Financial Reporting and IFRS Compliance

This assignment delves into the principles and frameworks governing financial reporting, highlighting the significance of International Financial Reporting Standards (IFRS). It examines the influence of stakeholders, regulatory bodies like IASB, and cost considerations in shaping financial reporting practices. The document also discusses the challenges of IFRS compliance and its implications for organizations worldwide.

Financial Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
Q.1 Context and purpose of financial reporting..........................................................................1
Q2. Conceptual framework using in financial reporting.............................................................3
Q3: Identification of main stakeholders of TESCO and its benefits...........................................4
Q4: Interest of financial reporting in organisation .....................................................................5
Q5: Main financial statements....................................................................................................6
Q6: Interpretation of financial performance of TESCO.............................................................8
Q7: Comparison between IFRS and IAS..................................................................................10
Q9: Determine various degree of compliance...........................................................................11
Q8: Benefits of IFRS.................................................................................................................11
Q.9 Degree of compliance of with IFRS by organisation across the world ............................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial position of an organisation can only be determined by evaluating the financial
statements and reports. These reports are published in the end of the year when final accounts are
made and set off (Nobes, 2014). This report is framed to explain the meaning of financial
reporting and its important as decision making and strategic planning. Conceptual and regulatory
framework is defined with the purpose and principles. Effectiveness of qualitative characteristic
is evaluated subject to make financial information reliable. Importance of stakeholders are
defined in respect of defining financial information of company. Financial statements of TESCO
are interpreted to explain the importance of finance reporting. Meaning of IAS and IFRS with
difference are defined in this context. Degree of compliance with IFRS explained in this report
and benefits of IFRS also elaborated in financial reporting.
Q.1 Context and purpose of financial reporting
Purpose of financial reporting in TESCO
Financial reports of given organisation discloses present position information of a firm
which is of great importance for its different stakeholders and investors. Typical components of
financial reporting are financial statements, prospectus, quarterly and annual reports (Rajgopal
and Venkatachalam, 2011). Main objectives of this document is to provide information about
financial position and changes in the same of an enterprises. Purpose of preparing financial
reports in TESCO is explained below.
It has two purpose of itself. First is within the organisation and second is for outside the
organisation.
Financial report requirement within the organisation:-
Help in taking effective decision regarding companies objectives and overall strategies.
Maintaining financial health of the organisation. Good Financial health is necessary for referred
enterprise for survive in competitive market.
Financial reports of cited organisation include cash-flow, fund flow, balance sheet etc. which
help in easily knowing about the financial, operational activities and also shows the inflow
and outflow of funds (Rensburg and Botha, 2014).
It help TISCO in knowing their market position.
In organisation employs need this to discuss their ranking, promotion and compensation.
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Owner and manager also need this to take important decision that effect continuous operations.
It also shows income statements of TISCO which provides profit and loss, revenues, expenses of
a particular financial year.
Another use of same statement of the organisation is for stakeholders and investors that
are present outside.
Financial report requirement for outsider :-
 It help investors in taking decision regarding investment. Report of TESCO is basically
used by different parties to take their investment decision.
 Stakeholders make use of report to asses the assets and liabilities of enterprise
 It provide information to stakeholders about financial health and activities related to
finance.
 It includes balance sheet and it assist in identifying that from what all resources company
is raising its funds.
 Helps in making money by providing financial reports to shareholders.
Importance and significance of financial reporting to TESCO:-
Financial transparency- It is very necessary for the company to know actual financial
position of company. Assets never having same value at the time of purchasing and selling.
Evaluate tax liability- Help in knowing the tax liabilities of given organisation to be
paid. Tax rate of this firm is high.
Mitigate errors- Accurate financial report are required to reduce costly errors. It help in
removing mistakes and errors.
Build trust- Accurate report build trust in the eyes of investors and stakeholders. They
only need a sign of accuracy to but their money in TESCO.
Improved payment cycles- In payment mode accounts payable, accounts receivable and
accurate financial report play a wide role.
Better decision making, planning and forecasting- Financial report is necessary when
decision in TESCO needs to be made. Planning and forecasting can be done after seeing the
assets and liabilities of the company.
Q2. Conceptual framework using in financial reporting
Every business organisation need to follow some guideline in order to get better
outcomes during the year. For this purpose, accounts managers used to analyse various financial
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statements of TESCO plc. It is done so to prepare perfect reporting framework in order to attain
the aims and pre-determine objectives. It is a set of positive concepts that every accountant need
to follow while recording financial transaction into the account books. It provide measurement,
presentation and disclosure of every material aspects those are appearing into the financial
statements of the company. The reporting framework is categorised into two parts. Such as:
Conceptual framework:
In financial reporting, this framework is a concept of accounting which is prepared by
standard setting body in accordance with practical issues those are proven objectively (Morris,
2011). It deals with various important financial reporting problems like purpose and users of
financial statements, its feature that make more useful. The basic component of statements are
assets, liabilities, equity and expenses.
