Financial Reporting Analysis: IAS, IFRS, and Lloyds Banking Group

This report offers a detailed analysis of financial reporting, encompassing its context, purpose, and the frameworks that govern it, including both conceptual and regulatory aspects. It explores the roles and benefits of financial information for various stakeholders, examining how financial reporting contributes to organizational objectives and growth. The report delves into the preparation and presentation of key financial statements, such as the income statement, statement of retained earnings, and balance sheet, adhering to IAS 1 guidelines. Furthermore, it provides an interpretation of financial statements, using Lloyds Banking Group as a case study, and compares international accounting standards (IAS) with international financial reporting standards (IFRS). The benefits of IFRS are highlighted, along with an assessment of global compliance levels. The report concludes with a summary of the key findings and references.

FINANCIAL
REPORTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
1. Context and Purpose of financial reporting:............................................................................1
2. Conceptual and Regulatory Framework:.................................................................................2
3. Main stakeholders of an organisation and explain how they benefit from financial
information:..................................................................................................................................4
4. Value of financial reporting for meeting organisational objectives and growth:....................4
5. Preparation and presentation of main financial statements as per IAS 1:................................5
6. Interpretation of financial statements of a company which is listed in FTSE 100.:................9
7. Comparison of international accounting standard (IAS) and international financial reporting
standard (IFRS)..........................................................................................................................12
8. Benefits of IFRS (International Financial Reporting Standards)...........................................12
9. Degree of compliance with IFRS by organisation across the world......................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Every commercial entity or organisation preserve and maintain specific set of accounting
and other business records with respect to accounting or financial period which are
comprehensive and combines crucial fiscal events/transaction that are occurred in enterprise.
This is compulsory for different corporations to expose and provide crucial information to
stakeholders whether internal or external (Abeysekera, 2013). For ensuring consistence and
support comparability, following the process of financial reporting is quite essential by applying
specific formats, assumptions and core principles across the globe. These are commonly
regarded as International Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS).
This study report seeks to highlight the main context and basic purposes of entire process
of financial reporting, contains key advantages and manners related ensuring proper
compliances, fixing accountability and core principles. In addition, multiple countries have
analyzed to address for anomalies in Financial Reporting Standards. In this context, a client
named Lloyds Banking Group of accounting firm Grant Thornton Accountancy has been
chosen. Lloyds Banking Group belongs to FTSE 100 group and a leading retail banking
corporation, headquartered in London City, United Kingdom (Representative Client List of
Grant Thornton, 2019). The group is engaged in providing banking services as well as related
financial services to different client across the world.
TASK
1. Context and Purpose of financial reporting:
The word ' Financial Reporting' could be described as presentation and communication of
fiscal information to distinct key stakeholders. Financial reporting is wider aspect which involves
different reports in a specific format to communicate meaningful and relevant information for
different users. Financial reporting process is mainly used in context of companies specially
listed companies in public have invested funds (Albu and Albu, 2012). Main purpose of it is to
support management in effectively reporting the actual financial performance to different
interested parties which are generally known as stakeholders. This entire process is focused on
different standards, guidelines and assumptions which are universally applied by different
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corporation belongs to different nations. So another major purpose of financial reporting is make
uniformity in accounting practices and presentation of financial statements.
2. Conceptual and Regulatory Framework:
Financial reporting provides two key frameworks for achieve uniformity in accounts
prepared and practices applied. These frameworks are widely applied by different-different
corporations form different geographical locations to attain easiness in financial reporting.
Conceptual and Regulatory are 2 major kind of framework which are used by corporation like
Lloyds Banking Group. Here is a comprehensive discussion of these frameworks in context of
respective corporation, as follows:
Conceptual framework:
The principles of financial reporting are described together with a concrete framework to
aid in the implementation of different standards. The structure is therefore needed to allow
Lloyd's management to build a solid theoretical basis to calculate, present and convey to its
various stakeholders, effectively, the different financial activities they conduct. A conceptual
structure can specifically be used as a declaration of General Acceptable Accounting Principles
(GAAP) in light of financial reporting (Botzem, 2012). These framework serve as the guideline
and benchmark for evaluating and improvising company's existing accounting practices. Failure
to create such kind of framework will enhance the prevalence and the no. of accounting
irregularities significantly through misuse of profits. So, a conceptual framework aid in:
 Development and adoption of future or potential standards;
 Promoting coherency among accounting rules/regulations and specified standards;
 Formation and effective presentation of corporation's Financial Statements to their crucial
stakeholders.
The financial reporting's conceptual framework allows for the preparing and
presentations of financial statements adopted by the IASB as collection of accounting rules. The
conceptual framework relates to the development and decision-making of accounting data to
meet user requirements. Throughout preparation of accounting reports, the conceptual
framework helps to define "best practice."
