Significance of Financial Reporting for Organization's Growth

This document discusses the purpose and context of financial reporting in the UK, the regulatory framework and key principles, the key stakeholders and their need for financial reports, the significance of financial reporting for organizational growth, and an explanation of IAS and IFRS. It also evaluates financial reporting in an enterprise using theories and models.

Financial Reporting

INTRODUCTION...........................................................................................................................4
1. Purpose and Context of financial reporting in UK..................................................................4
2. Regulatory framework of financial reporting and their key principles...................................5
3. The key stakeholders of an organization and their need for financial reports.........................6
4. Significance of financial reporting for attaining the objectives and growth of the
organization.................................................................................................................................7
5. Explaining the meaning and benefits of IAS and IFRS...........................................................8
6. Evaluating financial reporting in an enterprise by applying theories and models...................9
7.Different financial reporting across the globe and the factors that influence these differences.
.....................................................................................................................................................9
8.Evaluating the compliance rules with the IFRS by different firms worldwide......................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial reporting is the record of financial activities of the enterprise. It primarily acts
as the function of the accounting. These financial reports are framed for the internal and the
external users of the organization. Financial reporting fulfils the provision of preparation of the
financial statements and the other information relating to the financial matters. Financial
reporting for companies involves a numbers of activities that facilitate the corporate for
recording of the operating data. The aim of financial analysis is to report fair and reliable
statements of accounting on an annual or quarterly basis. The present study is based on Nexia
international, a leading global accounting firm that provides a portfolio of services like audit, tax,
consulting, accountancy and advisory services to their clients. Furthermore, the report describes
the context, purpose and regulatory framework of financial reporting. The study also includes the
details about the key stakeholders of the company and their interest in accounting information. It
also explains the importance of financial analysis and description about IAS and IFRS.
Evaluation of financial reporting and different reporting standards with compliance rules across
the globe are also analyzed under the study.
TASKS
1. Purpose and Context of financial reporting in UK.
Financial reporting plays an important role in the economies of the world. The primary
purpose of reporting is to facilitate useful and relevant information to the promoters and the
owners of Nexia international, as there present a division between the control and the owners in
the company. It runs as an independent network of accounting firm. As it functions its business
globally the diverse and geographically dispersed stakeholders do not participate in the day to
day management of the Nexia international, so they hire the directors for managing the routine
business and to take decisions on behalf of their shareholders (Abbott and et.al., 2016). The
annual report is received by the owners for summarizing the financial position and performance
of the enterprise. By this the owners can assess the performance of the investments made by
them that adequate returns are generated or not during the period of reporting. For evaluating and
determining the effectiveness of the investments made in the Nexia international, financial

reporting is essential. The directors that are appointed for the firm should operate towards the
best interest of the stakeholders.
Accounting systems need to be implement for the purpose providing information that are
required by the users of the statements or other authorities who has a keen interest in the
financial information (Tomy, 2019). For providing information in an appropriate manner that is
useful to informational requirements of the users, financial reporting system is governed and
regulated. Financial reporting is the framework on the basis of which important financial
decisions are taken.
2. Regulatory framework of financial reporting and their key principles.
A framework that regulates the preparation of the financial statements is essential for
several reasons:
To assure that the minimum and the basic informational requirements of the users of the
accounting statements are fulfilled. To ensure that the information provided to the people in the
economic arena is relevant, consistent and comparable. This arena leads to an increasing growth
in the Multinational Corporation and investment globally. This framework is needed to build the
confidence of users in the process of financial reporting (Poole, Rivat and Berger, 2019). It
regulates behavior of directors and the smooth functioning of the Nexia international towards the
investors. The self owned standards of the financial reporting would not be considered s
sufficient for achieving these aims. In addition to these aims there must be present some
regulation in relation to market based and legal. The national regulatory framework acts as the
regulation for the financial reporting.
There are various components to the regulatory accounting environment. A typical
structure for regulatory framework includes:
 National reporting standards
 National law
 Market regulations
 Exchange rules security

