumstances, provide additional information for evaluating changes in assets, liabilities and equity, improve the comparability of different firms' operating performance by eliminating the

l8

effects of different accounting methods, indicate the amount, timing and probability of future
cash flows.

The cash flow statements is made up according to IAS 7 accounting standard which states that

it should be elaborated using two methods:

Direct method versus indirect method The direct method for creating a cash flow statement reports major classes of gross cash
receipts and palnnents. Under IAS 7, dividends received may be reported under operating activities or under investing activities. If taxes paid are directly linked to operating activities,

they are reported under operating activities;

if the taxes are directly linked to investing

activities or financing activities, they are reported under investing or financing activities.

The indirect method uses net-income as a starting point, makes adjustrnents for all transactions

for non-cash items, then adjusts for all

cash-based transactions.

An increase in an

asset

account is subtracted from net income, and an increase in a liability account is added back to

net income. This method convefts accrual-basis net income (loss) into cash flow by using a
series of additions and deductions. The operational cash .flor.r: the use of the direct method implies either using the journal entries

of the company, either adjusting the sales, the cost of sales and other profit and loss account
elements with the modifications during the current period

of the current stocks, receivables

and liabilities, with other cash elements, with other elements for which the cash etfbct is the investment or financial flow of cash. Using the indirect method implies adjusting the net profit or loss with the effects of the
:

I I .

changes

in the current period within the stocks, receivables and liabilities from

the

company's current activity non-monetary elements

such as depreciation, provisions, deferred taxes, retained

earnings of the associated entities and minority interests.

Other elements for which the effects in cash are the investment or financial flow of
cash

The investment cash .flow.' Investing activities focus on the purchase of the long-term assets a

company needs in order to make and sell its products, and the selling of any long-term assets. Under IAS 7, investing cash flows include:

collections on loan principal and sales of other firms'debt instruments

t9

investment retums from other firms' equity instruments, including sale

instruments receipts from sale ofplant and equipment expenditure for purchase of plant and equipment
loans made and acquisition of other firms'debt instruments

of

those

expenditure for purchase of other firms' equity instruments (unless held for trading or
considered cash equivalents) Items under investing activities include:

Capital expenditures, which include purchases (and sales) of property, plant and

equipment Costs that are expensed in a particular month simply appear on

however, are amortized over multiple years.

the

financial statement as a cost that was incurred that rnonth. Costs that are capitalized.

Investments. An asset is usually purchased, or equivalently a deposit is made in a bank,

in hopes of getting a future retum or interest from it. Investing is the act of putting
things (money or other claims to resources) into others'pockets. The basic meaning of the term represents an asset held to have some recurring or capital gains. It is a asset
that is expected to give returns without any work on the asset perse.

flow Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the
The

financial

cash

company generates income. Other activities which impact the long-term liabilities and equity

of the company are also listed in the financing activities section of the cash flow statement.
Under IAS 7, financing cash flows include:

r . . . o o

proceeds from issuing shares proceeds from issuing short-term or long-term debt payments of dividends payments for repurchase of company shares repayment of debt principal, including capital leases

for non-profit organizations, receipts of donor-restricted cash that is limited to longterm purposes

20

Items under the financine activities section include:

Dividends paid

- are payments

made by a company

to its shareholders.

Paying

dividends is not an expense; rather, it is the division of an asset among shareholders.

Sale or repurchase of the company's stock

Net borrowings- Gross borrowings minus cash and near-cash assets.

If a negative value

for net borrowings is shown this indicates a net cash position

2.4.5. Explanatory Notes

The last component of the annual financial statements is the Explanatory Notes. They
exemplify the way in which the information has been presented according to the present
regulations. As such the companies establish the fonnat of the explanatory notes, with the

condition of presenting at least the compulsory information. Examples of explanatory notes

include: fixed assets; provisions; retained earnings; accounting principles, policies and
methods; financing sources; information about the employees and the administrative,
management and surveillance staff; examples
analysis.

of

financial indicators' computation and

2.5. Financial Statements According to the International Financial Reporting Standards

(rFRS)

The financial statements are presented according to the IAS

international accounting

standard: "Presentation of Financial Statements". The financial statements are a structured

representation of the financial position and performance of the company. Their objective is to

offer information about the financial position, performance and cash flows, useful for a large
range of users within the decision making process. They also reflect the results of the resource
management.

A complete set of financial statements includes:

the balance sheet the

profit and loss account

2l

a statement that should

reflect the modifications of the equity or the changes in

the equity, other than the ones detennined by capital transactions with the
owners and distributions to the owners.

The cash flow statement

Explanatory notes, including a short presentations of the significant accounting

methods and other explanatory notes.

2.5.1. The Balance Sheet2

The IFRS does not prescribe a parlicular balance sheet format, except that it requires separate presentation of total assets and total liabilities. Management may use judgement regarding the form of presentation in many areas. Entities present current and non-current assets, and curent
and non-cunent liabilities, as separate classifications on the face of their balance sheet except

when a liquidity presentation provides more relevant and reliable information. In such cases,
assets and

liabilities should be presented broadly in order of liquidity. The current/non-current

distinction is not optional (except when a liquidity presentation is used).Both assets and liabilities are classified as current where they are held for trading or expected to be realised

within l2 months of the balance sheet date. Interest bearing liabilities are classified as current
when they are due to be settled within l2 months of the balance sheet date, even term was for a period of more than 12 months.

if

the orieinal

Current assets

An asset should be classified

a)

as current when:

it is held for trading/consumption or expected to

the operating cycle

be realised in the normal course

of

b) it is mainly kept for trading c) it is expected to be realised within 12 months from the balance sheet date or
d)

it represents cash or

cash equivalent(as defined by the

IAS 17 Cash Flow Statement).

excepting the case when there is an use restriction upon it with the scope of paying a

liability within at least l2 months after the balance sheet

date.

All

others assets should be classified as fixed.

' IAS 2 Financial

Statements Presentation

22

A liability should be classified as current when:

a)

it is expected to be settled within the normal course of the operating cycle

b) is eligible within 12 rnonths from the balance sheet date c) the company doesn't have unconditional postponing right over the settlement of the

liability Any other liability should be classified as long term liabilities. The information regarding the
balance sheet are presented in Appendix 4.

