Financial Reporting Introduction 3

Degree of compliance with IFRS across the world 8 CONCLUSION 9 REFERENCES 10 INTRODUCTION Financial reporting refers to the system of recording the financial information in form of statement in order to provide information to the stakeholders regarding the financial position and performance of firm. Purpose and concept of financial reporting Financial Reporting is related to recording of financial information which assists in providing useful information to the stakeholders for their decision making.The main purpose of financial reporting is to provide accurate and useful information to the stakeholders. They are

FINANCIAL REPORTING

Table of Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
1. Purpose and concept of financial reporting..........................................................................................3
2. Conceptual and regulatory framework of financial reporting.............................................................3
3. Key stakeholders of organization and their need of using financial reports.........................................4
4. Value of financial reporting for meeting organizational objectives and growth.................................5
5. International accounting standard and international financial reporting standard with their benefits...5
6. Evaluation of financial reporting through application of theories and models.....................................6
7. Differences in financial reporting across the world............................................................................8
8. Degree of compliance with IFRS across the world.............................................................................8
CONCLUSION...........................................................................................................................................9
REFERENCES..........................................................................................................................................10

INTRODUCTION
Financial reporting refers to the system of recording the financial information in form of
statement in order to provide information to the stakeholders regarding the financial position and
performance of firm. In this study, Marks and Spencer will be consider which is involved in
fashion industry and provide clothing for men, women and kids. This assignment will include
the concept and purpose of financial reporting. Moreover, It will provide understanding about the
conceptual and regulatory framework of financial reporting. Also, it will contain information
about IFRS and IAS.
MAIN BODY
1. Purpose and concept of financial reporting
Financial Reporting is related to recording of financial information which assist in
providing useful information to the stakeholders for their decision making. The main purpose of
financial reporting is to provide accurate and useful information to the stakeholders. The purpose
of financial reporting is to record the various operations of business in the statement form. There
are different financial reporting statements which provide different information to the users. It
consists of income statement, balance sheet and cash flow statement.
The income statement consists of income and expenditure for a specified period which
provides understanding about the profitability of the firm by comparing the incomes with that of
expenses to identify the net income or loss for a period. Balance sheet is the statement which is
prepared to identify the financial position of the firm through use of the assets and liabilities to
identify the liquidity position of the company (Leuz and Wysocki, 2016 ). Cash flow statement
records the information n about the cash inflow and outflow for a period to identify the future
cash requirement of business. The purpose and concept of financial reporting is to provide
accurate information to the investors and other stakeholders to get understanding about the
company’s profitability and position for various decisions making.
2. Conceptual and regulatory framework of financial reporting
The conceptual framework of financial reporting is the set of fundamental concepts
which are used for reporting of information in the report formats. It assists in developing
accounting policies for companies. The conceptual framework provides the understanding about
objective of general purpose of financial reporting (Williams and Dobelman, 2017). Moreover, it
defines the qualitative characteristics of useful financial information. It defines the elements of
the various statement such as assets, liabilities, income, expense equity etc. Also, it defines
concepts regarding capital and capital maintenance. The regulatory framework of financial
reporting gives information about the regulatory standards which are made for the compliance of
International financial reporting framework. It means the financial reporting are regulated on the

basis of standards provided by IASB. The principles of financial reporting include full
disclosure of accounting information.
Moreover, the principle of accounting is to provide true and fair view of accounting information.
The financial statements must be consistent in order to have comparison with the past years
financial statement or comparison with other companies. The main purpose of the financial
reporting principles to provide better and clear understanding to the stakeholder of company
regarding the financial performance and position of the firm (Ge and et.al., 2018). Principles are
required for treatment of various transactions and disclosure of the accounting information in
order to reduce the chance missing of information.
3. Key stakeholders of organization and their need of using financial reports
The key stakeholders of the marks and Spencer consist of internal stakeholders and external
stakeholders. Internal stakeholders of the firms are those which are present in the organization
and consist of the following:
Management: The managers are the internal stakeholders of the organization which uses the
financial information to make future decision for the firm in order to enhance the profitability
and performance of the company.
Employees : The employees in the organization uses the financial information to have their job
security by understanding the business profitability to make decision regarding their job.
Owners: the owners or the board of directors uses the financial information to identify their
business profit ability in order to make changes in their policies and their norms to enhance their
business performance.
External stakeholders of Marks and Spencer consist of those which are present outside the
organization and have their influence on business operations (Acharya and Ryan, 2016). The
following are the external stakeholders of Marks and Spencer:
Customers : They are the buyers of products and services of company. The company provide
their customers with the financial information in order to retain them in business by providing
true information regarding their performance in industry.
Suppliers: These are the individuals which provide the firm with the raw materials. They use the
financial stamen of company to identify the liquidity position of the firm to pay the obligation to
suppliers.
Government authorities: This uses the financial information to identify the tax liability of the
company so that the company pay the accurate amount of the tax liability.

