Importance of IFRS in Financial Reporting

The report concludes that IFRS plays an integral role in financial statement preparation and reporting, ensuring transparency and neutrality. It is crucial for businesses to comply with IFRS standards to provide accurate and comparable financial information, enabling stakeholders to make informed decisions.

FINANCIAL
REPORTING

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
1. Explanation of Financial Reporting and its purpose in business entity..................................1
2. Description regarding the requirement, purpose and principles of the regulatory and
conceptual framework ................................................................................................................3
3. Identification of the different stakeholders of the organisation and analysing the benefits of
financial information ..................................................................................................................4
4. Examining the meaning of financial reporting for meeting organisational objectives and
growth ........................................................................................................................................5
5. Interpretation of the financial statements of the business entity.............................................6
6. Evaluation of last two years of financial statements of company and their use to interpret
and communicate the financial performance..............................................................................8
7. Differentiation between IAS and IFRS.................................................................................10
8. Evaluation of the benefits of International Financial Reporting Standard (IFRS)................11
9. Ascertainment of varying degree of compliance associated to IFRS ..................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The financial reporting refers to the process of preparing statements that depicts the
business entity's financial status to management, investors and the government. It involves the
communication of the financial information, such as financial statements to its internal and
external users. Financial reporting comprises with the preparation of the financial statements and
disclosure of the financial statements according to the International Financial Reporting
Standards. Reporting involves the financial statements like balance sheets, income statement,
statement of owner's equity and statement of cash flows. But the financial reporting is broader
concept than the preparation of the financial statement (Bertoni and De Rosa, 2012). Moreover,
the financial reporting pertain communication of all financial facts from the business to internal
users (it includes managing directors, BOD' s, equity shareholders etc.) and external users (it
includes the tax authorities, potential investors, government authorities, financial institutions).
This report pertain the information about the Mark and Spencer of United Kingdom. The
purpose of this report is show the context and aim of the financial reporting, requirements as well
as the principles of conceptual framework, stakeholders of the business entity, preparation and
the disclosure of the financial statements and their objectives. Along with this, the report also
pertain the context of benefits of International Financial Reporting standards (IFRS) and
International Accounting Standards (IAS). Although the difference between the IFRS and IAS
also mentioned in the report.
MAIN BODY
1. Explanation of Financial Reporting and its purpose in business entity
Financial Reporting is the form of financial results of a business entity to its useful users.
Financial reporting encompasses the financial statements which involves the consolidate incomes
statement, consolidate statement of balance sheet and consolidate statement of cash flows, along
with these statements the report pertain the footnote notes for more details regarding the relevant
accounting framework and events occurs after the preparation of financial statements of the
business entity like Mark and Spencer (UK). These financial statements are to disclose for its
useful users like the tax authorities, investors, managing directors, BOD' s, equity shareholders
etc. Moreover, the financial reporting consists disclosure of financial statements, press releases
and conference calls about the earning of quarters and other business entity's relevant
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information. Along with this, the annual or quarter reports of stockholders, disclosure of
financial report online on entity's website, disclosing reports to the government authorities as
well as the reports to the securities exchange commission (SEC). Overall, the Transparency of
financial records are beneficial in accomplishment of desired organisational goals that are
required to execute organisational operations(Nobes, 2014). Marks and Spencer is prepares and
reports the financial statements in order to make smooth functioning of business entity and to
perform all the business operations effectively. Purpose and importance of financial reporting is
as follows:
 Financial reporting provides the financial information and helps the mangers of the
business entity like Marks and Spencer in performing their daily management activities
and the business operation.
 It is beneficial in evaluating the market value, financial performance of the business
entity like Mark and Spencer for performing the management functioning like planning
and decision making.
 Financial reporting ensures the transparency of the financial statements of the business by
the disclosing the annual reports to its internal and external users (Zimmerman, 2013).
 Beneficial for managers in process of planning and controlling the future business
activities.
 Financial reporting facilitates the annual results of the entity's operational work to
external stakeholders to increase sales with the motive to increase revenues and profit and
the market share.
 Financial reporting helps the business entity in getting the funds or loans from the
financial institutions, as the reporting shows the financial position and the market share of
the entity so it helps in acquiring loans from the financial institution.
Importance of the Financial Reporting to the business entity
 Financial reapportion is essential part of the accounting, as the report is use to analyse the
financial as well as the operational performance of the business entity.
 Financial reporting is crucial for targeting the large number of potential investors.
 It is inevitable in the process of decision making and planning for the future business
operations (Flower, 2016).
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 Financial reporting is also crucial for acquiring funds from abroad, while acquiring
foreign capital and investment then the perfect financial reporting is inevitable to attract
foreign investors.
