International Financial Reporting Standards

This assignment delves into the realm of International Financial Reporting Standards (IFRS), a set of accounting standards used by companies across the globe. It explores the concept of IFRS, its benefits, challenges, and the process of adopting these standards in various countries. The discussion also touches on the impact of IFRS on financial reporting, including the standardization of financial statements and the comparability of results between different companies. Furthermore, it examines the role of IFRS in promoting transparency and accountability in business practices. Through a critical analysis of existing literature and real-world examples, such as Marks and Spencer's financial reports, this assignment provides a comprehensive understanding of IFRS and its significance in modern accounting practices.

INTERNATIONAL
FINANCIAL REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
1. Context and Purpose of Financial reporting ..........................................................................1
2. The conceptual and regulatory framework of an organisation and qualitative characteristics
of financial reporting...................................................................................................................2
3. The main staekholders of an organisation and benfits of providing them fiancial
information..................................................................................................................................3
4. The value of financial reporting for meeting organisational obejtives and growth ...............5
5. Main fiancial statemenst as per IAS 1.....................................................................................5
6. Financial statements of Marks and Spencer ..........................................................................8
7. Difference between IFRS and IAS ......................................................................................10
8. The benefits of international financial reporting standards..................................................10
9. The varying degree of compliance with IFRS by organisations and factors in a nation that
may impact compliance.............................................................................................................11
CONCLUSION .............................................................................................................................12
.......................................................................................................................................................12
REFERENCES..............................................................................................................................13
APPENDIX....................................................................................................................................15

INTRODUCTION
Financial reporting is a method to present the financial information in the reporting
format. Financial reporting helps the firm in identifying the various operations performed b y the
organisation. This information helps in improving the future performance and profitability of the
firm. Financial reporting include profit and loss statements, balance sheet , statements of equity
and cash flow statements. This study will include the context and purpose of financial reporting.
Furthermore , it will include the conceptual and regulatory framework and the qualitative
characteristics required to make the financial information reliable. Moreover, it will include the
main stakeholders of the organisation and the benefit of providing them financial information.
This assignment will provide understanding of the financial statements to determine the various
ratios of marks and Spencer. This assignment will include difference between international
accounting standards and International financial reporting standard. Also, it will provide
understanding of the factors that impact on compliance with IFRS.
MAIN BODY
1. Context and Purpose of Financial reporting
The main purpose of financial reporting is to provide useful and reliable information to
the management of the organisation in order to assist them in making effective decision for the
organisation. Financial reporting is used by organisation and various stakeholders to determiner
the performance and profitability of the firm inn order to compare the performance with its
competitors and identify the trends of performance of the firm (Alexander, Britton and Jorissen,
2014). Also , it helps the firm in determining the cash requirement of the organisation which
helps them in performing the future activities of the organisation. With the helps of financial
reporting the obligation of the company which they have to pay can be determined.
The purpose of preparing financial reporting is to serve the information to the
management and various stakeholders to provide them information about the various activities of
the company (Chen and Li, 2015). It assists management in identifying the deviations due to
which the goals of the organisation are not achieved which helps them in formulating various
strategies and planning to improve the performance. The information contained in the financial
reporting provide understanding about the liquidity position of the firm and also about the
profitability of the firm and factors which impact on the profitability of the organisation. It helps
the firm in reducing its expenses and increasing the sources of incomes.
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Financial information is very useful for the firm in order to determine its growth and
achieve the business objectives. On the basis of financial reporting firm is able to prepare
budgets for future which helps in achieving the performance objective of organisation. Financial
information provide information to investors and lenders about the performance and profitability
of the organisation which helps them in making decision about investing their money in the firm
(Christiaens and et.al., 2015). This reports consist of profit and loss statements, balance sheet ,
and cash flow statements. Profit and loss statements contains the information regarding the
incomes and expenses of the firm. Balance sheet provide information about the assets and
liabilities of organisation. Cash flow contains the information of the cash inflows and outflows
for the period.
