Detailed Analysis of ASOS Financial Reporting and Stakeholder Impact

This report provides a comprehensive overview and analysis of ASOS's financial reporting practices. It begins with an introduction to ASOS, a UK-based online fashion retailer, and its global operations, target customers, product range, and growth strategies. The report then delves into the context and purpose of financial reporting, highlighting the importance of financial statements (income statement, balance sheet, and cash flow statement) for various stakeholders, including investors, management, and creditors. It further explores how financial reporting supports business objectives, development, and growth through analysis of profitability, capital structure, and operational efficiency. The report also examines the uses of financial statements by different stakeholders and discusses the regulatory frameworks and governance of financial reporting, including auditing processes and the influence of legal and regulatory influences on financial statements. Finally, the report provides an interpretation of financial statements, including profit & loss, cash flow, and balance sheets, drawing upon ASOS's financial performance data. The report emphasizes the importance of accurate and reliable financial information for decision-making and compliance with accounting standards, providing valuable insights into the financial health and performance of ASOS.

Overview and Analysis of
the financial reporting

ASOS: Introduction
UK based online fashion retailer founded in 2000.
Global Business:
 Online business in approximately 200 countries worldwide.
 Country-specific websites in different languages for Australia, Spain, Germany, Italy,
France, Russia and the United States (Asosplc, n.d.).
Target customers: Young population “20-something consumers” in the
fashion industry.
Product’s range:
 Women's wear, men’s wear, fashion accessories, footwear and skin & beauty
products.
 Offers near 80,000 products including both, the third-party brands and its exclusive
in-house brands.

ASOS: Introduction (continued)
Different Platforms: Its available on mobile and web platforms.
Significant growth since its inception in 2000:
 Focus on Innovation and technology: the use of social media and the use of
advanced features like picture-led search to attract young customers.
 Provides a value proposition for its customers: offers competitive prices and
efficient worldwide delivery options including free shipping and free returns.
In recent times, things were little gloomy for the whole online
retail market including ASOS:
 Increased competition.
 Increased discounting and promotional activities across the sector.
Increased costs have affected the company’s net profit and its
cash flows are expected to remain negative for the current year.

ASOS: Introduction (continued)
The company has excellent growth prospects:
 Trend-leading reputation.
 Technology focus.
 Global expansion strategy.
ASOS prepares its financial statements
according to:
 The International Financial Reporting Standards as
adopted for use in the European Union.
 The applicable parts of the Companies Act 2006.

The context and purpose of financial reporting
The process of financial accounting includes the design
and the recording of the entity’s:
 Assets and liabilities.
 Receipts and payments.
 Cash and bank balances.
Financial reports are prepared for a particular time period:
 Calendar year.
 Nation’s financial year.
 Firm’s trading year.
Financial reporting provides relevant and important
accounting information to all the stakeholders of the firms.

The context and purpose of financial reporting (continued)
Investors provide resources to the firm and to
know the financial health of the firm they need
annual statements describing:
 The financial performance and cash flows of the firm over a
particular period (Income statement and cash flow
statement).
 The financial position of the company at a current point of
time (Balance Sheet).
 The companies need to follow accounting
standards for financial reporting:
 To provide fair representation about their exact economic
reality to investors to help them make and assess their
investment decisions.

The context and purpose of financial reporting (continued)
Management needs to provide the
interpretation of this complex accounting
data to make it easy for the users to
understand via:
 Annual reports.
 Management discussion & analysis and footnotes
portion of the financial statements.

The context and purpose of financial reporting (continued)
There is a particular purpose of different financial
statements:
 Income statement-
Provides information regarding the performance of a company: revenues
and expenses in an accounting period.
Tells about the firm’s ability to generate profits from its business.
 Balance Sheet-
Provides information regarding the current financial position of the
company.
Tells about the company’s: assets valuation; liquidity status; debt and
funding position.
 Statement of cash flows-
Provides the category wise information regarding the company’s receipts and
payments.
Different parts of the cash flow statement are- cash flow from operations,
investing cash flows and financing cash flows.

Financial reporting for meeting business objectives,
development and growth
Financial reports provide a firm’s
management with information about the
overall business performance and financial
problems.
By analysing income statement:
 The management can get information about the
business profitability by using margin ratios.
 It can check whether it has achieved the business
objectives in terms of revenue/profit numbers.

Financial reporting for meeting business objectives,
development and growth (Continued)
By analysing balance sheets:
 The management can assess its capital structure and
financial leverage.
 It can get insight about the overall health of its
business that is how much it owns and how much it
owes. This information can be used to plan future
decisions for raising capital.

Financial reporting for meeting business objectives,
development and growth (Continued)
Efficient debt management:
 Tracking of different balance sheet accounts allows
firms to asses-
 Liquidity condition.
 Solvency condition.
 Examples-
 To check the progress towards a long term objectives of
firm like reducing its financial leverage.
 If the firm needs funds for business expansion objectives,
then the financial reporting helps to determine any need
to reduce existing liabilities before applying the loan
application.

Financial reporting for meeting business objectives,
development and growth (Continued)
For raising capital:
 Financial reporting helps firms raise funds in equity
markets.
 Example:
 Firms can issue IPO for capital investments and business
expansion.
 The financial statements help firms decide the price of
this IPO.