Financial Reporting: Standards, Stakeholders, and Financial Analysis

This report provides a detailed overview of financial reporting, beginning with its context and purpose, emphasizing the disclosure of financial information for various stakeholders. It examines the conceptual and regulatory framework, including key principles and qualitative characteristics of reliable financial information. The report identifies key stakeholders and assesses the value of financial reporting for organizational growth. It presents the main financial statements according to IAS 1, including the income statement, changes in equity, balance sheet, and cash flow statement, along with an interpretation of financial data through ratio analysis. The report also differentiates between IAS and IFRS, evaluates the benefits of IFRS, and determines the degree of compliance with IFRS, offering a comprehensive analysis of financial reporting standards and practices.

FINANCIAL REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Outlining context and purpose of financial reporting..............................................................1
2. Examining conceptual and regulatory framework with its requirements, purpose and key
principles along with qualitative characteristics for reliable financial information....................2
3. Identifying organization's main stakeholders with reference to financial information............4
4. Examining value of financial reporting for meeting organizational growth and objectives....5
5. Presenting main financial statements according to IAS 1.......................................................6
a) Income statement ....................................................................................................................6
b) Change in equity statement......................................................................................................7
c. Balance sheet............................................................................................................................7
d. Information that is provided by cash flow statement..............................................................9
6.Interpretation of financial data..................................................................................................9
7.Presenting difference between IAS and IFRS........................................................................11
8. Evaluation of Benefits of IFRS..............................................................................................12
9. Determination of degree of compliance with IFRS ..............................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Financial reporting has disclosure of financial information for numerous stakeholders
with reference to financial position and performance of any business entity over specified
duration. The financial aspects and accounting of every department are traced and reported to
different stakeholders. The consideration of number of stakeholders are engaged with other
regulatory or statutory requirements, where financial reporting is very essential and critical
activity of business entity. The present report will briefly discuss about objective of financial
reporting, interpreting financial statements along with appropriate evaluation of standards of
financial reporting and theoretical concept and models. This report will reflect international
variances among financial reporting. In the similar aspect, it will be representing financial
statements according to IAS 1 and reflect comparison of purpose of cash flow to other financial
statements and will interpret financial performance of Thomas Cook with reference to ratio
analysis.
1. Outlining context and purpose of financial reporting
Financial reporting is very essential with reference to world economies. Its main
objective is to give useful and relevant information to organization's owners with context of
division among control and ownership of that particular business entity. Its occurrence is in
usually public limited organizations where share capital is pass to public via stock market or
exchange system. The shareholders which are diverse and potentially geographically dispersed
which does not engage in company's management as they appoint directors for performing on
their behalf. The annual statement had been received through owners for summarising company's
position and performance for assessing about investment which has been performed during
reporting period (Amiram and et.al., 2018).
Financial reports are referred as records and documents which are gathered for review
and track amount of money created by business or not. Its main objective is to deliver
information to share owners and lenders for business. The investors and lenders have right for
considering each information about how money is spent and returns to margin. With absence of
reporting system investors would be inclined less towards contribution of capital without
monitoring in effective aspect that hoe business entity is operating through directors and
appointed organization's steward who are directly supposed for operating in shareholder's best
interests.
1

With context of accomplishing requirements of users of financial statements,
organizations directly implement with accounting systems for giving appropriate information. It
is mandatory that system must be regulated for ensuring information provided to particular users
in proper format and is useful for their requirements. It is attained with framework of financial
reporting on basis of conceptual framework.
2. Examining conceptual and regulatory framework with its requirements, purpose and key
principles along with qualitative characteristics for reliable financial information
The conceptual framework with context of financial reporting has directly underpinned
financial statements' preparation as it reflects ideas, principles and concepts with reference to
International Financial Reporting standards on basis of financial statements. It comprises
objectives of financial reporting, qualitative features, recognition and measurement of elements
through its construction. The concept of capital and capital maintenance along with accruals and
going concern. The regulatory framework has various elements in accounting. It considers
regulatory structure such as National law, Security exchange rules, National financial reporting
standards and market regulations.
2

