Financial Reporting and Compliance

This assignment provides an overview of financial reporting in organizations, including the importance of transparency, flexibility, and comparability. It also discusses compliance with International Financial Reporting Standards (IFRS) and its benefits for stakeholders, such as investors planning to invest in a business. The report highlights the key differences between IAS and IFRS, and how compliance with IFRS can facilitate investment decisions. Overall, this assignment emphasizes the significance of financial reporting in achieving business goals and objectives.

FINANCIAL REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Outlining context and purpose of financial reporting..............................................................1
2. Examining conceptual and regulatory framework with its requirements, purpose and key
principles along with qualitative characteristics for reliable financial information....................2
3. Identifying organization's main stakeholders with reference to financial information............4
4. Examining value of financial reporting for meeting organizational growth and objectives....5
5. Presenting main financial statements according to IAS 1.......................................................6
a) Income statement ....................................................................................................................6
b) Change in equity statement......................................................................................................7
c. Balance sheet............................................................................................................................7
d. Information that is provided by cash flow statement..............................................................9
6.Interpretation of financial data..................................................................................................9
7.Presenting difference between IAS and IFRS........................................................................11
8. Evaluation of Benefits of IFRS..............................................................................................12
9. Determination of degree of compliance with IFRS ..............................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Financial reporting has disclosure of financial information for numerous stakeholders
with reference to financial position and performance of any business entity over specified
duration. The financial aspects and accounting of every department are traced and reported to
different stakeholders. The consideration of number of stakeholders are engaged with other
regulatory or statutory requirements, where financial reporting is very essential and critical
activity of business entity. The present report will briefly discuss about objective of financial
reporting, interpreting financial statements along with appropriate evaluation of standards of
financial reporting and theoretical concept and models. This report will reflect international
variances among financial reporting. In the similar aspect, it will be representing financial
statements according to IAS 1 and reflect comparison of purpose of cash flow to other financial
statements and will interpret financial performance of Thomas Cook with reference to ratio
analysis.
1. Outlining context and purpose of financial reporting
Financial reporting is very essential with reference to world economies. Its main
objective is to give useful and relevant information to organization's owners with context of
division among control and ownership of that particular business entity. Its occurrence is in
usually public limited organizations where share capital is pass to public via stock market or
exchange system. The shareholders which are diverse and potentially geographically dispersed
which does not engage in company's management as they appoint directors for performing on
their behalf. The annual statement had been received through owners for summarising company's
position and performance for assessing about investment which has been performed during
reporting period (Amiram and et.al., 2018).
Financial reports are referred as records and documents which are gathered for review
and track amount of money created by business or not. Its main objective is to deliver
information to share owners and lenders for business. The investors and lenders have right for
considering each information about how money is spent and returns to margin. With absence of
reporting system investors would be inclined less towards contribution of capital without
monitoring in effective aspect that hoe business entity is operating through directors and
appointed organization's steward who are directly supposed for operating in shareholder's best
interests.
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With context of accomplishing requirements of users of financial statements,
organizations directly implement with accounting systems for giving appropriate information. It
is mandatory that system must be regulated for ensuring information provided to particular users
in proper format and is useful for their requirements. It is attained with framework of financial
reporting on basis of conceptual framework.
2. Examining conceptual and regulatory framework with its requirements, purpose and key
principles along with qualitative characteristics for reliable financial information
The conceptual framework with context of financial reporting has directly underpinned
financial statements' preparation as it reflects ideas, principles and concepts with reference to
International Financial Reporting standards on basis of financial statements. It comprises
objectives of financial reporting, qualitative features, recognition and measurement of elements
through its construction. The concept of capital and capital maintenance along with accruals and
going concern. The regulatory framework has various elements in accounting. It considers
regulatory structure such as National law, Security exchange rules, National financial reporting
standards and market regulations.
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Illustration 1: Conceptual and Regulatory
framework
(Source: Conceptual Framework for Financial
Reporting, 2018)
A regulatory framework with financial statements' preparation is required for different
reasons as it ensures need of different users of financial statements which are accomplished with
minimum information. Providing en-surety about giving information in economic arena which is
consistent and comparable. It raises confidence in users with process of financial reporting. The
behaviour of organizations are regulated and directors with context of investors. The qualitative
characteristics with application of financial reporting for determining kind of information which
is useful for undertaking decisions about specific reporting entity with reference to information
in financial report.
Financial information is useful when it is relevant and shows faithful for representing. It
is enhanced when it is verifiable, understandable and timely as well. Faithful representation and
relevance are referred as fundamental characteristics which is elaborated below:
 Relevance: The financial information must be capable for creating variation in decisions
undertaken by users if they have presence of predictive, confirmatory or both value.
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 Faithful representation: It signifies substance representation of economic phenomenon
rather than showing legal form.
To enhance qualitative characteristics it should be comparability, verifiable, timely and
understandability makes representation in faithful manner which are elaborated below:
 Comparability: It enables users for determining and understanding similarities and
variations.
 Verifiability:The information should be represented faithfully economic phenomena as
it directly purports for representing.
