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Corporate Financial Reporting and Analysis, 3rd Edition

Book Description

Corporate Financial Reporting and Analysis: A Global Perspective/3e by David Young and Jacob Cohen is an introductory textbook on financial reporting for MBA students. This book is intended to offer the rigor and comprehensive coverage required of an MBA text, while at the same time offering an accessible and practical reference for participants in executive programs. David Young is based at INSEAD Business School in France, and Jacob Cohen is based at MIT Sloan School of Management in the USA.

This book offers a rigorous, yet accessible, treatment of contemporary financial reporting practice. Examples are drawn from a broad range of companies to illustrate key concepts. Particular emphasis is given to the latitude and flexibility granted to managers in reporting financial performance, and the steps that financial statement readers can take to identify potential trouble areas in the accounts. Topics include the analysis and interpretation of the three principal financial statements, revenue recognition, inventory accounting, receivables and bad debts, accounting for long-term assets, provisions and contingencies, income taxes, and the accounting for mergers and acquisitions.

A unique feature of this book is the seamless way in which it deals with differences in U.S. GAAP and IFRS. Both regimes are covered simultaneously, i.e. when a topic is discussed, including the relevant journal entries and disclosures, the discussion applies equally to GAAP companies and to IFRS companies. It doesn't matter whether the company used in a given example is from the U.S., Europe, or elsewhere. Thanks to the ongoing GAAP/IFRS convergence project, the two regimes are close enough to allow for a somewhat generic approach that allows for coverage of both regimes at the same time. In this way, the examples that are covered in the book are relevant to all readers, regardless of which regime dominates in their business environment.

The content of this book has been classroom tested over the past 20 years at INSEAD with the MBA class which has students from 80 different countries.

