Financial Reporting Standards and Compliance

The provided document delves into the world of financial reporting standards, specifically International Financial Reporting Standards (IFRS). It examines how IFRS guides businesses in presenting accurate and transparent financial statements to external stakeholders. The document also touches on the benefits of IFRS compliance, including attracting international investors and facilitating business operations worldwide. References to various books, journals, and online resources are provided for further reading.

FINANCIAL
REPORTING

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Purpose of financial reporting.................................................................................................1
2. Conceptual Framework...........................................................................................................2
3.Main Stakeholders of Marks & Spencer.................................................................................3
4. Value of financial Reporting...................................................................................................4
5. Financial Statements As per IAS............................................................................................4
6. Two years financial statements of Marks & Spencer..............................................................6
7. Difference Between International Accounting Standards (IAS) and International financial
reporting Standards (IFRS).........................................................................................................7
8. Benefits of International Financial Reporting Standards........................................................8
CONCLUSION................................................................................................................................9
REFERENCES .............................................................................................................................11

INTRODUCTION
Financial reporting mention to the communication of financial information, like creditors
and investors. Financial reporting is using by companies for issuing financial statements. In
general way financial statements sets of statements of owner's equity, income
statement,statement of cash flow and balance sheet, but financial reporting is much more broad
than just as set of financial statements. In this context chosen company is Marks & Spencer, is a
British multinational retail company founded in 1884. Apart from investment banking, Marks &
Spencer is organised into four core businesses: corporate banking, investment management,
wealth management and personal banking. This report covers context and purpose of financial
reporting and identify main stakeholders of Marks & Spencer and describe benefits of them.
Value of financial reporting for meeting of objectives and growth of Marks & Spencer and
interpretation of financial statements.
1. Purpose of financial reporting
The purpose of financial reporting is to deliver financial information to the stakeholders
and lenders for business. According to FTES financial reporting have many purposes they are as
following -
a. Give information to management of Marks & Spencer which is utilised for the purpose of
decision making, planning, analysis and benchmarking.
b. Providing content to creditors, investors, debt provider and promoters which is used to them to
male rational and prudent decisions regarding investments, credit (Nobes, 2014).
c. They are providing information to organization for how to using and procuring various
resources.
d. Providing information of economic resources of organization to claim these resources and how
to claims and those resources change according to particular time.
f. Providing information to the statutory auditors which in turn facilitates audit.
g. It helps to management to inhabit in impressive decision making concerning the Marks &
Spencer objective and whole strategies. The data revealed in this reports can help the
management recognize the strengths and weaknesses of the company.
h. Financial reporting provides essential information of financial health activities and health to its
stakeholders including government regulators, potential investors, shareholders and consumers.
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2. Conceptual Framework
The Conceptual Framework for financial reporting describes the concepts and objectives
for general purpose of financial reporting. It is a practical tool that helps the International
Accounting Standards Board to develop requirements in IFRS standard based on consistent
concepts (Rajgopal and Venkatachalam, 2011), 2018Level of compliance with IFRS, 2016).
Consideration of these concepts, in turn, should result in the board developing IFRS standards
that require entities to provide financial information that is useful to creditors, investors and
lenders.
Purpose
 To assist the preparers of financial reports to develop consistent accounting policies for
transactions or other events when no standard applies or a standard allows a choice of
accounting policies.
 To assist all parties to understand and interpret standards.
 To assist the board to develop IFRS standards based on consistent concepts, resulting in
financial information that is useful to lenders, creditors and investors.
Principles
 The principle of all income and expenses are categorized and included in the statement of
profit and loss.
 The principle of income and expenses also including other comprehensive income in the
head of Recycling to describe that one period are recycled to the statement of profit and
loss in a upcoming time period when doing so results in the statement of profit and loss
providing true representation and more faithful information.
Qualitative Characteristics
Relevance
 Information is relevant if it is capable of making a difference to the decision made by
users
 Financial information is capable of making a difference in decisions if is has predictive
value or confirmatory value (Ball, Jayaraman and Shivakumar, 2012).