For example- UK has its own reporting standards named as National financial reporting, the
board of accounting standards( part of the council of financial reporting) that issues standards
regarding the financial reporting in UK. The main legislation that is impacting the business in
UK is the companies Act 2006. However, many other system of UK, US and even EU legislation
(like Oxley act of Sarbanes) influences the accountability in UK. There are many regulatory
systems specific to the industry that impact the accounting function in UK, such as Financial
service authority, whose primary aim is to attain accountability of the public in the industry of
financial services (Acharya and Ryan, 2016). Lastly, the companies whose shares are quoted on
the market or stock exchange in the UK, some major regulations are enumerated for them by the
London stock exchange.
3. The key stakeholders of an organization and their need for financial reports.
 Customers- the customers are the most essential stakeholder in the cycle of business.
They usually shows keen interest in the financial information that influence their
decisions in relation to the buying or to outlook about the market like, their association
with the same and their belief on the brand. It involves the assessment of the capability of
the Nexia international to exist in the market and to meet their obligation.
 Employees- Employees are counted as the internal user of the entity and the major
concern of this user is related to the matter of security of the job or their pay structure.
They uses the information for making the decisions in terms of continuation of working
for the job or not and if to continue then to ask for high rewards and incentives for
working beyond the target (Amiram and et.al., 2018). The decision making of the
employees is based on the future plans of the organization, their profitability status and
overall stability that are ascertained from the financial statements of the Nexia
international.
 Lenders- the lenders look for the information in deriving the decisions regarding to lend
money or not to the entity. This decision is evaluated on the basis of monitoring the
ability of the firm to pay-off their debt, whenever arises in long and short run.
 Managers- They lookout for financial information as it enables them in analyzing the
status of operational performance of the business and whether any improvement is
required or not. This analysis is made for comparing the financial performance of current
year with the performance of business in previous year (Ozili and Outa, 2019). For

designing the strategies of the enterprise, managers look for financial information as a
base for making decisions.
 Owners- they are the nodes for decision making in hierarchy at the place of work. Thus,
both the information that influence financially and non-financially have huge impact on
the working of Nexia international. Moreover they require the reporting for making the
decisions regarding the further investment or to dispose their investments that are
currently held. This includes the risk and return assessment factors with ownership stake
in the organization.
 Government- Government needs information for wider purposes. It seeks for judging the
situation of the overall market, for ensuring the welfare of all the people. Reporting helps
the government in assessing the factors such as tax payment, pricing policies and need of
the financial support (Bonsall and et.al., 2017). For getting the financial information
government determines and looks at the status of profits of the business, revenue from the
sales and the overall strength of the company’s financial position.
 Community- for sustaining in the existing market, community is another indispensable
lot that need to be taken care off. Society at large uses the information for assessing the
capability of the enterprise in terms of providing opportunities of employment for
community, the extent of using the resources of society and the willingness of the
company to contribute towards the corporate social responsibility funding initiatives.
 Competitors- they are one whose concern is majorly about the matters that are impacting
their existence in the competitive market, for rebuilding and reinforcing the strategies in
relation to competing with the other rivalry firms. This involves the comparison of
performance with benchmarking performance of leading players in the world of industry
(Musa, 2019). For the assessment of strategies of the company that leads the enterprise in
achieving strong financial strength is also a way to understand the functioning of the
operations of business.
4. Significance of financial reporting for attaining the objectives and growth of the organization
An international reporting standard enhances the improved comparability of the
enterprise. It provides easy access to capital market worldwide and reduction in the capital cost.
These standards give impetus to cross-border acquisitions. It helps Nexia international in
maintaining consistency and quality of the information for avoiding the multiple reporting and to

