ANALISIS LAPORAN KEUANGAN

Pekan ke-6

POLITEKNIK KEUANGAN NEGARA-STAN TA 2017/2018

10 Oktober 2017
Puji Wibowo , Ak., MIDEC, CA
puji.wibowo@pknstan.ac.id
 Intangible Assets

Noncurrent
Noncurrentassets
assets Often
Oftenprovide
provide
without
withoutphysical
physical exclusive
exclusiverights
rights
substance.
substance. or
orprivileges.
privileges.

Intangible
Assets
Usually
Usuallyacquired
acquired
Useful
Usefullife
lifeis
is for
foroperational
operational
often
oftendifficult
difficult use.
use.
to
todetermine.
determine.
 Intangible Assets
Accounting for Intangible Assets

Record at  Patents
cost, including  Copyrights
purchase price,  Leaseholds
legal fees, and  Leasehold
filing fees.
Improvements
 Goodwill
 Trademarks and
Trade Names
 Intangible Assets
Analyzing Intangibles and Goodwill
 Search for unrecorded intangibles and goodwill—
often misvalued and
most likely exist off-balance-sheet
 Examine for superearnings as
evidence of goodwill
 Review amortization periods—any likely bias is in the direction
of less amortization and can call for adjustments
 Recognize goodwill has a limited useful life--whatever the
advantages of location, market dominance, competitive stance,
sales skill, or product acceptance, they are affected by changes in
business
 Lecture VI:
Analysis of Operating Activities

 Income Measurement
 Non-recurring items
 Revenue Recogintion
 Deferred Charges
 Employee Benefit
 Interest and Taxes
 Income Measurement

Concepts of Income
Economic
Economic IncomeIncome
 Equals
Equalsnet
netcash
cashflows
flows++the
thechange
changein
inthe
thepresent
presentvalue
valueof
of
future
futurecash
cashflows
flows
 Includes
Includesboth
bothrecurring
recurringand
andnonrecurring
nonrecurringcomponents—
components—
rendering
renderingititless
lessuseful
usefulfor
forforecasting
forecastingfuture
futureearnings
earnings
potential
potential
Permanent
Permanent IncomeIncome
 Also
Alsocalled
calledsustainable
sustainableearning
earningpower,
power,ororsustainable
sustainableoror
normalized
normalizedearnings
earnings
 Estimate
Estimateof ofstable
stableaverage
averageincome
incomethat
thataacompany
companyis isexpected
expected
to
toearn
earnover
overitsitslife
life
 Reflects
Reflectsaalong-term
long-termfocus
focus
 Directly
Directlyproportional
proportionalto tocompany
companyvalue
value
 Income Measurement

Concepts
 Based
Basedon
onaccrual
accrualaccounting
accounting
 Suffers
Suffersfrom
frommeasurement
measurementerror,
error,arising
arisingbecause
becauseof
of
accounting
accountingdistortions
distortions

Accounting
Accounting Income
Income consists
consists of:
of:

Permanent
PermanentComponent--the
Component--therecurring
recurringcomponent
component expected
expected
to
topersist
persistindefinitely
indefinitely

Transitory
TransitoryComponent--the
Component--thetransitory
transitory(or
(ornon-recurring)
non-recurring)
component
componentnot notexpected
expectedto
topersist
persist(Note:
(Note:The
Theconcept
conceptofof
economic
economicincome
incomeincludes
includesboth
bothpermanent
permanentandandtransitory
transitory
components.)
components.)

Value
ValueIrrelevant
IrrelevantComponent--value
Component--valueirrelevant
irrelevantcomponents
componentshavehave
no
noeconomic
economiccontent;
content;they
theyare
areaccounting
accountingdistortions
distortions
 Income Measurement

Measurement
Two main components of accounting income:
Revenues (gains)
Expenses (losses)
 Income Measurement

Measurement
Revenues and Gains

• Revenues are earned inflows or prospective

inflows of cash from operations*
• Gains are recognized inflows or prospective inflows
of cash from non-operations**

