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Financial Reporting - IFRS Assignment

   

Added on  2021-01-05

30 Pages4693 Words90 Views
FINANCIAL REPORTING

TABLE OF CONTENTINTRODUCTION...........................................................................................................................1MAIN BODY...................................................................................................................................11.) Context and purpose of financial reporting............................................................................12.) Conceptual and regulatory framework of financial reporting and qualitative characteristicsof financial reporting....................................................................................................................23.) Main stakeholders of organisation and their importance in financial information.................44. Importance of financial reporting for accomplishing organizational growth and objectives..15. Framing financial statements as per IAS 1..............................................................................26.) Interpretation of the financial performance of Glaxo Smith Plc............................................47.) Presenting the difference between IAS and IFRS..................................................................68. Benefits of IFRS......................................................................................................................89. Compliance with IFRS.............................................................................................................9CONCLUSION..............................................................................................................................10REFERENCES..............................................................................................................................11

INTRODUCTIONFinancial reporting is known to be the process of producing financial statements formeasuring overall financial performance of organisation which disclose a performance status tomanagement, investor and government of the company (Nobes, 2014). This present report willcover purpose of financial reporting with its conceptual framework. Importance of financialreporting for stakeholders of organisation and financial statements as per IAS-1 is also to bediscussed in this report. Difference between international accounting standards and internationalfinancial reporting standards with the benefits of IFRS is to be studied in this report. Further, thisreport will cover degree of compliance with IFRS by organisation across the world is to becover.MAIN BODY1.) Context and purpose of financial reportingFinancial reporting is the process of measuring performance of the organisation. Purposeof preparing financial information is to provide useful and relevant information to owners ofcompany. Preparation of financial statements in compulsory for every types of organisation butmainly it is compulsory for public limited companies, where share capital of organisation is soldthrough stock exchange among public of business market. This financial statements are analysedby investors and government to analyse business performance in which they have invested theirmoney (Leuz and Wysocki, 2016). Mainly purpose of financial statements is for meeting needsof the organisation according to their previous year financial performance of the company.Context and purpose of financial statements is to provide information regarding thebusiness operations under which mainly three statements are prepared by the company which iscash flow, income statements and balance sheet. Cash flow statement helps in revealing amountof money which comes in and out from the organisation. Income statement of the organisationwill provide amount of expenses company has incurred in overall financial year of the company.This statement helps in analysing overall operating profits in the organisation. Balance sheets ofthe organisation will produce current status of company in which information has been used inestimating liquidity, funding with overall debt position of company. Another several purposes and context of producing financial statement are as follows-1

Credit decision- financial reports are analysed by the lenders of the organisation formwhich company has taken loan. They analysed overall financial position of the companyto develop decision which is about whether to extend credit in business or to restrict thatamount of credit which they have extended in business organisation.Investment decision- investors analyse financial reports of the organisation in deciding whetherto invest in organisation or not (Adams, 2015). This analysis of the financial statements will helpinvestor in analysing price per share of organisation in which they want to invest.Taxation decision- government will also analyse the financial statements of theorganisation in which they measure its assets or income which helps government inderiving the information which applying tax on business operations.Union bargaining decision- to analyse bargaining position and the ability of thecompany to pay business compensation, unions analysed financial reports of theorganisation.2.) Conceptual and regulatory framework of financial reporting and qualitative characteristics offinancial reportingConceptual framework is the attempt which defines nature and purpose of accounting.Conceptual framework is known to be theoretical and conceptual issues which are surroundingfinancial reporting in which accounting standards are developed in this report. For the financialreporting, conceptual framework mainly seen as statement of generally accepted accountingprinciples for its development. Purpose of financial reporting is to provide useful and relevant information to the users ofthe company and for the conceptual framework used as form of theoretical basis which is for determing record of transaction in report and its measurements (Francis, Park and Wu, 2015).When reports are developed in accordance with conceptual framework then accounting standardsoften produced as serious defects. 2

Qualitative characteristics of financial reportingMain purpose of financial statements is to educate users of the company which is aboutfinancial status and financial performance of the company. Mainly financial reporting areanalysed by the shareholders of company because they are the real owners of company which isgoverned by directors. It is the duty of directors to prepare financial statements which is freefrom material misstatements as well as which also possess qualitative characteristics instatements (Frias‐Aceituno, Rodríguez‐Ariza and Garcia‐Sánchez, 2014). There are mainly fourcontents of qualitative characteristics in financial report that is Understandability, Relevance,Reliability and comparability.Relevance- financial reports provides relevance information which adds value which is fordecision making. This will help users to evaluate decision for company.Reliability- financial reports are free from errors, mainly it is free from material errors and freefrom bias.Comparability- financial reports provides information which is full of comparable and haveability in providing useful financial information to the users of the company.3Illustration 1: conceptual framework of accounting and reporting problems(Source: Objectives of General Purpose Financial Reporting, 2014)

Understandability- financial reports are very much understandable for the users. Therefore,entities present their financial reports in a way that it provides clear Understandability of thefinancial performance.3.) Main stakeholders of organisation and their importance in financial informationThere are many users of financial statements for which financial information is theessential part. Therefore, financial reporting is mainly produced by organisation to provideinformation which is about the stability and capability of organisation in business market.Shareholders generally want financial statements of the organisation to analyse theirperformance and to measure whether the money which they invest in organisation is used bydirectors for business purpose or not (Cheng, Konishi and Romi, 2014). Main stakeholder of theorganisation and its importance for financial information are as follows-company management- Management of the company generally needs information regarding financial position of thecompany to analyse its profitability, liquidity and cash flow so that they work accordingly tomeet goals of organisation. Therefore, management is considered as shareholders of organisationit is necessary for directors to disclose their financial reports to company's management.CompetitorsThis is point where management analyse their financial statements with competitors oforganisation. So that effective decision will be developed in improving overall performance andprofitability of the organisation in business market. Competitors are considered as shareholder ofcompany because by comparing their financial report, company will determine their businessoutcomes.CustomersFor selecting which supplier is selected for major contract, financial statements of the companyare review by customers of the organisation. This analysis of the financial statements helpscustomers to select which supplier has effective financial ability in providing goods and servicesto customer on long term basis.EmployeesFinancial reports are important for employees so that employees will able to measure overallcapability of company to pay their compensation. These financial statements help employees tounderstand business policy so that they work accordingly in achieving overall business goals.4

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