Assignment on Financial Reporting - IFRS

Financial Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1.Purpose of financial reporting.............................................................................................1
2.conceptual and regulatory framework of financial reporting and importance of qualitative
characteristics for financial reporting.....................................................................................3
3.main stakeholders of organisation and their benefits form financial information...............5
4.value of financial reporting for meeting organisational objectives.....................................6
5.financial statements as per IAS-1........................................................................................7
6. Interpreting financial performance for Marks and Spencer (2017 and 2018)..................11
7.difference between International Accounting Standards and International Financial
Reporting Standards.............................................................................................................13
8.benefits of IFRS.................................................................................................................14
9. Degree of compliance with IFRS across the world and factors which impact its compliance
..............................................................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Financial reporting is the process by which company analysed their financial situations
and interpret that business information by preparing financial reporting. This financial
information of the company will release to public and the users of the company. This present
report will cover purpose of financial reporting and conceptual and regulatory framework of
financial reporting. Further, an explanation is provided of the stakeholders of the business and
their benefits from financial information. Values of financial reporting for meeting goals of the
organisation is also discussed. Explanation of main financial statements as per IAS 1 and
difference between international accounting standards and international accounting standards is
provided in this report. Further, in this report benefits of IFRS with compliance of degrees with
IFRS by organisations is to be discusses in this report.
MAIN BODY
1.Purpose of financial reporting
Main purpose of financial reporting is to provide company's overall decision (Bushee,
Goodman, Sunder, 2018). It also provides two primary decisions which includes decision-
making process to managers and second it provides information about the financial health of
company to its stakeholders. It helps to develop effective decision making by concerning
company's objectives and overall strategies. There are mainly five types of financial statements
which prepared by companies and that include-
Income statement
Balance sheet
Statements of cash flow
Statements of change in equity
Noted to financial statements
Main essentials of financial statements includes- assets, liabilities, equity, revenues, and
expenses. Each individual statement of financial reporting provides a different information to
user of the company. Main purpose of financial reporting are as follows-
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It provides an overall financial position of the company- main purpose of financial reporting
is to provide an accurate financial information of the entity. Mainly guidance is provided by
accounting boards to make financial statements which is IAS ans IFRS. These financial
statements help managers of the company to develop an effective decision by concerning reports.
These mainly also helps users of the company by which they will able to judge overall financial
position of the company.
It assists existing and potential investors- it helps investors in taking decision to their target
companies about whether to increase investment, or to withdraw that investment in the company
(Naranjo, Saavedra and Verdi, 2018). For investors financial statements are the main source to
decide the investment objectives in the company. It provides them information regarding
financial stability of the company therefore both existing and potential investors of the company
will analyse financial statements regarding their investment decision.
Provides prospects for future net cash inflows- financial reporting of the organisation not only
provide financial stability information of the company but it also predicts future prospects of the
company.
2.conceptual and regulatory framework of financial reporting and importance of qualitative
characteristics for financial reporting
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Conceptual framework to prepare financial reporting is the most important process for an
organisation which underlines a particular concept for the preparation and presentation of
financial statements. Framework of the financial reporting will address the objectives of
financial reporting, provides a qualitative characteristic which is useful financial information of
the company, it also covers financial statements of the reporting entity, elements of financial
statements, recognition and measurement also addressed in framework of financial reporting.
Regulatory framework of financial statements provides an effective procedure to prepare
financial reporting.
Relevance- information which is relevant must be capable of developing decisions which
is helpful for users of the company (Conceptual Framework for Financial Reporting, 2018)
Financial information is predictive when it provides information which is confirmatory and
valuable for company as well as for users.
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Illustration 1: framework for financial reporting
(source: Conceptual Framework for Financial Reporting,2018)

By regulatory framework company will able to provide faithful presentation to their
investors and public of business market. Preparation of financial statements are developed in
accordance with regulatory frame work provided by accounting standards boards so that it
develop a faithful information on which it users can relay
Qualitative characteristic for useful financial information
Qualitative information in financial reporting helps to identify the types of information
which is useful in developing decisions for the company. Qualitative characteristic is provided an
equal information of financial reports of the organisation. Financial reporting will only be
effective when they represent faithful information in their statements. Therefore, there are mainly
four fundamentals of qualitative characteristic which are as follows-
Comparability- information which is provided by entity in their financial report will only be
useful when it compared to other entities with similar information. By developing comparability
it enables users to develop understanding of similarity and make differences of items.
