Financial Reporting in Global Markets

This document discusses the context and purpose of financial reporting in global markets. It analyzes the regulatory frameworks and governance of financial reporting and evaluates the benefits and differences of financial reporting standards. The document also includes a cash flow statement.

FINANCIAL REPORTING IN
GLOBAL MARKETS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
Analyse context of the financial reporting including the regulatory frameworks and
governance of the financial reporting.........................................................................................1
Analyse purpose of FR for meeting organisational objectives, development and growth..........2
SECTION 2......................................................................................................................................4
Task 1..........................................................................................................................................4
Task 2..........................................................................................................................................7
SECTION 3......................................................................................................................................8
Evaluate the key benefits associated with the financial reporting standards..............................8
Examining the theoretical models related with the financial reporting and auditing...............10
Evaluating the key difference and relevance of the financial reporting across varied countries.
...................................................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
APPENDIX....................................................................................................................................16
Cash flow statement..................................................................................................................16

INTRODUCTION
Financial reporting (FR) is an effective disclosure of the financial statements and is useful in
providing key associated information to the key stakeholders and the management of the
organization. The financial reporting of the firm helps in evaluating how the organization has
been carrying task for a particular time. FR is useful in providing number of important financial
information which helps the investors, creditors and the creditors to evaluate the key financial
position of company. This study will mainly focus on analysing the key purpose and context of
the financial reporting. This report is useful in examining the theoretical models related with the
financial reporting and auditing. Furthermore, it also evaluates the key benefits associated with
the financial reporting standards. This report mainly focusses on evaluating the key difference
and relevance of the financial reporting across varied countries.
SECTION 1
Analyse context of the financial reporting including the regulatory frameworks and governance
of the financial reporting.
FR includes disclosing the financial information to different stakeholders relating to
financial performance as well as position of organisation over specific period. The stakeholders
are creditors, investors, debt providers, public, government and the government agencies. For
listed public company’s interval of the financial reporting is generally & annual and quarterly. It
is generally considered as final reporting in accounting. Components of the FR includes financial
statements like income statement, balance sheet and the CF statement, notes to statements,
annual and quarterly reports, prospectus and management analysis.
Aim of the FR is of providing information relating to financial performance, position and
the changes in the financial status of organisation which are useful to number of users of
financial information.
Financial frameworks are established by government organisations for assisting IASB in
revising and developing IFRS which are framed over consistent concepts to help the preparers in
developing accounting policies related to the areas not considered by the standards or where
there are choices of the accounting policies and for assisting the parties in understanding and
interpreting IFRS.
Regulatory Frameworks refers to structure that helps the entity in deciding about the
manner of treating items that must be included in financial statements. IAS are set of
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understandable, high quality and the enforceable accounting standard. Regulatory framework
helps to ensure accountant for producing the financial statements that are consistent, comparable
and accurate. Regulatory frameworks ensure that reports are submitted by the management about
financial performance are fair and true that help owners in decision-making. The regulatory
requirements and the governance reduces subjectivity from the accounting. Company have to
prepare financial information following the same set of rules or standards allowing the investors
and owners to access comparable and clear information about financial performance of
organisation.
Reporting requirement as per Companies Act is that if company is registered with either
2000 or more global employees or is having the turnover of £200 million and a balance sheet of
over £2 million at a global level then they require to include statement as part of their Directors
Report. Further all companies are required to prepare a narrative report from the annual reports.
All the companies other than those companies which are defined as small under Companies Act
need to make a strategic report (Company law, 2020). This strategic report lists out all the details
pertaining to operations and working of company.
Governance and regulatory frameworks of financial reporting allows contrast and
comparison of financial performance and condition of the organisations operating in various
countries. Organisations operating in different countries requires to comply with accounting
requirements of every country. The regulatory frameworks related to financial reporting are
moreover similar after introduction of global accounting standards and frameworks that has
reduced the complexity of the accounting reporting.
