Financial Reporting

This document provides an overview of International Financial Reporting Standards (IFRS) and discusses the advantages and disadvantages of using IFRS. It also examines the corporate governance principles that a company failed to follow and explores different inventory valuation methods in financial reporting.

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Running head: Financial Reporting
Financial Reporting
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1Financial Reporting
Introduction
International Financial Reporting Standards
The International Financial Reporting Standards (IFRS) is a kind of international
accounting framework. In this the main purpose is to properly organize the financial
information’s. It has been derived from the London based international accounting standards
board (IASB). It is used in more than 120 countries as the frame work for the accounting
standard. It is majorly used by business reporting their financial results in any part of the
world. It is not used in USA. GAAP is followed in USA. The difference between them is that
GAAP is more rule based than IFRS. IFRS is easier than GAAP as it uses simple
interpretation to understanding.
There are many advantage and disadvantage of the usage of IFRS:
Advantages
The comparability: the business which follows this method of reporting can easily compare
the reports with each other. It is extensively used by business that are based in different
countries. This method followed helps the investor to identify the strength or weakness of the
financial statement.
Beneficial to any kind of investor: As IFRS is simpler thus it aids in understanding for the
investors. Small and new investors gets a better quality which is simple for them to
understand and does not require major professional skills (Grzegorz, M. 2008).
Flexibility: The IFRS is totally based on principle and not only on rules. There is a standard
of arriving at a goal for a reasonable valuation of the company. Thus the financial statement
becomes easier for understanding.

2Financial Reporting
Disadvantage of IFRS:
High Cost: the business may be large or small the impact of IFRS is felt majorly. The
amount required for implementing the rules of IFRS needs new recruitment and the cost may
be high which is not possible for small business to manage.
Prone to manipulation: The business is free to use whatever method they wish to use that
may inflict manipulation in the financial statement to show profit only. The new set of
standards needs changes on to how the new rule be applied and that should be justified and
needs that all the company that follows it should value the statement in the same manner.
Not accepted globally: US does not accepts the IFRS. This means that reporting of the
accounting data by foreign companies operating in these countries may face difficulties as
they will be preparing financial statement using the set of standards and other set of
principles that is accepted in countries.
IFRS is followed in many countries but also it is not accepted in many other parts of
the countries that may lead to difficulty in understanding the financial report and also
difficulty in comparisons for the investors. The benefits are also majorly beneficial for the
investor.
II) The IFRS financial approach is globally appropriate reason being that it was established to
make the accounting language easy and common so the business can report the finances
easily country to country and company to company easily.
 As the method is easier and this can be easily understood by the both the investor and
companies. They become confident in investing in the business practices becomes
reliable and transparent.
 Both companies and investors benefit from IFRS because people are more confident
investing in a company if its business practices are transparent and reliable.

3Financial Reporting
Question 2
The corporate governance principles that the company failed to follow are:
Accountability: it means that the company’s board of directors are accountable to the
shareholders in alignment of the applicable law and provides guidance to the board of
director in making decisions and monitoring all the activities of the executive bodies. This
means that company should be responsible to the shareholder on what decisions they make
(Kircher, P. 1953).
Fairness: the important factor of the company is to undertake to protect the stakeholder’s
right and ensure that equal treatment of the shareholder is done. The company needs to
practise fairness in their actions. The stakeholder has the right to redress for the violation of
the rights.
Transparency: the timely and accurate disclosure of the information about all the material
facts relating to activities that include financial situation, also about the economic social
indicator along with the performance. The company should provide the information access
free to the stakeholders.
Responsibity: the company identifies the rights of the interested parties that are permitted by
the applicable law and seeks to cooperate with such components for their own development
and financial stability.
These are the principle corporate governance that are not followed by the company.
The major reason to do this was to show that the company is making profit to the stakeholder.
As the company realized loss even after estimating a forecast budget that was predicting
profit for the year but ultimately the company made a loss of $200,000.

4Financial Reporting
b. Fair and true value of the financial statement mean that the statement is true and fair from
the point of auditing. The financial statements are free from material misstatements and
faithfully expresses the financial performance and position of the entity.
c. I M right is a lawyer and the chair of the board of directors. The CFO has noticed that the
company did not met the estimated budgeted expense and have over ran thus to get approval
to show profit by selling an asset was suggested by the CFO. MR right should not have been
approving this action as this was against the law of fair and true representation of the
financial statement. He should have showed the rue state of the company to the stakeholders
and waited for the asset transaction to be completed before estimation in the financial report.
As after the audit the misrepresentation of the statement shall put the company in the
fraudulent case. The risk will transfer the CFO to the BOD member and to Mr Right. Mr.
Right will need to give a proper explanation to the shareholder why this action was taken and
why the company hide the information. There will be case registered if the incident is major.
e. Yes the case of relevance and faithful representation exist the case is clear as the company
is making wrong representation of the asset liquidities. The company did not followed accrual
principle which means that when the sale occurred then only the amount should be listed in
the report. The reliability principle was also violated as the company was not showing the
true transaction. A fake stipulated transaction can affect the true value of the company and is
fraud ion the part of the company to its shareholders.
f. If I was Mr Right I would have not signed the directors declaration that the statement is the
statement is true and fair. It would have affected the reputation of the company once the truth
would be revealed by the auditors to the shareholders. The responsibility of the BOD
members are to maintain and follow the accounting principles so that the company represents
the true operational value to the people who blindly trust month annual report.

