Analysis of Financial Reporting and IFRS Adoption

The provided assignment is a detailed analysis of financial reporting quality and its relation to Internal Financial Reporting Standards (IFRS) adoption. It includes various studies and research papers that examine the joint importance of independence and competence in internal audit quality and financial reporting, as well as the impact of IFRS adoption on financial reporting quality. The assignment covers topics such as bank earnings smoothing, blockholder exit threats, and the complexity of financial reporting standards. It also discusses the role of IFRS on financial reporting quality and global convergence.

Financial Reporting

TABLE OF CONTENTS
INTRODUCTION..........................................................................................................................3
TASKS.............................................................................................................................................3
1. Context and purpose of financial reporting in UK.....................................................................3
2. Regulatory framework of financial reporting and their key principles......................................4
3. The key stakeholders of an organization and their need for financial reports...........................5
4. Value of financial reporting for meeting organizational growth and objectives........................7
5. Explaining the meaning and benefits of IAS and IFRS.............................................................8
6. Evaluating financial reporting in an enterprise by applying theories and models.....................9
7. Different financial reporting across the globe and the factors that influence these differences.
......................................................................................................................................................10
8. Evaluating the degree of compliance with IFRS by different firms worldwide......................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial reporting is the presentation of the formal record of the financial activities of a
business, person, or other entries. It is primarily an accounting function. Financial reports are
prepared for external as well as internal users. Financial reporting encompasses the provision of
financial statements and related financial and other information. Corporate financial reporting is
a series of activities that allows companies to record operating data and report accurate
accounting statements at the end of each month and quarter. The present study is based on Nexia
international, a leading global accounting firm that provides a portfolio of services like audit, tax
consulting, accountancy and advisory services to their clients. Furthermore, the report describes
the context, purpose and regulatory framework of financial reporting. The study also includes the
details about the key stakeholders of the company and their interest in accounting information. It
also explains the importance of financial analysis and description about IAS and IFRS.
Evaluation of financial reporting and different reporting standards with compliance rules across
the globe are also analyzed under the study.
TASKS
1. Context and purpose of financial reporting in UK.
Financial reports are referred as the documents and the records that are recorded together
for the purpose of tracking and reviewing the amount of profits are been gained within the
business. The main purpose of the financial reporting is delivering the information to lenders and
the share-owners of the business and in turn helps the organization in meeting its business goals.
Financial reporting plays a vital role in world economies. Its primary purpose is to
provide relevant and useful information to the owners of a Nexia international where there is a
division between the ownership and control of that company (Acharya, and Ryan, 2016). This
occurs mainly in public limited companies, where share capital is sold to the public through a
stock market/exchange system. The diverse and potentially geographically dispersed
shareholders do not get involved in the management of their Nexia international; they appoint
directors to do this on their behalf. The owners receive an annual statement summarizing the
performance and position of their Nexia international so that they can assess how well their
investment has performed during the reporting period.

Without the financial reporting system, investors would be less inclined to part with their
capital as they would have no way of determining how effectively the Nexia international is
being run by the directors (Bonsall and et.al., 2017). The appointed directors of the accounting
firm are supposed to be operating in the best interests of the shareholders.
In order to meet the needs of the users of financial statements, companies have to
implement accounting systems that provide the information needed. It is also important that this
system is regulated to ensure that the information provided to the users is in an appropriate
format and that it is useful to their informational requirements (Chen and Li, 2015). This is
achieved through a financial reporting framework, the basis of which is a conceptual framework.
Regulatory framework
By doing assessment, it has identified that UK has its own reporting authority namely The
Accounting standard board. It issues reporting standards which in turn followed by organizations
operating in UK. In addition to this, Companies Act (2006) also has significant impact on
business units pertaining to compliance with legislation mentioned in it.

