International Financial Reporting: Analysis of Financial Statements

This report provides a comprehensive analysis of financial reporting, starting with its purpose and objectives, and progressing to its regulatory framework and governance aspects. It identifies key stakeholders and examines how they benefit from financial information. The report delves into the value of financial reporting in achieving organizational objectives, development, and growth, offering insights into the interpretation of profit & loss statements, statements of changes in equity, and balance sheets. Furthermore, it includes a practical application of financial ratios for assessing organizational performance and investment potential. A comparative assessment between IFRS and IAS is presented, emphasizing the benefits of international accounting standards. The report concludes by highlighting the importance and differences of financial reporting across various countries, providing a well-rounded perspective on the subject.

International Financial Reporting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................1
1 Analyzing the purpose of financial reporting......................................................................1
2. Presenting the context of financial reporting along with regulatory framework and
governance.............................................................................................................................1
3. Identifying main stakeholders of an organization and manner in which they benefited
from financial information.....................................................................................................1
4. Examining the value of financial reporting in the context of organizational objectives,
development and growth........................................................................................................2
5. Interpreting profit & loss, statement of changes in equity and balance sheet....................3
6 Calculating and presenting financial ratios for organizational performance & investment5
7. Assessing difference between IFRS and IAS.....................................................................7
8. Explaining the benefits of international accounting standard and IFRS............................7
9. Stating differences and importance of financial reporting across different countries.......8
CONCLUSION..........................................................................................................................9
REFERENCES.........................................................................................................................11

INTRODUCTION
Financial reporting is the process that is undertaken by business organization to
measure performance and providing stakeholders with suitable information for decision
making. In the recent era, every business unit lays high level of emphasis on preparing
financial reports at the end of accounting year. This in turn helps them in communicating
monetary information and thereby attracts more investors. In this, present report will shed
light on the manner in which regulatory and governance aspects is highly associated with
financial reporting. Besides this, it will also provide deeper insight about the motives that are
considered by business unit while preparing financial reporting. Report also depicts the extent
to which profitability, liquidity and solvency position of ROB Plc is sound. Further, it also
entails the significance of financial reports in the context of international market.
1 Analyzing the purpose of financial reporting
Financial reporting lays focus on disclosing monetary information to various
stakeholders such as management, investors etc about monetary position and performance
over the specified period of time. Main purposes and objectives of financial reporting are as
follows:
 Provides information to the management and helps in devising appropriate plan.
 Financial reports help firm in tracking cash flow
 With the motive to analyze assets, liabilities and owner’s equity firm lays emphasis on
preparing financial reports (What is the objective of financial reporting, 2017).
 Along with this, another main purpose of firm behind the preparation of financial
reports is to build and maintain faith of investors.
 Financial reports also enable firm to meet the information need of several
stakeholders concerning with its performance.


2. Presenting the context of financial reporting along with regulatory framework and
governance
Regulatory framework is highly essential to provide users of final accounts with
enough and appropriate so that they become able to make economic decisions. It establishes
the objective of mandatory presentation of financial statements and reporting for companies.
Further, conceptual framework implies for the coherent system of interrelated
objectives and fundamental principles. It also entails the manner in which financial
statements and reports need to be prepared for satisfying the need of stakeholders (Regulatory
and conceptual framework for financial reporting, n.d.). Conceptual framework is highly
important which assists in developing accounting standards as per generally agreed or
accepted principles.
Conceptual and regulatory framework related to IFRS is as follows:
(Source: Regulatory and conceptual framework for financial reporting, n.d.)
There are mainly four qualitative characteristics that make financial information
reliable such as:
 Relevance
 Reliability
 Comparability

