Analysis of Marks and Spencer's Financial Reports

This assignment provides a detailed analysis of Marks and Spencer's financial reports for 2018 and 2017. The income statement shows the company's revenue, cost of revenue, gross profit, operating expenses, and net income from continuing operations. The balance sheet presents the company's assets, liabilities, and stockholders' equity, including cash and cash equivalents, net receivables, inventory, property plant and equipment, goodwill, intangible assets, and other assets. The analysis provides insights into Marks and Spencer's financial performance and position, allowing for a comprehensive understanding of the company's operations and prospects.

International
Financial Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Financial reporting and its purpose.........................................................................................1
2. Regulatory and conceptual framework and their requirement, purpose and key principles...2
3. Key stakeholders of the company and benefits of financial information to them..................3
4. Value of financial reporting in meeting goals and objectives of the company.......................4
5. Formulation of financial statements of the organisation.........................................................5
6. The way in which financial statements are used to communicate and interpret financial
performance.................................................................................................................................7
7. Differences between IFRS and IAS........................................................................................9
8. Various benefits of IFRS.........................................................................................................9
9. Varying degree of compliance with IFRS.............................................................................10
CONCLUSION..............................................................................................................................10
REREFRENCES............................................................................................................................11
APPENDIX....................................................................................................................................12

INTRODUCTION
Financial reporting can be defined as the method that help to record all the financial
information in different types of statements so that organisation's performance can be examined.
For all the organisations it is very important to formulate final accounts like income statement,
balance sheet and cash flow statement for the purpose of analysing financial strength of a
company. In this project report an accountant of a leading accountancy firm is going to conduct
financial reporting for Marks and Spencer which is a multinational retailer in Britain. This
assignment is providing different types of services such as banking (Adetula and Owolabi,
2014). This assignment contain detailed information about financial reporting its purpose,
conceptual and regulatory frameworks and their requirements, principles and purpose, benefits of
financial information to the key stakeholders, role of financial reporting in meeting
organisational goals and objectives, generation of financial statement so that organisation's
financial performance can be communicated and interpreted etc. Benefits of IFRS and its
differentiation with IAS and varying degree of compliance with IFRS have also been discussed
under this report.
MAIN BODY
1. Financial reporting and its purpose
Financial reporting: It is the way in which organisations formulate their financial
statements that are presented in front of external stakeholders for the purpose of providing them
information of organisational performance. In Marks and Spencer it is conducted by the
accountants so that competitiveness of the organisation can be examined. All the finance related
information is provided to the external parties to enhance their interest in the company. If the
managers of the company are catering transparent data to the stakeholders than it can help to
attain organisational goals. Marks and Spencer is successfully running its business all around the
world hence it is very important for the company to formulate financial statements in appropriate
manner so that business can be operates more effectively (Beneish, Miller and Yohn, 2012).
There are three different types of financial statements are formulated by the accountants
of Marks and Spencer these statements are cash flow, balance sheet and income statement. All of
them help the internal as well as external stakeholders to analyse organisation's financial health
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so that they may take appropriate decisions. All the companies conduct financial reporting for
various purposes, some of them have been discussed underneath:
Purpose of financial reporting:
 Financial reporting is concerned with the appropriate formulation of financial statements
so that a transparent and positive image of the organisation can be presented in front of
internal as well as external stakeholders.
 It is conducted to render result of organisation's operations and different executional
activities that are performed by the company in order to maximise sales and profits for
the future (Dhaliwal and et.al., 2012).
2. Regulatory and conceptual framework and their requirement, purpose and key principles
Regulatory and conceptual framework: Government of every nation implement
various rules, principles and regulations that are related to the effective formulation of financial
statements for all the organisation. This done for the purpose of executing business successfully.