 
* Revenues are expected to
recur
**Gains are non-recurring
 Income Measurement

Measurement
Expenses and Losses

• Expenses are incurred outflows, prospective

outflows, or allocations of past outflows of cash
from operations
• Losses are decreases in a company’s
net assets arising from
non-operations 

Expenses and losses are resources consumed, spent,

or lost in pursuing revenues and gains
 Income Measurement

Alternatives
Two major income dimensions:

1. operating versus non-operating

2. recurring versus non-recurring*

 *Motivated by need to separate permanent and

transitory components
 Income Measurement

Alternatives
Alternative Income Statement Measures

• Net income—widely regarded as “bottom line” measure of

income
• Comprehensive income--includes most changes to equity that
result from non-owner sources; it is actually the bottom line
measure of income; is the accountant’s proxy for economic income
• Continuing income--excludes extraordinary items, cumulative
effects of accounting changes, and the effects of discontinued
operations from net income*
• Core income--excludes all non-recurring items from net income

*Often erroneously referred to as “operating income”

 Income Measurement
Analysis
Operating
OperatingversusversusNon-Operating
Non-OperatingIncome
Income
  
Operating
Operatingincome--measure
income--measureof ofcompany
companyincome
incomeas asgenerated
generatedfrom
from
operating
operatingactivities
activities
  
Three
Threeimportant
importantaspects
aspectsof
ofoperating
operatingincome
income
 Pertains
Pertainsonly
onlytotoincome
incomegenerated
generatedfrom
fromoperations
operations
 Focuses
Focuseson onincome
incomeforforthe
thecompany,
company,notnotsimply
simplyforforequity
equityholders
holders
(means
(meansfinancing
financingrevenues
revenuesandandexpenses
expensesare areexcluded)
excluded)
 Pertains
Pertains only to ongoing business activities (i.e.,results
only to ongoing business activities (i.e., resultsfrom
from
discontinued
discontinuedoperations
operationsis isexcluded)
excluded)
  
Non-operating
Non-operatingincome--includes
income--includesall allcomponents
componentsof ofnet
netincome
income
excluded
excludedfromfromoperating
operatingincome
income
  
Useful
Usefulto toseparate
separatenon-operating
non-operatingcomponents
componentspertaining
pertainingto tofinancing
financingand
and
investing
investing
 Income Measurement

Analysis
Determination
Determinationof
ofComprehensive
ComprehensiveIncome—sample
Income—samplecompany
company

Net income
Other comprehensive income:
+/- Unrealized holding gain or loss on marketable securities
+/- Foreign currency translation adjustment
+/- Postretirement benefits adjustment
+/- Unrealized holding gain or loss on derivative instruments
Comprehensive income
 Permanent, Accounting, Operating, &Economic
Income
Recurring,
Operating,
permanent
Income

Recurring,
Non-recurring, non-operating =
non operating, permanent income
Economic income
Recurring,
Non recurring,
economic
Income

“ext item” exluded =

Income from
continuing
operation

Accounting
Income, “Bottom
line”

Referensi : Laporan Tahunan BP 2014

 Permanent, Accounting, Operating, &Economic
Income

Non-recurring,
non operating,
Economic income

Economic
16
Income
Referensi : Laporan Tahunan BP 2014
 Non-Recurring Items

 
 Extraordinary items

 Discontinued segments

 Accounting changes

 Restructuring charges

 Special items
 Non-Recurring Items

 
Extraordinary Items
Criteria
Criteria
Unusual
Unusualininnature
nature
Infrequent
Infrequentin
inoccurrence
occurrence

Examples
Examples
Uninsured
Uninsuredlosses
lossesfrom
fromaamajor
majorcasualty
casualty(earthquake,hurricane,
(earthquake,hurricane,
tornado),
tornado),losses
lossesfrom
fromexpropriation,
expropriation,and
andgains
gainsand
andlosses
lossesfrom
from
early
earlyretirement
retirementofofdebt
debt

Disclosure
Disclosure & & Accounting
Accounting
Classified
Classifiedseparately
separatelyin
inincome
incomestatement
statement
Excluded
Excludedwhen
whencomputing
computingpermanent
permanentincome
income
Included
Includedwhen
whencomputing
computingeconomic
economicincome
income
 Non-Recurring Items