Benefits
It is use to establish precise concept that assist discussion of financial problems.
It provide proper guidance to accounting standard at the time of reviewing financial rule and
regulation.
It help to ensure that accounting standards are properly implemented at internal level of an
organization.
The ethical format of organisation in accordance with reporting and standards are taken as most
valuable part under these framework.
Regulatory framework:
It is related with various rules and regulation that are made by an government in order to
report various financial transactions. Every entries need to be recorded according the set pattern
mention under the policies. It consists of certain theories and issues those are used in financial
reporting. It is most effective and systematic format that are used during preparation of reports.
It helps to develop and enhance IFRS and utilise effective measure to promote accounting facts
and standard in more systematic manner (IFRS. 2018). It is used to separate assets, liabilities,
profit and losses and other useful information at the time recording reporting. All the mention
standard and policies are consider under regulatory and conceptual framework those are related
to maintenance of the organisation performances. It is crucial for every stakeholder for multiple
purpose and decision-making.
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Q3: Identification of main stakeholders of TESCO and its benefits
Stakeholders are considered as person, parties, bodies and authorities which retain a
specific interest in company. They affect the organisation's actions, aims and objectives, policies
and regulations (Maffett, 2012). Creditors, debtors, stockholders, shareholders, directors,
employees, government, owners, agencies, suppliers, unions, specific communities are the key
stakeholders. All are important at their stage and plays crucial role to accelerate and boost the
level of organisation to next level. Criteria of stakeholders remain differ as per the structure and
nature of an organisation. Customers of company also plays a roles of stakeholder keep aligned
with trading practices but their consideration and contribution remain limited.
Importance of stockholder
these are the individual person who are found outside the organisation. They work as
critics and keep specific share in company's growth, profitability and market share. In large scale
of organisations it become difficult to analyse the customer interest and involvement.
Stakeholders help to get all required sources and information related to customers, information of
latest trend and interest, technology and advancements. All these informations are useful to
managers. They help the company to moving out the operations and activities subject to mission
and vision statement of company.
Maintain long term relation: stakeholders are important for instrumental and
performance based reasons. If the stakeholders remain the part of company for long term period
then it helps the organisation to achieve the competence and sustainability. Stakeholders of
TESCO help the company in providing the informations related the retail products as food and
beverages, grocery products and daily consumables.
Feedbacks and suggestions: They provide required suggestions and advise subject to
smooth formations and operation. TESCO deals in retail products and customer feedbacks and
suggestion are the essential factors which are heard and implemented to improve the quality of
products. They are the part of continuous process of delivering the products and services to end
customers. Review and suggestion of old stakeholders are considered firstly because they
understand the basic structure and nature of organisation. Their suggestions and feedbacks are
also help in making decisions.
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Q4: Interest of financial reporting in organisation
For every organisation whether small or large, it is necessary to record there financial
transaction in systematic manner (Mackenzie and et. al., 2012). By this purpose, accounts
managers uses various system and techniques that are capable enough in recording the entries.
According to management view point it is considered as more valuable aspects. Because, by the
help this they can make necessary planning and decision for the upcoming projects. The benefits
of financial reporting cannot be over emphasized. It play an effective role to make business
plans, decision-making process and selecting proper utilisation of resources for the purpose of
organisational sustainability. It consists of cash-flows, financial statement and other crucial
reporting those are useful for the purpose of decision-making.
The entire statements are summarise in an individual format to make an effective reports.
Like for example, the financial statement of TESCO plc indicate overall performance of total
turnover and productivity they are generating to the company. The two of the most crucial
statement can help the managers to analyse valuable impacts over the performance of TESCO.
By the help of these analyses the current position and investment structure can be identify by an
organisation. Managers can utilise the resources in best possible manner to determine strength
and weaknesses of company in order to repay there short-term and long term obligations. After
summarising all those information into a single format then transfer to accountant and auditor to
make essential solution and investment proposal. This will be more helpful in order to support
crucial decision-making. The three statements those are considered for analysis are:
Income statements: It is one of the primary tools of company's financial statement that
will help them to analyse performance over a particular period of time. It consists of detail
summary of how well an operations of TESCO plc is regulating there total revenue and expenses
those are generated from operating activities.
Balance sheet: It is known as the most vital statement which can be utilise by the
investors to take financial decision for the upcoming time. It will be helpful to analyse the total
capability of the firm to pay there short-term or long term debts.
Cash-flows: It related with the total cash inflows and outflow that are collected from
various activities such as investing, operating and financing. It is more suitable for making
proper reporting by evaluating total cash generating ability of the firm.