All the imposed regulations are the frameworks that are essential for all the organisations to
follow as they are required for the effective representation of organisational position. Marks and
Spencer is implementing all the regulatory and conceptual frameworks that are imposed by legal
authorities because it is beneficial for the company and also help to establish a positive image in
the mind of stakeholders. IASB is the regulatory authority who incorporates different types of
financial reporting standards so that all the business entities can record all the information in
final accounts properly (dos Santos, Fávero and Distadio, 2016). Marks and Spencer is using all
the standards in its financial reports as they are required for all the companies who are operating
business on international level. IFRS are the set of standards that are imposed by IASB, that are
described below:
IFRS (international Financial Reporting Standards): These are introduced by IASB
(International Accounting Standards Board) that guides the organisations to formulate financial
statements in appropriate manner. Some of the main IFRS are as follows:
 IFRS 1: It is induced for the organisations who are going to adopt IFRS for the first time.
It guides them through out the way of recording so that financial statements can be
formulated properly.
 IFRS 10: All the organisations with various subsidiaries are directed to formulate all
their financial statements in consolidated form. According to IFRS 10 the parent
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company is responsible to conducted financial reporting and generate final accounts on
behalf of all its subsidiary companies.
Marks and Spencer is following all the standards under IFRS because it may help to keep
accurate financial information of the organisation.
Purpose of conceptual and regulatory framework:
 Conceptual and regulatory frameworks are introduced for the purpose of facilitating the
organisation in the process of financial reporting.
 Main purpose of both the frameworks is to determine performance of whole organisations
and provide it to the stakeholders to formulate strategic decisions.
Qualitative features of financial information:
Faithful representation: This quality of financial information can help to increase trust
of stakeholders because if the information is faithful than they can analyse actual performance of
the company. It will help to make the information more reliable because of its transparent nature
(Qualitative Characteristics of Financial Information, 2013).
Appropriateness: If the recorded data is appropriate than it will increase relevancy of
the information and help to determine organisational performance and its financial status of the
organisation.
For Marks and Spencer it is very important to add both the characteristics in the financial
statements to increase reliability of the information. It will help to enhance interest of investors
and shareholders of investing funds in the company.
3. Key stakeholders of the company and benefits of financial information to them
Stakeholders of an organisation are the persons who are responsible for the success. It is
very important to provide them benefits so that their interest can be raised for the betterment of
the company. There are two different types of stakeholders in Marks and Spencer and for the
business entity it is very important to provide them appropriate financial information. Both the
stakeholders are as follows:
Internal stakeholders: These are the persons who are responsible to make strategies for
the company in order to operate business effectively. In Marks and Spencer internal stakeholders
are shareholders and managers (Hadi, Suryanto and Hussain, 2016).
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 Shareholders: The individuals who have invested their money in the company try to
evaluate organisational performance with the help of financial information. They can
analyse that their finance is utilised appropriately or not.
 Managers: They measure financial information of the company because it helps them to
formulate strategies according to current status of Marks and Spencer in the market.
External stakeholders: The outsider parties of an organisation who are responsibility for
the effective execution of the business called external stakeholders. Customers, investors,
creditors are the external stakeholders of Marks and Spencer:
 Customers: Financial information is very beneficial for the customers of Marks and
Spencer because it may help them to make buying decisions by analysing organisation's
performance and financial strength.
 Investors: The individuals who invest their money in the company for the purpose of
attaining higher returns on their investment. Financial information which is gathered from
balance sheet is very beneficial for the company because this may help to determine
possible returns that can be acquired by them in future (Isenmila and Adeyemo, 2013).
 Creditors: The external parties who provide material to marks and Spencer on credit are
the creditors. Financial information collected from income statement and balance sheet is
very beneficial for them because this may help them to analyse organisation's credit
strength to make decision related to providing credit or not.
4. Value of financial reporting in meeting goals and objectives of the company
Financial reporting is very beneficial for all the organisations to attain goals and
objectives. As the goal of Marks and Spencer is to be the first choice of customers by retaining
and satisfying them. This can be achieved with the help of financial reporting because it can
help them to determine organisation's financial strength and market position. If the market image
is very good and organisation is financially strong then it can help to retain existing customers by
gaining their trust with the help good position and performance.
