Analysis of Financial Reporting 2022

Running head: ANALYSIS OF FINANCIAL REPORTING
Analysis of Financial Reporting
Name of the Student
Name of the University
Author Note

1ANALYSIS OF FINANCIAL REPORTING
Table of Contents
Introduction................................................................................................................................1
Answer 1................................................................................................................................2
Reasons for Improving the Communication of the Financial Statements..........................2
Answer 2................................................................................................................................4
Three Concerns about Information Disclosure in Financial Statements............................4
Answer 3................................................................................................................................6
Amendments in IAS 1 Financial Statements.....................................................................6
Amendments in IAS 7 Statement of Cash Flow................................................................7
Answer 4................................................................................................................................7
Effects of Materiality.............................................................................................................7
Answer 5................................................................................................................................9
Role of financial statements and the notes.........................................................................9
Answer 6..............................................................................................................................10
Brambles Ltd....................................................................................................................10
Conclusion................................................................................................................................12
References................................................................................................................................14

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Introduction
The effectiveness of informational communication in the financial statements
contributes towards the better decisions of the investments as well as lowers the costs of the
capital for the business organizations. The importance of the uses of the accounting data is for
communicating the meaningful information that not only helps the stakeholders but also helps
the management in making good decisions (Barbu et al. 2014). The better communication in
the financial reporting helps in highlighting the greater importance as well as common
themes of the number of the projects of IASB. The poorly presented financial statements
have resulted in making difficult for the investors to identify the useful information. Further,
the disclosures initiative of the IASB is more focused to identify the ways for ensuring that
the financial statements provides the information, which are relevant to the investors as well
as communicated effectively (Cheng et al. 2014).
Hence, under this assignment, discussion will be done on project taken by IASB for
the improvement of communication of information provided in financial statements.
Moreover, disclosures problems, amendments to IAS 1 and IAS 7 will be discussed. In
addition, materiality of the financial statements as well as concerns regarding content and
structure of the financial statement will be discussed. Lastly, structure and contents of the
Brambles Limited will be discussed.
Answer 1
Reasons for Improving the Communication of the Financial Statements
There is a certain need for increasing the amount of information that is presented in
the financial statements of the company. The phenomenon of producing less information
about the financial health in the annual report of the company is known as ineffective
communication. Ineffective communication in the financial report may leads to mislead the

3ANALYSIS OF FINANCIAL REPORTING
investors or the shareholders of the company. The stakeholders usually failed to identify the
relationships between information present in the financial statements of the company (Stubbs
and Higgins 2014). When the investors or the shareholders of the company failed to identify
the relationships between the information presents in the annual report of the company, the
investing decision of the investors or the stakeholders is hampered. Thus, the investors or
stakeholders tend to make poor decision regarding investment. Ineffective communication
will make annual report of the company less understandable. This normally increases the
uncertainty among the investors about the company’s prospects. This also affects the higher
cost of capital for the companies (Ifrs.org. 2019).
On the other hand, the effective communication is the phenomenon through which the
company can provide detailed information about the financial strength of the company. This
also helps the investors because they can perceive the information relevantly and relate the
information present in the financial statements of the company. Thus, the investors can make
better investment decisions. If the effective communication presents in the annual report of
the company then the cost of capital can be lower for companies (Simnett and Huggins 2015).
To avoid the problem of ineffective communication present in the financial statement
of the company the Board of IFRS contributes to bring back the effective communication in
the financial statements of the company. The Board wants to provide the information about
the financial statements of the company so that the investors can perceive the financial
strength of the company (Loughran and McDonald 2014). This will help the investors to
make better investment decisions. Addition to this, The International Accounting Standard
Board (IASB), has stated challenges for the companies to provide all information in the
annual report of the company (Frias‐Aceituno, Rodríguez‐Ariza and Garcia‐Sánchez 2014).

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Therefore, to avoid the ineffective communication, the company needs to provide
information in accordance to the company’s circumstances. The companies also need to
describe the information simply and the sentence should provide the useful information in the
sentences (Shehata 2014). The company also needs to provide rank while presenting the
information because it helps the users of the financial statements of the company to
understand the importance. The company should also relate the information presented in the
financial statements of the company (Robinson et al. 2015). Selecting the suitable format will
help the company to present the information in a more efficient manner. The company also
needs to provide unnecessary duplication in the information that might create problem in
communication (Karpoff, Lee and Martin 2014). Further, the company have to disclose the
information in such a way that the increases the comparability among the companies that
helps the companies to comprise its usefulness. This will help the users of the financial
statement of the company to link the information and able to gauge the actual picture about
the company along with the financial condition of the company (Guay, Samuels and Taylor
2016).
Answer 2
Three Concerns about Information Disclosure in Financial Statements
IFRS has introduced Disclosure Initiative, which helps the company to present the
information in the financial statements of the company in most effective manner. IFRS has
taken this initiative to create a Better Communication in Financial Reporting theme for the
companies, so that the financial statement presents an effective communication (Iasplus.com.
2018).
IASB states that there is a difficulty in judging the information. It raises certain
decision-making problem for the investors or shareholders. The disclosure problem caused
due to the behavioral problem. Some of the companies take the presentation of the financial

