Financial Reporting Trends and Analysis

This assignment delves into the dynamic world of financial reporting. It examines various facets, including the impact of International Financial Reporting Standards (IFRS), the relevance of financial reports for firm valuation, and the role of financial reporting quality in labor investment efficiency. The assignment also explores topics like financial reporting opacity, its influence on informed trading, and the importance of effective internal control over financial reporting. It provides a comprehensive analysis of contemporary accounting research and challenges within the field.

Financial Reporting

Table of Contents
............................................................................................................................................................1
INTRODUCTION................................................................................................................................3
1: Context and purpose of financial reporting.................................................................................3
2. Conceptual and regulatory framework for financial reporting....................................................4
3: Benefits of financial reporting for stakeholders..........................................................................5
4. Value of financial reporting in relation to achieve organisational objectives and growth...........6
Q.5....................................................................................................................................................7
Q.6....................................................................................................................................................9
7. Difference between IAS and IFRS..............................................................................................1
8. The benefits of IFRS....................................................................................................................2
9. Identify the varying degrees of compliance with IFRS by organisation across world and the
factors in a nation which may impact compliance...........................................................................3
CONCLUSION....................................................................................................................................3
REFERENCES.....................................................................................................................................2

INTRODUCTION
Finance serves as a blood for every organisation in each sector. No business can survive
without finance and for this management of finance is done and after that a report is presented for
finance which shows 'true and fair view' of finances. To prepare financial reporting, standards are
followed and in UK, International Financing Reporting Standards (IFRS) are followed. Working in
world's largest accounting firm KPMG provides gives more practical skills about how reporting of
finance in real sense is used to make decisions. In this project report on financial reporting,
conceptual and regulatory framework with qualitative characteristics of financial information,
interpretation of financial system, financial reporting standards, theories and models, differences in
financial reporting is mentioned (Jung, Lee and Weber, 2014).
1: Context and purpose of financial reporting
Financial reporting is a process of producing financial statements that discloses financial
position of an organisation to its management, interested investors, government, shareholders etc.
Components of financial reporting are external financial statements (profit and loss account,
balance sheet, statement of cash flow and statement of shareholder's equity). In financial reporting
discloser regarding inflows and outflows of finances are mentioned together with this how finances
are managed by company is reflected, how equity and borrowing is arranged to have smooth flow
of required finance in business.
Financial reporting has vital role in word's economy. Main purpose of financial reporting is
to provide information regarding finances of company to its owners, regarded as a productive tool
when ownership and management is separate. A large public company have millions of shareholders
who are owners of that company but management of that company is done by different hands.
Management by others creates insecurities regarding utilisation of funds lies with owners as their
money is invested in that company. Financial reporting provides fair view regarding financial
condition of company to owners, how funds are utilised in effective earnings of company,
investments of funds by company. As owners are scattered in differential geographical area of world
annual reporting helps them to know how well their investment is earning. Another purpose of
financial reporting is to provide information between two periods and between companies of same
sector (Kerr and Murthy, 2013).
Without this reporting system investors will have no way out to know that how efficiently
company is being run by its directors, as they are supposed to work in best interest to shareholders.
There are multiple users to financial statements and companies need to follow accounting systems
that helps to provide financial information needed. Financial information provided in this reporting
have a format which makes it easy to interpret by general public as all of them does not have