2. Regulatory framework of financial reporting and their key principles.
A regulatory framework for the preparation of financial statements is necessary for a number of
reasons:
To ensure that the needs of the users of financial statements are met with at least a basic
minimum of information (Abbott, and et.al., 2016). To ensure that all the information provided
in the relevant economic arena is both comparable and consistent. Given the growth in
multinational companies and global investment this arena is an increasing international one. It is
needed to increase the confidence of the users in the financial reporting process. It regulates the
behavior of the Nexia international and its directors towards their investors.
Financial reporting standards on their own would not be sufficient to achieve these aims. In
addition there must be some legal and market-based regulation.
National regulatory frameworks for financial reporting.
There are many elements to the regulatory environment of accounting. A typical
regulatory structure includes:
 National financial reporting standards
 National law
 Market regulations
 Security exchange rules.
For example; the UK has its own national financial reporting authority, the Accounting
Standards Board (part of the Financial Reporting Council) that issues financial reporting
standards in the UK. The main piece of legislation affecting businesses in the UK is the
Companies Act 2006. However, there are also many other pieces of UK, EU and even US
legislation (such as the Sarbanes Oxley Act) that affect accountability in the UK. There are also
numerous industry specific regulatory systems that affect accounting in the UK, for example; the
Financial Services Authority, whose aim is to achieve public accountability of the financial
services industry. Finally, there are regulations provided by the London Stock Exchange for
companies whose shares are quoted on this market

3. The key stakeholders of an organization and their need for financial reports.
Customers: Customers are the ones which are the most crucial point in a business cycle.
Customer are usually interested in information that is capable of influencing there buying
decisions or their outlook regarding the market like, their belief in the brand and there
association towards the same. This usually involves assessment of Nexia international ability to
exist in the business and meeting its needs.
Employees: Employees are a part of internal bodies of the enterprise and they are majorly
concerned with matters related to their job security or payments. They seek information for
analyzing issues like whether to continue working for us and, if so, whether to demand higher
rewards for doing the same. The basis of their decision making is evidently from the
organizations future plans, profit status and the overall financial stability which are derived from
Nexia international financial statements.
Lenders: Lenders look for information that helps them in deriving a decision as to
whether to lend money to the entity, or not. This decision is usually made by checking the firm’s
capability to pay the debts as and when they would have arisen in short and long term.
Managers: Managers lookout for information that helps them analyze, the status of the
business operations and whether is required any improvement in the same. This is usually made
by analyzing current financial performance and status with the past performances of the business.
Managers also look out for developing a basis for decision making in order to design the
strategies of the organization.
Owners: Owners are the decision making nodes in the hierarchy at the workplace hence,
all information whether financially influencing or non-influencing have an impact on the system
of the Nexia International. Howsoever owners make decisions like whether to invest more or
dispose of the investment currently held. This usually involves assessment of risk and return
factors with the stake ownership of the organization
Government: Government seeks information’s for a much wider purpose. It looks to
adjudge the overall market situation, ensuring welfare of one and of all. Government looks for
looking information that helps them in assessing factors like whether we should pay tax and, if
so, how much, whether it complies with agreed pricing policies, whether financial support is

needed (Amiram, and et.al., 2018). For deriving this information government looks at the
business profit status, sales revenues and the overall financial strength.
Community: Community or the society is another indispensable lot that should be taken
due care of to ensure sustainable market existence. Community at large seeks for information
like the capability of the corporate to continue to provide employment opportunities for the
community, the extent to which it is likely to use the resources of the community and its likely
willingness to help fund for CSR initiatives.
Competitors: Competitors are the one who are majorly concerned about the issues that are
influencing their existence in the market, so as to reinforce their strategies in order to compete
with us (Dou, and et.al., 2018). This usually involves the comparison of their performance with
the benchmark performance of the best player in the industry. Assessment of financial strength
of our organization is also one way out for them to understand our strategies regarding the
conduct of business operations.
4. Value of financial reporting for meeting organizational growth and objectives.
An international financial reporting standard improves the comparability of entities. It
gives better access to global capital markets and reduces the cost of capital. These standards
provide impetus to cross-border acquisition (Bratten,Causholli and Omer, 2019). It helps Nexia
international in improving the quality and consistency of information, avoid multiple reporting
and reduce cost of the finance function. An economic value is added in the Balance sheet by
complying with these standards. It is the globally accepted standard which facilitates
transparency in accounting system. The quality of reporting becomes better and reduced the
accounting complexity. It would benefit the economy by increasing the growth of international
business. It encourages foreign investment which results in foreign capital inflows into the
country. IFRS would open many opportunities for the professionals to serve the international
clients. It makes more efficient for investors to research and compare financial statements
globally and more effectively.
Financial reporting is important for attaining the sustainable growth of the Nexia
international and to achieve the business goals and objectives. The major aspects that makes
financial reporting essential-

