Chapter 1 - Introduction to Accounting PDF

The purpose of financial reporting Types of business entity PART A Users The content and purposes Governance of financial reporting The main fina...

The purpose of financial reporting Types of business entity PART A Users The content and purposes Governance of financial reporting The main financial statements Chapter 1 https://en.my1lib.org/book/3303771/ac443f Introduction to accounting BPP LEARNING MEDIA  Learning objectives 1 The scope and purpose of financial statements for external reporting a) Define financial reporting – recording, analysing and summarising financial data.[K] b) Identify and define types of business entity – sole trader, partnership, limited liability company.[K] c) Explain the legal differences between a sole trader, partnership and a limited liability company.[K] d) Identify the advantages and disadvantages of operating as a sole trader, partnership or limited liability company.[K] e) Define the nature, principles and scope of financial reporting.[K] BPP LEARNING MEDIA  Learning objectives 2 Stakeholders needs a) Identify the users of financial statements and state and differentiate between their information needs.[K] 3 The main elements of financial reports a) Describe the purpose of each of the financial statements:[K] i) Statement of financial position ii) Statement of profit or loss and other comprehensive income iii) Statement of changes in equity iv) Statement of cash flows b) Identify and define assets, liabilities, equity, income and expenses.[K] BPP LEARNING MEDIA  Learning objectives 5 Duties and responsibilities of those charged with governance a) Explain what is meant by governance specifically in the context of the preparation of financial statements. b) Describe the duties and responsibilities of directors and other parties covering the preparation of financial statements. BPP LEARNING MEDIA  Chapter overview BPP LEARNING MEDIA  Financial reporting Financial reporting is a way of recording, analysing and summarising financial data. Financial data is the name given to the actual transactions carried out by a business eg sales of goods, purchases of goods, payment of expenses. These transactions are recorded in books of prime entry. The transactions are analysed in the books of prime entry and the totals are posted to the ledger accounts. Finally, the transactions are summarised in the financial statements. BPP LEARNING MEDIA  Financial statements – Accounting records In order to be able to produce a statement of profit or loss and a statement of financial position, a business needs to keep a record of all its transactions. This process is called bookkeeping. The process of bookkeeping involves four basic steps: 1) analyzing financial transactions and assigning them to specific accounts; 2) writing original journal entries that credit and debit the appropriate accounts; 3) posting entries to ledger accounts; and 4) adjusting entries at the end of each accounting period Accounting records should be complete, accurate and valid if the information produced is to be useful for the users of financial information. BPP LEARNING MEDIA  Types of business entities Businesses of whatever size or nature exist to make a profit. Businesses vary from very small businesses (the local shopkeeper or plumber) to very large ones (Vodafone, IKEA, Corus). However, all of them want to earn profits. Profit is the excess of income over expenditure. When expenditure exceeds revenue, the business is running at a loss. BPP LEARNING MEDIA  Types of business entities There are a number of different ways of looking at a business. Some ideas are listed below. A business is a commercial or industrial concern which exists to deal in the manufacture, resale or supply of goods and services. A business is an organisation which uses economic resources to create goods or services which customers will buy. A business is an organisation providing jobs for people. A business invests money in resources (for example buildings, machinery, employees) in order to make even more money for its owners. BPP LEARNING MEDIA  Types of business entities Businesses fall into three main types: Sole trader Partnership Limited liability company BPP LEARNING MEDIA  Types of business entities Sole trader (IT text pg 6) A sole trader is a business owned and run by one individual, perhaps employing one or two assistants and controlling their work. A sole trader owns and runs a business, contributes the capital to start the enterprise, runs it with or without employees, and earns the profits or stands the loss of the venture. Typical sole trading organisations include small local shops, hairdressers, plumbers and IT repair services. BPP LEARNING MEDIA  Types of business entities In law, a sole trader is not legally separate from the business they operate. The owner is legally responsible for the business. A sole trader must maintain financial records and produce financial accounts. However, there is no legal requirement to make these accounts publicly available; they are usually only used to calculate the tax due to the tax authorities on the profits of the business. Banks and other financiers may request to see the financial accounts of the business when considering applications for loans and overdraft facilities. BPP LEARNING MEDIA  Types of business entities Advantages of being a sole trader (Int. Text pg 6) This type of structure is ideal if the business is not