Regulatory frameworks are essential for preparing FS for reporting the performance of
company. It ensures that users' requirements of the FS have been met with minimum
information. It enables the firms to provide information in relevant economic area is consistent
and comparable both. Reporting frameworks makes the process transparent and increases the
confidence in financial reporting process. Behaviour of the directors and regulators is directed
towards the investors.
Analyse purpose of FR for meeting organisational objectives, development and growth.
FR use fiscal statements for disclosing the financial data indicating the financial
performance and health of the company during specific time period. It provides vital information
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for the management for making decisions about future and provide information to the capital
providers and investors related to financial stability and profitability of company.
Financial reporting play vital role within economies of globe. Main purpose of giving the useful
and relevant information to the owners of company where the ownership and control are
separate. Shareholders residing in different geographical regions are not having any role
management of firm but appoint the directors for doing so on this behalf. Executives receive
annual statements summarising position and performance of firm so that they could assess
performance of the investments made during reporting period (Elbakry and et.al., 2017).
Investors would not be able to understand how well the company is performing and to monitor
the effectiveness of the directors.
Financial Reporting provides number of important financial information which helps the
creditors, investors and the creditors evaluating the financial performance of company. It
enables managers to communicate past success and the future expectations of business.
Purposes of financial reporting in meeting growth, objective and development
Financial performance and position
Management and investors analyse the performance and efficiency of the entity before
the investments are made. Creditors and investors rely over the financial reports provided by
company to gauge safety and the profitability of investments. Investors could analyse the
investments, assets and the outstanding obligations of the enterprise through financial statements.
Management use the information to assess the growth in performance and developments made
during the year in company. On the basis of financial analysis management take various
important decisions for the business to increase the efficiency and productivity of the entity.
Evaluating operations
Information provided in the different statements are evaluated by the investors and
managements to identify the profitability levels, efficiency, liquidity and the solvency and
comparing them with results of past years. The change in the period is evaluated and the reasons
for the change are verified by the management (Musleh Al-Sartawi, Alrawahi and Sanad, 2016).
The areas in which company is lacking are identified and actions are taken by the entity to
improve the performance of the enterprise. Policies and strategies for improving the performance
and position of the entity are taken by the management.
Sharing Shareholders equity
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Statement of equity is essential for the investors to assess the changes in the equity
components such as retained earnings during period. Steady growth in the equity is seen due to
the increasing retained earnings opposed to the expanding shareholders base that means higher
investment return for the current equity shareholders.
Meeting the regulatory requirements
The financial reports are also required by the regulatory authorities for ensuring that
company is complying with the statutory requirements and accounting standards. The reports are
used by the tax authorities to ensure that company has reported the profits properly and required
tax are paid on them. For listed companies Securities exchange requires to report the financial
performance and position to provide clear and transparent view of the business operations so that
investors could assess the growth and performance of their investments.
Florou, Morricone, and Pope, (2020) critically analysed that, Financial reporting is
considered to be beneficial for the better disclosure of the financial information to the key
relevant stakeholders to evaluate the financial performance and financial position of the
company. It is important for the investors of the company to evaluate whether they should invest
in the particular company or withdraw it to gain stipulated set of returns.
SECTION 2
Task 1
Importance and purpose of analysing financial statement- the main purpose of analysing
financial statement is that this help company in understanding the position of company. This help
company in analysing the actual position and profitability of company and take decision for
betterment of company.