knowledge regarding accounting. Investors who are searching for a profitable company to make
their investment and earn good returns also needs to evaluate financial condition of company.
Financial report of two periods presents how well finances in company is growing by continuous
growth in profits of company and by investments of company. Good financial position will attract
more investors which ultimately creates a positive image of company. Different consumers require
information for different purpose and by providing all information as mentioned above to different
groups purpose of preparing financial reporting is justified.
2. Conceptual and regulatory framework for financial reporting
Conceptual framework is a comprehensive set of concepts that are used in preparation of
financial reporting. These concepts sets objective and qualitative characteristics of financial
information, defines various definitions and reporting entities boundary, provides base for
measurement and directions to use them. Revised conceptual framework provides information
regarding factors to be considered to select basis for measurement, presentation and disclosure
regarding income and expenditure to classify in other comprehensive income and when assets and
liabilities are removed from financial statements by updating definition of assets and liabilities
(Laux, 2012).
Conceptual framework for preparation of financial reporting is necessary because of number
of reasons:
 Needs of user who requires financial information gets fulfilled with minimum information.
 Ensure that all the information provided in relevant economic area is comparable and
consistent.
 To increase confidence of users in financial reporting process.
 To regulate behaviour of directors and companies towards investors.
Regulatory framework is defined as principles, rules or laws design to govern certain
behaviour. This framework focus that financial reporting is presented as per legal provisions of UK,
all reporting standards are followed, requirements by stock exchange is complies with or not and
also any recent trend if any is included or not.
Financial reporting standards (IFRS) are not sufficient to achieve these aims, various legal
and marketing base standards must also be followed by companies. Quality of financial reporting
makes financial information more useful to its users. Qualitative characteristics are differentiated in
two parts as Fundamental and Enhancing qualitative characteristics. Fundamental characteristic
differentiates between useful financial reporting information from that of misleading information
(Kim and Zhang, 2014). These are of two types-
 Relevance- Relevant means something which can make change in decision of user. An

information which can change or revert decision of user is said to be relevant. Relevance
of information is affected by its nature and materiality.
 Faithful representation- Financial reporting shows position of company in words and
numbers. These numbers must reflect real values and real position is interpreted in words
to provide fair information. Faithful report is complete, neutral and free from errors.
Enhancing qualitative characteristic differentiate between more useful information to less
productive information. These are classified in four types-
 Comparability- Similarities and differences among data can be compared from its
competitive organisation and also data of similar organisation can also be compared of two
different periods which provides information regarding growth in company. Comparison
helps company to analyse its growth and investors are the one who gets best advantage by
comparing two companies and investing with good returns.
 Verifiability- accounting results of company must be verifiable that means they must
provide same results if data is reproduced by taking same assumptions. Verifiability assures
that data is presented on original information. When same results are reflected by two
different persons this creates more reliance in financial records of company by general
public at large (Maffett, 2012).
 Timeliness- information become obsolete if not provided on time. Reasonable time must be
left to user to make their decision after getting information. A specific time is mentioned in
which financial reports must be prepared and presented. Timely information through
financial reporting helps to quick decision making and if there is any loop hole in financial
system can be reported on time and cured well.
 Understand ability- companies should present its financial reports in such manner that
they are easily interpreted by every person even have little knowledge of finance and
accounting. General public only understand profits and if information regarding profits are
shown easy form then interest of general public in company will increase and more capital
will generate.
3: Benefits of financial reporting for stakeholders
Stakeholders is a group of members without their support the organisation cease to exist. No
business can run in isolation, every business needs support of various groups to support them and
help in growth. Stakeholders are categorised in two types one as Internal stakeholders and other one
is as external stakeholders (Morrow, 2013).
Internal stakeholders are already committed to serving organisation as employee, board
member, donors, owners. These group of individuals are interested in business activities and

affected by strategy and projects of organisation. Internal stakeholders are one who works on behalf
of company to make project work and grow organisation.
Benefits of financial reporting to internal stakeholders-
 Employees- Growth of organisation and employees moves simultaneously, financial
information of an organisation keep their employees updated about company’s current
performance, growth and this works as a motivator to perform well and contribute more
towards organisation so individual growth can also be high.
 Owners- Managers of business differs from its owners so to keep an eye on investment
done by them in company financial reporting helps by evaluating available financial
information (Ryan, 2012).
External stakeholders are not involved in business itself but are affected by performance of a
business. Long term success of a business is most affected by external stakeholders as they are
ultimate consumer to business. Success and failure of every business is very much affected by them.
Some of the external stakeholders are government, customers, creditors etc.
benefits of financial reporting to external stakeholders-
1. Government- Economy of a country is mainly depended on its business sector and
government earns a large part of their revenue from taxes charged on businesses. So, on
success and failure of every business government is highly concern as growth in revenue
and economy is priority.
2. Consumers- They are final user of each and every goods and service provided by
businesses and also they are investors in equity of a company and to know financial
condition of their investment is their must concern.
4. Value of financial reporting in relation to achieve organisational objectives and growth
Organisational objective includes short-term or long-term goals that an organisation wants to
achieve. Objectives of an organisation is mainly concerned with profit and growth terms. In this
context it should be noted that financial reporting is a systematic process that discloses
organisation's position that helps management to achieve short term and long term goals. Financial
reporting describes the true picture of an organisation which helps management in decision making
activities to get its objectives. Under financial reporting data is presented in comparison form which
helps the management to see their growth with regards to all aspects. By using data presented in
financial reporting process management can easily forecast the future opportunity. To make
decisions, the company's management is required to prepare plans and policies for the future. For
this they need to analyse the company's past performance. In this situation financial statements
provide decision makers a clear picture of organisation' position of the required period for making

