Financial Reporting Assignment PDF - Marks and Spencer

Financial Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1.context and purpose of financial reporting..........................................................................1
2.conceptual and regulatory framework, purpose and key principle, and the factors by which
qualitative characteristics makes the financial statements more reliable...............................2
3.stakeholders of the organisation and their benefits in financial information......................3
4.importance of financial reporting to achieve organisational growth...................................4
5.information of main financial statements as per IAS 1.......................................................5
6. Interpreting financial performance for Marks and Spencer (2017 and 2018)....................9
7.difference between International accounting standards and international financial reporting
standards...............................................................................................................................10
8.benefits of IFRS.................................................................................................................11
9.degrees of compliance with IFRS in organisation across the world and the factors which
impact compliance................................................................................................................12
Conclusion.....................................................................................................................................13
REFERENCES .............................................................................................................................14

INTRODUCTION
To measure business performance of the year financial reporting is the essential element
of business enterprise. In this present report explanation is given on purpose of financial
reporting. Chosen organisation in this report is Marks and Spencer. An explanation is provided
on legal and regulatory framework, their requirements to make financial information more
reliable. Further, main stakeholders of organisation and their contribution to make financial
statements more reliable is to be discussed with the value of financial reporting meeting
organisation objectives. Further, main financial statements are to be provided in this report.
Statement is also provided by comparing last two years financial statements to measure
company's overall performance. Further, benefits of IFRS and degrees of compliance with IFRS
and difference between IFRS and IAS is to be explained.
MAIN BODY
1.context and purpose of financial reporting
Financial reporting plays an important role in the business organisation. It is used to
measure the amount of money (in and out) from organisation(Bushee, Goodman and
Sunder,2018). Primary motive to make financial report is to provide correct information to
owners and shareholders of the organisation about the overall performance of the company.
Financial reporting or statements provides an information regarding results of business
operations that is there financial position, and information regarding cash flows of organisation.
Certain points which shows importance of financial potions are as follows- Credit decision- financial reporting is mainly important for the creditors, and also to
lenders as they are the only one which wants entire set of business operations. By
analysing these informations they will be able to decide whether to invest more in
company or to stop doing investing in organisation.
 For investment decision- financial reporting is also important for investors of the
organisation. They analyse financial information just to decide their decision of
investment is business was correct or not and also to analyse market per share so that they
will able to decide price at which they want to invest. Taxation decision- government also analyse financial statements of the organisation just
to decide amount of tax to charge on the business enterprise which is according to their
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assets or income of the organisation. This related information will only generated by
analysing their overall financial statements(Chen and et.al., 2018).
 Union bargaining decisions- unions of the organisation will also analyse financial
reporting of the organisation because based upon that information union will able to
decide their bargaining position and the ability of organisation to pay their demands.
These are the elements or user which analyse financial reporting of organisation just to
decide the overall performance of the organisation.
2.conceptual and regulatory framework, purpose and key principle, and the factors by which
qualitative characteristics makes the financial statements more reliable
Conceptual framework to prepare financial reporting is most important process for an
organisation which underline a particular concept for the preparation and presentation of
financial statements. This reporting is made with particular presentation because it provides a
necessary information to external users of the organisation by which they will able to decide
their amount of investment which they want to invest in company. Main elements which covered
by financial reporting are objectives of company, their underline assumptions, qualitative
characteristics, company's capital and capital maintenance etc. important key elements of the
financial reporting are assets, liabilities, equity, income and expenses. Regulatory framework of
financial reporting provides an effective procedure to prepare financial reporting.
Regulatory framework
Relevance- it provides a relevancy in preparing financial statements of the company so that users
of the company will able to understand financial statements easily.
Faithful presentation- it is a type of framework by which company will able to prepare faithful
presentation. Statements are prepared with proper analysis of data by which effective and
accurate results will appear on financial statements of the company.
Assumption on which this reporting is developed- mainly two fundamental assumptions are there
to prepare financial report that is accrual basis of accounting and going concern concept. Under
accrual concept of accounting entity record transactions when they occur and undergoing
concern concept to prepare financial statements company assumes its operations will continue in
future as well (Chychyla and et.al., 2018).
Qualitative characteristics which makes financial statements more reliable
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there are mainly four elements which helps to make financial statements more effective
that are-
 Relevance- in preparing financial statements company will develop more emphasis to
provide relevant information in their statements which helps user to develop effective
decision for organisation. It is related to concept which provides direct and useful
information (Nandwa,2018).
 Verifiability- according to this point company will prepare their financial report which is
in verifiability that means which provide accurate information to users of organisation.
 Timeliness- company will provide their new updated information to users because older
information leads to less useful.
 Understandability- to prepare information which is clear and concise so that it provides
clear information to users.
3.stakeholders of the organisation and their benefits in financial information
There are various users of financial statements which are produced by organisation. Their
needs in financial statements are as follows-
Competitors- to evaluate financial condition of company their competitors will analyse
financial statements. Main motive to analyse financial statements is to gain competitive
advantage in business markets.
