Brief Introduction of Course Objectives

Marco Venuti2018

Risk and Accounting

Objectives

Course programme

Specific topics covered during the course

The investor and the financial statements

EU approach to accounting harmonization

Implementation of IAS/IFRS in UE

Directive 2013/34/EU

Legislative Decree 139/2015

Agenda

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Objectives

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1. The course focuses on the relationship between financial statements and risk management with the aim of putting the students in the condition to evaluate the way that related company decisions are made and presented.

2. This course moves from the idea that financial statements are a mean to communicate the overall state of heath of the company and provide useful information regarding the measurement of different kinds of risks.

3. In this view the purpose of the course is to assist students in analysis of the financial information published by the companies in a way to understand the company prospective in the light of existent specific risks and how they are managed.

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Course programme

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Lecturer: Marco Venuti

During the course there will be some seminars held by: foreigner professor(s), authority officer(s) as well as company, audit company and association managers

The course runs from 6/3/2018 to 31/5/2018

Lezioni: Tuesday, Friday and Saturday from 8.30 a.m. to 10.30 a.m., classroom 22

Academic materials are available on internet or will be distributed or indicated during the lessons.

Examination dates (to be confirmed): 04/06/2018 at 8.30; 25/06/2018 at 8.30, 16/07 2018 at 8,30.

Examination: 1.Presentation of case analysis (how a company communicates a specific kind of risk) 2. Writen Test

Specific topics covered during the course

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The investor and the financial statements Risk Definition, The Accountant’s Mission In Risk Control, Risk Management, Business And Strategic Risks, Operational Risks, Financial Risks , Market Risk (Currency Risk, Interest Rate Risk And Other Price Risk) , Credit Risks, Liquidity Risks, Insurance Risk Other Risks. The Introduction To IAS/IFRS, EU approach to accounting harmonization The European and Italian Jurisdiction about Financial Statements (Civil Code

And IAS/IFRS). Directive 2013/34/EU Legislative Decree 139/2015 The Introduction of Ias/Ifrs In Italy,

Specific topics covered during the course

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Substance Over Form, Fair Value, Presentation of Financial Statements, Related Party Disclosure, Risk Disclosure Financial Instruments; Recognition and Measurement Financial Instruments, Fair Value Option, Expected Loss Model Derecognition of Financial Assets And Financial Liabilities, Hedge Accounting, The Transition from IAS 39 to IFRS 9, Revenue from Contracts with Customers, Selected topics: (e.g. Lease) Specific issues regarding Insurance Companies, Enterprise Risk Management, Internal Control, Control and Risk Self-

assessment. Analysis of Financial Statements of Industrial, Banking and Insurance

The investor and the financial statements

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Investors’, lenders’ and other creditors’ expectations about returns depend on their assessment of the amount, timing and uncertainty of (the prospects for) future net cash inflows to the entity. Consequently, existing and potential investors, lenders and other creditors need information to help them assess the prospects for future net cash inflows to an entity.

Financial statements set forth in accordance IAS/IFRS help investors in their analysis

Framework IASB: “The objective of general purpose financial reporting1 is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about relating to providing resources to the entity.

The investor and the financial statements

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“Those decisions involve decisions about: (a) buying, selling or holding equity and debt instruments; and (b) providing or settling loans and other forms of credit; or (c) exercising any rights to vote on, or otherwise influence, management’s actions that affect the use of the entity’s economic resources. The decisions described in” previous paragraph “depend on returns that existing and potential investors, lenders and other creditors expect, for example, dividends, principal and interest payments or market price increases. “

IASB sets forth financial statement rules useful to understand and measurerisks faced by the company and how it manages them.

For the investors it is important to understand the risks and rewards of every investment (both equity and debt instruments)

IAS/IFRS

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Standards publicly supported by many international organisations, including the G20, World Bank, IMF, Basel Committee, IOSCO and IFAC

IASB has analysed 140 jurisdictions in the world with the following results:

A) 116 jurisdictions require IFRS for all or most publicly accountable entities (listed companies and financial institutions). Those jurisdictions include all of the European Union (EU) member states;

B) 14 jurisdictions permit or require IFRS for at least some domestic publicly accountable entities.

C) 10 jurisdictions currently do not require or permit IFRS for any domestic publicly accountable entities;

D) 8 jurisdictions use national or regional standards (Bolivia, China, Egypt, Guinea-Bissau, Macao, Niger, the United States and Vietnam).