 It is important for making the comparatively analysis of the business entity with the other
entity. Also helps in comparison of past and present performance of the entity. This
comparison helps in ascertaining the performance as well as growth of the business
entity.
 Financial reporting is very crucial in analysing the market position of the business entity
like Mark and Spencer.
 Financial reporting of financial statements is inevitable for bidding bidding, government
supplies and labour contracts because it provides overview of the company to external
parties.
2. Description regarding the requirement, purpose and principles of the regulatory and
conceptual framework
Regulatory and Conceptual Framework: In the context of the financial reporting the
material fact of the conceptual framework pertain the dealing with the fundamental of financial
reporting issues like objectives and users of the annual reports, concepts that makes accounting
report useful, the context of the financial statements and the concepts of accounting that are
recognising concept and measuring concept must be considers in preparation of the annual
reports.
Regulatory framework pertain the rules and regulations framed by the UK government
and made mandatory to follow by all the business entities of UK. Marks and Spencer follows the
rules and regulations that are framed by the International Accounting Standard Board (IASB) as
it is beneficial for the entity in analysing the financial statements more effectively (Hope,
Thomas and Vyas, 2013). The regulations framed in the form of IFRS which is explained below:
International Financial Reporting Standards (IFRS): IFRS are introduced by the
board of International Accounting Standard (IAS). It is the framework comprises with the rules
and regulations which must followed by the business entities in context of preparation and
reporting of the financial statements. Some of the key principles are mentioned below:
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IFRS 1: It is related with First-Time adoption of International Financial Reporting
Standards, adoption refers to follow and prepares as well as report the financial statements
according to IFRS schedule.
IFRS 3: It is concerned with the Business Combinations in context of merger and
acquisition.
IFRS 9: It is concerned with the Financial instruments, it means classification and
measurement of financial instruments, impairment of financial assets and hedge accounting.
IFRS 10: It is concerned with the Consolidate Financial Statements, refers to preparation
of the financial statements in consolidated format.
Purpose of the regulatory and conceptual framework are as follows.
 Act as a guide in preparation and reporting of the annual report of business entity like
Mark and Spencer.
 Ensuring preparation and reporting of annual reports of all business entities in single
consolidate format, that makes the task of comparison easy.
 Ensures the global language of financial preparation and reporting so that the entities can
execute at international level by acquiring international capitals and investments.
 Makes easy for government to understand the accounting practices and standards adapted
and followed by the entities in preparing and reporting of business reports (Zeff, 2013).
All these benefits and Principles of regulatory conceptual framework helps the Marks and
Spencer in prominent preparation and reporting of financial statement and in smooth as well as
long survival of business.
3. Identification of the different stakeholders of the organisation and analysing the benefits of
financial information
The stakeholders refers to the crucial individual members of the entity, as without their
support the entity would cease to exist. The stakeholders are of two types internal stakeholders
and the external stakeholders as all the entity has the stakeholders. The Mark and Spencer also
has several stakeholders who supports the entity in decision making, acquiring funds, future
operational planning and in making increment in sales. Some of the internal and the external
stakeholders of Business entity like Mark and Spencer are mentioned below:
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Internal stakeholders: these are the stakeholders who are the internal parties of the
organisation and are directly related to the operational activities of the business (Bevis, 2013).
Some of the internal stakeholders are as follows.
 Shareholders: it refers to the equity shareholders of the entity who has right to
participate in the several activities of the business, as they are the owners of the business
entity.
 Managers : These are internal members and are responsible for the operational activities,
manages the functioning of the business.
External Stakeholders: These are stakeholder or the individual interacts with the
business entity form outside , means these are the external parties having no control over the
functioning of the business but can influence the functioning of entity(Botzem, 2012). Some of
external stakeholders are.
 Customer: The customers are the individual who buys or purchases the goods and
services produced by the business entity like Mark and Spencer.
 Investors: These are the potential fund providers of the organisation may be same
country or of different country(foreign investors).
 Creditors: These are the potential creditors of the entity like Mark and Spencer, as the
entity has the obligations which is payable to them in future. Example of creditors are
financial intuitions etc.
4. Examining the meaning of financial reporting for meeting organisational objectives and
growth
Financial reporting is beneficial for the organisation in achieving the desired objectives of
the organisations like Mark and Spencer. As the it ensures the proper format of the preparation of
the financial statement which helps the organisation in ascertaining the financial as well as
operational performance of the organisation. Not only this, it also helps in accomplishment of the
objectives of Marks and Spencer, some of the objectives like targeting the potential investors,
targeting large number of customers and ensuring them full satisfaction and maximising profits
and sales. All the objectives can be accomplished with the help of transparency in financial
information of Marks and Spencer. Investors get attracted toward those entities which ascertain
the performance year by year and whose performance as well as the market value is good in the
economy and capable for giving higher return on their investments (Tan, 2013). As Marks and
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Spencer maintains the accurate records which makes easy for the investors to analyse its
performance and than invest their funds in entity.
