Financial Reporting and Analysis: Marks and Spencer Performance Report

This report provides a comprehensive analysis of financial reporting, encompassing the conceptual and regulatory framework, qualitative characteristics, and the role of financial information for various stakeholders. It explores the value of financial reporting in achieving organizational objectives ...Read More

FINANCIAL REPORTING

INTRODUCTION
Financial reporting is preparation of various statements and reports for disclosing
financial information which assist in identifying the performance and position of the organization
for a period. Marks and Spencer will be included in this assignment for interpreting the financial
performance on the basis of financial statements. This study will include the conceptual and
regulatory framework and qualitative characteristics required for making the financial
information more reliable. Furthermore, it will include main stakeholders of the organization
which are provided with financial reports. Moreover, this assignment will examine the value of
financial reporting for achieving the organizational objectives. Also, this study will provide with
financial statements which are required as per IAS 1. It will include financial ratios for
organization performance and investment. This study will assist in differentiating between
International accounting standards and international financial reporting standards.
MAIN BODY
1. Context and purpose of financial reporting
Financial reporting is related to presentation of various reports and statements for the
purpose of providing financial information to the stakeholders of the organization. Financial
reporting shows the performance of the enterprise and its position. Financial reporting are
prepared for mainly two purpose which include providing information to the management for
effective decision – making to improve the enterprise performance (Kaya and Koch, 2015).
Another purpose of preparing financial reporting is to provide information to the external
stakeholders to provide them understanding of company's liquidity position.
Financial reporting helps ion providing information to customers, investors, suppliers,
government etc (Rajgopal, 2015). Financial reporting include profit and loss account, balance
sheet and cash flow statement. Profit and loss statement helps the firm in identify its performance
for the period by identifying the net profit or loss. Profit and loss statement include expenses and
income for a period. Balance sheet helps in identifying the position of company on the basis of
assets and liabilities. Cash flow statement under financial reporting helps in finding out cash
inflows and outflows for the period.
This reporting is necessary for the organization for disclosure of its financial information
to have record of its various transaction to pay the tax to the government (Leuz and Wysocki,
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016). Financial reporting is mandatory for the company to prepare to provide information to
government for paying tax.
2. Conceptual and regulatory framework and qualitative characteristics that makes the financial
information reliable
The conceptual and regulatory framework of financial reporting defines various laws and
standards on the basis of which financial statements are prepared(Francis and et.al., 2015).
Financial reporting is governed by standards of regulatory framework such as IAS and IFRS.
Financial reporting is prepared by the framework provided by international accounting standard
board(IAS) in which standards were issued by IAS committee (Holland, 2015). International
financial reporting standards which provide framework for preparing financial statements on the
basis of standards set by International financial reporting standards board.
Qualitative characteristics which makes the financial information reliable consist of :
 Relevance : It involves that the accounting information contained in the financial
statements must pertain to specific time period and also provide relevant information of
the financial transaction which assist in decision – making (Frias‐Aceituno, Rodríguez‐
Ariza and Garcia‐Sánchez, 2014).
 Reliability : The financial information must be reliable in order to provide understanding
for decision making and the information contained must be reliable and based on facts
(Ge and et.al., 2018). It provides that information provide in financial report must assist
users in decision making on the basis of those reports to identify financial position of
business.
 Comparability : The information disclosed in the financial statements must be
comparable with other company's to make choices which will helps in improving
performance and also asst in identifying company's performance by comparing it with
other organization (Robson, Young and Power, 2017).
 Consistency : The financial information to be more reliable must be presented
consistently from year to year.
3. The main stakeholders of an organization and benefits to them of financial information
The main stakeholders of the company consist of internal and external . The following
are the various stakeholders which are provided with the financial reports to provide them
various financial information.
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Internal stakeholders
 Managers : Managers of the organization are provided with financial re-porting for
planning, decision- making and managing the operation of the business to increase profitability
of firm.
 Employees : Employees are the internal stakeholders of the company which are provided
with the reporting providing them information for their future job prospects by
identifying performance of company and its position (Chychyla, Leone and Minutti-
Meza, 2018). Board of directors : financial information is used by BOD for identifying their
company's performance and position to formulate various policies for growth of organization.
External stakeholders
 Investors : The financial information is beneficial for the investors of shareholders of the
organization to identify their returns on the capital invested by them in the firm.
 Lenders : lenders of the organization require financial information to identify the interest
on loans and information regarding repayment of loans.
