Financial Reporting Analysis of Marks and Spencer Plc

This report delves into the intricacies of financial reporting, focusing on its purpose, regulatory frameworks, and stakeholder analysis, with Marks and Spencer (M&S) as a central case study. It explores the objectives of financial reporting, including its role in effective decision-making, ensuring accuracy, satisfying stakeholders, meeting legal requirements, and facilitating international trade. The report examines the regulatory framework, specifically the role of the IASB, and discusses the governance of financial reporting, highlighting qualitative characteristics like understandability and comparability. It identifies key stakeholders of M&S and their benefits from financial information, such as investors, suppliers, and governmental bodies. The report further analyzes financial statements, including a statement of profit and loss, changes in equity, and financial position, providing a comprehensive overview of M&S's financial performance. Additionally, it contrasts IAS and IFRS, discusses the benefits of IFRS, and explores the varying degrees of IFRS compliance across firms globally. The report concludes with a summary of the key findings and implications of financial reporting within the context of M&S's operations.

Financial Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1 Purpose of financial reporting..................................................................................................1
2. Regulatory frameworks of financial reporting........................................................................2
3. Stakeholder of Marks and Spencer plc and and its benefits from financial information........4
4. Financial reporting for meeting firm objectives......................................................................4
5. Financial statements................................................................................................................5
6. Financial statement of Marks and Spencer plc and interpretation of financial performance:.7
7. Difference between of IAS and IFRS.....................................................................................8
8. Benefits of IFRS......................................................................................................................8
9.Various degree of compliances with the IFRS by firms across the globe and components
affecting it...................................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial reporting is a process of developing and producing financial reports which
consists financial information for a business organisation. The main aim of this project report is
to build an understanding about the concept of financial reporting and its various aspects due to
which a company is selected named as “Marks and Spencer Financial services Plc”. It is a
financial services company which operates in retail banking in United Kingdom. In this project
report, framework and governance of financial reporting is mentioned along with its its
objectives. Financial statements of M&S bank is also analysed. Benefits of International
accounting standards are discussed with International financial reporting standards. Financial
reporting is a tool of ascertaining accurate performance of a company due to which difference in
the importance of financial reporting all various countries is analysed in this project report. As a
Junior Auditor of a large accounting firm, Financial ratios are calculated to determine
organisational performance and investment of M&S Bank.
MAIN BODY
1 Purpose of financial reporting
Financial reporting is a process of disclosing financial information of a company in
certain authorised formats. These formats in which financial data is disclosed are income
statement, balance sheet, cash flow and other accounts and statements. Main aim of this process
is to serve accurate and reliable information to stakeholders of a company such as shareholders,
suppliers, employees, governmental authorities and many more. Financial reporting are prepared
by accountants on quarter and annual basis (Nobes, 2014).
Purposes of financial reporting:
This reporting system has various purposes, the most important aim is to provide
financial information to management of an organisation so that they can plan their benchmarks
and conduct reliable decision making. Another main purpose of this system is to provide
information to all stakeholders so that they take profitable decisions such as investment
decisions. Financial reporting system serves various stakeholders to take effective decisions such
as credit decisions, investment decisions and taxation decisions. Purposes of financial reporting
for meeting organisational objectives, development and growth are mentioned below:
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Effective decision making – Financial reporting is a process of producing financial
statements using accounting data. These statements can help in effective decision making to
various stakeholders. Investors are benefit from investor decisions, suppliers and creditors are
benefited with credit de scions etc. Financial reports also helps an organisation to take effective
taxation decisions.
Accuracy in financial statements – Financial reports are prepared using principles and
standards provided by international boards. Due to which information analysed in this report are
accurate and is based on arithmetical accuracy. This accuracy further assist an organisation in
performing various functions such as auditing.
Satisfaction of stakeholders – Main purpose of financial reporting is to serve reliable
information to stakeholders. By fulfilling this purpose an organisation can attain full satisfaction
of their stakeholders such as creditors, debtors, investors and many more.
Legal requirements – Another purpose of financial reporting is to ensure that all the
legal requirements of an organisation is fulfilled regarding financial information. For example:
International financial accounting standard says that all organisation are required to disclose all
the material information which helps in fulfil their legal requirement of disclosure and
materiality.
International trade – Another purpose of financial reporting is international trade. In
order to trade internationally, it is mandatory for all companies to serve their financial reports to
governmental authorities. For example: If a company like Marks and Spencer wishes to trade in
global market, they has to provide their financial statements such as cash flow, balance sheet and
income statements to governmental authorities.
The above mentioned purposes helps an organisation to achieve their organisational
objectives of profit maximisation and client satisfaction. By producing these information and
statements, an organisation can develop their business operations by expansion and grow overall
organisation (Laux, 2012).
