Financial Reporting Solved Assignment - Doc

FINANCIAL
REPORTING

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTIONS...................................................................................................................................3
1. Context and purpose of financial reporting.............................................................................3
2. Conceptual, regulatory framework, key principle and qualitative characteristics. ................4
3. Main stakeholders of organisations and benefits of financial information for them.............6
4. Value of financial reporting for meeting the organisational objectives and growth...............7
5. Presentation of financial statements as per IAS 1...................................................................8
6. Interpretation and communication of financial performance of listed company in the FTSE
100.............................................................................................................................................10
7. Difference between international accounting standard and international financial reporting
standard.....................................................................................................................................12
8. Evaluation of advantage of international financial reporting system....................................13
9. Degree of compliance with the international financial reporting standards..........................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
The financial reporting can be defined as a process of presenting the financial statements
and information to the managers and external stakeholders (Pelger, 2016). The main purpose of
these reports is to aware stakeholders about financial performance of a company during a
specific period of time. In the context of organisations, there are a wide range of operations and
activities which are being performed by different departments. Herein, it is essential to know
about the performance of all the activities in the terms of profit and this is done with the help of
financial reports. Eventually, the financial reports are prepared and presented at the end of an
accounting period. To understand in broad sense about term financial reporting, Deloitte
company is selected which provides financial services to wide range of customers.
Herein, the project report, conceptual and regulatory framework of the financial reports is
mentioned. As well as benefit to the stakeholder of these reports is also discussed. Apart from it,
variation between the international accounting standard and international financial-reporting
standard is included in the report. Along with, various type of financial reports and statements
such as P&L account, balance sheet etc. are prepared on the basis of given information and data.
QUESTIONS
1. Context and purpose of financial reporting.
Financial reporting:
It is concerned with the disclosure of company's financial statements to the management
and the owners i.e. the shareholders for the purpose of disclosing the financial health of the
organisation (Perera and Chand, 2015). It is the analysis of financial statements prepared in an
organisation which majorly consists of income & expenditure statement, cash flow statement and
balance sheet. It is a legal onus on the firm to disclose what its current financial health is to its
shareholders and promoters . The meeting of financial reporting standards by the organisation
ensures the stakeholders most importantly the shareholders that their stakes are duly taken care
of. It is a vital part of sustainable corporate governance. Disclosing timely financial statements to
public and government helps organisation in building a compliance rapport along with
establishing market reliance.
Purpose of financial reporting:

 It helps the management to take profound strategic decisions about the future goals by
relying on the financial data provided by statements which discloses the current position.
This information helps the managers in creating a base index of for future projections.
The relevancy of information paves a way for emancipating future business strategies.
 The second most prominent purpose of financial reporting is it discloses the key success
factors and loss factors to the investors who have provided additional capital to the
business. It is a mandatory as well as ethical norm to do so. To safeguard the interests of
investors from fraudulent practices related to insider trading, financial scams etc., every
nation has devised certain corporate laws requiring companies to disclose data to public
and government.
 Meeting financial reporting standards facilitates the statutory audit by providing well
crafted documents to assist audit. Since it bores a good name to the company hence
makes it easy for it to gather capital from international and national sources easily as
compared to non compliant organisations.
2. Conceptual, regulatory framework, key principle and qualitative characteristics.
Conceptual & Regulatory framework :
Conceptual framework for reporting is promulgated by International accounting
standards board (IASB) which is the regulatory body for IFRS (Krishnan and Zhang, 2014). The
framework is very crucial in designing standards for different industries functioning in an
economy. It drafts the fundamental concepts for financial reporting in designing standards and
ensure that standards are conceptually in consistency with the norms. Conceptual framework
helps companies in formulating accounting policies where IFRS standards doesn't apply to an
individual , at the same time makes it easier for the stakeholders to easily understand the
standards. Regulatory framework is necessary for financial reporting to control the ways to
report the statements. It creates scope for the companies, rectifies any errors and timely updates
the standards. It ensures steady and full implementation of standards. The regulatory structure
consists of National financial standards, national law, market regulations, security exchange
rules. UK has accounting standards board As its own financial reporting authority. It is
authorised by companies act 2006. There are other legislations like Sarbanes Oxley act which
affects the accountability in UK.