Main objectives of Marks and Spencer is to maximise profits and attract investors.
Appropriate and transparent financial statements can help to attain both the objectives because
investors always invest in such organisations who can provide them higher returns on their
money. They can evaluate financial status of Marks and Spencer and than can make decision to
invest or not to invest in the organisation. If performance and position of the company can is
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very good and the financial statemented are showing the same than it can help to attract large
number of investors. Objective of profit maximisation can be achieved by increasing sales which
is possible by satisfying customers. If Marks and Spencer is providing actual financial
information to its customers than it can help to achieve the objective of profit maximisation
(Louwers and et.al., 2015).
5. Formulation of financial statements of the organisation
A. Statement of profit and loss and statement of comprehensive income:
Particular Amount
Revenues 385100
Less: Cost of sales -297563
Profit 87537
Add: Other income 5600
Gross profit 93137
Less: operating expenses -83663
Operating profit 9475
Less: Finance cost -830
Profit before tax 8645
Less: Tax -1500
Profit after tax 7145
Add: Other comprehensive income 2100
Total Comprehensive income 9245
From the above statement it has been observed that profits of the company for the year
are 87537 and operating profits are 9475. Total profit before tax is 8645 and the tax for the
period is 1500. Profit after tax is 7145 and total comprehensive income is 9245.
B. Statement of changes in equity:
Particular Ordinary
share
Revaluatio
n reserve
Retained
earnings
Total
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capital
As per trial balance 86700 40700 32100 159500
Total Comprehensive income 2100 7145 9245
Preference dividend -2330 -2330
Ordinary dividend -4340 -4340
86700 42800 32575 162075
From the above calculation it has been analysed that ordinary share capital of the
company is 86700, revaluation reserve is 42800 and retained earnings are 32575.
C. Statement of financial position:
Assets Amount
Non current assets:
Land and property 115000
Plant and equipment 37275
Investment property 25400
Total non current assets 177675
Current assets:
Inventory 17300
Trade inventories 62000
Total current assets 85300
Total assets 262975
Equities and liabilities
Ordinary Share @25 each 86700
Revaluation reserve 42800
Retained earning 32575
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Total equities 162075
Non current liabilities:
10% redeemable preference share 23300
Deferred taxation 8900
Total non current liabilities 32200
Trade payables 65700
Bank overdraft 1500
Tax payables 1500
Total current liabilities 68700
Total equities and liabilities 262975
Statement of financial position of the company depict organisation's financial position
and it financial strength. According to abode statement total non current assets of the company
are 177675 and total current assets are 85300. total equities if the organisation are 162075, total
non current liabilities are 32200 and total current liabilities are 68700.
D. Difference between information which is provided by cash flow and financial
statements:
The information which is provided by cash flow statement and financial statements are
totally different from each other because cash flow only provide information related to cash
inflow and out flow but financial statements provide different types of information like revenue,
purchase, incomes, expenses, assets, liabilities etc. All of them are used by external stakeholders
to analyse organisation performance and information of cash flow is used by managers and
owners to analyse liquid strength of the company (Morrow, 2013).
6. The way in which financial statements are used to communicate and interpret financial
performance
As analysed form the financial statements of Marks and Spencer from Appendix that total
revenues of the organisation were 10622000 in year 2017 and it has been increased up to
10638200 in year 2018. Cost of revenues for year 2017 and 2018 are 6629300 and 6745600
respectively. Profits of marks and Spencer in year 2018 have decreased up to 3952600 from
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3992700 which is related to year 2017. Earning before interest and tax of Marks and Spencer has
been decreased in year 2018 as compare to 2017. EBIT for both the years are 707300 and
677400 respectively. Net income of the organisation is 117100 and 25700 for both the years
2017 and 2018. Total current assets for year 2017 are 1723300 and for 2018 it is 1317900 which
has been decreased in year 2018. Total assets of Marks and Spencer are 8292500 and 7550200
for year 2017 and 2018 respectively. Shareholder's equity of Marks and Spencer has been
reduced in year 2018 up to 2956700 from 3156300 which is related to 2017. Total liabilities of
the company were 5142100 in year 2017 and these are decreased in year 2018 and reached to
4896000.