 Understandability
On the basis of all the above aspects, financial statements and reports must contain
information that aid in the decision making of stakeholders. Further, financial reports must
free from false information and error (Stent, Bradbury and Hooks, 2017). To make the
information reliable firm needs to present information in such a manner that one can easily
understands the same and become able to make comparison with others.
3. Identifying main stakeholders of an organization and manner in which they benefited from
financial information
There are several stakeholders who have an interest in the performance of business
unit such as employees, investors, supplier and financial institution etc. Hence, by
undertaking and evaluating financial reports all such stakeholders are become able to satisfy
their information need (Warren and Jones, 2018). For instance: Financial reports contain
information about the level to which business unit is in position to meet debt or liabilities
from assets. In this, monetary reports serve valuable information to investors, promoters, debt
provider and creditors in making effectual decision regarding investment, credit etc. In
addition to this, financial reports help employees in making estimation about company’s
performance and growth. This in turn helps them in assessing the level of incentives and
salary enhancement. In this way, financial reports assist such stakeholders in taking suitable
decision associated with concerned unit.
4. Examining the value of financial reporting in the context of organizational objectives,
development and growth
Value of financial reporting can be assessed or determined on the basis of following
aspects:
 Financial reports serve monetary information to the management team of firm and
assists in planning, analysis, benchmarking & decision making. By making evaluation
of monetary reports business unit can assess the extent to which it is performing well
and become able to take strategic measure for improvement (Janowicz, 2017). Hence,
it can be stated that aspects of financial reporting assists management team who is
engaged in decision making aspect pertaining to organizational objectives and
strategic framework.

 In the competitive business arena, firm can maintain and attract investors only when it
serves suitable information to them on time. In this regard, financial reports are highly
significant which in turn helps investors in making evaluation of financial position
and performance (Ward and Lowe, 2017). Hence, through the means of financial
reports by providing accurate and timely information to investor’s business
organization can maintain their faith. This in turn offers benefits and makes
significant contribution in the attainment of organizational goals and objectives. For
instance: Whenever growing firm will issue shares to public then on the basis of
financial reports it would become able to attract more investors and helps in fulfilling
monetary requirements.
 Company also prepares report with the motive to ascertain manner in which various
resources are procured and used (Stent, Bradbury and Hooks, 2017). By this, firm can
evaluate its efficiency level and take competent decisions for the growth as well as
development in relation to the near future.
5. Interpreting profit & loss, statement of changes in equity and balance sheet
Business unit prepares financial statements at the end of accounting year with the
motive to ascertain and evaluate performance.
Profit & loss statement: It furnishes information about net margin generate by the
firm during accounting year over expenses.
Statement of financial position: Balance sheet presents financial performance under
two different categories such as assets and liabilities. Assets side include fixed such as land,
machinery etc, and current namely cash, debtors (Sinclair and Keller, 2017). On the other
side, liabilities are further distinguished into three aspects such as current and non-current
obligations as well as shareholder’s equity.
However, statement of cash flow provides deeper insight about cash generated
through operating, investing and financing activities. Hence, investing activities of cash flow
statement entails about fixed assets purchased and sold during the accounting year (Florou,
Kosi and Pope, 2017). Further, financing activities of cash flow statement presents
information regarding issue and redemption of debenture etc. Such aspects of financing and
investing activities make cash flow statement different from others.

Profit and loss statement of ROB Plc as on 31st December 2016
Particulars
Amount (in
£‘000)
Sales revenue 285100
Less: Cost of goods sold (COGS) 191700
Less: Depreciation over assets 4225 195925
Gross profit (GP) 89175
Operating income from rental property 1600
less: Operating Expenditure 39500
Interest on bank loan 1030
investment valuation 3300
Depreciation over assets 4225
Total operating expenditure 48055
Total operating income 42720
Less: Tax 12000
Net income 30720
Financial position of ROB Plc as on 31st December 2016
Particulars
Amount
(‘000)
Assets
Current Assets
Trade receivables or debtors 18000
Inventories 14000
Total Current Assets 32000
Fixed assets
Revaluation of plant and equipments 22400
Revaluation of Land and property 78750
Investments 18000
Total Assets 151150
Liabilities
Provision for taxation 12000
Bank over-draft 1200
Trade payables or creditors 15700
Total current liabilities 28900
Deferred tax 6900
Reserves on revaluation 28000
Non- current liabilities 34900
Equity capital earned
Ordinary shares 26700

