International Financial Reporting: Analysis, Evaluation, and Standards

This report provides a comprehensive analysis of international financial reporting, focusing on the regulatory frameworks, conceptual frameworks, and governance aspects. The report examines the purpose of financial reporting in meeting organizational goals, development, and growth, highlighting the needs of various stakeholders such as owners, management, creditors, and customers. It delves into the interpretation of profit & loss, cash flow, and balance sheet statements, providing an example using Godwin PLC and includes the analysis of statement of retained earnings. Furthermore, the report explores the benefits of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and assesses financial reporting and auditing models. The report also evaluates the differences and importance of financial reporting in various countries, using Lloyds Banking Group as a representative example. The report provides detailed financial statements including income statement, statement of retained earnings and balance sheet for Godwin PLC, demonstrating the application of financial reporting principles. It aims to provide a clear understanding of the financial reporting landscape.

INTERNATIONAL
FINANCIAL
REPORTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Evaluating regulatory frameworks and governance in the context of financial reporting....1
P2. Analysis of Financial Reporting Purpose for meeting organisational goals, development
and growth...................................................................................................................................3
TASK 2............................................................................................................................................4
P3. Interpretation of Profit & Loss, Cash Flow and Balance Sheet Statements..........................4
P4. Calculation of financial ratios and their presentation............................................................7
TASK 3............................................................................................................................................8
P5. Benefits of International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS).........................................................................................................8
P6. Assessing the models of Financial Reporting and Auditing................................................10
TASK 4..........................................................................................................................................11
P7. Evaluating the differences and importance of financial reporting in various countries......11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13
APPENDICES...............................................................................................................................14

INTRODUCTION
Every business enterprise has a set of book-keeping records for each accounting period that
are inclusive of important financial transactions which the organisation undertakes over the
course of its life. It is mandatory for the companies to disclose such information to both internal
as well as external shareholders. In order to ensure consistency and promote comparability,
financial reporting is mandated to be followed using certain formats and principles all around the
world. These are popularly known as International Financial Reporting Standards (IFRS) and
International Accounting Standards (IAS).
This project report aims to outline the context and purpose of financial reporting,
provides benefits and methods of ensuring compliance and accountability as well as evaluate key
principles. Also, different countries have been evaluated to account for deviations in Financial
Reporting Practices. For this purpose, Grant Thornton Accountancy Firm's client Lloyds
Banking Group has been taken into account which is an FTSE 100 retail banking company
headquartered in UK (Representative Client List of Grant Thornton, 2019). It provides banking
as well as financial services to its client on a global scale.
TASK 1
P1. Evaluating regulatory frameworks and governance in the context of financial reporting
The term 'Financial Reporting' can be defined as the presentation as well as
communication of financial records to the relevant key stakeholders. Usually financial reports
are issued in the form of Income Statements, Balance Sheet and Cash Flow Statements among
others, based on the policies and nature of business. Thus, there issuance may differ from
organisation to organisation. Every organisation including Lloyd's Banking Group is required to
comply with the conceptual as well as regulatory frameworks of financial reporting. These have
been discussed as under:
 Conceptual framework:
These aim to define the objectives of financial reporting along with acting as a practical
tool that helps in formulation of various Standards (Abeysekera, 2013). Hence, this framework is
required to enables Lloyd's management to develop a strong theoretical foundation so that they
are able to easily measure, present and communicate the various financial transactions
undertaken by them to their key stakeholders. In the context of Financial Reporting, a conceptual
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framework can be mainly observed as a statement of Generally Accepted Accounting Principles
(GAAP). These principles act as a measuring yardstick as well as point of references in order to
compare and improvise current accounting practices of a company. Lack of such a framework
can lead to a substantial increase in proliferation as well as number of accounting scandals
through misappropriation of profits. Thus, conceptual framework assists in:
 Development of future standards;
 Promoting coherence between accounting regulations as well as standards;
 Preparation and Communication of Financial Statements to the identified key
stakeholders.