Shareholders: They are the people which have invested their money in the money to provide
them funds for their operations (Call and et.al., 2017). They use the financial information to
understand the firm’s capability to provide them higher returns on the funds invested by them.
4. Value of financial reporting for meeting organizational objectives and growth
Financial reporting is important for identifying the profitability of the firm which assist in
improving the future performance and profitability of the company. Financial reporting assist in
making financial planning of the business which creates value for the firm in the future by
enhancing performance of the company (Bushee, Goodman and Sunder, 2018). Financial
reporting assist in identifying the various areas which required close monitoring for improving
the productivity and performance of enterprise. Also, with the help of financial statement firm is
able to understand its profitability and assist in reducing the expenses of enterprise to increase
the net profitability of firm. Furthermore, financial statement assists in identifying the liquidity
position of the firm on the basis of assets and liabilities. Management by using the financial
statement is able to prepare the budgets which assist in gathering information regarding the
future profitability on the basis of past records. Financial statement provide better understanding
about the firm’s operation and on the basis of the statement the firm is able to make changes in
the operations and strategies to increase their profitability (Lang and Stice-Lawrence, 2015).
With the help of financial statement the firms is able increase its value of goodwill which assist
in attracting more customers towards organization. In addition, financial statement of the
company provides assistance to its investors to make decision regarding investment in the
company for performing their business operations.
5. International accounting standard and international financial reporting standard with their
benefits
International accounting standard are the older accounting standards which were replaced
in the years 2001 by international financial reporting standards. This standards were issued by
international accounting standard committee. Whereas IFRS is the international financial
reporting standards which are issued by the international accounting standards board it is new
accounting standards which were adopted in 2001 by replacing the international accounting
standards. IFRS is the set of rules which are use for reporting of financial information. They
provide standards for companies to maintain and report their accounts. This standards are framed
in order to make the financial statements consistent, transparent and comparable around the
world. There are various benefits of international accounting standards which are as follows :
 Firms by using the international accounting standards are able to facilitate ethical
compliance of the standards.
 They are globally comparable accounting standards which assist in providing flexibility
and transparency.

 They provide better understanding to the investors and other market participants to make
informed decisions.
 It also assist in reducing reporting and regulatory cost.
International financial reporting standards benefits :
 It assists in increasing foreign capital flows to country by encouraging the international
investors to invest.
 It improves the financial controls by standardizing the process of financial reporting.
 IFRS assist in improving the day to day operations of the firms.
 It reduces the cost of capital.
6. Evaluation of financial reporting through application of theories and models
There are two theories of financial reporting which consist of :
 Residual equity theory : As per this theory, the common shareholder of the business are
the real owners of organization. Their residual income is calculated by subtracting the
claims of bondholders and preferred shareholders from company’s assets. As per this
theory, the equity of common shareholders should be presented separately from the
equities of preferred shareholders (Francis and et.al.,2015.). Also, the fund statement in
financial reporting should show the funds available for payment of dividend to common
shareholders.
 Legitimacy theory: It is generalized perception that the actions of entity are desirable
and proper within some socially constructed system of norms, belief and values (Flower,
2016). This theory explains the behavior of implementing and developing the social and
environmental disclosure of information .
This theory assist reporting of the financial information but this theory does not consider the
various factors which are required such as equity theory focus on increasing the returns of the
common shareholders and not focus on increasing the profitability of the business or improving
the operations.
Financial ratios of Marks and Spencer
Profitability ratio
Particular Formula 2017 2018
sales 10622 10698
gross profit 4088 4047
operating profit 691 671

gross profit ratio gross pofit / sales 38.5 37.8
operating profit ratio operating profit/sales 6.5 6.3
From the above ratio it can be interpreted about the profitability of marks and Spencer it
can said that the gross profitability of the company is reduced in 2018 which is equal to 37.8
which was 38.5 in 2017. Also, there net profitability of the firm is reduces in the years which
shows the overall profitability of the firm is less as compared to 2017.
Liquidity ratio 2017 2018
current assets 1723 1318
current liabilities 2368 1826
stock 759 781
current ratio current assets/ current liabilities 0.73 0.72
quick ratio currentassets- stock/ current liabilities 0.41 0.29
From the above calculation it can be interpreted about liquidity ratio which provide
understanding about the ability of the firm to pay out their debts. It can be interpreted that the
current ratio shows that company is not able to pay off their current liabilities with the current
assets . so , it is recommended to the firm to increase their current assets.
Solvecny ratio 2017 2018
total liabilitiy 1663 1623