 Timeliness: The availability of information for decision makers with capability for
influencing decisions (Stubbs and Higgins, 2018).
 Understandability: The information should be clear and concise with appropriate
classification, presenting and characterising.
3. Identifying organization's main stakeholders with reference to financial information
The stakeholder of organization with context to financial information are stated below:
 Owners and investors: The corporation's stockholders has requirement of financial
information to help for decision with context of investment that is to hold, buy or sell
more. The investors have requirement of information for assessing potential for
profitability and success. In the similar aspect, owners of small business has requirement
of financial information for identifying business is profitable or not.
 Management: Management considers owners especially in small business. On the
contrary, in big organization it is usually formed with hired professionals which are
entrusted with business operations with proper responsibility. They are considering as
agents of the owners.
 Trade creditors or suppliers: The organizations' capability for repaying its obligations
which are due as they are interested for liquidity of company for writing short term
obligations.
 Government: The tax authorities are interested for financial information of organization
with objective of taxation and regulatory aspect. Taxes are directly computed on basis of
operations outcome along with other tax base.
 Employees: These are considered as very important stakeholders of organization with
stability and profitability of organization. Usually, they are after capability of
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organization for paying shares and to give employee benefits. They might be interested in
financial position and performance for assessing expansion of organization with its
possibilities and opportunities for development of career.
 Customers: With involvement of contract or long term among company along with its
customers, these stakeholders are highly interested in ability of company for continuing
existence and stability of its operations.
4. Examining value of financial reporting for meeting organizational growth and objectives
The financial reporting could not be over emphasized as it is essential for every
stakeholder for various purpose and reasons. The financial reporting is important for attaining
organizational growth and objectives which are stated below:
 The business entity will directly comply with different regulatory requirements as they
have need of financial statements to specific government agencies. If companies are
listed, then there is need of quarterly and annual outcome must be filed to published and
stock exchanges.
 It would be directly facilitating statutory audit along with need of auditing organization's
financial statement for expressing opinion.
 Financial reports are formed as considered as backbone with reference to financial
planning, benchmarking, decision making and used with objective of numerous
stakeholders (Objectives of financial reporting, 2018).
 It helps business entity for increasing capital both overseas and domestic as well.
 In the similar aspect, for objective of labour contract, bidding and government supplies
etc. business has requirement of furnishing financial statements and reports.
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5. Presenting main financial statements according to IAS 1
a) Income statement
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b) Change in equity statement
c. Balance sheet
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d. Information that is provided by cash flow statement
The cash flow statement of a business provide information regarding the actual cash in
flow and outflow of the business. This means what are the expenses done with actual cash
payments and the amount which is actually received in cash not in accrual terms. With this
information the cash availability with the business is determined.
6.Interpretation of financial data
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Interpretation:
Profitability ratio:
These are the ratios which represent the level of profits earned by the organization and
profits earned on capital employed and investments of the firm (Miller-Nobles, Mattison and
Matsumura, 2016). The above data is of Morrison retail store. From the above data it can be
interpreted that the sales and revenue of the business have increased from 2016 to 2017. Gross
profit and net profits ratios have slightly declined but return on capital employed have increased
by almost 30%.
Liquidity ratios:
These ratios represent the cash availability with Morrison in immediate future. The
current and quick ration both have decreased from 2016 to 2017 and this shows that the fall in
current assets more than the fall in current and quick assets of the firm.
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Solvency ratio:
It reflects the level of debt to the level of equity of the business the equity have decreased
and the debt of the firm have increased from 2016 to 2017 (Omar and et.al., 2014). There is an
increment in ratio which is not good sign for long term solvency of organisation.
Efficiency ratio:
These ratios represent the proportion of sales generated with effective use of total and
fixed assets. For the organization both fixed and total asset turnover ratio have increased from
2106 to 2017 which stated tat bassets are used effectively for revenue generation.
Investment ratio:
This is the ratio which determines the level of earning for shareholders. In 2016 there was
no earning on the share which was present in 2017.
7.Presenting difference between IAS and IFRS
IFRS (International Financial reporting Standards) :
In earlier times the standards for financial reporting were set out by IASC and then this
responsibility was taken over by IASB (International Accounting standard board). With adoption
of existing standard, with certain modification new standards were also introduced and those
were referred as IFRS.
IAS (International Accounting standards)
These are a set of standard which are dedicated towards determination of treatment of a
specific transaction in the financial statements. These standard were issues by IASC till 2001 and
after that these were issued by IASB.
Difference:
IFRS IAS
This are the updated version of IAS which are
issued by IASB.
Theses are the standard that reflects how a
transaction is presented in financial statement.
These are the older version of standers. These are the new and updated version of
standards.
Applicable til 2001. Applicable from 2001 till today.
Still in existence with certain revisions New standers are made but this can not
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suppress IAS.
Bold text in this are considered as compulsory
element of the standard.
Bold text is referred as guiding principles of
the standard.