Discontinued Operations
Accounting
Accounting is
is two-fold:
two-fold:

•• Income
Incomestatements
statementsfor forthe
thecurrent
current and
andprior
priortwo
two
years
yearsare
arerestated
restatedafter
afterexcluding
excludingthe theeffects
effectsof
of
discontinued
discontinuedoperations
operations
•• Gains
Gains or
or losses
losses from
from the
thediscontinued
discontinuedoperations
operations are
are
reported
reportedseparately,
separately,netnet of
oftax*
tax*
  
*Reported
*Reportedin in two
twocategories:
categories: (i) (i)operating
operating income
incomeoror
loss
lossfrom
fromdiscontinued
discontinued operations
operations until
untilthe
the
measurement
measurement date, date,and
and(ii)
(ii) gains
gainsand
andlosses
losseson on
disposal
disposal
 Non-Recurring Items

 
Discontinued Operations

For
For analysis
analysis of of discontinued
discontinued operations:
operations:
•• Adjust
Adjustcurrent
currentand
andpast
pastincome
incometo toremove
removeeffects
effectsof
of
discontinued
discontinuedoperations
operations
 Companies
Companiesdisclose
disclosethis
thisinfo
infofor
forthe
thecurrent
currentand
andpast
pasttwo
two
years
years
 For
Forearlier
earlieryears:
years:
 Look
Lookfor
forrestated
restatedsummary
summaryinfo infoor
orother
othervoluntary
voluntary
disclosures
disclosures
 Take
Takecare
carewhen
whendoing
doinginter-temporal
inter-temporalanalysis
analysis
•• Adjust
Adjustassets
assetsand
andliabilities
liabilitiesto
toremove
removediscontinued
discontinuedoperations
operations
•• Retain
Retaincumulative
cumulativegain
gainororloss
lossfrom
fromdiscontinued
discontinuedoperations
operationsin
in
equity
equity
 Non-Recurring Items

Accounting Changes
First Type of Accounting Change is
Accounting Principle Change—involves
switch from one principle to another

 Disclosure includes:
• Nature of and justification for change
• Effect of change on current income and
earnings per share
• Cumulative effects of retroactive
application of change on income and EPS
for income statement years
 Non-Recurring Items

Accounting Changes
Second Type of Accounting Change is
Accounting Estimate Change—
involves change in estimate
underlying accounting
 
• Prospective application—a change
is accounted for in current and
future periods
• Disclose effects on current income
and EPS
 Non-Recurring Items

  Accounting Changes
Analyzing Accounting Changes
• Are cosmetic and yield no cash flows
• Can better reflect economic reality
• Can reflect earnings management (or even
manipulation)
• Impact comparative analysis (apples-to-apples)
• Affect both economic and permanent income
 For permanent income, use the new
method and ignore the cumulative effect
 For economic income, evaluate the
change to assess whether it reflects
reality
 Non-Recurring Items

 
Special Items
Special
Special Items--transactions
Items--transactionsand
andevents
eventsthat
thatare
areunusual
unusualor
or
infrequent
infrequent
  
Challenges
Challengesfor
foranalysis
analysis


 Often
Oftenlittle
littleGAAP
GAAPguidance
guidance

 Economic
Economicimplications
implicationsare
arecomplex
complex

 Discretionary
Discretionarynature
natureserves
servesearnings
earningsmanagement
managementaims
aims
  
Two
Twomajor
majortypes
types


 Asset
Assetimpairments
impairments(write-offs)
(write-offs)

 Restructuring
Restructuringcharges
charges
 Non-Recurring Items

Special Items
Asset
AssetImpairment—when
Impairment—whenasset assetfair
fairvalue
valueisisbelow
belowcarrying
carrying(book)
(book)value
value
  
Some
Somereasons
reasonsfor forimpairments
impairments
Decline
Declinein indemand
demandforforasset
assetoutput
output
Technological
Technologicalobsolescence
obsolescence
Changes
Changesin incompany
companystrategy
strategy
  
