FINANCIAL REPORTING INTRODUCTION 3

The financial-reporting can be defined as process of gathering and communicating financial information of companies with various kind of stakeholders so that financial position of companies can be assessed. The financial-reporting can be defined as process of gathering and communicating financial information of companies with various kind of stakeholders so that financial position of companies can be assessed. Below the purpose of financial reporting are mentioned that are as follows: Assess financial condition- It is one of the important purpose of financial reporting that is linked with assessment of

FINANCIAL
REPORTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Explanation of context and purpose of financial-reporting.....................................................3
2. Conceptual, regulatory framework, key principle and qualitative characteristics..................4
3. Main stakeholders of companies and what benefit they get from financial reports. ..............5
4. The value of financial reporting for meeting organisational objectives and growth..............6
5. Preparation of main financial statements on the basis of given information..........................7
6. Interpretation and communication of financial performance..................................................9
7. Comparison between IAS and IFRS.....................................................................................14
8. Advantage of International financial reporting system.........................................................15
9. Degree of compliance with international financial-reporting standards...............................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
The term financial reporting may be defined as a way of making communication of
financial information with the internal and external stakeholders (Schooley and English, 2015).
Under this, financial statements such as balance sheet, income statement, statement of change in
owner's equity section etc. being used to gather information about financial transactions of
companies. Basically, the financial reporting is useful for internal stakeholders for making
effective decisions as well as for external stakeholders in taking investment decisions. Herein,
the project report purpose and conceptual framework of financial reporting is mentioned. In
addition, evaluation of financial reporting standards and difference in financial reporting at the
international level is also done.
To better understand about the financial reporting a large accountancy firm is selected
that is “Financial angles”. This company is located in London and provide financial services to
their various clients.
MAIN BODY
1. Explanation of context and purpose of financial-reporting.
The financial-reporting can be defined as process of gathering and communicating
financial information of companies with various kind of stakeholders so that financial position of
companies can be assessed. In the absence of this, it can be difficult to manage companies
internal and external operations. Most of companies prepare financial reports at the end of
financial year. Such as in the aspect of above Financial angles company, their accountants
produce these reports so that they can evaluate company's financial condition. Below the purpose
of financial reporting are mentioned that are as follows:
 Assess financial condition- It is one of the important purpose of financial reporting that is
linked with assessment of financial position of companies (Sikka and Stittle, 2017). This
becomes possible because of financial information that is collected from various kind of
financial statements. As well as on the basis of it, managers of companies take futuristic
decisions effectively.
 Compare actual result with budget- Another purpose of financial reporting is related with
comparison of actual result with budgeted performance. In other words, companies set

their financial goals before starting of a financial year and these financial reports evaluate
actual result to compare with estimated results. Hence, these financial reports are crucial
in analysing actual performance of companies. Such as in above, Financial angles
company, their managers compare the actual result with estimated results.
 Accountability to donors and stakeholders- The financial reports makes a company
accountable towards their external stakeholders such as investors, customers, suppliers
etc. This is so because financial reports reflects the result of all business activities in front
of stakeholders and on the basis of it they take future decisions regarding to investment.
Like the above company, they are accountable for their donors and stakeholders by
providing actual financial results.
2. Conceptual, regulatory framework, key principle and qualitative characteristics.
Conceptual framework of financial reporting- The conceptual framework of financial
reporting is linked with producing financial reporting on a regular time interval (Cho and Yun,
2015). Basically, companies prepare financial reports at the end of financial year. The external
stakeholders of companies are suppliers, customers etc. who want to see financial performance
of companies with help of financial reports.
Regulatory framework of financial reporting- The regulatory framework of financial
reporting is associated with implementation of accounting rules, regulation and standards so that
prepared financial statements can become reliable and transparent for users. In the aspect of
above accountancy firm, financial angel their accountants use below mentioned accounting
principals that are as follows:
 Full disclosure-As per this principal of financial reporting, it is essential for accountant to
use all kind of financial information about company in preparation of financial reports.
They should not hide any important information and must include in financial statements.
This principal is important to apply because if companies' accountants will disclose entire
information about company's financial position, then their financial statements will
become more reliable and accountable. In above company, their accountant use this
principal in order to prepare their financial statements more useful and accountable to
their stakeholders.

