• University of Exeter Business School
• Module

Understanding Financial Statements

Module description

Financial accounting is that branch of accounting that focuses on producing information for external users of financial reports, including shareholders and lenders. The information produced by the financial reporting system is crucial for the efficient operation of world financial markets. This information manifests itself in the form of the annual report, issued by all companies (the financial statements forming part of the annual report). 

The module begins with a review of the mechanics of the accounting system using Colour Accounting along with a brief explanation of debits and credits in the double-entry accounting system.  Next is a discussion of the regulatory environment in which financial reporting operates followed by an examination of the Conceptual Framework (which sets out the concepts that underlie the preparation and presentation of financial statements for external users).  The module then turns to an understanding of the main components of a set of financial statements: the income statement (focussing on income and expenses), the statement of cash flows and the statement of financial position (focussing on assets, liabilities and equity).  The module concludes by focussing on the analysis of financial statements. 

The module builds on the foundation laid by BEP1070 Accounting, which is a pre-requisite. As a module for management students, the focus not on how the financial statements are prepared, but how the information in the financial statements can be used to understand the business.  

Module aims - intentions of the module

The module focuses more on the understanding of financial statements than on the technical process by which financial statements are produced.  By the end of the module you will be able to pick up a set of financial statements of a company and use the information in those financial statements for decision making. 

In achieving this objective, it is necessary to have some knowledge of the basics of the recording of transactions and preparation of financial statements to be able to understand the financial statements. 

The module is focused on real world financial reporting issues and you will relate what is taught with practical application in published financial statements. This includes analysing the published financial statements of listed companies.

The ability to communicate clearly is essential to business and this will be emphasised in the module.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

On successfully completing the module you will be able to...

• 1. Record accounting transactions using principles of double-entry
• 2. Identify and explain the issues relating to the regulatory environment of financial reporting and the development of accounting standards
• 3. State and apply the principles and definitions using The Conceptual Framework
• 4. Apply basic recognition and measurement principles to income statement items and be able to analyse and interpret these items
• 5. Apply basic recognition and measurement principles to cash flow items and be able to analyse and interpret these items
• 6. Apply basic recognition and measurement principles to statement of financial position items and be able to analyse and interpret these items
• 7. Analyse and interpret a set of financial statements

ILO: Discipline-specific skills

On successfully completing the module you will be able to...

• 8. Demonstrate problem solving skills

ILO: Personal and key skills

On successfully completing the module you will be able to...

• 9. Demonstrate well-developed numeracy skills
• 10. Demonstrate well-developed written and verbal communication skills

Syllabus plan

• The accounting process
• The regulatory environment and The Conceptual Framework
• Income and expenses
• Cash flows
• Assets 1
• Assets 2
• Liabilities
• Groups and equity
• Financial analysis 1
• Financial analysis 2

Learning activities and teaching methods (given in hours of study time)

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

Details of re-assessment (where required by referral or deferral)

Indicative learning resources - Basic reading

• Winfield, J, Graham, M, and Miller, T. (2021) Understanding Financial Accounting, OUP
• ELE – https://vle.exeter.ac.uk/course/view.php?id=12592

Indicative learning resources - Web based and electronic resources

Web based and electronic resources:

• The websites of the Big 4 practices all have sections devoted to financial reporting, including latest updates, discussions and model financial statements

Accounting education websites:

• IFRS Box, a site covering technical IFRS issues, with good summaries and innovative diagrams, http://www.ifrsbox.com/ Accounting Coach, a resource consisting of easy to read text, quizzes, crosswords etc aimed mainly at introductory level so useful for revision but also has some relevant intermediate topics, http://www.accountingcoach.com/
• Learn Accounting, a collection of short video lectures covering a range of accounting topics (no cost to register), http://learnaccounting.uct.ac.za/

Key words search

Intermediate Accounting, Financial Reporting, IFRS, Understanding Financial Statements