IFRS and Sustainability Impact Analysis

This assignment delves into the crucial role of International Financial Reporting Standards (IFRS) in ensuring organizational sustainability. It necessitates a meticulous analysis of financial statements like income, balance sheet, and equity statements. The project elucidates the benefits of IFRS adoption and its implications for compliance at both national and international levels. Furthermore, it aims to provide practical solutions to challenges impacting organizational performance.

Financial Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
Q1: Context and purpose of financial reporting..........................................................................1
Q2: Examination of reporting framework...................................................................................2
Q3: Identification of main stakeholders of an organisation and its benefits...............................3
Q4: Value of financial reporting for meeting organisation goals...............................................4
Q5: Main financial statements....................................................................................................5
A: Statement of profit and loss:..................................................................................................5
B: Statement of equity:................................................................................................................5
C: Statement of financial position:..............................................................................................6
Q6: Interpretation of financial performance of M&S.................................................................7
Q7: Difference among IFRS and IAS.........................................................................................8
Q8: Benefits of IFRS...................................................................................................................9
Q9: Identify the varying degrees of compliance with IFRS.......................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial reporting is a crucial aspects of any business organisation by which
management can formulate their every day transactions. It record various financial activities of a
business, individual and other valuable entries. It is mainly related to internal level in an
organisation but sometimes, it is prepared for the external users also. Such as shareholders,
lenders, suppliers and financial analysts (Council, 2012). This project report explain various
information about financial reporting and framework required during preparation. Examination
of stakeholders of an organisation and its benefits. Computation of different financial statements
in order to analyse the current year performance of the company. Understanding of IFRS and
there advantages are evaluated in this project report.
Q1: Context and purpose of financial reporting
Financial reporting is an important to be carried out any business organisation whether
small or large. It will be easy for them to determine there ongoing performances throughout the
year. It is necessary to perform the reporting of its financial performance in well organise
financial statement. Likewise, it is not efficient to only think for representing financial
performance of the company. But at the same time, it is highly essential that material facts and
suggestion can also provide more positive image of the company.
During preparation of financial report, managers should always determine that biasses
would not be involved. In the world economic it plays a vital role in formulation of financial
report. It is utmost crucial to provide relevant and reliable data to the proprietor of a company
where there is section among ownership and control (Chen and et. al 2011). This is mostly
related with public limited organisation, where share capital is sell to the public through a stock
market. The owners attain a yearly financial statement which is summarising the performance
and position of their company so that they can measure how effectively their investment are
performing during the year.
Importance:
 It will be helpful in statutory audit the financial statements of a company to provide their
opinion. It is essential for raising capital at national or international level.
Purpose of financial reporting:
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 The main objective of reporting is to deliver financial data regarding reporting entity that
is more effective to existing and potential investors in order take valuable decision.
 It is framework developed to meet out common financial requirement for large range of
users (Rajgopal and Venkatachalam, 2011).
 Financial reports are submitted to gain credit or loan from financial institutions.
 Certain specific decision related with buying, selling or holding equity and debts
instrument and other way of credit.
 It will help to provide necessary information about economic resources and effective
utilisation of those over a period of time.
Q2: Examination of reporting framework
It has been seen that IFRS framework is providing basic concept that underlie the
preparation of financial statement for outside users. It serves as a guide to board in developing
bright future IFRS and make efforts to resolve accounting problem that are not solved directly in
an international accounting standard (IAS). The conceptual framework is relies on the primary
concept that is used for the preparation and formation of financial statements for outside users. It
mainly deal with:
 The purpose of financial reporting is related with financial data regarding reporting
activities which is helpful to existing and potential investors other parties to take
necessary decision-making.
 The qualitative characteristics of valuable financial data is based on relevance and
understandability of every department.
 It is more valuable to the auditors and other users to help interested parties to determine
IASBs approach to the arrangement of an accounting standards.
