Financial Reporting Analysis: HSBC Holdings plc Report - Finance

This report provides a comprehensive analysis of financial reporting, focusing on HSBC Holdings plc. It begins with an introduction to financial reporting, outlining its purpose and the preparation of financial statements, including the income statement, balance sheet, and cash flow statements. The report delves into the regulatory frameworks and governance of financial accounting, emphasizing the importance of IFRS and GAAP, and their role in ensuring reliable financial reporting. It explores the purpose of financial reporting in meeting organizational objectives, development, and growth, highlighting its significance for stakeholders like customers, investors, and employees. The report includes an interpretation of profit & loss, balance sheet, and cash flow statements, followed by an examination of financial ratios for assessing organizational performance and investment. It also discusses the benefits of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and evaluates financial reporting models across different countries, providing a thorough understanding of financial reporting practices in the context of HSBC.

Financial Reporting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Regulatory frameworks and governance of financial accounting:....................................3
P2 Purpose of financial reporting for meeting organisational objectives, development and
growth:....................................................................................................................................6
P3 Interpretation of profit & loss, balance sheet and cash flows...........................................8
P4 Financial ratios for organisational performance and investment.....................................9
P5 Benefits of International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS)...................................................................................................9
P6 Models of financial reporting and auditing:....................................................................11
P7 Evaluate the differences and importance of financial reporting across different countries:12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
APPENDIX....................................................................................................................................15

INTRODUCTION
Financial reporting refers to systematic presentation of financial or accounting result and
other related information to managerial personnel and external stakeholders like customers,
inventors, government etc. about performance of business enterprises during a specific period.
Under financial reporting, reports are prepared by managers on quarterly or annually basis
(Flower, 2016). Financial reporting includes preparation of financial statements, income
statement, change in equity statement and cash flow statements. This report exhibits analysis of
financial reporting along with regulatory frameworks and governance of financial reporting,
evaluation of financial reporting standards, theoretical concepts and models and evaluation of
international differences in financial reporting in the the context of HSBC Holdings plc, UK's
banking and financial services holding company. This report also provide explanation about
purpose of financial reporting for meeting organisational objectives, development and growth.
TASK 1
P1 Regulatory frameworks and governance of financial accounting:
Financial reporting is a systematic of preparing financial statements like balance sheet,
profit and loss account, cash flow statements etc. that describes business organisation's actual
financial position to internal and external stakeholders like investors, government, management
etc. It assist in providing financial information or data to top management within business
organisation which is used by managerial personnels in different managerial activities like
analysis, planning, decision-making and benchmarking (Zeff, 2013). Main motive of financial
reporting is providing information for investors, shareholders and large public group about
various aspects of business organisation. It also help to analyse in which manner business
organisation is utilising and procuring various resources. It also ensure compliance of statutory
rules and regulations to avoid any complexity in future. Financial reporting assist business
organisation to enhance accountability. Various financial report act as a backbone for business
organisation to take strategic decisions. Following are major purpose of financial reporting, are
as follows:
1. Reporting to managerial personnel which help in strategic planning and decision-
making activities in HSBC.

2. To provide relevant information and reports to promoters, lenders, investors and
creditors which assist them in taking prudent and rational financial and
investment decisions.
3. To communicate the true and fair picture of business enterprises to shareholder
and interested public at large scale.
4. To assess how effectively company is utilising their financial and other business
resources.
5. To give detailed information of organisation's performance and growth to various
stakeholders.
6. To determine and report the effectiveness of decisions taken by business
organisation to various interested parties.
7. To ensure the proper compliance of various statutory rules and regulation in
HSBC.
Regulatory framework of financial reporting:
In order to regulate the processes and reporting under financial reporting, a systematic
framework is used by different – different business organisations to cover all the aspects of
financial reporting in detailed manner. Regulatory framework ensure most reliable and relevant
financial reporting within an organisation. It emphasises on compliance of generally accepted
accounting principals to make uniformity in reporting. Regulatory framework includes IFRS
(International Financial Reporting Standards) and GAAP (generally accepted accounting
principles), Which contains set of standards, assumptions, principles and concepts to be applied
by accountants while reporting different matters. Regulatory framework is set of steps taken by
regulators to increase the responsiveness of various regulations. It is essential for HSBC to
comply with regulatory framework as it ensures that relevant financial information is
communicated to investors and users (Shackelford, Slemrod and Sallee, 2011). Main motive of
regulatory framework is to make similarity in accounting processes adopted by different
organisations across the world. IFRS is main aspect of regulatory aspect as its includes standards
that assist smoothness of accounting processes. Regulatory framework is prepared by governing
bodies so compliance of rules and regulation is also an objective. Financial statements prepared
by using regulatory framework leads to increase in enhancement of confidence of investors and
other users of financial statement. Compliance of regulatory framework enhance the creditability