 Materiality – This is a kind of accounting principal that states that in some cases, use of
accounting standards can be neglected when its effect is minor on company's financial
statements (Ewert and Wagenhofer, 2016). Herein, it is important to know that this
principal rarely used by companies.
Qualitative characteristics of financial reports
 Comparability- It is a kind of characteristics of financial reports that states that, these
reports can be compared by previous year's reports.
 Relevance- Another feature of financial reports is that, information included in the
reports have relevance with company's financial transactions.
3. Main stakeholders of companies and what benefit they get from financial reports.
The stakeholders are those who have interest in company's financial performance and
activities for their own purposes. Basically, there are two types of stakeholders which are internal
and external. Below description of these stakeholders is done that is as follows:
(a) Internal stakeholder- These are kind of stakeholders who involves themselves in companies'
day to day operations. As well as they have right to take decision about companies operations
and activities. Herein, some types of internal stakeholders are described below such as:
 Managers- These stakeholders are being considered as higher level of internal
stakeholders in companies. This is so because, they have right to take decisions on crucial
situations. As well they manage all financial and human resources of entities by making
effective plans and policies. The managers are required to access financial information of
about company for preparation of effective plans and strategies.
 Employees- These stakeholders are linked with the performing companies activities and
operations on a daily basis in return they get salaries and wages (Oussii and Boulila
Taktak, 2018). To accomplish companies goals and objectives, their role is too crucial.
As well as their expectation and growth depends on companies financial performance.
This is why, they show interest in companies' financial information.
(b) External stakeholders- These are kind of stakeholders who show interest in companies'
financial performance from out side. They does not involve themselves in day to day operations
and activities. Herein, some types of internal stakeholders are described below such as:

 Creditors- These are kind of stakeholders which are involved in the process of providing
financial assistance to companies on credit (Young, Cohen and Bens, 2018). Herein, it is
important to know that they consider only those companies whose credit score is better
and this can be done by help of analysis of financial information. This is why they show
interest in companies' financial performance.
 Suppliers- These are very important stakeholders of companies, this is so because they
sell goods to companies on credit. Hence, it is important to organisations that they should
present their financial results in front of external stakeholders. As well as the suppliers
take benefit from financial performance of companies in order to decide whether they
should sell goods on credit or not.
4. The value of financial reporting for meeting organisational objectives and growth.
The financial-reporting is crucial in aspect of achieving the organisational objectives and
growth. This becomes possible only because under financial reports, companies' financial
position is assessed in a descriptive manner which becomes a basis of planning to grab objectives
and goals.
Financial reporting for meeting organisational objectives- The financial reporting is
crucial in aspect of meeting organisational objectives (Hoyle, Schaefer and Doupnik, 2015). This
is so because by help of these financial reports, companies can make their futuristic strategies
that leads in achieving objectives on time. Like in the aspect of above company, the financial-
reporting helps them in achieving goals and objectives because of proper analysis of financial
position.
Financial reporting for achieving the growth- In addition, the financial reports are also
useful for achieving higher growth of companies. This is so because if organisations will
presents their financial performance to stakeholders then they will be influenced to invest in
companies' activities. Such as in above Financial angels company, they use financial reports in
order to achieve the higher growth.
5. Preparation of main financial statements on the basis of given information.

(a) Godwin plc income statement for year ended 31 December 2018
Particulars Amount (£)
Revenue
Less: Cost of sales w1
Gross profit
Less- Operating expenses w1
Operating profit
Add- Investment income
Less- Finance cost
Profit before tax
Less- Taxation
Profit for year
585100
(403639)
181461
(92139)
89322
9600
(1200)
97722
(9500)
88222
(b) Godwin plc statement of change in equity for year ended 31 December 2018
Ordinary
share capital
@ 25 p
Revaluation
reserves
Retained
earnings
Total

£ £ £ £
Balance as per trial balance 86700 40000 45500 172200
Profit for year 88222 88222
Preference dividend -2500 -2500
Ordinary dividend -4500 -4500
Total equity 86700 40000 126722 253422
(c) Statement of financial Position for year ending 31st December, 2018
Balance Sheet as on 31st December, 2018
Particular
Amount(in
£'000)
ASSETS:
Non-current assets:
Land and property 144062
Plant and equipment 163060
Investment property 28000
Total non current assets 335122
Current assets:
Inventories 24700
Trade receivables 78000
Total current assets 102700
Total assets 437822
EQUITY AND LIABILITIES:
1. Equity:
Ordinary share capital 86700
Revaluation reserve 40000

Retained earnings 126722
Total equity 253422
Non current liabilities:
10% preference share capital 26500
Deferred taxation 10000
Total non current liabilities 36500
Current liabilities:
Trade payables 62700
Tax payables 9500
Bank overdraft 10900
Total current liabilities 83100
Total equity and liabilities 373022
6. Interpretation and communication of financial performance.
In this task of project report, a company listed in FTSE 100 is selected and name of
company is British American Tobacco selected. This companies' financial statements are
analysed and interpreted in such manner:
Income statement of British American Tobacco company

