Financial Reporting: IAS-1, IFRS, Stakeholders, and M&S Analysis

This report provides a comprehensive overview of financial reporting, beginning with its fundamental purpose and the conceptual and regulatory frameworks that govern it. It explores the main stakeholders of an organization and details the benefits they derive from financial information. The report then examines the value of financial reporting in achieving organizational objectives, including an analysis of financial statements as per IAS-1. It delves into interpreting financial performance, using Marks and Spencer as a case study, and differentiates between International Accounting Standards and International Financial Reporting Standards. Furthermore, the report highlights the benefits of IFRS and the degree of its compliance worldwide, along with factors influencing compliance. Overall, the report provides a detailed analysis of financial reporting principles and practices.

Financial Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1.Purpose of financial reporting.............................................................................................1
2.conceptual and regulatory framework of financial reporting and importance of qualitative
characteristics for financial reporting.....................................................................................3
3.main stakeholders of organisation and their benefits form financial information...............5
4.value of financial reporting for meeting organisational objectives.....................................6
5.financial statements as per IAS-1........................................................................................7
6. Interpreting financial performance for Marks and Spencer (2017 and 2018)..................11
7.difference between International Accounting Standards and International Financial
Reporting Standards.............................................................................................................13
8.benefits of IFRS.................................................................................................................14
9. Degree of compliance with IFRS across the world and factors which impact its compliance
..............................................................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Financial reporting is the process by which company analysed their financial situations
and interpret that business information by preparing financial reporting. This financial
information of the company will release to public and the users of the company. This present
report will cover purpose of financial reporting and conceptual and regulatory framework of
financial reporting. Further, an explanation is provided of the stakeholders of the business and
their benefits from financial information. Values of financial reporting for meeting goals of the
organisation is also discussed. Explanation of main financial statements as per IAS 1 and
difference between international accounting standards and international accounting standards is
provided in this report. Further, in this report benefits of IFRS with compliance of degrees with
IFRS by organisations is to be discusses in this report.
MAIN BODY
1.Purpose of financial reporting
Main purpose of financial reporting is to provide company's overall decision (Bushee,
Goodman, Sunder, 2018). It also provides two primary decisions which includes decision-
making process to managers and second it provides information about the financial health of
company to its stakeholders. It helps to develop effective decision making by concerning
company's objectives and overall strategies. There are mainly five types of financial statements
which prepared by companies and that include-
Income statement
Balance sheet
Statements of cash flow
Statements of change in equity
Noted to financial statements
Main essentials of financial statements includes- assets, liabilities, equity, revenues, and
expenses. Each individual statement of financial reporting provides a different information to
user of the company. Main purpose of financial reporting are as follows-
1

It provides an overall financial position of the company- main purpose of financial reporting
is to provide an accurate financial information of the entity. Mainly guidance is provided by
accounting boards to make financial statements which is IAS ans IFRS. These financial
statements help managers of the company to develop an effective decision by concerning reports.
These mainly also helps users of the company by which they will able to judge overall financial
position of the company.
It assists existing and potential investors- it helps investors in taking decision to their target
companies about whether to increase investment, or to withdraw that investment in the company
(Naranjo, Saavedra and Verdi, 2018). For investors financial statements are the main source to
decide the investment objectives in the company. It provides them information regarding
financial stability of the company therefore both existing and potential investors of the company
will analyse financial statements regarding their investment decision.
Provides prospects for future net cash inflows- financial reporting of the organisation not only
provide financial stability information of the company but it also predicts future prospects of the
company.
2.conceptual and regulatory framework of financial reporting and importance of qualitative
characteristics for financial reporting
2

Conceptual framework to prepare financial reporting is the most important process for an
organisation which underlines a particular concept for the preparation and presentation of
financial statements. Framework of the financial reporting will address the objectives of
financial reporting, provides a qualitative characteristic which is useful financial information of
the company, it also covers financial statements of the reporting entity, elements of financial
statements, recognition and measurement also addressed in framework of financial reporting.
Regulatory framework of financial statements provides an effective procedure to prepare
financial reporting.
Relevance- information which is relevant must be capable of developing decisions which
is helpful for users of the company (Conceptual Framework for Financial Reporting, 2018)
Financial information is predictive when it provides information which is confirmatory and
valuable for company as well as for users.
3
Illustration 1: framework for financial reporting
(source: Conceptual Framework for Financial Reporting,2018)

By regulatory framework company will able to provide faithful presentation to their
investors and public of business market. Preparation of financial statements are developed in
accordance with regulatory frame work provided by accounting standards boards so that it
develop a faithful information on which it users can relay
Qualitative characteristic for useful financial information
Qualitative information in financial reporting helps to identify the types of information
which is useful in developing decisions for the company. Qualitative characteristic is provided an
equal information of financial reports of the organisation. Financial reporting will only be
effective when they represent faithful information in their statements. Therefore, there are mainly
four fundamentals of qualitative characteristic which are as follows-
Comparability- information which is provided by entity in their financial report will only be
useful when it compared to other entities with similar information. By developing comparability
it enables users to develop understanding of similarity and make differences of items.
Verifiability- financial report which is verifiable provides an information to users that
statements presents a faithful information in the financial report (Qualitative Characteristics of
Financial Information, 2013). Information which is provided in financial information must be
free from material errors and it will not mislead the financial statements is the qualitative
characteristic. These characteristic particularly provides relevant information which does not
influence economic decisions of the users of the organisation.
Timeliness- it means that information which is provided in financial statements are available in
time and is capable to develop any decision in the company. Financial reporting must have to
prepare in upgraded time because late submission of report will consider as less useful by the
users of the organisation.
Understandability- according to this point financial report will provide effective classification,
present report which is clearly understandable. This understandability means that information
provided in financial reporting is clearly presenting accurate information and also providing
accurate supplied information which needed to assist in clarification.
4