the necessary decisions regarding plans and policies (kaife and Wangerin, 2013).
Shareholder and investors are considered as key to success for a company, they need vital
information of company in order to make investment. By using financial statement, it is easy for
shareholder to get this complicated information in summarised manner. Potential investors having
surplus to invest in company looks for opportunities to make investment, for seeing these
opportunities they use the financial statement, cash flow and profit and loss account that are
prepared as a part of financial reporting process. Financial statement prepared under financial
reporting process is most reliable source for all parties dealing with company.
Q.5
(a) Statement of profit or loss
For the year ended 31 December 2017
Particulars Amount
Continuing operations
Revenue 385100.00
Cost of sales of goods 291700.00
Gross Profit 93400.00
Depreciation
Operating Expenses 78500.00
Operating Profits 14900.00
Finance Income 5600.00
Finance Cost 830.00
Profit before income tax 19670.00
Income tax expenses 15000.00
Profit after tax 4670.00
Preference share dividend 2330.00
Retained Earning 2340.00
(b)Statement of changes in equity for the year ended 31st December 2017
Share
Capital
Retained
Earnings
Revaluation
Surplus Total Equity
Balance at 1 January 110000 32100 142100

Issue of share capital
Income for the year 4670 4670
Revaluation Gain 38400 38400
Dividend -2330 -2330
Balance at 31 December 110000 34440 38400 182840
(c)
Financial Statement
As on 31st December,2017
Assets
Land & Property 120000
Less: Depreciation 5000 115000.00
Plant & Equipment 88000
Less: Accumulated Depreciation 45400
42600
Less: Depreciation 5325 37275.00
Investment property 23300.00
Total non-current assets 175575.00
Inventories 16530.00
Accounts receivable 68000.00
Other assets
Short-term investments
Cash and cash equivalents 770.00
Total current assets 85300.00
Total assets 260875.00
Equity and liabilities
Equity
Equity share capital 86700.00
10% Pref. Share capital 23300.00
Revaluation Reserve 38400.00

Retained Earning 34440.00
Total Equity Fund 182840.00
Misc. Provisions 1935.00
Accounts payable 65700.00
Deferred tax Liabilities 8900.00
Bank O/D 1500.00
Total current liabilities 78035.00
Total equity and liabilities 260875.00
(d)
Type of information that the statement of cash flow provides in comparison to
Statement of profit or loss:
Statement of profit and loss shows the financial condition of an entity using all cash or non-
cash transactions. Whereas cash flow statement shows only flow of cash in entity by ignoring non
cash transaction. It is entirely possible for a company to show profits in books of account even if
company does not have enough cash in hand to pay bill. The income statement shows only profits
but does not give any indication of the cash components. Cash flow provide important information
about what an entity doing with cash (Zeff, 2013).
Statement of financial statement:
Cash flow classifies cash activities in operating, financing and investing and provide
information about these activities. Information provided in cash flow is related to period for which a
financial statement prepared by entity. It contains change in cash and cash equivalents of a business
whereas financial statement contains position of all assets and liabilities. Information through the
Cash Flow statement is assist in evaluate the capacity of any enterprise to generate cash and cash
equivalents and the needs of the enterprise to utilize those cash flows.
Q.6.
BALANCE
SHEET
RATIOS:
Stability
(Staying Power)
1 Current
Current Assets £85,300 1.09309925