Preference shares 13300
Retained earnings 47350
Total shareholder's equity 87350
Total liabilities and shareholder's equity 151150
Statement of changes in equity for ROB Plc
Particulars Share capital
Retained
earnings
Balance at the beginning 23300
Net income 30720
less: Dividends paid 6670
Issue of equity share 40000
Total changes in the equity 40000 47350
6 Calculating and presenting financial ratios for organizational performance & investment
Ratio analysis may be served as a tool that helps in summarizing financial statements
of the firm in a structured way under different categories such as profitability, liquidity and
solvency (Cohen, Krishnamoorthy and Wright, 2017). Such technique is highly effectual
which in turn helps company and its stakeholders in assessing whether company’s
performance is improved or deteriorated over the time frame.
Ratio analysis of Sainsbury Plc for the year ended on
Particulars Formula 2016 2017
Profitability ratio
Gross profit 1456 1634
Net profit 471 377
Sales revenue 23506 26224
GP margin or ratio Gross profit / sales
revenue * 100
6.19% 6.23%
NP margin or ratio Net profit / sales
revenue * 100
2.00% 1.44%

Liquidity ratio
Current assets 4444 6312
Current liabilities 6724 8573
Inventory 968 1775
Prepaid expenses 107 -
Current ratio Current assets /
current liabilities
0.66 0.74
Quick ratio (CA – stock) / CL 0.50 0.53
Efficiency ratio
Revenue 23506 26224
Total assets 16973 19737
Fixed assets 12529 13425
COGS 22050 24590
Stock 968 1775
Fixed assets turnover
ratio
Revenue / Fixed assets 1.88 1.95
Total assets turnover
ratio
Sales / Total assets 1.38 1.33
Inventory turnover
ratio
COGS / Stock 22.78 13.85
Solvency ratio
Long term debt 2053 625
Shareholders’ equity 6365 6872
Debt-equity ratio Long term debt /
shareholder’s equity
.32 .09

Profitability ratio: By doing ratio analysis, it has assessed that profitability position of
Sainsbury was not good in both the concerned years. In the year of 2016 and 2017, GP
margin of Sainsbury Plc accounted for 6.19% % & 6.23% respectively. Further, net margin of
business unit also decreased from 2% to 1.44% respectively. Hence, it can be depicted that
firm needs to exert control over expenses for improving margin.
Liquidity ratio: Results of ratio analysis shows that current ratio of Sainsbury Plc
increased from .66:1 to .74:1 at the end of 2017. This aspect exhibits that current ratio of the
firm is very far from ideal ratio such as 2:1. Hence, comparing current performance with
ideal figures it can be said that such retail unit was not highly capable in relation to meeting
current liabilities from assets.
Solvency ratio: Outcome of ratio analysis exhibits that debt-equity ratio of Sainsbury
Plc decreased over the time frame from .32 to .09. In accordance with the standard or ideal
measure debt-equity ratio must be .5:1. Hence, by taking into account such aspect it can be
mentioned that solvency position of company was not good in 2017. Thus, for developing
optimal structure firm needs to fulfil monetary needs through long term debt.
Efficiency ratio: Results of ratio analysis there was no significant improvement found
in fixed and total assets turnover ratio. In addition to this, inventory turnover ratio of
Sainsbury Plc was decreased from 22.78 to 13.85 in 2017. Hence, overall evaluation presents
that efficiency ratio or performance of firm was not sound. Thus, company needs to make
modifications in the existing framework for performance improvement.
7. Assessing difference between IFRS and IAS
Basis of difference IFRS IAS
Introduction IFRS were published by
International Accounting
Standard Board starting from
2001
From assessment, it had
identified that IAS were
published by International
Accounting Standard
Committee between 1973 to
2001
Inclusion of basis IFRS lays emphasis on
including basis of any decision
within each standard
(Difference Between IAS and
Unlike IFRS, IAS does not
contain information about
decision basis.