2. Regulatory frameworks of financial reporting
Regulatory framework of financial reporting:
Regulatory framework are the regulatory authorities which are responsible for all affairs
of financial reporting. Regulatory framework can be different for every country, in the case of
United Kingdom IASB is the responsible authority. IASB or International Accounting standard
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Board is an independent private sector body which develops and approves International Financial
Reporting Standards. This board operates under IFRS foundation. Regulatory framework of
financial reporting addresses the fundamental financial reporting problems such as users of
financial statements, concepts and objectives (Kimand Zhang, 2014). The main aim behind
developing this regulatory is to ensure that all the methods and techniques of accountancy are
reliably followed by the organisation. According to this framework, it is mandatory to follow
structure of financial reports and statements in order to bring a similarity in the structure of
financial statements of all the companies across the world. IASB is the regulatory framework of
financial reporting system which does not only develops standards for accounting but also guides
other boards to prepare effective standards.
Governance of financial reporting:
Financial reporting is a process of developing and serving financial statements of a
company to stakeholders. As this reporting system affects profitability of a company and
decisions of a stakeholder it is important to regulate and govern this system. Governance refers
to the authorisation of financial reporting. In the case of United Kingdom, governance of
financial reporting is done using financial standards. These standards are developed and guided
by International accounting standards board. For example: International financial reporting
standard 7 which is developed by IASB states that all financial statements must be disclosed to
stakeholders. This standard governs organisations to disclose all material financial information to
their stakeholders in order to protect their interest (Hope, Thomas and Vyas, 2013).
Qualitative characteristics:
Financial reporting enables an organisation to ascertain accurate and reliable financial
position. There are various qualitative characteristics which makes financial information more
reliable such as understandability, comparability, verifiability and timeliness. For example: The
characteristic of understandability helps to prepare financial statements in such a way that it can
be easily interpreted and evaluated. By the characteristic of comparability, financial statements
of two companies or of two years can be compared in order to identify variation so that reliable
decisions can be made. Principles of financial reporting such as economic entity assumption and
cost principle are developed in order to ensure that all financial standards are followed by
business organisations (Collins, Pasewark and Riley,2012).
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3. Stakeholder of Marks and Spencer plc and and its benefits from financial information
Stakeholders are the related parties of an organisation which are benefited from the
financial information of Marks and Spencer. These stakeholders are customers, investors,
suppliers, government, creditors, debtors and many more. Some of these stakeholders are
analysed in order to identify benefits of these financial information.
Investors – These are the type of stakeholders which invest in company's equity in order
to earn profit from dividend and interest. Income statements helps investors to ascertain profit fro
the year so that they can take reliable investment decision about whether to invest in a company
or not. Information from which investors are benefited are income statements and changes in
equity. Marks and Spencer is a public limited bank in which various investors invest their
resources by analysing their financial performance mentioned in income statements.
Supplier – Suppliers are the stakeholders which supply their products and services to a
company. These stakeholders are benefited with the financial information such as cash flow
statements. As cash flow statements are the evidence of cash flows in an accounting year by
which suppliers can identify cash position of the company so that they can ascertain that whether
company is capable for clearing their debts or not (Cassell and et. al., 2013).
Government – This is the most important important stakeholder for the companies like
Marks and Spencer as they has to fulfil various types of requirements regarding their financial
information such as minimum liquidity ratio, maximum cash reserve ratio and many more.
Financial information which benefits governmental authorities is balance sheet of the
organisation and ratio analysis of the company. For example: Governmental authorities such as
taxation department has to review all their financial information in order to certain net taxable
income.
Shareholders – These type of stakeholder are the members of an organisation.
Shareholders are interested in balance sheet of an organisation in order to attain benefit of equity
dividend. For example: Shareholders of Marks and Spencer, review balance sheet in order to
ascertain possibility of their dividend (Botzem, 2012.).
4. Financial reporting for meeting firm objectives
Company have different departments in its organisation. All departments of company
provide its finance related information to the finance department. Finance departments of
company prepare the financial report. Financial report helps to analyse the financial position of
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the organisation. It is important to prepare because it provide information about financial
position, performance and changes in financial position of an organisation during a specific
period of time. It provide information to the management of an organisation and it is used for
planning and decision making for future. On the basis of it management can take decision for
future investment and strategy. It provide information about financial position of company to its
investors, shareholders, promoters, creditors etc. On the basis of this report shareholders and
investors will make investment in the organisation. It helps to increase the market value of its
share because people wants to invest in the company (Bevis, 2013). It will increase the market
value of the organisation. High market value help to increase the financial growth of the
organisation. So Financial reporting is important because it provide all financial information and
it can help in future planning, expansion and investment decision.
