Financial Reporting Report

This report provides a comprehensive analysis of financial reporting, covering its purpose, conceptual and regulatory frameworks, key stakeholders, and global practices. It examines the role of international accounting standards (IAS) and international financial reporting standards (IFRS) in promoting transparency and reliability in financial statements. The report also discusses the challenges and differences in financial reporting across the world and evaluates the degree of compliance with IFRS by various organizations.

FINANCIAL REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Context and purpose of financial reporting........................................................................1
2. Conceptual and regulatory frameworks of financial reporting with their purpose and
requirements...........................................................................................................................3
3. Identification of key stakeholder of organisation and their need for financial reports......5
4. Analysis of financial reporting for meeting organisational objectives and growth............7
5. Explanation of international accounting standards and international financial reporting
standards with their benefits...................................................................................................8
6. Evaluating financial reporting in organisation with appropriate theories and model......10
7. Identification of differences in financial reporting across the world and evaluation of factors
which influence these differences........................................................................................11
8. Evaluating the degree of compliance with IFRS by different organisations across the world
..............................................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Financial reporting is the process of disclosing financial results and information to users
(external stakeholder) and to management about performance of company in business market.
Company usually issued financial reports on quarterly and annual basis with mainly three
statements that is income statement, balance sheet and cash flow statement (Armstrong and et.al.,
2016). Therefore, this assessment will be develop to provide better understanding relates to
financial reporting where context and its purpose will be discussed. Further, explanation is to be
provided on conceptual and regulatory frameworks of financial reporting with its value to meet
organisational objectives.
In this report, international accounting standards and international financial reporting
standard will be explained for evaluating their benefits. Further, with appropriate theories better
understanding of financial reporting will be provided. Lastly, degree of compliance is also to be
discussed in this report. Chosen reputed accounting firm of UK in this report is Arnold Hill &
Co., which deals in providing effective and responsible financial services to clients which
seeking help relates to personal taxation.
MAIN BODY
1. Context and purpose of financial reporting
Financial reporting is a vital term and also plays an important role in the world of
economies. Its main purpose is to provide information which is relevant and useful for the
owners and for external stakeholders of the company. Through this accounting, companies will
provide information based on the result of business operations (Abbott and et.al., 2016). Context
of financial reporting is to comply with regulatory frameworks while preparing financial
statement of the company. These are the proper rules and regulations in order to disclose specific
information relates to company.
Key participants in financial reporting includes management, directors, external auditors
and stakeholders where each participant have personal allotted duty in terms of financial
reporting. Management is responsible for preparing financial statement and for business
operations of company. Directors are responsible to oversee methods which has been taken by
management to prepare financial statement.
1

Incorporated businesses has to comply with financial reporting guidelines while
preparing financial statement because it is considered as separate legal entity where members did
not personally hold liable for its business operations. On the contrary, unincorporated businesses
have their own separate legal entity and will also hold personally liable for the association of
debt and defaults (Page and Spira, 2016). Therefore, such company also have to maintain
financial statements in order to analyse their own performance.
Purpose of financial reporting:
Purpose of financial reporting is to meet users expectations and legislation in order to
evaluate company's performance. This helps investors and shareholders to make effective
decision to managing business operations. Three main goals of reporting includes:
 Meet user's expectation and legislation: user and government always wanted to know
about company's strategy in order to reinvest cash in business and how efficiently
business is using its capital. Thus, financial reporting helps in meeting their expectation
where they will able to decide performance of business is in good place or not.
 Track cash flow: financial reporting helps management and owners of company to
analyse flow of money in organisation. With this information they will able to analyse
performance of business for recovering its debt and to achieve growth.
 Predict future financial position and cash flow: by monitoring assets, liabilities and
owner's equity, directors and management will able to predict future position and
availability of resources for achieving future growth (Tassadaq and Malik, 2015).
Therefore, financial reporting considered as the main tool to analyse company's performance. In
order to meet needs of the shareholders and users of company, it is necessary for organisation to
comply with rules and regulations of financial reporting providing necessary business
information in appropriate format which is more useful in terms of economic decision.
2