of financial statements. In company like HSBC, investors' and shareholder's trust is strong due to
regular compliance of regulatory framework. For all listed company inviting public deposits such
framework is essential in order to attract new investors. It also help in handling various problem
that may arise during financial reporting process and to enhance the accountability. Following
are some major aspects of regulatory framework of financial reporting, as follows:
IFRS: Accounting standards of listed companies at international level are known as
international financial reporting standards. These standards are issued by international
accounting standards board. These are essential element of regulatory framework for financial
reporting. These standards are internationally accepted by listed companies to perform
accounting activities and report matters (Van Greuning, Scott and Terblanche, 2011). These
standards act as common language at global level for performing business affairs so that
financial statements of companies can be easily understandable for all users and comparable
across the glob. These standards covers both qualitative and quantitative aspects of business
organisation.
GAAP ( Generally accepted accounting principles): It implies to a set of commonly
acceptable accounting principles, procedures and standards that business organisation are
required to be followed while preparing financial statements. GAAP provide a systematic
framework for reporting financial matter to interested users.
Governance of financial reporting;
In present business scenario, listed companies facing financial problems, regulators are
putting their efforts towards improvement of corporate governance practices related to financial
reporting. Governance of financial reporting mainly concerned with auditor, who is responsible
for providing an opinion on financial statement of companies. Auditor may be internal auditor or
statutory auditor as per their responsibilities. Internal auditors may be employees of companies
but statutory auditors are independent. In HSBC, both internal and independent or statutory
auditors are responsible of effective governance of financial reporting. However powers of
internal auditors are limited as compare to independent auditors. For effective governance of
financial reporting some governing bodies like IAB, ASB etc. are also committed, these bodies
issue different rules and guidelines for implementing an effective governance. Governing bodies
also determine the rules and responsibilities of responsible persons like auditors. An effective
governance of financial reporting provide actual picture about company's performance in order to

protect interest of interest of stakeholders. Following are some essential requirement of good
governance of financial reporting, are as follows:
Due diligence: To incorporate a good corporate governance, responsible personnels like
accountants, managers, auditors etc. are required to perform their duties with due diligence.
Compliance of due diligence while performing duties can create a scamp and scandal free
business environment. It simply refers to reasonable and relevant step taken by individual within
a business organisation to avoid committing an offence or tort.
Transparency: It refers to extent tot which interested parties generally investors have
access to required or relevant information concerned with company like audited financial To
achieve an effective or good governance of financial reporting it is essential to maintain
transparency in financial reporting processes (Nobes, 2014). It is simply refers to present the
actual position of business organisation without hiding anything from users of financial
statements.
Effective internal control: An effective internal control provide assurance about good
governance of financial reporting within a business organisation. Internal control in HSBC is
implemented through internal policies and guidelines. It also provide assurance that processes,
task related to financial reporting is operating efficiently.
P2 Purpose of financial reporting for meeting organisational objectives, development and
growth:
Financial reports provides true picture about performance of companies through financial
statements such as Income statement and balance sheet. Financial reporting essential aspect of a
business organisation as it ensures performance and growth in long run. In HSBC, under
financial reporting process balance sheet, profit and loss account, cash flow statements are
prepared by management in order to report their true performance during a particular period.
Following are some major benefits of financial reporting, discussed below:
 Helps in decision-making: Management in large organisation like HSBC, take major
strategic and business decision by using information obtained through financial reporting.
Financial reporting provides detailed information of organisation's activities and financial
aspects which assist managerial personnels in decision-making in HSBC.
 Assist in analysing external factors: Financial reporting process provide assistance in
identification of external factors or element belong to business environment that may

affect organisation's performance adversely. In HSBC, management by using assessment
and evaluation of information of financial reporting determine the effects of external
factors like inflation, change in government policies, economics changes etc. on
companies performance.
 Effective internal control: Financial reporting provides assistance in formulation of
effective internal controls by providing detailed segment wise results. In financial
reporting, responsibilities of each employee is fixed by management which provide
effective internal control over all functions and activities (Klassen and Laplante, 2012).
 Helps in effective management: Financial reporting provide help in establishment of
effective management within entity. In HSBC, financial reporting is done by
management with help of proper planning and co – ordination which ultimately leads to
way towards effective management.
Stakeholders are individuals or entities who are interested in business organization and
directly or indirectly affects the success of business organization. Stakeholders are the actual user
of financial statements prepared under financial reporting processes. They use the financial
performance to take financial and investment decisions (Rensburg and Botha, 2014). In HSBC,
financial reporting are done by management and other responsible personnel while considering
the core need and requirement of various stakeholders. Stakeholder are classified as internal and
external stakeholders, internal stakeholders are part of business entity and external stakeholders
are parties which are not directly interested in business organization. Through financial reporting
listed company provide actual assessment of their performance. Financial reporting meets the
needs and expectations of following stakeholders, are discussed below:
Customers: Customers are key stakeholder of company as their taste and preferences
decides company's growth. Customers only expects brand value, loyalty and quality of product
or services offered by company. Through financial reporting company communicates their
performance and market wealth in market.
Investors: Investors are real stakeholders of company as they invest their money in
company which assist company to operate effectively in industries and fulfills company's capital
requirements. They expect from company a good return on money or funds invested by them.
Company report their financial statements for investors to ensure them that their investment
decision is right and also attracts new customers.

