Welcome

to
Cost and Financial
Management

3 -7 April 2023
EMI Bishoftu , Ethiopia 1
 Climate setting
 Introduction
 Norming
 Expectations
 Time management
 Reporters
 Energizing team
 Introduction
 Name

 Educational background

 Work experience

 Current Position
Facilitator
Dr. Messele Getachew
Assistant Professor, Researcher, Advisor, Consultant,
Certified Trainer of IFRS & IPSAS
Norming

 How should we govern our

training?
 What are the Individual duties
and responsibilities
Time management

 Time manager:

 Coordinator:
Reporters

 Day 2:

 Day 3:

 Day 4:

 Day 5:
Energy team

 Team members
 
Monday Tuesday Wednesday Thursday Friday
Day/Time April 3, 2023 April 4, 2023 April 5, 2023 April 6, 2023 April 7, 2023
Concepts of Job Order CVP Analysis Financial Ratios Reflective Activity
8:30– Accounting and costing system and Group
10:00 Finance and Process Discussion
  Costing system
Morning

10:00–
10:30

Break

      Group Exercise
10:30–12:00

    Reflective Activity
Financial Reflective Group Discussion and Group
Statments Activity and Discussion
Group
Discussion
 
12:00–
2:00

Lunch

ABC Costing System Capital Budgeting   Discussion

Concepts of Cost   Financing and
2:00–
3:30

and Managerial Leverage

Accounting
o on

–
0
Concepts of Accounting
 Training Objectives
At the completion of this topic, you will be able to:

 Definition and Concepts of Accounting

 Definition and Concepts of Finance
 Identifying the Accounting Activities and users
 Describe the conceptual framework of IFRS
Reflection

 What is Accounting ?
 What is finance ?
Mind Teaser

In which direction the car is moving? 

The car is not moving. Because it has no wheels.
 Good decision-making depends on good
information.
 Whatever your pursuits or occupation, the need for
financial information is inescapable.

 You cannot earn a living, spend money, buy on credit,

make an investment, or pay taxes without receiving,
using, or dispensing financial information.

 Good decision-making depends on good information.

Basics of Accounting
 Accounting is financial information system in an
organization
 Accounting is the process of recording ,
summarizing , reporting and interpreting
economic data of an entity to interested users.
 Accounting Activities and Users
these reports are called financial statements in a
Three Activities standardized way & aggregated in a standardized
way

A company identifies the it records those events in order to Analysis involves use of
economic events relevant to its provide a history of its financial
ratios, percentages, graphs,
business activities
Recording consists of keeping a and charts to highlight
Accounting process includes the
systematic, chronological diary of significant financial trends
bookkeeping function
LO 1
events, measured in monetary and relationships 18
units
Users of accounting information
 The users of accounting information
 Those who manage a business

 Those outside a business enterprise who have direct financial

interest in the business

 Those people, organizations, and agencies that have an indirect

financial interest in business
Users categorized in to two –internal and external

19
Accounting Activities and Users
Internal Users

Internal users need detailed information on a timely basis. Managerial

accounting provides internal reports to help users make decisions
about their companies. Examples ;- financial comparisons of operating
alternatives, projections of income from new sales campaigns, and
forecasts of cash needs for the next year 20
 Accounting Activities and Users
External Users (1/2)

Financial accounting answers these questions. It provides economic

and financial information for investors, creditors, and other
external users.
LO 1 21
Fun Puzzle Question

Peter's father has five sons. The names of four sons are
Fefe, Fifi, Fafa and Fufu respectively. What is the name of
the fifth son?
FINANCE
Reflection
• What are the sources of Finance in your
organization level ?

Copyright ©2019 John Wiley & Son, Inc.

