ACCT608 – Financial Accounting

Section A: Company Information

Task 01 [Background]: [A] Write a brief description of the company you have chosen (including an overview of its principal products/services, locations or areas of operations, etc). [B] Why did you choose this company for this assignment? [C] If you have to compare this company to others in the same general competitive space, who would they be?

Task 02 [Chairman]: Read the Chairman’s letter/message or equivalent and offer a few summary paragraphs in your own words. What is your impression/assessment of the Chairman’s letter/message? [Note: You can use bullet points for brevity].

Task 03 [MD&A]: Read the management discussion and analysis (MD&A) or operating and financial review (OFR) or equivalent and offer a few summary paragraphs in your own words on how the company has performed in the last financial year and if you sense any significant issues going forward.
[Note: You can use bullet points for brevity].

Task 04 [ESG]: Does the company have a sustainability or environmental report? Is it in an integrated or separate report? What is your overall assessment of the company’s ESG report/position/strategy?

Task 05 [Audit Report]: Examine the auditor’s report. [A] Who is the company’s auditor? What kind of opinion did the company receive? [B] What were the “key audit matters” for the audit? Do the identified matters resonate with your understanding of the company and its financial statements?

Section B: Overall financial statements and accounting policies

Task 06 [Accounting equation]: Show your company’s basic accounting equation (A = L + E) and its long form. (CA + NCA = CL + NCL + Equity). Express the equations once in $ and once in %.

Task 07 [Changes in equity]: Show the main movements in total equity in the last financial year. Clearly identify beginning equity, profit, other comprehensive income, dividends and (a summarised) “others”, resulting in ending equity. Explicitly confirm the beginning and ending total equity on the statement of changes in equity to the equity balances on the balance sheet.

Task 08 [Interesting accounts]: Examine your company’s balance sheet and income statement. What are some (say 3-5) account titles that sparked your interest (not necessarily the balances, just the titles). Why do you think these accounts are interesting/important? What did you find out about these accounts?

Task 09 [B/S basic analysis]: [A] Examine the company’s balance sheets and carry out a horizontal and vertical analysis of major (say 8-10) account items. [B] Is there anything notable in your view?

Task 10 [I/S basic analysis]: [A] Examine the company’s income statement and carry out a horizontal and vertical analysis of major (say 8-10) account items. [B] Is the analysis of expense done in a function or nature format? Is there anything notable in your view?

Task 11 [Cash, cash flows and profit]: Examine the company’s cash flow statement. [A] Did the company use the direct method or indirect method in the cash flow from operating activities section? [B] Explain why the net profit/loss may not equal net cash increase/decrease during the year. [C] Explicitly show how the beginning and ending cash and cash equivalent balances on the cash flow statement tally with the numbers on the balance sheet. If there are differences, why?

Task 12 [Cashflows pattern]: Prepare a line or column chart consisting of Net Profit, CFO, CFI and CFF (as categories) for at least the last 3 years. What is your overall view of the company’s cash flow pattern?

Task 13 [Accounting changes]: Did the company specify the adoption of any new/revised accounting standards, changes in accounting policy, estimates or assumptions in the last financial year? How do these changes, if any, alter financial statement numbers from the prior years, current year, and future years?
[Note: you may need to screen through various estimates, e.g. useful lives, change of accounting methods, policies, etc]

Task 14 [Revenue recognition]: [A] How does your company recognise the revenue items on its income statement? Provide some specific examples. Were there any parts of the revenue recognition policy that surprised you? [B] Does the company have unearned revenue of any kinds? If yes, how much?
[Note: unearned revenue may be labelled in different ways, e.g. deferred income, contract liabilities, customer prepayments, advanced billings, etc]

Section C:  Elements of Financial Statements

Task 15 [Trade receivables]: Look at the various notes related to trade receivables. [A] How did the management estimate the necessary allowance for doubtful debt? If expressed as an overall percentage to receivables, how much was it? Has this increased or decreased from last financial year? [B] How much was written off during the year? How much was charged to the income statement as receivables impairment expense? How does this year’s write-off and expense compare to last year’s?
[Note: Allowance for doubtful debt may be labelled as expected credit loss, allowance for bad debt, etc and some companies may even inappropriately label this as “provision for doubtful debt”]

Task 16 [Inventory and COS]: [A] What was the inventory balance at the end of the year? How much was the cost of goods sold for the year? What do you think is the relationship between these two numbers? Has this relationship increased or decreased in the last year? [B] What inventory cost assumption did the company use? Did the company say how they arrive at “net realisable value”? Was any inventory valued at NRV or written down?
[Note: For some companies, you may be able to proxy cost of sales with, e.g. materials consumed less changes in inventory, or employee benefits, i.e. salaries and wages, if it is a pure service company. If inventory/COS is really not applicable to your company, this task may not be relevant, and you can just answer “Not applicable”.]