5. Financial statements
Godwin PLC Statement of Profit and
Loss for the year ended 31 December
2017
Particular Amount
Revenues 385100
Less: Cost of sales -297563
Profit 87537
Add: Other income 5600
Gross profit 93137
Less: operating expenses -83663
Operating profit 9475
Less: Finance cost -830
Profit before tax 8645
Less: Tax -1500
Profit after tax 7145
Add: Other comprehensive income 2100
Total Comprehensive income 9245
(b): Statement of Changes in Equity
Godwin Plc Statement of
changes in equity for the
year ended 31 December
2017
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Particular
Ordinary
share
capital
Revaluation
reserve
Retained
earnings Total
As per trial balance 86700 40700 32100 159500
Total Comprehensive
income 2100 7145 9245
Preference dividend -2330 -2330
Ordinary dividend -4340 -4340
86700 42800 32575 162075
(c): Statement of Changes in Financial position
Statement of financial position
Assets Amount
Non-current assets:
Land and property 115000
Plant and equipment 37275
Investment property 25400
Total non-current assets 177675
Current assets:
Inventory 17300
Trade inventories 62000
Total current assets 85300
Total assets 262975
Equities and liabilities
Ordinary Share @25 each 86700
Revaluation reserve 42800
Retained earning 32575
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Total equities 162075
Noncurrent liabilities:
10% redeemable preference share 23300
Deferred taxation 8900
Total noncurrent liabilities 32200
Trade payables 65700
Bank overdraft 1500
Tax payables 1500
Total current liabilities 68700
Total equities and liabilities 262975
Calculation of Depreciation:
On Land and property:
Property 4000
Plant and equipment 3200
Total 7200
Charged to cost of sales 3600
Charged to operating expenses 3600
6. Financial statement of Marks and Spencer plc and interpretation of financial
performance:
Financial ratios of Mark and Spencer
Particular ratios Formula 2017 2018
Liquidity ratios:
Current ratio: Current asset/ current liabilities
0.721741511
5
0.7277449
324
7

Liquid ratio: Current asset- inventory+ prepaid
expenses/ Current liabilities
0.294030668
1
0.4073057
432
Profitability ratio
Net profit ratio: Net profit / Sales *100
1.089248729
1 0.272008
Gross profit ratios Gross profit/ Sales *100
2.383731877
2
1.4628629
115
ROE Total income/ shareholder equity
0.022431327
8
0.0310481
28
Efficiency ratio's
Total assets turnover
ratios Net sales/ average total assets
1.098344370
9
1.4169161
082
Fixed assets turnover Net sales/ Averages total fixed assets
1.616939657
8
1.7165412
448
From the financial statements of two years of Marks and Spencer it has ascertained 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 separately prepared in order to
ascertain their realisable value. Along with balance and cash flow statement, this company also
prepares their changes in equity.
From the ascertained 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 utilises all their resources in operational activities. By ascertaining
efficiency ratios, it has analysed that company was more efficient in 2017.
7. Difference between of IAS and 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 enhance transparency, accountability, accuracy and
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effectiveness in the financial statements. It facilitates investors to make investment decision and
to figure out its risk and profits.
IFRS: It was introduced by IFRS foundation and international accounting standards
board in year 2001 to resolve contradictions in IAS. It provides a common worldwide language
to different business that are running globally to analyse accounts of the company. It has
replaced a few standards of international accounting standards (IFRS, 2018).
Difference between IAS and IFRS:
IAS IFRS
It stands for international accounting standards. It stands for international financial reporting
standards.
It was introduced by international accounting
standards committee.
It was launched by international accounting
standard board in year 2001.
IAS was launched to reduce accounting errors in
international financial reporting.
IFRS was introduced when there are various
contradictions in IAS and it helped to reduce
those contradictions.
It has become popular in year 1973. It was introduced in year 2001.
8. Benefits of IFRS
Benefits of IFRS: Following are the benefits of IFRS:
 It has helped to build ethical relation all around the world as it considers input from
professionals and legal authorities around the world.
 It has enhanced the quality of financial reports because it leaves little room for
countermining the aims of set standards.
 It has facilitated the international investors to make strategic decision because now they
can compare financial statements of companies and analyse that companies are following
international accounting standards and other guidelines.
 It facilitates the investors while analysing convergence and transparency of accounting
practices (Beatty, Liao and Yu, 2013).
 International trade has been enhanced with the help of IFRS as it guides organisations to
find strategic partners and customers from different regions.
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 It is flexible to both expected or unexpected changes in worldwide business environment
as it is mainly based on broad principles. It provides liberty to the organisations of
choosing the format for presentation which suits to its users and stakeholders.