Regulatory framework: The existence of essential infrastructure that support direction,
control and implementation of proposed course of action and laws (Nobes, 2014). The system of
regulation is said to be uniform set of account which present operators to keep regular entries in
the books of accounts. The IASC(International accounting standard board) has issues set pattern
for recording necessary information according to the policies made by the department.
Qualitative characteristic of financial information
 It will help to identify various types of data which are likely to be most effective for users
in making necessary decision for the betterment of an organisation.
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 It apply equally to financial data in more general purpose during preparation of financial
reports.
 Financial data is crucial when, it is relevant and represent correctly the exact demanded
by the company's owner (Van Greuning, Scott and Terblanche, 2011).
 Companies those are using IFRS and have their financial audited in accordance with ISA
will help them to enhance their status and goodwill for longer period of time.
 The benefits of financial information is increased if it is more comparable, verifiable and
timely presented.
Q3: Identification of main stakeholders of an organisation and its benefits
Stakeholders are primary part of any business concern without them a company cannot
survive or function in well planned manner. Those individuals which are having some beneficial
interest in M&S company. An organisation's shareholders are said to be that individual or team
that impact or have certain value in the firm's decision making. They are responsible for affecting
the activities either directly or indirectly. Members of stakeholders are customers, suppliers,
local communities and regulatory bodies.
It is important that every stakeholder of a company can have vital information about the
capital invested by an organisation. Investors and creditors of a M&S is mostly relies on
financial situation and performance of the company during the year. Every party those are
invested in M&S project have the right to know about there investment and return they are
getting (Morris, 2011). It is necessary to analyse several financial statements such as profit and
loss, balance sheet that give vital information about total investment made by the firm.
Benefit to organisation:
 Being an active participants in M&S company to anticipate environmental problems
those are affecting performance of an organisation.
 They are responsible for making solution and eliminate risk of litigation those are arises
because of many reason and affect the profitability.
 Being praised by stakeholders for commitment to sustain business action and practices to
help with employee motivation and recruiting.
 Financial report of shareholders equity provide valuable information about all those
modification those are taking place in an organisation.
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 These report can help them to determine exact position of an organisation position
through proper guidance (Klai and Omri, 2011).
 Stakeholder pursue businesses team in an equal and transparent mode and employ
informal and formal engagement planning.
 They have the right to reveal crucial data like whether firm has enough capital to pay its
expenses and outstanding debts obligation those are available with the company.
Q4: Value of financial reporting for meeting organisation goals
Reporting is more useful in attain organisation aims and objectives. It mainly consists of
balance sheet, cash flow and other statements that are affecting profitability of an administration.
By the help of this, M&S can evaluate its financial position by comparing its standard with other
business activities of other company's. From this, business organisation can compare to make
valuable modification in its present position. At present, this will be more easy to financial
reporting that does not provide firm to attain its group objectives.
But with supportive efforts planning can be made in order to gain future sustainability. It
is made by using necessary data from concern financial statement during the time. The role of
regulatory bodies are more crucial while posting the entries into the books of accounts. It will be
helpful in gaining organisational transparency. IAS are the main financial bodies that set out the
standards for formulating proper accounting in every sector so that more effective outcomes can
be generated in a year. Every department needed to follow proper rules and regulation according
to the set standard made by organisations (Beatty, Liao and Yu, 2013). The main objectives of
financial reporting is to guide the firm for making existing and potential investors and outside
parties to take vital decision for the sake of M&S. There main components of financial reporting
are as mentioned underneath:
Income statement: It is financial record that help a company's to determine its financial
performance over a particular period of time. It is mainly assess by providing a complete detail
of business revenue and expenses through operating and non-operating activities.
Balance sheet: A company performance is mainly decided through analysis its balance
sheets which is prepare by collecting necessary information from various sources. It will
represent total assets and liabilities that are available with the company.
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Cash flow: It is one of the crucial statement that is used to detect total amount of cash
inflow and outflow incur by company from its various activities. Such as operating, investing
and financing (Maffett, 2012).