Verifiability- financial report which is verifiable provides an information to users that
statements presents a faithful information in the financial report (Qualitative Characteristics of
Financial Information, 2013). Information which is provided in financial information must be
free from material errors and it will not mislead the financial statements is the qualitative
characteristic. These characteristic particularly provides relevant information which does not
influence economic decisions of the users of the organisation.
Timeliness- it means that information which is provided in financial statements are available in
time and is capable to develop any decision in the company. Financial reporting must have to
prepare in upgraded time because late submission of report will consider as less useful by the
users of the organisation.
Understandability- according to this point financial report will provide effective classification,
present report which is clearly understandable. This understandability means that information
provided in financial reporting is clearly presenting accurate information and also providing
accurate supplied information which needed to assist in clarification.
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3.main stakeholders of organisation and their benefits form financial information
There are many users of financial statements which is produced by organisation.
Objective of providing information is to provide financial stability of the organisation among its
users and also among public of business market. The list of financial information are as follows-
 company management
Management team needs information to understand profitability, liquidity and also cash flow of
the organisation. So that they will able to develop decision regarding operational and financial of
business.
 Competitors
By analysing financial statements of competitors, company will able to attempt gain which
according to financial statements to evaluate financial condition (Chychyla and et.al., 2018).
 Customers
To measure which supplier is selected for major contract, financial statements of the company's
are review by the customers which will provide financial ability of supplier in providing goods
and services for long term relations.
 Employees
To develop employee involvement, organisation has to provide financial statements with detail
explanation of document. It helps employees to develop an understanding regarding business
policies.
 Government
Government also provide financial statements just to analyse that whether company has paid
appropriate amount of tax or not. Juri diction in which company is located are always required
financial statements of the company by which helps them to measure amount to tax paid by
company is correct or not.
 Investors
Investors also provide financial statements because they are the owners of the business and it is
their right to measure that the amount which they have invested is used properly in business or
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not. Mainly investors are the owners of the company therefore, it is necessary for company to
provide their financial reports to the investors of the organisation.
 Lenders
Entities which provides loan to organisation will also require financial statements by which they
will able to understand ability of the company to pay back the loans (Cheng and et.al., 2014).
These entities will make sure about the overall financial stability of the organisation in business
market. This analysis helps them to measure capability of company in repaying their loans.
 Unions
Members of union also require financial statements of company just to analyse that company has
that ability or not to pay their compensation and benefits. Union always expect compensation for
business organisation therefore they always demand financial reports of the organisation. This
helps them to ensure financial capabilities of the organisation.
4.value of financial reporting for meeting organisational objectives
Company's financial statements provide story which is about value of business. To
analyse the impact of financial statements on the value of business three statements are judged
which are as follows-
Income Statement Analysis
These statements provide an information regarding overall net profit and net loss achieved by
company in a financial year. This income statements matches total revenues and total indirect
expenses of the company. This statement also provides an overview regarding usage of resources
by company to generate profit of the company. To evaluate efficiency and management
operations of the company this income statement is prepared by company which compare result
with previous year results which company achieved in previous year. It also develops an
evaluation regarding sales generation of the company.
Balance Sheet Analysis
Balance sheets of company provides overall financial picture over a period of time. To generate
sales and revenues of the company, balance sheet represents resources which is in the form of
assets, liabilities and owner's equity (Spiceland and et.al., 2018). It also provides an overview
which is about future sustainability of the company. Three major categories are analysed in
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Balance sheet that is assets, liabilities and also owner's equity. Assets of the company will
represent gross book value of business. Liabilities will represent claims which is against assets
and owner's equity will show difference between book value and liabilities.
Ratio Analysis
Ratio analysis used to analyse the data of financial statements. It is the widely used tool which is
known as comparative tool to measure overall performance of the company as compared to other
companies of business market. It also provides information about riskiness and solvency of
company in caparison to other businesses of the market. Mainly five major ratios are grouped to
calculate financial statements that is Liquidity, Leverage, Coverage, Profitability and also
Activity of the business which provides overall performance of the organisation.
5.financial statements as per IAS-1
a.) statement of profit and loss and other comprehensive income
Company's performance is reported on statements of profit and loss and other comprehensive
income. Statement of profit and loss measure total of income less expenses. Other
comprehensive income report items which are not included in statements of profit and loss
(Zhang and Andrew, 2014). Profit and loss account report indirect expenses for specific period of
time which is to measure net profit and net loss of the company. Other comprehensive income
statements will include those revenues, expenses, gains and losses which executed from income
statement.
