SHAHID NASIM

M.Phil (Finance) [Superior University Lahore] M.Com (Finance) [GC University Faisalabad] Cell # 03064597501 E-mail: shahid.nasim208@gmail.com

Academic Experience
Lecturer at Punjab College Sahiwal since August 2012 to date. Lecturer at Quaid-e-Azam College of Accountancy & Commerce Lahore since September 2010 to July 2012. Lecturer at Jaranwala College of Commerce Jaranwala since November 2007 to May 2010.

Academic Projects
Working on my Thesis for my M.Phil (Finance) degree requirement on the Topic Measuring Change in Efficiency of Islamic & Conventional Banks during the Financial Crisis
Research Paper Stock Prices Follow the Random Walk Market Efficiency of KSE presented at ICMR-II 2011 held at Superior University Lahore. Thesis on construction of internship report on United bank Limited Research Proposal on Risk Analysis in Capital Investment Decisions

Analysis of Financial Statements

Using Financial Accounting Information

Learning Objectives for Today

What is Analysis? What is Analysis of Financial Statements?

Why we need to Analyze Financial Statements?

What are Basis for Analysis of Financial Statements?

Detailed examination of the elements or structure of something, typically as a basis for discussion or interpretation. OR

The process of separating something into its constituent elements.

Analysis

is the art of creation through destruction.

Analysis of Financial Statements

Analysis of Financial Statements also referred as: Financial Analysis Accounting Analysis Analysis of Finance AFS are the methods of assessment of the Viability, Stability Profitability Past Current and Projected conditions of a business, sub-business or project. AFS means evaluation of the Financial Status of a Company.

Who Needs to Evaluate a Company?

Stakeholders Management Investors Creditors Security Analysts Suppliers Lending Institutions Employees Labor Unions Regulatory Authorities General Public

Why We Need to Evaluate a Company?

A Company is evaluated to make any of the following decisions: To continue or discontinue its main operation or part of its business; To make or purchase certain materials in the manufacture of its product; To acquire or rentllease certain machineries and equipment in the production of its goods; To issue stocks or negotiate for a bank loan to increase its working capital; To make decisions regarding investing or lending capital; OR Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.

Basic Purpose of AFS

AFS helps to know about the following basic factors of a company or Business:
Profitability - its ability to earn income and sustain growth; Solvency - its ability to pay its Obligations; Liquidity - its ability to maintain positive cash flows; Stability - the firm's ability to remain in business in the long run.

Basis of AFS

Financial Reporting

Traditional Assumptions of Accounting

Basic Principles of Accounting Reporting

Financial Reporting (Financial Statements)

Is a formal record of the Financial Activities of a business, person or any other entity to present the Financial Information of the entity in question as clearly and concisely as possible for both the entity and readers.

What a Financial Report Should Accomplish

Is the business making a profit or suffering a loss, and how much?

How do assets stack up against liabilities?

Where did the business get its capital, and is it making good use of the money? Whats the Cash Flow from profit or loss for the period?

Did the business reinvest all its profit?

Does the business have enough capital for future growth?

Objectives of the Financial Reporting

Provide information that is useful to present and potential investors, creditors, and other users in making rational investment, credit and similar financial decisions.

Information to help [assess] the amounts, timing, and uncertainty of prospective cash flows.

Assessing future cash flows prospect is a vital function of both, lending and investing decisions

Receipts Interest, Dividends, Selling goods, redeeming securities & maturing loans etc

Payments Operating expense, purchasing goods, Interests, Dividends, long-terms assets etc.

Provide information about a business enterprise's resources, claims to those resources and changes in those resources and claims.

Major Classes of Financial Reports

Statement of Financial Position

Income Statement

Cash Flow Statement

Statement of Changes in Equity

Statement of Financial Position

Is also known as Balance Sheet, presents the Financial Position of an entity at a given date.

Income Statement
Is also known as Profit or Loss Statement, presents the companys Financial Performance in terms of profit or loss over a Specified Period.

Incomes

Expenses

Profit or Loss

Cash Flow Statement

Presents the Movements in Cash & Bank balances over a Specified Period.

Operating Activities

Investing Activities

Financing Activities

Cash Flow

Statement of Changes in Equity

Share capital Issuance & repayments Revaluation Surpluses Changes in Accounting Policy

Net profit or Loss of a period Changes in Equity Dividend Payments

Is also known as Statement of Retained Earnings, presents the movement in equity over a period.

Regulatory Authorities to Financial Reporting

SECP IASB FASB

GAAP

AICPA

AAA

 Financial Regulatory Agency in Pakistan. Works for development of modern & efficient corporate sector and capital market based on sound regulatory principles. Provides sound basis for investments, economic growth & prosperity of Pakistan.

Established under the SECP Act promulgated in December, 1997.

 Established under Capital Market Development Plan of Asian Development Bank (ADB). Become operational on January 01, 1999.

