Financial Reporting Analysis and Evaluation: A Comprehensive Overview

This report provides a comprehensive analysis of financial reporting, encompassing the interpretation of profit and loss statements, cash flow statements, and balance sheets. It delves into the calculation and presentation of financial ratios to assess industrial performance and investment potential. The report also explores the benefits of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), evaluating various financial reporting and auditing models. Furthermore, it critically examines financial reporting practices across different countries and analyzes factors that influence reporting. The analysis includes a discussion on the regulatory framework, governance of financial reporting, and the objectives of financial reporting for industrial targets, growth, and development. The report also critiques the regulatory framework and governance, offering suggestions for organizations to solve financial problems based on theories and models. Finally, it offers a critical evaluation of IFRS and its application in various countries.

FINANCIAL REPORT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P 1 Analysing the financial reporting, regulatory framework as well as governance of them.1
P 2 Analysing objectives of financial reporting for Industrial targets, growth and development
................................................................................................................................................2
M1 Analysing the efficiency of financial reporting in context with requirements of
stakeholders............................................................................................................................3
D1 Regulatory framework and governance of financial reporting to stakeholders will be
criticised.................................................................................................................................3
TASK 2............................................................................................................................................3
P 3 Interpretation of profit and loss, cash flow and balance sheets........................................3
P4 Calculation and presentation of financial ratios for industrial performance and investment 6
M 2 Interpretation of Financial ratios and statements in context with better decision making7
D 2 Suggesting organisations as per theories and models in context with solving the financial
problem...................................................................................................................................7
TASK 3............................................................................................................................................7
P 5 Explaining benefits of IAS and IFRS...............................................................................7
P 6 Evaluating models of financial reporting and auditing....................................................8
M 3 Critically evaluating Financial reporting with Judgements and Conclusion..................9
D 3 Criticised evaluation of IFRS and its application in various countries...........................9
TASK 4............................................................................................................................................9
P 7 Evaluating the financial reporting across different countries...........................................9
M 4 Analysing the factors which influence reporting..........................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In the present report, there will be discussion based on the various terms of financial
reporting which an organisation can use to gather profitable investments. However, there will be
use of various statements such cash flow, profit and loss as well as balance sheet which in turn
helps stakeholders to know the actual financial position of such industry. Thus, such reporting
will help business professionals in making the favourable decisions as well as gathering funds
from investments through investors. In the present era, there will be analysis based on regulatory
framework of financial reporting, IAS and IFRSA which in context with making the fruitful
governance of such reporting used by various industries.
TASK 1
P 1 Analysing the financial reporting, regulatory framework as well as governance of them.
Financial reporting consists with making the statements of an organisation which
contains all the profit and losses, purchase and sale, revenue generation as well as financial
position of an entity. This information is later provided to various stakeholders such as investors,
consumers, organisational heads as to make investment decisions. However, such reporting
regulates better corporate decisions (Leuz and Wysocki, 2016). It brings transparency in such
reporting techniques which will help organisation in generating favourable numbers of
stakeholders or investors. Thus, with the help of such reporting techniques there will be better
governance in industry as the managers or the operating professional will plan new policies and
procedure to lower down costs or expenses. Hence, for better decision making and the
governance in the organisational environment, professionals will make the comparison on the
basis of various operations held in previous years as well as the performance of business during
such years.
Regulatory framework: Financial reporting is based on EU framework which contains
Banking regulations under CRR and CRD which in turn helps professionals to follow the
templates issued by IFRS. Hence, the motive of such regulations' is to make a fixed standard of
financial accounting which in respect with gathering better information as well as recording the
authenticated data (Financial Reporting and Governance, 2017). However, with the help of IAS,
organisations or individual were guided to follow standardise method of preparing such reports
which is universally imposed by this group. Thus, such reporting techniques will help the
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organisation to have the better supervision over preparation of such financial statements as well
as better liquidity and capital structure which will fruitful in risk controlling as well as
favourable earning. Hence, there will be difference in financial reporting as well as regulatory
framework. Thus, such reporting technique mainly focuses over gathering the number of
investors or paying the creditors. On the other side, regulatory targets the bank supervisors which
in turn help the organisation for having the better interest over r loan, interest rates and the
creditability.