 Regulatory Framework:
As the name suggests, the regulatory framework determines the manner in which
reporting of financial information is carried out among organisation on a worldwide scale. For
this purpose, International Financial Reporting Standards (IFRS) is one such body which aims to
encourage collaboration, investor engagement and transparency in due process (Albu and Albu,
2012). This framework is necessary for ensuring that the communication of relevant information
to Lloyd's key stakeholders is made in such a way that their needs are fulfilled adequately. Some
of the most important IFRS are as follows:
 IFRS 1: First- time Adoption of International Financial Reporting Standards
 IFRS 10: Consolidated Financial Statements
 IFRS 12: Disclosure of Interest in Other Entities
 IFRS 13: Fair Value Measurement
The main purpose of conceptual framework is to facilitate understanding and revision of
both GAAP as well as IFRS. On the other hand, the qualitative characteristics of financial
information can be divided as:
Type Components Description
Fundamental Relevance,
Faithful
representation
These characteristics imply that the financial information
is material, conforms to legal guidelines, free of errors,
complete and neutral.
Enhancing Comparability,
Verifiability,
These characteristics imply that the financial information
is capable of promoting timely decision-making practices
2

Timeliness,
Understandability
for its users, authentic, measurable with similar entities
and easy to understand.
Inclusion of such characteristics helps in the enhancement of reliability present in the
financial information that is reported for a given period by Lloyd's Banking Group. Additionally,
the governance of financial reporting process ensures integrity of organisations such as Lloyd
is safeguarded at every stage, improves corporate performance as well as protects stakeholders'
interests (Botzem, 2012). This is achieved through the compliance of various laws and
legislations prevalent as well as applicable on the company. Ensuring strong corporate
governance helps in enhancing the accuracy, reliability, materiality and other qualitative
characteristics. Thus, ensuring that any kind of misappropriation or error is prevented from
occurring and internal control is maintained in an effective manner.
P2. Analysis of Financial Reporting Purpose for meeting organisational goals, development and
growth
The essential purpose of financial reporting is to present and communicate crucial
information regarding corporate operations, performance, financial position and cash flows in a
predefined format. Also, it aims to enable comparability and standardization of information
across all industries so as to enhance strategic decision-making practices (Davies and Green,
2013). In the context of Lloyds Banking Group, this information is utilised by various
stakeholders of the organisation for different purposes. The main stakeholders of Lloyds have
been identified as under:
Type of
Stakeholders
Constituents Purpose and Benefit for using financial information
Internal Owners,
Management,
Employees
These stakeholders are chiefly concerned with the formulation
of strategic policies that cater to the fulfilment of organisational
goals, development and growth. For instance, the employees
are interested to know whether or not the business is
performing well and is capable enough to pay them salaries.
While owners and management are interested in knowing the
financial performance and profitability so as to determine the
future course of action.
3

External Government,
Creditors &
Suppliers,
Competitors,
Customers
These users of financial information are interested in knowing
whether or not Lloyds Bank is:
 Complying with legal guidelines in its operations
(Government);
 Capable enough to repay its liabilities within the
stipulated time (Creditors & Suppliers);
 Analyse the strategies and future plans of the bank so as
to compete effectively (Competitors);
 Profitable enough to give higher return in form of
interest to the account holders (Customers).
In order to ensure that such needs are met in full, Lloyds need to take care of all
stakeholder requirements while preparing the financial reports. Additionally, the bank also needs
to keep in mind that the communication of information is done with due diligence and
transparently as it will enable them to seek investment or funding, formulate future plans or goals
and achieve their vision in an organised manner.
TASK 2
P3. Interpretation of Profit & Loss, Cash Flow and Balance Sheet Statements
(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
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Operating Profit 98922.5
Less: Bank Interest -1200
Profit before tax 97722.5
Less: Taxation Charge -9500
Net Profit after Tax 88222.5
Revaluation Gain/Loss -
Total Comprehensive Income 88222.5
The above statement indicates a detail break-up of revenue through matched costs so as
to determine the Operating Profit, Net Profit as well as the Total Comprehensive Income earned
by the Godwin PLC for the year ended December 31, 2018. From the above statement, it can be
ascertained that £8,822,500 is the net profit earned by Godwin PLC during the year. Here, the
cost of sales £403638.75 is inclusive of 50% depreciation on non-current assets as well as impact
incurred due to the sale of damaged goods.
