Financial Reporting for Ernst & Young: Analysis and Purpose

This report provides a comprehensive analysis of financial reporting, addressing its context within the regulatory framework, including GAAP, IASB, and IFRS. It explores the purpose of financial reporting in achieving organizational objectives, such as strategic formulation, stakeholder engagement, and compliance with statutory requirements. The report evaluates the benefits for both internal and external stakeholders, including investors, creditors, and employees, within the context of Ernst & Young. It delves into the interpretation of financial statements, including profit and loss, cash flow, and balance sheets, along with the application of financial ratios for assessing organizational performance. The report also discusses the benefits of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), assessing models of financial reporting and auditing. Finally, it examines the importance of financial reporting across various countries, considering differences in standards and practices.

FINANCIAL
REPORTING

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Context of financial reporting including regulatory framework............................................1
P2. Purpose of financial reporting to attain organisational objectives, development and growth
.....................................................................................................................................................3
M1 Evaluation of benefits given to stakeholders........................................................................5
TASK 2............................................................................................................................................6
P3 Interpret profit and loss, Cash flow and Balance statements..................................................6
P4 Financial ratios for organisational performance and investment.........................................10
M2 Interpretation of financial results and ratios of M&S.........................................................12
TASK 3..........................................................................................................................................14
P5 Benefits of International Accounting Standards and International financial reporting
standards....................................................................................................................................14
P6 Assessment of models of financial reporting and Auditing..............................................17
TASK 4..........................................................................................................................................18
P7 Importance and differences of financial reporting across various countries........................18
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................21

INTRODUCTION
Financial reporting considered as a method of executing information of financial evets,
transactions, strategies and plans to managers, executives and stakeholders of organisation. This
report annotates the concept of financial reporting with purpose and objectivity (Ayila, 2015).
This report is produced to line manager of Ernst & Young to define the background and concept
of international financial reporting. Company provides professional services as accounting,
auditing services to manufacturers, engineering and construction companies. Assessment of the
regulatory and conceptual framework of financial reporting and accounting is analysed to
evaluate the purpose and principle of business. Reason of financial reporting requirements and
characteristics of reliable financial information explain in a very terse manner. Meaning of
stakeholder of a company with their interest in organisational goals and how they get benefited
by accomplishment of organisational goals elaborated with practicality. Essentiality of financial
reporting defined in terms of fulfilment of business goals and growth perspective in this report.
With the help of understanding of IAS 1, users would be able to construct the financial
statements for a company. Interpretation of financial statements of the Marks and Spencer. The
diversity between the IAS and financial reporting standard analysed defined properly. Benefits of
IFRS in order to maintain ethicalness in the financial reporting explained in this report properly.
Degree of compliance is measured with IFRS by companies across the countries. The impact of
international financial and accounting standards upon national accounting standards with
appropriate examples are evaluated in more strategic manner.
TASK 1
P1 Context of financial reporting including regulatory framework
Sound financial coverage is a crucial component of the resilience of a corporation. It’s really is
vital to companies as well as the shareholders to be able to believe and comprehend the
economic situation of a company (Szychta and de la Rosa, 2012). False or outdated financial
statements leave a business vulnerable to failures and missed opportunities. The findings for
companies and their shareholders and borrowers could be devastating. When financial conditions
shift and enterprise difficulties and possibilities emerge, most significant instrument is prompt
and precise financial information.
Regulatory framework
1

GAAP is the authentic regulatory reform that regulates the laws and legislations at
national and international level with identification of particular jurisdiction. In Ireland and the
UK various parts of regulations are combined and constituted with regulatory reforms (Wayne
Gould, 2012). The structure is determined format. Professional regulation subject to international
and national financial reporting standards others financial reporting standards with the
professional and accounting bodies are treated in specific transactions. It also contains the
company law requirements and directives. The Stock exchange and regulations subject to listing
and ruling the parties among various sections considered in more strategic confined manner.
Regulations are considered more strategic with the specific accounting aspects.
International Accounting Standards Board (IASB) substituted the IASC in January 2001.
The IASC was formed in 1997 and charged with the structured process. As IASB adopted the
IAS which was given under IASC analysed properly (Xavier, 2014). After being replaced form
IASC to IASB the new standards were introduced with International Financial Reporting
Standards (IFRS). The present structure of IASB is defined as follow;
(Source: Financial regulatory framework, 2015)
2