Accounting
Accountingfor forimpairments
impairments
Report
Reportatatthethelower
lowerof
ofmarket
marketor orcost
cost
No
Nodisclosure
disclosureaboutaboutdetermination
determinationof ofamount
amount
No disclosure about probable impairments
No disclosure about probable impairments
Flexibility
Flexibilityin indetermining
determiningwhen
whenand andhow
howmuch
muchtotowrite-off
write-off
No
Noplan
planrequired
requiredforforasset
assetdisposal
disposal
Conservative
Conservativepresentation
presentationofofassets
assets
 Non-Recurring Items

Special Items
Restructuring
RestructuringCharges—costs
Charges—costsusually usuallyrelated
relatedto
tomajor
majorchanges
changesin
incompany
company
business
business
  
Examples
Examplesof ofthese
thesemajor
majorchanges
changesinclude
include
 Extensive
Extensivereorganization
reorganization
 Divesting
Divestingbusiness
businessunits
units
 Terminating
Terminating contractsand
contracts andjoint
jointventures
ventures
 Discontinuing
Discontinuingproduct
productlines
lines
 Worker
Workerretrenchment
retrenchment
 Management
Managementturnover
turnover
 Write-offs
Write-offs combinedwith
combined withinvestments
investmentsin inassets,
assets,technology
technologyor
ormanpower
manpower
  
Accounting
Accountingfor forestimated
estimatedcosts
costsof ofrestructuring
restructuringprogram
program
 Establish a provision (liability) for estimated costs
Establish a provision (liability) for estimated costs
 Charge
Chargeestimated
estimatedcosts
coststotocurrent
currentincome
income
 Actual
Actualcosts
costsinvolve
involveadjustments
adjustmentsagainst
againstthe
theprovision
provisionwhen
whenincurred
incurred
 Non-Recurring Items

 
Analyzing Special Items

Earnings Management with Special Charges

(1)  Special charges often garner less investor

attention under an assumption they are non-recurring
and do not persist

(2)  Managers motivated to re-classify operating

charges as special one-time charges

(3) When analysts ignore such re-classified charges

it leads to low operating expense estimates and
overestimates of company value
 Non-Recurring Items

 
Analyzing Special Items

Income Statement Adjustments

 
(1) Permanent income reflect profitability of a company
under normal circumstances
• Most special charges constitute operating expenses
that need to be reflected in permanent income
• Special charges often reflect either understatements
of past expenses or investments for future profitability
 
(2) Economic income reflects the effects on equity of all
events that occur in the period
• Entire amount of special charges is included
 Non-Recurring Items

Analyzing Special Items

Balance Sheet Adjustments

Balance sheets after special charges often better reflect
business reality by reporting assets closer to net realizable
values
 
Two points of attention
(1) Retain provision or net against equity?
• If a going-concern analysis, then retain
• If a liquidating value analysis, then offset against equity
 
(2) Asset write-offs conservatively distort asset and liability
values
 Revenue Recognition

Guidelines
Revenue
Revenue Recognition
Recognition Criteria
Criteria
 Earning
Earningactivities
activitiesare
aresubstantially
substantiallycomplete
completeand
andnonosignificant
significant
added
addedeffort
effortisisnecessary
necessary
 Risk
Riskof
ofownership
ownershipis iseffectively
effectivelypassed
passedto
tothe
thebuyer
buyer
 Revenue,
Revenue,andandrelated
relatedexpense,
expense,are
aremeasured
measuredor orestimated
estimatedwith
with
accuracy
accuracy
 Revenue
Revenuerecognized
recognizednormally
normally
yields
yieldsan
anincrease
increasein incash,
cash,
receivables
receivablesor orsecurities
securities
 Revenue
Revenuetransactions
transactionsare areat
atarm’s
arm’s
length
lengthwith
withindependent
independentparties
parties
 Transaction
Transactionis isnot
notsubject
subjecttotorevocation
revocation
 Revenue Recognition

Guidelines
Some
Somespecial
specialrevenue
revenuerecognition
recognitionsituations
situationsare
are

