Financial Reporting Report: Conceptual Framework, Analysis, and IFRS

This report provides a comprehensive analysis of financial reporting, encompassing its context, purpose, and benefits to stakeholders. It delves into the conceptual and regulatory frameworks, including key principles and qualitative characteristics, while also examining the main financial statements such as the profit and loss statement and the statement of changes in equity. The report explores the value of financial reporting in meeting organizational objectives and driving growth, with a focus on interpretation and communication of financial performance. It also highlights the differences between IAS and IFRS, the advantages of the international financial reporting system, and the degree of compliance with IFRS standards. The report includes detailed financial statements, providing practical examples and insights into financial analysis and reporting practices, specifically referencing the practices of KPMG.

Financial
Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1. Context and purpose of financial reporting.............................................................................1
2. Conceptual, regulatory framework, key principle and qualitative characteristics..................2
3. Main Stakeholder and benefit to financial information..........................................................3
4. Value of financial reporting to meet objective and growth.....................................................5
5. Main Financial Statements......................................................................................................5
6. Interpretation and communication of financial performance..................................................8
7. Differences between IAS and IFRS........................................................................................9
8. Advantages of International financial reporting system.......................................................10
9. Degree of compliance with IFRS..........................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
In the present time, every type of business has different departments to conduct business
activities and present daily operational activities in a successful way. It helps to achieve
organizational goals and objectives (Bennett, James and Klinkers, 2017) . The functioning of
these sections are based on other departments but mainly connected with accounting and finance
section which are provided useful resources to present different types of business activities. The
main concept of financial reporting is connected with the disclosure of meaningful financial
information which presents in front of stakeholders. On the basis of this information, they can
analyse overall performance and present situation of company in a particular period of time. At
the end of accounting process present some typical factors of financial reporting like financial
statements, annual reports, catalogue, and management analysis and decision. To better
understand concept of financial reporting KPMG one of the largest financial accounting
organization which provide several financial services.
In the report consist of purpose, benefits to stakeholder, conceptual and regulatory
frameworks and value of financial reporting for a company is discussed. Apart from the report,
differences between IAS and IFRS, an advantage of IFRS and degree of compliances are
discussed respectively. Additionally, prepare different types of financial statements such as
balance sheet, statement of equity and income statements using financial information.
TASK 1
1. Context and purpose of financial reporting
In current times, financial reporting plays a significant role in the world economy and it
will provide authentic and reliable financial information to owner of company. This financial
information present through financial statements like balance sheet, income statement, and
statement of changes in equity. On the basis of these statements they analysis of overall
performance then take effective decisions to improve profit margin. These statements are
prepared on an annual basis and summarise the real performance of several operations and staff
members. Financial reporting consists of disclosure of financial information to top management
which is defined about the performance of an organization in a specific period of time (Chen,
Zhang and Zhou, 2018) .
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It helps in further investments and generates profit through various operations. It is getting that
financial statements important for KPMG to meet the necessity then apply with an appropriate
accounting system. It enables to provide the right information that is important to make a future
investment decision. There are defined purpose of financial reporting, that are as follows:
 The main purpose of financial reporting management connect with effective decision
making and concerning the objective of business as well as overall strategies.
 It will help to provide reliable and appropriate information to those stakeholders who are
connected with company and help in decision-making process.
 This support in several appearances like information connected to credit to a customer,
lend of the borrower and either to invest in a particular business or move to another
alternative.
 The financial reports of a company provide important information which is connected
with net inflows and outflows of cash within an organization. There are including
appropriate time and unprofitable activities that will determine of liquidity of a company.
 The financial data help to management recognize strengths and weaknesses of company
and also about overall financial health.
 In case if there are a number of subdivision or partner working within main organization
then financial reporting must act as main part of a crucial agreement in between various
sections which make easy for stakeholders and investor to have enough knowledge
regarding money (Cohen, 2017) .
2. Conceptual, regulatory framework, key principle and qualitative characteristics
Conceptual and Regulatory framework:
The concept of financial reporting is connected with financial reports which define about
the different financial types of statements that help in decision making process for future
improvement. There are various stakeholders who is directly connected with annual financial
position as well as position of business, they are investors, creditors, financial institutions and
general public who wants to become part of business sharing. A regulatory framework of
business beneficial due to valuable predication for improving efficiency of financial standards
and principles. It will provide support to control financial activities in efficient manner. The
selected company follow the procedure and principle of IFRS which is as follows:
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 The particular reports provides valuable ideas that can support for determine the necessity
of total amount which is essential to survive business operations in successful way.