2. The conceptual and regulatory framework of an organisation and qualitative characteristics of
financial reporting
The conceptual framework of financial reporting provide the objectives of general
purpose of financial reporting. The conceptual framework helps in formulating accounting
policies when there are no IFRS standards applicable to the particular transaction. It also
provides qualitative characteristics which is required to presenting reliable information.
Conceptual framework of financial reporting include the definition of assets , liabilities, incomes
and expenses (Hadi, Suryanto and Hussain, 2016). Furthermore, it provides measurement bases
and guidance to use them. It also provides concepts band guidance for presentation and
disclosure of financial information. The conceptual framework provide fundamental concepts
which helps the board in developing the IFRS standards.
The regulatory framework which is used to govern the financial reporting includes IFRS
and IAS. IFRS ans IAS are the standards set by the board to present the financial information in
the reporting format. International financial reporting standards are the standards set by the
board which provide rules and regulation on the basis of which financial statements are prepared
by the organisation. International accounting standards are the old standards which were replaced
by international financial reporting standards (Kaya and Koch, 2015). Principles of IFRS
includes various standards such as IFRS 4 provided principles for shadow accounting, IFRS 3
provide principles for business conmninations. IFRS 2 provide principles for shar based
compensation and IAS 2 is related to treasury shares.
The qualitative characterstics of fiancial reporting
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 Understandability : The ifnormation presented in the fiancial reporting must be claery
presen5ted inh order to provide understandability to the users of the fiancial
refornmation. The organisation must present the information clearly with the footnots ton
giove clear understanding of the various operations performed by the organisation.
 Relevance : The information presented in the statements must be relevant. So that it is
useful for the users while making decisions. Thuisb include providing relevant
information that omission and misstatemnts will impact the economic deicison of the
users.
 Reliability : accoridng to this characterstics the informatiopn persented in the fiancial
reporting must be reliable and must be free from material errors.n the informaqtion
propvided in the statemnts must is accurate, so that the users can rely upon that
information (Klychova And et.al., 2015). The organisation must present the faithful
trancation with misleading any transaction.
 Comparability : The fiancial information must have the compararble charactertsics
which helps the organisatioon in comapring the fiancial information with the past eyar
statements to identify the perofrmabnce trend and growth of the organisation which helps
the firm in making future decisions effectively (Financial Reporting, 2017).
3. The main staekholders of an organisation and benfits of providing them fiancial information
The stakeholders of the organisation are classifies into internal and external stakeholders.
Internal stakeholders : It consist of people that arewithin the rganisation which use thye
fiancila information. The internal stakeholders consist of owners, managenmnts and employees.
Owners : They use the fioancial informationn inn lorder to identiofy the performance of
company and also helsp in determiningb the risk which there company can face (Nobes, 2014).
Itb helps the opwners inj formulating various policies nad strtategies ton reduce the risk.
Management : the managers of the organisation use the fiancial information in order to
idnetify the performance and profitability ogf the organisatuon lon the basis of which various
decisions are made by the managers whioch helps the organisation in imprioving the
performance of the firm. Managers of thje organisation by usingb the fiancial data of perverious
yeard can identrfy the future profitability and performance of the firm.
Employees : they are provided wioth the fiancial; information which helps them in
determining the fusture profitability and performanc eof the organisatiion in order to determine
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their future job prospects and also helps them in comparing the financial perofrmance of the
orgtabnisation with that of other organisation in the industry.
External stakeholders : There are people which are outside the organisation and are
provided with the financial infornmation to help them in making various decisions (Perera and
Chand, 2015). External stakeholders of the organisation consist of suppliers , investors,
customers , governmntes etc.
Investors : the fiancial information is provided to the ivenstors inj order to helps inn
making decisions about investing their monmey in the organisation by indefying the performance
and profitability of the firm with comparision to other organisations. It also helps them in
determinjing the return whchb will be provuided by thye organisation on the amount invested by
them in the firm.
Suppliers and lenders : they are provided with the financial informatiion in order to
provide understanding of the liquidity position of the firm in order to pay the firm 's obligation s
ton the lenders and suppliers. Lenders of the organistion lent money to the firm for performing
their day to day activities. Lenders wioth the helps of financial information can identiofy the
asbility of the firm ton pay its obligations.