2. Conceptual and regulatory frameworks of financial reporting with their purpose and
requirements
Need for regulations:
Entity must have to maintain their financial statements with the regulations so that it will
ensure proper accounting with sufficient and reliable information which is prepared without any
unnecessary delay. Its requirement is also important because financial accounts used as a
starting point in order to calculate taxable profits of the company. It properly evaluates
company's performance to shareholders on which they can relay and develop their decision of
investment in company. Therefore, regulatory systems of financial accounting are:
 International accounting standards committee (IASC foundation)
 International accounting standards boards (IASB)
3
Illustration 1: Regulatory and conceptual
framework
(source: The Conceptual Framework For
Financial Reporting, 2019)

 Standard Advisory council ( SAC)
 international financial reporting interpretations Committee (IFRIC)
Role of IASB:
It is the supervisor body whose objective is to develop single set of high quality
accounting standards and promote use and application of such standards. Other objective of this
body is to brought convergence in national accounting standards and for international accounting
standards. IASB is responsible for issue new set guidelines that is international financial
reporting standards which is developed to provide a common global language in order to prepare
effective and efficient financial statement. Role of IFRIC is to issue guidelines which have
different interpretations of IAS and IFRS. Role of SAC is to advice IASB regulator for
developing new accounting standards.
The regulatory frameworks
IASB: Main purpose of accounting regulation is to prepare financial statements in
accordance with rules and guidelines proposed by international accounting standard board in
terms of IAS and IFRS (Chandra and et.al., 2018).
4
Illustration 2: regulator of financial reporting
(source: Conceptual Framework for Financial Reporting: an overview,
2019)

IFRIC: Main task and purpose of this accounting body is to interpret applicability of IAS
and IFRS, if any kind of difficulty got arise. Before, finalizing any issue, such regulator will
firstly issue draft in terms of public interest.
SAC: Role of SAC is to provide advice to IASB for setting any type of guidelines or
project on any matter relates to financial accounting.
GAAP: these are the set of accounting principles which now mainly applied in US
companies in order to prepare their financial statement. It is an accounting standard where entity
applied for business which they conduct with long term perspective.
Conceptual Framework:
In order to prepare and present financial information, conceptual framework sets out the
concept in order to prepare financial statement. Its main purpose is:
 To help IASB board for developing new set of accounting standards and to amend
previous one.
 To develop harmonising set of accounting standard and procedure.
 To assist accountants and people to prepare financial statement with the applicability of
IAS and IFRS (Macve, 2015).
 To insist users for interpreting financial statements of company.
3. Identification of key stakeholder of organisation and their need for financial reports
Stakeholders are the group of individuals who has the interest in business performance
and outcomes of the organisation. These are the people who affected in some way if business get
failed in future because they mainly stake for success and failure of the organisation. Such
common example of the key stakeholder are as follows:
5

Customers: Mainly customers are the actual stakeholders of the organisation because business
exist to serve their consumer only. They are mainly affected with the quality of service and its
value in organisation. These group of stakeholder need financial report of company in order to
select supplier of some major contracts. They want financial statement to analyse financial
ability of supplier with the perspective to remain long term in market and to provide goods and
services long enough in market.
Employees: This is the another group of stakeholder who are interested in business operation of
company. Employees develop their interest by depending upon the nature of business conduct by
any organisation. Employees needs financial statement to analyse financial ability of company to
pay their income. This analysis also helps them to increase their level of involvement and to
understand nature of business (Barker and Teixeira, 2018).
6
Illustration 3: key stakeholder of organisation
( source: Who are the key stakeholder in an organisation, 2018)