(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
5

The above statement indicates a detail break-up of equity changes by bifurcating Equity
into Ordinary Share Capital, Revaluation Reserve as well as Retained Earnings. From the above
statement, it can be ascertained that £8,822,500 is the net profit earned by Godwin PLC during
the year which has been completely retained. Whereas the preferential as well as ordinary
dividend worth £2,500 and £4,500 respectively have been paid to the investors from the retained
earnings itself.
(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
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
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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
A financial position statement helps in giving an overall view of the business at a given
point of time. The above statement shows a complete break-up of assets, liabilities as well as
owner's equity in a detailed manner so as to enable the user of this information to understand key
short-term and long-term stances of Godwin PLC effectively. Utilising this statement, additional
information can be derived in relation to liquidity, working capital requirements and capital
structure of Godwin. For this purpose, current assets and liabilities, owner's equity and non-
current liabilities will be considered.
Hence, the aforementioned statements help in communicating a specific type of financial
information to key stakeholders as well as the management which enables them to make
informed decisions from both short-term and long-term perspectives. Additionally, company
may also undertake to prepare another financial statement known as 'Cash Flow Statement'
(Eccles and et.al., 2012). This report communicates a detailed account on the applicability as
well as sources of funds that are available to the business. Mainly, it includes cash flow from
operating, investing and financial activities undertaken by the business for a given period. Thus,
helping the users to know exactly where their money is being invested to increase the overall
profitability and returns.
P4. Calculation of financial ratios and their presentation
Financial Ratios of any business enterprise facilitates the determination of corporate
performance. They enhance comparability and give a quick view about how well the business
did in comparison to previous or any other financial periods. In the context of given case
scenario, key financial ratios for Lloyds Banking Group have been calculated and presented as
follows:
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(a) Profitability:
Particulars 2018 (£'mn) 2017 (£'mn)
Net Income 4400 3547
Sales 17768 17472
Net Profit Ratio 24.76% 20.30%
The Net profitability ratio, as the names suggests, is related to the determination of
bottom-line earnings after adjustment of depreciation, taxation and interest charge has been taken
into account (Annual Report, 2018). One can clearly see that there has been a significant increase
in the net profit of the business. With an increase in sales by 1.69% (=(17768-17472)/17472), the
net profit increased by 24.04% (=(4400-3547)/3547) which is a significant rise from 2017. Thus,
giving an overall improvement of 21.97% (=(24.76%-20.30%)/20.30%) in the net profitability of
Lloyds Banking Group between 2017 and 2018.
(b) Liquidity:
Particulars 2018 (£'mn) 2017 (£'mn)
Current Assets 1959 2269
Current Liabilities 1342 3430
Current Ratio 1.46 .66
Another important financial ratio is the current ratio. As per Lloyds recent annual report,
the current ratio rose from 0.66 to 1.46. This increase of 0.80 points in the current ratio can be
attributed to the decrease in Current liabilities held by the Bank in the 2018. Thus, showing that
the overall liquidity has increased significantly.
(c) Gearing:
Particulars 2018 (£'mn) 2017 (£'mn)
Total Liabilities 27779 18309
Shareholder's Equity 38634 37869
Debt-Equity Ratio .72 .48
Debt-Equity Ratio is a type of gearing ratio which helps in seeking the capital structure of
an organisation. In the context of Lloyds Banking Group, there has been an evident increase of
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51.72% (=(27779-18309)/27779) in total liabilities. Thus, improving the Debt-Equity Ratio by
0.24 points for the Bank. This indicates that the company has become more reliant on external
financing in comparison to 2017. Thus, increasing its overall financial leverage.
One can conclude that all these ratios are used to interpret and communicate financial
performance of Lloyds Banking Group by addressing specific areas such as leverage,
profitability and liquidity that are relevant in effective measurement of its overall corporate
performance (Ikpefan and Akande, 2012).