Regulatory Framework:
A regulatory framework, as its name implies, defines the way wherein financial
information reporting is conducted worldwide among corporations. It emphasises on governance
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over different reporting process and practices. Towards this, the International Accounting
Standards Board (IASB) is a main regulatory body is established which is responsible for
issuance of financial reporting standards, encourage collaboration, investors engagement and
maintaining transparency in financial reporting. IASB offers set of standards for accounting and
financial reporting which are required to follow for corporations which are reporting globally.
The framework is required to ensure that critical information is conveyed sufficiently to core
stakeholders in case of Lloyd to satisfy their requirements. A collection of guidelines and
instructions for preparing financial statements is considered to be regulatory accounting
framework Under these guidelines, the financial statements can be evaluated easily by the
bookkeepers. International accounting standards, corporate legislation and the formal structure
for financial reporting are part of the entire regulatory framework (Davies and Green, 2013).
Moreover, following is explanation about how qualitative characteristics supports
reliability of information:
Qualitative characteristics of Information
Type Components Description
Fundamental Faithful
representation,
Relevance,
It means that financial information should be accurate
and complies with legal parameters, is bug-free, detailed
and impartial.
Enhancing Timeliness,
Comparability,
Understandability
, Verifiability.
These characteristics suggest that the financial
information should be credible, worthy of facilitating
optimal decision-making processes for users and easy to
understand.
In context of company Lloyd's Banking Group, Incorporation of such features allows to
improve the accuracy present in fiscal information reported during particular period. In addition,
the transparency of the financial reporting system maintains the reputation of companies like
Lloyd is protected at all times, enhances organizational efficiency and safeguards the interests of
different stakeholders. This is done by complying with various existing rules and regulations as
well as those applicable to the business. Ensuring good corporate governance allows boost the
precision, efficiency, subjectivity, and other qualitative features. Therefore, ensuring that every
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form of misrepresentation or mistake is avoided from happening, and successful internal controls
are preserved (Eccles, Krzus, Rogers and Serafeim, 2012).
3. Main stakeholders of an organisation and explain how they benefit from financial information:
Type of
Stakeholders
Constituents Purpose and Benefit for using financial information
Internal Owners,
Management,
Employees
These are the stakeholders who are primarily connected with
development of different strategical policies which assist in
achieving of organizational targets, objectives and performance
growth. They generally utilise the financial information for
critical business decision-making. For making internal policies
regarding fixing roles and responsibility financial information
are used by owners and management. Further, for instance
employees use financial information to assess the company's
potential growth with aim to ensure their employment status
growth.
External Government,
Creditors &
Suppliers,
Competitors,
Customers
They are external parties and have direct impact on company's
decisions. Through financial information they derive details
about company's actual position in position with aim to
determine whether company is capable enough to fulfil their
respective interests related to company. For instance,
Government use financial-information to ensure collection of
corporate taxes, creditors & supplies using financial-
information determine that whether company is capable to
make repayment of dues. Customers utilize financial-
information to determine brand value of company while
competitors through financial information of company
formulates their competitive strategies (Ikpefan and Akande,
2012).
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4. Value of financial reporting for meeting organisational objectives and growth:
Financial reporting is crucial aspect of every entity's organisational structure as it defines
the performance growth and goals. It involves all the major financial and accounting elements of
an organisation which support management in taking decisions and setting goals. As in
corporation Lloyds Banking Group, managers through financial reporting determine their current
performance and capabilities, which further assist them in achievement of targeted growth and
pre-determined objectives. With the help of income statement, stakeholders able to evaluate the
overall profit of the company for the accounting period. Along with this, it provide the clear
understand that how much expenses company occur due to production or administration period.
In addition, with the help of balance sheet, external parties able to analyse the financial position
of the company and attract potential investors who can invest in the business or maximise the
liquidity of the organization. So with the help of financial reporting, business able to achieve
organizational goals & objectives (Leuz and Wysocki, 2016).
5. Preparation and presentation of main financial statements as per IAS 1:
(a) Income Statement:
GODWIN PLC.