Faithful Representation
 Information must faithfully represent the substance of what it purports to represent
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 A faithful representation is, to the maximum extent possible, complete, neutral and free
from error.
 A faithful representation is affected by level of measurement uncertainty
Enhancing Qualitative Characteristics
Comparability, timeliness, verifiability and understandability these four using for providing
information.
3.Main Stakeholders of Marks & Spencer
Marks & Spencer have main stake holders are clients, investors, organisations, government and
customers.
Benefits to stakeholders from financial informations
Stakeholders obtain a set of financial statements as a right, and are the only stakeholders
to do so. The stakeholders interest will be in what the bank is doing with the wealth they have
invested, and whether it is making a profit or loss. If it is bankable, they will want a return in
form of interests, so they will be afraid with the level of interests the company is paying out year
on year and the possible for future interests and profits (Brown, 2014). If profits levels and
interest pay outs decrease observably, or if no interest are paid out because the bank has made a
loss, then they will consider selling their shares and investing in something else which will give
them a higher return. Patently operating profit amount is also required to measure overall
performance.
For needful informations
Every stakeholders wants to needful informations relating to bank so they propose to
show financial information. After that it helps to evaluate their investments and analysis of
profitability ratios, debt ratios, liquidity ratios, price ratios and efficiency ratios.
Helping for taking decisions
On the basis of financial information the stakeholders taking appropriate decisions and
these financial information helping for investment purpose.
Evaluate performance
Through financial information stakeholders evaluate performance of an organisation
because it helps to further investments. Stakeholders knows that financial position of company
and suggest to other for investments.
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4. Value of financial Reporting
The importance of financial reporting can not be over emphasized. It is required by each
and every organisations for multiple purposes and reasons. The following points are helping for
achieving Marks & Spencer objectives and growth-
 In helps and organization to follow with various regulatory and statue requirements.
Marks & Spencer are required to file financial statements to ROC and government
agencies. In case of listed in IFRS needed to annually and quarterly are required to be
filed to stock exchanges and published (Van Greuning, Scott, and Terblanche, 2011).
 Financial reports forms backbone for financial planning, analysis, bench marking and
decision making. These are used for above purposes by various stakeholders.
 It is provide financial information about the financial position and status of Marks &
Spencer after knowing that easy to take decision.
 Provide facilitates effective, well and straight strategies and policies to Marks & Spencer
foe achieving goals.
 It is important tool to promote effective decision making and also important source of
crucial business information.
 On the basis of financials, the public in large can analyse the performance of the
organization as well as its management.
 It helps Marks & Spencer to raise capital both domestic as well as overseas and serve as
an accounting database for future references.
5. Financial Statements As per IAS
Statement of Profit & Loss and comprehensive income
For the year ended 31.12.2017 (in £000)
Sales 385100
Less – Cost of goods sold (before damage) 297560
Gross profit 87538
Less – Operating Expenses 83443
Total 3875
Other income
Add – Rental Income 5600
Less - Loss in value of investment property 2300
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Net profit 7175
Less - Bank interest 830
Profit before tax 6345
Taxation 1500
Profit for the year 4845
Working note
Operating expenses: as per trial balance 78500
Depreciation on property (50% on 5000) 2500
Depreciation on plant & Equipment (50% on 5325) (according to
adjustments) 2663
Operating expenses revised 831663
Statement of Changes in Equity
Date Particular
Opening share
capital
Revised
reserve
Retained
earnings Total
01/01/17 Balance B/f 86700 32100 118800
01/01/17 Revaluation 40700 40700
01/01/17
Ordinary
dividend paid -4340 -4340
Profit for the year
for share of
equity holders 2515 2515
31/12/17 Balance C/d 86700 40700 30275 157675
Statement of other comprehensive income
Revaluation of property (already including in ) 40700
Translation gain on foreign currency Nil
40700
Total comprehensive income ([phone]
Statement of Changes in Financial position
Investment in Boland LTD Asso. co. 165000
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Sundry Assets 759000
Total 924000
Share capital 240000
Retained earnings at 1st April 2008 600000
Earnings 2008/09 (38400+9600) 48000
Earnings 2009/10 (21600 + 14400) 36000
Total 924000
Calculation of Depreciation (in £000)
Plant & manufacturing at cost 88000
Accumulated depreciation at 1 January 2017 45400
Net book value at 1 January 2017 42600
Depreciation @12.5% 5325
Net book value on 31 December 2017 37275
Statement of profit and loss
Depreciation on Plant & Machinery 5325
Charged to cost of sales 50% 2442.5
Operating Expenses 50% 2442.5
Statement of financial position ( in £000)
Plant & equipment Cost 88000
Accumulated depreciation (45400 + 5325) 50725
Net present value on 31.12.2017 27275
It has been assumed that scrap value of the machine is 0.
