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Context & Purpose of Financial Reporting

Added on - 23 Nov 2020

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Financial Reporting
Table of Contents............................................................................................................................................................1INTRODUCTION................................................................................................................................31: Context and purpose of financial reporting.................................................................................32. Conceptual and regulatory framework for financial reporting....................................................43: Benefits of financial reporting for stakeholders..........................................................................54. Value of financial reporting in relation to achieve organisational objectives and growth...........6Q.5....................................................................................................................................................7Q.6....................................................................................................................................................97. Difference between IAS and IFRS..............................................................................................18. The benefits of IFRS....................................................................................................................29. Identify the varying degrees of compliance with IFRS by organisation across world and thefactors in a nation which may impact compliance...........................................................................3CONCLUSION....................................................................................................................................3REFERENCES.....................................................................................................................................2
INTRODUCTIONFinance serves as a blood for every organisation in each sector. No business can survivewithout finance and for this management of finance is done and after that a report is presented forfinance which shows 'true and fair view' of finances. To prepare financial reporting, standards arefollowed and in UK, International Financing Reporting Standards (IFRS) are followed. Working inworld's largest accounting firm KPMG provides gives more practical skills about how reporting offinance 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 infinancial reporting is mentioned (Jung, Lee and Weber, 2014).1: Context and purpose of financial reportingFinancial reporting is a process of producing financial statements that discloses financialposition 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 reportingdiscloser regarding inflows and outflows of finances are mentioned together with this how financesare managed by company is reflected, how equity and borrowing is arranged to have smooth flowof required finance in business.Financial reporting has vital role in word's economy. Main purpose of financial reporting isto provide information regarding finances of company to its owners, regarded as a productive toolwhen ownership and management is separate. A large public company have millions of shareholderswho 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 theirmoney is invested in that company. Financial reporting provides fair view regarding financialcondition 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 worldannual reporting helps them to know how well their investment is earning. Another purpose offinancial reporting is to provide information between two periods and between companies of samesector (Kerr and Murthy, 2013).Without this reporting system investors will have no way out to know that how efficientlycompany 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 systemsthat helps to provide financial information needed. Financial information provided in this reportinghave 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 maketheir 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 continuousgrowth in profits of company and by investments of company. Good financial position will attractmore investors which ultimately creates a positive image of company. Different consumers requireinformation for different purpose and by providing all information as mentioned above to differentgroups purpose of preparing financial reporting is justified.2. Conceptual and regulatory framework for financial reportingConceptual framework is a comprehensive set of concepts that are used in preparation offinancial reporting. These concepts sets objective and qualitative characteristics of financialinformation, defines various definitions and reporting entities boundary, provides base formeasurement and directions to use them. Revised conceptual framework provides informationregarding factors to be considered to select basis for measurement, presentation and disclosureregarding income and expenditure to classify in other comprehensive income and when assets andliabilities 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 numberof 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 andconsistent.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 certainbehaviour. 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 andalso any recent trend if any is included or not.Financial reporting standards (IFRS) are not sufficient to achieve these aims, various legaland marketing base standards must also be followed by companies. Quality of financial reportingmakes financial information more useful to its users. Qualitative characteristics are differentiated intwo parts as Fundamental and Enhancing qualitative characteristics. Fundamental characteristicdifferentiates 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
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