5. Interpretation of the financial statements of the business entity
The financial statements of the business entity pertains the consolidate profit and loss account
and the consolidate balance sheet. The example of these two are as follows.
A: Statement of profit and loss:
Consolidated statement of profit or loss
Continuing operations
Revenue 385100.00
Cost of sales of goods 291700.00
Gross Profit 93400.00
Operating Expenses 78500.00
Operating Profits 14900.00
Finance Income 5600.00
Finance Cost 830.00
Profit before income tax 19670.00
Income tax expenses 15000.00
Profit after tax 4670.00
Dividend
Equity 830.00
Preference 2330.00
Retained Earning 1510.00
The consolidate financial statement has two side the debit side it shows the expenses
(Direct and Indirect) and credit side it shows the incomes (operating and non operating). Besides
this, shows the results of the business operational activities performed by the business with the
motive of generating the revenues as well as the profits. The statement shows the operating
expenses and operating in prior and the results is contribution which is known as the gross profit
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that is 93400, from the operating activities and then the statement shows the expenses and
incomes which are not related with the production and are known as the indirect expenses. At
last the final result shows the net profit which comes by deducting all indirect expenses from the
gross profit and from non operating income. The net profit that is 4670 transferable to the
balance sheet on liability side.
B: Statement of financial position:
Financial Statement
Assets
Land & Property 160700.00
Less:Depreciation -185100.00 -24400.00
Property 88000.00
Less:Depreciation -8000.00 80000.00
Investment property 23300.00
Plant & Equipment 78000.00
Deferred tax assets 8900.00
Other assets
Total non-current assets 165800.00
Inventories 17230.00
Accounts receivable 68000.00
Other assets
Short-term investments
Cash and cash equivalents 1500.00
Total current assets 86730.00
Total assets 252530.00
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Equity and liabilities
Equity
Equity share capital 86700.00
10% Pref. Share capital 23300.00
Revaluation Reserve 42800.00
Retained Earning 33610.00
Total non-current liabilities 186410.00
Provisions
Accounts payable 66120.00
Total current liabilities 66120.00
Total equity and liabilities 252530.00
Balance sheet shows the financial position of the business. It has two sides one is assets
side and second is liability side. This consolidate statement shows the financial as well as the
operational performance of the business entity like Mark and Spencer. The total of the assets side
must be equal to the total of the liability side that is 252530.
6. Evaluation of last two years of financial statements of company and their use to interpret and
communicate the financial performance
An analysation of information form appendix, revenues of Mark and Spencer was
10622000 earned in year 2017 and it ascertained in next year 2018 unto 10698200. cost of sales
in 2017 was 6629300 and in year 2018 it is 6745600.the increment in cost of goods sold it
directly affects the profit of the year 2018. profit of the year 2017 was 3992700 and in year 2018
it was 3952600. besides this, the operating expenses also increased in year2018, as they were
9914700 in 2017 and in 2018 were 10020800 it affects the operating income of the year 2018. as
it was 707300 in 2017 and in 2018 were 677400. net profit also affected by these two major
changes, as in year 2017 the net profit was 117100 and in year 2018 it was 25700. not only this
the it also affects the values of balance sheet of Marks and Spencer the total assets of the entity
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decreased in year 2018 were 7550200 as it was in year 2017 were 8292500. not only this, the
retained earnings were also decreased in year 2018 it was 6560400 and in year 2017 it was
7224800. besides this, the common stock and the capital surplus remains constant in both years.
The common stock was 406200 but the treasury stock of company is negative in both years. The
total equity shareholders of the entity decreased to as in year 2017 the equity capital were
3156300 and in year 2018 it is 2956700.
The company uses the accounting ratios for the better understanding of
organisational performance, the accounting ratios shows the profitability, liquidity, return
on equity, efficiency of the organisation. The Mark and Spencer also uses the accounting
ratios in their financial statements preparation which are as follows.
