Module 11: Understanding and

Analyzing ICT Firms Annual

Reports
Carlo M. Rossotto, MNA Regional Coordinator,
Global ICT Department, Policy Division
March 11, 2009

Module Outline

1.Introduction to Accounting
2.Special Issues in Accounting and Technology
3.Analyzing Annual Reports for Economic
Analysis: Cases

Introduction to Accounting

1.Basic Accounting Principles and International

Standards
2.Islamic Finance and AAOIFI Standards
3.What is a Balance Sheet
4.What is an Income Statement
5.What is a Cash Flow Statement
6.Financial Ratios
7.Financial Disclosure

Introduction to Accounting
Basic Accounting Principles and International Standards

The International Accounting Standards Board (IASB) is responsible for the development of
International Financial and Reporting Standards (IFRS). www.iasb.org
A large number of countries, including Egypt, adopts IFRS or a modified version of IFRS
Which countries are adopting IFRS: http://www.iasplus.com/country/useias.htm
Egypt adopts IFRS for all companies, domestic and foreign
European Union. Adoption of virtually all IFRS, with a time lag, and certain exceptions
United States. US SEC registrants are required to use US GAAP and are not permitted to
use IFRSs. However, on 14 November 2008, the US SEC published for comment a
proposed Roadmap for the Potential Use of Financial Statements Prepared in Accordance
with International Financial Reporting Standards by US Issuers

Introduction to Accounting
Islamic Finance and AAOIFI Accounting Standards
Islamic finance is finance in according with Islamic law and jurisprudence.
London, Dubai, Kuala Lumpur emerging as global hubs for Islamic finance and banking
Islamic finance is a growing phenomenon with over US$500billion of assets
(Source: Forbes). Highest growth among all managed assets
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
www.aaoifi.com
London, Dubai, Kuala Lumpur: global hubs for Islamic finance and banking
Coordination efforts between AAOIFI and IFRS. Professional certifications
(example, Islamic Finance Qualification)

Introduction to Accounting
What is a Balance Sheet
Balance sheet summarizes the position or balance
of a firm at a certain point in time.
It is divided in three parts: assets, liabilities and
Current
equity
Assets

Long-term
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Introduction to Accounting
Current Assets
Cash and cash equivalents
Inventories
Accounts receivable
Prepaid Expenses

Long-term assets
Property, plant and equipment
Investment Property
Intangible assets
Investment assets

Introduction to Accounting
Liabilities
Accounts payable
Provisions for warranties or court decisions
Financial liabilities (excluding provisions and accounts
payable), such as promissory notes and corporate bonds
Liabilities and assets for current tax
Deferred tax liabilities and deferred tax assets
Minority interest in equity
Issued capital and reserves attributable to equity holders of
the parent company
Unearned revenue

Introduction to Accounting
Equity
Share capital
Capital reserves
Revaluation reserve
Translation reserve
Retained earnings

Introduction to Accounting

Example of a balance sheet: Google

http://www.google.com/finance?fstype=ii&q=GOOG

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Introduction to Accounting

What is an income statement

Statement that reports revenues and expenses over a certain period of time
Revenues
Cost of Revenue = Gross Profit
-

General and Administrative

R&D
Depreciation
Interest expense (revenue)
Unusual expense

Total Revenues Total Operating Expenses = Operating Income

Operating Income +/- Interest = Income before Tax
Income before tax tax = Income after tax
Income after tax extraordinary items = Net income

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Introduction to Accounting

What is an income statement

Net income preferred stock dividend
Earning per share (EPS) =

Weighted average opf common stock outstanding

Basic
EPS
Diluted
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Introduction to Accounting

Lets go back to the Google example Income statement

http://www.google.com/finance?fstype=ii&q=GOOG

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Introduction to Accounting

What is a cash flow statement

Statement that shows a companys flow of cash over a certain period of time (IAS 7)
Operating activities
receipts from the sale of goods or services
receipts for the sale of loans, debt or equity instruments in a trading portfolio
interest received on loans
dividends received on equity securities
payments to suppliers for goods and services
payments to employees or on behalf of employees
tax payments
interest payments
payments for the sale of loans, debt or equity instruments in a trading portfolio
Items which are added back to [or subtracted from, as appropriate] the net income figure
to arrive at cash flows from operations:
Depreciation (loss of tangible asset value over time)
Deferred tax
Amortization (loss of intangible asset value over time)
Any gains or losses associated with the sale of a non-current asset, because associated
cash flows do not belong in the operating section.(unrealized gains/losses are also added
back from the income statement)

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Introduction to Accounting

What is a cash flow statement

Statement that shows a companys flow of cash over a certain period of time (IAS 7)
Investing activities
Purchase of an asset
Assets can be land, building, equipment marketable securities,
Loans made to suppliers or customers
Financing activities
proceeds from issuing shares
proceeds from issuing short-term or long-term debt
payments of dividends
payments for repurchase of company shares
repayment of debt principal, including capital leases
for non-profit organizations, receipts of donor-restricted cash that is limited to long-term
purposes
Items under the financing activities section include:
Dividends paid
Sale or repurchase of the company's stock
Net borrowings

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Introduction to Accounting

Lets go back to the Google example Cash flow

http://www.google.com/finance?fstype=ii&q=GOOG

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Introduction to Accounting

Financial Ratios
Profitability Ratios - Examples
Net Income
Return on Equity (ROE) =
Average Sharehold. Equity

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Introduction to Accounting

Financial Ratios
Liquidity Ratios - Examples
Current Assets
Current Ratio =
Current Liabilities

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Introduction to Accounting

Financial Ratios
Activity Ratios - Examples
Total Sales
Asset Turnover =
Total Assets

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Introduction to Accounting

Financial Ratios
Debt Ratios - Examples
Total Liabilities
Debt Ratio =
Total Assets

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Introduction to Accounting

Financial Ratios
Market Ratios - Examples
Market Price
P/E Ratio =
Diluted EPS

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Introduction to Accounting

Financial Disclosure
Financial Disclosure Obligations

Local securities laws and regulations

Compliance with international accounting standards
Local Stock exchange regulations
Foreign Stock exchange regulations
Statute of the corporation

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Accounting and
Technology
IFRS and Technology Firms
Research and Development
- Capitalisation Approach

Revenue Recognition
IFRS requires recognition of revenue
on an element of a transaction, if that elements
has commercial substance on its own

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Accounting and
Technology
IFRS and Technology Firms: Affected Areas
Research and Development
R&D expense is capitalised once technical
and commercial feasibility established

Marketing
Recognition of customer incentives

Sales
Different revenue recognition methods

Taxation, Legal, Communications

IFRS as an opportunity to reshape business

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Accounting and ICT Analysis

How to Use Balance Sheet of

Technology Firms for Economic Analysis

CASE I BRITISH TELECOM, TELEKOM MALAYSIA AND

INTERNATIONAL COMMUNICATIONS REVENUES

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Accounting and ICT Analysis

How to Use Balance Sheet of

Technology Firms for Economic Analysis

CASE II TELECOM EGYPT

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Accounting and ICT Analysis

How to Use Balance Sheet of

Technology Firms for Economic Analysis

CASE III Mobinil

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