Governance: Financial reporting indicates better corporate governance which in turn
helps organisation in resolving industrial conflicts as well as increasing efficiency of firm
(CORPORATE GOVERNANCE ROLE IN FINANCIAL REPORTING, 2017). However, such
reporting facilitate transparency in statements as well as present such information among
organisational professionals such as Capital providers, managerial directors and supervisors in
firm. Hence, such governance of financial reporting consists with various frameworks such as
financial reporting environment, statement presentation, reporting actual performance, Assets
and liabilities of organisation and the conceptual framework. These are universal standards
which are fixed for financial statements. However, in context with analysing such statements
there need to get the financial ratio analysis and group account transactions which in turn
beneficial for industry to analyse the ability of firm in meeting debts.
P 2 Analysing objectives of financial reporting for Industrial targets, growth and development
With the help of various techniques, regulatory and governance related with developing
the financial reports, will be beneficial for the organisations in having profitable growth of
industry. Hence, Business will be benefited with having conceptual framework which are based
on various logical methods of doing such work (Bishop, DeZoort and Hermanson, 2016). There
can be influence of various external parties such as investors of consumers which in turn make
the profitable judgements for organisation. Thus, such framework considered equity capital
markets for making better financing in the organisation which is influenced by government rules
and regulations, bankruptcy, court decisions, income tax as well as legislations. There will be
several objectives of financial reporting such as:
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 Presenting disclosure of such financial statements among managerial heads of the
organisation in context with having better planning, judgements as well as fruitful
decision making.
 Disclosing such information in external environment as to have proper capital gathering,
investment as well as financial support.
 To lower down the cost, liability as well as claims over owner's equity for specific period.
 Improving social responsibilities in context with benefiting employees, governments as
well as trade union with favourable allowances.
 Facilitate industry in context with reducing cost of work so that professionals with use
funds for expanding the organisational operations.
M1 Analysing the efficiency of financial reporting in context with requirements of stakeholders
Financial reporting will be beneficial for organization in the context with providing fruitful
information to various stakeholders. Thus, it will be beneficial in catching their interest in
making favourable investments decision. Statement contains all the necessary details which are
related to liquidity ratio, annual turnover as well as overall performance of the management. The
owner or board of directors in an entity must implement the use of financial reporting which in
turn helps them in analysing business performance in previous years to be compared with the
current state (Abbott and et.al., 2016). Hence, shareholders will be benefited with their
consideration in the organisation as to earn the sufficient amount of dividend as per shares they
have purchased.
D1 Regulatory framework and governance of financial reporting to stakeholders will be
criticised.
Financial reporting or corporate reporting were developed under the consideration of
company law which in turn helps in governing financial requirements in organisation
(Flower, 2016). Hence, in the current era, it can be seen that use of such statements depends
over attracting investors in having better capital strength.
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TASK 2
P 3 Interpretation of profit and loss, cash flow and balance sheets
Profit and loss account of Rita Plc
PARTICULARS AMOUNT
Revenue 285100000
opening inventory 177700000
add: purchase 0
less: closing inventory 14000000
COGS 191700000
Gross profit 93400000
Income
Trade receivable 18000000
Rental income (investment property) 1600000
operating income 19600000
EXPENSES
Trade payable 15700000
bank interest 1030000
operating expense 39500000
investment property revaluation 180000
revaluation of land and property 840000
depreciation on plant and equipments 6000000
revaluation reserve 280000
redeemable preference share 133000
ordinary dividend 2670000
Total expenses 66333000
Earnings before tax 46667000
less: tax 120000
Earnings After tax 46547000
preference share dividend 1330000
Earnings after tax and ps dividends 47877000
Interpretation: On the basis of above mentioned Profit and loss account of Rita plc the
organisation has favourable earning at the year ended on 31 December 2016 for 47877000. The
gross profit to be earned by industry for amount of 93400000 which is the positive sign of that
the organization is earning adequately as compared to the cost of goods sold. There has been
analysis based on the earning before tax with deducting all the expenses and adding the income
through rental property and trade receivable. Further it can be said that business has to pay tax of
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1200000 which bring earning of 43547000. After adding the preference share dividend, the
earning is 47877000.