Investors: it includes both shareholders and debt holders. These are the group of people who
invest in the business operation of company with the expectation that they will earn a certain
amount of rate of return on capital. Mainly investor need financial reports in order to develop
decision on the basis of financial ability of company. They decide whether to invest more or to
stop investment which they have done previously.
Suppliers and Vendors: this is the group of stakeholder which sells goods and services to
businesses and will only relay on revenue which get generate with ongoing business activities
(Level, 2018). They require financial reports in order to decide whether is it safe to extend credit
and to estimate ability to pay back their all loaned and funds.
Communities: In large businesses, these are the major stakeholder group which are impact by
large range of things such as employment, economic development and also on health and safety.
Such group also require financial reports of company to analyse their contribution towards
development of society and environment where its business is established.
Government: Government also considered as company's stakeholder as they collect tax from
company as well as to people which employed in such company. Government also require
financial reports of the company in order to determine that whether company is paying
appropriate amount of tax or not.
4. Analysis of financial reporting for meeting organisational objectives and growth
The main function of financial reporting is to provide information regarding entity's
performance in business market. It discloses information about organisation's ability to meet its
objectives and goals. It is generally considered as end product of accounting which has main
three components that is balance sheet, profit and loss and cash flow. It also helps management
to make economic decision with the future perspective of business goals (Barth and et.al., 2018).
Its importance cannot be overemphasized because financial reporting is the requirement of each
and every stakeholder for various types of reason. One among them is regarding their decision to
invest in the business affairs of company. Thus, its importance to meet organisational growth and
objectives is as follows-
 Financial reporting helps organisations to comply with rules and regulation which
developed by regulatory bodies. Every entity requires filing their statements to
government agencies and if it is listed company then such statements needs to be filled on
7

quarterly and annual basis. This will help company to effectively monitor their
performance and carry out strategies to meeting organisational objectives.
 This reporting facilitates statutory audit. In these auditors has been appointed to audit
financial statement for expressing their opinion on company's performance and areas
which needs to improve for achieving organisational goals.
 Financial reporting considered as the backbone for developing effective planning,
analysing, bench marking and in decision-making process of the company (Ewert and
Wagenhofer, 2016). With this reporting shareholders, investors and creditors take
decision to invest in the company on the basis of their performance. Investment by such
investor and creditor provide a major support to entity for operating effective business
operations.
 It helps organisation to raise their capital where management, directors with help of
statistical figure develop their decision by comparing it with past performance. Such
analysis helps them to improve function of business area which has less productivity.
 Financial reporting also track amount of flow of money in an organisation. It provides
information related to flow of money coming from and where it is going., how much
amount of profit or loss company is bearing with its business operations. Such
identification helps directors and management to develop decision where profitability get
increases and business achieve its growth.
 This reporting monitors any type of change arises in assets, liabilities and in owner's
equity by which owner will able to work out on strategies which helps in improving
business operations in the future (Whittington, 2017). This will also help in developing
availability of resources in order to achieve future growth.
5. Explanation of international accounting standards and international financial reporting
standards with their benefits
International accounting standard (IAS):
IAS is the set of accounting standards which guides entities regarding accounting
transaction to be record and reported in financial statement of organisation. In order to develop
reliable and effective set of information in financial statement, entity must have to prepare its
statement with the guidelines of IAS. Main motive to this regulatory body is to reduce
8