This can be stated that basically IFRS and IAS are technically same. IFRS is the current
set of standard which reflects the changes in accounting and business practices from past 18
years (Difference Between IAS and IFRS, 2018). IAS are the basis for introduction of IFRS. All
the IAS are not outdated some of them are still are in use and not overrules by IFRS/ there is not
new introduction of IAS after 2001 and a new standard launched is referred as IFRS.
With this it can be clearly interpreted that both IAS and IFRS are financial reporting
standard and old were recognized as IAS and the new ones, after 2100 are referred as IFRS.
8. Evaluation of Benefits of IFRS
International financial reporting standard are the principles set out for presentation
official data by an organisation in specific manner with following all rules and provisions. These
are mandatory to be followed by all the nations in order to create homogeneity. With adoption of
IFRs an organisation adopts an international format of reporting the financial data.
Benefits of IFRS
Global Financial reporting: With adoption of IFRS the organisation adopts a global
reporting system for its financial accounts. This enables the business to understand the
international market place. With this easy access to world capital market is gained which allows
the firm to be perceived as an international player.
Homogeneity: With application of IFRS in financial accounting reporting and
international organization can follow a consistent financial reporting basis which allowing the
multinational firm to have a common system in all its subsidiaries (Advantages and
Disadvantages of Adopting IFRS, 2018). This improves internal communication, quality of
reporting and group decision making.
Setting up of benchmark: with an increasing competitive market, IFRS allows a firm to
set ti up as a benchmark art the market place against its peers in the industry around the globe.
This allows the investors and other organizations to compare performance of the firm with its
previous and with other organizations' performances.
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Creation of more flexibility: with application of this international accounting standard
will allow a global perspective to financial reports with a reasonable valuation with the help of
different ways to accomplish the task. This give all the business freedom to adopt IFRS to their
particular situation which will lead to presentation of financial reports that are easy to understand
and are more useful.
Benefit to small and new investors: With IFRS new and small investors are benefited
by making reporting standards to have a better quality and become simpler, putting the investors
in a similar position with professional investors.
9. Determination of degree of compliance with IFRS
This can be denied as the level of abidance with the accounting standards which have
different degrees to compliance, this can be explained as:
Comparability: A degree o compliance with IFRS is that it must facilitate comparability
with financial statement of any other organization around the globe which follows IFRS. The
financial statement must be prepared in accordance with IFRS and no loop and hole shall be left
as it can effect certain factors of comparison.
Transparency: another degree that must aided is transparency in presentation and
preparation of financial accounts of the organisation (Compliance with IAS/IFRS and firm
characteristics, 2018). No monitory transaction shall be left out from financial reports and
treatment shall be as per the IFRS as this will provide accurate and precise information about the
organisation to stakeholders.
Mandatory: with making IFRS mandatory for the organisation dealing in international
trade the complacence is made compulsory, as an organisation which do not follow this standard
can not facilitate comparison, transparency, flexibility etc with other business in international
market.
Investors planing: It can be explained as compliance with IFRS as a too for making
investment decisions by the investors. The reporting must assist the investor such a way that they
can take a precise decision on weather to invest in an organisation or not.
CONCLUSION
From the above report it can be concluded that financial reporting in an organisation is
very important as with this all the monitory data and information are re cored precisely and in
accordance with accounting standards. The stockholder for the organisation has been recognized
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the people and body which are effected by the business operation have a degree of interest in the
firm. With financial reporting they had been provided with information relevant to take
investment decision related with business. Further it can be interpreted that with reporting and
recording of financial data in accordance with international accounting standards the entity can
effectively achieve its goals and objectives. In the later section of the report it has been defined
that how IFRS and IAS are different from each other and there application id beneficial for
business.
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REFERENCES
Books and Journals
Amiram, D., and et.al., 2018. Financial reporting fraud and other forms of misconduct: a
multidisciplinary review of the literature. Review of Accounting Studies. 23(2). pp.732-
783.
Miller-Nobles, T. L., Mattison, B. and Matsumura, E. M., 2016. Horngren's Financial &
Managerial Accounting: The Managerial Chapters. Pearson.
Omar, N and et.al., 2014. Financial statement fraud: A case examination using Beneish Model
and ratio analysis. International Journal of Trade, Economics and Finance. 5(2). p.184.
Stubbs, W. and Higgins, C., 2018. Stakeholders’ perspectives on the role of regulatory reform in
integrated reporting. Journal of Business Ethics. 147(3). pp.489-508.
Online
Difference Between IAS and IFRS. 2018. [Online]. Available through
:<https://www.differencebetween.com/difference-between-ias-and-ifrs/>.
Advantages and Disadvantages of Adopting IFRS. 2018. [Online]. Available through
:<https://connectusfund.org/6-advantages-and-disadvantages-of-adopting-ifrs>.
Compliance with IAS/IFRS and firm characteristics. 2018. [Online]. Available
through :<https://www.tandfonline.com/doi/pdf/10.1080/1331677X.2016.1163949>.
Conceptual Framework for Financial Reporting. 2018. [Online]. Available through
<https://www.iasplus.com/en/standards/other/framework>.
Objectives of financial reporting. 2018. [Online]. Available through
<https://www.edupristine.com/blog/financial-reporting>.
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