Financial Reporting & its Importance

This solved assignment focuses on analyzing financial reporting within the context of Marks & Spencer's business. It examines the impact of credit sales in January 2018 compared to the previous year and emphasizes the significance of financial reporting for stakeholders like investors, customers, and government. The assignment highlights how accounting concepts and principles are crucial for accurately representing a company's performance through financial reports.

Financial Report

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1 - Conceptual framework for financial reporting ......................................................3
Question 2 - Elements used in preparing financial statement ....................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Financial reporting is the statement or disclosure of the information of company
performance over a specific time period. This report is specially prepared for the investors,
shareholder and customers to analyse the internal and external working of the organisation.
According to International Accounting Standard Board (IASB) the main motive to prepare
financial report is that to examine the financial position of the organisation and helps the users in
making economic decisions in the internal matters of the company. Report will include the
conceptual framework for financial reporting and also its varieties of fundamental qualities and
concepts in the organisation. It also includes different assumptions important in preparing
financial statement.
MAIN BODY
Question 1 - Conceptual framework for financial reporting
Overview: Conceptual framework of IASB method is to prepare the financial statement of the
organisation. It set the standards norms in the reviews of the existing IRFS concepts. (Leuz and
Wysocki, 2016). By applying this procedure they can set the accounting polices standards and
prepare a financial statement of the company.
Objective: The main objective of financial reporting is to provide financial information of the
organisation to the investors, lenders, customers and government for effective decision making
process (Acharya and Ryan, 2016). This procedure helps the company to present their financial
position and internal performance and working to achieve targets within the specified time
period.
Fundamental concepts: As per IASB the objects of accounting is to manage the systematic
records and information of the business entries. IFRS standards set the norms as per accounting
is that it disclose the complete facts and numbers in the reporting (Financial Reporting, 2019).
Due to not applying the diminishing method in the business IASB apply the various polices in
the accounting procedure. To disclose all the information relating to income and expenses
incurred in the organisation.
 Recognition: As organisation didn't stick to the diminishing method set by IFRS, It is the
duty under IASB to follow the rules (Gaynor and et.al., 2016). It helps the business to

recognise the facts which helps them to recover from the unexpected losses incurred in
the company.
 Measurement: It means measuring the financial activity or entries in terms of money, and
monetary units. To measure the entries in managing the accounts helps to assemble the
accounting data and evaluating the transaction which companies not followed under
IFRS.
 Financial Statement Presentation: Preparing the financial report while considering the
balance sheets and incomes statement of the organisation (Martínez‐Ferrero, Garcia‐
Sanchez and Cuadrado‐Ballesteros, 2015). This procedure helps the organisation to
maintain their position in the Market. As per IASB government can also check the
financial report of the company and analyse their working structure in the organisation.
Fundamental Quality:
 Relevance: This quality helps the investor and users to take an appropriate decision. This
procedure is helpful when it has both the predictive value and the confirmatory value
(Sunder, 2016). The report present must be understandable in nature which is the basis
quality. Predictive value helps the customers to predict the values and outcomes raised in
the future. This procedure helps the company to make strategy to overcome from the risk
associated. Confirmatory values is useful for users to evaluate the predictive value and
confirm the financial entries in the organisation.
 Faithful Representation: Report are impressive if they are interpreted with good
understanding. To maintain faith among users they have to present the report as free from
error (Džupinka, 2015). The report that is presented must be neutral which means that
entries are not changed frequently or similar entries are not entered. The major quality is
that it should not be overwritten and scratches with any numbers which distracts the
customers interest in the company.
 Enhancing Qualities: To enhance the report various points are noted which represent the
report in understanding manner. Compare the report with other companies report, to take
the proper judgement and decision. After comparing the report they verify certain facts
and data which is actually useful to the organisation (De Meyere, Vander Bauwhede and