Financial ratios of Marks and Spencer
Particular ratios Formula 2017 2018
Liquidity ratio’s:
Current ratio: Current asset/ current liabilities
0.7217415
115
0.7277449
324
Liquid ratio: Current asset- inventory+ prepaid
expenses/ Current liabilities
0.2940306
681
0.4073057
432
Profitability ratio
Net profit ratio: Net profit / Sales *100
1.0892487
291 0.272008
Gross profit ratios Gross profit/ Sales *100
2.3837318
772
1.4628629
115
ROE Total income/ shareholder equity
0.0224313
278
0.0310481
28
Efficiency ratio's
Total assets turnover
ratios Net sales/ average total assets
1.0983443
709
1.4169161
082
Fixed assets turnover Net sales/ Averages total fixed assets 1.6169396 1.7165412
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578 448
The above chart of the accounting of Marks and Spencer shows that the Liquidity ratios
increased by some proportion but the profitability ratios and the efficiency ratios decreased
which affects the business performance as well as the financial position of the entity. For solving
the financial problem the company uses the the techniques like benchmarking, key performance
indicators and Brainstorming (Collins, Pasewark and Riley, 2012).
7. Differentiation between IAS and IFRS
International financial reporting standard
(IFRS)
International accounting standard
(IAS)
These are newly issued accounting standard
that help management to report transaction in
final accounts.
These are issued before the IFRS in order to
provide the generally accepted accounting
standard to organisations.
All crucial relevant decisions are performed by
IASB in context of IFRS.
All relevant decisions made by IAS which are
examined by IASC.
IFRS were issued by international accounting
standard board (IASB) in 2001 .
The IAS were issued by international
accounting standard committee (IASC), in
1973.
IFRS is accepted for global comparison for
Business entities
IAS were some how replaced by IFRS, as it is
not use for the comparison of entities at
international level (FLaux, 2012)
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8. Evaluation of the benefits of International Financial Reporting Standard (IFRS)
There are some benefits of adapting IFRS enjoying by the business entities like Marks
and Spencer. Some of the benefits are discussed as follows.
 Appropriate accounting standards supports the entities in ascertaining their growth as
well as in developing their business and economy.
 Beneficial in making the comparative analysis of entities of different country as the IFRS
are accepted globally.
 IFRS ensures clearance and transparency in the financial statement of the companies.
 It is beneficial in acquiring funds from foreign markets.
 IFRS acts as the global language that makes easy to understand the financial position of
the businesses, as from the foreign investors point of view (Maffett, 2012).
 IFRS standards while making financial reports, ensures the manager to ease the work of
accountant to analysing the statements properly and present their best opinion.
9. Ascertainment of varying degree of compliance associated to IFRS
The international financial reporting standard accepted as the world wide standard of
accounting, after accepted several developed nations. It represents a global language of
accounting and present a frame work for preparation of financial statement preparation and
reporting. Currently there are 17 IFRS and 29 IAS which are adapted by every company at
global level. IFRS is followed by every type of entity whether they are large and small in size.
The mark and Spencer following the standard of IFRS, it is beneficial in preparation of financial
statements which are useful for stakeholder in making right decisions about investments. Besides
this in basic, compliance is the common word which is related to the IFRS(Barth, 2013). It has
been analysed that IFRS standard are framed in accordance with the disclosure of the
compliance in both material facts that are disclosing the needs and the incrementing level of
principles of disclosure.
CONCLUSION
From the above report it has been concluded that the IFRS plays an integral role in
process of financial statement preparation and its reporting as it acts as the global language of
presenting the business performance and it ensures the neutral ground for the comparison of
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different business entities across different countries throughout the world. Thus, the financial
reporting becomes crucial and transparent process beneficial for all of its users.
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REFERENCES
Books and Journals
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public firms. The Accounting Review, 88(5), pp.1715-1742.
Bevis, H.W., 2013. Corporate Financial Reporting in a Competitive Economy (RLE
Accounting). Routledge.
Botzem, S., 2012. The politics of accounting regulation: Organizing transnational standard
setting in financial reporting. Edward Elgar Publishing.
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conservatism. Journal of Accounting and Economics, 55(1), pp.1-22.
Collins, D.L., Pasewark, W.R. and Riley, M.E., 2012. Financial reporting outcomes under rules-
based and principles-based accounting standards. Accounting Horizons, 26(4), pp.681-
705.
Laux, C., 2012. Financial instruments, financial reporting, and financial stability. Accounting
and business research, 42(3), pp.239-260.
Maffett, M., 2012. Financial reporting opacity and informed trading by international institutional
investors. Journal of Accounting and Economics, 54(2-3), pp.201-220.
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Horizons, 28(2), pp.331-352.
Zeff, S.A., 2013. The objectives of financial reporting: a historical survey and analysis.
Accounting and Business Research, 43(4), pp.262-327.
Flower, J., 2016. European financial reporting: adapting to a changing world. Springer.
Zimmerman, J.L., 2013. Myth: External financial reporting quality has a first-order effect on
firm value. Accounting Horizons, 27(4), pp.887-894.
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