Employees- to develop employee interest in organisation company will provide detail
financial statement informations. Employee by analysing that statements will able to develop
their involvement and will easy to understand goals of company(Balsmeier and Vanhaverbeke,
2018).
Government- jurisdiction of area where company is establish will also influence company
to provide financial statements by which government determine whether they have paid tax
liabilities or not.
Investors- they are the owners of the organisation. Therefore, clear understanding of
financial statements is also provided to investors which helps them to analyse company's
performance.
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Suppliers- analysis of financial statements are also developed by suppliers so that they
will able to decide whether to expand credit in business or not.
Unions- they also analyse financial statements by which clear understand to company's
ability to pay their compensation will develop in their mind.
4.importance of financial reporting to achieve organisational growth
Financial statements play a vital role in organisation. It shows a detail information of
company's overall performance. Financial statements has deep impact on company's performance
to achieve organisational objectives. It analyses three statements which are-
Income statements analysis- income statements helps company to observe their earning
power because it analyses total revenue and total expenses for time period. This statement helps
to represent management ability in utilising their resources to generate profit. It also helps in
developing overall efficiency of business operation and the ability to increase sales volume of the
company.
Balance sheet analysis- balance sheet 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 sales and revenues. It
provides an information regarding future of the company in which three major categories and
they are assets, liabilities and equity of the company.(Haddad, 2018.) Asset will represent gross
book value, liabilities represent claims and equity measure difference between book value and
liabilities. Company will able to compare their overall assets and liabilities which helps them to
achieve their organisational objectives.
Ratio analysis- to understand data of financial statements, ratio analysis used to calculate
financial statements. It is most widely used tool to measure profitability of organisation and it
also measures overall performance of the company with comparison to other organisation of
business market. It provides information regarding riskiness and solvency of the company. It
grouped into five areas that is Liquidity, Leverage, Coverage, Profitability and activities of
organisation. Liquidity helps to meet current obligations, also provide growth and to sustain
operating losses. Leverage is used for resources of fixed cost. To produce great return these
financial leverages are used by company. Coverage ratio measures to meet current obligation of
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company's cash flow. Profitability helps to measure overall profitability and success of the
company. Activity measure company's uses of its assets to meet organisational objectives.
These are the elements which helps organisation to meet its organisational growth in
business market.
5.information of main 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 expense and other
comprehensive income report items which are included in statements of profit and loss. Profit
and loss account report indirect expenses for specific period of time to measure net profit and net
loss of the company(Habib,Ranasinghe and Huang, 2018). Other comprehensive income
statements will include those revenues, expenses, gains and losses which are executed from
income statements.
Working notes:
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b.)statement of changes in equity
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Company prepare statement of changes in equity to observe changes in share capital,
accumulated reserves, retained earnings over a period of time. It calculates net profit and loss
which is attributed to shareholders, measure increase and decrease of share capital, and amount
of dividend paid to shareholders. It also measures effect of changes of accounting policies and
gains and losses of equity.
c.)statement of financial position
Another name for this financial position statement is balance- sheet. Balance sheet
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 sales and revenues(Epstein, 2018).
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d.)types of information which cash flow statement provides
Cash flow statements provides information regarding the flow cash in and out from
organisation. Cash flow statements provides information for three types of activities of
organisation that is operating activities, investing activities and financing activities. 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 supplier,
employees, interest etc. Investing activities will include activities related to sale and purchase of
assets, loan made to suppliers, or receive from customers, payment related to merger and
acquisition. Financing activity will include inflow of cash which is from investors.
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Comparison between cash flow statements and statement of financial position and statement of
profit and loss and other comprehensive income
Cash flows are prepared to find inflow and outflow of monetary items in an organisation.
Income statements are prepared to compare net profit and net loss of the organisation. And the
items which are not included in income statements of profit and loss are analysed in
comprehensive income statement(Schaltegger and Burritt, 2017).
6. Interpreting financial performance for Marks and Spencer (2017 and 2018)
To understand data of financial statements, ratio analysis used to calculate financial
statements. It is most widely used tool to measure profitability of organisation and it also
measures overall performance of the company with comparison to other organisation 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
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
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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
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
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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- these accounting standards are issued by
international accounting standards board for the company's which are locally operating and they
have no obligation to use financial statements which is adopted by jurisdiction of the
country.
International financial reporting standards- this financial standards are developed to
provide guidance about preparation of financial statements globally. This standard prepared to
have common accounting language for all business organisation so that it will easily understand
from company to company and with country to country.
Major difference between IAS and IFRS are as follows-
It develops basis of decision within each standard- both IFRS and IAS are running parallel
because IAS is not superseded IFRS currently therefore IASB will adopt principle based
approach in their standard setting. Currently number of reviews and revisions are developing in
IAS therefore, it has not superseded IFRS.
Bold text difference- bold text written in IFRS means to guide principles of statements and bold
text in IAS refers to compulsory element of standard(Pinnock and et.al.,2017).