complicated, and especially if it does not require a great deal of outside capital. Advantages include: a) Limited paperwork and therefore cost in establishing this type of structure b) Owner has complete control over the business c) Owner is entitled to profits and the ownership of assets d) Less stringent reporting obligations compared with other business structures – no requirement to make financial accounts publicly available, no audit requirement e) Can be highly flexible BPP LEARNING MEDIA  Types of business entities Disadvantages of being a sole trader (Int. Text pg 6) a) Owner is personally liable for all debts (unlimited liability) b) Personal property may be vulnerable for debts and other business liabilities c) Large sums of capital are less likely to be available to a sole trader, leading to reliance on overdrafts and personal savings d) May lead to long working hours without the normal employee recreation leave and other benefits e) May be issues of continuity of business in the event of death or illness of the owner BPP LEARNING MEDIA  Types of business entities Partnership (Int Text pg 6) Partnerships occur when two or more people decide to run a business together. Examples include an accountancy practice, a medical practice and a legal practice. Partnerships are generally formed by contract. Partnership agreements are legally binding and are designed to outline the proportionate amount of capital invested, allocation of profits between parties, the responsibilities of each of the parties, allocation of salary and procedures for dissolving the partnership. Some countries have specific legislation for partnerships. In the UK, the provisions of the Partnership Act 1890 apply where no partnership agreement exists. These are arrangements between individuals to carry on business in common with a view to profit. BPP LEARNING MEDIA  Types of business entities Partnership (Int Text pg 6) Partnerships are not separate legal entities from their owners. To overcome the problematic risk factors associated with unlimited personal liability for the debts of the business a new form of LLP has been created in some countries. Partnerships must maintain financial records and produce financial accounts. However, there is no legal requirement to make these accounts publicly available, unless the partnership has LLP status. BPP LEARNING MEDIA  Types of business entities Advantages of partnership a) Less stringent reporting obligations – no requirement to make financial accounts publicly available, no audit requirement, unless the partnership has LLP status b) Additional capital can be raised because more people are investing in the business c) Division of roles and responsibilities and an increased skill set d) Sharing of risk and losses between more people e) No company tax on the business (profits are distributed to partners and then subject to personal tax) BPP LEARNING MEDIA  Types of business entities Disadvantages of partnerships a) Partners are jointly personally liable for all debts (unlimited liability) unless they have formed an LLP b) There are costs associated with setting up partnership agreements c) There may be issues of continuity of business in the event of death or illness of the partners d) Slower decision making due to the need for consensus between partners e) Unless a clause is written into the original agreement, when one partner leaves, the partnership is automatically dissolved and another agreement is required between existing partners BPP LEARNING MEDIA  Types of business entities Limited liability company Limited liability companies are incorporated to take advantage of 'limited liability' for their owners (shareholders). This means that, while sole traders and partners are personally responsible for the amounts owed by their businesses, the shareholders of a limited liability company are only responsible for the amount paid for their shares. They are not responsible for the company's debts unless they have given personal guarantees (of a bank loan, for example). However, they may lose the money they have invested in the company if it fails. Shareholders may be individuals or other companies. BPP LEARNING MEDIA  Types of business entities Limited liability company Limited liability companies are formed under specific legislation (eg in the UK, the Companies Act 2006). A limited liability company is legally a separate entity from its owners, and can confer various rights and duties. There is a clear distinction between shareholders and directors of limited companies. a) Shareholders are the owners, but have limited rights as shareholders over the day to day running of the company. They provide capital and receive a return (dividend). b) The board of directors are appointed to run the company on behalf of shareholders. In practice, they have a great deal of autonomy. Directors are often shareholders. BPP LEARNING MEDIA  Types of business entities The reporting requirements for limited liability companies are much more stringent than for sole traders or partnerships. In the UK, there is a legal requirement for a company to:  Be registered at Companies House  Complete a Memorandum of Association and Articles of Association to be deposited with the Registrar of Companies  Have at least one director (two for a public limited company (PLC)) who may also be a shareholder  Prepare financial accounts for submission to Companies House  Have its financial accounts audited (larger companies only)  Distribute the financial accounts to all shareholders BPP LEARNING MEDIA  Types of business entities Advantages of trading as a limited liability company (Int. Text pg 8) a) Limited liability makes investment less risky than being a sole trader or investing in a partnership. However, lenders to a small company may ask for a shareholder's personal guarantee to secure any loans. b) Limited liability makes raising finance easier (eg through the sale of shares) and there is no limit on the number of shareholders. c) A limited liability company has a separate legal identity from its shareholders. So a company continues to exist regardless of the identity of its owners. BPP LEARNING MEDIA  Types of business entities Advantages of trading as a limited liability company (Int. Text pg 8) d) There are tax advantages to being a limited liability company. The company is taxed as a separate entity from its owners and the tax rate on companies may be lower than the tax rate for individuals. e) It is relatively easy to transfer shares from one owner to another. In contrast, it may be difficult to find someone to buy a sole trader's business or to buy a share in a partnership. BPP LEARNING MEDIA  Types of business entities Disadvantages of trading as a limited liability company (Int. Text pg 8) a) Limited liability companies have to publish annual financial statements. This means that anyone (including competitors) can see how well (or badly) they are doing. In contrast, sole traders and partnerships do not have to publish their financial statements. b) Limited liability company financial statements have to comply with legal and accounting requirements. In particular, the financial statements have to comply with accounting standards. Sole traders and partnerships may comply with accounting standards, eg for tax purposes. BPP LEARNING MEDIA  Types of business entities Disadvantages of trading as a limited liability company (Int. Text pg 8) c) The financial statements of larger limited liability companies have to be audited. This means that the statements are subject to an independent review to ensure that they comply with legal requirements and accounting standards. This can be inconvenient, time consuming and expensive. d) Share issues are regulated by law. For example, it is difficult to reduce share capital. Sole traders and partnerships can increase or decrease capital as and when the owners wish. BPP LEARNING MEDIA  Types of business entities In law, sole traders and partnerships are not separate entities from their owners. However, a limited liability company is legally a separate entity from its owners. Contracts can therefore be issued in the company's name. For accounting purposes, all three entities are treated as separate from their owners. This is called the business entity concept. BPP LEARNING MEDIA  The concept of business entity A business is considered to be a separate entity from its owner and so the personal transactions of the owner should never be mixed with the business transactions. When considering a limited liability company, this distinction is laid down in law – the company has a separate legal identity. In preparing accounts, any type of business is treated as being a separate entity from its owner(s). BPP LEARNING MEDIA  Nature, principles and scope of financial reporting Financial accounting Financial accounting is mainly a method of reporting the financial performance and financial position of a business. It is not primarily concerned with providing information towards the more efficient running of the business. Although financial accounts are of interest to management, their principal function is to satisfy the information needs of persons not involved in running the business. They provide historical information. BPP LEARNING MEDIA  Nature, principles and scope of financial reporting Management accounting The information needs of management go far beyond those of other account users. Managers have the responsibility of planning and controlling the resources of the business. Therefore they need much more detailed information. They also need to plan for the future (eg budgets, which predict future revenue and expenditure). Management (or cost) accounting is a management information system which analyses data to provide information as a basis for managerial action. The concern of a management accountant is to present accounting information in the form most helpful to management. You need to understand this distinction between management accounting and financial accounting. BPP LEARNING MEDIA  Nature, principles and scope of financial reporting The International Accounting Standards Board (IASB) states in its document Conceptual framework for financial reporting: 'The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.' In other words, a business should produce information about its activities because there are various groups of people who want, or need, to know that information. Large businesses are of interest to a greater variety of people and so we will consider the case of a large public company, whose shares can be purchased and sold on a stock exchange. BPP LEARNING MEDIA  Stakeholders' needs The following people (users) are likely to be interested in financial information about a large company with shares that are listed on a stock exchange. (a) Managers of the company are appointed by the company's owners to supervise the day to day activities