differences which arise while transacting accounting records and when preparing financial
statements.
Purpose of this establishment is to ensure effective regulations in financial market of the
businesses where entities across the world are interconnected and use only global financial
reporting framework for disclosing financial statement in the market. By having such financial
statement, businesses which are established in different jurisdiction will able to create most
efficient capital flows (Capkun Collins and Jeanjean, 2016). This standard was created and
issued by board of international accounting standard committee to advice some guidelines to
company for preparing and presenting their financial statement in appropriate format.
Its benefits are as follows-
 Facilitate ethics compliance: different countries have their different regions with their
different culture and norms, because of which it gets manifested in the culture of business
across the world. Thus, these accounting standards are the set of unified code of ethics in
accounting which needs to be followed by each and every country. These set of
guidelines do not favour one culture over other and develops proper ethical practises in
order to prepare financial statement of the company.
 Improves international investment: when entities prepare its financial statement with the
one set of common global language, it helps them to capture support of international
investors. They compare financial statement of the company by following guidelines of
IAS. Multinational companies: this set of guideline simplify accounting method for the MNC's
which facilitate its operations in multiple countries of the world. Such companies use this
accounting standards in order to avoid confusion and to develop accuracy and efficiency
in financial statement of the company (De Luca and Prather-Kinsey, 2018).
International financial reporting standards (IFRS)
These are the set of accounting standards which provide a particular guideline to
company in order to record financial transaction in their books of accounts. IASB has issued this
standard in order to develop transparency and reliability in financial statements of companies
which conduct business globally. Main motive behind this development is to provide a common
global language in financial world. Currently, this framework has been applied in 120 countries
except in US because they follow GAAP in order to prepare financial reports.
9

Its benefits are as follows-
 Countries which has adopted IFRS for preparing financial statement will now able to
encourage more foreign investors to invest which result in increasing more foreign capital
flows to country.
 Industries now able to raise more capital from foreign markets which is at lower cost by
creating confidence in the minds of foreign investors which benefits the economy by
increasing growth of international business.
6. Evaluating financial reporting in organisation with appropriate theories and model
Financial accounting in organisation will more understandable with following accounting
theories and models:
Equity theory:
It is known as residual equity theory which assumes that common shareholders of the
company are the real owners of the business. According to this theory, residual equity, net
income of the shareholders is calculated by subtracting claims of preferred shareholder from
assets of company (Riahi and Khoufi, 2018). According to this theory common stakeholders
take the greatest risk when they are fully aware of the company's financial information and its
performance in business market. Therefore, in terms of financial reporting this theory have the
same objective where both provides relevant information to shareholder in order to retain them
in organisation for long term perspective.
Shareholder's in company only get attracted when they have reliable and sufficient
information about company's performance in business market. Equity theory also states that
stakeholder will only take great risk when they are fully aware of company's business operations.
Legitimacy theory:
This is the theory which generalized perception and assumption regarding the entity that
action of companies are only desirable, proper or appropriate when it has some socially
constructed system called norms, values, beliefs and definition. External perception of people
will only be depend upon the management corporate disclosure policy in terms of financial
statements. Legitimacy is always present in the type of disclosure which company choose to
prepare in financial statements. Thus, this theory has been considered as theoretical framework
regarding level of disclosures which adopted by company for the development of company.
Information which presented in financial statement will enable foreign investor to invest amount
10

of money in business operations of the company. Therefore, legitimacy has been considered as
the external perception of stakeholders and of society. This perception could mainly be disclosed
with the help of IFRS disclosure.
Model of auditing:
Motive of this theory is to establish effective auditing practises for the financial
statements of company. This is the theory which refers to examination of financial reports in
order to provide efficient and accurate information to stakeholders (Barth, 2018). Motive behind
development of this theory states that firm needs to provide true and fair view of its financial
report by which its users will able to develop effective economic decision for investing in
company. Other than this, it is the responsibility of auditor to check whether, entity has been
complied with rules and regulations of regulatory bodies in order to prepare their financial
statements or not. Here policeman is the auditing theory which states that auditor is responsible
to prevent any fraudulent activity conduct in organisation.
These are the theories by which an organisation will able to develop effective financial
reporting so that all its stakeholder and users will easily able to analyse financial statements and
entity's performance in business market.
7. Identification of differences in financial reporting across the world and evaluation of factors
which influence these differences
It is true that there is a difference in financial reporting across the world and it is because
of five main reasons which includes geographic features, legal institutions, religious affiliation,
cultural development, and economic outcomes. These are the attributes which mainly affect
country level financial reporting system (Samaha and Khlif, 2016). As it is also been measured
that IFRS is a globally accepted standard for maintaining financial statement across the world in
one common language but on the other hand US is the country which does not have accepted
IFRS framework which makes it more complicated when business is conducted globally.
Another major difference because of which there is a difference in financial reporting is
about rules and principles. Each country has its own rules and legislation for disclosing financial
statements such as India has its own IND IAS, Australia has its own accounting standard. This is
the reason which influence the difference of financial reporting.
Inventory method is also the factor which cause difference in financial reporting. For
example: under GAAP accounting method, industry has been allowed to use Last in, First out
11