 Customers : Financial information helps the customers to identify the stability and
various operations of the organization which assist them in identifying company's ability
to meet their demands.
 Government : Government requires the financial information of the company to identify
the ability of firm for payment of taxes and for compliance of the regulation(Call And
et.al., 2017).
Financial information helps the stakeholders of the company to identify the performance
of firm and also about the position it holds to know about growth of company and its ability to
pay its various obligation.
4. Value of financial reporting for meeting organizational objectives and growth
Financial reporting assist the organization in recording the various transaction for the
operation performed by the firm(Feng and et.al., 2014). Financial reporting have its value in the
organization to achieve the business goals and growth of enterprise.
 Financial reporting are required for complying with various laws and regulation top
provide information to government and various regulatory bodies for the tax purposes.
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 Financial reporting is important as it provides information to the investors and creditors
about the financial integrity and creditworthiness of the firm to pay higher returns and its
obligations. It helps in attracting more investors for the company to increase profitability
of firm which will assist in the growth of organization.
 Financial reporting are useful as it helps in providing information to the management
about the performance of the firm on the basis of which various policies and strategies
are planned for improving performance of firm(Tschopp and Huefner, 2015).
 Financial reporting helps in achieving the organization objective by using the previous
financial statements for planning to improve the performance and profitability of the
organization.
 Financial reporting helps in making budgets to improve the performance of organization
to achieve the objectives by comparing the actual with the budgeted.
5. Financial statements as per IAS 1
a) Statement of Profit and Loss
Working notes:
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b) Statement of Changes In Equity
c) Statement of Financial position
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d) Comparison among cash flow and statement of balance sheet and profit and loss
The cash flow gives information on basis of actual cash inflow and outflow of business
whereas profit and loss statement shows information about revenue and expenses. In the similar
aspect statement of financial position shows information related to assets and liabilities of
business entity.
6. Interpreting financial performance for Marks and Spencer (2017 and 2018)
Liquidity Ratio
Particulars Formula 2017 2018
Current assets 1723 1318
Current Liability 2368 1826
Current Ratio
current asset/ current
liability 0.73 0.72
Inventory 759 781
Quick assets 964 537
Quick ratio
Quick asset/ Current
liability 0.41 0.29
Profitability ratio
Particulars Formula 2017 2018
Gross profit 4088 4047
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operating profit 691 671
Total sales revenue 10622 10698
Gross profit margin
ratio
gross profit/ total
sales revenue 38.49% 37.83%
Operating profit
margin ratio
Operating profit/
total sales revenue 6.51% 6.27%
Solvency ratio
Particulars Formula 2017 2018
Long term debt 1663 1623
Shareholder's equity 3156 2957
Debt equity ratio
long term debt/
shareholder's equity 52.69% 54.89%
Efficiency Ratio
Particulars Formula 2017 2018
Total sales revenue 10622 10698
Average assets 8384.5 7921.5
Cost of Goods sold 6534 6651
Average Inventory 779.5 770
Inventory turnover (in
times)
Cost of good sold/
Average inventory 8.382 8.638
Total assets turnover
Total sales revenue/
Average assets 1.267 1.351
Interpretation: The above table is stating financial performance of Marks and Spencer of
year 2017 and 2018 with context of various parameter such as Profitability, Liquidity, Solvency
and Efficiency ratio. Its liquidity is not appropriate as it is not capable for meeting its short term
obligations with its current and quick assets. Further, there is measurement of profitability as it is
decreasing from year 2017 to 2018 as it was generating increment revenue but its profit was
decreasing due to expenses. The company's solvency is measured with context of debt equity
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ratio as it is not having optimal capital structure, in both years' organization has huge debts
which is financial risk. In the similar aspect, its efficiency has been measured with reference to
inventory and total asset turnover. These both parameters are increasing which shows
organization is highly efficient (Omar and et.al., 2014).
7. Explaining difference between International Financial Reporting Standards and international
Accounting Standards
The accounting standards are issued through IASB (International accounting Standards
Board).The organization which are listed on locally aspect and undertaken in obligation with
implication of financial statements in particular countries have directly accepted these standards.
IFRS (International Financial Reporting Standards): It is considered as set of
accounting standards which is developed through independent and non profit organization is
referred as IASB.
IAS (International Accounting Standards): It is older version of standards with context
of different type of transactions along with other events which should be presented in financial
statements. Previously these standards were issued through Board of the International
Accounting Standards Committee as from year 2001, new version of standards were developed
referred as IFRS and issued via IASB. As there was no authority with need of appropriate
compliance with context of accounting standards as various countries has need of financial
statements of companies (publicly traded) must be prepared as per IAS.
