Financial Reporting Assignment : Lloyds Banking Group
Added on - 21 Feb 2021
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INTRODUCTIONFinancial reporting is a framework which involves preparation of statement of accountsi.e. balance sheet, profit & loss, changes in equity, cash flow etc. It is also used to determine acompany's liquidity and profitability position by calculating ratios(Evers, Meier and Spengel,2014).Every company follows a different conceptual & regulatory framework according to theneed like U.S. Prepare financial statements by using GAAP whereas U.K. considers using IFRS(Financial reporting,2019). It is affected by a number of legislative factors like law, tax,security exchange rules etc. For this report we have selected an accountancy firm i.e. KPMGwho has a client named Lloyds Banking Group. It is a public limited company whoseheadquarters are situated in London, UK and was founded in 1995, 24 years ago. The bankingcompany offers a variety of services to the customers such as retail, commercial, investment,private banking. Also, some other facilities are provided which include general or life insurance,pensions etc. The below report also includes financial & regulatory framework, majorstakeholders of the organisation, implication of IFRS, IAS and the benefits derived from them.MAIN BODYQ1 Definition and purpose of financial reportingFinancial reportingcan be defined as a process of producing statements that disclose anorganisation's financial status among the stakeholders. It involves identifying & analysing theworking capital position of a company with the help of ratios(Christiaens and et.al., 2015). Thisframework is required by managers to evaluate performance of a firm by preparing financialaccounts like balance sheet, profit or loss, cash flow statement etc. For example, Lloyds BankingGroup prepare its statement of accounts to identify any potential buyers or defaulters during anaccounting year. The company also uses financial reporting as a tool to evaluate cash flowstability, profitability & debt position of its figures.Purpose of financial reporting:The major purpose of this framework is to providefinancial information about the reporting entity that is useful for existing & potential investors,lenders and other creditors in making decisions about supplying resources to the entity.
Q2 Meaning of conceptual & regulatory frameworkAconceptual & regulatory frameworkis a coherent system of interrelated objectivesalong with business principles which prescribe nature, function or limitations of financialstatements. It is necessary to have a framework as that enables accounting standards & GAAPpractice to be developed in accordance with specific rules & regulations. This is required bymanagers as it helps a company in identifying appropriate standards like IFRS for the preparationof final accounts. Lloyds Banking Group follows a conceptual & regulatory framework to ensurethat users of financial statements receive a minimum amount of information that will enablethem to take meaningful decisions regarding their interest in the firm(Evers, Meier and Spengel,2014).IFRS 13 - Fair value measurement:This standard sets out a framework for measuringfair value and require disclosure for its measurement. Fair value is a price that would be receivedto sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date. It includes three level inputs which are explained below:Level 1-It comprises of quoted or observable prices for an identical asset or liability in aactive market at measurement date. This is considered to be providing most relevant informationand can be used without adjustment.Level 2-It comprises of observable units that include quoted price for similar assets &liabilities in active markets or prices for similar products in inactive market. This requires somedegree of adjustment.Level 3-It consists of unobservable inputs for an asset or a liability based upon the bestinformation available that may be reasonably accessible in the market.IFRS – 10 Consolidated financial statements:It refers to a statement which includes aparent as well as a subsidiary company. This also involves calculation of NCI, group retainedearnings, goodwill, goods in-transit etc. The parent company is considered to be owner of thefirm whereas a subsidiary owns more than 50% share holding in an organisation(Tschopp andHuefner, 2015).Purpose of conceptual & regulatory framework:The purpose of this framework is toassist board in development of new accounting standards while examining existing or previousone's. It also help auditors when they are forming an opinion regarding preparation of accounts.