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Because of the legal status of a corporation, the owners have limited
liability and cant lose more than their invested money. Unlike a proprietor, the
owners of a corporation do not have to withdraw from their personal savings or
sell their personal belongings to satisfy creditors if the corporation goes
bankrupt. An owner of a corporation is called a stockholder or shareholder.
The purpose of a corporation is to increase the wealth of stockholders,
who elect a board of directors from among themselves and from people outside
the corporation to set general guidelines for the corporation. If the corporation
is relatively large, the board hires managers to work as agents of the
stockholders.
Managers have a responsibility to set long-range corporate strategy, which
specifies the objectives that the corporation must achieve in the future. Managers
have other responsibilities, including hiring employees, purchasing assets,
borrowing money, issuing stock, controlling the work of other employees, and
reporting the status of the corporation to the board of directors and
stockholders on a periodic basis.
4. The Financial Statements
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The financial statement is a document that provides information about the
financial position, performance and change in the financial position of an entity.
The financial statements present the accounting information in the form of
formal reports which provide information on business performance and position
to interested stakeholders, such as managers, creditors, prospective investors and
governmental agencies. These reports are prepared from information obtained
from various business transactions the business recorded. Thus, transactions
involving assets, liabilities, as well as permanent and temporary capital become
the main data used in the preparation of financial statements.
Financial statements are prepared at least once a year and this is known as
the accounting period. An accounting period may follow the calendar year, in
which case it begins on January 1 and ends December 31 of the same year. The
business is then said to have a calendar-year accounting period.


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By Paolo Pietro Biancone
Business and Management
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EXHIBIT 3 EXAMPLE OF ACCOUNTING PERIOD.





Any accounting period consisting of a 12 month other than a calendar
year is generally known as a fiscal-year accounting period. Usually this behaviour
involves companies with specific operational activities or business cycle i.e.
sports team, retail wholesaler etc.
Companies (usually listed entities) may prepare financial statements for
periods of time that are less than the accounting period; such statements are
generally known as interim statements. An interim statement is prepared for a
period of time other than a fiscal year or calendar year. Examples of interim
statements are statements prepared for 3 month or 6 month periods. Regardless
of the periods of time covered by the individual financial statements, the type of
information presented by various statements does not change.
The content of financial statements usually includes the following
documents(
5
):
Balance sheet;
Income statement (or profit and loss account);
Cash flow statement;
Notes and other documents.
The bal anc e s he e t shows the financial position of a company at a specific
point in time. The balance sheet is a financial snapshot of a firm taken at the
end of a reporting period. It provides a detailed listing of the various assets that a
business owns, the liabilities that are owed to creditors and other parties, and the
proprietors equity interest. It is known as the balance sheet because upon its

(
5
) In the following paragraph are presented the detailed rules for financial
statements under IAS/IFRS.
31/12/2010

Business transactions

Financial Statements

31/12/2009


Financial Statements


ACCOUNTING PERIOD

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completion it must be in balance. In other words, the total value of an entitys
assets must be equal to the total value of its liabilities and equity.
The balance sheet is divided into two parts: one contains assets and the
other liabilities and stockholder equity, also called owner equity, shareholder
equity, or net worth.

EXHIBIT 4 THE BALANCE SHEET
Balance sheet
Assets 2009 2010 Liabilities and equity 2009 2010
Non current assets Shareholders equity
Property, plant and
equipment
xx xx Share capital xx xx
Investment property xx xx Retained earnings xx xx
Intangible assets xx xx Total xx xx
Goodwill xx xx
Financial assets xx xx Non current liabilities
Others non current assets xx xx Long term debt xx xx
Total xx xx Deferred income taxes xx xx
Total xx xx
Current assets
Inventories xx xx Current liabilities
Account receivable xx xx Short-term debt xx xx
Others current assets xx xx Current portion of long-
term debt
xx xx
Cash and cash equivalents xx xx Account payable xx xx
Total xx xx Total xx xx

