(232)-REPORTING FINANCIAL PERFORMANCE

Reporting Financial Performance

The main abuse of SSAP related to the treatment of extraordinary items, particularly redundancy, reorganization and restructuring costs. Any such costs classified as extraordinary were excluded from the earnings per share number under SSAP/.

The treatment of extraordinary items was thus often “EPS-driven”.


Main charges

The main charges introduced by financial reporting standards include:

• Presentation in the profit and loss account
  

Items such as turnover, cost of sales, gross profit, operating expenses and operating profit are to be analyzed between, continue operations, discontinuing operations and exceptional items.

• Presentation and measurement of profit on disposal of fixed assets
  

This is particularly important for companies who incorporate fixed asset revaluations into the accounts.

• Treatment of extraordinary items
• Additional statements and notes
  

Statement of total recognized gains and losses, note of historical cost profits and losses, reconciliation of movement in shareholders’ funds.

• A change in the definition of earnings per share.
  

Earnings per share will in future be based on earnings after taking account of extraordinary items if they exist in the future.

• Implementation
  

The accounting standard burrow encourages companies to adopt financial reporting standard at the earliest opportunity.


Split between continuing and discontinuing operations


Financial reporting standards set out detailed criteria to be followed in deciding whether particular business disposals and terminations are to be regarded as “discontinued”. The standard also specifics the extent to which provisions can be set up in the balance sheet relating to the year prior to discontinuance.


This area of the standard is particularly complex and will apply mostly to large quoted groups which are regularly involved in acquisitions, disposals and business closures. As this part of financial reporting standards are concerned particularly with consolidated accounts.

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(231)-EXTRAORDINARY ITEMS AND PRIOR YEAR ADJUSTMENTS

Extraordinary Items and Prior Year Adjustments

Prior Year Adjustments


Prior year adjustments are those material adjustments applicable to prior year arising from changes in accounting policies or from the correction of fundamental errors. They do not include normal recurring corrections or adjustments of accounting estimates made in prior years.

• Changes in accounting policy
  

Examples could include policy changes by a company regarding depreciation of building, deferred tax, goodwill or finance leases.

• Correction of fundamental errors
  

This refers to errors which are of such fundamental importance as to affect the true and fair view. Had the errors been recognised at the time they occurred, the financial statements would have been withdrawn and subsequently amended.


Reserve movements


the term "reserve movements" refers to items which are taken direct to reserves rather than passed through the profit and loss account. One purpose of SSAP was to restrict the use of reserve movements.

Reserve movements may be required or permitted in the following circumstances:

• Changes in value of investment properties
• Certain exchange differences required to be taken direct to reserves by SSAP
• immediate write-off against reserves
• amounts required by law to be charged direct to the share premium account
• Sale of previously revalued assets
  

Disclosure requirements of SSAP


SSAP made it very clear that the following items should be separately disclosed in the profit and loss account and dealt with in the following order;

• Profit and loss on ordinary activities
• Extraordinary profit or loss
• Profit or loss for the financial year
• Dividends and other appropriations

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