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Financial Reporting and Corporate Governance

Financial Reporting and Corporate Governance

Thomas A. Lee

ISBN: 978-0-470-98618-9 July 2011 308 Pages




The aim of Financial Reporting and Corporate Governance  is to give non-accounting students a basic ability and confidence to read and use financial accounting reports and statements within their business or financial specialties.  Many employees in business today are expected to be conversant with reported accounting information as part of their regular job responsibilities.  However, they often have little formal training in using such information. 

This book is intended as a core textbook for non-accounting students who need some understanding of accounting. The students can be majoring in business either as undergraduates or graduates, or in non-business areas such as engineering, law and media. The theme of the book is financial reporting as an essential and significant part of corporate governance.  The book can be used as a self-contained text to support a specific course or module.  However, it is designed so that it can be built on in more advanced courses on the subject.  For this reason, it may be used by specialist accounting students in introductory courses.

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Glossary of Terms.

About the Author.

About the Book.


Chapter 1: Corporate Financial Reporting.

Learning Objectives.


Illustration 1 Good News at Flash Bang Wallop plc.

Bad News at Flash Bang Wallop plc.

Financial Play with Actors and Plot.

Lessons to be Learnt.


Corporate Managers.

Corporate Governors.

Corporate Financial Statements.

Accounting Numbers.

Creative Accounting.

Corporate Auditing.

Problems for Public Accountants.

Financial Statement Users.

General Purpose Financial Information.

General Legal Requirements in UK.

Learning Objectives.

Exercises 1–6.

Additional Reading.

Chapter 2: Corporate Governance.

Learning Objectives.


Defining Corporate Governance.

Accountability or Stewardship.

Legislative Developments in Corporate Governance.

Non-accounting Regulations in Corporate Governance.

Accounting Regulations in Corporate Governance.

Auditing and Corporate Governance.

Other Corporate Governance Developments.

Audit Committees.

Ineffective Audit Committees.

US Developments in Corporate Governance.

Internal Control and Internal Audit.

Learning Objectives.

Exercises 1–8.

Additional Reading.

Chapter 3: Corporate Financial Accounting.

Learning Objectives.


Comprehensive Package.

Investment Decisions.

Illustration 2 What-a-Picture Ltd.

Share Capital.

Long-term Lending Decisions.

Illustration 3 Down-the-Plughole Ltd.

Other Decisions.

Overview of Information Needs.

Time and Corporate Financial Reports.

Accounting Numbers.

Illustration 4 Rambling-Sid-Deli Ltd.

Accounting Costs and Fair Values.

Illustration 5 Balance Sheet Numbers.

Accounting Conventions.

Legal and Regulatory Requirements.

Learning Objectives.

Exercises 1–5.

Additional Reading.

Chapter 4: Corporate Profit Statement.

Learning Objectives.


Balance Sheet or Profit Statement Approach.

The Profit Statement.

Importance of Profit Statement.

Earnings Per Share.

Basic Relationship and Conventions.

Illustration 6 Jam-Today Ltd.

Basic Elements of Profit Statement.

Illustration 7 Give-Me-A-Break Ltd.

Exceptional Events and Transactions.

Other Profit Statement Matters.

Creative Accounting.

Corporate Governance and Profit Statement.

Other Legislative and Regulative Requirements.

Learning Objectives.

Exercises 1–8.

Additional Reading.

Chapter 5: Corporate Cash Flow Statement.

Learning Objectives.


Illustration 8 Would-You-Believe-It Ltd.

Solvency, Liquidity, Cash Flow, and Profitability.

Illustration 9 Had-Enough Ltd.

Illustration 10 Profitability, Liquidity, and Solvency.

Illustration 11 Accounting Profit, Working Capital, and Operating Cash Flow.

Cash Flow Reporting.

Disclosure of Cash Flow Statements.

Issues with Cash Flow Statements.

Corporate Governance and Cash Flow Statements.

Legislative and Regulatory Requirements.

Learning Objectives.

Exercises 1–6.

Additional Reading.

Chapter 6: Corporate Balance Sheet.

Learning Objectives.


Basic Accounting Relationship.

Illustration 12 Jim Jones Insurance Ltd.

Balance Sheet Elements.

Balance Sheet Numbers.

Basic Balance Sheet.

Illustration 13 Runalot Sports Ltd.

Other Balance Sheet Matters.

Issues in Balance Sheet Reporting.

Creative Accounting.

Corporate Governance and Balance Sheets.

Other Legal and Regulatory Requirements.

Learning Objectives.

Exercises 1–7.

Additional Reading.

Chapter 7: Other Corporate Statements.

Learning Objectives.


Secondary Financial Statements.

Statements from Board and Others.

Chairman’s Report.

Report of Board of Directors.

Operating and Financial Review.

Other Statements and Corporate Governance.

Legislative and Regulatory Requirements.

Learning Objectives.

Exercises 1–8.

Additional Reading.

Chapter 8: Corporate Auditing.

Learning Objectives.


Corporate Audit Report.

Illustration 14 Test, Tick, & Attest, Registered Auditors.

Nature and Purpose of Corporate Audit.

Feasibility of Corporate Auditing.

Independent and Competent Auditors.

Corporate Auditor’s Duty of Care.

Responsible for What and to Whom?

Corporate Auditing and Fraud Detection.

Audit Evidence.

Corporate Auditing and Corporate Governance.

Audit Expectations Gap.

Legal and Regulatory Provisions for Corporate Auditing.

Learning Objectives.

Exercises 1–8.

Additional Reading.

Chapter 9: Creative Accounting.

Learning Objectives.


Preliminary Definitions.

Nature and Purpose of Creative Accounting.

Acceptable Accounting Practice.

Flexibility of Accounting.

Creative Accounting in Practice.

Creative Accounting and Reporting Issues.

Creative Accounting and Corporate Governance.

Learning Objectives.

Exercises 1–6.

Additional Reading.

Chapter 10: Corporate Financial Statement Analysis.

Learning Objectives.

Common-size Analysis.

Comparisons of Accounting Numbers

Nature and Purpose of Financial Ratios.

Financial Ratio Criteria.

Financial Ratio Limitations.

Computation and Interpretation of Financial Ratios.

Financial Ratios and Profitability.

Financial Ratios and Liquidity and Cash Flow.

Illustration 15 Just-In-Case Ltd and On-the-Button Ltd.

Financial Ratios, Structure, and Performance.

Learning Objectives.

Exercises 1–11.

Additional Reading.


"A major strength of Thomas Lee's book comes from the clear presentation of the main financial accounting issues." (International Journal of Accounting, April 2008)
  •   Allows readers to learn about corporate financial reporting in the context of sound corporate governance and accountability, without the detailed complexities of accounting practice
  • Tom Lee is an internationally recognized figure in the realm of financial accounting and reporting.
  • Informs its readers about the strengths and weaknesses of corporate financial reports from the perspective of users who are not accounting specialists.
  • Web-based answers to end of chapter questions are provided for lecturers
  • Contains a wealth of pedagogical aids to assist students in the learning process:
  • Abbreviated key terms and names to aid reading - a full glossary is also provided
  • Highlighted key words to remind the reader of a word or phrase that needs to be remembered and understood
  • Pauses for reflection where there have been a number points made that need to be drawn together before proceeding
  • Learning lessons in which a summary is made to reinforce meaning and significance
  • End-of-chapter exercises which reinforce comprehension