reduce the finance function cost. An economic value is added in the balance sheet by complying
with these standards. It is he globally accepted standard which facilitates transparency in
accounting system. The quality of reporting becomes better and reduced the accounting
complexity. By the increasing the growth in the business internationally, lead to the economic
development of the country. This encourages foreign investment which results in foreign capital
inflows into the country. IFRS would open many opportunities for the professionals to serve the
international clients (Dou and et.al., 2018). It makes efficient for the investors in comparing and
researching the financial statements more effectively across the globe.
Financial reporting, becoming important for attaining the sustainable growth of the Nexia
international and to achieve the business goals and objectives. The major aspects that makes
financial reporting essential-
Taxes- government uses such report for monitoring and examining that the organization
has paid the taxes timely and at fair rate (Cheng,., Cho, and Yang, 2018). Financial reporting
facilitates information to the government related to fulfillment of the rules and regulation of tax
laws and legislations by the entity and carrying its operations with compliance of all the tax
relating dues.
Internal decisions- Financial statement analysis is the best tool for making internal
decisions regarding the performance of the employees (Chychyla, , Leone, and Minutti-Meza,
2019). Through this entity can assess that the outcomes or goals are achieved as per the strategies
set and the tasks are performed by the workers as per the standards set.
Improved vision- financial analysis is cohesive, accessible and accurate means for
presenting critical information of overall business position and performance. It enables the firm
in answering vital aspects of the financial activities of enterprise.
Performing audits- Statement reporting facilitates statutory audits. Auditors audit the
financial statements of the business to view their opinion which helps the corporate in building
its brand image in front of its internal and external users.

Raising capital- It assists organizations in raising the capital both domestically and
internationally which is an essential requirement of every firm for surviving and growing in
today’s competitive world.
For other external users- Financial reporting helps the investors, creditors and
shareholders in making decisions regarding further investments. It shows the capabilities of the
company to meet its debt obligations and creates increased value of shares held by the
shareholders which leads to wealth maximization (Davidson, Dey and Smith, 2015).
5. Explaining the meaning and benefits of IAS and IFRS.
IAS- These are the standards for international accounting that reflects the older standards
that are set for stating the manner of reflecting the particular events and the transactions in the
financial statements. In the previous years, the standards for international accounting were issued
by the international accounting standards committee board. Since 2001, the new standards were
set that called as the International Financial Reporting Standards. This standard has been
provided by the Board of International Accounting Standards.
IFRS- the International Financial Reporting Standards were issued to act as the uniform
global language that are common for all the business affairs. By this the accounts of the company
are comparable and easily understandable across the international boundaries. These standards
are essential because their dealing is present in most of the countries (Chychyla, Leone and
Minutti-Meza, 2019). For maintaining the reliable, understandable, relevant and comparable in
terms of the internal and external users’ books of account, these guidelines are followed by the
accountant.
Benefits- International Financial Reporting Standard brings improvement in financial
information comparability with the financial performance of global peers and standards of
industry. Adoption of these standards results in better financial reporting quality because of
application of principles of accounting consistently and improves the reliability of the financial
statements. These standards facilitate better access to global capital and result in reduced capital
cost. The company can raise funds from the capital market across the world by following IFRS
standards as they are presently accepted as the framework for financial reporting. It brings ease
in the consolidation of the statements (Cheng, Cho and Yang, 2018). The management control

becomes better, as coordination would help in communication of the internal financial
information. These standards create ease in complying with the requirements of reporting of the
stock exchanges overseas. The transparency in the accounting system get improves by adopting
these standards. It helps in optimizing the process and the technology so that cost efficiencies can
be attained by the enterprise.
6. Evaluating financial reporting in an enterprise by applying theories and models.
International Accounting standards (IAS) and International Financial Reporting
Standards (IFRS) were developed by the Board as a guideline to ensure clear accounting
practices take place in all economies. Initially IASs were implemented, after which IFRSs had
come into practice as older standards got revised and as a result new accounting practices came
into use. The IASB regularly reviews the implementation of accounting standards and ensures
their consistency. International financial reporting standards assist IASB in setting standards and
serve as a basis for harmonization (Bratten, Causholli and Omer, 2019). IFRS standards are
adopted and followed by several countries around the world such as India, Australia, European
Union, Pakistan, Hong Kong, Malaysia, Russia, GCC countries, Chile, Singapore, South Africa
and Turkey.
Around 112 countries worldwide presently requires permit of the IFRS reporting. These
standards resulted advantageous as well as a challenge for the Nexia international. Benefit in the
sense it leads cross border investments to economic growth. Sustain the globalization of
economy and world trade so that access to multinational funds can be increased. By adopting
IFRS many challenges has been faced by the enterprise like lack of skills and knowledge
specifically in initial years often this gives rise to issues relating to the interpretation and
improper application. Initially, Company is not geared in context of their systems and processes
to fulfill the extensive requirement of information and different standards.
These standards need estimation and significant judgments such as provisions, reliable
values etc. Nexia international follows such systems that are based on the theories which include
legitimacy, institutional and stakeholder theory. This theory states that the organization is
represented as a social system in the sense as it is influenced by the act of the operations in the
society. Specific organization and the accounting disclosures forms reflect the way for managing
the relations with the group of people external to the firm. Legitimacy theory states that the