of the company. They need information about the company's financial situation as it is currently and as it is expected to be in the future. This is to enable them to manage the business efficiently and to make effective decisions. (b) Shareholders of the company, ie the company's owners, want to assess how well its management is performing. They want to know how profitable the company's operations are and how much profit they can afford to withdraw from the business for their own use. BPP LEARNING MEDIA  Stakeholders' needs (c) Trade contacts include suppliers who provide goods for the company on credit and customers who purchase the goods or services provided by the company. Suppliers want to know about the company's ability to pay its debts; customers need to know that the company is a secure source of supply and is in no danger of having to close down. (d) Providers of finance to the company might include a bank which allows the company to operate an overdraft, or provides longer-term finance by granting a loan. The bank wants to ensure that the company is able to keep up interest payments, and eventually to repay the amounts advanced. (e) The taxation authorities want to know about business profits in order to assess the tax payable by the company, including sales taxes. BPP LEARNING MEDIA  Stakeholders' needs (f) Employees of the company should have a right to information about the company's financial situation, because their future careers and the size of their wages and salaries depend on it. (g) Financial analysts and advisers need information for their clients or audience. For example, stockbrokers need information to advise investors. Credit agencies want information to advise potential suppliers of goods to the company. Journalists need information for their reading public. (h) Government and their agencies are interested in the allocation of resources and therefore in the activities of business entities. They also require information in order to provide a basis for national statistics. BPP LEARNING MEDIA  Stakeholders' needs (i) The public. Entities affect members of the public in a variety of ways. For example, they may make a substantial contribution to a local economy by providing employment and using local suppliers. Another important factor is the effect of an entity on the environment, for example as regards pollution. BPP LEARNING MEDIA  Stakeholders' needs In addition to management information, financial statements are prepared (and perhaps published) for the benefit of other user groups, which may demand certain information. a) The national laws of a country may provide for the provision of some accounting information for shareholders and the public. b) National taxation authorities will receive the information they need to make tax assessments. c) A bank might demand a forecast of a company's expected future cash flows as a precondition of granting an overdraft. BPP LEARNING MEDIA  Stakeholders' needs (d) The IASB is responsible for issuing International Financial Reporting Standards (IFRSs). These require companies to publish certain additional information. Accountants, as members of professional bodies, are placed under a strong obligation to ensure that company financial statements conform to the requirements of IFRSs. (e) Some companies voluntarily provide specially prepared financial information for issue to their employees. These statements are known as 'employee reports'. BPP LEARNING MEDIA  The main elements of financial reports The principal financial statements of a business are the: i. statement of financial position (SOFP) ii. statement of profit or loss and other comprehensive income (SOPLCI) iii. Statement of changes in equity (SOCIE) iv. Statement of cash flows (SOCF) BPP LEARNING MEDIA  Financial statements – SOFP Statement of financial position (SOFP): The statement of financial position is simply a list of all the assets owned and all the liabilities owed by a business as at a particular date. Element in SOFP: i. Assets ii. Liabilities iii. Capital or equity BPP LEARNING MEDIA  Financial statements – Asset, liability, equity Assets An asset is something valuable which a business owns or can use. The IASB's Conceptual framework for financial reporting defines an asset as follows. “An asset is a present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.” Examples of assets are factories, office buildings, warehouses, delivery vans, lorries, plant and machinery, computer equipment, office furniture, cash and goods held in store awaiting sale to customers. BPP LEARNING MEDIA  Financial statements – Asset, liability, equity Some assets are held and used in operations for a long time (Non-current assets). An office building is occupied by staff for years. Similarly, a machine has a productive life of many years before it wears out. Other assets are held for only a short time (Current-assets). The owner of a newsagent shop, for example, has to sell their newspapers on the same day that they get them. The more quickly a business can sell the goods it has in store, the more profit it is likely to make; provided, of course, that the goods are sold at a higher price than what it cost the business to acquire them. BPP LEARNING MEDIA  Financial statements – Asset, liability, equity Liabilities A liability is something which is owed to somebody else. 