Illustration 1: Conceptual and Regulatory
framework
(Source: Conceptual Framework for Financial
Reporting, 2018)
A regulatory framework with financial statements' preparation is required for different
reasons as it ensures need of different users of financial statements which are accomplished with
minimum information. Providing en-surety about giving information in economic arena which is
consistent and comparable. It raises confidence in users with process of financial reporting. The
behaviour of organizations are regulated and directors with context of investors. The qualitative
characteristics with application of financial reporting for determining kind of information which
is useful for undertaking decisions about specific reporting entity with reference to information
in financial report.
Financial information is useful when it is relevant and shows faithful for representing. It
is enhanced when it is verifiable, understandable and timely as well. Faithful representation and
relevance are referred as fundamental characteristics which is elaborated below:
 Relevance: The financial information must be capable for creating variation in decisions
undertaken by users if they have presence of predictive, confirmatory or both value.
3

 Faithful representation: It signifies substance representation of economic phenomenon
rather than showing legal form.
To enhance qualitative characteristics it should be comparability, verifiable, timely and
understandability makes representation in faithful manner which are elaborated below:
 Comparability: It enables users for determining and understanding similarities and
variations.
 Verifiability:The information should be represented faithfully economic phenomena as
it directly purports for representing.
 Timeliness: The availability of information for decision makers with capability for
influencing decisions (Stubbs and Higgins, 2018).
 Understandability: The information should be clear and concise with appropriate
classification, presenting and characterising.
3. Identifying organization's main stakeholders with reference to financial information
The stakeholder of organization with context to financial information are stated below:
 Owners and investors: The corporation's stockholders has requirement of financial
information to help for decision with context of investment that is to hold, buy or sell
more. The investors have requirement of information for assessing potential for
profitability and success. In the similar aspect, owners of small business has requirement
of financial information for identifying business is profitable or not.
 Management: Management considers owners especially in small business. On the
contrary, in big organization it is usually formed with hired professionals which are
entrusted with business operations with proper responsibility. They are considering as
agents of the owners.
 Trade creditors or suppliers: The organizations' capability for repaying its obligations
which are due as they are interested for liquidity of company for writing short term
obligations.
 Government: The tax authorities are interested for financial information of organization
with objective of taxation and regulatory aspect. Taxes are directly computed on basis of
operations outcome along with other tax base.
 Employees: These are considered as very important stakeholders of organization with
stability and profitability of organization. Usually, they are after capability of
4

organization for paying shares and to give employee benefits. They might be interested in
financial position and performance for assessing expansion of organization with its
possibilities and opportunities for development of career.
 Customers: With involvement of contract or long term among company along with its
customers, these stakeholders are highly interested in ability of company for continuing
existence and stability of its operations.
4. Examining value of financial reporting for meeting organizational growth and objectives
The financial reporting could not be over emphasized as it is essential for every
stakeholder for various purpose and reasons. The financial reporting is important for attaining
organizational growth and objectives which are stated below:
 The business entity will directly comply with different regulatory requirements as they
have need of financial statements to specific government agencies. If companies are
listed, then there is need of quarterly and annual outcome must be filed to published and
stock exchanges.
 It would be directly facilitating statutory audit along with need of auditing organization's
financial statement for expressing opinion.
 Financial reports are formed as considered as backbone with reference to financial
planning, benchmarking, decision making and used with objective of numerous
stakeholders (Objectives of financial reporting, 2018).
 It helps business entity for increasing capital both overseas and domestic as well.
 In the similar aspect, for objective of labour contract, bidding and government supplies
etc. business has requirement of furnishing financial statements and reports.
5

5. Presenting main financial statements according to IAS 1
a) Income statement
6

b) Change in equity statement
c. Balance sheet
7

8

d. Information that is provided by cash flow statement
The cash flow statement of a business provide information regarding the actual cash in
flow and outflow of the business. This means what are the expenses done with actual cash
payments and the amount which is actually received in cash not in accrual terms. With this
information the cash availability with the business is determined.
6.Interpretation of financial data
9

Interpretation:
Profitability ratio:
These are the ratios which represent the level of profits earned by the organization and
profits earned on capital employed and investments of the firm (Miller-Nobles, Mattison and
Matsumura, 2016). The above data is of Morrison retail store. From the above data it can be
interpreted that the sales and revenue of the business have increased from 2016 to 2017. Gross
profit and net profits ratios have slightly declined but return on capital employed have increased
by almost 30%.
Liquidity ratios:
These ratios represent the cash availability with Morrison in immediate future. The
current and quick ration both have decreased from 2016 to 2017 and this shows that the fall in
current assets more than the fall in current and quick assets of the firm.
10