Key principles : key principles of reporting includes basic core characteristics of
reporting which should exist in any reporting system to ensure better implementation. They key
principles are:
 Full disclosure : Companies are required to fully disclose their financial statements
prepared on the basis of prescribed international formats (Wolfson, 2014). These
statements shall be available to general public to help them in making an informed
decision prior to making an investment. The investors should be able to make yes or no
decisions adhering to financial statements. They shall be prepared with the practice of
prudence and just and fair measures.
 Consistency : The financial statements shall be prepared on year to year basis
consecutively and consistently. They should behave in contrast to the previous year's
statements to determine the consistency in companies reports. It helps the investors in
comparing between companies consistency and reliability.
 Purpose : Statements shall be prepared with specific purpose of reporting reliable
information to the public.
Qualitative characteristics of financial reporting :
The financial reporting information shall have some qualitative features in relevance to
the quantitative features. The reports are required to meet quality standards to demonstrate the
precision with which financial statements are prepared. This gives a glimpse of how ethical and
law abiding a business firm is. The basic qualitative characteristics of financial reporting are :
 Faithful representation : The financial information provided in financial reports should
disseminate what it purports to present. It should be prepared on the principles of justice
and prudence(Rotimi 2012). They shall clearly state the position of assets and liabilities
and cash inflow and outflow. The data provide should be fair, free from bias and
prejudice, accurate and precise.
 Relevance : The information provided in financial statements should be relevant to the
period for which they are prepared along with company's operations, financial health and
progress. The data relevancy is important to the investors in making informed decision
about the investment.

 Understandable : The financial statements should be easily understandable and clearly
self explanatory to help the investors understand the organisation position.
 Comparable : The financial statements shall be prepared based on consistent accounting
standards to help the stakeholders in comparing past data to the current data.
Timeliness : The information should be prepared on time and shall be disclosed onh timely
manner before it looses its credibility to influence decisions. Generally they are prepared on year
to year basis.
3. Main stakeholders of organisations and benefits of financial information for them.
The stakeholders can be defined as a person or organisation which has their interest in
the financial performance companies (Powers, Robinson and Stomberg, 2016). Eventually, the
stakeholders may impact to the company's activities, plans and policies. There are two kinds of
stakeholders which are internal and external stakeholders. Both have their interest in the financial
performance of organisations. In the context of Deloitte company, they have both kind of
stakeholders which are described in broad sense below:
Internal stakeholders- These are the stakeholders which take part in day to day
activities of organisation. As well as can be effected directly by plans and policies of companies.
Herein, below some types of internal stakeholders are mentioned below:
 Managers- The managers are those who are important for making plans and strategies for
the companies. These are one of the important internal stakeholders for the companies.
The financial reports of companies are very important for the managers. This is why
because on the basis of these reports, they draw a pattern on which companies can
operate their activities. For example in above mentioned company, their manager
evaluate the financial reports for the purpose of internal decision-making.

 Employees- These are kind of internal stakeholders who perform the activities and
functions of the organisations for purpose of getting salary and wages (Kantudu and
Samaila, 2015). Eventually, the financial reports are beneficial for them, because if
company's financial reports are showing higher profits then employees will be awarded
accordingly. As well as employees can ensure about their incentives, bonus and salary to
get on time. Same as in above respective company Deloitte the financial reports are
useful for their employees to get information about financial position.
External stakeholders- These are the stakeholders who do not participate in day to day
activities of the organisation but can be effected organisational policies and plans indirectly.
Such as in Deloitte company, they have various kind of external stakeholders who show their
interest in the financial performance of the company to make investment. Some stakeholders are
mentioned below:
 Creditors- These are kind of external stakeholders who are associated with providing the
financial services to the companies on credit basis. The financial reports of company are
very beneficial for them in taking decision about making credit transaction with the
companies. In the Deloitte company, their creditors provide financial assistance to them
on the basis of their financial reports.
 Investors- These are kind of stakeholders who invest the money in the activities of
organisations with an expectation to get the higher return (Chen, Lobo and Wang, 2013).
The financial reports are beneficial for them like in above respective company, they make
the investment on the basis of debt to equity ratio.
 Suppliers- These are the stakeholders which supply the goods and services on credit or
cash. When they supply the material on credit then they provide it on the basis of
financial reports. If company's financial condition is not good then suppliers will not
provide material on credit.
4. Value of financial reporting for meeting the organisational objectives and growth.
The financial reports for meeting the organisational objectives and growth. This is why
because on the basis of it, companies make plans and policies.
Financial reporting for meeting the objectives- The financial reports are useful for the
companies in achieving the goals and objectives of the organisation. This is so because on with