Created to protect the interests of investors by ensuring full and fair disclosure.
Granted legal authority to establishing GAAP.

Has tended to defer setting GAAP to the accounting profession.

Financial Accounting Standards Board (FASB)

The private-sector body responsible for the establishment of accounting standards (also known as GAAP). Five full-time members are drawn from a variety of backgroundsauditing, corporate accounting, financial services, and academia. Members are required to sever all connections with their firms or institutions prior to assuming membership on the Board. Appointment of new members is done by the Financial Accounting Foundation (FAF).

The Standard-Setting Process

The major functions of the FASB are to study accounting issues and to establish accounting standards. These standards are published as Statements of Financial Accounting Standards. The FASB has also issued Statements of Financial Accounting Concepts that provide a framework within which specific accounting standards can be developed.

FASB Due Process

1. FASB staff assembles background information.

2.
3. 4. 5.

The Board holds public meetings before a decision is made to add a project to the FASBs formal agenda.
After more study and further hearings, the Board often issues a report summarizing its Preliminary Views. Interested parties are invited to comment either in writing or orally at a public hearing. After comments from interested parties have been evaluated, the Board meets as many times as necessary to resolves the issues.

FASB Due Process

6. From these meetings, the Board developes an Exposure Draft of a statement that includes specific recommendations for financial and accounting reporting. At the end of the exposure period, 30 days or longer, all comments are viewed by the staff and the Board. Further deliberation by the Board leads to either the issuance of a Statement of Financial Accounting Standards (if at least three of the members approve), a revised Exposure Draft, or abandonment of the project.

7. 8.

Emerging Issue Task Force

In an effort to overcome the methodical, sometimes slow, nature of the standard setting process, in 1984 the FASB established the Emerging Issues Task Force (EITF). The EITF assists the FASB in the early identification of emerging issues that affect financial reporting.

Standard Setting Process

American Institute of Certified Public Accountants (AICPA)

It is the professional organization of practicing certified public accountants (CPAs) in the United States. It is responsible for preparing and grading the Uniform CPA Examination.

American Institute of Certified Public Accountants (AICPA)

It is concerned with maintaining the integrity of the profession through its Code of Professional Conduct and through a quality control program, which includes a process of peer review of CPA firms conducted by other CPAs.

American Accounting Association (AAA)

The AAA is an organization of accounting professors. It sponsors national and regional meetings where accounting professors discuss technical research and share teaching techniques and materials. It organizes working committees of professors to study and comment on accounting standards issues.

American Accounting Association (AAA)

The AAA publishes a number of academic journals, including The Accounting Review and Accounting Horizons.

It motivates and facilitates curriculum revision to keep pace with the changes in the accounting profession.

What is GAAP?

A widely accepted set of Rules, Conventions, Standards, and Procedures for Reporting Financial Information, as established by FASB

International Accounting Standards Board (IASB)

Formed in 1973 to develop worldwide accounting standards as IASC. Similar to FASB, IASB develops proposals, circulates these among interested organizations, receives feedback, and then issues a final pronouncement. Board members are representatives from the United States, the United Kingdom, France, Sweden, China, Australia, South Africa, and Japan.

International Accounting Standards Board (IASB)

Accounting standards issued by the IASB are referred to as International Financial Reporting Standards (IFRSs) if issued since to 2001 and International Accounting Standards (IASs) if issued prior to 2001.

IFRS or IAS
International Financial Reporting Standards are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. Standards for the preparation and presentation of financial statements.

IFRS or IAS For Financial Reporting

International Financial Reporting Standards IAS 1 explains all the international requirements for the preparation of Financial Statements (Financial Reports).

Conceptual Framework
A strong theoretical foundation is essential if accounting practice is to keep pace with a changing business environment.
The conceptual framework plays a vital role in the development of new standards and in the revision of previously issued standards. A conceptual framework provides a guide for future practice.

Concepts Statements
In 2000, FASB issued seven Statements of Financial Accounting Concepts, which addressed four major areas:
1. Objectives: What are the purposes of financial reporting? 2. Qualitative characteristics: What are the qualities of useful financial information? 3. Elements: What is an asset? a liability? a revenue? an expense? 4. Recognition, measurement, and reporting: How should the objectives, qualities and elements definitions be implemented?

Careers in Financial Accounting

Public Accounting

Pubic accountants do not work for a single business enterprise. Rather, they provide a variety of services for many different individuals and business clients.

Careers in Financial Accounting

Corporate Accounting

A large business enterprise employs financial accountants who are primarily concerned with external financial reporting, management accountants who are primarily concerned with internal financial reporting, and tax accountants.

Careers in Financial Accounting

User (Analyst, Banker, Consultant)

Many students take accounting in preparation for becoming a user of financial statements. Credit analysts, investment bankers, brokers, and business consultants need a strong working knowledge of accounting as well as strong skills in information technology.