Q5: Main financial statements
A: Statement of profit and loss:
Particular Amount
Sales 285100
Less: COGS 191700
Gross profits 93400
Rental income 1600
Loss on revaluation of investment property 3300
Loss on sale of inventory 400
Operating expenses 43100
Profit from operation 44600
Bank interest 1030
Preference dividend 1330
PBT 42240
Tax expenses 12000
Profit after tax for equity shareholders 30240
Working note:
Calculation of Depreciation: Amount
On Land and property:
Property 4000
Plant and equipment 48000-22400*12.5% 3200
Total 7200
Charged to cost of sales 3600
Charged to operating expenses 3600
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B: Statement of equity:
Statement of change in equity
Particulars Ordinary capital Retained earnings
opening balance 26700 23300
Dividend paid -5340
Profit from current year 30240
Closing balance 26700 48200
C: Statement of financial position:
Statement of changes in financial position
Particulars Amount
Current Assets
Inventory 12930
Trade receivables 18000
Bank -530
Total current assets 30400
Non Current Assets
Investment property 18000
Land and property 80000
Plant and equipment 22400
Total non current assets 120400
Total assets 150800
Liabilities and equities:
Current liabilities
Trade payables 15700
Provision for tax 12000
Deferred taxation 6900
Total liabilities 34600
Equities:
Revaluation reserves 28000
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Retained earnings 48200
Ordinary shares 26700
10% redeemable preference shares 13300
Total equity 116200
Total equities and liabilities 150800
Cash flows are the primary aspects that is needed to be considered while preparing any
reporting statements of M&S company. These are known as everyday transactions which are
incur by the company during the year. It has been found that every financial transaction is carried
out by using cash. These are generated through various activities such as operating, investing and
financing sources (Hanlon, Hoopes and Shroff, 2014). According to the profit and loss
statements the total amount that are calculated is consists of bank interest, sales and dividend.
Every amount those are receive from total sales and payment made for inventories are
incorporated for better decision-making. Expenditures that are incur and other revenue those are
earn in the form of cash are shown clearly.
Whereas, from balance sheet statements, it has been seen that no extra amount is incurred
by the company during the year. It can control extra expenses in order to increase profitability
and growth of the company. The main target is to increase market share and future sustainability
with minimum cost investment. The overall results is be generating positive outcomes during the
year for M&S.
Q6: Interpretation of financial performance of M&S.
Income statement
Particular 2016 2017
Turnover 10555 10622
EBITDA 1167 866
Operating Profit 515 190
Pre- tax Gains 489 176
PAT 404 116
Profit for financial Year 407 117
Retained profit 407 117
Normalised EPS 0.25 0.07
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Balance sheet
2016 2017
Current Assets 1461 1723
Non-current assets 7015 6569
Total 8476 8292
Equity
Share capital 817 822
Reserves 4299 4314
Minorities -85 0
Shareholders capital 3445 3156
Total current + Non- current
liabilities 5031 5136
Total Liabilities and Equity 8476 8292
Ratio analysis:
Valuation 2016 2017
Net tangible assets Per share 1.27 1.27
Profitability operating margin % 5.53 2.38
Profit margin % 3.85 1.1
ROE % 12.25 3.55
ROCE % 9.04 3.27
Interest cover 5.84 2.76
Quick ratio 0.24 0.33
Current ratio 0.69 0.73
EPS growth % 0.24 0.07
Cash flow per share 0.47 0.35
According to the above used information about various financial statements, it has been
found that profitability of company in 2016 was 3.87. Whereas, in 2017 it was 1.1 which mean
that profit has gone down. It can be happen because of extra expenses incur by company during
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the year. The firm operating margin was reduced as compare to last year. ROE of the firm was
12.25% in 2016 and 3.55 in 2017. It is shows wide downfall of 8.5% since last year. Whereas,
ROCE rate is 9.04% in 2016 and 3.27% in current year.
