Financial Reporting Analysis: Concepts, Framework, and Assumptions

This report provides a comprehensive overview of financial reporting, beginning with an introduction to the process of preparing financial statements and their importance for managerial decision-making. The main body of the report delves into the conceptual framework for financial reporting, outlining its objectives, fundamental concepts such as recognition and measurement, and the qualities a report should possess, including relevance and faithful representation. The report further discusses basic accounting concepts and assumptions, such as the recognition concept, money measurement concept, disclosure concept, economic entities, going concern, monetary unit, periodicity, and the accrual basis. The report concludes by emphasizing the importance of adhering to International Financial Reporting Standards (IFRS) and accounting principles when preparing and presenting financial reports to stakeholders. The report includes a detailed list of references, including books, journals, and online resources used in the research and writing of the report.

Financial Reporting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Conceptual framework for Financial Reporting ....................................................................1
2. Basic accounting concepts and assumptions..........................................................................3
CONCLUSION ...............................................................................................................................4
REFERENCES ...............................................................................................................................5

INTRODUCTION
Financial Reporting is a term which refers to the process of preparing accounts, statements or
reports with the help of recorded data, information available in relation to the financial and
monetary activities of the business organisation. With the help of financial reporting the
managers can make important and crucial decision of the business. The report will discuss about
objective behind preparation of financial report. It will also discuss the basic difference between
Why and How accounting is done. Further on, the report will provide information about quality
which a report should possess i.e. Relevance, comparable, Free from error etc. At last, the report
will discuss about accounting concepts and assumptions which every company uses for making
accounting transactions and also for preparing financial statement.
MAIN BODY
1. Conceptual framework for Financial Reporting
Overview: It is the comprehensive process to set the system of financial reporting of the
business in an accounting year (Conceptual Framework for Financial Reporting, 2018). It
includes various aspects such as objective, description of report and detailed study of the
characteristic and numbers in the report.
Basic objective: Its objective is to provide useful information to the users so that they can decide
the company future and resources to deal in the near future (Acharya and Ryan, 2016). Its helps
the management team to decide the economic resources available with the company and the
inflow and outflow of cash transaction and also expenses that incurred in the company books.
Fundamental concepts:
The objective of accounting is to maintain the full record of the business internal and
external matters and the amount which they incurred in any projects and the process and attains
the profits and loss incurred in the business transactions (Flower, 2018). The fundamental
concepts of accounting are ~
- Recognition: It recognises the company assets and liabilities and other expense and provide a
relevant information relation to the matters to the user, creditors and investor so that they know
the facts in the business.
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- Measurement: it provides the numbers and data which helps the company to measure their
current value positions (Acharya and Ryan, 2016). By these numbers they got the idea to invest
in various projects and it helps the to make strategy for various other expenses.
- Financial statement Preparation: After analysing all the facts and figures, financial statement
are prepared which shows the company report for the financial year.
Fundamental Quality: It determines and indicates the financial aspects of the business and it
indicates various quality such as ~
- Relevance: This quality helps the users and investor to compare the accounts of business in
proper format and assume the outcomes raised from the accounts in the past, present and future
events. Its main purpose is to provide useful and predictive valuable information (Reid and et.al.,
2018). It provides the power to the business to select the more relevant information which
presents confirmatory valuable and success to the business.
- Faithful representation: The main factors to prepare a report is impressive presentation. This
can be done by representing the complete report which is free form errors and over written, shall
be in simple manner which is attractive and simple to understand and its also includes the
complete presentation which helps the user to clearly identify the business financial position and
stability in the market (Hoyle, Schaefer and Doupnik, 2015). The report shall be understandable
and complete so that if they are presented before any investor it looks presentable and attractive
to deal with the business internal matters.
- Enhancing Qualities: The qualities of good report is that it enhances the qualities of makers
who deals with the report making and presenting on behalf of the business. The reporters should
keep following things in mind while enhancing the report that its didn't require much time to
read the report and also the reports carries the variable facts and figures which is relevant to the
company matters (Francis and et.al., 2015). To understand the report the biggest quality is that it
is presentable and understandable by Layperson whether it can be layman also who has no
knowledge in the company but if they can compare it with other reports it looks more
presentable.
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2. Basic accounting concepts and assumptions.
 Recognition Concept – Also known as Revenue Recognition Concept which states that
company should make record of their revenue amount as and when it is recognised or
earned by the company and not when cash is received or collected.
 Measurement Concept – The money measurement concept works on the principle that
every company should make record of only that accounting transaction which can be
expressed in terms of monetary value or which can be measured in money. Example –
Employee morale cannot be measured in monetary term. Disclosure Concept – Also known as full disclosure concept which states that every
company should make full disclosure about its business operations, accounting
transaction related to both financial and non-financial matters in its financial statements
which is considered as necessary its end users or will affect their decision making process
(Basic Accounting Principles and Concepts, 2019). Example: Disclosure about
Contingent liabilities. Economic Entities- As per this, business is recognized as separate entity from its owner.
Referring this, it can be presented that personal income and expenses of business owner
are not recorded in the final accounts of firm. Going Concern – Such concept implies that business unit will operate for infinite time
period. This in turn presents that assets of firm will not be sold or liquidated immediately. Monetary unit – On the basis of such accounting concept, financial transactions recorded
in final accounts should be in monetary terms such as pound (£) etc (Accounting
Concepts, Principles and Basic Terms, 2019). Periodicity – It entails that accounting process needs to be done for a particular time
period usually one year, half yearly etc. For instance: Tesco prepares final accounts for
one year from 1st April to 31st March.
 Accrual Basis – According to such principle, business unit should record revenue or
profit when it is actually earned. Likewise, expenses need to be recorded in the period
when it actually incurred. Hence, in this, time when cash is received or paid completely
neglected.
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CONCLUSION
By summing up this report, it has been concluded that business unit should comply with
rules mentioned in IFRS which preparing and disclosing financial reports. Besides this, it can be
inferred that companies should comply with all the accounting concepts and principles at the
time of drafting and furnishing reports to stakeholders.
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REFERENCES
Books and Journals
Acharya, V.V. and Ryan, S.G., 2016. Banks’ financial reporting and financial system
stability. Journal of Accounting Research. 54(2). pp.277-340.
Flower, J., 2018. Global financial reporting. Macmillan International Higher Education.
Francis, B. and et.al., 2015. Gender differences in financial reporting decision making: Evidence
from accounting conservatism. Contemporary Accounting Research. 32(3). pp.1285-1318.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Reid, L.C. and et.al., 2018. Impact of auditor report changes on financial reporting quality and
audit costs: Evidence from the United Kingdom. Contemporary Accounting Research.
Online
Accounting Concepts, Principles and Basic Terms. 2019. [Online]. Available through:
<https://www.mbacrystalball.com/blog/accounting/>.
Basic Accounting Principles and Concepts. 2019. [Online]. Available through:
<https://misscpa.com/basic-accounting-principles-and-concepts/>.
Conceptual Framework for Financial Reporting. 2018. [Online]. Available through:
<https://www.ifrs.org/-/media/project/conceptual-framework/fact-sheet-project-summary-and-
feedback-statement/conceptual-framework-project-summary.pdf>.
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