BRITISH AMERICAN TOBACCO PLC (BATS) INCOME STATEMENT
Fiscal year ends in December. GBP in millions except per share data. 2017-12 2018-12
Revenue 20292 24492
Cost of revenue 5033 4550
Gross profit 15259 19942
Operating expenses
Research and development 80 105
Sales, General and administrative 48 25
Restructuring, merger and acquisition 153 145
Other operating expenses 8508 10229
Total operating expenses 8789 10505
Operating income 6470 9437
Interest Expense 1124 1634
Other income (expense) 24245 547
Income before taxes 29591 8350
Provision for income taxes -8113 2141
Net income from continuing operations 37704 6209
Other -171 -177
Net income 37533 6032
Net income available to common shareholders 37533 6032
Earnings per share
Basic 18.36 2.64
Diluted 18.3 2.63
Weighted average shares outstanding
Basic 2044 2285
Diluted 2051 2292
EBITDA 31617 11022
Interpretation- On the basis of above income statement, this can be addressed that their gross
profit is of £ 15259 GBP million in year 2017 which raised and became of £ 19942 GBP
million. While their net income is of £ 37704 GBP million in year 2017 that decreased by
83.53% and became of £ 6032 GBP million. The reason of this difference is increased operating
expenditures as well as lower income before tax in year 2018.

Balance sheet of British American Tobacco company
BRITISH AMERICAN TOBACCO PLC (BATS) BALANCE SHEET
Fiscal year ends in December. GBP in millions except per share data. 2017-12 2018-12
Assets
Current assets
Cash
Cash and cash equivalents 3131 2432
Short-term investments 65 178
Total cash 3196 2610
Receivables 4053 3588
Inventories 5864 6029
Other current assets 853 428
Total current assets 13966 12655
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 8191 8654
Accumulated Depreciation -3309 -3488
Net property, plant and equipment 4882 5166
Goodwill 44147 46163
Intangible assets 73638 77850
Deferred income taxes 317 344
Prepaid pension benefit 1123 1147
Other long-term assets 2965 3017
Total non-current assets 127072 133687
Total assets 141038 146342
Liabilities and stockholders' equity
Liabilities
Current liabilities
Capital leases 5423 4225
Accounts payable 8847 10631
Taxes payable 720 853
Other current liabilities 554 620
Total current liabilities 15544 16329
Non-current liabilities
Deferred taxes liabilities 17129 17776
Pensions and other benefits 1821 1665
Minority interest 222 244
Other long-term liabilities 45518 44884
Total non-current liabilities 64690 64569
Total liabilities 80234 80898
Stockholders' equity
Common stock 614 614
Additional paid-in capital 26602 192
Retained earnings 36983 38557
Accumulated other comprehensive income -3395 26081
Total stockholders' equity 60804 65444
Total liabilities and stockholders' equity 141038 146342
Interpretation- As per the above balance sheet, this can be assessed that total assets of company
is of £141038 GBP million in year 2017 that raised and became of £146342 GBP million. In

compare, companies' total liabilities are of £80234 GBP million in year 2017 and in year 2018, it
is of £80898 GBP million. It shows that company has enough assets for making payment of their
liabilities.
Cash flow statement of British American Tobacco company
BRITISH AMERICAN TOBACCO PLC (BATS) Statement of CASH FLOW
Fiscal year ends in December. GBP in millions except per share data. 2017-12 2018-12
Cash Flows From Operating Activities
Net income 6476 9313
Depreciation & amortization 902 1038
Change in working capital -1345 1590
Inventory 1409 -192
Other working capital -2754 1782
Other non-cash items -686 -1646
Net cash provided by operating activities 5347 10295
Cash Flows From Investing Activities
Investments in property, plant, and equipment -791 -758
Property, plant, and equipment reductions 95 38
Acquisitions, net -17734 -15
Purchases of investments -170 -320
Sales/Maturities of investments 160 167
Purchases of intangibles -187 -185
Other investing activities 83 52
Net cash used for investing activities -18544 -1021
Cash Flows From Financing Activities
Debt issued 40937 2111
Debt repayment -20827 -5596
Common stock issued
Common stock repurchased -205 -139
Dividend paid -3465 -4347
Other financing activities -1681 -1659
Net cash provided by (used for) financing activities 14759 -9630
Effect of exchange rate changes -391 -138
Net change in cash 1171 -494
Cash at beginning of period 1651 2822
Cash at end of period 2822 2328
Free Cash Flow
Operating cash flow 5347 10295
Capital expenditure -978 -943
Free cash flow 4369 9352
Interpretation- On the basis of above cash flow of company, this can be analysed that there is net
cash inflow by operating activities of £5347 and £10295 GBP million in year 2017 and 2018.
While from investing activities, there is cash outflow of £18544 and £1021 GBP million in both
of years. From financing activities, there is cash inflow of £14759 in year 2017 and cash outflow
of £9630 GBP million in 2018.

