International Financial Reporting Sample Assignment

International Financial Reporting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Purpose and context of financial reporting..............................................................................1
2. Regulatory and conceptual framework its importance, purpose, key principle and explaining
qualitative characteristic..............................................................................................................2
3. Stakeholder of Sainsbury and how they benefit from financial information...........................3
4. Examining value of financial reporting for meeting organisational objective and growth.....5
5. Presenting main financial statement as per IAS 1...................................................................6
Statement of profits and other comprehensive income............................................................6
Statement of change in equity..................................................................................................6
Statement of financial position................................................................................................7
Comparison of statement of cash flow and financial statement..............................................7
6. Interpretation of financial statement of Sainsbury...................................................................7
7. Difference between International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS)........................................................................................................7
8. Evaluating benefits of IFRS.....................................................................................................7
9. Identifying degree of compliance with IFRS by companies around the world.......................8
REFERENCES................................................................................................................................9

INTRODUCTION
In way of providing global standard in collecting and recording data for communicating it
to other stakeholder International Accounting Standard Board (IASB) has provided standards
(Biddle, Hong and Knowles, 2016). Thus all companies around the world need to follow these
standard so that they could provide understandable and comparable books of accounts across the
international boundaries. The main purpose of financial accounting and its reporting is to
describe the financial performance and position of company in market.
This particular report will be based on financial reporting which includes the importance,
purpose, key principle and characteristic within the context of regulatory framework as well.
Further the report will cover stakeholder of Sainsbury which is the second largest supermarket of
UK operating since 1869. Then the value of financial reporting for meeting organisational
objectives and growth will also examined. In addition to this main financial statement as per IAS
1 like that of statement of P&L, comprehensive income, statement of equity, financial position
and difference between cash flow and the above financial statement will also be described.
MAIN BODY
1. Purpose and context of financial reporting
Financial reporting will be termed to as that process which includes producing up of
statement which would disclose financial position, performance and status of company to
management and investors (Nobes, 2014). There are many type of information which is used
within the financial statement like balance sheet, statement of cash flow, comprehensive income,
income statement, stockholder equity and P&L account as well. The main purpose or objective
of this reporting will be of providing information related to financial position, changes in
position and performance of company that would be then used for wider range of economic
decision taking.
All these type of information will allow stakeholder of company for allocation of
resources like that of accumulated profits in use of installation of any sort of machinery (Appiah,
Mireku and Ahiagbah, 2016). As there is different type of reports which are included within the
financial reports and all of them will be having their own purpose or aim.
Cash flow- This will be showing number of cash receipt and disbursement with different type of
category by including the amount of cash to be retained by company on their hand. So this will
include net change in cash and level of expense to be carried on for firm including both
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payments and receipt as well. All these cash will result in operation, financing and investing
activities of firm over the time period.
Income statement- This type of statement will be producing information related to total amount
which company is generating income from all its activities. This will also be having or
describing the expenses, income and volume of sales over the period of time (Graham,
Skaradzinski and Rustambekov, 2017). Income statement will also be describing how many
number of time, company will be need to review their expense and income. In analysing the
trend of market and that of industry also income statement will be required so that operation of
firm could be measured as per trend.
Balance sheet- The purpose of this balance sheet is to find out liquidity, debt and funding of
company with calculating different types of liquidity ratio. This is the most important type of
statement of accounts which will be describing the basis of number of ratios to be calculate.
2. Regulatory and conceptual framework its importance, purpose, key principle and explaining
qualitative characteristic
The conceptual framework will be defining the nature or purpose of accounting or book
keeping which is considered to as issue for reporting of financial information. This is mostly
applied for financial reporting purpose so included with Generally Accepted Accounting
Principle (GAAP). Company could be able to take other financing decision based on conceptual
and regulatory framework with development of measurement (International Accounting
Standards Board, 2010). Thus conceptual framework will be related to accounting theory so that
it could be prepared by standard setting for all type of practical problem to be tested. There are
often many types of threats and defects are identified during time when company is not able to
follow the conceptual framework or the accounting standards as well.