the help of these reports companies can analyse about actual financial position of company and
accordingly can make plan to achieve the objectives. Such as in the Deliotte company, they
evaluate the financial performance of their activities with the help of income statements, balance
sheets etc. and make effective strategies to complete their goals. For example previous year's
profit & loss account presenting the high profit then they will continue the same plan and
policies in current year.
Financial reporting for growth of business- Additionally, the financial reporting are also
important for growth of the companies. The financial reports conclude about the effort of all
business activities and operations in terms of profit. As well as if companies will show their
financial reports to the external stakeholders then company's reputation will enhance and it may
help in growth of business. Such as in the Deliotte company, they produce and present the
financial reports in front of external stakeholders and they invest in the company accordingly.
Hence, it can be said that the financial reports are useful in the growth of business in an effective
manner.
Financial reporting for development of business- Apart from it, the financial reports are
also important for development of the business (Assaf, Josiassen and Cvelbar, 2012). This is
why because on the basis of financial statements, companies can take decisions about expanding
the business. Eventually, in the absence of financial reports companies can not make capital
expenditure. As well as without evaluation of the financial reports it can be risky for the
companies to take further decisions. Like in the above respective company, they take expenditure
decisions on the basis of their financial reports. So overall, the financial reports are useful in the
development of business.
5. Presentation of financial statements as per IAS 1.
(a) Profit and loss statement for year ending 31 December, 2018
Particular Amount (in £'000)
Revenue
Less- Cost of good sales
585100
(391700)
Gross profit
Less- Operating expenditures
193400
80500

Less- Depreciation charges (WN1)
Less- Other incomes
26715
(9600)
Operating profit
Less- Interest from bank
95785
1200
PBT(Profit before tax)
Less- Taxation
94585
9500
Profit after tax
Add- Other income
85085
Nil
Total income 85085
Working note:
Calculation of total depreciation charges:
Depreciation on land & machine- 150000/16= £9375
Add: Depreciation on plant & equipment- 148000-32400= £115600
115600x 15/100= £17340
Total depreciation- £26715
(b) Statement of changes in equity for the year ended 31 December 2018
Particular
Ordinary
share capital
Revaluation
reserve
Retained
earnings Total
As per trial balance 86700 40000 45500 172200
Total Comprehensive income - 85085 85085
Preference dividend -2500 -2500
Ordinary dividend -4500 -4500
86700 40000 123585 250285
(c) Statement of financial Position for year ending 31st December, 2018
Balance Sheet as on 31st December, 2018

Particular
Amount(in
£'000)
ASSETS:
1. Non-current assets:
(a) Property, Plant and equipment 298000
Less: Accumulated Depreciation 32400
Less: Current Year Depreciation 26715 238885
(b) Investment Property 28000
(e) Deferred tax assets(net) 10000
(f) Other non current assets -
2. Current assets:
(a) Inventories 25200
(b) Trade receivables 78000
(c) Other current assets 10900
Total 390985
EQUITY AND LIABILITIES:
1. Equity:
(a) Ordinary share capital 86700
(b) Other equity (Note) 205585
(b) Preference share capital 26500
2. Non current liabilities:
(a) Deferred Taxation -
3. Current Liabilities:
(a) Trade payables 62700
(b) Bank OD -
(c) Provision for current tax 9500
Total 355985

6. Interpretation and communication of financial performance of listed company in the FTSE
100.
It is necessary for the companies to present and interpret the financial condition. Herein,
Tesco company is selected whose financial performance is mentioned below such as:
Liquidity ratio- This is a kind of ratio that defines the relation between the liquid assets and
liabilities. It is divided into two parts which are current ratio and quick ratio. Herein, below
liquidity ratio of Tesco company is mentioned below (About Financial information of Tesco,
2019).
Current ratio- This ratio is calculated by applying the formula such as: Current asset/
Current liability. It defines relation between current assets and liabilities. GBP in million
Particulars 2018 (in £) 2017 (in £)
Current assets 13726 15417
Current liabilities 19238 19405
Current ratio 0.71 0.79
Interpretation- As per the above information it can be analysed that company's current assets are
decreasing in 2018. Company's current ratio is of 0.79 in the year 2017 which decreased in 2018
and became 0.71. Basically, ideal current ratio is of 2 : 1 which means company has double
assets to pay the liabilities. So it can be interpreted that company has less assets to pay their
debts.
Quick ratio- This ratio stats the relation between quick assets and current liabilities. As
well as it is calculated by this formula= [current assets- (stock + prepaid expenses)] / current
liability. Below quick ratio of Tesco company for year 2017 and 18 is mentioned below:
GBP in million
Particulars 2018 (in £) 2017 (in £)
Quick assets 11463 13116
Current liabilities 19238 19405
Quick ratio 0.59 0.67