Customers : they are provided with the fiancila informatiopn in order to priovide them
understanding about the poerformance and profitability of the firm to retain thyem in business to
provide them various products and services of the organisation.
Government : They use the financial information to identify the tax obligationj of the
firm. Fiancial information also helps the governmnmebnt in determining the performanxce of
the firm in theb economy and its contribution in thyue growthy of economy.
Benfits to stakeholders by providing financial information
 financial information helps the firm in identifying the performance and profitbailityb of
the orgfanisation.
 Financial information helps the management in majking effective decisions for the firm .
 It helsp the lenders and suppliers of the organisation in determining the ability of the firm
to pay its obligations.
 Financial information helps the governmnet in idnetifying the tax obligation of the
organisation in order to pay the tax liability properly.
 It helps the employees in identifying the future job prosepects for their benefit.
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 It helps the owners of the organisation in formulating starategies and policies for future
imporve ment of the performance and profitability of the organisation.
4. The value of financial reporting for meeting organisational obejtives and growth
Financal reporitng create value for the firm as it hel;[ps nthe organisation in achiving
their obvjectives effectively and efficiently. Financial reporting provide information to the
organisation about the performance aqnd their postionm in the industry on the baiss o0f which
future decisions are taken by the management to improve the performance and profityability of
the firm. Financial reporting is important as it is required by law for determiningt the tax
liability of the organsation (THE PURPOSE OF FINANCIAL REPORTING, 2016). Financial
reporting helps the ivenstiors and lenders by providing information to them aboutb the fiancial
integriety and creditworthiness of organisation. It hyelops the firm in achiving their future
opbejctuive by preparing various reports such as profit and loss, balancesheet and cash flow
staments .
Profit and loss staemnts helsp the organistaion in indeitfying the net profuit and loss for
the period which assist the firm in making decision on the baiss of the information provided in
the statenmnts to improve the future profitability of the organisation. Balance sheet helps the
firm in determining the position of the organisation by valuing their assests and liabilities. Cash
flow statement help the firm in determin ing the cash rewuiremntbof the organisation for
conducting their various operations.
5. Main fiancial statemenst as per IAS 1
a) Statement of profit and loss and other comprehensice income of Godwin PLC dor the year
ended31 st december 2017
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b) Statemnt of equity
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c) Balance sheet of godwin Plc for theb year ending 31st december 2017
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d) The cash flow statement provide information about the cash inflow and outflow for the period
on the basis of which firm is able to determine the cash requieremnt ofn the oprganisation.l cash
flow staemnts is prepared using the three activities that include4s operating activity , investing
activyt and financial activity. Operating activity incvlude the cash inflow and outflow relating
the operating activties of the firm such as payment made to suppliers of goods and services and
anyb other operatring expenses. Financial activity includes repurchase of debenture loan, issue of
ordianry capital etc. Investing activity includes payments to acquire intabngible fixed assets,
recepits from the sales of fixed assets etc.
6. Financial statements of Marks and Spencer
The following are the ratios based on the two years finaicla statemnts of manrks and Spencer :
Profitability ratios
Particulars Formula 2017 2018
Operating profit 691 671
Net profit 116 29
Sales revenue 10622 10698
Operating profit ratio
Operating profit/sales
revenue 6.51% 6.27%
Net profit ratio
Net profit/ sales 1.09% 0.27%
From the above computation it can interpreted about profitbaility ratio which shows the
profits earned by the organisation. From the above it can be identiofied that the operatingt profit
ratio 9of marks and spencer in the year 2017 was 6.51% which reduced to 6.27 % in 2018 thta
shows operating revenue is reudced. Also, it can be interpreted that net profit for the year 2017
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was 1.09% which reduced to 0.27 % that shows the profitability of marks and sopencer is
reduced.
