Introduction Financial statements, sometimes also known as financial reports, are produced by an entity (ie any incorporated or unincorporated organisation) to provide information about its financial position, performance and changes in its financial position that is useful to management, owners and other stakeholders in making economic decisions. A financial statement will typically will include a balance sheet, profit and loss statement and a statement of cash flows. The term financial statement specifically relates to accounting information published for the benefit of the public or investors, whereas the word accounts is generic term that can include other types of document, for example, management accounts for internal use only. Most financial statements are produced to meet the regular reporting requirements of entities. All

companies in the UK have to produce annual financial statements by law, and listed companies are required to produce interim results. However, there are some specific situations where statements may be required at another time, for example in order to justify or defend a take-over bid, or where a company is making a public offering of shares. Some types of business or entity are also subject to specific rules. These special applications are discussed later in this chapter. From the beginning of 2005, the consolidated financial statements of all companies listed on a stock

exchange within the European Union have to be prepared in accordance with International Financial Reporting Standards (IFRS). In the UK, non listed companies may elect to adopt IFRS, or may continue to follow UK Generally Accepted Accounting Principles (UK GAAP). Public sector accounting in the UK still reflects UK GAAP, although the government is currently considering the adoption of International Public Sector Accounting Standards (IPSAS), which are based on IFRS. Furthermore, the policy of UK Accounting Standards Board is to converge UK GAAP with IFRS, so

that by 2010 there are likely to be fewmaterial differences between the two sets of standards. However, at the time of writing there are distinct differences between the valuation requirements of the two regimes, which are discussed later in this chapter. It will be appreciated that it will be of fundamental importance that the valuer establishes which accounting standards the client is using before undertaking a valuation for inclusion in a financial statement.