shareholders equity 3445 3156
debt- equity ratio Debt/ equity 0.5 0.5
From the above calculation it can be interpreted about solvency ratio which provide
understanding about the ability of the firm to pay off their long term debt with the shareholder
equity. It shows that company solvency ratio is not good it should increase its shareholder equity
to pay its long term liability.
efficiency ratios
opening inventory 800 759
closing inventory 759 781
average inventory 780 770
cogs 6534 6651
Inventory turnover
ratio COGS/ average inventory 8 9
From the above calculation it can be interpreted about efficiency ratio which is shown
through use of inventory turnover ratio. It shows that the number of times the Inventory is sold
and replaced by the firm. It has shown that in the year 2017 the inventory is sold or replaced 8
times whereas in 2018 it is 9 times.
7. Differences in financial reporting across the world
There are differences in the accounting standards across the world due to lack of
standardization. Different standards are being followed in different countries for the reporting of
accounting information. For example, in US GAAPs are followed and does not follow the
standards of IFRS due to which there are differences in the financial reporting across the world.
There are difference in the treatment of transaction in the financial statements in different
companies across the world due to which are differences in the financial reporting across the
world. Different companies provide the more importance to their country’s accounting standards
rather than using international accounting standards(Abbott and et.al., 2016 ). GAAPs are based
oin principles whereas IFRS are based on rules due to which many companies does not follow
the standards provided by IFRS. The factors which influence the difference in financial reporting
across the world which consist of difference in economies, difference in treatment of tax liability.

8. Degree of compliance with IFRS across the world
It refers to the compliance level of the companies with the IFRS standards across the world. Here
are different companies following different standards as per their consistency and simplicity.
IFRS standards are not complied by many organization due to various factors such as
profitability and other factors. Moreover, the compliance level of the firms with IFRS depend on
the benefits of IFRS to the companies with that of the standards adopted by them (Davidson,
Dey and Smith, 2015). Also, companies does not company with IFRS because of cost of
implementing the IFRS standards and changes in the treatment of operations in financial
reporting which reduces the chances of compliance with IFRS.
CONCLUSION
From the above study it has been concluded about financial reporting which is used to
report the financial information for making various decisions making. This assignment has
provided understanding about concept and purpose of financial reporting which is to provide
useful financial information to stakeholders for various decision making. Also, it has considered
the discussion on main stakeholders of company which consists of internal and external
stakeholders. Moreover, it has provided information about IFRS and IAS with they benefits.

REFERENCES
Books and journals
Leuz, C. and Wysocki, P. D., 2016. The economics of disclosure and financial reporting
regulation: Evidence and suggestions for future research. Journal of Accounting Research. 54(2).
pp.525-622.
Williams, E. E. and Dobelman, J. A., 2017. Financial statement analysis. World Scientific Book
Chapters. pp.109-169.
Ge, W. and et.al., 2018. When does internal control over financial reporting curb resource
extraction? Evidence from China. Evidence from China (March 30, 2018).
Acharya, V. V. and Ryan, S. G., 2016. Banks’ financial reporting and financial system
stability. Journal of Accounting Research. 54(2). pp.277-340.
Bushee, B. J., Goodman, T. H. and Sunder, S. V., 2018. Financial Reporting Quality, Investment
Horizon, and Institutional Investor Trading Strategies. The Accounting Review.
Francis, B. and et.al.,2015. Gender differences in financial reporting decision making: Evidence
from accounting conservatism. Contemporary Accounting Research. 32(3). pp.1285-1318.
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.
Davidson, R., Dey, A. and Smith, A., 2015. Executives'“off-the-job” behavior, corporate culture,
and financial reporting risk.Journal of Financial Economics, 117(1). pp.5-28.
Flower, J., 2016. European financial reporting: adapting to a changing world. Springer.
Lang, M. and Stice-Lawrence, L., 2015. Textual analysis and international financial reporting:
Large sample evidence.Journal of Accounting and Economics. 60(2-3). pp.110-135.
Call, A.C. and et.al., 2017. Employee quality and financial reporting outcomes.Journal of
Accounting and Economics. 64(1). pp.123-149.