 Revenue
RevenueWhen
WhenRight
Rightof
ofReturn
ReturnExists
Exists
 Franchise
FranchiseRevenues
Revenues
 Product
ProductFinancing
FinancingArrangements
Arrangements
 Revenue
Revenueunder
underContracts
Contracts
 Percentage-of-completion
Percentage-of-completionmethod
method
 Completed-contract
Completed-contractmethod
method
 Unearned
UnearnedRevenue
Revenue(amount
(amountofofrevenues
revenuesthat
thatare
arestill
still
unrecognized
unrecognizedappear
appearin
inthe
thebalance
balancesheet
sheetas
asaaliability)
liability)
 Revenue Recognition

 
Analysis
Revenue
Revenueis isimportant
importantfor for
 Company
Companyvaluation
valuation
 Accounting-based
Accounting-basedcontractual
contractualagreements
agreements
 Management
Managementpressure
pressureto toachieve
achieveincome
incomeexpectations
expectations
 Management
Managementcompensation
compensationlinkedlinkedtotoincome
income
 Valuation
Valuationof ofstock
stockoptions
options
  
Analysis
Analysismust
mustassess
assesswhether
whetherrevenue
revenuereflects
reflectsbusiness
businessreality
reality
 Assess
Assessrisk
riskofoftransactions
transactions
 Assess
Assessrisk
riskofofcollectibility
collectibility
  
Circumstances
Circumstancesfueling
fuelingquestions
questionsaboutaboutrevenue
revenuerecognition
recognitioninclude
include
 Sale
Saleof
ofassets
assetsor oroperations
operationsnot notproducing
producingcash
cashflows
flowstotofund
fundinterest
interest
or
ordividends
dividends
 Lack
Lackofofequity
equitycapital
capital
 Existence
Existenceof ofcontingent
contingentliabilities
liabilities
 Deferred Charges

Costs
Costs incurred
incurred but
but deferred
deferred because
because they
they are
are
expected
expected to
to benefit
benefit future
future periods
periods

Consider
Consider four
four categories
categories of
of deferred
deferred costs
costs

•• Research
Research and
and development
development
•• Computer
Computer software
software costs
costs
•• Costs
Costs in
in extractive
extractive industries
industries
•• Miscellaneous
Miscellaneous (Other)
(Other)
 Deferred Charges

Research and Development

Accounting for R&D is problematic due to:*

• High uncertainty of any potential benefits

• Time period between R&D activities and determination of success
• Intangible nature of most R&D activities
• Difficulty in estimating future benefit periods
 
Hence:
• U.S. accounting requires expensing R&D when incurred
• Only costs of materials, equipment, and facilities with alternative future uses
are capitalized as tangible assets
• Intangibles purchased from others for R&D activities with alternative future
uses are capitalized
 
*These accounting problems are similar to those encountered with employee
training programs, product promotions, and advertising
 Deferred Charges

Computer Software Costs

[Note:
[Note:Accounting
Accounting forfor costs
costsofof computer
computer software
software to tobe
be
sold,
sold,leased,
leased,ororotherwise
otherwisemarketed
marketed identifies
identifies aa point
point
referred
referredto
toas
astechnological
technologicalfeasibility]
feasibility]
  
Prior
Priortototechnological
technological
feasibility,
feasibility, costs
costs
are
areexpensed
expensedwhenwhen
incurred
incurred
  
After
Aftertechnological
technological feasibility,
feasibility, costs
costsare
arecapitalized
capitalizedas as
an
anintangible
intangibleasset
asset
 Deferred Charges

Costs in Extractive Industries

Search
Searchand
anddevelopment
developmentcosts
costsforfornatural
naturalresources
resourcesisisimportant
importantto
toextractive
extractive
industries including oil, gas, metals, coal, and nonmetallic minerals
industries including oil, gas, metals, coal, and nonmetallic minerals
  
Two
Twobasic
basicaccounting
accountingviewpoints:
viewpoints:
•• “Full
“Full‑cost” view—allcosts,
‑cost” view—all costs,
productive and nonproductive,
productive and nonproductive,
incurred
incurredin
inthe
thesearch
searchfor
forresources
resources
are
arecapitalized
capitalizedand
andamortized
amortizedtoto
income
incomeasasresources
resourcesare
areproduced
produced
and sold
and sold
•• “Successful
“Successfulefforts”
efforts”view—all
view—allcosts
coststhat
thatdo
donot
notresult
resultdirectly
directlyin
indiscovery
discoveryof
of
resources
resourceshave
havenonofuture
futurebenefit
benefitand
andshould
shouldbe
beexpensed
expensedas
asincurred.
incurred.
Prescribed for oil and gas producing companies
Prescribed for oil and gas producing companies
 Employee Benefits