During the time when there is any type of failure or collapse of company then it is
regarded that during that time accountant of company will be at fault due to their inadequate
knowledge. Like in case of TESCO when accountant of firm overstated its profits by £263
million and then the revenue by Financial Conduct Authority (FCA) were spotted to be half of it.
This was considered to as not following the conceptual and regulatory framework which must be
done by company.
It was also included that due to companies not following the conceptual framework there
was multiplication of rule based accounting system. While it was also noticed that if there will be
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conceptual framework then there could be principle based system that will be developed by
specified objective. The regulatory framework will be including IAS and IFRS in way of
reporting of financial accounts profession. These will be certain type of entities who are
regulating as per the rules and regulation for the purpose of comparison of accounts.
The key principle according to which all registered companies needs to work will that be
related to both international and national standards which are all providing specified guidelines
for purpose of reporting. The national standard of country will be that specified level which is all
based upon international reporting if the nation is following IFRS (Abata, 2015). This will be
applied to the registered and un-registered company so they need to directly get involved into
oversee bodies like that of International Financial Reporting Interpretation Committee (IFRIC),
Standard Advisory Council (ISAC) and International Accounting Standard Board (IASB).
There are certain qualitative characteristic which will be making all type of financial and
accounting information more reliable or easily understandable.
Relevance: As all the information should be relevant to items or material that must be reported
and then help at time of making relevant decisions.
Reliable: This will also be used for making accounting information more useful so that decision
could be easily made based on financial position of business and earning potential as well.
Understandability- This is among one of most important characteristic which means that all
information which of quality and thus it should be easily understandable by end of users.
3. Stakeholder of Sainsbury and how they benefit from financial information
Stakeholders are those who are either direct or indirect part of organisation showing
interest within books of accounts and financial information of company. They will also be
having certain type of influence upon the decision which firm is taking based on its interest. As
Sainsbury is the second largest chain of supermarket of UK and is having about 16.9% of share
from supermarket sector in country (Schneider, Michelon and Maier, 2017). The holding
company is J. Sainsbury Plc. which is then divided into 3 division which includes that of
Sainsbury supermarket Ltd, Sainsbury bank and Sainsbury Argos.
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Figure 1: Stakeholder of Sainsbury
[Source: Ali, Akbar and Ormrod, 2016]
Shareholder or owner-
As the ownership of company is divided into shareholders of Sainsbury and then the
decisions could be made up by Board of Director and within this shareholders is having their
own interest. If the company is making or generating most dividends then it would be attracting
most of the shareholders from within market to invest into Sainsbury. So from the viewpoint of
company they always need to satisfy shareholder so that they could be able to generate capital
for them.
Employees-
They are part of Sainsbury and also regarded to as most important shareholder as with the
help of employee only it will be possible for firm to function and operate properly. Sainsbury
need to satisfy their staff members with best wage and minimum labour price (Kim, Shi and
Zhou, 2014). It is also important to satisfy the need and want of employees of company as they
would be having interest within policy formulation and rules regulation of Sainsbury.
Customer-
They are the most important stakeholder who would be playing role into survival of
business from amount of goods purchase and then paying company money in return. Majority of
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revenue of firm will be considered from the part of customer only so it is necessary that
Sainsbury is selling the best form of products and service to them.
Suppliers-
They are the one who are responsible for supplying goods, raw materials and other
essentials parts or equipment (Lestari, 2015). So Sainsbury could be finding it difficult to satisfy
the suppliers especially for a large supermarket chain as they want to pay lowest price for the
product so it is required that they are paying the lowest price for product. Due to this the
suppliers would be receiving low amount of profits from the supply of their product which will
be greater concern to suppliers.
Managers and directors-
They are the one who are meant to run the business of company so they only set rules and
regulation for successful running of operation of company. They are termed to as one of the most
important stakeholders of Sainsbury as they are having own share within company where they
are working (Christiaens, Aversano and Van Cauwenberge, 2015). The profit of Sainsbury
would be termed to as share of market, profits and share price as well to determine managerial
staff to be continue to have job in company.
