Restating the financial statements: comments and concerns

I didn’t have too many difficulties in restating my firm’s financial statements. Although now I have written that statement I bet I have got it all wrong.

I was lucky as my firm didn’t have too many items in its statements. My firm also separated operating activities and financing activities in the statement of comprehensive income. So all I had to do was rearrange the statement into the format shown in chapter 4 and to calculate the tax benefit for both the operating and financial activities. The one issue I had for the statement of comprehensive income was other comprehensive income. My firm only had other comprehensive income for two years and I wasn’t sure where to add the tax effect for these items. I left them in the other comprehensive income section separate to the operating and financial sections so it didn’t pollute those figures. In chapter 4 I did see property fair value movements included. I didn’t see anything like that in my firm. They did have an impairment loss on property, plant and equipment but that was for a discontinued product line and as such it should remain in operating activities.

The one thing I enjoyed about the restating and how it was done is that it actually makes you read through the notes to better understand items. This was very helpful when restating the balance sheet. The item cash and cash equivalents were broken into cash and bank balances and call deposits. I didn’t know what a call deposit was and upon further research I found it was an interest earning account where money could be pulled from at any stage if needed. This is similar to a savings account I have. I decided that similar to myself the purpose of this account is to earn interest and as such I classified it as a financing activity.

I also considered classifying the bank overdraft as financing as it is essentially a short term loan from the bank. A loan from a bank would normally be considered financing however as it results from the day to day operations I included it as operating. I was then rereading chapter 4 and realised the answer was already there and I didn’t need to think about it so much.

My firm also provides loans and advances to company employees. Although these are loans which must be paid back with interest I kept these in the operating section as they are not used for financing activities. I consider these a cost of doing business and a tool used to keep employees much the same as fringe benefits and as such they are related to operating activities.

The other concern I had was the item trade and other payables. Within this item was included an import finance loan. I didn’t know what an import finance loan was so I had to research this term. After consideration I believe it is a financing activity even though it is used as a facility to ease the burden of imports which are an essential operating activity. Unlike a bank overdraft it is not linked to any other accounts and the cash is not used for day to day operations.