Overview

 Increase in employee benefits supplementary to salaries and

wages
 Some supplementary benefits are not accorded full or timely
recognition:

• Compensated absences
• Deferred compensation contracts
• Stock appreciation rights (SARs)
• Junior stock plans
• Employee Stock Options (ESOs)
 Employee Benefits

Employee Stock Options

ESOs are a popular form of
incentive compensation
—reasons include:

 Enhanced employee performance

 Align employee and company incentives
 Viewed as means to riches
 Tool to attract talented and enterprising workers
 Do not have direct cash flow effects
 Do not require the recording of costs
 Employee Benefits

Employee Stock Options

Option Facts
• Option to purchase shares at a specific price on or after a future
date
• Exercise price is the price a holder has the right to purchase
shares at
• Exercise price often set equal to
stock price on grant date
• Vesting date is the earliest date
the employee can exercise
option
• In-the-Money: When stock
price is higher than exercise
price
• Out-of-the-Money: When stock price
is less than exercise price
 Employee Benefits

Employee Stock Options

Two main accounting issues

• Determining Dilution of earnings per share (EPS)
 ESOs in-the-money are dilutive securities and affect diluted
EPS
 ESOs out-of-the-money are antidilutive securities and do not
affect diluted EPS
• Determining Compensation expense
 Determine cost of ESOs granted
 Amortize cost over vesting period
 Interest Costs

Interest Defined

Interest
Compensation for use of money
Excess cash paid beyond the money (principal)
borrowed
 
Interest rate
Determined by risk characteristics of borrower
 
Interest expense
Determined by interest rate, principal, and time
 Interest Costs

Interest Analysis

• Interest on convertible debt is controversial by

ignoring the cost of conversion privilege
• Diluted earnings per share uses number of shares
issuable in event of conversion of convertible debt
• Analysts view interest as a period cost—not
capitalizable
• Changes in a company borrowing rate, not explained
by market trends, reveal changes in risk
 Income Taxes


Temporary Income Tax Differences

GAAP

GAAP
GAAP
GAAP
Financial
Taxable Income
Statement Income
 Differences
Differencesthat
thatare
aretemporary
temporary in innature
nature
 expected
expectedto toreverse
reverseininthe
thefuture
future
 mainly
mainly in
inthe
thenature
natureofof timing
timingdifferences
differencesbetween
between tax
tax
and
andGAAP
GAAPaccounting
accounting
 accounted
accountedfor for using
usingdeferred
deferredtaxtax adjustments
adjustments
 Income Taxes

Income Tax Accounting

•• Identify
Identifytypes
typesand
andamounts
amountsof
oftemporary
temporarydifferences
differencesand
andthe
the
nature
natureand
andamount
amountof ofeach
eachtype
typeofofoperating
operatingloss
lossand
andtax
taxcredit
credit
carryforward
carryforward
•• Measure
Measuretotal
totaldeferred
deferredtax
taxliability
liabilityfor
fortaxable
taxabletemporary
temporary
differences
differences
•• Compute
Computetotal
totaldeferred
deferredtaxtaxasset
assetfor
fordeductible
deductibletemporary
temporary
differences
differencesand
andoperating
operatingloss
losscarryforwards
carryforwards
•• Measure
Measuredeferred
deferredtax
taxassets
assetsfor foreach
eachtype
typeof
oftax
taxcredit
credit
carryforward
carryforward
•• Reduce
Reducedeferred
deferredtax
taxassets
assetsby byaavaluation
valuationallowance
allowance
 Income Taxes

Income Tax Analysis

• Financial Statement Adjustments
• Present Valuing Deferred Tax Assets and
Liabilities
• Forecasting Future Income and Cash Flows
• Analyzing Permanent and Temporary
Differences
• Earnings Management and Earnings Quality