Calculating and presenting financial ratios
Current ratio Formula 2019
CA/ CL 2.95
Current asset 103250
Current liabilities 35000
Quick ratio Formula 2019
(CA- inventories)/ CL 1.65
Current asset 103250
Inventory 45500
Current liabilities 35000
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Gross profit ratio Formula 2019
GP/ net sales * 100 48%
Gross profit 120000
Net sales 250000
Net profit ratio Formula 2019
NP/ net sales * 100 19%
Net profit 46900
Net sales 250000
Return on capital employed Formula 2019
EBIT/ capital employed* 100 15.63
EBIT 75000
Capital employed (total asset- current
liabilities) 480000
Total asset 515000
Current liabilities 35000
Asset turnover ratio Formula 2019
Net sales/ average total assets 0.97087
Net sales 250000
Average total assets 257500
Inventory turnover ratio Formula 2019
COGS/ average inventory 3.46
COGS 130000
Average inventory 37500
Account receivable ratio Formula 2019
Net credit sales/ average account
receivable 7.14
Net credit sales 187500
Average account receivable 26250
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Interest coverage ratio Formula 2019
PBIT/ interest on long term debt 9.38
PBIT 75000
Interest 8000
With the help of the current ratio of Total Inc. it is clearly visible that current ratio is
2.95. This is good for company as for paying of single liability company is having more than
double current asset. This is very good and profitable position for company. The major reason
underlying this is that if company has double the current asset in comparison to current liabilities
then company is more liquid.
Further, with help of quick ratio it is clear that it is 1.65 and this reflects that liquidity of
company is quite well. The major reason underlying this is that quick ratio highlights the
company is having more liquid asset which can be converted into cash at any time. Thus,
whenever there is any situation wherein company requires cash then they can arrange cash be
selling quick asset.
With reference to gross profit ratio it is clear that company is having quite well ratio that
is 48 %. This suggests that company is earning good amount of profit from its operations. But at
the same time the net profit ratio of company is not that good as compared to gross profit ratio.
The net profit of company is 19 % and this suggests that company is having high expenses. The
major reason underlying this can be like increase in expenses of company such is administrative
and selling expense, tax, interest payable and many others.
Further, with reference to return on capital employed the company is having 15.63 which
is good for company. The major reason underlying this is that this ratio reflects the ability of
company to provide return on the capital being employed in the business. Hence, for this the
return provided by company was 15.63 which is quite good return.
Further, with help of efficiency ratio it was seen that in asset turnover ratio for company
is 0.97087 times which is not good for company. This reflects that company is not in position of
employing its asset in order to generate more sales. Hence, for this company might take
necessary measures to optimally use asset for generating more sales. Further, inventory turnover
ratio depicted that it is 3.46 times. This suggests that company is very fast in converting the
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finished inventory in cash. In addition to this account receivable ratio is the one which provides
the information relating to in how much time company is able to recover its payment back. For
Total Inc. the time period is 7.14 which is good for company.
In the end with help of interest coverage ratio it was found that ratio is 9.38 which is
good for company as with help of this company is able to identify its ability in covering its
interest payment expenses from available earning.
Hence, all these ratios calculated from the income statement and balance sheet are very
helpful for company in taking effective decision. The major reason underlying this is that these
ratios depicts the performance and position of company and with help of these company makes
effective decision. For instance, the asset turnover ratio was very low so this will assist
management of Total Inc. to increase the use of asset and employ it in increasing sales.
Model for solving financial problem
For this company can make use of KPI that is Key Performance Indicator model. This is
a theory which will help company in setting an indicator against which performance of company
will be assessed. For example, the company can take profit as indicator and the performance of
company will be evaluated on basis of that indicator and will be compared. Hence, if current
profit will be lower than the indicated profit than company need to improve its performance. In
contrast to this is current profit of company is more than company will have to make strategies to
keep the profit constant and try to improve it.
Task 2
Cash flow statements
Interpretation- from the above cash flow statement it is clearly visible that net cash
generated from operating activity of company for 2018 was 1365 and for 2017 was 1153. This
reflects that operations of company have improved in 2018 as compared to 2017. This suggests
that the cash inflow of company from operating activities has increased and this is god for
company. Further, from investing activity it can be seen that there is cash outflow from the
investing activity of 470 and 750 respectively for 2018 and 2017. This depicts that company has
more cash outflow for the investment which they have done for better working of company. In
the end, from financing activity also there was more of cash outflow as compared to cash inflow.