Employees: Employees are internal stakeholder of company as they are holding stake in
form of their salary and employment growth or promotion. They expect company's good
performance and expansion in future. So company by reporting their financial performance
promote to devote their efficiency for company's future growth (Maffett, 2012).
Owner or management: These stakeholders are directly affected by organization's
growth and performance. Owner and management make a huge investment in company or hold
huge amount or volume of securities of company, so they expect a good financial performance
and profits from company. Though financial reporting they analyses actual performance of
organization.
P3 Interpretation of profit & loss, balance sheet and cash flows.
Profit & loss account- Attached in appendix.
Interpretation- Income statement or profit and loss account of a business organisation
define the profitability. As per the income statement of HSBC, company has reported $ 15025
million net income in year 2018 and $ 11879 million in year 2017, which indicates that company
's profitability condition is improved. In 2018, company has reported interest income of $ 30489
million and tax expense of $ 4865 million. Overall trend of profitability of HCBC is upward
trend. Although company's net profit has decreased in 2016 due to economic effects, by $ 11648
million but company has achieved growth in year 2017 and 2018.
Balance sheet- Attached in appendix.
Interpretation- Balance sheet is a statement that exhibits company's actual performance
by providing actual value of assets and liabilities of business organisation. HSBC has reported its
total assets amounting $ 204,115 million and $ 159,884 million during the year 2018 and 2017
respectively. Company 's overall assets are increased during the year which point out towards
increase in company's efficiency to generate assets (HSBC Holdings plc Annual Report and
Accounts. 2018). Where as company's total liabilities are 2,363,875 million and 2,323,900
million during the year 2018 and 2017 receptively. There is slight decrease in current liabilities is
reported. Where as shareholder's equity is $186,253 million and $190,250 million in year 2018
and year 2017 respectively.
Cash flow- Attached in appendix.
Interpretation- Cash flow statements provides analysis of movement of cash within a
business organisation. HSBC has reported Net cash from operating activities of $ 6469 millions

and $ (10478) in the year 2018 and year 2017 receptively, which indicates that company's has
improved their efficiency to generate cash from operating activities. Company's cash and cash
equivalents is 301082 million and 337412 million in in the year 2018 and year 2017 receptively.
Company's overall liquidity condition has been deceased due to inflation rate.
P4 Financial ratios for organisational performance and investment.
Financial ratios are used to analyse the business organisation's overall performance
along with evaluating of liquidity, profitability and financial stability. Following are some
major financial ratio of HSBC, as follows:
Earning per share Financial
leverage
Debt/equity ratio Assets turnover
ratio
Year 2016 0.35 13.73 1.66 0.3
Year 2017 2.4 13.26 1.3 0.3
Year 2018 0.35 13.54 0.67 0.3
Interpretation- As per above presented table, Company's earning ratio is 2.4 in year
2017 which is decreased to 0.35 in year 2018 due to change in company's internal policy
regarding payment of dividend and decrease in percentage increase of profit. A decrease in EPS
indicates that company's efficiency to provide income to shareholder, is decreased.
Financial leverage of HSBC is 13.54 in year 2018, 13.26 in year 2017 and 13.73 in year
2016. There is decrease in financial ratio during 2017 but slight improvement in ratio is recorded
in 2018. This ratio exhibits that higher the degree of financial leverage, the more volatile
earnings will be. Interest is normally a fixed expense, so leverage represents returns and EPS.
A standard debt equity ratio is 2:1, company has reported debt ratio below the standard
which favourably indicates that company's asset is more adequate to pay out debts. Company's
debt to equity is improved during all three year.
Company has reported asset turnover ratio of 0.3. Which indicates that company's
efficiency to generate revenue from its various assets. In this ratio no increment and decrement is
recorded during three years, although ratio is favourable.