4. Examining value of financial reporting for meeting organisational objective and growth
One of the major objective or purpose of financial reporting will be that of tracking and
analysing business income while purpose will be that of examining resource cash flow and usage
with including the health of business. Within any type of company which is manufacturing or
providing service to its multiple department which is the day to day function of company in way
of achieving organisational goals (Ward and Lowe, 2017). It is worth noticing that all department
of Sainsbury will be interlinked with each other and will be commonly working for achieving
goal or objective. For this there are 2 different type of reporting that Sainsbury need to follow or
prepare which are financial and management reports. Both of them will be defining to as
important part of organisation for considering involvement of stakeholder and statutory
requirement as well.
The major objective of financial reporting will be of providing information to stakeholder
about financial position and performance of enterprise. This will also be proving information
related to economic resources of the organisation in way of procuring and using resources. All
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the stakeholder of company will be requiring this for many type of reason and purpose but all the
time its importance can never be over emphasized.
The financial report will be forming the main part or backbone of financial planning analysis and
benchmarking as with the help of it only decisions could be formed. Other than this the financial
report will also be facilitating statutory audit for the part of auditor that are required for the
purpose of audit of financial statement of Sainsbury for expressing opinion. With the help of it
organisation could also easily comply with various type of regulatory requirement for all
stakeholders in variety of reason and purpose (Chand, Patel and White, 2015). As Sainsbury will
be required to file financial statement to government agencies and ROC as well.
5. Presenting main financial statement as per IAS 1
Statement of profits and other comprehensive income
In the International Accounting Standard 1 it is mentioned about presentation of the
financial statement with setting out overall requirement and including minimum content as well.
The main objective of this IAS 1 will be prescribing basis of presentation of all general purpose
of financial statements in ensuring comparability with overall financial statements of periods.
The P&L statements will be defined to as total income which will be less the expenses for
including other components or incomes which is described to as income which is adjusted and
not recognized to as change in equity during period which will be resulting from other
transaction to other events with those changes. The comprehensive income for period will be
equal to profit or loss plus other comprehensive income will be turned into.
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Working notes:
Statement of change in equity
The statements of equity will be requiring presenting the separate statements of equity
which is showing the total comprehensive income for the period with showing the amount
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attributed to owners of the parent or the non-controlling interest (Balsmeier and Vanhaverbeke,
2018). This will be reconciliation between the carrying amount at beginning and end of period
for each of the components of equity which is P&L, other comprehensive income and transaction
with owner.
Statement of financial position
This is also called to as balance sheet which is presenting with financial position with the
separating current and non-current assets and liabilities unless it is presentably in liquidity it will
be providing information that is completely reliable.
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Comparison of statement of cash flow and financial statement
Cash flow will be statements that is similar to income statements in the recording of
performance over the specified period the major difference between these two will be that of
income statements which is taken into account some non-cash accounting like that of
depreciation (Schneider, Michelon and Maier, 2017). The difference will be that of income
statements will only be showing revenue of total expense and will include non-cash accounting
other than this profit will be income statements then use of calculate cash flow from operation.
6. Interpretation of financial statement of Sainsbury
Ratio analysis
Ratio analysis of Sainsbury Plc for the year ended on 2017 and 2018
Profitability ratio analysis
Particulars Formula 2017 2018
Profitability ratio
Gross profit 1634 1,882
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Net profit 377 309
Sales revenue 26224 28,456
GP margin or ratio Gross profit / sales
revenue * 100 6.23% 6.61%
NP margin or ratio Net profit / sales
revenue * 100 1.44% 1.09%
Liquidity ratio analysis
Particulars Formula 2017 2018
Current assets 6322 7,866
Current liabilities 8573 10302
Inventory 1775 1,810
Prepaid expenses - -
Current ratio Current assets / current
liabilities 0.74 0.76
Quick ratio (CA – stock) / CL 0.53 0.59
Efficiency ratio analysis
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Particulars Formula 2017 2018
Revenue 26224 28,456
Average total assets 18355 20869
Average fixed assets 12972 13775
COGS 24574 27,016
Stock 1372 1793
Fixed assets turnover
ratio
Revenue / Average
fixed assets 2.02 2.07
Total assets turnover ratio Sales / Average total
assets 1.43 1.36
Inventory turnover ratio COGS / Average
Stock 17.91 15.07
Solvency ratio analysis
Particulars Formula 2017 2018
Long term debt 2114 1505
Shareholders’ equity 6872 7411
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Debt-equity ratio Long term debt /
shareholder’s equity 0.31 0.20
Interpretation: Sainsbury's financial performance has been evaluated with context of
analysing its financial statements through its liquidity, solvency, probability and efficiency ratio
over year 2017 and 2018. The profitability of this organization has been indicated via gross profit
and net profit margin ratio. On basis if relationship of gross margin with net sales has been
increased from year 2017 to 2018 by 6.23% to 6.61% respectively because of increment in both
parameters as net sales and gross profit as well. On the contrary, its net profit ratio is decreasing
but with minor variations. Hence, profitability is in adequate position.