2.5.2.The Profit and Loss Account

All

revenue and expense elements recognised during a period should be presented

in

the

income statement, excepting the cases when

Standard

or an Interpretations requires

differently. The entity should analyse its expenditure by function or by nature. As a minimum,

IFRS requires presentation of the following items on the face of the income statement:
revenue; finance costs; share ofafter-tax results ofassociates andjoint-ventures accounted for

using the equity method; tax expense; post tax gain or loss attributable to the results and remeasurement of discontinued operations, and net profit or loss for the period.

The IFRS does not use the term "Exceptional items" but requires the separate disclosure of items of income and expense that are of such size, nature or incidence that their separate
disclosure is necessary to explain the performance of the entity for the period. Disclosure may
be on the face of the income statement or in the notes.

Information to be presented either in the Income Statement or in the Notes

I .

an analysis of the expenses based on their nature or their destination, however it's
relevance is higher

the entities that present the expense items as to their function, should provide extra

information regarding the nature

employees benefits expenses

of the expense, including the depreciation

and

the total sum of the dividends agreed by the shareholders during the period as well as

the dividend per share should be presented either

statement of changes in equity or in the notes

in the income statement,

the

2.5.3. The Cash Flow Statement

IFRS requires the cash flow statement to repoft inflows and outflows of equivalents'.

'

cash and cash

It may be prepared

using either the direct method(cash flows derived from

aggregating cash receipts and payments associated

with operating activities) or the indirect

method(cash flows derived from adjusting net income for transactions

such as depreciation). The latter is more common in practice.

of a non-cash nature

Cash includes overdrafts repayable on demand but not short-term bank borrowings, which are considered to be financing flows. Cash equivalents are short term, highly liquid investments

that are subject to an insignificant risk of changes in value. An investment nonnally qualifies
as a cash equivalent only when
date.

it has a maturity of three months or less frorn its acquisition

2.5.4. The Statement of Changes in Shareholders' Equity

According to IFRS, the statement should be presented as a primary statement, and

it should show capital transactions with owners, the movement in accumulated profit and a

reconciliation of all other components of equity. Under IFRS, recognised gains and losses can

be presented in a statement of recognized gains and losses with the changes in equity
displayed in a note. Alternatively, the other recognized gains and losses can be separately highlighted in the statement of changes in equity, which is presented as a primary statement.
The statement should present, at a minimum, the following information (IAS 1 R.96):
a) net profiV loss for the period

b) other gains and losses recognised directly in equity as required by IFRS

d)

total income and expense for the periods with separate disclosure
attributable to parent equity holders and to minority interest, and

of amounts

e)

impact of changes in accounting policy and correction of errors

The other gains and losses recognised directly in equity should be presented in sufficient detail

to enable a user of the financial statements to understand the nature and scale of amounts
recognised. (IAS1R96,97,99).The following additional information should also be disclosed
:

24

a) transactions

with owners- share issues, redemptions, dividends, the purchase of

treasury bills b) reconciliation of the opening and closing balance of retained earnings c) reconciliation ofthe opening and closing balance ofeach reserve and class ofcapital 2.5.5. Explanatory Notes
a)

statement of compliance with IFRS

b) information about the statements' basis of preparation,

for example the historical cost

convention, and the specific accounting policies selected and applied for significant
transaction and events
c) information required or encouraged by IFRS that is not presented elsewhere d) information relating to line items presented on the face of the financial statements.
e)

other disclosures including contingencies, commitments, and other financial

disclosures, as well as non financial disclosures

Disclosure of the measurement bases and the accounting policies an entity uses may be a
separate component of the financial statements or a separate section in the notes (IAS1R.108).

The entity's accounting policies should be clearly stated and presented and not "lost" in the
rest of the notes to the financial statements. The disclosure given in respect of an accounting

policy should be sufficiently detailed that is understandable without need to refer to the text of
an IFRS.

Entities are encouraged, but not required, to publish a financial review that should disclose
and discuss known trends, commitments, events or uncertainties that are reasonably expected

to have a material impact on the entity's business, financial condition or results of operations. The following information should be included in the financial statements, or included in other
documents published with them

(IASlR.l26):

a) the entity's domicile and legal form, its country of incorporation and the address of its
registered office(or principal place of business

if different from the registered office)

b) a description of the nature of the entity's operations and its principal activities
c) the name of the entity's parent and the name of its ultimate parent

2.6. Financial Statements According to the General Accepted Accounting Principles

(GAAP)
US companies with registered securities must comply with US GAAP and the SEC's rules

and financial interpretations. Non-US companies with registered securities in the US may
issue financial statements under US GAAP

or another comprehensive basis of accounting

principles(such as IFRS), provided that a reconciliation of net income and equity to US GAAP

is given in the notes, together with US GAAP and SEC disclosures.

set of financial statements under

GAAP comprises the following componentss:

balance sheet

income statement statement of recognised gains and losses/ other comprehensive income- under

US GAAP, other comprehensive income may also be presented as a separate

component of either the income statement or the statement of changes in equity
statement of changes in shareholders' equity cash

flow statement - there are 3 standards dedicated to it : FAS 95 modified

through FAS 102 and FAS 104 accounting policies

notes to financial statements

The Balance Sheet nor the Profit and Loss Account have specific nonns within the American
accounting referential, while for the Cash Flow Statement there are guiding noffns: FAS 95,

modified by FAS 102 and FAS 104. Some difficulties may appear when reading American
companies' accounts because of the lack of standard patterns even for the denomination of the

financial statements. The American accounting norms regarding the presentation

of

the

accounts settle general rules, without imposing exact formats nor denominations, being required that the words used are explicit; for example, the Profit and Loss Account may be denominated 'Statement of Income', 'Statement of Earnings' or 'Statement of Operations'the latter is used when the result is a loss. The Balance Sheet may have other names such as '
Statement of Financial Position'.

'

Statement of Financial Condition'.

t Sitt"*" contabile comparate. Nicolae Feleaga, Editura Economica 1999,

pag

177

z6

2.6.1. The Balance Sheet

Under US GAAP

, is generally

presented as total assets balancing to total liabilities and

shareholders' funds. The balance sheet detail must be sufficient to enable identification of material components. Within the structure of the Balance Sheets prepared by the majority of the US companies there can be defined three value groups: Assets, Liabilities and Equity,
exhibited on an horizontal or vertical format. The third paragraph in the Accounting Conceptual Framework (SFAC 3) defines its elements:

* Assets- elements that generates

transactions.

future economic benefits resulting fiom paste events/

Liabilities- future probable sacrifices regarding the benefits emerging from current

oblisations.