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Working notes
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b.) statement of change in equity
Company generally prepares statement of change in equity to observe change in share capital of
the business, accumulated reserves and retained earning over a specific period of time. It
calculates net profit and losses which are attributed to shareholders, measure increase and
decrease of share capital, and amount of dividend paid to shareholders. Change in equity
statement also measure effect of change of accounting policies and gains and losses of capital.
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c.)statement of financial position
It is also known as balance sheet. Balance sheet is financial statement which helps to provide a
picture of financial performance of company in certain time period. Resources which used to
prepare balance sheet are assets, liabilities and owner's equity. It provides information about
company's overall sales and revenues. Amount which shown on statement of financial position
are the amounts which represent final moment of an accounting period. Financial position will
reflect basic accounting principles and guidelines which includes cost, matching, and full
disclosure principles (Gigler and et.al., 2014).
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d.)comparison of cash flow from above financial statements
cash flow statement provide details about the amount of cash in and out from organisation. Cash
flow statements provides an information for majorly three types of activities which include
operating activity, investing activity and financing activity. Under operating activities regular
operations of the company is recorded which includes receipts for sale of loan, debt and equity
instruments, interest received on loan, payment to suppliers, employee, interest etc. investing
activities will include sales and purchase of assets, loan made to suppliers or receives from
customers, payment related to merger and acquisition. Financing activity will include inflow of
cash which is from investors.
Major difference between cash flow and statement of profit and loss is that cash flow will
not record every detail of financial activities of business (Ball, Li and Shivakumar, 2015).
Comparison between cash flow and statements of financial position that is balance sheet is that
income statement will also consider some non cash accounting items transactions(Christensen
and et.al., 2015). Comparison of cash flow and statement of change is equity is that change in
equity will only consider the amount of equity share capital of business.
6. Interpreting financial performance for Marks and Spencer (2017 and 2018)
Ratio analysis used to analyse the data of financial statements. It is the widely used tool which is
known as comparative tool to measure overall performance of the company as compared to other
companies of business market. Here is the interpretation of ratio analysis.
Liquidity Ratio
Particulars Formula 2017 2018
Current assets 1723 1318
Current Liability 2368 1826
Current Ratio
current asset/ current
liability 0.73 0.72
Inventory 759 781
Quick assets 964 537
Quick ratio
Quick asset/ Current
liability 0.41 0.29
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According to above calculation company's liquidity position was not good because
liquidity ration of the company consider good when they have ration in proportion of 1:2 and as
per above calculation it is not proper.
Profitability ratio
Particulars Formula 2017 2018
Gross profit 4088 4047
operating profit 691 671
Total sales revenue 10622 10698
Gross profit margin
ratio
gross profit/ total
sales revenue 38.49% 37.83%
Operating profit
margin ratio
Operating profit/
total sales revenue 6.51% 6.27%
As per above calculation company's profitability position was not good because as
compared to previous year its profitability percentage go reduced which is not a good impact for
company.
Solvency ratio
Particulars Formula 2017 2018
Long term debt 1663 1623
Shareholder's equity 3156 2957
Debt equity ratio
long term debt/
shareholder's equity .53 .55
Company also does not have good solvency ration because it is said that lower the
solvency ration larger the company profit and as compared to previous year solvency ratio gets
increased which does not have good impact.
Efficiency Ratio
Particulars Formula 2017 2018
Total sales revenue 10622 10698
Average assets 8384.5 7921.5
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Cost of Goods sold 6534 6651
Average Inventory 779.5 770
Inventory turnover (in
times)
Cost of good sold/
Average inventory 8.382 8.638
Total assets turnover
Total sales revenue/
Average assets 1.267 1.351
Company's efficiency ratio is increasing as compared to previous year which means that
company's bank expenses are increasing and revenues are deceasing.
7.difference between International Accounting Standards and International Financial Reporting
Standards
International accounting standards(IAS) was the first accounting standards which are
issued by International Accounting Standards Committee. Aim to develop this accounting
standards is to make it easier for organisation to compare their business across the world.
Another aim to develop this accounting standards is to increase transparency and to build trust in
preparing financial reporting of the organisation. These standards also promote transparency,
accountability and efficiency while preparing financial statements.