With reference to liquidity of Sainsbury, its current and quick ratio both are not up to
mark so there is recommendation that it must keep watch on its assets for repaying its short and
long term obligation over coming year. Further, its efficiency is measured where it is giving huge
turnover on fixed asset and even its inventory turnover is also reducing which is strong indicator
to organization. The most important aspect is of measuring Sainsbury's solvency on basis of
measuring ratio of debt and equity. It had been assessed that it has 0.31 debt in 2017 which
decreased to 0.20 in 2018 which is good indicator but it must be capable for maintaining
optimum capital structure over years.
7. Difference between International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS)
The accounting standards will be issued by the IASB which will be called to as IAS
globally accepted from across the world that will be under sense of obligation for the use of their
financial statements ion all countries of world. There is some major difference between IAS and
IFRS which will be the duration of their publication as the IAS was published in 1973 and 2001.
While that of IFRS was published in 2001. The issue of IAS standard was issued by the IASC
which the IFRS was issued by IASB. The principles of IFRS will be taken for precedence if there
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was contradiction with the IAS and this resulted into IAS principle being dropped. Other than
these there are no specified differences which could be witnessed or noticed into both of them.
8. Evaluating benefits of IFRS
With the help of IFRS all companies will be able to raise capital from foreign market that
too at lower cost and thus creating confidence within minds of all foreign investors who are
having their financial statement comply (Graham, Skaradzinski and Rustambekov, 2017). For all
companies of world IFRS will be standing with greater impact on their performance as financial
reporting will be very important and practical exercise in communication. There includes 5 major
or most important benefit of IFRS which are as follows:
 IFRS will be encouraging benefits of international investor in way of investing within
companies for leading to more foreign capital flow within country.
 The IFRS thus with the above benefit will be helping in increasing growth of
international business within the market on global level.
 This will also be offering professionals in accounts to have more amount of opportunities
as throughout the world accounting practice will be same so they could be working in any
part of world.
 Furthermore, the financial statements which are been prepared would be used with
common set of accounting standards in way of investors having clear understanding of
financial statement to be prepared according to international standard.
 In addition to this overall industry could be beneficial in raising up of capital from
foreign markets that too at lower cost in creating confidence into mind of investors and
complying with the global accounting standards as well.
9. Identifying degree of compliance with IFRS by companies around the world
It is very much important that all companies of world need to comply with the rules and
regulation of IFRS so that they could be able to follow it in proper manner. This topic will be of
major concern as with adoption of process including that of IAS and IFRS for both develops and
developing countries of world (Biddle, Hong and Knowles, 2016). but then also from one of the
study it could be analysed that not all firms in developing country like that of Turkey will be
implementing IAS and IFRS which shows that some of them are regulating less and some are
regulating more (Compliance with IAS/IFRS and firm characteristics: evidence from the
emerging capital market of Turkey, 2018). As it could also be analysed that adaptation of
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statement of cash flow is done more by firm as compared to insurance contract or share based
payment. This difference could be based on the complexities of operation of business
organisation in country. Then it was also included the characteristics that are impacting
compliance with the IAS or IFRS some of them are training staff, foreign ownership, size of firm
and listing status.
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REFERENCES
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