Current Liabilities £78,035
2 Quick
Cash + Accts. Rec. £68,770 0.88127122
Current Liabilities £78,035
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Debt-to-
Worth
Total Liabilities £78,035 0.42679392
Net Worth £182,840
INCOME STATEMENT RATIOS: Profitability (Earning Power)
4 Gross Margin
Gross Profit £93,400 0.24253441
Sales £385,100
5 Net Margin
Net Profit Before Tax £19,670 0.05107764
Sales £385,100
ASSET MANAGEMENT RATIOS: Overall Efficiency Ratios
6 Sales-to-Assets
Sales £385,100 1.47618591
Total Assets £260,875
7 Return on Assets
Net Profit Before Tax £19,670 0.0754001
Total Assets £260,875
8 Return on Investment
Net Profit Before Tax £19,670 0.1075804
Net Worth £182,840
ASSET MANAGEMENT RATIOS: Working Capital Cycle Ratios
9 Inventory Turnover
Cost of Goods Sold £291,700 17.646703
Inventory £16,530
10 Inventory Turn-Days
360 £360 20.4004148
Inventory Turnover £18
11 Accounts Receivable Turnover
Sales £385,100 5.66323529

Accounts Receivable £68,000
12 Accounts Receivable Turn-Days
360 £360 63.5679044
Accts. Rec. Turnover £6
13 Accounts Payable Turnover
Cost of Goods Sold £291,700 4.43987823
Accounts Payable £65,700
14 Average Payment Period
360 £360 81.0833048
Accts. Pay. Turnover £4
Interpretation of above calculated ratios:
 Current Ratio Ideal ratio: 2:1 High ratio indicates over capitalization and low ratio
indicates under capitalization
 Quick Ratio or Acid Test Ratio Ideal ratio: 1:1, that shows indication that the firm is
liquid and has ability to pay its current or liquid liabilities in time and a low quick ratio
represents that the firm’s liquidity position is not good
 Debt Equity Ratio Ideal ratio: 2:1; It means for every 2 shares there is 1 debt. If the debt is
less than 2 times the equity, it means financial structure is sound and If the debt is more than
2 times the equity indicates weak financial structure.
 Gross Profit Ratio: A low gross profit ratio may indicate unfavourable instability of
management to develop sales volume for making it impossible to buy goods in large volume
(). Higher the gross profit ratio shows good results.
 Net Margin: It expresses the relationship between net profit after taxes to sales. Measure of
overall profitability of entity, focuses on efficiency as well as profitability.
 Sales to assets ratio: This ratio shows the relationship of net credit sales of a firm to its
book debts pointing the rate at which cash is generated by turnover.
 Return on assets: It shows relation between assets and profit before tax pointing towards
net profit earned by total assets.
 Return on investment: This ratio helps to assess the efficiency of the operations of the
business as it points out the extent to which assets employed in the business are utilised.
 Inventory turnover ratio: Ideal ratio is 8 times; low inventory turnover may show poor
business, over investment in inventory, accumulated stock and excess quantities of certain
inventory items in relation to immediate requirements.

 Accounts Receivable Turnover Ratio: This ratio shows the relation of net credit sales to its
Debtors indicating the rate at which cash is collected by turnover of debtors. The purpose of
this ratio is to measure the liquidity of the receivables and to calculate period over which
receivables remain uncollected.
 Accounts Payable Turnover Ratio: This ratio shows the number of times payment made to
the creditors in a year. It is useful for creditors in finding out how much time the firm is
likely to take in repaying its trade creditors.