Concept to develop international financial accounting standards is to develop set of
accounting standards which is for particular types of organisation to record transactions. These
standards are issued to provide common global language for the businesses across the nation in
preparing their financial statements. These standards are developed particularly for businesses
that runs across several nations (Cascino and Gassen, 2015). Main aim to provide IFRS is to
eliminate extra cost, complexity and risk which have to bear by the companies whose businesses
are globally diversified. Therefore, IFRS is a set statements which brings transparency,
accountability, and also efficiency for preparing financial statements around the world. It helps
to bring transparency by providing effective quality of financial information, to also helps
investors and public of business market in taking economic decisions. It also strengthens
accountability just by reducing communication and information gap between capital market
provider and also to people who have invested their money in organisation. IFRS also brings
efficiency in preparing financial reporting by providing effective information to investors which
helps them to identify market opportunities and risks of nations.
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Difference between them are as follows-
It helps to include basis of decision within each standards- this is the decision of international
accounting standard boards to develop principle- based approach to standard setting. They are
also developing changes in international accounting standards because organisations in preparing
financial statements mainly prefer IAS standards. Therefore, some companies are preparing
financial statements through IFRS or others are preparing through IAS. Hence, both running
parallel across the world
Bold text in IFRS means to guide principles of standards- in preparing financial reporting,
bold text in international accounting standard will refer to compulsory elements of the standards
and bold text in IFRS refers to guide principles of the standards.
8.benefits of IFRS
To simplified financial statements of the company, IFRS is important concern for the
companies. It provides a global language so that accounting gets simplified and it will provide
easy understandability of financial reports from one to other company. Mainly IFRS is important
for multinational companies who carry their businesses across the globe. Therefore, to maintain
transparency, accountability, and efficiency in financial reports multinational companies adopted
these IFRS standards (Barth and et.al., 2018).
By adopting IFRS standards, globally business companies have to developed an effective
frame work in maintaining their financial report. It also helps to save money because when
companies are doing businesses globally they do not have much time in preparing financial
statements in two sets of books of accounts therefore IFRS develops basic standard in preparing
statements. They also provide principle based philosophy which means that goal arrive at
reasonable valuation of the standards. Some benefits of adopting IFRS are as follows-
 Comparability: by developing IFRS standards company will able to improve their
comparability of financial information across the globe which also helps company in
improving overall performance of the organisation. When financial statements are made
with comparability then investors will also able to develop an effective decision.
Comparability in financial reporting also helps users of the company in analysing overall
financial stability of the company.
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 Better quality of financial reporting: IFRS adoption helps organisation in improving
their quality of financial reporting. Quality gets improved because of consistent
application of accounting principles. Adoption of IFRS also result in developing
reliability of financial statements (Juhmani, 2017). This reliability and better quality of
report will lead company in building effective trust with investors, and other stakeholder
of the company.
 Access and reduce cost of capital: IFRS is accepted as financial reporting frame work
and adoption of this IFRS will raise to better access of information and will reduce cost
of capital. Adoption of IFRS helps organisation in preparing their financial report with
proper guidelines and framework which overall helps company in improving
performance at global level.
 Saving in financial and cost of the company: decision id provided by SEBI for foreign
companies in preparing their financial statements which is in accordance with IFRS
(Wycherley, 2017). Impact of this decision on company is that, company will not have to
made two separate books of accounts with generally accepted accounting principles. This
overall leads in saving financial cost of the company. It also helps to save time in
preparing two sets of books of accounts.
 Single reporting: adopting IFRS helps organisation to eliminate multiple sets of
reporting which overall helps in reducing cost of capital and time of the organisation.
 Understandability: IFRS has been provided to develop easy understanding of financial
reports to internation investors. Therefore, IFRS adoption has provided an easy
understanding of statements across the globe for international investors of the company.
It also helps company to attract new international investors in their company which helps
them to increase profitability.
These are some benefits which shows importance of the IFRS. Adopting these
standards develop transparency, comparability and accurate information in financial statements
of the organisation (Bonsall IV and et.al., 2017).
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9. Degree of compliance with IFRS across the world and factors which impact its compliance
Companies in different countries are adopting diver account practises which developing
significant economic consequences at international level which is for interpretation of financial
reporting of global business of the companies. The result of complying with IFRS is that
company will able to attract more international investors in their organisation which helps in
building strong goodwill of the company. International accounting and securities organisation
has taken a step which is to reduce harmonization of accounting which helps company to
improve transparency and comparability in financial reporting. International financial reporting
standards will able to increase investor cost and it will also reduce reporting cost of the
accounting preparation for different organisation (Johnston and Petacchi, 2017). Compliance of
IRS also helps organisation in developing competitive advantage in business market and the
overall impact is that company's cost of capital gets increased and it will decrease liquidity of the
company. IFRS adoption in companies helps them to develop effective communication linkage
through their global partners. It also develops greater international capability of firm to invest in
other countries.