* Equity represents the difference between Assets and Liabilities

Sirnilarly to other countries as France or Romania, the values in the Balance Sheet reflect the historical cost, not the current cost on the market. Generally the format of the balance sheet is

the table and not as a list- this format being preferred by the British companies. The
succession

of the accounts is reversed: the Active begins with Current Assets and ends with

Non-current Assets, the Liabilities begin with the curent ones and end with the long-term

liabilities; in other words the company presents its assets and liabilities in the decreasing order

of their liquidity, respectively their exigibility, this reversed order being specific to

the

American accounting culture. This characteristic of acting of the short term rnay explain the rapid ascension of the American economy. The separate presentation of the current assets and

liabilities must allow the determination of the working capital. Offset is permitted where the
parlies owe each other determinable amounts, where there is an intention of offset, and where
the offset is enforceable by law.

The balance sheet items are expressed, usually, at their net value, by deducting the
depreciation provisions and the amortisation. The size of the provisions is indicated

in

gaps,

after the denomination of the item, or in the appendix. The format of the balance sheet is
presented in Appendix 5.

The vertical exhibition has a more juridical nature, emphasizing the creditors of the company-

third parties which have legal priority against the owners. The equity is considered a residual
section. According to the vertical presentation, the basic equation of the balance sheet is:
Assets-

Liabilities: Equity. The balance sheet allows drawing up conclusions regarding the

risks taken by the company and the future cash movements. 2.6.2. The Income Statementa Being a financial statement dedicated mainly to an external use, this statement assumes a more

specific elaboration of the information in the United States than in the European countries. It

is made up under a list format, the continuous and discontinued operations being clearly
distinguished; the latter include the extraordinary results and the cumulated effect method changes. As opposed

of

the the

to other accounting systerns, such as the French one,

operational expenses are analysed according to their function. Thus, when purchasing, the cost

of this transaction will also be included, as to determine the gross margin (after the deduction of the sales revenues). In the US, the Income Statement can be structured as a single step or
multiple step manner. The single step model is presented in the appendix 6.

The profit and loss accounts encountered by the companies can be classified
catesories:

in three

the operating income the gross margin and the operating income
a sinsle result before the net one: income befbre tax

In the US, the cost of the unsold production is directly transferred in the stock or
accounts

assets

(if the company

uses them for internal use). Moreover, the revenues from provisions

do not exist in the American accounting, being treated as a liability

result, only the unused part of the provision is recorded.

when computing the

Underthe denomination of ' cost of sales', 'cost of goods sold' or'cost of products sold', the US companies comprise under a single item, all the production costs, the purchase costs and

the costs of the sold merchandise. This global item encompasses the personnel expenses

Sisteme contabile comparate. Nicolae Feleaga, Editura Economica 1999, pag. 183-186

regarding production, depreciation, raw materials and

all other direct and indirect

costs

implied by the production. Contrary to the French approach regarding the inventory, the
American firms record firstly the production costs on the active items, transferring them in the

result

in the moment of sale (according to the matching principle). The sales and

administrative expenses are grouped under one item, usually named 'Selling, general and administrative'. Although the operating are analytically classified according to the company's functions, the American accounting culture allows the identif,rcation of three revenues and
expenses categories:

net sales; cost ofgoods sold; operating expenses other incomes and expenses

extraordinary items

are defined as being both infrequent and unusual. Negative

goodwill arising

in a business

combination

is written off to earnings as a

extraordinary gain, presented separately on the face of the income statement net of
taxes. Disclosure of tax impact is either on the face of the income statement or in the notes to the financial statements.

2.6.3.The Statement of Changes in Shareholders'Equity

Similar to IFRS , SEC rules allow such information to be included in the notes
2.6.4. The Statement of Recognised Gains and Losses/ Other Comprehensive Income
One of three possible formats may be used:

a single primary statement of income and comprehensive income containing both

income and other comprehensive income

a two-statement approach

a separate category highlighted

within the primary statement of changes in equity

comprehensive any

In addition, US GAAP requires the cumulative amounts for each item of

income. The SEC

will

accept the statement prepared

in accordance with IFRS without

additional disclosures.

2.6.5. The Cash Flow Statement The purpose is to provide relevant information about 'cash receipts' and'cash payments'. The

direct method is encouraged; however, the indirect method is permitted. If the direct method is
used, a reconciliation of net income to cash flows from operating activities must be disclosed.

The indirect method is more common in practice. The definition of cash equivalents is similar

to that in IFRS, except that bank overdrafts are not included in cash and cash equivalents;
accordingly, changes in the balances of overdrafts are classified as financing cash flows, rather
being included within cash and cash equivalents.

The classification of interest, dividends and tax within specific categories of the cash flow
statement is required. See appendix 7
.

30

CHAPTER

III

: CASE STUDY

3.1. The Company

Dynamic Ventures is a Romanian company, the capital being totally owned by

company in the United States of America, located in Brasov, which offers custom software
development and software consulting services. The team members have been responsible for

the development of major commercial software products and web applications for companies

like Hewlett-Packard, Apple Computer, The Learning Company, Leap Frog Toys and more.
Most of the developed software is used by the customers of the direct clients of Dynamic
Ventures and rnarketed under their company names.

Dynamic Ventures has strong experience in a variety of technologies including:

. . . . . .

Developing intuitive and easy to use software applications

Web Applications with Java Script, HTML, DHTML, AJAX, SQL Server, Silverlight Desktop Applications with Windows Forms, C#, VC++, MFC, ATL, WPF, CLVC++ Graphics, Video and Image related Applications: Image Processing, Image Analysis, OpenGL, DirectX, DirectShow

Custom Extensions, Plug-ins and Add-ins

for applications such as QuickBooks,

SlaesForce.com, Outlook, Excel, Word, IE, FireFox Custom automation and Integration FedEx, Amazon

with QuickBooks, eBay, PayPal, SalesForce.com,

The company data are as follows:

Name Address: Fiscal number: Registered under:

Company

DYNAMIC VENTURES INTERNATIONAL S.R.L.

Nr. 9 Oltet street, Brasov, Romania
:

16674947
:

J08162412005

The company is using US GAAP for the reports destined to consolidation and is considering
the using of IAS, due to 3 important reasons:

1.

Is considering to have important development cost, which under IAS are capitalized
and amortised,

if

certain criteria are met, while under US-GAAP are to be expensed,

thus distorting the result for the year in which the costs are incurred. There are also
certain exceptions - some software and website development costs that are capitalised.