Liquidity ratios
Particulars Formula 2017 2018
Current assets 1723 1318
Stock 759 781
Current liabilities 2368 1826
Current ratio Current assets / current
liabilities 0.73 0.72
Quick ratio Current assets- stock/
current liabilities 0.41 0.29
from the above it can be interpreted that liquidity position of marks and spencer that
shows current ratio in 2017 was 0.73 which reduced to 0.72 that shows liquidity position opf
marks and spencer is not good ans the ideal current ratio is 2: 1. It shows that firm have double
current assets as compared to liabilities. The quick ratio counmputed shows that in 2017 it was
0.41 which reduced to 0.29 that sows liquidity position of marks and Spencer is not good.
Efficiency ratio
Particulars Formula 2017 2018
Cost of goods sold 6534 6651
Average stock 780 770
Sales 10622 10698
Average fixed assets 6,792 6,401
Average total assets 8,385 7,922
Stock turnover ratio COGS/ average stock 8.38 8.64
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Fixed assets turnover ratio Sales/ fixed assets 1.56 1.67
Total assets turnover ratio Sales / total assets 1.27 1.35
From the above it can be interpreted about efficiency ratio that shows the ability of
firnms assets to genreate more revenue. It can be interprerted that in 2017 fixed assets turnover
ration was 1.56 which increses to 1.67 that shows fixed assets are utilised properly. Total assets
turnover ratio is incresed to 1.35 from 1.27 that shows marks and Spencer isn utilising the assets
propely to generate revenue.
Investment ratios
Particulars 2017 2018
EPS 0.14 0.03
DPS 0.35 0.38
From the above computation it can be interpreted that earning per share is reduced to
0.03 for marks and Spencer that shows earning of marks and Spencer is reduced on the share
issued. Also , it shows that Dividend per share is increased to 0.38 from 0.35 for marks and
Spencer that shows company is paying higher dividend in 2018 as compared to 2017.
7. Difference between IFRS and IAS
IFRS stands for in ternational fiancial reporting standards and IAS stans for
International accounting standards . IAS are the standards which were developed by IAS
committe and there standards were published between 1973 and 2001. whereas international
financial reporting standards were published fromm 2001 onwards (Haslam and et.al., 2016).
International fiancial reporting standards are issued by Ingtwernational accounting standards
board. IFRS is the current set of standards which is used by organisation for reportingt the
financial information (IAS vs IFRS ,2018). International accountinmgb standards were used befor
the IFRS standards were nopt published. International accounting standards was a set of
standards used for relecting a particular transaction. IFRS is the current and Updated version of
International accounting standards. It provide information for disclosure of fiancial information
in the financial statement. Also , if there is any contradiction between IOFRS and IAS then the
tyranscation is treaterd as per IFRS and IAS is ignored.
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8. The benefits of international financial reporting standards
The international fiancial reporting standards are the uptaded verios of the internatiobnal
accounting standards and many organisation are using this standards for reproting the financial
information. There are various benefits of adopting IFRS that includes the following :
 Using international fiancial reporting standards help the organisation in comparing their
performance with their competitors As similar standards are used by businesses.
 International fiancial reporting standards helps the firm in preparing the financial
reportingaccurately.
 IFRS brings transparency by imprioving the international comparability and quality of
financial infornmation.
 International fiancial reporting m standards helps the investors in making economic
decisions.
 International fiancial reporting standards helps the firm in enterning into global market
by adopting the standsrad which are applicable to all companies of the world.
 International fiancial reporting standards created more fklexibility as it is based on
principles and not on rules.
 IFRS helps firm in discolsing the transations according to the standards to provide
relaible and relevant information to the users of financial statment (Ward and Lowe,
2017).
 International fiancial reporting standards provide common standards for all type opf
organisation which helps the small and new investors in determining the best company
for investing their money by comparing the financial statements different organisation.
9. The varying degree of compliance with IFRS by organisations and factors in a nation that
may impact compliance
The varying degree of complaince with IFRs is due to lacvk of standardisation in
fopllowing the standards set by IFRS. In different countries different GAAps are followed fior
example, In UK UK GAAPs are followed , In US, US GAAPs are followed. International
financial reporting standards are not followed by many countries as they are following their own
set of standards for reporting the financial information. The IFRS rules are required to be
followed by every organisation but due to various defects in those standards many organisation
are not followuing the standards due difference in the result.