method for estimating their inventory. But this is the factor which does not evaluate accurate
flow of inventory which creates difference in financial accounting reporting. Taxation is the
another factor which creates difference in this reporting where financial statement are only
adjusted for tax purpose in some countries (Khlif and Achek, 2016). This statement are
submitted separately to government from report which has been sent to stakeholders.
Another problem which cause accounting diversity is access to foreign capital markets. It
is because, is an entity wants to obtain capital by selling its stocks or by borrowing money from
foreign country, then they may have to prepare set of financial statement in accordance with
accounting standards to such country. In order to present such information, entities have to bear
high amount of cost.
It is also been observed that if foreign investors did not have extreme knowledge of
multiple reporting method, then they are face greater amount of risk where lack of comparability
in financial statement develop adverse on entities which wants to develop decision related to
foreign acquisition. Some other important differences in financial reporting includes shareholder
orientation. Shareholders did not want access information related to international strategies and
performance of company, they only have the interest in letting know company's performance in
the country where it is established and where they might have to invest and to increase their
investment.
8. Evaluating the degree of compliance with IFRS by different organisations across the world
International Financial Reporting standards is the type of accounting method which is
developed with the motive of providing a common financial language around the world (Samaha,
Khlif and Dahawy, 2016). Motive of this standard is to provide transparency and reliability in
financial statement across the world. IFRS are the type of standards which are issued in public
interest but there are some countries which opposed to comply with such standards for disclosing
their financial statements. Australia is the first country which raise their issue regarding
compliance of IFRS in accounting reports. The concern which issued by such country is that,
result which appeared with the accounting regulation of home country is totally different from
the outcomes which come out by the compliance of IFRS.
Europe is the first nation which has successfully implemented IFRS for preparing and
disclosing financial statements with such standard. Entities of such countries agreed that with its
compliance they are able to capture more and more foreign investor because of which business
12

operations and profitability of such companies get increases. US is the another nation which did
not have implemented IFRS standard. They are implementing GAAP accounting standard in
order to prepare and disclose financial statements. Major difference between is the methodology
which is used to assess in accounting process (Alzeban, 2018).
GAAP focuses on type of research and on rule based whereas implementation of IFRS
only focuses on the overall platform which based on principle. GAAP is the method which did
not require huge amount of interpretation and exception. Another factor which states that IFRS is
not implemented in some countries is regarding its development cost. Under IFRS, development
cost of the company can be capitalized in order to meet certain criteria which mainly affect
profitability of the company.
IFRS adoption is always been a debatable topic where it is been argued that direct
benefits are represented by net economic and net political value which is over local standards.
Some proponents argue that compliance of IFRS standard will reduce information cost of
economy where trade and capital becomes more globalised and entities will able to produce their
financial statement which is in one set of accounting standards. It is also examined that adoption
of IFRS will decrease the quality of domestic local governance which has issued their own
accounting standard in order to disclose financial information. Therefore, it is been said that
there are some countries which did not have complied with the implementation of IFRS in order
to prepare and disclose their financial statements.
CONCLUSION
From the above report it can be concluded that financial reporting plays an important role
in order to evaluate financial position and stability of the company in business market. It plays a
vital role for capturing more investors and creditor support where with such statements, they will
able to analyse and develop economic decision regarding investment in the entity. In this report,
context and purpose has been evaluated where it is been found that in order to meet users'
expectation, proper financial statements with the framework of regulatory bodies has been
developed by the entities. Further, in this report framework of IASB and IFRS standards are
discussed for developing common financial language across the world.
Moreover, in this report key stakeholder like employees, customers, has been identified
to analyse their need for financial reporting, where it is discussed that for analysing economic
decision, such stakeholders wants accounting statements of the company. International
13

accounting standards and international financial reporting standards has also been discussed in
this report to analyse their importance where it is been found that these are set of guidelines by
which entities will properly able to disclose their financial performance among stakeholders.
14