5Financial Reporting
Question 3:
a. Net Realizable Value is the value at which the cash amount that a company will be
receiving. The value is associated with accounts receivable and inventory. These
assets are recorded at cost but when the inventory does not gets sold at less price from
the cost. In this case the company shall be reporting the lower cost. That is the net
realizable value.
Lower of cost is the cost of inventory that business must record whichever the cost
is lower. The market price or the original cost whichever is lower shall be recorded.
Generally these factors arises when the inventory has deteriorated or has become obsolete or
the fair market price has declined.
As the company Sunbaker Ltd has Lounge loafer which is not a perishable product
thus the item will not become obsolete and will not deteriorate due to storage for long time.
And by looking at the transaction we can conclude that the product is moving out fast. the
FIFO method does not let the product become obsolete thus the net realizable value method
will be better in comparison to lower of cost method.
b. Periodic method of accounting – it is method in which the inventory account is not
updated for every purchase and sale. All purchases are debited to Purchase account.
At the end of the period the total in the purchase account is added back to starting
balance of the inventory to calculate the cost of goods available for sale.
Formula: Cost of goods sold (COGS) = Beginning inventory + Purchases –
Closing inventory

6Financial Reporting
-Thus the cost of goods sold for the periodic inventory system is = $ 48750
c. A perpetual inventory system has many advantages of providing updated inventory balance
information. And also the measures to reduce the amount of inventory counts. A perpetual
inventory system is a method by which the tracking is done for the inventory and cost of
goods sold on continual basis. Thus the current inventory balance is calculated on real time
basis. The cost is updated continually thus the inventory is under check (AFM, 2019).
-Inventory- Total inventory in the warehouse * Cost of each unit=$ 91000
d. The perpetual inventory system, is a preferred method to estimate the count of left
inventories. It gives very clear and instant picture of the inventory that is in the warehouse
and what amount should be purchased or should not be purchased is estimated correctly in
real time in the perpetual method. In the perpetual system of accounting the amount of
inventory left is around =$ 91000 which is huge if calculated by the opening inventory. The
inventory is not moving in the end of the year (Accountinginfo.com, 2019).

7Financial Reporting
Reference:
Accountinginfo.com. (2019). Accounting Study Guide by AccountingInfo.com. Retrieved
from https://accountinginfo.com/study/inventory/inventory-110.htm
AFM. (2019). Periodic inventory system - explanation, journal entries, example | Accounting
for Management. Retrieved from
https://www.accountingformanagement.org/periodic-inventory-system/
Grzegorz, M. (2008). Value-based inventory management. Romanian Journal of Economic
Forecasting, 9(1), 82-90.
Kircher, P. (1953). Accounting entries and national accounts. The Accounting Review, 28(2),
191-199.
Sun, D., & Queyranne, M. (2002). Production and inventory model using net present value.
Operations Research, 50(3), 528-537.
Tersine, R. J., & Tersine, R. J. (1988). Principles of inventory and materials management.
Waller, M. A., Nachtmann, H., & Hunter, J. (2006). Measuring the impact of inaccurate
inventory information on a retail outlet. The International Journal of Logistics
Management, 17(3), 355-376.

8Financial Reporting
Appendix
a. Perpetual inventory system
Date Particular Debit Credit
30-Jun cash 45000
To common stcok 45000
30-Jul lounges inventory 56000
To account payables 56000
04-Aug Accounts payable 56000
To Discount account 1400
To cash account 56000
28-Aug Accounts receivale 62500
To sales 62500
23-Sep lounges inventory 32400
To discount accounts 972
To account payables 31428
01-Nov Accounts payable 31428
Discount charges account314.28
To cash account 31113.72
24-Dec cash account 31875
to sales 31875
01-Mar lounges inventory 42500
to accounts payable 42500
01-Nov Accounts payable 42500
Discount charges account 425
To cash account 42075
30-Jun Inventory 91000
To accounts payable 91000

9Financial Reporting
B. periodic system of accounting
Date Particular Debit Credit
30-Jun cash 45000
To common stock 45000
30-Jul purchases 56000
To account payables 56000
04-Aug Accounts payable 56000
To Discount account 1400
To cash account 56000
28-Aug Accounts receivale 62500
To sales 62500
23-Sep purchases 32400
To discount accounts 972
To account payables 31428
01-Nov Accounts payable 31428
Discount charges account314.28
To cash account 31113.72
24-Dec cash account 31875
to sales 31875
01-Mar purchases 42500
to accounts payable 42500
01-Nov Accounts payable 42500
Discount charges account 425
To cash account 42075
30-Jun CoGS 48750
To accounts paayable 48750