TASK 3
P5. Benefits of International Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS)
International Financial Reporting aims to inculcate standardization and create the
communication of important financial information as a global language that can be understood
by anyone all around the world. In this context, it is paramount to consider the Accounting
Standards (IAS) that ensure generalization of treatment regarding financial items as well as
Financial Reporting Standards (IFRS) which helps in their effective communication to various
stakeholders.
The main difference between these two components has been depicted in the following
table:
Basis of
Differentiation
International Accounting Standards
(IAS)
International Financial Reporting
Standards (IFRS)
Definition These can be defined as a set of
globally agreed standard principles
and procedures which govern how the
companies present as well as
communicate financial information to
their international clients (Leuz and
Wysocki, 2016).
Such standards are referred to those
guidelines which have been developed
to promote a common accounting
language worldwide, specifically in
relation to the presentation and
communication of company accounts
to various stakeholders.
Issuing
Authority
International Accounting Standards
Committee (IASC)
International Accounting Standards
Board (IASB)
9

Both IAS and IFRS aim to make the process of financial reporting easier, however, IAS
is a predecessor of IFRS which were introduced all around the world in 2001. Although, in
present day scenario, both the components are combined and utilised by different organisations
to enhance transparency and understandability within their financial statements. Keeping this
mind, benefits of both IAS and IFRS have been explained as under:
 Benefits of IFRS:
One of the main advantages of adopting IFRS is that it eliminates the hassle of
conforming to specific needs of different countries (Liu, 2013). For instance, Lloyds is a
multinational organisation, conforming to all the rules and regulations of various countries would
create a lot of confusion and disparity among its financial reports. Thus, adoption of IFRS would
ensure that all the important aspects have been accounted for in its reports and enable Lloyds'
stakeholders to understand its profitability and performance in a similar manner all around the
world. Thus, reducing time, effort and expense incurred on preparation of such reports.
 Benefits of IAS:
The chief benefit of International Accounting Standards is that it ensures a unified code
of ethics to be followed across all cultures of the world. Thus, enabling simplification of disputes
and enhancement of legal compliance as well as governance all around the world. Suppose
Lloyds enters into a dispute in a country where bribery is a rule of thumb, hence, implementation
of IAS would ensure that proper amount of transparency and internal control is prevalent in its
financial reports. This would safeguard Bank's interest from the diverse legal structures of that
particular country itself.
Thus, implementation of both IFRS and IAS is beneficial, specifically, for any
organisation that has its operations spread on an international scale.
P6. Assessing the models of Financial Reporting and Auditing
Both Financial Reporting and Auditing include a wide variety of models that help in the
assurance as well as communication of important financial information in a proper manner.
These models have been assessed as under:
Financial Reporting Models:
 Three Statement Model:
One of the most basic model of Financial Reporting is the Three Statements Model which
includes preparation of Statements relating to Financial Position, Cash Flows and Income &
10

Expenditure. The main objective of this model is to create synchronization among the financial
information presented to the stakeholders (Marimon and et.al., 2012).
 Discounted Cash Flow (DCF) Model:
Based on the previous model, this framework aims to gain valuable insights in relation to the
enterprise value. Through the implementation of various appraisal methods such as Net Present
Value (NPV), the business is able to forecast its future cash flows and formulate important
capital budgeting decisions. Thus, enabling the organisation to undertake only those projects
which prove to be highly profitable from a long-term perspective.
Auditing Models:
 Verification:
Auditing ensures the verification of different financial information that is accounted for in the
books of the enterprise. This is usually achieved through physical examination, vouching and
analysis of financial statements (Melé, Rosanas and Fontrodona, 2017). Thus, enabling the
business to improve reliability of information communicated to the stakeholders along with
exercising proper internal control over any kind of deviation occurring in its reports.
 Reconciliation:
Verification and Reconciliation are two complementary models of auditing that allow the
business managers to confirm that the figures included in various financial reports are correct
and coherent. If any sort of deviation is discovered by the auditor, they can be resolved through
reconciliation of relevant accounts in a quick and economical manner (Nobes, 2014).