cash flow statement of Rita plc
PARTICULARS AMOUNT
Earnings after tax and Pref.Sh
dividend 47877000
Bank 1200000
investment property revaluation 180000
revaluation of land and property 840000
depreciation on plant and equipments 6000000
revaluation reserve 280000
Deferred tax 6900000
increase in inventory 600000
cash flow 34277000
Interpretation: on the basis of above measured cash flow statement of Rita plc, as per
inflow and outflow of the cash during this assessment year, which in turn helps in bringing the
favourable cash flow of 34277000.
Financial position of Rita plc
Particulars AMOUNT AMOUNT
Current assets
bank 1200000
cash 34277000
trade receivable 1800000
total current assets 37277000
fixed assets
Land and property 84000000
less: depreciation 840000 83160000
investment property 21300000
less: depreciation 180000 21120000
plant and equipments 4800000
less: depreciation 600000 4200000
suspense account 1067000
Total fixed assets 109547000
Total assets 146824000
Current liabilities
Retained earning 23300000
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ordinary share capital 26700000
preference share capital 1330000
LESS: 10% redemption 133000 1197000
total current liabilities 51197000
bank interest 1030000
EATD 47877000
deferred taxation 6900000
tax 120000
accumulated depreciation 22400000 22400000
trade payable 15700000
rental income 1600000
total liabilities 146824000
Interpretation: Above listed financial position of Rita Plc indicates assets and liability as
well as ability of the organisation in paying their shareholders. Hence, there will be calculations
over depreciation charged to various fixed assets such as Land and property, plant and machinery
etc. Which helps in finding favourable values of such assets. Thus, the balance lies between total
assets and liabilities is for 146824000.
P4 Calculation and presentation of financial ratios for industrial performance and investment
Particulars Formula Details
Amou
nt
GP ratios Gross profit/ net sales 93400000/285100000
0.3276
043
Net profit ratio net profit/ net sales 46547000/285100000
0.1632
655
Net operating
profit ratio operating profit/net sales 1960000/285100000
0.0068
748
operating Ratio COGS- operating exp/ net sales
191700000-
39500000/285100000
0.5338
478
Expense ratio expense/ net sales 39500000/285100000
0.1385
479
Return on
investment operating profit/capital employed 1960000/5000000 0.0392
Return on equity
Earnings after tax and PS dived. /
equity*100
47877000/5000000*10
0 958%
Return on total
assets operating profit/total assets 1960000/146824000
0.0133
493
quick ratio cash+ current assets/ current liabilities
34277000+37277000/5
1197000
1.3976
21
current ratio current assets/current liabilities 37277000/51197000 0.7281
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091
Interpretation: As per the above analysis of various financial ratios of organisation
which describes efficiency of firm in meeting long term or short-term debts, that the firm is
capable of paying its shareholders on required time. Gross profit ratios is around 0.32, net profit
is 0.16, operating profit is 0.006 and operating ratio is 0.53 which explains that firm has better or
positive earning throughout the year. Thus, the cost of selling an article is lower than profit
generated through sales of such goods. The current ratio of firm is 0.72 which says,company has
ability to meet its debts on time.
M 2 Interpretation of Financial ratios and statements in context with better decision making
On the basis of Rita Plc’s financial statements and ratios, this describes that the
organisation has made favourable earning throughout the years and has better gains in
millions. Hence, on the basis of above listed financial ratios the firm has ability to meet the
debts as well as has the better capital structure which in turn fruitful in paying shareholders
(Fraser, Ormiston and Fraser, 2010). Thus, it will be beneficial of the firm to gain the large
numbers of stakeholders or investors. There is need to expand the operational activities in
the industry as to maximises the sales or reduces the costs than it will be more profitable.