IFRS, 2017).
Bold text entails Guiding principles in IFRS Compulsory elements of the
standard.
8. Explaining the benefits of international accounting standard and IFRS
From assessment, it has identified that international accounting standards and IFRS
offers benefit to both business organization as well as concerned stakeholders. Moreover,
both IAS & IFRS facilitates standardization and thereby help investors in making selection of
firm which in turn offering high returns (Hope, Thomas and Vyas, 2017). Along with this, in
the case of standardized accounting companies can evaluate its position in again to
competitors and become able to take appropriate decision. Both IAS and IFRS enhance
corporate governance and free flow of capital across the globe. Further, benefits of IFRS and
IAS are enumerated below:
IAS benefits
 Investors-benefits: IAS and formats of financial statement simplify international
investment decision. Hence, companies that follow IAS and guidelines help
shareholders can make comparison of financial information regardless of company’s
origin.
 Globally accepted: IAS is globally acceptable which in turn reduces the need of
preparing additional statements and thereby lead reduction in expenses (What Are the
Benefits of International Accounting Standards, 2018).
Benefits of IFRS
 Transparency: IFRS brings transparency in relation to financial information by
increasing the level of international comparability and quality. It enables investor and
other participants to make appropriate informed decision.
 Accountability: By doing evaluation, it has found that FRS increases or strengthens
accountability to the significant level. As, it reduces gap pertaining to information
which take place between providers of capital and people to whom financial
assistance is provided (Picker and et.al., 2016). In addition to this, IFRS also helps
regulator around the world and aid in effectual decision making.

 Efficiency: International financial reporting standards enhance economic efficiency
to a great extent. Hence, IFRS provides high level of assistance to investors in
identifying opportunities as well as risks take place across the world and thereby leads
capital allocation. Along with this, standardized system also offers benefit to the firm
by reducing the level of international reporting costs.
However, on the critical note, it can be said that flexibility which is offered by IFRS to
the companies lead manipulation. Moreover, IFRS flexibility allows firm to include methods
which they want. This in turn enables them to shows desired level of results in financial
statement regarding revenue, profit etc (International Financial Reporting Standards -
Advantages & Disadvantages, 2018). Along with this, requirement pertaining to compliance
with IFRS also imposes issue in front of small business units as they require trained staff for
recording transaction according to the same.
9. Stating differences and importance of financial reporting across different countries
From evaluation, it has asserted that approximately 90 countries are complying with
the international financial reporting and accounting standards while preparing statements as
well as audit (Kim, Shi and Zhou, 2014). However, still gap takes place in the accounting
practices undertaken by organization across different countries. Moreover, United States and
other countries have not yet adopted IFRS. In US, GAAP is followed by business unit while
preparing statements and disclosing reports in relation to the same.
Importance of financial reporting in the context of international market is enumerated
below:
 Comparability: Financial reporting aspects in accordance with IFRS ensure greater
comparability of statements. On the basis of such aspect, companies that undertake
similar standards for the preparation of financial statements can compare their
performance in against to each other more effectually. Hence, by considering the
results of evaluation concerned business units can develop competent strategic and
policy framework.
 Assists in taking decision regarding merger & acquisition: Now, companies are
seeking for strategic partners, customers and suppliers in foreign market. Financial
reports help organization in getting monetary information about leading brands
(Warren, 2016). By considering financial reports, firm can take decision about merger

& acquisition and thereby would become able to take decision in relation to
expanding operations at overseas level. IFRS simplifies reporting for multinational companies that have operations in
multiple countries. Standard accounting systems pertaining to geographic units,
within large sized firm, can simplify the process of transferring managers from one
unit another. This in turn makes cross-unit collaboration on financial matters more
effective.
 Helps investors in planning: In addition to this, financial reporting enables investors
to make investment in the firm which is highly growing and profitable. As, financial
reports furnish information about the level to which profitability, liquidity and
solvency position of the company is sound (KAAYA, 2015). Hence, by making
assessment of all such information international investors can take appropriate
decision regarding investment.
CONCLUSION
From the above report, it has been concluded that business unit prepares financial
with an intention to evaluate its performance over the years and in against to the rival firm.
Besides this, it can be inferred that financial reporting also meets information need of
stakeholders to a great extent. In addition to this, it has been articulated that monetary
performance and position of ROB Plc is good. For enhancing the level of profit margin firm
needs to exert control over expenses. It can be summarized from the report that IFRS and IAS
enhance the level of accountability, efficiency as well as transparency prominently. Further, it
can be stated that aspects of auditing helps in assessing loopholes or issues and thereby helps
in presenting fair view of financial aspects. Besides this, it can be inferred that financial
reporting system assists both investors and business unit in taking investment decision
internationally.

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