Monitioring board: It is operated by the trustees of the IFRS foundation. The monitoting board
was formed in Febuary 1, 2009 subject to improve the accountability of the IFRS foundation
(Crane and Livesey, 2017).
IFRS foundation: This was formed in march 2010 with 21 Trustees. The monitoring
board also consider significant operation and activities which are undertaken by IFRS
foundation. Managing the financiang arrangements.
The International Accounting Standards Boards (IASB): The IASB has complete
control over the development and establishment of self-technical strategy, the IFRS Structure
believes this ideology, but do not have the authority to determine it. The IASB had fifteen
participants taken from all over the world for centuries of reading, although in the near future
they feel compelled to extend this amount to seventeen.
IFRS interpretation Committee: There are fourten committee in it. It key opeartion is to
analyse accounting issues and challenges ascend from IFRS. It tries to resolve the issues by valid
accounting treatment and provides an effectivee and authorative guidance subject to associated
issues (Grünewald and et. al., 2012).
Governance of financial reporting
Corporate governance was structured in order to improve the ethics and key consideration
while keeping the financial records and information. Governance is recognised as a system that
manage and control the accountability of business to protect the rights of stakeholders, associated
parties and staff members of company. Safeguard the integrity and the morality of accounting
standards is the main objective of the corporate governance. It provides a valid considerations
and assurance to mangers that the financial operations are carried out properly and in effective
manner.
P2. Purpose of financial reporting to attain organisational objectives, development and growth
The scope of financial reporting has become vital in organisational context due to its
subjectivity and practicality. Relevancy of information is considering the main factor of
enhancing the scope of financial reporting with in organisation. Financial statements of company
are the key source of information that helps to analyse the actual financial performance of the
organisation. As per IAS 1, Financial statements of company are categorised in five pats as
Income statement, balance sheet, Statement of change in equity, statement of cash flow and
Notes to financial statements. Every statement gives a specific information to users as income
3

statements states that how much profit or loss earned by company subject to a particular
accounting year, balance sheet states the amount of assets and liabilities retained by organisation
in a particular period, cash flow statements presents the information related to flow of cash and
cash equilanets in order to run business operations, Change in equity statement presents the
information related to overall equity and reserves retained by company and variation in the share
capital, Notes to financial accounts contains the subjective information of each elements
recorded in income statement and balance sheet of company (Deng, Kang and Low, 2013).
Subjectivity and purpose become vast with the increasing scope of financial reporting. The key
purpose of financial reporting is defined as follows:
Strategic formulation: Companies formulate plans, budgets and strategies for sustainable
business operation. Building a sustainable business structure remains key objective of business.
Optimum use of financial resources is the key solution to attain the financial goals. Financial
reporting helps the entity to analyse the strength and capacity whether the sustainable business
structure can be formed. For this purpose, team of accountants and executives put their efforts to
track the financial transactions and events to attain the business objectives in best possible
manner. Organisation’s revenue and profits are monitored on periodic basis and proper reporting
done in order to control excessive or misuse of financial resources. By utilizing information at
required areas helps entity to grab opportunities on the right time that is considered great sign of
growth and development of business.
Correlating objectives of business to stakeholders: Gaining the stakeholder interest and faith
is also considered prime objective of companies. Communicating goals and objectives of
business to suppliers, customers, investors, owners, financial institutions, shareholders is also
main objective of organisation and communicating the valuable information is become the
purpose for organisation. Investors invest their amount in the business and expect higher return
in consideration. If organisation be successful to meet the expectations of stakeholders than the
changes of having less funding facility in future. This maintain the regular flow of financial
resources with in the operation through which organisation be able to accomplish the goals of
business in more effective manner (Hörisch, Freeman and Schaltegger, 2014).
Keeping the employees well informed: Effective employee engagement leads entity
towards targets. For the purpose of connecting employees with the financial position of
organisation, a periodic reporting is carried out by management. This boost up the confidence
4

level of employees and staff members in order to work more efficiently. Future plans are also
communicated with employees that also keep engaging them for long term period.
To Comply the statutory requirements: Organisations are required to comply the international
rules and regulations to file reports to different parties as governments, stock exchange and
registrar of companies (Nour and Mouakket, 2013). Financial reporting is useful for this purpose
also. It remains essential to circulate new agreements and renew existing agreements under the
legal law and legislations. Image of organisation become clear if all the statutory requirements
are fulfilled by entity. This helps to grow the business by building strong loyal.
M1 Evaluation of benefits given to stakeholders
Stakeholders are considered as a most essential element of the organisation because efforts of the
stakeholders helps the administrators to run the organisation effectively. There is a reciprocal
relation found between the organisation and the stakeholders of the organisation. As the
organisation gets better results as the stakeholders also gets benefited with the growth of the
business (Fox and et. al., 2013). Ernst & Young has both the internal and external stakeholders
that keep seeking the essential information produced by organisation. How the stakeholders of
E&Y get benefited are defined below:
External stakeholders
These kinds of participants have no stake in the companies ' everyday operations but are
duly affected in one manner by an organization's operation (Iyoha and Owolabi, 2012). The
chosen business EARNST & YOUNG consists of a wide range of stakeholders as external
investors, financial institutions, banks and suppliers.
Government It is component of any company ' internal participant by collecting corporate tax
rates, income taxes as well as further taxes such as GST and TDS. Each organization give
government tax for contributing to GDP in order to improve the rate of development as well as
reduce the inflation associated with any region (Liapis and Thalassinos, 2013).
Investors – Such kinds of investors, including bond holders but also stakeholders, spend
their capital in the company. Reasonable return rates are expected on the investment capital. It
depends primarily on organisation's market value. E&Y stakeholders have a commensurate
mortgage-to-equity percentage. EARNST & YOUNG has performed the best business practices
to gain the interest of investors and building the brand image in more effective manner.
5