2.

The deferred tax is always a non-curent asset / liability under IFRS, thus the liquidity of the company is not affected.

3.

Under IFRS, historical cost is the main accounting convention. However, IFRS permits

the revaluation of intangible assets, property, plant and equipment (PPE)

and

investment property. IFRS also requires certain categories of financial instruments and

certain biological assets to be reported at fair value. US GAAP prohibits revaluations

except for certain categories of financial instruments which are carried at fair value.

Another advantage of IFRS is that there is no prescribed format for the income statement. The

entity should select a method of presenting its expenses by either function or nature; this can
either be, as is encouraged, on the face of the income statement, or in the notes. Additional
disclosure of expenses by nature is required

if

functional presentation is used. IFRS requires,

statement:

as a minimum, presentation

of the following items on the face of the income

revenue; finance costs; share ofpost-tax results of associates and

joint ventures accounted for

using the equity method; tax expense; post-tax gain or loss attributable to the results and to remeasurement of discontinued operations; and profit or loss for the period.

32

3.2. Financial Reporting under IFRS

3.2.1 The Balance Sheet

BALANCE SHEET
as at 31.Dec.2007

Currency:

- lei

Balance as at:

Row Nr.
B

01.01.2007

31.12.2007
2

A. FIXED ASSETS

'., (Acct. 201 + 203 + 205 + Z0l1 + 208 + 233 + 234 290 290 - 2933\

I - INTANGIBLE ASSETS

' ' 'i, ,' :01: i,',

''199.3'lei

2,912lei

II - TANGIBLE
281

ASSETS
| ZSZ
_

02

2,,163lei

32,6,40tei

(Acct. 211 + 212 + 213 + 214 + )31

-29r -2931)
INVESTMENT SECIJRITIES

III -

AND
03,

LONG TERM T,OANS (Acct. 261 + 263 + 265 + 267* - 296*)

0 lei

0lei

TOTAL A. FIXED ASSETS

(01 to 03)

04

3,756lei

35,552lei

B. CURRBNT ASSETS

rll
(Acct. 301 + 302 + 303 +t-:OS

l&' + 341 + 34s + 346+l- 348+:st +354+356+lSl +358+ 361+/_368

37t +t- 378 + 18t +/_ 388 _3gt _392 _3g3 _394 _3g5
396 - 397 - 398
_

+jjr i

:t

ffi

+ 409r _ 4428\

JJ

I'n-,Afi
+

o,ry
41 1

' ' ', 'r;" 06

+ 413 + 418 + 425 + 4282

70,6061ei

t45,9j6tfl

(Acct. 267* - 296* + 4092+

431** + 437** + 4382 + 441** + 4424 + 4428** + 444**

+ 445 + 446** + 447** + 4482 + 451** + 453** + 456** + 4582

+06
461

+ 473** - 491 - 495 - 496+ 5187)

III:

MA$!(S1TSS
t '

t-'":':='::=::

(Acct. 501 + 505 + 506+ 508 + 5113 + 5114 - 591 - 595 596 - 598)

IV: CASH AND CASH: EQUIVALENTS

(Acct.
51

08

26,561

lei

4,703lei

12+ 512 + 531 + 532+ 541 + 542)

TOTAL B. CURRENT
(05 to 08)

ASSETS

09

94,911

lei

150,619lei

C. PREPAID EXPENSES

l0

3,227lei

5,498lei

(Acct.471)

D. CURRENT

LIABILITIES

85,212

lei

112,963 lei

(Acct. 161 + 162 + 166 + 167 + 168 - 169 + 269+ 401 +

403 +1 I 404 4281

405 + 408

419

421 + 423 + 424 + 426 + 427 +

+431*** + 437*** + 4381 + 441*** +

+

4423

+ 4428*** +

444*** + 446*r* + M7*** + 4481+ 451*** + 453x*{< +

455

456**ts + 457 + 4581 + 462+ 473*** + 509 + 5186 + 519)

E. NET

CURRENT ASSETS

(+)

OR

LIABILITIES

12

l2,926lei

43,1541ei

34

(09+ 10-

l1-

18)

F. TOTAL ASSETS
LIABILITIES

LESS CURRENT
l3
16.682 lei

78,706lei

(04+12-r7)
G. NON CURRENT

LIABILITIES
166

14
+ 269 + 401 +

0ler

27,568lei

(Acct. 161 + 162

403 + 404 4281

+
+

+ +

167

168

169

405 + 408

419

421 + 423 + 424 + 426 + 427 +

+ 431*** + 437*** + 43gl + 441*** + 4423 + 4428*** +

444,k*,r 455 +

+ 446*** + 447*** + 4481+ 451*** + 453*** +

456*** + 457 + 4581 + 462+ 473*** + 509 + 5186 + 519)

H. PROVISIONS (Acct. 151)

l5

lei

0 lei

I. UITEARNED REVENUES
(17

16

Olei

0lei

ii

l8), of which:

Acct.

l3l + 132+ 133 + 134 + 138

t1

0 lei

0 lei

Acct.472

l8

0 lei

0 lei

J. CAPITAL AND RESERVES

19
lBl'fllift Ltffi illftr$F$flltili.ffi ilttti1ll,Tj,trili,vtitt

400-1d.. t: Y'
400lei

400lei

(20 bis 22), of which:

- paid-in capital

20

400lei

(Acct. 1012)

35

- subscribed capital uncalled

21

0lei

Olei

(Acct.

l0l l)

- public capital

22

0lei

0lei

(Acct.

l0l5)
'=-',

=#ffi*ffitrlltuRfis.ER ''
(Acct. 104)

;!23::::' "'6.:l.i

0lei

.$*pu-nil$Affiffi
(Acct. 105)

.':,,,,,

t:..24-:',
25'.,,

'$'tei
,
?,50'6

olei

IV. RESERVE
(Acct. 106)

,i

tei

. '-

7"506'tei

Own shares

26 l4l) 149)
EARNINGS

0lei 0lei 0lei

Olei

(Acct. 109)
Gains from own shares (Acct.

27 28

0lei 0lei

Losses from own shares (Acct.

V.

RETAINED

(PROFTT/LOSS CARRIED FORWARD)

(Acct. I 17)

Profit 29

8,776lei
0

8,776lei

Loss 30
,,,,i,

lei

0 lei

fl.