Interpretation- On the basis of above information about the quick ratio of above company it can
be analysed that company's quick assets is decreasing in 2018. In 2017, it is of £13116 which
decreased in became of £11463. Basically, the ideal quick ratio is of 1:1 which means company
should have quick assets equal to the current liabilities. So it can be interpreted that above
company do not have enough quick assets to pay their liabilities.
Profitability ratio- This is a kind of ratio that is being calculated to evaluate an organisation's
ability to generate the profits. As well as it contains various kind of ratios which are gross profit
ratio, net profit ratio etc. Below, the profitability ratio of Tesco company is mentioned below:
Gross profit ratio- This ratio is calculated by dividing gross profit from sales. Its formula
is such as : Gross profit/ salesx100. GBP in million
Particulars 2018 (in £) 2017 (in £)
Gross profit 3350 2902
Sales 9950 9854
Gross profit 33.67% 29.45%
Interpretation- As per the above information about Tesco company, it can be analysed that
company's sales and gross profit are increasing. As well as gross profit ratio is also increasing. In
2017 it is of 29.45% which increased in next year and became 33.67%. So it can be interpreted
that company's financial condition is good.
Net profit ratio- This ratio is calculated by this formula which is as follows: net
profit/sales x 100.
GBP in million
Particulars 2018 (in £) 2017 (in £)
Net profit 3024 1966
Sales 9950 9854
Net profit ratio 30.39% 19.95%

Interpretation- On the basis of above mentioned financial information of Tesco company, it is
analysed that company's net profit is increasing continuously. In 2017, the net profit is of 1966
which increased and became 3024 in 2018. So it can be interpreted that company is earning good
profit after deducting all the taxes.
7. Difference between international accounting standard and international financial reporting
standard.
The international accounting standards can be defined as the old accounting standards
which were replaced by international financial reporting standards in year 2001. Herein, below
difference between these two is mentioned:
Basis of
difference
International accounting
standard(IAS)
International financial reporting
standard (IFRS)
Year of
implication
The International accounting
standard were implicated in year
2001 (Aversano and Christiaens,
2014).
While the International financial
reporting standard were implicated in
year between 1973-2001.
Brief overview This can be defined as a set of world
level standards which are issued by
IASB. As well as these standards
are applicable for both to the listed
and non listed companies.
These standards may be defined as a
set of standards which are applicable
at world level and issued by IASC.
Objective The main objective of the
international accounting standards is
to give guidance to the companies
for purpose of performing the
activities at international accounting
council.
On the other hand, the objective of
international financial reporting
standards is to ensuring the accurate
presentation of financial reports.

8. Evaluation of advantage of international financial reporting system.
The international financial reporting system is useful for those organisations who
performs their activities at world level (Zainudin and Hashim, 2016). This is why because on the
basis of it, financial reports can be transparent, accountable for all the external stakeholder. Here,
below some advantages of IFRS are mentioned below:
 One of the key advantage of the IRFS is that these are beneficial in minimising the cost
of capital. This is why because when companies implement these standards then it will
minimise the charges of external accountants, auditors, consultants etc.
 As well as the international financial reporting standards are also beneficial in
eliminating the errors from the financial statements. Along with reduce the penalties and
fines.
 Additionally, these standards are also beneficial for the companies in allocating all the
available resources of the organisations in a systematic manner. By this companies can
be able to take futuristic decisions in an effective manner.
 Due to international financial reporting standards company's financial statements will be
more reliable and companies can do effective tax planning.
9. Degree of compliance with the international financial reporting standards.
As per the current data offered by the international financial reporting standard group,
about 87% of jurisdictions of different nations need IFRS for their domestic level organisations
(Liu, 2013). Eventually, the micro companies in some countries like in Germany are using old
practices. On the basis of some factors like market size, level of operations the companies are
divided into two parts which are class A & class B. For example the New Zealand is considered
as class A country. As well as B class countries are like Denmark, Norway etc.
Factors which are effecting compliance in a country: There are various kind of factors that
may effect the compliance of countries. Some factors are mentioned below:
Culture- The culture of nations can impact to the compliances. For example in Egypt they
are applying the IFRS instead of EAS (Egyptian accounting standards). Eventually, the
companies of this country is based on the secrecy.
Auditors- The selection of any most appropriate auditors can effect the compliance of
countries. This is why because any incapable auditor can effect the financial statements of
companies.

CONCLUSION
On the basis of above mentioned project report it can be concluded that financial
reporting is very important for the organisations. Eventually, the main purpose of these reports is
to provide the essential information to the companies. The accuracy, authenticity and
accountability are some qualitative features of the reports which are concluded in the report. As
well as this report concludes about the implementation of international financial reporting
standards (IFRS) for preparation of financial statements. This is so because there are a wide
range of benefits of IFRS to find out the degree of compliance in any organisation all around the
world.