Taxes- government uses such report for monitoring and examining that the organization
has paid the taxes timely and at fair rate (Cheng,., Cho, and Yang, 2018). Financial reporting
facilitates information to the government related to fulfillment of the rules and regulation of tax
laws and legislations by the entity and carrying its operations with compliance of all the tax
relating dues.
Internal decisions- Financial statement analysis is the best tool for making internal
decisions regarding the performance of the employees (Chychyla, , Leone, and Minutti-Meza,
2019). Through this entity can assess that the outcomes or goals are achieved as per the strategies
set and the tasks are performed by the workers as per the standards set.
Improved vision- financial analysis is cohesive, accessible and accurate means for
presenting critical information of the overall performance and position of the business. It enables
the firm in answering vital aspects of the financial activities of enterprise.
Performing audits- Statement reporting facilitates statutory audits. Auditors audit the
financial statements of the business to view their opinion which helps the corporate in building
its brand image in front of its internal and external users.
Raising capital- It assists organizations in raising the capital both domestically and
internationally which is an essential requirement of every firm for surviving and growing in
today’s competitive world.
For other external users- Financial reporting helps the investors, creditors and
shareholders in making decisions regarding further investments. It shows the capabilities of the
company to meet its debt obligations and creates increased value of shares held by the
shareholders which leads to wealth maximization.
5. Explaining the meaning and benefits of IAS and IFRS.
IAS- The international accounting standards were an older set of standards stating how
particular types of transactions and other events should be reflected in financial statements. In
the past, international accounting standards were issued by the Board of the international
Accounting Standards Committee (IASC). Since 2001, the new set of standards has been known

as the international financial reporting standards (IFRS) and has been issued by the International
Accounting Standards Board (IASB).
IFRS-International Financial Reporting Standards are designed as a common global
language for the business affairs so that company accounts are understandable and comparable
across international boundaries. These standards are important for companies that have dealings
in several countries. The accountants follow these guidelines to maintain books of accounts
which are reliable, comparable, understandable and relevant as per the internal and external
users.
Benefits- An international financial reporting standard improves the comparability of
entities. It gives better access to global capital markets and reduces the cost of capital. These
standards provide impetus to cross-border acquisition. It helps Nexia international in improving
the quality and consistency of information, avoid multiple reporting and reduce cost of the
finance function. An economic value is added in the Balance sheet by complying with these
standards. It is the globally accepted standard which facilitates transparency in accounting
system. The quality of reporting becomes better and reduced the accounting complexity. It would
benefit the economy by increasing the growth of international business. It encourages foreign
investment which results in foreign capital inflows into the country. IFRS would open many
opportunities for the professionals to serve the international clients. It makes more efficient for
investors to research and compare financial statements globally and more effectively.
6. Evaluating financial reporting in an enterprise by applying theories and models.
IAS stands for International Accounting Standards and IFRS stands for International
Financial Reporting Standards. These were developed by the International Accounting Standards
Board (IASB) as the guidelines to ensure clear accounting practices take place in all economies.
Initially IASs were implemented, after which IFRSs had come into practice as older standards
got revised and as a result new accounting practices came into use. The IASB regularly reviews
the implementation of accounting standards and ensures their consistency (Tomy, 2019).
International financial reporting standards assist IASB in setting standards and serve as a basis
for harmonization. IFRS are used in many parts of the world, including the European Union,
India, Hong Kong, Australia, Malaysia, Pakistan, GCC countries, Russia, Chile, South Africa,
Singapore and Turkey.