The major reason for this was the payment made to shareholders in form of interest, dividend,
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also repayment of borrowing was made and all these lead to cash outflow from financing
activity. This suggests that company must work in order to improve cash inflow from both
financing and investing activities. The company is in good position to manage cash flow from
operating activities. This is majorly pertaining to the fact that operation cash flow is good and
company is able to have inflow from operating activity. But company is not effective in
managing cash from financing and investing activity as there is cash outflow rather than cash
inflow.
Model for solving financial problem
For mitigating financial problem, the major model used is Baumol model which is a cash
management model. This model is based on the model of EOQ that id Economic Order Quantity.
Under this the assumption states that there is constant and predictable inflow of cash and instant
cash transfer are there. This assist in solving financial problem as there is major assumption that
there are rhythmic cash receipts this suggest that there is proper inflow of cash.
In addition to this another model which can be used in solving financial problems in
company is working capital management techniques. Under this company must focus over
managing inventory for proper working capital. The major reason under using this is that
company must keep proper record of all inventory coming and finished good being sold. This
will assist company in managing working capital and liquidity of company and will assist in
decision-making as well.
SECTION 3
Evaluate the key benefits associated with the financial reporting standards.
International Accounting Standards (IAS): These are older standards of accounting and
has been replaced by the International Financial Reporting Standards in the year 2001. This has
been established by the International accounting standard committee (IASC). IAS is considered
to be as the first accounting international standard which has been issued by the IASC.
Benefits of International Accounting Standards (IAS)
These are comparable standards of accounting across globe and are considered to be
useful because it is useful in the promotion of transparency, efficiency and accountability within
the key financial market across the globe (Florou, Morricone, and Pope, 2020). International
Accounting Standards is considered to be useful because it enables the investors and various
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other external market members in order to take decision. It is significant in taking informed set
of economic decision linked with the investment opportunities and also helps in improving the
allocation of capital. International accounting standard is highly beneficial because it is
prominent in reducing regulatory cost and reporting. It is considered to be useful because it
helps in making the financial reports more credible and helps in ensuring that the specific
financial statements are comparable with that of other companies on the same basis. It is
significant in providing consistent information.
International Financial Reporting Standards (IFRS): It helps in setting common set of
accounting rules across the globe. It is a significant set of accounting standards which has been
effectively established by an independent not for profit organization is referred to as the
International accounting standard board (IASB). The IFRS effectively adopted by the European
Union. Further, the USA, China and Japan are considered to be as the major capital markets who
does not comply with IFRS.
Benefits of International Financial Reporting Standards (IFRS)
IFRS must be adopted because it helps in effectively getting access to the world capital
market which is useful in the promotion of the business (Caputo, and et.al., 2020). It allows the
company to perceive as the key international player. IFRS is considered to be useful for the
investors because it helps the organization in comparing the performance of the company with its
key competitors who are present globally. It also helps in encouraging the foreign investors to
properly invest and gain high degree of foreign capital flows within the country. It is beneficial
for the economy because it effectively increases the growth for carrying out international
business. The implication of the International Financial Reporting Standards is significant
because it improves the government grants and increased taxes because of the better financial
flow of the company. IFRS is also considered to be prominent because it helps in reducing the
amount of time, effort, and expenses to prepare multiple reports. It is useful for the easy
monitoring as well as controlling of the subsidiaries within foreign countries (Ahern, 2016).
IFRS offers high degree of flexibility within the accounting practice. It is highly beneficial in
streamlining the system by adopting unified global accounting standard. It helps in improving the
rate of foreign direct investment across the globe. Another major benefit associated with the
IFRS is that, it helps in improving the day to day operations of the business and will get high
degree of access to the in- depth information related financial performance of the company. It
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also leads to improved financial reporting as well as better tax planning. It is useful in effectively
managing the key resources by effectively streamlining the accounting process. It helps in
improving the key financial controls by reducing risk penalties and the problems related with
compliance. It helps in lowering the cost of capital and increasing the insight within the financial
results.
However, financial reporting is considered to be prominent which helps in tracking,
reporting and effectively analysing the key financial reports of the business. It is useful in
examining the usage of the resources and the financial position of the business. It is useful in
taking necessary decision. It is significant for the investors in making informed set of decision.
