Question 1

Question 2

Question 3

Question 4

Question 5

Question 6

Question 7

Question 8

Question 9

Question 10

Review questions

Key questions:

  • What are the specific major accounting issues for the industry?
  • Which accounting choices have been made by management?
  • Are accounting policies and estimates the same as for other firms within the industry?
  • Have accounting policies and estimates changed over time?
  • What are the key limitations in the information provided in the financial statements, notes and supplementary reports?

And then the questions listed in Table 17.1

Below is a list of a number accounting items, which may be non-recurring in nature:

  • Special or extraordinary items; including for instance
    • Write-down of inventories
    • Write-down of accounts receivable
    • Large provisions and reversals
    • Disposal of non-current operational assets
    • Law suits (litigations)
    • Corrections of errors related to prior years.
    • Restructuring cost
  • Impairment/reversal of impairment of non-current assets
  • Gains and losses that are not part of core business
  • Changes in accounting estimates
  • Other value adjustments then those mentioned above
  • Changes in accounting policies
  • Discontinued operations and assets held for sale

Research and the Carlsberg case shows that there is a tendency to classify more costs (than income) as special items/non-recurring items.

A red flag (in the context of Chapter 17) is a signal of a negative development indicating that ‘something is wrong’ related to a firm’s economic performance. A green flag is the opposite.

A red flag is identified by analysing development of different accounting numbers or ratios over a number of years and compare with peers.