Creditors – Company uses a formal protocol to keep the interest of creditors. Crashaw
Group Plc, Crawshaw Butchers Limited (‘Butchers’) East Yorkshire Beef Limited (‘EYB’)
Gabbotts Farm (Retail) Limited (‘GFRL’) are the creditors to paid for further. A letter to these
creditors was sent due to non-payment with proper reason and misconduct. This procedure helps
to maintain the trust among creditors even after delaying in payments.
Internal stakeholders
The stakeholder that retain a particular share in the entity are pointed as internal
stakeholders of the organisation. E&Y understand the responsibility of keeping the interest of
internal stakeholders for better accomplishments of set targets and aims.
Board of Directors – The members who take the valuable decisions, making policies and
provide change policies are considered as board of directors (Jindrichovska and Kubickova,
2014). These members are recognised as key internal stakeholders because major decisions of
strategic planning and control are taken by these members. Future existence of organisation
depends upon the strategies and decision of the board members. Being a valuable stakeholder of
organisation they also answerable to further stakeholders too. Board members of Ernst and
Young remain committee to their deliverables and keep stable with their plans and strategies for
better results.
Employees – Professional and skilled staffs is delivering great services to the E&Y and company
also keep record of every employee working in it (Miková, 2014). Each members of EARNST &
YOUNG are associated with the growth and development of business. Company offers
opportunities of high pay scales, fringe benefits and award them for their best results. These type
of considerations emerge the confidence and motivates the staff. Staff get the full support form
senior authorities in terms of valuable information and sources.
TASK 2
P3 Interpret profit and loss, Cash flow and Balance statements
IAS 1 provides the rules and regulations related to presenting financial statements to
stakeholders to understand the financial performance of company (Susanti and Daryanto, 2017).
Financial statements as per the IAS 1 are defined as follows:
6

Income statement: this is the statement that presents the information related to profit and loss
earned by the company for a particular financial period (Poon, 2016). The income and
expenditure remain categorised in various forms with comprehensive approach.
A) Income statement
31.12.18
(£'000)
Continuing operations
Particulars Amount
Revenue from Operations (A) 585100
Cost of goods sold (391700)
Cost of providing services -
Gross profit 193400
Less: Operating expenses 80500
Less: Depreciation (W.N. 1) 26715
Less: Other Income (9600)
Operating profit 95785
Less: Bank interest 1200
Profit before exceptional items and tax 94585
Exceptional Items Nil
Profit before tax 94585
Less: Income tax expense 9500
Profit after tax 85085
Add: Other Comprehensive income -
Total Comprehensive income 85085
Working Note:
Calculation of depreciation expenses:
7

Land and machinery: 150000/16 = £9375
Plant and equipment: 148000-32400 = £115600
115600*15/100 = £17340
Total depreciation = 9375+17340 = £26715
Financial position statement: This statement mainly helps in identifying the total assets
acquired or hold for sale and total liabilities including current and non-current liabilities in an
accounting period (Mahoney, 2012). The use of financial information through financial position
statement helps investors to understand the actual returns to be earned by stakeholders.
8

Statement of financial Position.
Balance Sheet as at 31.12.18
(£'000)
Particulars Amount
ASSETS:
1. Non-current assets:
(a) Property, Plant and equipment 298000
Less: Accumulated Depreciation 32400
Less: Current Year Depreciation 26715 238885
(b) Investment Property 28000
(e) Deferred tax assets(net) 10000
(f) Other non current assets -
2. Current assets:
(a) Inventories 25200
(b) Trade receivables 78000
(c) Other current assets 10900
Total 390985
EQUITY AND LIABILITIES:
1. Equity:
(a) Ordinary share capital 86700
(b) Other equity (Note) 205585
(b) Preference share capital 26500
2. Non current liabilities:
9

(a) Deferred Taxation -
3. Current Liabilities:
(a) Trade payables 62700
(b) Bank OD 35000
(c) Provision for current tax 9500
Total 390985
Cash flow: Cash flow statement mainly execute the information of flow of cash form
operating, investing and financing activity (Stathopoulos, Valeri and Marcucci, 2012).
Change in equity: This statement states how much changes been made in the capital
structure after new issuance, capitalisation of reserves and surpluses.
Statement of changes in equity for the year ended 31 December 2018
Particular
Ordinary
share capital
Revaluatio
n reserve
Retained
earnings Total
As per trial balance 86700 40000 45500 172200
Total Comprehensive income - 85085 85085
Preference dividend -2500 -2500
Ordinary dividend -4500 -4500
86700 40000 123585 250285
P4 Financial ratios for organisational performance and investment
Financial ratios are the recognised as a key parameter of analysing the financial overview
of organisation. Ratio analysis is sum up different ratios as liquidity financial ratio, profitability
ratios, market value ratio leverage financial ratios, efficiency ratios (Ladd, 2013). Financial ratio
analysis of Marks and Spencer organisation is carried out below to determine the financial
position of organisation.
Liquidity ratio
10