Examining the theoretical models related with the financial reporting and auditing.
Equity theory: This theory is useful within the financial reporting because it helps in
interpreting the economic position of organization in various different ways (Musleh Al-Sartawi,
Alrawahi and Sanad, 2016). It mainly leads to impose high degree of emphasis on effectively
disclosing the interest of stakeholders as well as varied concepts related with income.
Legitimacy theory: This theory is considered to be very useful because it helps in
ensuring that, the company needs to effectively maintain a complete set of balance between the
expectation of the society and the social values adhered by the company. This way it helps
meeting the needs and expectations of the shareholders. This theory is useful in effectively
understanding the behaviour of the organization which is useful in developing, implement and
also communicating the policies related with social responsibility.
Models of financial reporting
The financial reporting model is referred to as the blueprint which helps in effectively
setting out the structure and the content related with the financial reports. The reporting model
mainly comprise of the required supplementary data, fiscal statements and notes to fiscal
statements.
Financial statements models:
1. A 3 statement financial model is significant because it helps in effectively linking the key
fiscal statements i.e., balance sheet, income statement and cash flow statements into one key
significant financial model (Ali, and Ahmed, K., 2017). The 3 statement model is considered
to be as the effective advanced financial model. It helps in forecasting the key financial
statements and the key financial activity.
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2. Notes to financial statements: It is useful in effectively providing additional set of
information related with the financial situation of company and the operations of the
company. This is however, considered to be as the key prominent part of the fiscal
statements. Notes to fiscal statements helps in further clarifying the accounting procedure
which has been used by the company.
3. Required supplementary information is considered to be as the key relevant information
which is specifically designated accounting standards settle to accompany the basic fiscal
statements.
Models for auditing
Auditing is one of the key significant measure which inspects the process related with the
quality system. It is also significant in ensuring compliance. An audit is considered to be highly
useful because it helps in confirming the authenticity associated with the financial statements.
The key purpose related with the auditing is to effectively form an opinion related with the
information of financial reports by identifying every possible irregularity. Auditing helps in
ensuring whether the financial information is reliable and valid.
Model audit is one of the key significant task within the financial auditing which is useful in
ensuring that the spreadsheet errors has been eliminated. This is also referred to as a model
review which helps in making sure that the key assumptions help in effectively ensuring that
models are reassuring lenders, accurate and investors (Morais, 2020, January). The scope of the
model audit helps in ensuring that the financial reports are error free and highly reliable. The
audit model helps in effectively yielding accurate results and helps the auditor helps in providing
guarantee to seek audit. Model audit helps in effectively ensuring that the accuracy has been
maintained while carrying out the business operations.
Evaluating the key difference and relevance of the financial reporting across varied countries.
Financial reporting is considered to be useful because it helps in answering all key vital
aspects related with the study to manage the operational activities of the company. It is useful for
the company in giving both external as well as internal analysis of the key stakeholders within
the company. It is useful in creating a key snapshot related with the metrics in order to take
necessary decision and it is relevant in carrying out informed action in an efficient manner
(Miah, 2018). One of the key relevance associated with the financial reporting is that it helps in
effectively enhancing the comparability of the company across various international boundaries.
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International Financial Reporting Standards helps in setting common set of accounting rules
across various international boundaries. It is useful in setting specific accounting standards
which has been well-known by not-for-profit company known as IASB. The major benefit of the
IFRS is to identify risk and opportunities across globe and is useful in improving capital
allocation. The major disadvantage of the IFRS is that, it requires global consistency in the
enforcement and auditing process (Collis, Jarvis, and Skerratt, 2017). The IFRS has been
effectively adopted by the European Union. Further, the USA, China and Japan are considered to
be as the major capital markets who are not complied with IFRS. The public companies within
the Japan has the option to choose whether they want to comply with the IFRS.
The key benefit of the GAAP is that, it comprises of wide set of accounting rules, principles
and standards associated with the financial reporting. It is useful for the investors in the better
analysing of the information and compare it with the key competitors. The major disadvantage of
the GAAP is that, it is not accepted and recognized globally. Companies in India uses GAAP
principles while preparing of financial statements.