Statement of Profit and Loss for the year ended December 31, 2018
Particulars £'000
Revenue 585100
Rental Income from Investment Properties 9600
Total Revenue 594700
Less: Cost of Sales(WN2) 403638.75
Earnings before interest and tax 191061.25
Less: Operating Expenses(WN3)
92138.75
Operating Profit 98922.5
Less: Bank Interest -1200
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Profit before tax 97722.5
Less: Taxation Charge -9500
Net Profit after Tax 88222.5
Revaluation Gain/Loss -
Total Comprehensive Income 88222.5
Workings:
Inventory Valuation
Particulars £'000
Value of Damaged Goods (A) 2470
Fair value of such goods 2670
Less: Remedial Work Costs -500
Net Realisable Value (B) 2170
Net increase in Cost of Sales (A) – (B)(WN1) 300
Cost of Sales to be shown in P& L account
Particulars £'000 £'000
Cost of Sales (as per trial balance) 391700
Net increase in cost of sales (WN1) 300
Depreciation on Non-Current Assets:
Property 2968.75
Plant and Equipment 8670 11638.75
Total 403638.75
Operating Expenses to be shown in P& L account
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Particulars £'000 £'000
Operating Expenses (as per trial balance) 80500
Depreciation on Non-Current Assets:
Property 2968.75
Plant and Equipment 8670 11638.75
Total 92138.75
(b) Statement of Retained Earnings:
Statement of Changes in Equity for the year ending on December 31, 2018
Particulars
Ordinary Share
Capital (£'000)
Revaluation
Reserve (£'000)
Retained
Earnings (£'000) Total (£'000)
Amounts As per
trial balance 86700 40000 45500 172200
Net Profit after
Tax - - 88222.5 88222.5
Preferential
Dividend - - -2500 -2500
Ordinary
Dividend - - -4500 -4500
Total 86700 40000 126722.5 253422.5
(c) Balance Sheet:
Statement of Financial Position as at December 31, 2018
Assets £'000 £'000
Non-Current Assets:
Land and Property 144062.5
Plant and Equipment 98260
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Investment Property 28000
Total Non-Current Assets 270322.5
Current Assets:
Closing Stock of Inventory 24700
Trade Receivables 78000
Total Current Assets 102700
Total Assets 373022.5
Owner's Equity and Liability
Equity:
Ordinary share capital 25p. Shares 86700
Revaluation Reserve 40000
Retained Earnings 126722.5
Total Equity 253422.5
Non-Current Liability:
10% Redeemable Preferential Share Capital £1 26500
Deferred Taxation 10000
Total Non-Current Liabilities 36500
Current Liability:
Trade Payables 62700
Bank Overdraft 10900
Tax Payables 9500
Total Current Liabilities 83100
Total Equity & Liabilities 373022.5
Workings:
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Determination of Balances of Non-Current Assets
Non-Current Assets
Land &
Property
(£'000)
Plant &
Equipment
(£'000)
Investment
Property (£'000)
Amounts as per trial balance 150000 148000 28000
Accumulated Depreciation -32400
Current Depreciation -5937.5 -17340
Balance carried forward 144062.5 98260 28000
Closing Stock Amount to be transferred to Statement of Financial Position
Closing Inventory 25000
Less: Cost of Damaged Goods -2470
Add: Net Realisable Value 2170
Amount transferred to Balance Sheet 24700
(d) Type of information that cash flow statement provides in comparison to P&L and
statement of financial position:
Cash flow, P&L and Balance sheet are major financial statements of business which
individually and aggregately shows different financial aspects of business. All these statements
have different features and use in business context. A cash-flow statements consists of all the
cash expenditures and receipts of business during a particular period without considering accrual
of transactions. While income-statement or Profit or loss account revels the business gross and
net profit position over a particular time-period. On other hand, statement of financial-position
presents balance of different-different assets and liabilities as on specific period. P & L account
and balance sheet are prepared on the basis of accrual concept while cash-flow statement is
prepared by accountant based on cash concept. There is lack of substance found in interpretation
of cash flow (Liu, 2013).
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6. Interpretation of financial statements of a company which is listed in FTSE 100.:
For this task Unilever company has been selected which is a listed FTSE100 corporation.
Here following is interpretation of financial statements of company through financial ratios, as
follows:
Liquidity ratio- This is a form of ratio required to measure corporations' liquidity status
over particular period. Through measuring this ratio corporations can determine adequateness of
liquid funds with respect to day-to-day operational activities (Marimon, del Pilar Rodríguez and
Alejandro, 2012). This ratio comprises of several ratios forms, as discussed below:
Current ratio- This is a kind of measure that is determined to assess the
relationship/connection among current assets and current-liabilities. As this ratio's formula
comprises proportion among Current assets and current-liabilities. A current ratio of 2 and
above is considered as good that means current-liabilities should be at least 2 times of current-
asserts. In this regard, below is current ratios of Unilever as follows:
Particular 2018 (in £) 2017 (in £)
Current assets 15481 16983
Current liabilities 19772 23177
Current ratio 0.78 0.73
Interpretation: During both of the year, company's current ratio is below the standard
criteria but from year 2017 to year 2018, current ratio of company has been improved. This
increasing trend in current ratio is indicator that Unilever's short-term liquidity position has been
enhanced over the period (About Financial information of Unilever, 2019). However, company's
current ratio is not adequate as compare to standard threshold.
Quick Ratio: It is the liquidity ratio which help the organization to evaluate company's
liquidity position for the specific period of time. It is also called acid test ration, in this financial
ratio company compare those assets which is easily converted into cash with the current liability
in order to meet business obligations. Quick ratio has 1:1 ideal ratio that means business should
have equal amount of current assets to pay off their current liabilities. Below mention ratio
calculation based on the financial information of Unilever company:
Particulars 2018 (in £ ) 2017 (in £ )
Quick assets 10487 12569
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