TASK 4
P7. Evaluating the differences and importance of financial reporting in various countries
Financial Reporting is important for each and every stakeholder and business
organisation alike. It acts as a support system in the process of planning, forecasting, organising,
controlling and communicating necessary financial information to the stakeholders which require
such insights to fulfil different purpose. Additionally, it also facilitates due compliance with
various statutory bodies belonging to various countries. The main reason behind the differences
occurring in the financial reporting across various economies is because the frameworks
followed by them before IFRS introduction are quite complex (Zeff, 2013).
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For this purpose, some countries have inserted IFRS by way of amendments without
replacing the existing law with a new one. For instance, South Africa mandates adoption of IFRS
procedures for listed companies, however, other companies are expected to comply with national
GAAP guidelines that are developed on an IFRS Foundation. Additionally, United States of
America follows GAAP implemented through FASB whereas countries such as UK and
Australia follow a complete IFRS framework for financial reporting purposes (Variations in
IFRS adoption and practice, 2011).
Thus, one can say that variations in IFRS adoption and reporting frameworks among
various countries mainly arise due to the complexity, structural differences and time taken in
adoption of such standards.
CONCLUSION
From the above report it can be concluded that International Financial Reporting is an
important part of every organisation irrespective of its size, nature and type. Through the
adoption of proper accounting standards, the communication as well as presentation of key
financial information can help the management in identification and evaluation of variations. It
also ensures that any kind of misappropriation of profits, decline in overall corporate
performance is resolved in an effective manner. Thus, adoption of financial reporting
frameworks such as IFRS and IAS can improve ethical compliance as well as generalization of
accounting language in an effective manner.
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REFERENCES
Books and Journals
Abeysekera, I., 2013. A template for integrated reporting. Journal of Intellectual Capital. 14(2).
pp.227-245.
Albu, N. and Albu, C.N., 2012. International Financial Reporting Standards in an emerging
economy: lessons from Romania. Australian accounting review. 22(4). pp.341-352.
Botzem, S., 2012. The politics of accounting regulation: Organizing transnational standard
setting in financial reporting. Edward Elgar Publishing.
Davies, H. and Green, D., 2013. Global Financial Regulation: The Essential Guide (Now with a
Revised Introduction). John Wiley & Sons.
Eccles, R.G., Krzus, M.P., Rogers, J. and Serafeim, G., 2012. The need for sector‐specific
materiality and sustainability reporting standards. Journal of Applied Corporate
Finance. 24(2). pp.65-71.
Ikpefan, O.A. and Akande, A.O., 2012. International financial reporting standard (IFRS):
Benefits, obstacles and intrigues for implementation in Nigeria. Business Intelligence
Journal. 5(2). pp.299-307.
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.
Liu, C., 2013. XBRL: a new global paradigm for business financial reporting. Journal of Global
Information Management (JGIM). 21(3). pp.60-80.
Marimon, F., del Mar Alonso-Almeida, M., del Pilar Rodríguez, M. and Alejandro, K.A.C.,
2012. The worldwide diffusion of the global reporting initiative: what is the
point?. Journal of cleaner production. 33. pp.132-144.
Melé, D., Rosanas, J.M. and Fontrodona, J., 2017. Ethics in finance and accounting: Editorial
introduction. Journal of Business Ethics. 140(4). pp.609-613.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Zeff, S.A., 2013. The objectives of financial reporting: a historical survey and
analysis. Accounting and Business Research. 43(4). pp.262-327.
Online
Representative Client List of Grant Thornton. 2019. [Online]. Available Through:
<https://www.grantthornton.com/services/advisory/restructuring-and-turnaround/
restructuring-and-turnaround-client-list.aspx>
Annual Report. 2018. [Online]. Available
through:<https://www.lloydsbankinggroup.com/globalassets/documents/investors/
2018/2018_lbg_annual_report_v2.pdf>
Variations in IFRS adoption and practice. 2011. [Online]. Available Through:
<https://www.accaglobal.com/content/dam/acca/global/PDF-technical/financial-
reporting/rr-124-001.pdf>
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APPENDICES
Working Notes:
1. 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
2. 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
3. Operating Expenses to be shown in P& L account
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
4. Determination of Balances of Non-Current Assets
Non-Current Assets Land & Plant & Investment
14