Investment property ( in £000)
Note – According to IAS 40: value of investment property at 31.12.2017 = 21000
Investment property at cost b/d – 23300
Loss = decreases value of investment property – 23300 – 21000 = £2300
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As per IAS 40 this loss will be shown in the statement of profit & loss as other income (loss)
Working Note -
Land (000) Building (000) Total (000)
01/01/17 Valuation 40000 80000 120000
The property (building) should be depreciated using a straight line with a life of 16 years
and zero scrap value.
Depreciation = valuation – scrap value = 80000 – 0/16 = 5000 per annum
Working note -
Recalculation of cost of sales for year ended 31.12.2017
Cost of sales as per trial balance – 29700
01/01/17 Opening investment
+ purchase 309700 309700
31/12/17 C/investor 18000 17300
Cost of sales 291700 292400
6. Two years financial statements of Marks & Spencer
Financial ratios of Marks and Spencer
Particular ratios Formula 2017 2018
Liquidity ratio’s:
Current ratio: Current asset/ current liabilities
0.7217415
115
0.7277449
324
Liquid ratio: Current asset- inventory+ prepaid
expenses/ Current liabilities
0.2940306
681
0.4073057
432
Profitability ratio
Net profit ratio: Net profit / Sales *100
1.0892487
291 0.272008
Gross profit ratios Gross profit/ Sales *100 2.3837318 1.4628629
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772 115
ROE Total income/ shareholder equity
0.0224313
278
0.0310481
28
Efficiency ratio's
Total assets turnover
ratios Net sales/ average total assets
1.0983443
709
1.4169161
082
Fixed assets turnover Net sales/ Averages total fixed assets
1.6169396
578
1.7165412
448
From the financial statements of two years of Marks and Spencer it has discovered that
this company classifies their information in various categories. This company prepares financial
information by consolidates income of their organisation and of their subsidiary organisations.
Income statement and comprehensive income statement are individually equipped in order to
determine their realisable value. Along with equilibrium and cash flow statement, this company
also prepares their changes in equity (Glancy, and Yadav, 2011).
From the observed ratios, it has been analysed that company is having high liquidity in
the year of 2017. But on the other hand, in 2016 company was having high profitability which
shows that in 2017 company apply all their resources in functional state. By determine efficiency
ratios it has analysed that company was more efficient in 2017.
7. Difference Between International Accounting Standards (IAS) and International financial
reporting Standards (IFRS)
IAS: These are the older accounting standards that are currently replaced by IFRS. IAS
was the first set of accounting standards that are introduced by international accounting standards
committee in year 1973. It helps to intensify transparency, accountability, accuracy and
effectiveness in the financial statements. It facilitates investors to make investment decision and
to figure out its risk and profits (Norwani, Zam and Chek, 2011).
IFRS: It was present by IFRS relation and global accounting standards board in year
2001 to trait contradictions in IAS. It gives a average world wide language to various business
that are moving globally to analyse accounts of the company. It has renew a few standards of
international accounting standards.
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IAS IFRS
One of the major differences is that the series
of standards in the IAS were published by the
international accounting standards committee
between 1973 and 2001.
The standard for the IFRS were published by
the international accounting standards board
starting from 2001.
IAS used to be prior to the introduction of
IFRS.