'Liabilities' is the accounting term for the debts of a business. The IASB's Conceptual framework for financial reporting defines a liability as follows. “A liability is a present obligation of the entity to transfer economic resource as a result of past events. An obligation is a duty of responsibility that the entity has no practical ability to avoid.” Examples of liabilities are amounts owed to a supplier for goods bought on credit, amounts owed to a bank (or other lender), a bank overdraft and amounts owed to tax authorities (eg in respect of sales tax). Some liabilities are due to be repaid fairly quickly eg suppliers. Other liabilities may take some years to repay (eg a bank loan). BPP LEARNING MEDIA  Financial statements – Asset, liability, equity Capital or equity The amounts invested in a business by the owner are amounts that the business owes to the owner. This is a special kind of liability, called capital. In a limited liability company, capital usually takes the form of shares. Share capital is also known as equity. The IASB's Conceptual framework for financial reporting defines equity as follows. “Equity is the residual interest in the assets of the entity after deducting all its liabilities.” BPP LEARNING MEDIA  Financial statements – Pro-forma BPP LEARNING MEDIA  Financial statements – SOPL Statement of profit or loss: A statement of profit or loss is a record of income generated and expenditure incurred over a given period. The statement shows whether the business has had more revenue (sales) than expenditure (profit) or vice versa (loss). Element in SOPL: Revenue / Income i. Expenses BPP LEARNING MEDIA  Financial statements – SOPL Revenue Revenue is the income generated by the operations of a business for a period. Revenue is the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties and dividends). The IASB's Conceptual framework defines income, revenue and expenses as follows. “Income is increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from holders of equity claims.” BPP LEARNING MEDIA  Financial statements – SOPL Expenses Expenses are the costs of running the business for the same period. The IASB's Conceptual framework defines income, revenue and expenses as follows. “Expenses are decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to holders of equity claims.” BPP LEARNING MEDIA  Financial statements – SOPL – Pro-forma BPP LEARNING MEDIA  Statement of profit or loss Statement of profit or loss RON KNUCKLE STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED ……………….. $ $ Sales 12,500 Cost of sales (5,000) Gross profit 7,500 Expenses Rent 3,500 Bank loan interest 100 Other expense 1,900 (5,500) Profit for the year 2,000 BPP LEARNING MEDIA  IAS 1 Presentation of financial statements a) One single statement ABC CO STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X2 Ilustrating the classification of expenses by function 20X2 20X1 $ $ Revenue X X Cost of sales (X) (X) Gross profit X X Other income X X Distribution costs (X) (X) Administrative expense (X) (X) Other expenses (X) (X) Finance cost (X) (X) Profit before tax X X Income tax expense (X) (X) Profit for the year X X Other comprehensive income: Gains on property revaluation X X Total comprehensive income for the year X X BPP LEARNING MEDIA  IAS 1 Presentation of financial statements Statement of changes in equity (SOCIE) AS 1 requires an entity to provide a statement of changes in equity. The statement of changes in equity shows the movements in the entity's equity for the period. The statement of profit or loss and other comprehensive income is a straightforward measure of the financial performance of the entity, in that it shows all items of income and expense recognised in a period. It is then necessary to link this result with the results of transactions with owners of the business, such as share issues and dividends. The statement making the link is the statement of changes in equity. The statement of changes in equity simply takes the equity section of the statement of financial position and shows the movements during the year. The bottom line shows the amounts for the current statement of financial position. As we saw above, the total comprehensive income for the year is split between the gains on revaluation of property, which is credited to the revaluation surplus, and the profit for the year, which is credited to retained earnings.  IAS 1 Presentation of financial statements Statement of changes in equity An example statement of changes in equity is shown below. Dividends paid during the year are not shown on the statement of profit or loss; they are shown in the statement of changes in equity.  Statement of Cash flow (SOCF) Statements of cash flows are a useful addition to the financial statements of a company because accounting profit is not the only indicator of performance. They concentrate on the sources and uses of cash and are a useful indicator of a company's liquidity and solvency. BPP LEARNING MEDIA EXAMPLE OF A STATEMENT OF CASH FLOWS STATEMENT OF CASH FLOWS (DIRECT METHOD) YEAR ENDED 20X7 $m $m Cash flows from operating activities Cash receipts from customers 30,330 Cash paid to suppliers and employees (27,600) Cash generated from operations 2,730 Interest paid (270) Income taxes paid (900) Net cash from operating activities 1,560 Cash flows from investing activities Purchase of property, plant and equipment (900) Proceeds from sale of equipment 20 Interest received 200 Dividends received 200 Net cash used in investing activities (480) Cash flows from financing activities Proceeds from issuance of share capital 250 Proceeds from long-term borrowings 250 Dividends paid* (1,290) Net cash used in financing activities (790) Net increase in cash and cash equivalents 290 Cash and cash equivalents at beginning of period 120 Cash and cash equivalents at end of period 410 * This could also be shown as an operating cash flow.  