The key difference linked with the GAAP and IFRS is that, GAAP is mainly based on rules
on the other hand IFRS is based on principles. However, with the principle based accounting
framework there seems to be high degree of potential which is usually based on other set of
interpretations and other similar transactions. This eventually leads to high degree of extensive
disclosure within the financial statements (Arafat, Dunne, and Ahmed, 2020). Approximately
around 120 nations and the other reporting jurisdictions have been permitted or in turn comply
with the IFRS of accounting. Around 90 countries has been fully conforming with and
complying with the IFRS which has been significantly promulgated by the IASB. This is useful
in acknowledging the key financial reports and conform by the audit reports.
External financial reporting mainly comprises of the financial statements, related disclosures
and the financial summaries which has been issued to the users who are outside of reporting
entity. It is linked with the issuance of the audited set of financial statements in order to make
informed set of decision. International differences with the external financial reporting is mainly
because of the nature of the business, ownership and the financial system of the company
(Elbakry and et.al., 2017). The level of experience of the professional accountants across various
countries is one of the major reason which mainly leads to international differences with the
external financial reporting. Taxation is considered to be as one of the key significant reason
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which leads to the difference in the financial reporting. In some cases, the individual is required
to pay the taxes which has been documented within the income statement account. However, the
financial reports are highly tax influenced. The financial practice followed by the company is
one of the major reason which results in difference within the financial reports. If the company,
follow the same exact accounting standards then there must not be difference within the financial
reporting. This leads to higher operational growth and better decision making. This eventually
results in high degree of growth and better financial position.
It has been concluded that, it is not considered to be effective to have different international
reporting standards especially when the companies are operating globally. This is mainly
because it has effect on the financial statement because each standards have different rules and
principles.
CONCLUSION
From the conducted study it has been summarized that, Financial Reporting includes
revelation of the financial data to stakeholders associated with financial of company over set
period. Regulatory Frameworks refers to structure that helps the entity in deciding about the
specific manner of treating items within financial statements. Primary purpose of providing the
financial reports to owners of company to take important decision. The reports are used by the
tax authorities to ensure that company has reported the profits. IFRS is considered to be useful
for the investors because it helps the organization in comparing the performance of the company
with its key competitors. A financial statement model helps in linking the fiscal statements i.e.,
balance sheet, income statement and cash flow statements into one key significant financial
model and helps forecasting the financial activities. The IFRS has been effectively adopted by
the European Union. Further, the USA, China and Japan are considered to be as the major capital
markets who are not linked with IFRS. Model audit helps in effectively ensuring that the
accuracy has been maintained while carrying out the business operations. International
differences with the external fiscal reporting is mainly because of the nature of the business and
fiscal system.
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REFERENCES
Books and Journals
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non-financial reporting directive. European Company and Financial Law Review, 13(4),
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accounting standards. Accounting Research Journal.
Arafat, I., Dunne, T. and Ahmed, A.H., 2020. Splitting Accountability Hairs: Anomalies in the
Adaptation of IFRS for SMEs in the UK and Ireland. Accounting in Europe, pp.1-21.
Caputo, F and et.al., 2020. The Non-Financial Reporting Harmonization in Europe: Evolutionary
Pathways Related to the Transposition of the Directive 95/2014/EU within the Italian
Context. Sustainability.12(1). p.92.
Collis, J., Jarvis, R. and Skerratt, L., 2017. The role and current status of IFRS in the completion
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Elbakry, A.E and et.al., 2017. Comparative evidence on the value relevance of IFRS-based
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Florou, A., Morricone, S. and Pope, P.F., 2020. Proactive financial reporting enforcement: Audit
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Miah, M.S., 2018. IFRS-Local GAAP Reconciliation Statements: Insights from the Academic
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Morais, A.I., 2020, January. Are changes in international accounting standards making them
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APPENDIX
Cash flow statement
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