 What is finance?
• Finance is is a broad term that describes two related activities :the
study of how money is managed and the actual process of acquiring
needed funds.
• it encompasses the oversight, creation and study of money ,banking,
credit ,investment, assets and liabilities that make up of financial
systems Finance is the science of the acquisition and allocation
(i.e. Spending or investment) of funds effectively.
• It is a field concerned with the allocation of assets and liabilities
over space and time ,often under condition of risk or uncertainty.
• It is the science of money management(includes like
borrowing ,lending, budgeting, saving, and forecasting).
 Finance cont…
WHAT ARE THE TYPES OF FINANCE ?
I. Private Finance: studies income and expenditure
activities of the private individuals and private entities.
II. Personal Finance: investing personal money on stocks,
bonds, or guaranteed investment corticated
III. Corporate Finance: studies income and expenditure
activities of the Corporate entities.
IV. Public Finance: studies :deals with income and
expenditure activities of the state or government.
 MAJOR ISSUES ADRESSED BY FINANCE
FROM WHERE TO GET MONEY (debt vs equity)?

WHERE TO INVEST THE MONEY(Capital

budgeting)?

HOW TO MANAGE THE INVESTEMENT(Managing source of

finance and uses of finance) ?
 DISTINCTION BETWEEN ACCOUNTING AND
Basis of Accounting FINANCÉ
Finance
comparison
Meaning Accounting is an art of recording and Finance is the science of management of
reporting of the monetary funds of a business.
transactions of business.

Branches Financial Accounting, Management Private Finance, Public Finance, Corporate

accounting, Cost accounting, Tax Finance etc.
Accounting etc.
Career Accounting professionals can become Finance professionals can become an
accountants, auditors, tax consultant, investment banker, financial analyst,
etc. finance consultant, etc.
Objective To provide information regarding the To study the capital market and funds of
solvency status of the company to the business for making future strategies.
readers of the financial statement.
 Comparison of accounting and finance
Basis of Accounting Finance
comparison
Tools Income Statement, Balance Risk Analysis, Capital Budgeting, Ratio
Sheet, Cash flow Statement etc. Analysis, Leverage, Working Capital
Management etc.

Focus Narrow focus on day to day Wider range of coverage and uses
  management of financial reports accounting information to project future
and records across the business growth and to analyze expenditure of the
world. entity.

 MAJOR TASK Recording, maintaining and Is management of money and

reporting of company’s financial investments for individuals, corporations
records. and government

View point Backward looking Forward looking

Remark
 If you want to know its importance, just imagine what
would be the condition of a company if both of them were
not there.
 There will be no records of transactions, no profits could be
determined, there won’t exist any basis on which the
inventories and investments would be valued,
management of capital is unimaginable, risk factor will
increase, no comparison could be made, budgeting and
analysis of cash would not be possible, etc. If any person
Principles and concepts
What is IFRS?
 IFRS is a globally recognized set of Standards for the preparation of
financial statements by business entities.
 Those Standards prescribe:
 the items that should be recognized as assets, liabilities, income and
expense
 how to measure those items;
 how to present them in a set of financial statements; and
 related disclosures about those items.

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Principles-Based vs. Rules-Based Standards
IFRS are referred to as being principles-based standards
 Provide core principles (objectives) with minimum guidance.

 They are more loosely framed, allowing for professional

judgment to be applied
 The judgments are expected to be consistent with clear
conceptual framework
 Results in accounting that is more flexible to deal with
unique economic and business circumstances
 Some argue that allowing professional judgment introduces
bias 33
US GAAP are referred to as being rules-based
standards:
 They are more prescriptive
 Provide a rule for every situation
 Body of knowledge too large and complicated
 Although more guidance is a comfort to some, it
becomes difficult to ensure that the standards are
all consistent.
34
Major differences between IFRS and US GAAP
are as follows:

35
 Inventory costing method
US GAAP allows LIFO method
IFRS doesn’t allow LIFO method

 Valuation of property, plant, and equipment

 U.S.GAAP: Cost less accumulated depreciation
 IFRS: Cost less accumulated depreciation (or) fair
value(revaluation)