Financial ratios of the company:
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From the above ratios it has been analysed that current ratio of Marks and Spencer has
been increased in year 2018 as compare to 2017. fro both the years ratios are as 0.721 and 0.727
respectively. Liquid ratio of the company ash also been increased in 2018 up to 0.407 from 0.294
which is for 2017. Net profits ratio of the company has been reduced in year 2018 up to 0.272
from 1.089. Gross profit ratio for both the years are 2.383 and 1.462. ROE for 2017 is 1.022 and
for 2018 it is 0.031. Total assets turnover ratio for year 2017 is 1.098 and for 2018 it is 1.416.
Fixed assets turnover ratio for both the years are 1.616 and 1.716 respectively.
Financial statements and their information help the stakeholders to evaluate and analyse
organisational performance. It guides them to make appropriate decisions so that they may get
long term benefits. If the company is not providing appropriate financial information to its
stakeholders than it may result in decreased interest on them in the organisation.
Financial governance:
7. Differences between IFRS and IAS
IFRS (International Financial Reporting Standards): All such type of standards that
are related to internal financial reporting have been launched by IASB who is responsible for the
same. Main purpose of IASB for the introduction of these standards is to provide a common
global language to the organisations so that they can attract foreign investment (Mullinova and
Simonyants, 2016). All these standards are followed by marks and Spencer as it is executing
business all around the world. It guides the accountants to maintain all the financial information
in appropriate manner so that financial statements can depict actual positions and financial
strength of the company.
IAS (International Accounting Standards): These are the set of standards that are
introduced by IASC (International Accounting Standards Committee) to facilitate all the
companies while recording transactions in the books. These were the older standards that are
replaced by IFRS in year 2001.
Difference between IAS and IFRS:
IAS IFRS
IAS stands for International Accounting
Standards.
IFRS are the International Financial Reporting
Standards.
International Accounting Standards Committee International Accounting Standards Board have
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have launched all the IAS. introduced all the standards under IFRS.
IAS were published in year 1973 to facilitate
organisation in the reporting procedure.
IFRS were published in year 2001 to resolve
all the issues resulting from IAS.
While recording transactions in the books of
accounting than IAS are followed.
If any contradiction arise due to IAS than IFRS
should be followed by the organisation.
8. Various benefits of IFRS
IFRS has consist of accounting rules and regulations which describe that how
transactions can be recorded and what information and data should be disclosed in financial
statements (Page, 2014). There are various benefits of using IFRS, which are as:
 It provides help in greater comparability because organisations that use same accounting
standards to prepare its financial statements can be compared with each other more
accurately. It is useful in that case when an organisation has operates its business in two
different nations.
 It is more flexible because it is based on principles based standards rather than rules
based standards. IFRS help to reduce the manipulations in accounts as a result more
accurate financial statements can be prepare.
 It maximize the flow of capital because it facilitates the convergence and transparency in
accounting practices.
IFRS is very beneficial for Marks and Spencer because it can help to record all the
financial information appropriately and attract foreign investors so that funds can be raised for
the operations.
9. Varying degree of compliance with IFRS
For all the organisations it is very important to follow standards that are imposed by IFRS
because it can help to operate business effectively. If the organisations are not able to implement
the standards appropriately than it may result negatively. As Marks and Spencer is operating
business in various countries hence it is not possible for the organisation to follow rules and
regulations of all the countries. IFRS is the right option for the organisation because this may
help to operate the business appropriately and effectively (Papadamou and Tzivinikos, 2013).