PROFm FOR THE.'SSNCIAL

4l
Profit 31 Loss
32

(Acct. 121)

8,716lei

34,456lei

36

t-

of which Retained / Distributed Net

Profit 33

8,776lei

0lei

(Acct. 129)

TOTAL J. CAPITAL AND RESERVE

(19+23+24+25 -26+27 -28+29 -30 -

3l)
Public Interest

34
35

16,6821ei 0lei

51,1381ei

0lei

(Acct.

l0l6)

TOTAL - OWN CAPITAL (32 + 33)

36

16,682lei

51,138lei

3.2.2.The Profit and Loss Account

PROFIT AND LOSS ACCOUNT

as at 31.Dec.2007

Currency:

lei -

Row
A
l.Net Sales (Row 02 to 05)

Year
2007

Nr. 2006 Bt2

0l 02

924,059

1,376,321

lei
Production sold

lei

924,059

1,376,321

lei
(Acct. 701 + 702 + 703 + 704 + 705 + 706 + 708)

lei

Sales

ofgoods for resale

03 0lei

0lei

(Acct.707)

Interest Revenue - Leasing companies

04 Olei

0lei

(Acct.766*)
JI

Income from public subventions and operating

grants

05

lei

0 lei

(Acct. 7411)

2. Change in stocks (work in progress, products)

(Acct. 711)
Increase

(+)

06 07

lei lei

0 lei

Sold

Fall

()

0 lei

3. Own work capitalised

08 0lei

0lei

(Acct.72l + 722)

4. Other operating income

09 4,494lei

38 lei

(Acct. 758 + 7417)

TOTAL OPERATING INCOME

l0

928,553

1,376,359

lei
(Row0l+06-07+08+09)
5.a) Expenditure on raw and process materials

lei

ll

7-320lei

18.621 lei

(Acct. 601 + 602 -7412)

Other material costs

12 t4,239
lei

48,569lei

(Acct. 603 + 604 + 606 + 608)

b) Expenditure on water and energy

13 10,467 l0,442lei
lei

(Acct.605 -7413)

c) Expenditure on purchased goods for resale

14 0lei

0lei

(Acct. 607)

6. Personnel costs, ofwhich:

15

823,047

1,152,520

lei
(Row
15

lei

+ 16)

a) Salaries, wages

l6

640,972 901,744lei
lei

(Acct. 641 + 642 - 7414)

b) Social security contributions costs

t7

182,075
lei

250,776 tei

(Acct. 645 - 7415)

7.a) Appropriations
(Row 19 - 20)

to

provisions and depreciation

for l8

3,l04lei 7,686lei

diminution in value of intangible and tangible fixed assets

a.1) Expense (-)

19

3.104

lei

7.686 lei

(Acct. 6811 + 6813)

a.2) Income (+)

20 0lei

0lei

(Acct. 7813)

b) Appropriations to provisions for diminution in value

current assets

of 21 Olei

0 lei

(Row 22 - 23)

b.l) Expense (-)

(Acct. 654 + 6814)

22 0lei

0lei

b.2) Income (+)

23 0lei

0lei

(Acct.754 + 7814)

8. Other operational expenditure (Row 25 to

28)

24

50,407
lei

77,3421ei

8.1. Expenditure on purchased services

25 41,387 67,200lei
39

lei (Acct.
61

| + 612 + 6 I 3 + 614 + 621 + 622 + 623 + 624 + 625 + 626

+ 627 + 628 - 74161

8.2. Taxes, levies and similar payments

26 6,810lei

9,827

lei

(Acct.635)

8.3. Charges with fines, penalties, donations or arising disposal

from 27

2,2l0lei

3l5lei

offixed

assets

(Acct. 658)

Interest Income - Leasing companies

28 Olei

0 lei

(Acct.666*)

Liabilities and charges: appropriations to provisions

30 - 31)

(Row

29 0lei

0lei

- Expense (+)

30 0lei

Olei

(Acct.68l2)
- Income (-)

31 Olei

Olei

TOTAL OPERATING CHARGES

(Row

32

908,584

lei

1,315,180

lei

ll

la 15 + 18 +

2l +24+29)

OPERATING PROFIT / LOSS

- Profit (Row

l0 - 32)
- l0)

33

19,969

lei

610179 lei

- Loss (Row 32

34 0lei 35 Olei

0 lei

9. lncome form participating interest

Olei

(Acct.76ll+7613)

- of which from affiliated companies

36 0lei
other

0 lei

10. Income from long term investment securities and

financial fixed assets (Acct. 763)

37 Olei

0 lei

- of which from affiliated companies

38 0lei (interest) 39
36

0lei
202ler

l.

Income from loans and bank deposits

lei

(Acct. 766*)

- of which from affiliated companies

40 41

0lei
10,067

0lei

Other Financial Income

lei

7,329lei

(Acct.

62 + 7 64 + 765 + 767 + 768)

TOTAL FINANCIAL INCOMB

(Row 35 + 37 + 39 +

42

10,103

lei

7,531 lei

4l)

12. Appropriations to long term and short term

investments 43

lei

0 lei

(Row 44 - 4l)

- Expense (-)

44 Olei

0 lei

(Acct. 686)

- Income (+)

45 Olei

0lei

(Acct. 786)

13. Interest charges

46 0lei

616lei

(Acct. 666* -7418)

- of which from affiliated companies

47 0lei 48
17,447lei

0lei
25,6991ei

Other financial expenses

4l

(Acct. 663 + 664 + 665 + 001+ 668)

FINANCIAL CHARGES - TOTAL

(Row 43 + 46 + 48)

49

17,447lei

26.315 lei

FINANCIAL PROFIT / LOSS

- Profit (Row 42 - 49)

50

- Loss (Row 49 - 42)

5l ACTIVITIES

7,344lei

18.784lei

14. PROFIT / LOSS ON ORDINARY

- Profit (Row

l0 + 42 - 32 - 49) - l0 - 42)

52

12,625lei

42,395lei

- Loss (Row 32+ 49

53

0 lei

0lei
0 lei

15. Extraordinary Income

54

0 lei

(Acct.77l)

6. Extraordinary Charges

55

0 lei

0 lei

(Acct.67l)

17.