organizations need to seek regularly the norms and rules abide by the society within which they
operate (Chen and Li, 2015). They function to ensure that the activities perceived by them ought
to be legitimate. Norms and rules changes on the basis of change in time frame of the social
contract developed between the enterprise and the society. If in any circumstances the
performance of breach of this contract is ascertained then the organization has to opt for
disclosure requirements as a corrective measure and to overcome the breach. Therefore, this
theory application is been adopted by the firm to communicate and inform about the performance
and activities of the Nexia international to the public. It helps the firm in changing the perception
of the people without changing the behavior.
7.Different financial reporting across the globe and the factors that influence these differences.
International financial reporting standards and Generally Accepted Accounting Principles
are two major financial reporting that are adopted and followed by the different firms worldwide.
IFRS- These are the set of quality standards that enforceable and applied as a global
accounting policies. The application and drafting of such standards are simple to understand and
are lucid in nature. They are increasingly replacing several unrelated accounting standards
nationally. They act as the guideline that the accountant follows while maintaining and framing
the books of accounting information. These are the standardized set of accounting principles that
facilitate standardize accounting internationally. It improves the quality on the overall global
screen (Acharya and Ryan, 2016). By this the international capital flows freely, enabling the
companies in developing consistent solutions towards the problems in accounting. An economic
value is added in the balance sheet by complying with these standards. It is globally accepted
standard which facilitates transparency in accounting system. The quality of reporting becomes
better by reducing the accounting complexity. They encourage foreign investment which results
in foreign capital inflows into the country. IFRS would open many opportunities for the
professionals to serve the international clients.
GAAP- The rules that govern accounting are called as Generally Accepted Accounting
Principles. It is applied as a guideline for detailed accounting practices. All the principles,
conventions and rules that build up accepted practice of accounting at a point of time. While
recording the transactions of the business, Accounting principles are followed as the method and
action rule of accounting (Amiram and et.al., 2018). These principles provide fair financial

image of the company. It facilitates information on the basis of revenue recognition concept,
consistency concept, prudence concept and many others.
8.Evaluating the compliance rules with the IFRS by different firms worldwide.
Quality of disclosure is mandatory for the corporate sector so that irregularity can be
minimized. Execution of IFRS standards are impacted by the growth of the economy in
developing and developed countries. IFRS presents guidelines to the enterprise in form of
standards based on principles. The compliance disclosures consist of low, moderate and high
level of compliance in several situations. It has influenced positively to meet the demand of the
users and reflected transparency in the process of disclosures (Bonsall and et.al., 2017).
Requirement of Financial disclosures by these standards enables the financial analyst in
predicting the EPS of the company which is used for valuing the securities of the firm.
CONCLUSION
From the above report it is concluded that Nexia international provides various financial
information through financial reporting to the investors and creditors for evaluating the
performance. Financial system leads to economic growth of the country. Adoption of
International financial reporting standards across the world ensures a greater credibility and faith
in the international capital market. It also helps in upgrading the status of Indian and overseas
banks in the views of investors both domestic and internationally. There can be number of
challenges will enter into the transition process, but the worth of benefits derived from the
process will definitely overcome those challenges. Thus, IFRS should be adopted by every
country and corporate as soon as possible.

REFERENCES
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