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For example, Marks and Spencer can use international accounting standards so that all
the reporting related problems can be resolved. It is very important fro the accountants of Marks
and Spencer to follow all the principles so that all the information can be recorded appropriately.
CONCLUSION
From the above project report it has been concluded that financial reporting is the process
of generating financial statements that help the external parties of an organisation to analyse
financial strength of the company. IASB is the regulatory authority of financial reporting and
various standards are imposed that are called IFRS. For all the companies it is very important to
follow all the principles of IFRS so that actual and transparent information can be rendered to the
stakeholders like customers, investors and shareholders to make buying and investing decisions.
All the internal and external stakeholders evaluate strength of the company with the help of
financial statements.
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REREFRENCES
Books and Journals:
Adetula, D. T. and Owolabi, F., 2014. International financial reporting standards (IFRS) for
SMEs adoption process in Nigeria. European Journal of Accounting Auditing and
Finance Research. 2(4). pp.33-38.
Beneish, M. D., Miller, B. P. and Yohn, T. L., 2012. The impact of financial reporting on equity
versus debt markets: Macroeconomic evidence from mandatory IFRS adoption.
Dhaliwal, D. S. and et.al., 2012. Nonfinancial disclosure and analyst forecast accuracy:
International evidence on corporate social responsibility disclosure. The Accounting
Review. 87(3). pp.723-759.
dos Santos, M. A., Fávero, L. P. L. and Distadio, L. F., 2016. Adoption of the International
Financial Reporting Standards (IFRS) on companies’ financing structure in emerging
economies. Finance Research Letters. 16. pp.179-189.
Hadi, A. R. A., Suryanto, T. and Hussain, M. A., 2016. Corporate Governance Mechanism on the
Practice of International Financial Reporting Standards (IFRS) among Muslim
Entrepreneurs in Textile Industry-The Case of Malaysia. International Journal of
Economic Perspectives. 10(2).
Isenmila, P. A. and Adeyemo, K. A., 2013. A perception based analysis of the mandatory
adoption of International Financial Reporting Standards (IFRS) in Nigeria. Journal of
Emerging Trends in Economics and Management Sciences. 4(2). p.203.'
Louwers, T. J. and et.al., 2015. Auditing & assurance services. McGraw-Hill Education.
Morrow, S., 2013. Football club financial reporting: time for a new model?. Sport, Business and
Management: An International Journal. 3(4). pp.297-311.
Mullinova, S. and Simonyants, N., 2016. Reflection of a deferred tax liability in the credit union
reporting according to IFRS (IAS) 12" Income taxes". Modern European Researches.
(1). pp.83-88.
Page, M., 2014. Business models as a basis for regulation of financial reporting. Journal of
Management & Governance. 18(3). pp.683-695.
Papadamou, S. and Tzivinikos, T., 2013. The risk relevance of international financial reporting
standards: evidence from greek banks. International Review of Financial Analysis. 27.
pp.43-54.
Online
Qualitative Characteristics of Financial Information. 2013. [Online]. Available thorough:
<https://accountingexplained.com/financial/principles/qualitative-characteristics>
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APPENDIX
Income statement of Marks and Spencer:
particulars 2018 2017
Revenue 31/03/18 01/04/17
Total revenue 10698200 10622000
Cost of revenue 6745600 6629300
Gross profit 3952600 3992700
Operating expenses
Selling general and administrative 3324700 3348600
Others -49500 -63200
Total operating expenses 10020800 9914700
Operating income or loss 677400 707300
Income from continuing operations
Total other income/expenses net -610600 -530900
Earnings before interest and taxes 677400 707300
Interest expense -95400 -100200
Income before tax 66800 176400
Income tax expense 37700 60700
Minority interest -2500 -5900
Net income from continuing ops 29100 115700
Net income 25700 117100
Balance sheet of Marks and Spencer:
particulars 31/03/18 01/04/17
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