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For example, America is the first countrry which implemneted IFRS for reporting the
fiancial information. But the organisation found that the result obtained in the fianciloa
statemnets was different. The organisation identified that financial reports presented using IFRS
and without Using IFRS showes different results and many transactions were nopt correct in
following the IFRS standards. The Standards set by the board does bnot provide disclosure of
various transations due to wqhich many organisations are not following the standards.
There are various factors in a nation that impact the compliance such as high cost of
adopting the standards set by IASB. International financial reporting standards are not followed
by various organisation due to high cost of implementing those standards and thus they are
following their own GAAps which are set by the country for reporting the financial information
(Adeyemo And et.al., 2017). The factors that impact compliance include taxtaion policies of
different countries are different due to which many organisationm are following the rules and
regulation according to the standard set by their own country. Also, it include various chances
in economy scus as inflation, economic growth, poilocies of different countires etc are different
due to which standards set by IFRS are not used by organisation.
CONCLUSION
Financial reporting has concluded about the context and purpose of preparing financial
information that identified that main purpose of Financial reporting is to provide useful
information to the stakeholders. Also , it has been concluded about the conceptual and regulatory
framework of Financial reporting that has included rules and regulation set by IASB for
preparing financial reporting. Also, it has provided main financial statement of an organisation
which included profit and loss statement, balance sheet and statement of equity. Furthermore, it
has included difference between IFRS and IAS and the varying degree of compliance due to
factors such as Lack of standardisation, different taxation policies, different economic conditions
of countries etc.
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REFERENCES
Books and Journals
Adeyemo, K.A. And et.al., 2017. Mandatory Adoption of International Financial Reporting
Standards (IFRS) by Nigerian Listed Banks: Any Implication for Value
Relevance?. International Journal of Accounting Research. 42(90). pp.1-13.
Alexander, B., Britton, A. and Jorissen, A., 2014. International Financial Reporting and
Analysis. (Cengage).
Chen, J.V. and Li, F., 2015. Discussion of “Textual analysis and international financial reporting:
Large sample evidence”. Journal of Accounting and Economics. 60(2-3). pp.181-186.
Christiaens, J. and et.al.,2015. The effect of IPSAS on reforming governmental financial
reporting: An international comparison. International Review of Administrative Sciences.
81(1). pp.158-177.
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).
Haslam, C. and et.al., 2016. Stress testing international financial reporting standards (IFRS):
Accounting for stability and the public good in a financialized world. Accounting,
Economics and Law: A Convivium. 6(2). pp.93-118.
Holland, J., 2015. Public and Private Disclosure and the Role of Financial Reporting. Wiley
Encyclopedia of Management. pp.1-6.
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Kaya, D. and Koch, M., 2015. Countries’ adoption of the International Financial Reporting
Standard for Small and Medium-sized Entities (IFRS for SMEs)–early empirical
evidence. Accounting and Business Research. 45(1). pp.93-120.
Klychova, G.S. And et.al., 2015. Development of accounting and financial reporting for small
and medium-sized businesses in accordance with international financial reporting
standards. Asian Social Science. 11(11). p.318.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Perera, D. and Chand, P., 2015. Issues in the adoption of international financial reporting
standards (IFRS) for small and medium-sized enterprises (SMES). Advances in
accounting. 31(1). pp.165-178.
Ward, C.L. and Lowe, S.K., 2017. CULTURAL IMPACT OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS ON THE COMPARABILITY OF FINANCIAL
STATEMENTS. International Journal of Business, Accounting, & Finance. 11(1).
ONLINE
Financial Reporting. 2017. [Online]. Available
through :<https://www.edupristine.com/blog/financial-reporting>
IAS vs IFRS . 2018. [Online]. Available through
:<https://www.differencebetween.com/difference-between-ias-and-ifrs/>
THE PURPOSE OF FINANCIAL REPORTING. 2016. [Online], Available through :
<https://www.dummies.com/business/accounting/the-purpose-of-financial-reporting/>
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APPENDIX
Income statement of Marks and Spencer
Balance sheet of Marks and Spencer
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