D 2 Suggesting organisations as per theories and models in context with solving the financial
problem
Theories of models has been used by various organisation in favour with making the suitable
financial decisions which in turn helps them in having better organisational control. Thus, it
can be suggested to Rita plc that they should introduce the current new techniques of
disclosing the financial statements such as integrated reports, CSR, sustainability reporting
(Daske and et.al., 2013). Hence, these techniques will be fruitful for the organisation in
having better cost control as well as generate the capital gains.
TASK 3
P 5 Explaining benefits of IAS and IFRS
To understand the better techniques for presenting the financial reports there has been
influence of International Accounting Standards as well as International financial reporting
standards (Mankin, Jewell and Rivas, 2017). Thus, such reporting techniques will help the
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professionals, accountants, auditor to make the favourable statements. There have been
various benefits such standards which are as follows:
International Accounting Standards (IAS): The motive behind introducing such
financial statements which in turns facilitating an internationally accepted financial
reporting standard (Ashraf, Rizwan and L’Huillier, 2016). Thus, know a day’s these
accounting standards have been adopted by various countries as well as many small-scale
industries are also using it. It helps the accounting professionals in the preparation of
financial statements with the help of internationally fixed framework. There have been
various benefits of such accounts which are as follows:
 It will be fruitful in improving capital flow as well as brings the transparency in
accounting process.
 It has been adopted by various countries so it becomes beneficial for organisation
to have international investors, so which in turn helps firm in having better capital
structure. It encourages the business interest as well as motivates the industries to make the
fruitful use of financial reporting.
International Financial Reporting Standards (IFRS): It was developed by the IAS board
in context with making a fix standard to be followed by every nation’s companies to
disclose financial statements with the help of principles (Salam, 2016). There have been
various benefits of these financial standards which are as follows:
 It helps in improving he corporate governance as well as encouraging the free cash
capital flows across the national boundaries.
 Encourages growth of international business with in turns increase the economic
efficiency of organisations.
 Data set of an industry prepared on international fixed standard which in turn helps
international investors to understand such information as well as enhances the
investment opportunities to a firm.
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P 6 Evaluating models of financial reporting and auditing
Models and various theories are designed as to have the better framework in regulating the
favourable financial functioning of the organisation. There has been implementation of
various standards as to form the better use or measurement of financial statement. Thus, in
turns with having the profitable outcomes hic will result in generating the large numbers of
stakeholders to the industry (Ioannou and Serafeim, 2016). Various models have been
implementing in force by GAAP with IFRS which in turn helps the organisation to fetch
the adequate knowledge relevant to financial reporting and its framework. Thus, such
reporting techniques help the accounting professionals to make beneficial auditing in
context with achieving the organisational profit.
M 3 Critically evaluating Financial reporting with Judgements and Conclusion
Coherent application of theories and models may be beneficial for the organisation in
having better or adequate financial reporting techniques but currently the concept of presenting a
report is totally changed. Thus, main focus is paid on having favourable numbers of stakeholders
of organisation in context with having better capital gains (Padachi, Ramsurrun and Ramen,
2017). Thus, it will be fruitful that, industry should have better capital structure but there will be
reduction in the operational performance of the firm. The corporate social responsibility is now
on existence that the value of employees is being replaced with various machineries and robotic
arms.
D 3 Criticised evaluation of IFRS and its application in various countries
Implication of these financial techniques is done as to make the better reporting with the use
of authenticated data and the favourable information. Thus, with adequate knowledge of the
financial position of an organisation there will be generation of favourable numbers of
stakeholders as well as helps in internal management (Bonetti, Magnan and Parbonetti,
2016). Various countries such as USA, UK, European countries as well as Asian countries
has adopted these concepts and they are making profitable efforts as to have better
operational functioning of the organisation.