 It is advantageous for creating and managing the financial information as per the
requirement of accounting standards.
 These are supporting for develop good image of company with the help of increase
growth and grab opportunities (Hanlon, 2018).
Qualitative Characteristics of financial reporting
It is understand that financial reporting must have different types of qualitative
characteristics that will support to management to make decision. It will depend on the financial
reports which is reliable and more faithful. Some of these are discussed below: Relevance – It support to make effectual differences within the decision make by user
and it is defined about the corroborative and predictive amount. Faithful Representation – According to this it is defined after completed of report and
can not find any error then present in front of those stakeholders who is related with
company. Timeliness – It is essential for company to provide reliable and accurate information to
stakeholders. These are preparing in particular period of time such as quarterly, monthly
and annually basis.
 Understandability – The provided information must be clear, classified and concisely
which is easily under stable by end user.
3. Main Stakeholder and benefit to financial information
Stakeholders are important part of any business who can invest to run business. They are
influenced to business growth and performance in direct and indirect manner. There are included
creditors, suppliers, government, customers, investors or the society. These are connected with
company with different interest as per the involvement groups. These are categorised into
internal and external entity. KPMG has different interest groups which kind of a consortium of
stakeholders for it (Indrawati, 2017) .
There are two types of stakeholders in a business unit -
Internal stakeholders
These are considering as internal members of an organisation who is connected with
internal activities and influenced by any results of the business actions.
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 Board of Directors – These types of stakeholders afraid about the administration of the
company. These members are taking strategic decision regarding to functioning of the
business entity. If organisational performance goes down so they will influenced by
corporate position. In KPMG, Board of directors consider as first line of defence. The
assure about employee appointment, agreements, regulatory norms and preparation of
policies.
 Employees – They are part of internal stakeholders and afraid about those business
activities which is directly related to employment security, monetary benefits and non
monetary benefits. Staff members of KPMG are connected on different levels thus have
various types of associate with clients (Kaspersen and Johansen, 2016) .
External stakeholders
These types of stakeholders have no interest with the daily activities of the business but
in a way or another duly influenced by the activity which is taken by an organisation. The
selected company KPMG, it is composed broad lodge of external stakeholders including majorly
of governments, investors and creditors. Investors – These types of investors are investing their money in the business and include
of debt holders and share holders. On their investing money expect good rate of return. It
is mainly depended on the market value of a company. The investors of KPMG in
proportionate ratio of debt to equity. To satisfy of their customers KPMG has performed
in effective manner. Creditors – They are providing loans, goods, services and other advantages to a business.
The creditors of a company expect to timely return of the debt along with the interest. So
they wants to good financial position and survive for long time in market because they
totally depended on profit of a company.
 Government – It is a part of external stakeholder of any business due to collect corporate
taxes, payroll taxes and other taxes like GST. Every organisation paid tax to government
for contribute in GDP to increase growth rate and reduction of unemployment which
related with any government (Kurt, 2018).
4. Value of financial reporting to meet objective and growth
The financial statement are helpful for every organisation which can help to attain their
objectives of an organisation (Young, Cohen and Bens, 2018). Most of the companies use
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financial reports foe analysis overall performance and actual situation in present time of
company. It helps to develop plan and strategies as per the requirement and financial reports
interprets the financial information in effective manner. Such as in the KPMG company, they
develop several type of financial statements due to accomplish their goals and objectives. With
the help of financial report a company achieve their objectives in particular period of time.
Financial Reporting and development of organisation
With the help of financial reports develop business because it reflects on the financial
position of the companies. These are helping to take effective decision for further investments.
Such as an organisation wants to spread out of their business operations. For this need to analysis
of financial documents and if there is profit then they may expand. So it is said that financial
reporting important part of any organisation and help in development of the companies. The
selected company take effective decision on the basis of development for their venture.
Additionally, in the absence of these financial reports it is difficult to understand about the
companies and take decision about the development (Menicucci and Paolucci, 2016) .
Financial reporting and growth of business
Apart from it, the financial statements are considering as important part of any
organisation which plays role in the development of the business. Through these reports present
all financial data in front of internal and external stakeholders. On the basis of these reports they
can analysis of financial performance of an organisation. If company have good market position
so investors will increase and take interest to invest in particular company. The efficiency of a
business improve after followed of financial accounting and presenting the financial statement on
time. The selected organisation KPMG limited produce financial statements that help them in
growth.