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statements of the company as a document rather taking it as the tool for communication with
the investors or shareholders or other user of the annual report. The requirement for
disclosures mentioned by IFRS is being applied mechanically but some companies tend to
use the requirement made by IFRS as checklist. IFRS identified the issues regarding the
disclosure of information and developed new disclosure principles. As per disclosure
requirement in IAS 1, the concepts are being developed using the Conceptual Framework
(Iasplus.com. 2018).
IFRS has introduced three major concerns for providing the information in the
financial statements of the company.
i. Not relevant information:
This has been recognized that the company treating their reports as important as it
actually is. It has seen that most of the required information is missing from the report and
company is not providing the relevant information. The user that is in need of the information
that can help them in taking the beneficial financial decision for them is not being fulfilled by
these reports. In result of this, leads to the decisions that are inappropriate for the investment
as well as for lending. Thus, the board has sighted their concern to remove these uncertainties
and removing the problem of improper knowledge about the company’s status (Guay,
Samuels and Taylor 2016).
ii. Too much irrelevant information:
The other main concern of the disclosure in the financial report is that the required
report is consisting of so many information that is unnecessary to be filled in the report. The
companies while preparing the report is less or not considering eliminating the irrelevant data
that is just filling the pages in the report. This is creating confusion to the user in
understanding the report. Further, so many data in the report is obscuring the relevant

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information. Therefore, to eliminate so many irrelevant data from the financial report made
by the company the board has taken this under a major concern (Moroney and Trotman
2016).
iii. Ineffective communication:
The report that is being prepared previously was not appropriate for the user. As the
earlier structure and content was leading to rise in confusion. In addition, unnecessary data
added in the contents was creating ambiguity as it is hiding anyhow the real information from
the users. The report must be effective so that it will be beneficial to all to know and
understand about the company. So that a proper decision can be taken. Therefore, the board
has taken initiative to increase the level of report for a better understanding (Eilifsen and
Messier Jr 2014).
Answer 3
Amendments in IAS 1 Financial Statements
The amendments made in the IAS 1 in preparing and presenting the financial report
has stated certain guidelines. It has included specific requirements for the content. The IASB
has said that the company is required to present an overall set of financial report for minimum
a year along with the comparative accounts of the previous year that has to be made in the
notes (Iasplus.com. 2019). According to the amendments made, financial reports as a
complete set consists of the following elements discussed below:
o A report of the financial position of the company must be stated as at the end of every
financial period
o A profit and loss statement along with the other comprehensive income as stated for a
given period. IAS 1 has allowed the company or any entity to prepare and make
available a single combined report of profit and loss. Addition to this, they have to

7ANALYSIS OF FINANCIAL REPORTING
add other comprehensive income report or two individual report as separate
statements.
o The report for the change in equity for the specific period.
o A report of cash flow for the specific period.
o To add notes along with the summary of noteworthy policies related to accounting
and any further descriptive information.
Companies who prepare their reports as with the IFRS standards have to make a clear
and open report with adding such in the notes. The condition is applicable to the entity unless
they have fulfilled all the requirements of the standards. The report is hence achieve a fair
representation. Further, the IAS 1 has dealt with the issues related to going concern,
offsetting and any fluctuations in the financials reports (Iasplus.com. 2019).
Amendments in IAS 7 Statement of Cash Flow
IASB has amended the IAS 7 in 2017 that is related to the statement of cash flows.
The stated amendments made is needed some disclosures related to the certain liabilities such
as changes in the equity. This is to improve the disclosure quality in the financial reports.
The disclosure that has added with the demanded requirements by IAS 7 in
Paragraph 44A-44E has stated that is applicable to all the debts and as well as the assets
whose movements has been disclosed in the cash flow report (Iasplus.com. 2019).
According to the new amendments, the company or an entity has to disclose the
movements of the liabilities that have been raised from the financing activities. These are as
follows:
o Changes due to the movement from funding cash flows,
o Changes occurred due to the loss of control,

8ANALYSIS OF FINANCIAL REPORTING
o Changes due to the effect of fluctuation in the rate of foreign exchange,
o Variations in Fair values
o An entity’s liquidity position including the certain restrictions that may affect the
decision of the company on the way they use their balance related to cash and cash
equivalent.
Answer 4
Effects of Materiality
The materiality takes an important stand in the presentation and disclosure of the
information in the financial reports in reference with the following points as discussed below:
The context of materiality assessment
As per the Para 8, IAS 1 has stated that the assessment of materiality can have an
important affect to the presentation as well as disclosures made in the financial reports. This
will help the users in making an effective economic decision for themselves based in the
reports. According to the Judgment in the para 12 the assessment of materiality must include
the comparative report prior to the current year statements to assess the changes in the
activities within the company and the real position of the company (Moroney and Trotman
2016). An effective financial information has the capability to change the financial decisions
made by the users. As per IASB, Materiality assessment is to assess the decisions. Whether
the company’s information is able and relevant in influencing the decisions made by the main
users (Eccles and Youmans 2016).
Immaterial information
To add immaterial information in the financial reports can result in obscuring the
information that is related to material. This can increase the confusion and hence cannot be
understandable. Further, there is irrelevant increase in the length of the report. The entity has