Factors which impact degree of compliance
IFRS are not accepted globally by many business organisations. Different countries has
their different set of accounting policies which company's followed to prepare accounting
statements. These IFRS standards are not accepted by all nations as well because it hides those
underlying difference in business environment. Many nations have opposed adoption for
adoption of IFRS. Opposition done by different companies by saying that after adopting IFRS in
preparing financial statements, results which appeared are totally different from original one.
Firstly opposition is done by Australia. According to them after adopting IFRS in preparing
financial statements they also have to change standard name, some textual changes by which
documents appeared are clearly different from original one which issued by International
accounting standard board.
Adoption of IFRS in EU is taken as relevant event. Decision of adopting IFRS played a
key role for the acceptance at international level. Therefore, they have already adopted IFRS in
preparing financial statements of the company. Another factor of not adopting IFRS is that it
does not provide guarantee of information regarding quality and comparability which improves
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financial resources worldwide. Major factor in not adopting IFRS is that company have to
develop training and development sessions for the employees to prepare their financial accounts
in accordance with international financial reporting standards.
CONCLUSION
From the above study it can be concluded that financial reporting helps to analyse overall
financial position with financial stability of the organisation in business market. In this report
details are provided regarding importance of financial reporting for an organisation. Conceptual
framework also provided to analyse factors which needs to be develop while preparing financial
reporting. This report also cover importance of adopting IFRS while preparing financial report.
Therefore, it can be concluded that financial reporting is the necessary elements for organisation
in reflecting their financial position in business market and also to attract international investors
in the organisation by adopting IFRS standards.
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REFERENCES
Books and Journals
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information prepared under IFRS: Evidence from debt contracts around IFRS
adoption. Journal of Accounting Research. 53(5). pp.915-963.
Barth and et.al., 2018. Effects on Comparability and Capital Market Benefits of Voluntary IFRS
Adoption. Journal of Financial Reporting.
Bonsall IV and et.al., 2017. A plain English measure of financial reporting readability. Journal
of Accounting and Economics. 63(2-3). pp.329-357.
Bushee, B.J., Goodman, T.H. and Sunder, S.V., 2018. Financial Reporting Quality, Investment
Horizon, and Institutional Investor Trading Strategies. The Accounting Review.
Cascino, S. and Gassen, J., 2015. What drives the comparability effect of mandatory IFRS
adoption?. Review of Accounting Studies. 20(1). pp.242-282.
Cheng and et.al., 2014. The international integrated reporting framework: key issues and future
research opportunities. Journal of International Financial Management &
Accounting. 25(1). pp.90-119.
Christensen and et.al., 2015. Incentives or standards: What determines accounting quality
changes around IFRS adoption?. European Accounting Review. 24(1). pp.31-61.
Chychyla and et.al., 2018. Complexity of financial reporting standards and accounting
expertise. Journal of Accounting and Economics.
Gigler and et.al., 2014. How frequent financial reporting can cause managerial short‐termism:
An analysis of the costs and benefits of increasing reporting frequency. Journal of
Accounting Research. 52(2). pp.357-387.
Johnston, R. and Petacchi, R., 2017. Regulatory oversight of financial reporting: Securities and
Exchange Commission comment letters. Contemporary Accounting Research. 34(2).
pp.1128-1155.
Juhmani, O., 2017. Corporate governance and the level of Bahraini corporate compliance with
IFRS disclosure. Journal of Applied Accounting Research. 18(1). pp.22-41.
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Naranjo, P.L., Saavedra, D. and Verdi, R.S., 2018. The Pecking Order and Financing Decisions:
Evidence from Changes to Financial Reporting Regulation. Available at SSRN 2147838.
Spiceland and et.al., 2018. Intermediate accounting.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical
perspectives on accounting. 25(1). pp.17-26.
Online
Conceptual Framework for Financial Reporting. 2018. [ONLINE]. Available through
<https://www.iasplus.com/en/standards/other/framework>
Qualitative Characteristics of Financial Information. 2013. [ONLINE]. Available through
<https://accountingexplained.com/financial/principles/qualitative-characteristics>
Wycherley, J., 2017. The Benefits of IFRS. [ONLINE]. Available through
<https://www.morganmckinley.ie/article/5-benefits-ifrs>
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APPENDIX
Profitability statements of M&S
Statement for financial position
Statement for financial position
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