36
 Valuation of intangible assets
 U.S GAAP: Cost less accumulated amortization. Revaluation
prohibited
 IFRS: Cost less accumulated amortization (or) fair
value(revaluation)

37
 Treatment of convertible debt
 U.S. GAAP: entire issue price is recorded as a liability
 IFRS: convertible debt is divided into its liability
(bonds) and equity (conversion option) elements

38
 Distinction between debt and equity for preferred
stock
U.S. GAAP: most preferred stock is included in
stockholders’ equity, with the dividends reported as a
reduction in retained earnings
IFRS: most preferred stock is reported as debt, with
the dividends reported in the income statement as
interest expense

39
 Reacquired shares:
IFRS does not permit retirement of shares
U.S. GAAP: All buybacks are treated as treasury
stock
 Cash outflows for interest payments
 U.S. GAAP: operating cash flows

 IFRS: either operating or financing cash flows

40
Delicious Puzzle Question

 How can two people fairly share a cake with a

single knife cut?
Answer
 The first person begins by dividing the cake into
two pieces.
 Then the second person chooses which piece they
will take. This means both sides will be satisfied.
Conceptual Framework sets out the concepts that underlie IFRS
financial statements
 It comprises of:

 the objective of general purpose financial reporting

 qualitative characteristics

 elements of financial statements

 recognition

 measurement
 presentation and disclosure

 Other concepts all flow from the objective

 Purpose of the Conceptual Framework
• To assist IASB in setting and revising standards

• To assist preparers to make the judgements that are necessary to

apply IFRSs

• To assist auditors and regulators assess judgments of preparers

• To assist users to consider those judgments when using IFRS

financial information to inform their decisions

• To assist in understanding of standard-setting by IFRS

• To reduce conflicts between Framework and Standards

Objective of General Purpose Financial Reporting

“Provide financial information about the reporting entity

that is useful to existing and potential investors, lenders and
other creditors in making decisions about providing
resources to the entity”
 To provide information about
 Economic resources and claims (SFP)
 Changes in economic resources and claims (SPLOCI)
 Financial performance reflected by past cash flows
(SCF)
 Changes in economic resources and claims not
resulting from financial performance (SCE)
Qualitative Characteristics of Useful Financial
Information
 Fundamental
Relevance
Faithful representation
 Enhancing
Comparability
Verifiability
Timeliness
Understandability
 Elements of financial statements
Asset Income
 resource controlled by the entity  recognised increase in asset/decrease
 result of past event in liability in current reporting period
 expected inflow of economic benefits  that result in increased equity except

Liability contributions from owners

 present obligation
Expense
 recognised decrease in asset/increase
 arising from past event
in liability in current reporting period
 expected outflow of economic benefits
 that result in decreased equity except
Equity = assets less liabilities distributions to owners
 Eg. Identifying an entity’s assets

What do you think?

 Is the public road to its factory an asset of the
manufacturer?
 Are Ethiopian wolves an asset of a Bale Mountains National
Park-based photographic safari operator?
 Are the hived bees assets of a Robe-based honey farmer?
48
Recognition
 Accrual basis of accounting used
 Recognise element when:
 The element satisfies definition
 probable that benefits will flow to/from the entity
 has cost or value that can be measured reliably
Measurement
 Measurement is the process of determining monetary
amounts at which elements are recognised and carried.
 To a large extent, financial reports are based on
estimates, judgements and models rather than exact
depictions.
 Measurement methods include
 Historical cost: cash paid or fair value of consideration given
 Current cost: Cash that would be paid if acquired now
 Realisable (settlement) value: cash that could be obtained
by selling the asset now
 Present value: present discounted value of future net cash
inflows that the item is expected to generate
Underlying assumptions of financial reporting:
Going concern, and
Accruals accounting
Financial Statements
 A statement of financial position as at the end of the
period
 A statement of profit or loss and other comprehensive
income for the period
 A statement of changes in equity for the period
 A statement of cash flows for the period
 Notes, comprising
 A summary of significant accounting policies
 Other explanatory information
END