Preface

It gives me immense pleasure in presenting the third edition of the book. The earlier two editions received overwhelming responses from both students and teachers. The feedback received from the academic community has therefore been duly incorporated in the revised edition.

Financial accounting and reporting has undergone a major shift in India with the convergence of our accounting standards with the IFRS. The Ministry of Corporate Affairs introduced a new series of accounting standards (called Ind AS) which are substantially aligned with the IFRS. The transition to the new Ind AS has begun from the financial year 2016–17. The convergence with the IFRS would substantially improve the reporting and disclosure practices by the Indian companies. The current edition has been thoroughly revised based upon the newly introduced Ind AS.

This book is designed to cater to the needs of postgraduate students in the first semester for various universities and institutes. Accounting information is used by functional managers for taking various economic decisions. These managers may not be responsible for the preparation of financial statements but must possess the necessary skill of understanding the information conveyed by the financial statements. Accordingly, this book has been written keeping the users’ perspective in focus. It is expected that it will help users understand the contents of financial statements as well as the principles behind these numbers so as to enable them to take informed decisions.

The book is divided into 15 chapters. The first three chapters focus on the basics of accounting, including generally accepted accounting principles, accounting standards, and accounting process leading to the preparation of the profit and loss statement and the balance sheet. The users of financial information may not know the accounting procedure in as much detail as an accountant needs to know; nevertheless, a broad understanding of the accounting cycle and underlying principle is needed to really comprehend the information conveyed by financial statements. The next seven chapters discuss two key financial statements, namely, the balance sheet and the statement of profit and loss, in detail. Four key issues, viz., revenue recognition, inventory accounting and valuation, accounting for fixed assets and depreciation and investments, have been covered in length.

The next chapter focuses on a preparation and analysis of cash flow statement. The information con- tained in the earlier two statements needs to be supplemented by the information about the cash flows of the enterprise during the given a accounting period. The readers will be able to appreciate as to why some profitable enterprises suffer a cash crunch. The chapter will also help the readers to assess the cash-generating ability of an enterprise which forms the basis of a large number of economic decisions.

Chapter Twelve introduces the need and process for the preparation of consolidated financial statements. As large corporations often do business through one or more subsidiaries and joint ventures, it becomes critical to assess the performance of the group as a whole and also the resources it controls. Such information is provided by the consolidated financial statements. This chapter will help the readers differentiate between stand-alone financial statements and consolidated financial statements.

In addition to financial statements, the annual report of a company also contains a large number of additional disclosures. Additional information available in annual reports—both mandatory and voluntary—has been covered in Chapter Thirteen . The readers will learn to use the information contained in various reports like segment reporting, management discussion and analysis, corporate governance report, directors’ report, value-added statement and Economic Value-Added (EVA) statement, etc. The next chapter introduces the readers to the analytical tools used for dissecting financial information to understand the financial performance and health of a business enterprise. The readers will learn to use tools like common size financial statements, trend analysis, and ratio analysis.

The last chapter highlights the areas of earnings management whereby unscrupulous management attempt to window dress their financial results. As a number of accounting scams have surfaced in the recent past undermining the reliability of information contained in the financial statements, this chapter illustrates some of the common financial shenanigans deployed for window dressing of financial statements. This will help the readers to be vigilant while using financial statements. The chapter also focuses on ethical issues in accounting.

Keeping in mind that this may be the first exposure to accounting for most of the students, a stepped up approach—from simple to difficult—has been used. A number of solved and unsolved illustrations have been provided to show the application of the concepts used. As a bridge between theory and practice, a number of relevant examples and cases from the annual reports of Indian companies have also been used.

Salient Features:

• In view of the convergences of Indian accounting standards with IFRS, accounting and reporting has been discussed based upon the applicable Ind AS.
• Very strong analytical perspective—how to use accounting information as a manager and as an analyst.
• A separate chapter on financial shenanigans make the readers understand the financial gimmicks used by unscrupulous management to mislead investors.
• Concepts discussed in the text have been reinforced with the help of solved illustrations both within the text and at the end of every chapter.
• Unsolved problems against each chapter encourage students to test their understanding.
• Extensive reference to examples from the annual reports of Indian companies.
• Case studies in each chapter to encourage out-of-the-box thinking. Most of the cases are based on information in the annual reports and real-life situations.
• Requirements of the Companies Act 2013 have been suitably incorporated.

FOR WHOM

Financial Accounting for Managers is primarily meant to be used in postgraduate programmes of vari- ous universities and institutions. The book can be used as an introductory course on accounting. It will also be useful in courses where students already know the procedure of accounting, but need to acquire an analytical and user orientation. This book would be helpful to practicing managers—both in finance and non-finance areas—to sharpen their skills in understanding and analyzing financial and accounting information.

Sanjay Dhamija