P5 Benefits of International Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS)
Financial reporting standards refers to set of principle, theoretical models, concepts and
procedures adopted by business organization to make an effective reporting of financial data and
information. These standards induces common practices and processes which are required to be
adopted by different – different business organization in order maintain uniformity in financial
reporting across the world. Financial statement are prepared or produced by business
organization by applying financial reporting standards, which assist in developing the confidence
of investors and shareholders. Some major financial reporting standards adopted by HSBC, as
follows:
International Accounting Standards (IAS): These are initially proposed international
accounting standards. Presently these standards are replaced by international financial reporting
standards. These standards are formulated by International Accounting Standards Committee
(IASC). The main goal of these is to enhance the trust and transparency in process and result of
financial reporting. These standards also boost international trade and investment.
IFRS (International financial reporting standards): It refers to a common set of rules
used by companies which are operating its business across the world to prepare financial
statements that re consistent, comparable and transparent. IFRS are proposed by International
Accounting Standards Board (IASB). These standards specifies about in which manner
companies should maintain and report their financial accounts and events.
Benefits of International Accounting Standards and International financial
reporting standards: Following are some key benefit of international accounting standards, as
follows:
 These standards is useful for listed multi-national companies like HSBC as these
standards facilitates ethics compliance.
 Financial statements prepared by companies by applying these standards, assist
companies in attracting intentional investments (Klai and Omri, 2011).
 These standards provide flexibility to accounts for any unexpected or expected
modifications in international business environment as these standards are based on broad
principles.

 These standards assist multi-national companies to consolidate financial statements of
various business across the glob
 Use of these standard provide assistance in developing trust and confidence of internal
and external stakeholder.
 These standards reduce inter nation complexities related to preparation of financial
statements.
 Application of these standards provide benefits to economy by increasing overall
international business.
 It offers opportunities for professional to work in anywhere in world.
 These standards are beneficial for industries to maximize their capital with minimum cost
in global market.
P6 Models of financial reporting and auditing:
At global, financial reporting is done by companies while considering different financial
reporting and auditing methods. These models are commonly accepted by different – different
business enterprises across the world to make uniformity in financial reporting. These models
also help to resolve some accounting and reporting difficulties. Accountants, auditors and other
professional apply these model to accomplish their their objectives related to financial reporting
and auditing. Following are some major financial reporting and auditing models, as follows:
Three Statement Model: This model of financial reporting and auditing emphasizes on
must preparation of three most considerable statements: Financial Statement, Income Statements
and Cash flow statement. This model also provides assumptions, format and methods for
preparation of such key statements. Companies operating must adopt three statement model of
financial reporting. Under this model, Auditors are must required to give their opinion and
comment on these three statements.
Consolidation Model: Under this model, for companies that are operating their business
activities in various countries or having subsidiaries, are required to consolidate their accounts.
This model is essential for effective reporting of accounts. For auditing purpose this model is
significant as it assist auditor in providing opinion or comment on overall performance of
business organization (Eccles and et. al., 2012).
Merger Model: This model mainly focus on uniform policy for merger of companies
across the world. This model provides some specific methods for merger like PE ratio, free cash

flows, replacement cost method, market value method etc. It assist in reducing complexities in
preparation of accounts after merger. Auditors also apply this model to report his observations.
P7 Evaluate the differences and importance of financial reporting across different countries:
Financial reporting is significant for all organizations operating their business across the
countries. Although importance of financial reporting may differ from country to country.
Difference in financial reporting may arise due to their local accounting practices and standards.
But overall objective of financial reporting is same for all countries. Most of the countries have
their own accounting standards and practices but this different standards are slowly – slowly
changing as per international standards because companies wants to avoid any complexity in
reporting. In UK, IFRS are adopted by listed companies but in US, companies prepare their
accounts as per GAAP, where as In India, financial prepared by companies as per Ind-AS. But
use of different – different standards do not have much effect on purpose of financial reporting.
UK USA AUSTRALIA
Accounting standard In UK, International
financial reporting
standards (IFRS) are
used In financial
reporting.
In USA, Generally
accepted accounting
principles, are used in
financial reporting.
Here, Australian
accounting standard
board, are adopted by
companies.
Accounting time
period
In UK, financial year
is 1st April to 31st
March.
In USA, reporting is
done for the period of:
1st October to 30th
September.
Whereas. In Australia,
financial period is 1st
July to 30th June.
Following are some common benefits of financial reporting for all the countries, as follows:
 Trend identification: Information genereated thorugh fianancial reporting provides a
systematic framework for comparion of information for more than one year. Managerial
personnels by using this comparsion identifes and analyse particular trends. Analyis of
these trends is significant to fomulate strategies and action plans (Council, 2012).
 Effective capital management: Effective management of capital is essential for
company to ensure their growth and survival in dynamic business environment all across
the world. Capital management combines the equity and debt management, in multi-