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Q5: Main financial statements
a) Income statements
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This could be observed that above mentioned report, this can be said that few of the
imperative financial statements which are needed to be made by whole companies and on the
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basis of them diverse decisions are needed to framed by whole companies and on the basis of
them diverse decisions are to be framed in order to prosperity can be achieved. Apart from that,
cash flow statement is likewise required so that the help of which cash position of the firm is
determined. Whole transactions which are related to the cash are covered under this and they are
segregated into three parts. Which covers operating, financing and investing related activity. In
the rendered case, entire amounts which are required to covered in statements comprises of sales,
rent that are extracted from income statement and bank amount from the statement of financial
position. They would represent the amount which is applied by the organisation in the present
period. By taking help of financial position of a firm which is analysed and this is determined
that whether resources are being allocated in an adequate manner.
Q6: Interpretation of financial performance of TESCO
Ratio analysis helps the firm for making effective strategy (Klai and Omri, 2011).
However, this has been observed that the by using financial statements, Tesco plc’s manager can
analyse the performance of the firm in an effective manner so that they can build long term
strategy in order to get the sustainable development. However,. This is the complex process
which requires great understanding the financial statement so that they could analyse their report.
2015 2016
Fiscal Year Ends 28/02/2015 27/02/2016
Turnover 56,004.38 53,933.00
Expenses 61,661.39 52,861.00
EBITDA 2,114.68 2,617.00
EBIT 589.75 1,386.00
Operating Profit
(reported)
-5,657.01 1,072.00
Operating Profit
(adjusted)
604.07 1,417.00
Investment
Income
-38.37 329
Exceptional
Items
-6,261.08 -345
Net Interest -536.19 -830
Pre-tax Profit -6,231.56 202
Tax -659.16 -54
Net Profit -5,572.40 256
Minority
Interests
-24.6 -9
Profit For
Financial Year
-5,648.15 138
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Ordinary
Dividends
899.22 0
Non Equity
Dividends
0 0
Retained Profit -6,547.37 138
Per Share Data
DPS p 11.11 0
Normalized
EPS p
9.21 7.1
Reported EPS p -68.44 3.25
Norm
Discontinued
EPS p
2.32 0.35
Investment Ratios
Operating
Margin
0.84 1.25
DPS Growth % -24.75 -
Dividend Cover
x
0.83 0
Norm EPS
Growth %
-68.89 -22.86
Reported EPS
Growth %
- -
2015 2016
Fiscal Year Ends 28/02/2015 27/02/2016
Assets
Non Current Assets
Intangible 3,771.00 2,874.00
Tangible 20,604.00 17,978.00
Investments 2,486.00 3,395.00
Other 5,395.00 4,973.00
Total 32,256.00 29,220.00
Current Assets
Total 11,819.00 14,448.00
Held for Disposal 139 236
Total Assets 44,214.00 43,904.00
Liabilities and Equity
Liabilities
Current 19,810.00 17,866.00
Non-Current 17,333.00 17,422.00
Total 37,143.00 35,288.00
Equity
Share Capital 5,500.00 5,502.00
Reserves 1,571.00 3,124.00
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Shareholders’ Funds 7,071.00 8,626.00
Minorities 0 -10
Total 7,071.00 8,616.00
Total Liabilities and
Equity
44,214.00 43,904.00
From the above mentioned financial statement of Tesco plc, this has been interpreted that which
are required to be implemented for the aim of doing enhancements in business. For determining
of profitability, this is observed that profits margin is required to found at 1.01 and 0.04 in the
year of 2016 and 2017 respectively and these are reflected that profits are limiting and this is not
an effective sign for any business. In addition to this, return on capital employed and the equity
is reduced and this reflects adverse aspect of the organisation.
It is observed that current ratio is mostly connected but this is lower than the standard
ratio required. Quick ratio which reflects the liquidity is resembled in both years that reflects that
organisation is meeting its obligations in the similar manner. Firms interest cover is reducing
which demonstrates in the same manner. organisations interest cover is reducing which reflects
that volatility is enhancing and this does not reflect the great sign for the firm.
Q7: Comparison between IFRS and IAS
It is related with a series of standards those are based on certain principles. These are
helpful in managing and controlling there financial transaction those are recorded into the books
of accounts (Van Greuning, Scott and Terblanche, 2011). IAS is basically deals with
compilation, management and formulation of policies of direct and indirect taxes. The
accounting reporting standard are considered to be a complete set of rule those are develop by
international accounting standard board(IASB). All these rules are levied according to the local
company regulation. Both of them are independently important for the company. With the
combination of both standard and financial rule together an organization can reach out to a well
organise solution.
Comparison
IFRS IAS
Such kind of accounts reporting are consists of
rule and standards those are published
according to IASB.
It consists of various rules of IAS that are
crucial for recording financial transactions.