Total assets xxx xxx Total liabilities and
Shareholders Equity
xxx xxx

Assets represent resources the company has control over, that may
provide future benefits, and that can be objectively valued. Assets may be
classified as current and non current or fixed assets.
Current assets are items that can be converted into cash or are
consumed/sold within one year. Current assets include cash, marketable
securities, accounts receivable, and inventory.
Non current assets (or fixed assets) are assets with a useful life of more
than one year; non current assets include property, plant and equipment, and
trade marks patents etc.
Liabilities are amounts payable in Euros (i.e. accounts payable) or future
services to be rendered (i.e. warranties payable).
Liabilities are divided into current liabilities and long term liabilities.
Current liabilities are those accounts usually paid within one year.
Examples include accounts payable, short-term notes payable, and accruals or
existing obligations that have not been paid.
Long-term liabilities (non current) are items usually paid within a period
greater than one year, such as bonds.
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Stockholder equity (or shareholder equity) is the claim by owners against
assets. Equity includes direct investments by the firms owners plus undistributed
profits (retained earnings).
In its simplest form, the i nc ome s t at e me nt (or prof i t and l os s ac c ount ) is
where revenues are stated and where costs and taxes are subtracted to arrive at
the profit-bottom line. The income statement shows revenues and expenses for a
stated accounting period, usually a year.
For most manufacturing operations, the top line represents sales but may
include other forms of revenue, such as rents and royalties.
Expenses directly related to the creation of these revenues are called
operating expenses. These include costs incurred in manufacturing, selling costs,
general overheads, and R&D(
6
).
The net of sales and operating expenses is called operating income or
operating profit (also called EBIT, earnings before interest and tax).
Operating income is a very important number in valuing and running a
business because it is independent of how the organisation is financed (i.e. using
borrowed money or its shareholders own capital) and taxed, either of which can
result in very different bottom line profits for two otherwise identical companies.
A companys operating profit is a good indicator of operating effectiveness in
how well it can generate revenues relative to costs. It ignores the differences
caused by financing costs and taxes, which are operations-neutral.
The following exhibit describes the basic elements of the income
statement (cost of sales - nature of expense).

(
6
) Those costs (classified by functional areas) include costs for raw material, costs
for services, personnel costs, depreciation and amortisation and other costs.
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EXHIBIT 5 INCOME STATEMENT (PROFIT AND LOSS ACCOUNT)
1) Income statement cost of sales
2009 2010
Sales/Revenues xx xx
- Cost of goods sold (xx) (xx)
- Selling expense (xx) (xx)
- General and administrative (xx) (xx)
Operating profit xx xx
Finance costs (xx) (xx)
Income before taxes xx xx
Income taxes (xx) (xx)
Net income xxx xxx


2) Income statement nature of expense
2009 2010
Sales/Revenues xx xx
- Cost for raw material (xx) (xx)
- Costs for services (xx) (xx)
- costs for personnel (xx) (xx)
- depreciation and
amortisation expenses
(xx) (xx)
Other operating expenses (xx) (xx)
Operating profit xx xx
Finance costs (xx) (xx)
Income before taxes xx xx
Income taxes (xx) (xx)
Net income xxx xxx


Basically, a Cas h Fl ow St at e me nt provides information on cash receipts,
cash payments, and changes in cash that a company holds, minus the expenses
that arise from operating the company. In addition, the statement looks at the
money that flows into or out of the company through investing and financing
activities. As with the income statement a company usually provides at least two
years worth of information on the statement of cash flows.
The transactions shown on the Cash Flow Statement are grouped in three
parts.
Operating activities: this part includes cash transactions that involve revenue
taken into the company through sales of its products or services and expenses
and that were paid out for the company to carry out its operations.
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Investing activities: this part includes the purchase or sale of the companys
investments and can include the purchase or sale of long term assets, such as a
building or a company division.
Financing activities: this part involves raising cash through long term debt or
by issuing new stock. It also includes using cash to pay down debt or buy stock.
The company also includes any dividends paid in this section.

EXHIBIT 6 CASH FLOW STATEMENT
Cash flow Statement
2009 2010
Cash flows from operating activities xx xx
Cash flows from investing activities xx xx
Cash flows from financing activities xx xx

Total Cash flows for the period xxx xxx

Cash and cash equivalents at 1/1 xx xx
Cash and cash equivalents at 31/12 xx xx



Usually not e s on f i nanc i al s t at e me nt s and ot he r doc ume nt s include
detailed information regarding accounting policies used in the financial
statements:
asset types: this explains the types of merchandise owned by the
company;
valuation methods: this explains how the company values its
assets;
depreciation and amortisation methods: this explains the methods
a company uses to show the use of its assets;
revenue and expense recognition: this explains how the company
records the money it receives from sales and the money it pays
out to cover its expenses.
pensions: this explains the obligations the company has to its
current and future retirees;
risk management: this discusses what the company does to
minimize its risk;
income taxes: this explains the companys income-tax obligations
and the amount the company has paid in taxes;
other relevant information (concerning the requirement of
specific regulation (i.e. IFRS/US GAAP etc.).
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Other documents include for example the statement of change in equity
and the statement of comprehensive income.
EXHIBIT 7 BREMBO SPA FINANCIAL STATEMENTS 2008


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Income Statement at 31 December 2008


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