As more than 113 countries around the world, including all of Europe, currently require
or permit IFRS reporting and 85 require IFRS reporting for all domestic, listed companies. These
standards resulted advantageous as well as a challenge for the Nexia International (Acharya, and
Ryan, 2016). Advantageous in the sense it leads cross border investments to economic growth.
Sustain the globalization of economy and world trades so that access to multinational funds can
be increased. Challenges in adopting IFRS standards has been faced such as lack of knowledge
and skills especially in first few years often giving rise to improper application of the standards
and interpretation issues. Company is often not geared in terms of systems and processes to meet
the extensive information and data requirements of the different standards.
These standards often require significant judgments and estimates like provisions, fair
values etc. Nexia international follow system based theories that include stakeholder theory,
legitimacy theory and institutional theory. This theory states that organization should be seen as
a social system and is considered to be affected by the society in which it operates. Accounting
disclosures and particular organization forms are seen as a way to manage relations with
particular groups outside the enterprise. In legitimacy theory organizations continually seek to
ensure that they operate within the bounds and norms of society. They attempt to ensure their
activities are perceived to be legitimate. Bounds and norms change across the time based on
social contract between society and the firm (Poole, Rivat, and Berger, 2019). Wherever, this
social contract is perceived as being breached then the entity has to take corrective action, and
this action might include disclosure. Therefore, by applying this theory the performance and
activities of the Nexia international can be informed to the public. It helps the firm in changing
the perception of the people without changing the behavior.
Accounting theory is the theory that acts as the guide for reporting the financial
information effectively as it involves methodologies and the assumptions used in reporting the
financial statements. For effective financial reporting, a review of the several accounting
practices and regulatory framework is required that includes the principles like matching
principle, conservatism, cost principle, monetary and materiality which are very important to
consider while reporting for Nexia International.

7. Different financial reporting across the globe and the factors that influence these differences.
International financial reporting standards and Generally Accepted Accounting Principles
are two major financial reporting that are adopted and followed by the all the firms worldwide.
International Financial Reporting Standards- IFRS is a single set of high quality,
understandable and enforceable global accounting standards which are drafted lucidly and are
easy to understand and apply (International Financial Reporting Standards (IFRS), 2019). They
are progressively replacing the many different national accounting standards. They are the rules
to be followed by accountants to maintain books of accounts which are comparable,
understandable, reliable and relevant as per the users internal or external (Musa, 2019). They are
considered as the single set of accounting standards would enable internationally to standardize
training and assure better quality on a global screen, it would also permit international capital to
flow more freely, enabling companies to develop consistent global practices on accounting
problems. It would be beneficial to regulators too, as a complexity associated with needing to
understand various reporting regimes would be reduced. An international financial reporting
standard improves the comparability of entities. It gives better access to global capital markets
and reduces the cost of capital. These standards provide impetus to cross-border acquisition
(Bratten, Causholli and Omer, 2019). It helps Nexia international in improving the quality and
consistency of information, avoid multiple reporting and reduce cost of the finance function. An
economic value is added in the Balance sheet by complying with these standards. It is the
globally accepted standard which facilitates transparency in accounting system. The quality of
reporting becomes better by reducing the accounting complexity. It would benefit the economy
by increasing the growth of international business. It encourages foreign investment which
results in foreign capital inflows into the country. IFRS would open many opportunities for the
professionals to serve the international clients. It makes more efficient for investors to research
and compare financial statements globally and more effectively.
GAAP- The rules that govern accounting are called as generally accepted accounting
principles. It applies to the broad concepts or guidelines and detailed practices in accounting. It
includes all the conventions, rules and procedures that make up accepted accounting practice at a
given time. Accounting principles are the rules of action or the methods and procedures of
accounting commonly adopted while recording business transactions (Bratten, Causholli and