3.main stakeholders of organisation and their benefits form financial information
There are many users of financial statements which is produced by organisation.
Objective of providing information is to provide financial stability of the organisation among its
users and also among public of business market. The list of financial information are as follows-
 company management
Management team needs information to understand profitability, liquidity and also cash flow of
the organisation. So that they will able to develop decision regarding operational and financial of
business.
 Competitors
By analysing financial statements of competitors, company will able to attempt gain which
according to financial statements to evaluate financial condition (Chychyla and et.al., 2018).
 Customers
To measure which supplier is selected for major contract, financial statements of the company's
are review by the customers which will provide financial ability of supplier in providing goods
and services for long term relations.
 Employees
To develop employee involvement, organisation has to provide financial statements with detail
explanation of document. It helps employees to develop an understanding regarding business
policies.
 Government
Government also provide financial statements just to analyse that whether company has paid
appropriate amount of tax or not. Juri diction in which company is located are always required
financial statements of the company by which helps them to measure amount to tax paid by
company is correct or not.
 Investors
Investors also provide financial statements because they are the owners of the business and it is
their right to measure that the amount which they have invested is used properly in business or
5

not. Mainly investors are the owners of the company therefore, it is necessary for company to
provide their financial reports to the investors of the organisation.
 Lenders
Entities which provides loan to organisation will also require financial statements by which they
will able to understand ability of the company to pay back the loans (Cheng and et.al., 2014).
These entities will make sure about the overall financial stability of the organisation in business
market. This analysis helps them to measure capability of company in repaying their loans.
 Unions
Members of union also require financial statements of company just to analyse that company has
that ability or not to pay their compensation and benefits. Union always expect compensation for
business organisation therefore they always demand financial reports of the organisation. This
helps them to ensure financial capabilities of the organisation.
4.value of financial reporting for meeting organisational objectives
Company's financial statements provide story which is about value of business. To
analyse the impact of financial statements on the value of business three statements are judged
which are as follows-
Income Statement Analysis
These statements provide an information regarding overall net profit and net loss achieved by
company in a financial year. This income statements matches total revenues and total indirect
expenses of the company. This statement also provides an overview regarding usage of resources
by company to generate profit of the company. To evaluate efficiency and management
operations of the company this income statement is prepared by company which compare result
with previous year results which company achieved in previous year. It also develops an
evaluation regarding sales generation of the company.
Balance Sheet Analysis
Balance sheets of company provides overall financial picture over a period of time. To generate
sales and revenues of the company, balance sheet represents resources which is in the form of
assets, liabilities and owner's equity (Spiceland and et.al., 2018). It also provides an overview
which is about future sustainability of the company. Three major categories are analysed in
6

Balance sheet that is assets, liabilities and also owner's equity. Assets of the company will
represent gross book value of business. Liabilities will represent claims which is against assets
and owner's equity will show difference between book value and liabilities.
Ratio Analysis
Ratio analysis used to analyse the data of financial statements. It is the widely used tool which is
known as comparative tool to measure overall performance of the company as compared to other
companies of business market. It also provides information about riskiness and solvency of
company in caparison to other businesses of the market. Mainly five major ratios are grouped to
calculate financial statements that is Liquidity, Leverage, Coverage, Profitability and also
Activity of the business which provides overall performance of the organisation.
5.financial statements as per IAS-1
a.) statement of profit and loss and other comprehensive income
Company's performance is reported on statements of profit and loss and other comprehensive
income. Statement of profit and loss measure total of income less expenses. Other
comprehensive income report items which are not included in statements of profit and loss
(Zhang and Andrew, 2014). Profit and loss account report indirect expenses for specific period of
time which is to measure net profit and net loss of the company. Other comprehensive income
statements will include those revenues, expenses, gains and losses which executed from income
statement.
7

Working notes
8

b.) statement of change in equity
Company generally prepares statement of change in equity to observe change in share capital of
the business, accumulated reserves and retained earning over a specific period of time. It
calculates net profit and losses which are attributed to shareholders, measure increase and
decrease of share capital, and amount of dividend paid to shareholders. Change in equity
statement also measure effect of change of accounting policies and gains and losses of capital.
9

c.)statement of financial position
It is also known as balance sheet. Balance sheet is financial statement which helps to provide a
picture of financial performance of company in certain time period. Resources which used to
prepare balance sheet are assets, liabilities and owner's equity. It provides information about
company's overall sales and revenues. Amount which shown on statement of financial position
are the amounts which represent final moment of an accounting period. Financial position will
reflect basic accounting principles and guidelines which includes cost, matching, and full
disclosure principles (Gigler and et.al., 2014).
10