EXTRAORDINARY RESULT

- Profit (Row 54 - 55)

56

lei

0 lei

- Loss (Row 55 - 54)

57

TOTAL INCOME (Row

10 + 42

+ 54)

58

9380656Iei 1,383,890
tei

TOTAL EXPENSE @ow 32 + 49 + 55)

926,031|ei 1"341.495

GROSS PROFIT

- Profit (Row 58 - 59)

60 61
62

l2,625lei
0lei

42,395Iei

- Loss (Row 59 - 58)

0 lei

18. Profit Tax Expenditure

3.849

lei

1-939lel

(Acct. 691)

19. Other Income Tax Expenditures

63

0lei

0 lei

(Acct. 698)

20. NET RESULT OF THE

FINANCIAL YEAR

2OO7

- Profit (Row 60 - 62 - 63)

64

8.776lei
0 lei

34.456 lei

- Loss

65

0 lei

(Row

6l + 62 + 63);

(Row 62 + 63 - 60)

3.3. Conclusions and recommendations

The question of whether the adoption of International Financial Reporting Standards (IFRS)

results in measurable economic benefits is of special interest, particularly

European Union's adoption

in light of

the
can

of IFRS for listed companies. By adopting IFRS, a business

present

its hnancial

statements

on the same basis as its foreign competitors, making

comparisons easier. Furthermore, companies with subsidiaries in countries that require or

permit IFRS may be able to use one accounting language company-wide. Companies also
may need to convert to IFRS

if they are a subsidiary of a foreign

company that must use IFRS,

or if they have a foreign investor that must use IFRS. In addition, companies may benefit
they wish to raise capital abroad.

if

For Dynamic Ventures, adopting IFRS would imply more flexibility, as well as a more
accurate result, given the fact that the company considers

a serious development program

whose cost would under US-GAAP be expensed in the period they incurred, the capitalisation

being not allowed. Also, the company is considering a revaluation of its assets and liabilities,

in line with IFRS principles, but prohibited under US GAAP.

Regarding the likely costs of convefting to IFRS, these would be determined largely by the
size and nature of the respective cornpany. While the initial cost to identify and quantify the differences between U.S. GAAP and IFRS, staff training, and implementing

IT support could

be significant, the conversion also might result in a reduction of capital and financial reporting related operation costs. Anyway, the eventual adoption of IFRS by small businesses and not-

for-profit organizations is likely to be market driven. The IASB is developing a version of

IFRS for small and medium-size entities that would rninimize complexity and reduce the cost

of financial

statement preparation, yet allow users

of

those entities' financial statements to

assess financial position, cash flows, and perfbrmance.

Regarding the seeking new markets, companies development goals,

with

overseas expansion

or

market IFRS

like

Dynarnic Ventures, should acquaint themselves

with

requirements. In many locations, a U.S.-based firm using IFRS may have an easier time

building relationships with prospective customers, vendors or lessors.

Another advantage of using IFRS at the group level is that for the consolidated
frnancial reports more choices and more flexibility

will

be available, for example in case

of

reversal of inventory write-owns

classification of interest received and paid in the cash flow statement as an

operating, investing or financing activity, while under US GAAP must be

classified as an operating activity

basis of property, plant and equipment

it maybe used either fair value or

historical cost, while under US GAAP only historical cost borrowing costs related to assets that take substantial time to complete

The advantages of using IFRS have effects mostly on future events, such as high development
costs, that

will

be capitalized under IFRS, while expensed under GAAP. Under IFRS, the

consolidated statements

will look more attractive- higher assets value, the result won't

be

influenced by the development costs- especially for bank financing or a possible stock
exchange listing of the mother company.

For a certain period, Dynamic Ventures may still need to reconcile to U.S. GAAp to meet reporting requirements of the U.S. affiliated company. And also it must be able to reconcile its U.S. GAAP statement to IFRS for inclusion in the parent company's consolidated financial
statements. But due to the future convergence of the two systems this should not be a major problem.

For

it is anticipated that IFRS will become the "common

language"

for

international

accounting, all U.S. companies with global interests should prepare themselves to reconcile
Iocal GAAP or U.S. GAAP statements to and from IFRS.

Appendix l: The following table sets out some of the differences between International
Financial Reporting Standards (IFRS) and United States (GAAP)

IAS

Topic
General approach

IFRS
Principle-based
standards with

US GAAP Rule-based
standards with more

limited application
guidance.

specific application

Abilitv to make choices

Generallv more choices.

Generally fewer
Choices

Financial statement
presentation

Specific line items

required.

Certain standards require specific presentation

of

certain items.

Public companies
are subject to SEC

rules and regulations, which

require specific line

items Comparative
One year

US GAAP states
that comparatives
are "desirable".

prior year
financial
statements

comparative

financial information is
required.

Generally at least
one year

of

comparative

financial

information
is presented.

Public companies

are subject

to SEC

rules and regulations, which generally require

two years of
comparative

financial information. Reporting a separate line item for "total comprehensive income"
Departure from
a Standard when compliance

Permitted, but not required.

Required.

Permitted in "extremely

Not directly
addressed in U.S.

rare" circumstances "to

achieve a fair presentation".

would be misleading

GAAP literature,
although an auditor may conclude that

by applying a
certain GAAP requirement the

financial statements
are misleading,

thereby allowing for

an
2

"override".

Reversal of inventory write downs

Required,

if certain

Prohibited.

criteria are met.

Carried at the Carried at the lower

Basis of inventorv

lower of cost and

net realizable

of cost and market

(market is the lower

value (NRV).

of replacement cost
and

NRV minus

normal profit

margin).
7

Classifi cation of interest received and paid in the cash

May be classified
as an operating,

Must be classified
as an operating

flow statement

investing, or financing

activity.

activity.
8

Correction of errors

May either restate

Must restate prior financial statements.

prior financial
statements or include the cumulative effect in net profit and loss in the current

financial statements.
8

Changes in accounting

policy

May either restate

Generally include
the cumulative

prior financial
statements or

effect in net profit

and loss in the

include as a cumulative effect in net profit and

loss in the current

current financial
statements (but restate for LIFO,

financial
statements.

extractive
industries, longterm contracts, IPOs).

Change in depreciation method

Change in estimate

Change in

for existing assets

(prospective).

accounting policy

(cumulative effect
in net profit or loss).

1l

Construction contracts when

the percentage of completion

Cost recovery method.

Completed contract method.

cannot be determined

l2

Classification of deferred tax

Always non current.

Classification is

assets and

liabilities

split between the

current and noncurrent components.

l2

Subsequent recognition of a

First reduce goodwill to

zero,

First reduce

deferred tax asset after a

business combination

with any excess

goodwill to zero,
then any other

credited to net profit or

loss.

intangible assets to
zero, with any
excess credited to

net profit or loss.

t2

Reconciliation of actual and

expected tax expense

Required for all

companies.