Task 17 [PPE]: [A] What is the total PPE cost, accumulated depreciation and impairment and carrying amount of PPE? Give examples of the asset classes/categories your company uses for its PPE. What are the carrying amounts (and percentages) of these big items? [B] Was there any major addition, write-off or disposal of PPE during the year? Was there any gain/loss from the disposal? [C] What depreciation method(s) did it use? Do the PPE’s useful lives appear reasonable to you? Are all its PPE depreciated? Why or why not?
[Note: Rights-of-use assets may be presented as a component of PPE or separately. For this assignment, consider ROU assets as part of PPE].

Task 18 [Intangible Assets]: [A] What is the total intangible assets cost, accumulated amortisation and impairment, and carrying amount of intangible assets? Give examples of the asset classes/categories your company uses for its intangible assets. What are the carrying amounts (and percentages) of these big items? [B] Was there any major addition, write-off or disposal of intangible assets during the year? Was there any gain/loss from the disposal? [C] Do the intangible assets’ useful lives appear reasonable to you? Are all its intangible assets amortised? Why or why not?
[Note: Goodwill may be presented as a component of PPE or separately. For this assignment, consider goodwill as part of intangible assets].

Task 19[Capitalisation]: Excluding outright asset purchases, did the company capitalise any other expenditures as components of PPE or Intangible assets? Provide some specific examples, if any.

Task 20 [Liabilities]: [A] What are the company’s top 3 current and top 3 non-current liabilities? For context, indicate their percentages (over total liabilities). [B] What are the total interest-bearing liabilities due in the coming 12 months vs those beyond? Do you think your company can pay off the financial obligations that are maturing soon?

Task 21 [Provision]: If your company has “provisions”, how much and what was it for? How was it calculated? Has the provision increased or decreased in the last two financial years?
 [Note: allowance for doubtful receivables or inventory write-downs are not “provisions” per se, and ignore any taxes-related issues].

Task 22 [Contingent liability]: Examine your company’s contingent liability. What kind of contingencies do they have? What is the likelihood of these contingencies becoming real liabilities?

Task 23 [Equity]: [A] What are the major components of your company’s equity? Indicate amounts and percentages. [B] Describe any major equity-related transactions or significant corporate actions (e.g. stock splits, rights issue) in the last financial year. [C] If your company paid dividends, indicate the amount and nature of the dividend payment. Is there an explicit dividend payout policy or guidance?

Section D:  Financial Statements Analysis (for the last two FYs)

[Note: I expect you to be doing your own calculations based on the company’s financial statements]

Task 24 [CCC]: What is the company’s Cash Conversion Cycle? Do you note an improvement or a deterioration in the CCC?
[Note: If there is no inventory or where cost of sales is an insignificant component of revenue, you may modify the CCC formulas/definition and elaborate on your adjustments.]

Task 25 [Liquidity]: What is your assessment of the company’s liquidity/solvency? Do you see improvements or deteriorations in these ratios?

Task 26 [Profitability]: What is your assessment of the company’s ability to generate sales, margins and returns? Do you see improvements or deteriorations in these ratios?

Task 27 [DuPont ROE]: Decompose the company’s ROE using the DuPont technique. How has your company performance differed this year vs last year?

Task 28 [Market-related ratios]: Find out the company’s share price at the end of the last two financial years and calculate the historical Price-Earnings Ratio and Price-to-Book ratio. What would these two ratios be at today’s price? If your company pays dividends, what is the dividend yield based on today’s price?

Section E: Reflection

Task 29 [Overall presentation]: What is your overall take on the company's annual report's look and feel, completeness and presentation? What do you like about it, and what don’t you like about it? Do you think it conveys adequate financial and non-financial information to shareholders and other stakeholders?

Task 30 [Reflection]: Having completed the required activities for this assignment, reflect on how this assignment/workbook has helped you understand financial statements and annual reports. What are your 3 key takeaways/learning points?