It is also showing negative impacts in the present year because of extra expenses is made
on the purchase of shares from the market. Thus, as compare to profitability, firm is
performances is not up the level according to the set standards. Likewise, the firms liquidity
position is more healthy as compare to previous year. It means that they are able to meet out their
short-term cash-flows requirements. The quick ratio of the company is also effective since 2016.
They are having sufficient amount of capital to cover there debts. So this can be observed as
crucial requirements in order to enhance business productivity. This can be possible only through
effective utilisation of firms resources.
Q7: Difference among IFRS and IAS
It has been seen that few misunderstanding over the concepts of international accounting
standard IAS since, the IASB implemented IFRS in 2001. IAS is a set of standards which is
based on accounting standard committee problems that are required to comply with every
company's. They were developed in such as manner that every statements can be determine in
more appropriate manner (Mackenzie and et. al., 2012). The chance of mistakes can be reduce if
the company's are following proper pattern and rule to record their financial transaction. The
systematic recording of transaction can be easily analyse by investors so that future obligations
can be determine.
Comparison among two:
IFRS IAS
It is used to classify financial assets as
compare to IAS 39.
It is related with those transaction which are
related with a parent company to an entity that
has more than one subsidiaries.
It does not have any complicated principle of
held to maturity accounting.
In case of IAS, it is required to follow every
aspect without any negligence.
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The manner in which critical decisions shall
be taken into account are must be associated
with reliable factors.
For the purpose of IAS registration IASC is
responsible.
It is revised version of IAS but there are some
common aspects and standards which are
related with IFRS.
They are having more concise rule and
regulation for the accounting of various
financial transaction of an organisation.
Q8: Benefits of IFRS
International financial reporting standards are required to follow by the companies while
presenting their financial accounts. These standards are like guidelines which are required to
follow by all the organisations regarding accounting of the transactions and other events of
company. These standards are provide by international accounting standard board and these
guidelines are called as common accounting language. Such standards are followed by M&S in
preparation of their accounts and financial statements (IFRS, 2018). There are many beneficed
are derived by the company by the application of IFRS. These major benefits of IFRS are define
below:
 Application and adoption of the IFRS in preparation of the financial statements is
contributes in the development of economy by the growth of the business activities of
international business.
 This helps in attraction of the foreign capital flow in the country by motivating the
international investors.
 Using IFRS in preparation of the financial statements helps the investor in understanding
better investment opportunities and provides the opportunity of comparison with other
companies which helps in better decision making.
 This helps the industries to raise the funds at lower cost from the foreign markets.
 This provides large opportunities to accounts offices due to application of same
accounting policies in all over the world.
Q9: Identify the varying degrees of compliance with IFRS
IFRS is termed as one of the crucial standard which is used by M&S company for making
accounting statements. This is an effective regulation that is followed by almost every
organisation whether small or large in international level. By this, M&S can protect themselves
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from any mismanagement and communication while recording of transactions. It can help in
generating more profitable outcomes for the company during the year. With the help of this,
firms can avoid any unethical means those are related with every financial record at the time of
positing it into various financial statements.
Likewise, some nations have there own accounting rule and regulation that carries
different problems and constraints in accordance to increase the efficiency of an organisation. In
UK, accounting standard board make necessary rule and obligation that can help the accounts
managers to prepare reporting statements by collecting necessary information in the books of the
accounts (Rensburg and Botha, 2014). Moreover, there are some inconsistency among IFRS and
reporting standard that make them separate from each other. Therefore, accounting professional
are used to make financial reporting in order to reduce incompatibility among them.
CONCLUSION
From the above project, it has been found that financial reporting is an essential part of
every organisation. It can help in recording financial transaction of company those are done on
regular basis. This project provide crucial information about benefits of reporting and conceptual
framework. Usefulness of reporting to stakeholder and there advantages to specific organisations
are discussed under this report. Explanation of objective in order to meet there future
sustainability is clearly mention. Proper analysis of financial statement such as income, balance
sheet and statement of equity are prepared in it. Benefits of IFRS and compliance at national and
international level are determine under this project. The overall project is providing necessary
solution to various issues those are affecting the performance of an organisation.
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