5. Main Financial Statements
A) Profit and Loss statement
31.12.18
(£'000)
Continuing operations
Particulars Amount
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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:
Land and machinery: 150000/16 = £9375
Plant and equipment: 148000-32400 = £115600
115600*15/100 = £17340
Total depreciation = 9375+17340 = £26715
B) 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
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Total Comprehensive income - 85085 85085
Preference dividend -2500 -2500
Ordinary dividend -4500 -4500
86700 40000 123585 250285
C) 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:
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(a) Ordinary share capital 86700
(b) Other equity (Note) 205585
(b) Preference share capital 26500
2. Non current liabilities:
(a) Deferred Taxation -
3. Current Liabilities:
(a) Trade payables 62700
(b) Bank OD -
(c) Provision for current tax 9500
Total 355985
6. Interpretation and communication of financial performance
TESCO is the leading retail business industry with huge manpower of approximate
450000 members. Group sales were recorded as £56.9 billion, group operating profit was
calculated as £2206 million. Financial position analysis of company is given below which is as
follows.
Profitability Ratios – These types of ratios used by every company to know profitability
of a company in particular period of time. It is mainly based on the financial metrics and measure
the ability of a business to compute revenue in certain period of time (Mio, Marco and Pauluzzo,
2016). Tesco determine profitability of company on the periodic basis to present in front of
shareholders -
 Return on capital employed: Operating profit / total capital employed
Particulars 2019 2018
Operating profit 2153 1839
Capital employed 28367 25651
ROCE 75.90% 71.16%
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Interpretation- On the basis of above calculation, this can be analysed that ROCE of tesco
company is different in both of years. Such as in year 2018, it is of 71.16% which raised in next
year and became of 75.90%.
 Return on equity: Profit after interest, tax and dividend / total equity
Particulars 2019 2018
Profit after interest, tax and
dividend
1320 1210
Total equity 14834 10480
Return on equity 0.89 : 1 0.12 : 1
Interpretation- On the basis of above table, this can be analysed that in year 2018, the return for 1
equity is of 12 p. While in year return for 1 equity is of 89 p. This shows that company's position
is better in year 2019.
 Net profit margin ratio: Net profit / revenue * 100
Particular 2019 2018
Net profit 2153 1839
Revenue 63911 57493
Net profit margin 2153 / 63911 * 100 = 3.39% 1839 / 57493 = 3.20%
Interpretation: From the above table it is getting that net profit ratio in 2019 good for
company rather than to 2018. Net profit margin for the year 2019 was recorded as 3.39% and
3.20% for the year 2018. This indicates that company's financial position of above company in
year 2019 as compare to year 2018.
 Gross profit ratio: Gross profit / net sales * 100
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Particular 2019 amount in (£ million) 2018 amount in (£ million)
Gross profit 4144 3352
Revenue 63911 57493
Gross profit margin 4144 / 63911 * 100 = 6.48% 3352 / 57493 = 5.83%
Interpretation- On the basis of above table this can be analysed that company's gross
profit in year 2018 is of 5.83% that increased in next year and became of 6.48%.
Liquidity Ratio – It is considering as essential class of financial metrics applied to analysis of
ability to debtors to pay off current debt responsibility without arising external capital. It is
mainly applied to measure liquidity of a company and their margin of safety. A determination of
liquidity ratio of Tesco whether it has enough liquid funds to meet in short term.
 Current Ratio - Current assets / current liabilities
Particular 2019 amount in (£ million) 2018 amount in (£ million)
Current assets 12570 13600
Current liabilities 20680 19233
Current ratio 12570 / 20680 = 0.60 13600 / 19233 = 0.70
Interpretation: From the above table it has been analysed that current ratio of the
company did not meet with ideal ratio of 2:1 and stable in both years in 2019 and 2018. The
ratio for 2019 was calculated as 0.61 times and 0.70 was calculated for the year 2018. Current
assets get decreased that may enlarge the lag in period to suppliers and creditors.
 Quick Ratio: Quick assets / current liabilities
Particular 2019 amount in (£ million) 2018 amount in (£ million)
Quick assets 12570-2617 = 9953 13600-2264 =11336
Current liabilities 20680 19233
Quick ratio 0.48 times 0.58 times
Interpretation: As per the above table it is understand that in 2019 the quick ratio of the
company 0.48 times which is not near about the ideal ratio of 1:1 but in 2018 it is getting
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