There is presence to two key differences among IAS and IFRS which are stated below;
 Every IFRS would include basis of any decision with reference to each standard: It
directly fit with intention of IASB for adopting principles on basis of approach to setting
standards. The IASB is reviewing on current aspect with number of IAS and it will be
linked as IAS as IASB could not refer with context of decisions taken whereas original
IAS was specified. On basis of outcome, both IAS and IFRs would be running parallel til
IAS was superseded through IFRS (Why global accounting standards, 2017).
 The bold text in IFRS is considered for guiding principles of standard: The bold text
is considered as compulsory elements on basis of standards.
8. Evaluating benefits of IFRS
International Financial Reporting standards is considered as set of international
accounting standards with context of kinds of transactions and events stated in financial
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statements. It is issued through international accounting standards and reflects methods of
accountants for reporting and maintaining accounts. These standards address challenge by giving
the best quality and set of accounting standards which are recognised globally as they bring
accountability, efficiency and transparency to financial markets throughout the world. The
advantages are stated below:
 The accountability has been strengthened with standards of IFRS as they decrease
information gap among capital providers and people where money is entrusted. It gives
information with requirement for holding management to account. The globally source of
comparable information, these standards has huge importance to its regulators throughout
the world.
 These standards would be contributing to economic efficiency for helping its investor for
determining opportunities along with risk across the world along with raising capital
allocation. With reference to business, application of single and trusted language of
accounting will lower cost of capital and will decrease cost of international reporting.
 These standards would be bringing transparency with reference to enhancing
international quality and comparability of financial information and it enables investors
along with other market participants for undertaking informed economic decisions.
 It helps in setting benchmark for organization and it brings homogeneity with context of
financial reporting (6 Advantages and Disadvantages of Adopting IFRS, 2018).
 The IFRS could help small and innovative investors through framing reporting standards
for better quality and simpler aspect as it puts investors in similar position along with
professional investors as they were not feasible with context of previous standards. Thus,
it helps in entailing for decreasing risk for these investors during trade as professionals
will be not capable for taking advantage due to financial statement's nature as it will be
simple and understood for all.
9. Identifying degree of compliance with IFRS along with factors which impact compliance
International financial reporting standards is outcome of decades for pursuing a
accounting and financial reporting standards which are universally accepted. In the present
scenario, there are more than 150 countries which are using similar accounting standards with
specific version of IFRS which are published through IASB including United States and Japan
has programs for placing converging national standards with reference to IFRS. There are
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various multinational companies and national regulators for endorsing IFRS due to easy
comparability financial outcome of reporting entities through various countries as if public
companies, financial statements were formed with application of standards and allows investors
for understanding opportunities in better aspect.
The big public organizations with reference to multiple charts and books in numerous
jurisdiction with capability of using single accounting language from its competitors. The other
advantages is with context of AICPA within true global economy along with financial
professionals and CPA would be more mobile and organization would be capable for responding
to need of human capital of their subsidiaries throughout world with implication of one standard.
The level of compliance is identified jointly by country and company level variables as it
indicates various accounting traditions along with country specific factors which will continue to
contribute in role with application of common reporting standards with reference to IFRS. The
company level, significance of goodwill position, prior experience through IFRS, existence of
audit committees, kinds of auditor, issuing equity share and bonds and structure of ownership are
influential factors. In the same series, at country level size of national stock market, strength of
enforcement are linked with compliance. These factors does not directly influence compliance
but mediate and moderate company level factors. Simultaneously, national culture in context of
strength of national traditions will directly impact compliance in context of company level
factors (Compliance with IAS/IFRS and firm characteristics, 2018).
CONCLUSION
From this study it has been concluded about financial reporting which has been used by
stakeholders that provided information to them about organisation performance and position.
This assignment has included context and purpose of financial reporting in which it has
concluded that financial reporting main purpose is to provide information to management for
decision making to improve organisation performance. Furthermore, it has included various
stakeholders of company such as employees, managers, customers, investors, government and
suppliers. Moreover, it has provided with value of financial reporting to organisation. Also, this
study has provided with financial statements such as profit and loss, balance sheet, statement of
changes in equity and cash flow statements. This assignment has also explained about difference
between international accounting standard and international financial reporting standard.
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REFERENCES
Books and Journals
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