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TASK 4
P 7 Evaluating the financial reporting across different countries
There has been evaluation of financial reporting techniques in early 1999 which in turn
access the requirements of the managers as well as stakeholders in the organisation. These
can be started with the use of four financial tools such as balance sheet, income statements,
cash flows and the equity calculations for owners (Leuz and Wysocki, 2016). Various rules
and standards are developed for the organisation for having better accounting techniques to
be used by organisational professionals such as Security Exchange Commission,
Extensible Business Reporting Language which in turn facilitate better organisational
communication between various companies. Thus, it helps firms in having better
investments as well as better goodwill in context with satisfying requirements of the
stakeholders.
M 4 Analysing the factors which influence reporting
There have been various factors with influence the use of IFRS standards in
presenting the reports. The influence of government and various stakeholders which in turn
affects the use of such techniques or methods presented by IFRS (Daske and et.al., 2013).
Various perceptions have been be made by big MNCs that the use of such methods is very
time consuming as well as it did not affect much in attaining the organisational growth.
CONCLUSION
As per above discussed report or study, it can be concluded that the financial reporting is a
technique or method through which a company can analyse the overall performance in the
assessment year. Thus, it facilitates better communication between organisations as well as
stakeholders. Hence, as per the financial findings of Rita Plc it can be said that the entity is
operating on the favourable state as well as having better operational growth. Further, it can
be said that, due to implication of various standards such as IAS and IFRS which in turn
helps accounting professional in preparing such data sets by facilitating the framework.
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REFERENCES
Books and Journals
Abbott, L. J. and et.al., 2016. Internal audit quality and financial reporting quality: The joint
importance of independence and competence. Journal of Accounting Research. 54(1).
pp.3-40.
Ashraf, D., Rizwan, M. S. and L’Huillier, B., 2016. A net stable funding ratio for Islamic banks
and its impact on financial stability: An international investigation. Journal of Financial
Stability. 25. pp.47-57.
Bishop, C. C., DeZoort, F. T. and Hermanson, D. R., 2016. The Effect of CEO Social Influence
Pressure and CFO Accounting Experience on CFO Financial Reporting Decisions.
Auditing: A Journal of Practice & Theory. 36(1). pp.21-41.
Bonetti, P., Magnan, M. L. and Parbonetti, A., 2016. The Influence of Country‐and Firm‐level
Governance on Financial Reporting Quality: Revisiting the Evidence. Journal of
Business Finance & Accounting. 43(9-10). pp.1059-1094.
Daske, H. and et.al., 2013. Adopting a label: Heterogeneity in the economic consequences around
IAS/IFRS adoptions. Journal of Accounting Research. 51(3). pp.495-547.
Flower, J., 2016. European financial reporting: adapting to a changing world. Springer.
Fraser, L. M., Ormiston, A. and Fraser, L. M., 2010. Understanding financial statements.
Pearson.
Ioannou, I. and Serafeim, G., 2016. The consequences of mandatory corporate sustainability
reporting: evidence from four countries.
Leuz, C. and Wysocki, P. D., 2016. The economics of disclosure and financial reporting
regulation: Evidence and suggestions for future research. Journal of Accounting
Research. 54(2). pp.525-622.
Mankin, J. A., Jewell, J. J. and Rivas, J. A., 2017. To Improve Financial Reporting, We Need to
Disclose More Relevant Information.
Padachi, K., Ramsurrun, V. and Ramen, M., 2017. Corporate Governance and Firms’
Performance of Mauritian Listed Companies. International Journal of Financial
Management and Reporting Analysis. 1(1). pp.1-26.
Salam, M. T., 2016. Understanding the Financial Behaviour of Digital Marketers.
Online
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CORPORATE GOVERNANCE ROLE IN FINANCIAL REPORTING. 2017. [Online]. [Available
through] <http://www.sciencedirect.com/science/article/pii/S1052045704170069>.
[Accessed on 14th October. 2017].
Financial Reporting and Governance. 2017. [Online]. [Available through]
:<https://www.icsa.org.uk/shop/books/ifa/financial-reporting>. [Accessed on 14th
October. 2017].
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