IFRS is the current set of standards that is
reflective of the changes in the accounting and
business practices.
IAS standard were issued by the IASC IFRS standards were issued by the IASSB
IAS was establish to reduce accounting
mistake in international financial reporting.
IFRS was present when there are different
contradictions in IAS and it helped to reduce
those contradictions.
It support for international accounting
standards.
It support for international financial reporting
standards.
8. Benefits of International Financial Reporting Standards
It is Conceive that IFRS, when adopted world-wide, will benefit to investors and other
users of financials statements by reducing the cost of investments and increasing the quality of
information provided. In addition, investors will be more consenting to give financing with
greater clarity among different firms' financial statements (Laux, 2012).
Greater comparability
Companies that use the other standards to ready their financial statements can be
compared to each other more accurately. This is especially important when comparing
companies located in different countries, as they might otherwise be using different rules and
methodologies to prepare their statements. This increase in comparability has helped investors
better determine where their investment (Sunder, 2011).
More Flexibility
IFRS uses value based, instead of rules based, philosophy. A principles based philosophy
implementation that the goal of each standard to arrive at a reasonable valuation and that there
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are many ways to get there. This gives companies the freedom to adapt IFRS to their specific
situation, which leads to more useful and easily read statements.
It is beneficial to new and small investors
The IFRS can help small and new investors by preparing reporting standards to become
simpler and have better quality, putting professional investors with these investors in a similar
position, which was not executable under preceding standards. When the investors trading so that
time this change helping to them, as the occupational group will not be capable to take benefit
because the quality of financial statements will just be understood and simple by all.
9 Various degrees of compliance with IFRS and factors which impact compliance within
organization
IFRS (International Financial Reporting Standards) are needed to be followed by every
organization. Compliance with IFRS give advantage to both investors and companies, for
instance, enhancement in quality of information provided to investors will ultimately lead to
higher transparency in financial reporting system (.Martínez‐Ferrero, Garcia‐Sanchez and
Cuadrado‐Ballesteros, 2015). Resultantly, investors will be more interested in funding. Degree of
compliance acts as assurance for accuracy to investors who are dependent on information
provided by organizations. Factors that influence compliance with IFRS are as follows:
Size of firm: Larger firms are assumed to have high degree of compliance as compared
with smaller firms because they pursue good reputation. Also this helps in avoiding government
intervention.
Agency theory: High agency costs are involved in larger firms due to complex
organizational structure. So, disclosure is important to insiders as well as outsiders. Agency
theory is also related to level of leverage, highly levered firms need to disclose more quality
information.
Profitability: More profitable firms wants to provide high quality of information to its
investors for showing its strengths. Also for justification about packages of employees,
disclosure is needed to be given in clear manner as compared to less profitable companies.
Age of company: Older firms have more well trained professionals who knows how to
present accounting information in full disclosure manner. Financial statements are also prepared
in effective manner to fulfil IFRS requirements. But younger firms are sometimes hesitant in
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disclosing full information because it can be harmful for it when sensitive information is known
to competitors (IFRS (International Financial Reporting Standards).
IFRS were established initially by developed countries to support developing countries
because of lack of resources with them. They can not develop their own accounting resources.
CONCLUSION
Financial reporting important for Creditors and investors because through this know
financial position of the company. It's purpose to provide appropriate information to it's
stakeholders for showing financial situation of marks and Spencer. This company adopted IFRS
standards for formulating the financial reporting for reflecting the actual picture of the firm.
There are convinced problems that can be obviate by the firm for making their business dealing
effectual. Under this, project, financial statements are formulated and analysing the firm
financial positions by using ratios. By applying firm IFRS board, firm is able to determine
several error and trying to overcome this. These statements are presented to the external
stakeholders such as creditors, investors, government, shareholders, and customers. It can assist
the management to examine that organisation is increase profits or lining losses. IFRS stands for
international financial reporting standards that are used by those business entities who are
running their business worldwide. This guides the structure to explicate all the statements
accurately suitably in order to keep clarity in final reports. It also attracts international investors
who are willing to invest in good profit making companies.
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