7. Difference between IAS and IFRS
IAS are the initial global standards of accounting that were established by International
Accounting Standards Committee(IASC). It is formed in 1973. The goals of these standards are
comparison of businesses in world becomes easier, maximise trust while preparing financial
reports and adoptive international trading and investing (Hail, 2013).
IFRS are he framework of global accounting standards that states that different
transactions and activities should be recorded in financial statements. These standards are
generally established by international accounting standards board(IFRS) and exactly it specifies
procedure accordingly accountants should keep their accounts (Ikpefan and Akande, 2012). It
published in simple language of accounts so that it can be understandable for different companies
and countries. The main objectives of IFRS is to maintain clarity and stability in the world of
finance. This standards are in various parts of world considering European Union and also in
other countries like Asia and South America but is excluded from United States.
IAS IFRS
IAS is a set of accounting rules that is used
to record, prepare and present the financial
statements of companies.
IFRS are the structure of international accounting
which ascertain transactions and outcomes that is
needed to be reported in the statements of finance.
It is the older accounting standards. It is newer accounting standards.
It stands for International accounting
standard.
It stands for international financial reporting
standard.
It is issued by IASC that is International
accounting standard committee.
It is issued by IASB that is international
accounting standard board.
IAS is published between year 1973 to
2001.
IFRS is published from 2001 ahead.
Principles of IAS are less preferable as it is
being dropped.
Principles of IFRS are more preferable.
Some IAS standards are consolidated
financial statements, inventories,
Some IFRS are business combinations, share based
payments, non- current assets held for operations
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depreciation accounting, cash flow
statements, accounting research and
development activities and so on.
of sales and discounts, operating segments,joint
arrangements, fair value measurement, revenues
from contracts with customers and so on.
8. The benefits of IFRS
If listed companies adopt IFRS that is international financial reporting standards it
provides various benefit to their investors and stakeholders. Some benefits are mentioned below:
Standardization of accounting and financial reporting:
Standardization of accounting and financial reporting is most essential benefits of IFRS
as it improves the comparison of financial statements in the market of finances (Gomez-Mejia,
Cruz and Imperatore, 2014). It also removes obstacles of KPMG that comes at the time of
trading.
Improved consistency and transparency of financial reporting:
consistency and transparency is a key performance for any company. IFRS helps KPMG
to improve the transparency and consistence in not only on economics but also on financial
reports. It also assist to improve the relationship among investors, firms and other countries
members.
Better access to foreign capital markets and investments:
Many foreign companies has developed a base for adopting IFRS, it boost KPMG to
approach financial markets by preparing statements of finance in one reporting standards.
Improved comparability of financial information with international competitors:
The comparison of financial statements under IFRS will be raise more if its adoption
expands in different countries. The comparison of financial statements will get negligent when
two sets of reporting standards are used in same countries. When IFRS is applied with different
national reporting standards the local market gets affected adversely (Flower, 2016). All firms
should follow same standards of IFRS. By the adoption of IFRS in all over countries maximizes
utility and comparability of financial statements.
Some more benefits of IFRS are provides lower capital cost to companies, national
standards costs are minimized and it also fulfils the requirements of disclosures for stock
exchange in all over world.
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By evaluating all the benefits of IFRS it is observe that KPMG benefited from standards
as it mostly deals with international business and investments. It saves money related to
alternative cost of comparison and also let the information to flow more frequently.
9. Identify the varying degrees of compliance with IFRS by organisation across world and the
factors in a nation which may impact compliance.
Now a days IFRS are expanding more in different countries as it is adopted by almost
every nation. This guides them to prepare and present the statements of finance. Currently twenty
nine international accounting standards and 13 international financials accounting which are
followed by different international companies (Collins, Pasewark, and Riley, 2012). This
standards supports organisation and rules of disclosures target business offend clearly sets the
minimum level of compliances. Currently it has been evaluated that IFRS sets related to
disclosure of compliances.
For example: for different countries various rules there their that is to be followed by
organisation. This assist them for preparation of statements and defeat with various issues and
problems (Fang, Maffett and Zhang, 2015). Government of UK have many accounting rules for
firms that help them KPMG to prepare and record financial statements. Organisation operates
their business in various countries so it is impossible for them to follow different accounting
standards. So, it is essential for firm to adopt IFRS which assist them to handle the data
effectively.
CONCLUSION
From the above report it is concluded that knowledge and purpose of financial reporting
is essential for all companies and countries. Conceptual and regulatory framework is necessary
and qualitative characteristics form the information of finance more appropriate. Evaluation of
financial reporting standards and theoretical models. Presentation of financials statements and
various difference are there between IAS and IFRS. Benefits of IFRS and compliances are
identified in organisations.
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REFERENCES
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