Required for public companies only.

Non-public
companies must disclose the nature

of the reconciling
items but not
amounts.

t2

Recognition of tax benefits

related to employee share options

Credited to equity only to the extent that

Credited to equity.

it

arises from a transaction

recognized in equity.

I2

Impact of temporary differences related to inter-

Deferred tax effect

is recognized.

Deferred tax effect

is not recognized.

companyprofrts

l4

Basis of reportable segments

Lines of business and geographical areas.

Components for

which information
is reported

intemally to top
management, which may or may not be

based on lines business or

of

geographical areas.

t4

Segment disclosures

Required disclosures for both "primary" and

Only one basis of

segmentation, although certain

"secondary" segments.

"enterprise-wide"
disclosures are required such as revenue from major customers and
revenue by country.

l4

Basis for reportable segments

Amounts are based on

IFRS

GAAP measures.
Amounts are based
on whatever basis is
used for internal

reporting purposes.
14

Segment result

Defined sesment result

No definition of
segment result.

l6

Major inspection or overhaul

costs

May be accounted for

as a separate component

Generally
expensed.

of an
asset.

t6

Basis of property, plant, and equipment

May use either fair

value or historical cost.

Generally required to use historical

cost.

t7

Minimum lease payments

Include guarantees of third party debt related

to the leased assets.

Exclude guarantees of third party debt in

minimum lease
payments.

t7

Present value of minimum

Generallv would use the

Generallv would use

lease payments

implicit rate in the lease

to discount minimum lease
payments.

the incremental

borrowing rate to
discount minimum
lease payments.

T7

Initial direct costs (lessors)

Either expense or
amortise over the
lease term.

Amortise.

t7

When is "sale and leaseback accounting" appropriate

General guidance.

Very specific rules, particularly related to sale and

Leaseback

transactions

involving real
estate.

l7

Recognition of a gain on a sale

and leaseback transaction

The gain is recognized

The gain is amortised over the

lease term.

immediatelv.

where the leaseback is an operating lease

l7
l8

Disclosure of lease maturities

Less detailed disclosure.

More detailed
disclosure.

Revenue recognition guidance

General revenue

More specific
guidance exists on
revenue recognition,

recognition principles
are

provided that are

consistent with US

particularly relating to industry specific

issues. In addition,

GAAP but contain limited detailed or industry specific

guidance.

public companies
must follow more detailed guidance

provided by the

SEC.

t9

Accounting for share options

(stock compensation)

No guidance on the recognition and

measurement of share options. Certain disclosures
are required (not

Share options issued from a

variable plan or to non-employees are

expensed. Share options issued from a fixed

including the fair value

ofoptions granted).

plan are recognised either at their

intrinsic value
(generally zero) or

fair value.

If

intrinsic value is
used, then certain

disclosures are required, including the fair value

of

options granted.

l9

Termination benefits

No distinction between

Recognise special (one-time)

"special" and other

Termination benefits. Termination benefits
recognised when the

termination benefits
when employees
accept the offer and

employer is demonstrably committed to pay.

the amount can be reasonably

estimated.

Recognise contracfual

termination benefits
when it is probable

that employees

will

be entitled and the

amount can be reasonably

estimated.

l9

Pension assets

Limitation on the
amount that can
be recognised.

No limitation on the
amount that can be
recognised.

2l

Translation of fair value

adjustments and goodwill

May use either

current or historic
exchange rate.

Must use current

exchange rate.

relating to a prior business combination

2l

FX differences on monetary
items resulting from a nonhedgeable severe devaluation

Sometimes added
to the cost of an
asset.

Always in net
income.

22

Method of accounting for

business combinations

Pooling (uniting) of
interests required

All

business

if

combinations must be accounted for as

purchases.

the acquirer cannot be

identified.
Otherwise acquisition (purchase) accounting must be used.
22

Goodwill

Must capitalize artd

amortise goodwill over its
estimated useful life,

Must capitalise, but not amortise,

subject to an

impairment test.

which is presumed to be
20 years or less,

subject to an

impairment test.
22

Negative goodwill

Initially offset against

Initially allocate on

zilly

expected future losses, then amortise any amounts not exceeding the value of acquired non-monetary assets, any excess is included

pro-rata basis
against the carrying

amounts of certain acquired

nonfinancial
assets,

with any

in net profit or loss.

excess recognised as
an extraordinary

gain. 23

Borrowing costs related to

assets that take a substantial

May either capitalise

as

Must capitalise as
part ofthe asset's
basis.

part of the asset"s basis

or expense. Includes interest, certain

time to complete
23

Borrowing costs eligible for

capitalization

Generally includes

ancillary costs, and

exchange differences

only interest.

that are regarded as an adiustment of interest.

27

Impact of different accounting policies or reporting dates of parent and subsidiaries

Must either
(a) conform

No requirement to conform reporting

dates or accounting

accounting policies
and reporting dates or,

policies. Need not

adjust for any

(b) if that is not practical, must adjust

significant
differences in policy

for any significant

differences in policy
and subsequent

or

subsequent

transactions or
events.

transactions or events.
28 Losses in excess of equity

Are recognised to
the extent there is an

Are used to reduce

the basis of other

investment

obligation to fund such

investments such as

l0
amounts.

loans to the
investee.

36

Impairment loss

Based on the

Based on fair value.

recoverable amount (the higher of the asset's value-in-use and net selling price).
37

Measurement of provisions

Best estimate to settle

the obligation, which

Low end of the

range of possible

generally involves the

expected value method.

amounts. Some

provisions are not

discounted. Disclosure is required.

Discounting required.
JI

Disclosures that may prejudice seriously the position of the enterprise in a dispute

"In extremely rare

cases" amounts and

details need not be disclosed, but disclosure is required of the

general nature of the

dispute and the fact that,

and reason why, the

information has not

been disclosed.
38

Development costs

Capitalise,

if certain

Expense.

criteria are met.

38 Purchased intangibles (other

Capitalise and amortrse over the estimated useful

Capitalise.

than in process R&D)

Amortise if the asset

has a finite

life. Do

life, which is presumed

to be 20 years or less.

not amortise if the

asset has an

indefinite life, but

test regularly

for

ll
lmpalrment.
38

Revaluation of intangible
assets

Permitted only

if the

Generally

intangible asset trades

prohibited.

in an active market.
39
Subsequent reversal of an

Required,

if certain

Prohibited.

impairment loss
40
Measurement basis

criteria are met.

of

May use either fair

value or historical cost.