EU approach to accounting harmonization

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The Treaty of Rome of 1957 (as amended in 1989 and 1992) stated the intention of making a common market founded on the four freedoms, that is the free movement of persons, services, goods and capital; 

This announcement required the implementation of a uniform European legislation on Company Law and Accounting; 

Harmonization through the fourth and seventh Directives (78/660 and 83/349), called 4th and 7th Directives for company regulation; 

The accounting Directives provided an harmonized basis for the preparation of annual accounts and consolidated accounts in the European Union; 

These Directives had led to a general improvement of the quality of accounting standards and have ensured a better comparability of accounts facilitating cross‐border activities.

EU approach to accounting harmonization

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In the 90’s, the perspective changes. The globalized financial markets made the Directives an obsolete instrument. There was a worldwide need of financial statements comparability.

The accounts prepared in accordance with the Directives did not meet the higher standards required elsewhere, and in particular the requirements imposed by SEC in the United States; 

As a result, European companies that wanted to attract capital on international markets (multi‐listed companies), mostly on the New York Stock Exchange, were obliged to prepare a second set of accounts with expensive and burdensome work.

This situation also produced confusion on the market because there were different company results according to the standards adopted (the case of Daimler Benz financial statement 1993: losses for 1.839 million in US and profit for 615 million in Germany)

The need to have a single worldwide set of high‐quality, best of breed, principles‐based financial reporting standards which improve the efficiency of global capital marker( improving of comparability and reduction of costs)

EU approach to accounting harmonization

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There was a need of third party international standard setter who is independent from national interests.

This leads to the choice of the IASB.  Technically the move to IAS of the EU implied: ‐ The abandon of the accounting directives for consolidated financial 

statements of listed companies; ‐ The introduction of IAS regulation for the mandatory application of IAS/IFRS 

in the consolidated financial statements of listed companies. The regulation also leaves to Member States the option:

a) to permit or require publicly traded companies to prepare them in conformity with IAS/IFRS. 

b) Member States may also decide to extend this permission or this requirement to other companies as regards the preparation of their consolidated accounts and/or their annual accounts.

Implementation of IAS/IFRS in UE

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Implementation of IAS/IFRS in UE

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Implementation of IAS/IFRS in UE

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Implementation of IAS/IFRS in UE

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Directive 2013/34/EU

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In the meantime, the European Commission updated the Legislation for not IAS adopter European companies.

The European Commission issued the Directive 2013/34/EU in substitution of the 4th and 7th Directives for company regulation.

The texts of the 4th and 7th Directives were written with particular attention to the largest companies, taking into account their importance in the overall European economic and social environment.

As a consequence of this approach, the rules provided by these norms privilege a kind of financial information tailored to the information needs of the users of large companies. 

As a result, these Directives are structured following a top‐down approach. For medium and smaller companies, the Directives are limited only to certain simplifications.

Directive 2013/34/EU

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The introduction of the IAS/IFRS into European legislation has changed the role of the European Accounting Directives. 

These no longer have the goal of harmonizing the accounting norms for all the European companies, including also those of public interest. Today, the IAS/IFRS represent the standard rules for public interest companies and ‐ in a widespread sense ‐ for the largest companies.

Such a change in the role of European legislation has given priority to the rewriting of these rules, focusing more on the financial statements of medium and small companies. (bottom‐up approach)

In the light of such a scenario, the new accounting Directive has been prepared including interventions with the aim of:

• Simplifying the norms so as to significantly reduce their consequent administrative burden, particularly for medium and small companies. 

• Updating the text so as to make clearer and more comparable the financial statements of the companies, with particular attention to those operating internationally and having a large number of stakeholders

Legislative Decree 139/2015

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With the Legislative Decree 139/2015 important changes have been made to the accounting regulations for the company no IAS adopter. 

The main change regards the adoption of a regulatory approach based on the size of the company. With decreasing size of company, the rules for preparing the financial statements become more simplified. 

This means that the Italian legislator has introduced a differentiation in the set of rules based on company‐size classes. This is a very significant change as it means an evolution in the underlying philosophy of accounting regulations.

There are four proposed categories: small, medium‐sized and large companies with difference rules (simplifications) in financial statement composition and layouts (financial statements abridged), measurement criteria and disclosure.

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Differential reporting approach

Legislative Decree 139/2015

Category

Parameters(at least2 ot the 3)

Micro-undertakings

(60,4%)Small companies

(36%)Mediu-sized and Large companies

(3,6%)

Balance sheettotal ≤ 175.000 € ≤ 4.400.000 €

Net Turnover ≤ 350.000 € ≤ 8.800.000 €

Average numberof employeesduring the year

≤ 5 ≤ 50