Contents
List of Figures ix
Acknowledgements xi
Introduction: How to interpret IFRS Accounts xiii
1 Telling the story 1
Basic principles of accounting 3
Case study – Amanda 7
Value added tax 10
Amanda’s transactions 13
Amanda’s reconciliations 21
The Trial Balance 24
The Profit and Loss Account 29
The Balance Sheet 34
Case study – Amanda 43
The working capital cycle 43
Negotiating with banks 45
Asset management 50
Amanda’s meetings 60
Discussion Questions 62
2 Capital structure and basic tools of analysis 65
Case study – Amanda’s lawyer introduces her to a
financial adviser 67
Capital structures – venture capital (private equity)
Case Study – Amanda’s meeting her solicitor and his
68
The Enterprise Investment Scheme 71
Investment rules 75
Venture capital trusts 76
The Alternative Investment Market 77
Capital structures 78
Gearing 87
The weighted cost of capital 88
recommended financial adviser 89
The financial planning process

Case study – Amanda – the deal structure 103
Capital structure summary and exit strategies 118
Basic tools of analysis 119
The key ratios 128
Case study – Amanda’ completion meeting 132
Discussion Questions 133
3 Financial reporting and IFRS 137
Accounting is a series of judgements 139
The Auditors’ Report and their responsibilities 143
The limitations of the Independent Auditors’ Report 144
What happens when directors and auditors cannot agree 146
International Financial Reporting Standards 147
Revenue recognition 156
Research and development (notes 1 and 9) 157
Share-based payments (notes 2 and 8) 157
Intangible assets (notes 1 and 3) 165
Investment property and investment property under
development (Case Study: UNITE Group plc) 167
Dividends (note 4) 171
Salary-related pension schemes (note 5) 172
Financial derivatives (note 11) 175
Leases 178
Minor adjustments 179
IFRS vs. UK GAAP summary 179
Corporate governance 181
The Report of the Directors 184
The Directors’ Remuneration Report 185
Optional (non-statutory) reports 185
Annual Report – Summary 186
The Sarbanes-Oxley Act 187
Shareholders’ power 190
Discussion Questions 191
4 Assessing risk and valuing companies 193
Amanda – Case Study – The acquisition of her company 195
Choice of investments 196
Risk 196

Portfolio theory 198

The experiment 203
Risks associated with taking on unique risk 207
Assessing company performance 209
Basic checks 218
Valuation techniques 222
The BVCA Code of Conduct 222
Final Review 234
Why the market sometimes gets it painfully wrong 239
Restructuring – a strategy to move the share price upwards 240
Profit Warnings 241
Takeover bids 243
Case study – Amanda – the conclusion 244
Discussion Questions 245
Case studies 247
Solutions to discussion questions 275
References 283
Index 289