Generally required to use historical

cost.

investment property

Appendix 2:
The format of the Balance Sheet (according to the National regulations) is the following:

A.

Fixed Assets

I . Intangible Assets

1.

Formation expenses

2. Development expenses 3. Patents, licenses, trade-marks, similar assets and rights 4. Goodwill, if it was purchased with onerous title 5. Intangible assets in progress
II. Tangible Assets

l.

Land and buildings

2. Technical installations and machineries 3. Other installations, equipments and furniture 4. Advances and tangible assets in progress
III. Financial
Assets

l.
2. 3, 4.

Shares from affiliated entities

Loans granted to affiliated entities

Participation interests
Loans granted to entities to whom the company is bound through participation interests

il

t2

5. Investments 6. Other loans

B. Current Assets

owned as assets

I. Stocks

l.

Raw materials and consumables

2. Work in progress 3. Finished goods and merchandise 4. Advances for stock purchase
II . Claims (the amounts that are to be cashed-in in more than an year
separately presented for each element)

have to be

l.
2. 3. 4.

Commercial claims Amounts to receive from affiliated entities Amounts to receive from the entities to whom the company is bound through participation interests
Other claims

IIL Short-term investments 1. Shares from affiliated entities 2. Other short-term investments
C. Prepaid Expenses D. Liabilities: the amounts to be paid in less than a year

l.

Loans from bonds emission

2. Amounts owed to credit institutions 3. Advances received 4. Commercial liabilities- suppliers 5. Notes payable 6. Amounts owed to affiliated entities 7. Amounts owed to the entities to whom the company is bound through
participation interests

8.

Other liabilities, including hscal ones and liabilities regarding social insurance

E. Net Current Assets/ Net Current Liabilities

l3
F. Total Assets - Current Liabilities G. Liabilities- Amounts to be paid in more than a year

l.

Loans from bonds emission

2. Amounts owed to credit institutions 3. Advances received 4. Commercial liabilities- suppliers 5. Notes payable 6. Amounts owed to affiliated entities 7. Amounts owed to the entities to whom the company
participation interests

is bound through

8.

Other liabilities, including fiscal ones and liabilities regarding social insurance

H. Provisions

l.

Provisions for pensions and similar obligations

2. Provisions for taxes 3. Otherprovisions

I. Deferred revenues
J. Capital and reserves

I . Subscribed capital

l.
2.
II.

Subscribed and unpaid capital Subscribed and paid capital

Share premium reserves

IIL Re-evaluation
IV. Reserves

1.

Legalreserves

2. Statutory reserves 3. Other reserves

V. Retained Earnings VI. Profit/ loss of the vear

t4

Appendix

The format of the Profit and Loss Account according to the national regulations:

l.
2. 3. 4.
5.

Net turnover
Stock and work in progress variation

Production for internal use

Other current revenues

a) Raw materials and consumables expenses

b) Other external expenses

6.

Personnel expenses

a) Salaries and indemnities

b) Social securities expenses, indicating distinctly the pension ones

1

u; funglUt" and intangible assets adjustments b) Current assets adjustments, specific entity

if they

exceed the normal adjustment amount for the

8. 9.

Other current expenses

Participation interests revenues, distinctly indicating the ones from affiliated

entities

10. Other investments and loans revenues

from fixed assets, distinctly indicating the

ones from affiliated entities I

l.

Other receivable interests and similar revenues, distinctly indicating the ones

from affrliated entities

12. Financial assets adjustments and investments as current assets 13. Adjustments 14. Current
I 5.
I 6. I 7.

for financial assets and investments

as current assets

profit/loss

Extraordinary revenues Extraordinary expenses Extraordinary profi t/loss

18. Profrt tax

t4

l5
19. Other taxes

20. ProfiVloss of the vear

Appendix 4 Information to be presented in the balance sheet

The balance sheet must include rows that should contain at least the following elements:

1.

Fixed assets

2. Fixed assets investments 3. Intangible assets 4. Financial assets 5. Financial investments 6. Biological assets 7. Stocks 8. Commercial claims and other claims 9. Cash and cash equivalents
10. Commercial liabilities and other liabilities I

l.

Provisions

12. Financial debts 13. Liabilities and assets related to profit tax, as defined by

IAS

12

Profit tax

14. Liabilities and assets related to the deferred profit tax, as defined by
15.

IAS l2

Minority interest, presented in registered capital

16. Capital and reserves

Appendix 5
The balance sheet under GAAP should contain rows that include the followine
amounts:
a) Total assets classified as owned

for sale and assets included in groups owned for

sale according to IFRS 5 ' Fixed assets owned for sale and intemrpted activities' and

b) Liabilities included in groups owned for sale according to IFRS 5

Other elements, titles and subtotals have to be presented when their inclusion is relevant to the understanding of the financial position of the company.

15

t6

Information to be presented either in the balance sheet or in the notes:

a) For each social capital class:

. ' ' ' '

The number of authorised shares The number of issued and completely paid shares, and issued and

incompletely paid
The nominal value per share, or the fact that the shares do not have a nominal value

A reconciliation of the number of issued shares at the beginning and end of

the year The rights, preferences and restrictions attached to the respective class,

including the restrictions over dividends distribution and capital

reimbursement

' '

Shares owned by the company, by subsidiaries or associated companies Shares set aside for emission based on the option contracts and sales contracts.

including the terms and amounts due

b) The description ofthe nature and scope ofeach reserve in the registered capital

t7

Appendix 6 Single Step Model

The Profit and Loss Account

All

revenue and expense elements recognised

within a period must

be presented

into the Profit and Loss Account, excepting the case when a standard or
interpretation provide otherwise.

Next the single step model will be presented; it emphasizes a single result, without distinguishing between the current result from the non-current result:
Period

N+1

Net sales
Interest revenue

Dividend revenue
Changes in accounting

principles

Total revenues
Costs and expenses Cost of goods sold

Selling expenses
General and

administrative expenses
lnterest expenses Income taxes expenses

Total expenses
Net income

Appendix 7 : The classification of interest, dividends and tax within specific categories of
the cash flow statement

ITEM
Interest paid Interest received

US GAAP Operating Operating

Dividends paid Dividends received

Taxes paid

Financing
Operating Operating