Understanding Accounts is a "finance for non-financial" multimedia CD-ROM to help you read and understand an Annual Report and Accounts, including the Balance Sheet, Income Statement / Profit and Loss Account and Cash Flow Statement.  It also explains the concepts of Assets and Liabilities, Liquidity, Depreciation, Equity and Loan Capital and Gearing, and shows how to use Accounting Ratios to identify trends in a company's financial performance.

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International Financial Reporting Standards (IFRS)

What are they?

These are standards for the preparation and layout of company annual accounts and the terminology used in them.  The benefit is that, if you are reading the accounts of multinational companies or companies from other countries, you know that you are comparing like with like.

Who set the IFRS and why?

The International Accounting Standards Board (IASB) adopted them in 2001 to replace the earlier International Accounting Standards (IAS) set by the International Accounting Standards Committee. Their idea is that financial statements should provide information about the financial position, performance and changes in the financial position of a company in such a way that this is meaningful.  The aim is that annual accounts should be understandable, relevant, reliable and comparable.  A revision to the standards, IAS1 Presentation of Financial Statements, was issued in 2007 to be effective from 2009.

Who does IFRS apply to?

All publicly listed companies in the European Union (ie those with shares listed on the stock market) have been required to use the International Financial Reporting Standards since 2005.  On the other hand, many privately owned companies still use the earlier format for their annual accounts.

What is the difference?

Although some of the underlying financial principles have changed, the basics are the same and the most obvious difference, at least in terms of UK companies' annual accounts, is in the terminology used.

In a set of accounts you will still find a Balance Sheet, but in future it is more likely to be called a "Statement of Financial Position".

The Profit and Loss Account is still there, but may be called an "Income Statement" or a "Statement of Comprehensive Income" or a "Statement of Income and Expense" or a "Statement of Changes in Equity" (which is what the Profit & Loss Account is intended to show us in the first place - ie how much more (or less) the company is worth after a year's trading and how it got there.)

The Cash Flow Statement becomes a "Statement of Cash Flows"

Stock = "Inventory", Debtors = "Receivables", Creditors = "Payables"

Assets, Liabilities, Equity, Income and Expenses are as before but have been carefully defined.

How does IFRS effect the Understanding Accounts package?

Understanding Accounts refers both to the new International Financial Reporting Standards and to the earlier standards.  The basic principles remain and many smaller companies still use the earlier terms, such as Profit and Loss Account, Debtors, Creditors, etc., so we aim to give you a basic understanding so that you can interpret accounts produced to either standard.

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