The Context & Purpose of Financial Reporting

FINANCIAL REPORTING

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY ..................................................................................................................................3
1. Context and purpose of financial reporting........................................................................3
2. Conceptual and regulatory framework and their key principles........................................4
3. The Main stakeholder of organisation and benefit of financial information to them ........5
4. The value of financial reporting for meeting organisational objectives ............................7
5. The main financial statements as per IAS 1.......................................................................7
6) The last two years’ financial statements of Marks and Spencer......................................11
7) Difference between International Accounting standards and International financial
reporting standards ..............................................................................................................13
8) Benefits of IFRS ..............................................................................................................14
9) The varying degree of Compliance with IFRS by organisation across the world .........15
CONCLUSION ............................................................................................................................15
REFERENCES .............................................................................................................................17
Appendix .............................................................................................................................18

INTRODUCTION
Financial reporting is the method of presenting accounting information in the reporting
form which assist in providing brief understanding about business profitability and position to
various stakeholders of firm. This study will provide understanding of context and purpose of
financial reporting. This study will include Marks and Spencer for determining the financial
performance of firm. This company is involved in retail industry and providing products such as
clothing for men, women and kids, home appliances etc. Moreover, it will consist information
regarding the conceptual and regulatory framework of financial reporting. Furthermore, this
assignment will provide main stakeholder of an organisation. Also, it will provide with
differentiation between IFRS and IAS. In addition to this, it will include the financial statement
as per IAS 1 for Godwin Plc which will consist of profit and loss statement, statement of changes
in equity and balance sheet. This study will explain the information provided by cash flow
statement.
MAIN BODY
1. Context and purpose of financial reporting
Financial reporting is a method of presenting information in the statement which provide
understanding to stakeholder about performance and profitability of business. The main purpose
of financial reporting is to provide accurate information to stakeholders (Leuz and Wysocki,
2016). Financial reports are the source of information through which investors, creditors, lenders
etc. are provided with information about organisation position and performance. Moreover, it
provides information about credit worth of firm and their ability to pay its obligation.
Financial reporting includes profit and loss statement, balance sheet, cash flow statement
etc. Profit and loss statement contains information regarding income and expenses which assist
in identifying profit earned by organisation in the particular period (Purpose of Financial
Statements, 2017). The purpose of this statement is to provide information to stakeholders about
the ability of enterprise to generate profits. Balance sheet is the statement that contains assets and
liabilities which is prepared to provide understanding to its users about the current status of the
business. Moreover, cash flow statement includes information of cash inflow and outflow for a
period.

It assists in identifying the cash requirement of business to conduct various business
operations. Moreover, the financial statements are used by management for taking various
decisions. This decision consists of credit decision, Investment decision etc. Management for
making effective decision in order to improve future performance and profitability of
organisation uses the financial statements (Acharya and Ryan, 2016). Financial reporting assist
investors in identifying the ability of organisation to generate returns for increasing their
shareholder’s wealth. This statement contains the accurate and reliable information for providing
true and fair information to its users. The main purpose of financial reporting is to provide
reliable information to stakeholders which assist them in making decision for allocating
resources. So, it is identified that financial reporting is used by various people which are having
interest in company's operations for making various decisions.
2. Conceptual and regulatory framework and their key principles
Conceptual framework of financial reporting consists of objective of preparing and
presenting the financial information in the financial reporting. Moreover, the conceptual
framework includes the qualitative characteristics of useful financial information. Also, it
provides understanding of reporting entity and its boundary (Weetman, 2018). The conceptual
framework of financial statement defines and assets, liabilities, incomes and expenses, equity. It
contains criteria for recording the assets and vice versa. This framework gives information about
concepts and guidance for presenting the information in report form. The regulatory framework
provides set of rules and regulation for presenting information in financial reporting. The
purpose of conceptual framework is to provide understanding about various concepts of financial
repiorting.
The regulatory body that govern the financial reporting is International accounting
standard board which has provided International accounting standards to record the transaction
in financial statements. The IFRS (international financial reporting board) is the one that makes
standards for preparing and presenting the financial reporting. The key principles for financial
reporting includes full disclosure of accounting information for providing reliable and accurate
information which is easily understandable to readers (Abbott and et.al., 2016). The conceptual
framework of financial reporting includes principles for reporting the transaction relating to
assets, liabilities, incomes and expenses. It consists of measurement principles, historical cost

principle, fair value principle, full disclosure principle etc. The purpose of regulatory framework
is to ensure that proper standards are followed in reporting the financial information.
The qualitative characteristics of financial reporting consist of following:
 Understandability: The financial information presented in the statement must be
clearly understandable to users of financial reporting. The information contained in
the statement must be simple and must provide supporting information in footnotes to
give the readers clear understanding about the profitability and position of the
organisation.
 Relevance: It means that the information included in the financial reporting must be
useful for the users in order to make the economic decisions (Call and et.al., 2017).
The financial statement must present relevant information which will helps the
stakeholders in making effective decisions about the organisation.
 Reliability: The information presented in the financial information must be reliable
that is they must be free from material errors. Moreover, the information must be
faithfully presented to provide clear understanding about the business operation and
the information must not be misappropriated as it will not provide accurate
information to investors for making decisions.
 Comparability: The information about the transaction presented in financial
reporting must be comparable which will help in identifying the trend of profitability
and position of the business. The financial statement must be comparable with the
past record.
3. The Main stakeholder of organisation and benefit of financial information to them
The stakeholders of organisation are divided into internal and external. Internal
stakeholders consist of Owners, managers and employees. Whereas external stakeholder consists
of lenders, investors, suppliers, tax authorities, customers etc.
Internal stakeholders: They are the primary users of financial information and are
present in the organisation. The following are internal users of financial information.
 Owners: They use the financial information in order to identify the business
performance and the risk associated with it. Financial reporting assist in providing the
owners with accurate information about the overall business which provide
understanding to them while formulating various business policies.