9ANALYSIS OF FINANCIAL REPORTING
not ordered to eliminate that immaterial information but this should not be added in the main
financial report. Immaterial information has to be added in the reports separately. The
concept of immaterial information brought by the IASB will help the user in clearly
understanding and evaluating the material information. Also. They will be able to see
immaterial in the separate context. This will bring clarity and more information that is
relevant to the user that help them in making an effective decision for themselves (Sytnik
2014).
Aggregating and disaggregating information
As per this, an entity is liable to present items of the alike material separately. In
addition, the aggregation of immaterial if they are showing individually their function as
dissimilar. Although, the information must not be make obscured to the user from
aggregating immaterial information. The immaterial information must be separately reported
in their reports. So that the user will get a clear view if the financial reports and their position
of the company (Eilifsen and Messier Jr 2014).
Answer 5
Role of financial statements and the notes
IASB has responded in the context of the changes in the financial statements in the
notes as by stating that all the reports that is necessary to be prepared must be consists of
certain policies and other information that has to be disclosed in the notes. The IASB has said
that the information that is to be covered within the financial reports will be considered as
Primary Financial report. The relevant information presented in the reports is to help the
users with the effective notes so that it can be used in comparing with other entities. The role
of the notes is also to make available the disaggregate information in the primary financial

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reports. This can help in the understanding of the primary report with other relevant
information presented in the notes (Eccles and Krzus 2014).
The IASB understands the need of removing duplication in the information and for
other necessary guidelines. The relevant disclosures in the notes by separating from the main
financial report reduces ambiguity and portrays overall a clear picture if an entity’s position.
The appropriate financial statement along with the notes gives all the necessary
information. The information about all the financial activities and the actual position of the
company. Further, it will be easy for the user to analyze about all the positive as well as
negative factors that is existing within the company to make an effective decision (Edgley
2014).
Use of performance measures
Company uses different performance measures in their financial reports and user thinks
that the entities are having flexibility in certain presentations. There is also that user who has
conveyed their concern about the performance measures. The concern were related to issues
such as explanation of the calculations have not been included, difficulties in comparing as
the entity uses different measures while calculating, uneven grouping of the elements (Lai,
Melloni and Stacchezzini 2017).
Board has focused in mainly two areas:
(a) The presentation of EBIT or/and EBITDA in the financial report will be recognized
as a fair presentation related top IFRS standards.
(b) The guidelines is provided on the exhibition related to uncommon and rarely
occurring items.

11ANALYSIS OF FINANCIAL REPORTING
Answer 6
Brambles Ltd
i. The page length of the financial report of Brambles Ltd in the year 2014 was 132 and
in the year 2015 it was 96. Thus, it was reduced in 2015 by 36 pages (Brambles.com.
2019).
ii. The total number of notes in the financial report in both 2014 was 39 and in the year
2015, it was 34. Thus, the number of notes reduced by 5.
iii. The details consists in the continuing operation can be seen much better portrayed in
the year 2015. The notes mentioned in the report in the year 2015 has been reduced by
10 pages as from the previous year. The statement has been discussed in much
concise way. Irrelevant information to the notes has been removed in the year 2015. It
makes the report easy to understand (Brambles.com. 2019).
iv. There have been no differences in the disclosures of the accounting policies in
associated notes in the financial statements of the year the year 2014 and 2015. The
language used for explaining the accounting policies used in both the annual reports is
in the similar language and format (Brambles.com. 2019).
v. The call out boxes is used in the annual report for disclosing the information of the
annual report in the template design. The boxes are used for helping the text stand out
from background. The annual report of the listed companies highlights the annual
performances to their shareholders. If these reports are presented in form that is more
presentable then it highlights the major aspects and information contained in the
annual report. Therefore, in context of annual report of Bramble Limited, it can be
seen that no call out boxes has been utilized for highlighting the information on the
material estimates as well as judgments in the year. The critical accounting estimates
and the judgement are explained by giving heading and explanation of the same rather

12ANALYSIS OF FINANCIAL REPORTING
than highlighting the estimates and judgements in the call out boxes
(Annualreports.com. 2019).
.
Figure 1: Accounting Estinmates and Judgements
Conclusion
Therefore, it can be concluded from the analysis that the effectiveness in the
communication of the information in the financial statements leads towards effectiveness in
the decisions. However, the ineffectiveness of the communication of the financial statement
results into overlooking of the relevant information and failing for identifying the

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relationships between the pieces of the information in the various parts of the financial
statements of company by the investors. Moreover, it has been analyzed that disclosures
initiatives aims for addressing the effectiveness of the disclosures in the financial statements
by providing relevant information. Further, it has been analyzed that the materiality of the
financial statements influence the judgement of the investors or the other stakeholders whose
decisions are based on the data provided in the financial statements. Hence, it can be said that
business organizations should present the financial statement in such a way that the
information provided is relevant, presentable and free from any kind of misstatement so that
decisions of the shareholders are enhanced.

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