Van Cauwenberge, 2018). This report represents the timeless activity which enhance the
customers to save the time and easily understand the matters mentioned in the report.
Question 2 - Elements used in preparing financial statement
 Recognition: Under this concept revenue are recognized as soon as transaction are
committed in the company. It guides the business to estimates the actual income earned
and loss incurred when the money is received (Leuz and Wysocki, 2016). This helps to
recognise the revenue and profits generated in the organisation.
 Measurement: This indicates that all the entries are made in terms of monetary value. It
includes assets, liabilities, income, expense and equity which are recorded in the balance
sheet of the organisation and also in the income statement of the financial statement.
 Disclosure concepts: If some information is useful for the investors and customers than
its is disclosed in the report relating to all the data and information which helps the users
to Judge the company performance (Accounting tools, 2019). They can also prefer the
footnotes and important notes to disclose the important information.
BASIC ASSUMPTIONS:
 Economic Entities: It's the accountant duty to keep all the transaction related to company
matters and owners personal matters separately in the report (Acharya and Ryan, 2016).
For legal purpose they both are considered single but for accountant concept they both
are considered separated legal entity. e.g. TESCO company manager order raw material
for business use but the owner of the company is using it for personal use than this
transaction is not mentioned in the books of accounts.
 Going concern: The finial statements are mostly prepared on the basis that the business
operations are continuing on the basis of foreseeable future (Going Concern Concept,
2018). The liability of the business are not affected with any incidents, they carry their
business for long term perspective. e.g. ALDI company suffer serious losses in financial
matters and cannot pay its debts in that case government pays all the debts amount which
results to ALDI to continue their going concern despite of suffering financial problems.
 Monetary Unit: This indicates that all the transaction are entered in relation to currency
(Gaynor and et.al., 2016). Such transaction which didn't contain any value in currency are

not recorded in the financial statement. e.g. entries related to pounds and dollars are
stated in the financial statement.
 Periodicity: This concept shows the company income and net profit at the periodical
accounting year i.e. may be monthly, quarterly and yearly (Sunder, 2016). This results in
showing the financial status of the organisation. e.g. BBC follows the financial
accounting year as 1st April - 31st March.
 Accrual basis: Under these elements, transaction are recorded on the date when the
occurs in the organisation (Džupinka, 2015). The entries are mentioned in the books of
accounts on the same period and they are not carry forward to the next period. e.g. If
Marks and Spencer made credit sales in January 2018 with the amount of 10,000 than it
is recorded in the year 2017-2018 only.
CONCLUSION
From the above study it can conclude that Financial reporting is the process which helps
the investors, customers and government to identify the performance of the company. The
accounting and financial matters of each department are recorded in the financial report. Various
measurement and preparation strategy are to be implemented to justify the performance of the
company. Organisation follows the accounting concepts and principles to prepare and disclose
all the information in the financial report.

REFERENCES
Books and journals
Acharya, V. V. and Ryan, S. G., 2016. Banks’ financial reporting and financial system
stability. Journal of Accounting Research. 54(2). pp.277-340.
De Meyere, M., Vander Bauwhede, H. and Van Cauwenberge, P., 2018. The impact of financial
reporting quality on debt maturity: the case of private firms. Accounting and Business
Research. 48(7). pp.759-781.
Džupinka, M., 2015. Audit and its credibility in financial reporting. Strategic
Management. 20(1). pp.34-37.
Gaynor, L. M. and et.al., 2016. Understanding the relation between financial reporting quality
and audit quality. Auditing: A Journal of Practice & Theory. 35(4). pp.1-22.
Leuz, C. and Wysocki, P. D., 2016. The economics of disclosure and financial reporting
regulation: Evidence and suggestions for future research. Journal of Accounting Research.
54(2). pp.525-622.
Martínez‐Ferrero, J., Garcia‐Sanchez, I.M. and Cuadrado‐Ballesteros, B., 2015. Effect of
financial reporting quality on sustainability information disclosure. Corporate Social
Responsibility and Environmental Management. 22(1). pp.45-64.
Sunder, S., 2016. Better financial reporting: Meanings and means. Journal of Accounting and
Public Policy. 35(3). pp.211-223.
Online
Accounting tools. 2019. [Online]. Available through:
<https://www.accountingtools.com/articles/2017/5/14/the-full-disclosure-principle>.
Financial Reporting. 2019. [Online]. Available through:
<https://searcherp.techtarget.com/definition/financial-reporting>.
Going Concern Concept. 2018. [online]. Available through:
<https://www.accountingformanagement.org/going-concern-concept/>.