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These are basically related with the global
accounting system that can be helpful in
recording of transactions.
It is mainly associated with domestic or
national level. Medium size enterprise are use
to consider such kind of reporting.
It is effective enough for the company to take
valuable decision-making.
To control fraud and errors those are arises
during the year.
According to this standard assets and liabilities
are treated according to the rule made by IAS
39.
Such kind of standard are concern with
primary entities and those which are having
plenty of sections.
Q9: Determine various degree of compliance
It is necessary to record every transaction into proper format. The management and
compliance design in an organisation. According to the structure of TESCO plc which is
associated in large segment in terms of market share and profitability growth. Financial reporting
and structure is an essential aspects that remain effective for manager to determine better
outcome for the company. According to the rules and regulation made by the concern department
on the basis of IFRS and IAS. There are certain legal laws and procedures which are needed to
be follow at the time of making analyse of the reports. According to IAS 18 provided under the
compliance rules of an organisation (Hanlon, Hoopes and Shroff, 2014). It is necessary for
TESCO plc to manage and record there transactions into books of accounts. Total sales and
profit generated by the company are recognise by using a systematic rule and standard that are
consider while recording of financial entries. Financial accounts are based on various concepts
and conventions that are related with the recording of transactions. IFRS are utilise in such a
manner to develop and formulate better accounting and structure for the development of the
company.
Q8: Benefits of IFRS
IFRS stands for International Financial Reporting Standards which publish and issue
rules and regulations regarding accounting and financial statements. IFRS are set of accounting
rules which are given by IASB (International Accounting Standards Board). Below are some
advantages defined below in respect of IFRS;
Greater comparability: Companies which have large market share and global market
contains use both the IFRS and IAS. At domestic level IFRS are used widely. These are the set
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of accounting rules and financial standards help the organisation to manage the financial records
and information in systematic manner. These rules are used when there is a comparison between
two branches and entity of same organisation in different countries. These rules help in
presenting the informations accurately in financial records which help investors and financiers to
analyse the financial position of organisation.
Flexibility:Simplicity and wide approachability make these rules more flexible and
understandable (Council, 2012). These are used as principle based rather than rule based and
philosophy. A principle based philosophy indicates towards the aims and objectives subject to
reasonable valuation and measurement of assets and liabilities. This helps the organisation to
adopt the rules and standards in certain situations. It provides an open option to adopt the
changes and variation subject to IFRS.
Manipulation: this is one of the speciality of IFRS. It helps the organisation to opt and
frame their own standards and rules regarding financial statements and annual reports. There
must be a fair and clear presentation of accounting policies and standards in annual reports. It
can lead the organisation to manipulate revenues and profits (Chen, Hope, Li and Wang, 2011).
These rules helps in growth of profitability and solvency. It open the opportunities as
international growth of organisation. There are rules made related to investment for investors
which provide more options to grow and enhance the capacity of future growth.
Cost: In large organisations audit work is done by accounts and specialities, charted
accountants, company secretaries and cost accountants. TECSO is one of the largest retailer of
customers goods. It spends large amount on its audit and revaluation programs. As per audit fee
report of TESCO it is estimated that company spend £112.8m as audit fees in 2015.
Q.9 Degree of compliance of with IFRS by organisation across the world
Compliance is stands for control and adherence of rules and standards for better operation
and management. IFRS are the set of standards and principles subject to financial reporting and
managing accounting records in systematic manner. There are various external and internal
influencers are found which affect the compliance procedure and structure of an organisation.
Counselling and support tools, prescribing habits, attitude support are the main factors which
affect the process of compliance and structure of financial reporting.
Demographic and economic factors are the main factors which affect the compliance
structure of an organisation (Beatty, Liao and Yu, 2013). Market risk, liquidity and coverage
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ratio, currency risk factors affect the overall performance of an organisation. Interest rates,
inflation rates, domestic import and export policies and foreign rate are considered as subsidiary
options which are considered in compliance structure.
ISA 700 is a supplement standard which was issued by International auditing practice
statement. There is an audit report on financial statements published in 2015 respect of financial
position of TESCO. IFRS provides flexibility to organisation to adopt their own rules and
standards to met the standards which reduce the credibility of fair and clear presentation of
financial records. This is one of the major factor which affect the effectiveness of compliance.
CONCLUSION
This context defines the legal structure in respect of financial statement and financial
reporting. All these informations which are related to financial and accounting operations
considered in financial reporting. Role of stakeholders and their position in organisational
interest in growth of organisation defined in this report. Values of financial reporting and
importance of financial statements in making finance reports explained in this report.
Conceptual and regulatory framework defined in respect of providing the This report explains
the areas and scope of financial reporting and how it help in decision making and strategic
planning process. Rules and guidelines given by IASB and IFRS defined subject to compliance
structure.
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REFERENCES
Books and journal:
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