Table of Contents

  1. Cover
  2. Contents
  3. Title
  4. Copyright
  5. Dedication
  6. About the Authors
  7. Chapter 1: An Introduction to Financial Statements
    1. The three principal financial statements
    2. Other items in the annual report
    3. Generally Accepted Accounting Principles: the rules of the game
    4. The barriers to understanding financial statements
    5. Key lessons from the chapter
    6. Key terms and concepts from the chapter
    7. Questions
    8. Problems
    9. Case studies
    10. Notes
  8. Chapter 2: The Balance Sheet and Income Statement
    1. A further look at the balance sheet
    2. Assets
    3. Liabilities
    4. Shareholders’ equity
    5. A further look at the income statement
    6. Other things you should know about the balance sheet and the income statement
    7. Key lessons from the chapter
    8. Key terms and concepts from the chapter
    9. Questions
    10. Appendix 2.1 The mechanics of financial accounting: the double-entry system
    11. The accounting process in practice
    12. Key terms and concepts from the appendix
    13. Key lessons from the appendix
    14. Problem
    15. Case study
  9. Chapter 3: A Brief Overview of GAAP and IFRS: the Framework for Financial Accounting
    1. The core principles of GAAP and IFRS
    2. The key characteristics of financial information
    3. The key assumptions of financial information
    4. Modifying conventions
    5. The future of financial reporting
    6. Key lessons from the chapter
    7. Key terms and concepts from the chapter
    8. Questions
  10. Chapter 4: Revenue Recognition
    1. Introduction
    2. Definition: what is revenue?
    3. Revenue-recognition principles
    4. When does revenue recognition occur?
    5. Revenue recognition: the journal entries
    6. More on long-term contracts
    7. Revenue-recognition controversies
    8. Revenue recognition: a checklist
    9. The future of revenue recognition
    10. Key lessons from the chapter
    11. Key terms and concepts from the chapter
    12. Questions
    13. Problems
    14. Case studies
    15. Notes
  11. Chapter 5: The Statement of Cash Flows
    1. Introduction
    2. The reporting of cash flows from operations
    3. Preparing the statement of cash flows
    4. Does the statement of cash flows tell us anything new?
    5. IFRS and the statement of cash flows
    6. Analyzing the statement of cash flows
    7. Key lessons from the chapter
    8. Key terms and concepts from the chapter
    9. Questions
    10. Problems
    11. Case studies
    12. Notes
  12. Chapter 6: Financial Statement Analysis
    1. Introduction
    2. Business and industry analysis
    3. Accounting analysis
    4. Financial analysis
    5. DuPont analysis
    6. A brief digression on inventory
    7. ROE and the analysis of financial risk
    8. Key lessons from the chapter
    9. Key terms and concepts from the chapter
    10. Questions
    11. Appendix 6.1 An industry and competitive analysis of SAP Group
    12. A competitive strategy analysis of SAP Group
    13. Appendix 6.2 Summary of financial statement ratios
    14. Problems
    15. Case studies
    16. Notes
  13. Chapter 7: Business Valuation and Financial Statement Analysis
    1. Valuation principles
    2. Valuation: from theory to practice
    3. The economic profit approach to valuation
    4. A case study in valuation: SAP Group
    5. A brief word on growth rates
    6. Relative valuation
    7. Key lessons from the chapter
    8. Key terms and concepts from the chapter
    9. Questions
    10. Problems
    11. Case study
    12. Notes
  14. Chapter 8: Accounting for Receivables and Bad Debts
    1. Introduction
    2. Estimating bad debts
    3. Writing off accounts
    4. The direct method: an alternative approach
    5. What happens when written-off accounts are later collected?
    6. The “aging” of accounts receivable
    7. Sales returns and allowances
    8. Analyzing receivables
    9. Key lessons from the chapter
    10. Key terms and concepts from the chapter
    11. Questions
    12. Appendix: 8.1 Accounting for loan loss reserves
    13. Problems
    14. Case studies
    15. Notes
  15. Chapter 9: Accounting for Inventory
    1. Introduction
    2. Inventory valuation: LIFO, FIFO, and the rest
    3. The lower of cost or market rule
    4. The cost-flow assumptions: an example
    5. Inventory cost-flow assumptions: a summary
    6. Key lessons from the chapter
    7. Key terms and concepts from the chapter
    8. Questions
    9. Problems
    10. Case studies
    11. Notes
  16. Chapter 10: Accounting for Property, Plant and Equipment
    1. Introduction
    2. Initial recognition of PP&E
    3. Subsequent expenditures: repair or improvement?
    4. Accounting for depreciation
    5. Changes in depreciation estimates or methods
    6. Asset impairment
    7. Fair value vs. historical cost
    8. Divestitures and asset sales
    9. Intangible assets
    10. Key lessons from the chapter
    11. Key terms and concepts from the chapter
    12. Questions
    13. Problems
  17. Chapter 11: Leases and Off-Balance-Sheet Debt
    1. Introduction
    2. Capital vs. operating leases
    3. Accounting for capital leases
    4. Accounting for operating leases
    5. Lease accounting: an example
    6. Interpreting lease disclosures
    7. Off-balance-sheet debt
    8. Key lessons from the chapter
    9. Key terms and concepts from the chapter
    10. Questions
    11. Problem
    12. Case studies
    13. Notes
  18. Chapter 12: Accounting for Bonds
    1. Introduction
    2. Accounting for bond issuance
    3. Accounting for bonds sold at par
    4. Accounting for bonds sold at a premium
    5. Bond redemption before maturity
    6. Accounting for bonds issued at a discount
    7. Zero-coupon bonds
    8. Key lessons from the chapter
    9. Key terms and concepts from the chapter
    10. Questions
    11. Problems
    12. Note
  19. Chapter 13: Provisions and Contingencies
    1. Introduction
    2. Defining provisions
    3. Measuring the provision
    4. Disclosure of provisions: interpreting the notes
    5. Contingent liabilities
    6. Contingent assets
    7. The future
    8. Key lessons from the chapter
    9. Key terms and concepts from the chapter
    10. Questions
    11. Problems
    12. Case studies
    13. Notes
  20. Chapter 14: Accounting for Pensions
    1. Introduction
    2. A brief word on defined contribution plans
    3. Defined benefit plans
    4. Unfunded defined benefit plans
    5. Funded defined benefit plans
    6. American Airlines: an example of defined benefit plan disclosure
    7. Key lessons from the chapter
    8. Key terms and concepts from the chapter
    9. Questions
    10. Case study
    11. Note
  21. Chapter 15: Accounting for Income Tax
    1. Introduction
    2. Temporary and permanent differences
    3. Deferred taxes and the balance sheet approach
    4. The balance sheet approach: an example
    5. Interpreting income tax disclosures: the case of Intel Corporation
    6. Why deferred income tax is important
    7. Key lessons from the chapter
    8. Key terms and concepts from the chapter
    9. Questions
    10. Problems
    11. Case study
    12. Notes
  22. Chapter 16: Accounting for Shareholders’ Equity
    1. Introduction
    2. Shareholders’ equity: an introduction
    3. More on contributed capital
    4. Accounting for stock transactions
    5. Dividends on common stock
    6. Stock dividends and stock splits
    7. Accumulated other comprehensive income
    8. Convertible bonds
    9. The statement of shareholders’ equity
    10. Key lessons from the chapter
    11. Key terms and concepts from the chapter
    12. Questions
    13. Problems
    14. Case studies
    15. Notes
  23. Chapter 17: Marketable Securities and Investments
    1. Introduction
    2. Investments and marketable securities at Microsoft
    3. The market and cost methods
    4. The fair value hierarchy
    5. Equity method
    6. A further look at Microsoft’s investments
    7. Consolidation
    8. Key lessons from the chapter
    9. Key terms and concepts from the chapter
    10. Questions
    11. Problems
    12. Case studies
    13. Notes
  24. Chapter 18: Accounting for Mergers and Acquisitions
    1. Introduction
    2. Purchase price/cost of acquisition
    3. Contingent consideration
    4. Recognition and measurement of identifiable assets
    5. Subsequent adjustments to acquired assets and liabilities
    6. Goodwill impairment
    7. Noncontrolling interest
    8. Key lessons from the chapter
    9. Key terms and concepts from the chapter
    10. Questions
    11. Problems
  25. Appendix: Tables for Present Value and Future Value Factors
  26. Index