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 from company to other company(Wycherley,2017). Major importance of
IFRS is for multinational companies whose business are global. Therefore, to maintain effective
accounting systems in the branches of companies it is important for them to develop IFRS in
their preparation of financial statements. Its major benefits are as follows-
It helps companies to achieve success internationally. It also helps to increase economic
growth because of international business process.
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By developing IFRS standards company will able to encourage their investors to invest in
the company because it provides a clear and accurate information of financial accounts by which
they will able to take effective decision to invest in the company. Its overall impact is that it
increases foreign capital flows in country(Zhang and Andrew, 2014).
IFRS develop a common set to make financial statements in company therefore for
investors of the company it is an opportunity to invest in the company which is providing fair
and accurate information of their financial statements. Company's which prefers their own set of
accounting standards will not able to attract more foreign investors in their company.
By developing IFRS standards to prepare financial statements of the company then they
will able to attract foreign investors in their company which helps them to raise capital form
foreign markets. It develops a confidence in the minds of foreign investors that their financial
statements are complied with global accounting standards.
It also provides opportunities for the accountants of the organisation that they will able to
develop there future in foreign companies also because of same accounting practises.
9.degrees of compliance with IFRS in organisation across the world and the factors which impact
compliance
Companies in different countries are adopting diver account practises which developing
significant economic consequences at international level for interpretation of financial reporting
of global businesses(Henderson and et.al., 2015). This impact of result is that international
accounting and securities organisation has taken a step to reduce harmonization of accounting by
which they will able to improve transparency and comparability. International financial reporting
standards will able to increase investor cost and also it will reduce reporting cost of the
accounting preparation for different organisation. It also helps in developing competitive
advantages which helps company to low cost of capital and also to increase liquidity of the
organisation. Adoption of IFRS process develops an effective communication linkage between
organisations by which they will able to develop effective policies and procedures to increase
cost of capital. It also leads to develop greater international capability of firm to invest in other
countries.
Factors which impact degree of compliance
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These accounting standards are not accepted globally in organisations. Different
countries has their set of accounting policies which they followed to prepare accounting
statements. These all not accepted by all nations because it hides those underlying differences in
business environment(Christensen and et.al., 2015). Many nations come to oppose IFRS because
by developing IFRS standards in their process of accounting company claiming that these makes
totally different document form original one. For example Australia came in force that they have
adopted IASB standards in preparing financial account but to adopt IFRS standard make to
change in standard name, some textual changes by which documents are clearly different from
original one which they issued by IASB.
Adoption of IFRS in EU is taken as relevant event. company's decision of adopting IFRS
played a key role for the acceptance at international level. Another factor for not adopting IFRS
is that it does not provide guarantee of information regarding quality and comparability which
improves financial resources worldwide. Major factor to not adopt IFRS is to that company have
to provide effective training to staff members for the preparation of financial statements in
organisation. In India there is also their own IND IAS for the organisation to follow therefore
companies also not able to adopt IFRS in making financial statements.
Conclusion
From the above study it can be concluded that financial reporting plays a vital role in
organisation which analysis overall performance of the organisation. Financial reporting
provides a correct information to owners and shareholders of the organisation about the overall
performance of the company. In this report an explanation is provided of context and purpose of
financial reporting with conceptual and regulatory framework, purpose and key principle, and the
factors by which qualitative characteristics makes the financial statements more reliable. Further,
in this report stakeholders of the organisation and their benefits in financial information are
explained with importance of financial report to achieve organisational growth. Further,
information of main financial statements and difference between International accounting
standards and international financial reporting standards is also discussed. Further, in this report
benefits of IFRS and degrees of compliance with IFRS in organisation across the world and the
factors which impact compliance is studied.
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REFERENCES
Books and Journals
Balsmeier, B. and Vanhaverbeke, S., 2018. International financial reporting standards and
private firms’ access to bank loans. European Accounting Review. 27(1). pp.75-104.
Bushee, B.J., Goodman, T.H. and Sunder, S.V., 2018. Financial Reporting Quality, Investment
Horizon, and Institutional Investor Trading Strategies. The Accounting Review.
Chen and et.al., 2018. Enforceability of non-compete covenants, discretionary investments, and
financial reporting practices: Evidence from a natural experiment. Journal of Accounting
and Economics. 65(1). 41-60.
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.
Epstein, M.J., 2018. Making sustainability work: Best practices in managing and measuring
corporate social, environmental and economic impacts. Routledge.
Habib, A., Ranasinghe, D. and Huang, H.J., 2018. A literature survey of financial reporting in
private firms. Research in Accounting Regulation. 30(1). pp.31-37.
Haddad, A., 2018. International financial reporting standards.
Henderson and et.al., 2015. Issues in financial accounting. Pearson Higher Education AU.
Pinnock and et.al.,2017. Standards for reporting implementation studies (StaRI)
statement. Bmj. 356. p.i6795.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical
perspectives on accounting. 25(1). pp.17-26.
Online
Nandwa, M.,2018. Top 11 qualitative characteristics of accounting information. [ONLINE].
Available through <http://www.accountingnotes.net/financial-reporting/top-11-qualitative-
characteristics-of-accounting-information/5409>
Wycherley, J.,2017. The five 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
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