Omer, 2019). These principles provide a fair financial image of the company. It facilitates
different information in context of revenue recognition, Balance sheet item classification and
outstanding share measurements.
Different countries are following different accounting standards for reporting the
financial information. For instance- In Australia, company uses AASB that is Australian
Accounting Standards Board while In India, all the organization follows IAS called as Indian
Accounting Standards for communicating their financial results to the users in compliance with
rules and regulations.
8. Evaluating the degree of compliance with IFRS by different firms worldwide.
Disclosure quality of financial information is compulsory to minimize the irregularity in
the corporate sector. Reduces the expenses incurred in preparing many financial statements for
different authorities. Implementation of IFRS in developed countries and developing countries
are influenced by the economic growth but have no significant difference. IFRS afford guidelines
to entities in the form of principles-based standards, IFRS 7 – financial instrument principles are
recognition, measurement and disclosure. IFRS 7 outdated the need of IAS 30 and replaced
requirements of IAS 32 that dealt with the disclosure. All requirements were compiled in one
IFRS which guided the disclosure of the financial instruments. The disclosure about the
compliance exists in many situations which comprise of high, moderate and low level of
compliance. IFRS has reacted positively to the demand of the users and shows more
transparency in disclosure (Poole, Rivat, and Berger, 2019). There is a wide evidence of
problems in the accounting for financial instruments globally and there is a need to improve the
knowledge and understanding of the standard. IFRS has a number of benefits as financial
disclosures required by the IFRS helps the financial analyst for better predicting earning per
share which is relevant to the valuation of the firm’s security.
For example-
In Nigeria adoption of IFRS helps in:
 Minimizing the cost of doing business internationally as it eliminates the need for
additional financial information from Nigerian companies.

 Ease the consolidation of financial information of the company with its subsidiaries.
On the other side, many challenges are faced by the company in adoption of IFRS:
 The level of awareness of the IFRS and its implications as it requires considerable
preparation at country and entity level to ensure consistency.
 Training resources are considered costly.
CONCLUSION
From the above report it is concluded that Nexia international provides various financial
information through financial reporting to the investors and creditors for evaluating the
performance. Financial system leads to economic growth of the country. Adoption of
International financial reporting standards across the world ensures a greater credibility and faith
in the international capital market. It also helps in upgrading the status of Indian and overseas
banks in the views of investors both domestic as well as internationally. There can be number of
challenges will enter into the transition process, but the worth of benefits derived from the
process will definitely overcome those challenges. Thus, IFRS should be adopted by every
country and corporate as soon as possible.

REFERENCES
Books and Journals
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importance of independence and competence. Journal of Accounting Research. 54(1).
pp.3-40.
Acharya, V. V. and Ryan, S. G., 2016. Banks’ financial reporting and financial system
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Amiram, D. and et.al., 2018. Financial reporting fraud and other forms of misconduct: a
multidisciplinary review of the literature. Review of Accounting Studies. 23(2). pp.732-
783.
Bonsall IV and et.al., 2017. A plain English measure of financial reporting readability. Journal
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Bratten, B., Causholli, M. and Omer, T.C., 2019. Audit firm tenure, bank complexity, and
financial reporting quality. Contemporary Accounting Research. 36(1). pp.295-325.
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reporting: Large sample evidence”. Journal of Accounting and Economics. 60(2-3).
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Cheng, Q., Cho, Y .J. and Yang, H., 2018. Financial reporting changes and the internal
information environment: Evidence from SFAS 142. Review of Accounting
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Chychyla, R., Leone, A. J. and Minutti-Meza, M., 2019. Complexity of financial reporting
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pp.226-253.
Davidson, R., Dey, A. and Smith, A., 2015. Executives'“off-the-job” behavior, corporate culture,
and financial reporting risk. Journal of Financial Economics. 117(1). pp.5-28.

Dou, Y. and et.al., 2018. Blockholder exit threats and financial reporting quality. Contemporary
Accounting Research. 35(2). pp.1004-1028.
Musa, A., 2019. The Role of IFRS on Financial Reporting Quality and Global Convergence: A
Conceptual Review. International Business and Accounting Research Journal. 3(1).
Ozili, P.K. and Outa, E.R., 2019. Bank earnings smoothing during mandatory IFRS adoption in
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Online
International Financial Reporting Standards (IFRS). 2019. Online. Available through:
<https://cleartax.in/s/ifrs>.