 It has simplified the accounting procedure for multinational companies who are operating
their businesses in different countries.
 It helps to reduce business costs to the organisations of preparing financial statements
oriented for international customers.
 It assists those organisations who are willing to deal in foreign trade and are trying to
expand their business globally.
 IFRS is mainly introduced by IASB to direct companies while they are generating their
financial statements in order to analyse actual position of company. It has succeeded in
this task as companies are now able to acquire more and more profits.
All the above mentioned advantages are related to the IFRS it, helps organisation to
formulated their financial statements accurately. The business entities who are adopting these
standards can attain various benefits with the help of IFRS as it guides to record appropriate
information to the final accounts.
9.Various degree of compliances with the IFRS by firms across the globe and components
affecting it
IFRS is a standard which is used by most of the company while generating their financial
statements (Ball, Jayaraman and Shivakumar, 2012.). This a type of standards which is used by
almost each and every country across the world in order to maintain transparency in their final
accounts. It also guides to run all the operational activities effectively and smoothly. With the
help of this standards companies can ignore contingencies and enhance their performance. Under
this, various standards are set out by IASB in order to provide ease in the process of financial
reporting. The firms who are applying these can get advantages such as reduced frauds and risks.
All the nations in the world are having their own accounting standards that are followed
by them while formulating statements like income statement, balance sheet, statement for
comprehensive income and cash flow statement. This is possible that these standards are having
issues so IFRS can help to resolve all the issues. Such type of problems can affect investors
decisions as it can result in decreased profits. In United Kingdom, accounting standard boards
issues standards for the process of formulation of financial reports that are applicable for every
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type of organisation. Such type of rules and regulation facilitate multinational companies as they
are running their business in various countries (Albu and Albu, 2012).
As every country have its own reporting system and for such type of companies are not able to
record their transactions according to different standards so this is the right choice for those
companies. It helps the organisations to establish a good and ethical environment so that business
activities can be run effectively and efficiently. Henceforth, accounting professionals prefer
IFRS in financial reporting, problem recognition and to figure out the cause on inconsistency.
IFRS is the updated version of IAS as there are various contradictions in IAS and then IASB
introduces new standards in 2001 so that all the problems can be resolved.
CONCLUSION
From the above project report it has bee concluded that, financial reporting is the process
of formulating financial statements in order to analyse organisation financial strength and market
performance. These statements are presented to the external stakeholders such as investors,
creditors, shareholders, government and customers. It can help the management to analyse that
organisation is gaining profits or facing losses. IFRS stands for international financial reporting
standards that are used by those business entities who are running their business globally. This
guides the organisation to formulate all the statements accurately appropriately in order to
maintain transparency in final reports. It also attracts international investors whoa re willing to
invest in good profit making companies.
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REFERENCES
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disclosure as complements: A test of the confirmation hypothesis. Journal of
Accounting and Economics. 53(1-2). pp.136-166.
Beatty, A., Liao, S. and Yu, J. J., 2013. The spillover effect of fraudulent financial reporting on
peer firms' investments. Journal of Accounting and Economics. 55(2-3). pp.183-205.
Bertoni, M. P. G. V. A. G. and De Rosa, B., 2012. Green accounting: an alternative approach to
reporting emission trading allowances in financial statements.
Bevis, H. W., 2013. Corporate Financial Reporting in a Competitive Economy (RLE
Accounting). Routledge.
Botzem, S., 2012. The politics of accounting regulation: Organizing transnational standard
setting in financial reporting. Edward Elgar Publishing.
Cassell, C. A. and et. al., 2013. The emergence of second‐tier auditors in the US: evidence from
investor perceptions of financial reporting credibility. Journal of Business Finance &
Accounting. 40(3-4). pp.350-372.
Collins, D. L., Pasewark, W. R. and Riley, M. E., 2012. Financial reporting outcomes under
rules-based and principles-based accounting standards. Accounting Horizons. 26(4).
pp.681-705.
Hope, O. K., Thomas, W. B. and Vyas, D., 2013. Financial reporting quality of US private and
public firms. The Accounting Review. 88(5). pp.1715-1742.
Kim, J. B. and Zhang, L., 2014. Financial reporting opacity and expected crash risk: Evidence
from implied volatility smirks. Contemporary Accounting Research. 31(3). pp.851-875.
Laux, C., 2012. Financial instruments, financial reporting, and financial stability. Accounting and
business research. 42(3). pp.239-260.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Online
IFRS. 2018. [Online]. Available through:
<https://whatis.techtarget.com/definition/IFRS-International-Financial-Reporting-
Standards>
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