Governance Governance: Those charged with governance of a company are responsible for the preparation of the financial statements. Corporate governance is the system by which companies and other entities are directed and controlled. Good corporate governance is important because the owners of a company and the people who manage the company are not always the same, which can lead to conflicts of interest. BPP LEARNING MEDIA  Governance The UK Corporate Governance Code (formerly known as the Combined Code) sets out standards of good practice for listed companies on board composition and development, remuneration, shareholder relations, accountability and audit. The code is published by the Financial Reporting Council (FRC). On this page you can trace the evolution of the code through past versions and consultations. (https://www.icaew.com/technical/corporate- governance/codes-and-reports/uk-corporate-governance-code) BPP LEARNING MEDIA  Legal responsibilities of directors Directors have a duty of care to show reasonable competence and may have to indemnify the company against loss caused by their negligence. Directors are also said to be in a fiduciary position in relation to the company, which means that they must act honestly in what they consider to be the best interest of the company and in good faith. A fiduciary is someone who manages money or property for someone else. When you're named a fiduciary and accept the role, you must – by law – manage the person's money and property for their benefit, not yours. (https://www.consumerfinance.gov/ask-cfpb/what-is-a-fiduciary-en- 1769/#:~:text=A%20fiduciary%20is%20someone%20who,for%20their%20bene fit%2C%20not%20yours.) BPP LEARNING MEDIA  Legal responsibilities of directors In the UK, the Companies Act 2006 sets out seven statutory duties of directors. Directors should: Act within their powers Promote the success of the company Exercise independent judgement Exercise reasonable skill, care and diligence Avoid conflicts of interest Not accept benefits from third parties Declare an interest in a proposed transaction or arrangement BPP LEARNING MEDIA  Legal responsibilities of directors Companies Act 2006 is the principle that the purpose of the legal framework surrounding companies should be to help companies do business. A director's main aim should be to create wealth for the shareholders. Principle means that the law should encourage long-termism and regard for all stakeholders by directors and that stakeholder interests should be pursued in an enlightened and inclusive way. BPP LEARNING MEDIA  Legal responsibilities of directors When exercising this duty directors should consider: The consequences of decisions in the long term The interests of their employees The need to develop good relationships with customers and suppliers The impact of the company on the local community and the environment The desirability of maintaining high standards of business conduct and a good reputation The need to act fairly as between all members of the company BPP LEARNING MEDIA  Responsibility for the financial statements Directors are responsible for the preparation of the financial statements of the company. Specifically, directors are responsible for: The preparation of the financial statements of the company in accordance with the applicable financial reporting framework (eg IFRSs) The internal controls necessary to enable the preparation of financial statements that are free from material misstatement, whether due to error or fraud The prevention and detection of fraud. BPP LEARNING MEDIA  Chapter Summary BPP LEARNING MEDIA  Chapter Summary BPP LEARNING MEDIA  Chapter Summary 1 Accounting  Accounting is a way of recording, analysing and summarising a business's transactions. 2 Accounting records  All businesses must keep sufficient accounting records in order to be able to produce accurate information about the entity's activities. 3 The concept of business entity  The business entity concept states that a business is a separate entity from its owners. BPP LEARNING MEDIA  Chapter Summary 4 Types of business entities  There are three main types of businesses. For sole traders and partnerships the owners have unlimited liability and bear all the risks and reap all the rewards of being in business. For a limited liability company the shareholders' liability is limited to the extent of their investment. 5 Users of financial information  Financial statements are used by a wide variety of users, each with different information needs. Satisfying the investors' needs will mean that the majority of other users' needs are also met. BPP LEARNING MEDIA  Chapter Summary 6 6 Proforma financial statements  Companies must follow a prescribed format when producing their financial statements. There is, however, no set format for a sole trader's statement of profit or loss and statement of financial position. 7 Governance  Corporate governance is the process by which businesses are directed and controlled by those responsible for running the business. BPP LEARNING MEDIA  Thank You… Happy Study  BPP LEARNING MEDIA