Ratio analysis
1. Profitability ratio- Gross profit ratio- Gross profit/ net sales x 100
Particulars 2017 2018
Gross profit 15259 19942
Net sales 20292 24492
Gross profit ratio 75.19% 81.42%
Interpretation- On the basis of above table, this can be find out that in 2017, the gross profit ratio
was of 75.19% that raised and became of 81.42%. The reason of this difference is higher gross
profit in year 2018.
 Net profit ratio- Net profit ratio / net sales x 100
Particulars 2017 2018
Net profit 37533 6032
Net sales 20292 24492
Net profit ratio 184.96% 24.62%
Interpretation- As per the above table, it can be stated that in year 2017, the net profit ratio is of
184.96 % that decreased by huge margin and became of 24.62%. It is so because of lower net
profit in year 2018.
 Operating profit ratio- Operating profit / net sales x 100
Particulars 2017 2018
Operating profit 6470 9437
Net sales 20292 24492
Operating profit ratio 31.88% 38.53%

Interpretation- The operating profit ratio is of 31.88% in year 2017, that raised in next year and
became of 38.53 %. This is so because of higher operating profit in year 2018.
2. Liquidity ratio Current ratio- Current assets/ current liabilities
Particulars 2017 2018
Current assets 13966 12655
Current liabilities 15544 16329
Current ratio 0.89:1 0.77:1
Interpretation- As per the above table, this can be find out that current ratio is of 0.89:1 in year
2017 that decreased in next year and became of 0.77 : 1. It is so because of lower current assets
in year 2018
 Quick ratio- Quick assets/ current liability
Particulars 2017 2018
Quick assets 8102 6626
Current liabilities 15544 16329
Quick ratio 0.52:1 0.40:1
Interpretation- Same as above current ratio, the quick ratio is of 0.52:1 in year 2017 that
decreased and became of 0.40:1 in year 2018. It is all because of higher current liabilities and
lower quick assets in year 2018.

7. Comparison between IAS and IFRS.
International accounting standards- These standards can be defined as those who guides about
how to produce and present financial statements. These are being controlled by international
accounting standard and committee.
International financial reporting standard- The IFRS are being applied at a global level and these
standards are used for evaluating companies' outcome in the form of loss and profit.
International accounting standard International Financial Reporting
Standards
These standards were evolved by IASC. While these were evolved by international
accounting standard board.
The IAS were prescribed in the time period of
1973 and 2001 ( Richards and van Staden,
2015).
In compare, these standards were prescribed in
year 2001.
8. Advantage of International financial reporting system.
International reporting system- It is a kind of reporting system that is linked with
promotion of common accounting rules and regulation which must be applied by companies in
an equal manner at global level (Koh and Lee, 2015). The common goal of these standards is that
if organisations will produce their financial statements as per it then their statements can be
viewed and understood by all of stakeholders at world level. Below some purpose of this
reporting system are mentioned:
 The main advantage of IFRS is that if companies produce their financial statements as per
these standards then, this can be easy for them in comparing their performance by rest of
other companies globally.
 As well as IFRS helps to companies from saving unwanted expenditures such as penalty,
fines etc. which are being charged if companies do not produce financial reports on time.

 In addition, these standards are useful for stakeholders for making investment in all
worldwide companies.
9. Degree of compliance with international financial-reporting standards.
As per the report of IFRS foundation, there are most of companies who are not using the
IFRS in the process of preparation of statements. Such as in some countries like Germany, they
are still using traditional accounting standards (Henderson, Peirson, Herbohn and Howieson,
2015). On the basis of usage of accounting standards, countries are categorised into two parts
which are A and B. In that A countries are those who use modern accounting standards which are
New-Zealand, Austria etc. As well as B categorised countries are Ireland, Malta etc. in that
companies are using traditional accounting standards.
Factors of effecting compliance in a country:
 Culture- This is an important factor that is impacting to compliances in a country. For
example in Egypt, most of companies are using IFRS by ignoring Egyptian accounting
standards (Kurt, 2018).
 Auditors- Another factor of effecting compliances is the ability of auditors. This is so
because if auditors are not capable to produce income statements effectively then it may
effect to compliances.
CONCLUSION
As per above project report, it can be concluded that financial-reporting is crucial for
both to internal and stakeholders. Under the project report, importance of financial-reporting is
mentioned for selected company and some principals like full disclosure, materiality etc. are also
concluded. In addition, British American Tobacco company's financial statements are also
interpreted. Further, the role of IFRS is also described in the end of part of project report.

REFERENCES
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