REFERENCES
Books and Journals
Abbott, L.J and et.al., 2016. Internal audit quality and financial reporting quality: The joint
importance of independence and competence. Journal of Accounting Research. 54(1).
pp.3-40.
Alzeban, A., 2018. The association between internal audit department characteristics and IFRS
compliance. Asian Review of Accounting. 26(3). pp.336-358.
Armstrong, C and et.al., 2016. The role of financial reporting and transparency in corporate
governance.
Barker, R. and Teixeira, A., 2018. Gaps in the IFRS conceptual framework. Accounting in
Europe. 15(2). pp.153-166.
Barth, M.E and et.al., 2018. Effects on Comparability and Capital Market Benefits of Voluntary
IFRS Adoption. Journal of Financial Reporting.
Barth, M.E., 2018. The future of financial reporting: insights from research. Abacus. 54(1).
pp.66-78.
Capkun, V., Collins, D. and Jeanjean, T., 2016. The effect of IAS/IFRS adoption on earnings
management (smoothing): A closer look at competing explanations. Journal of Accounting
and Public Policy. 35(4). pp.352-394.
Chandra, S and et.al., 2018. Effect of corporate governance on cost of equity before and after
international financial reporting standard implementation.
De Luca, F. and Prather-Kinsey, J., 2018. Legitimacy theory may explain the failure of global
adoption of IFRS: the case of Europe and the US. Journal of Management and
Governance. 22(3). pp.501-534.
Ewert, R. and Wagenhofer, A., 2016. Effects of increasing enforcement on firm value and
financial reporting quality (pp. 1-63). Working paper, University of Graz.
Khlif, H. and Achek, I., 2016. IFRS adoption and auditing: a review. Asian Review of
Accounting. 24(3). pp.338-361.
Level, A.S., 2018. Conceptual framework.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Page, M. and Spira, L.F., 2016. Special issue on “Business models, financial reporting and
corporate governance”. Journal of Management & Governance. 20(2). pp.209-211.
Riahi, O. and Khoufi, W., 2018. IAS/IFRS Adoption and Behavioral Dimension: A Meta-
Analysis of the Empirical Evidence. Studies in Business and Economics. 13(1). pp.148-
165.
Samaha, K. and Khlif, H., 2016. Adoption of and compliance with IFRS in developing countries:
A synthesis of theories and directions for future research. Journal of Accounting in
Emerging Economies. 6(1). pp.33-49.
Samaha, K., Khlif, H. and Dahawy, K., 2016. Compliance with IAS/IFRS and its determinants: a
meta-analysis. JABM JOURNAL of ACCOUNTING-BUSINESS & MANAGEMENT. 23(1).
pp.41-63.
Tassadaq, F. and Malik, Q.A., 2015. Creative Accounting & Financial Reporting: Model
Development & Empirical Testing. International Journal of Economics and Financial
Issues. 5(2). pp.544-551.
15

Whittington, G., 2017. Value and Profit: An Introduction to Measurement in Financial
Reporting. Cambridge University Press.
Online
Collings, S., 2019. Conceptual Framework for Financial Reporting: an overview. [Online].
Available through <http://stevecollings.co.uk/conceptual-framework-for-financial-
reporting-an-overview/>
Faris, S., 2018. Who are the key stakeholders in an organisation. [Online]. Available through
<https://bizfluent.com/info-8397448-key-stakeholders-organization.html>
Ludenbach, N., Christain, D., 2019. The Conceptual Framework For Financial Reporting.
[Online]. Available through
<https://www.oreilly.com/library/view/ifrs-essentials/9781118501344/OEBPS/
9781118501344_epub_c_01.htm>
16