Comprehensive Case Study: Financial Reporting of Tesco PLC and IFRS

This case study examines the financial reporting practices of Tesco PLC, a major player in the retail sector. It begins by outlining the purpose of financial reporting and the conceptual frameworks underpinning it, emphasizing the role of IFRS. The study then identifies Tesco's stakeholders and their reliance on financial information. It explores how financial reporting supports firm objectives, detailing the components of financial statements such as income statements, cash flow statements, and balance sheets. The analysis includes an interpretation of Tesco's financial performance, particularly its profitability ratios, comparing 2016 and 2017. The case study also highlights the differences between IFRS and IAS, the advantages of IFRS, and the factors influencing global compliance. Overall, the case study provides a comprehensive overview of Tesco PLC's financial reporting, its implications, and its adherence to international standards.

CASE STUDY

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
1.Purpose of financial reporting:.................................................................................................1
2. Conceptual frameworks of financial reporting:......................................................................2
3. Stakeholder of Tesco plc and and its benefits from financial information:............................2
4. Financial reporting for meeting firm objectives:....................................................................3
6. Financial statement of Tesco plc and interpretation of financial performance:......................6
7. Difference between IFRS and IAS..........................................................................................9
8. Advantages of IFRS..............................................................................................................10
9.Various degree of compliances with the IFRS by firms across the globe and components
affecting it:................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
In this era, every company is adhering the financial regulations in the firm. This is the
process for manufacturing statements which shows firm's financial status to management,
investors and the government (Beyer, A. and et. al., 2010). There are basically four reporting
tools covers in financial reporting. Income statements, balance sheet, cash flow statement and
statements of shareholders equity. These all are used by the firm in order to draw business
strategy. Tesco plc is a supermarket chain which deals in the retail sector. By using financial
reporting, tesco plc can make strategies in order to get the higher advantages.
TASK
1.Purpose of financial reporting:
IFRS framework is the major tools which identify the basic concepts that can be used for
formulation and presentation of financial statements for external users. The IFRS framework
serves as a handbook to the Board in emerging estimated IFRSS and also introducing guidebook
for redressing accounting issues which are not addressed directly under an International
Financial Reporting Standard (Li, 2010.
In the missing of an interpretation which is especially applies to a transaction,
administration are requires to implement its judgement in emerging and applying an accounting
policy which results in information that is justified. In formulation of judgement, IAS 8.11 needs
management to adopt the definitions, acknowledgement criteria, and a measuring concepts for
assets, liabilities, income, and expenses under IFRS framework. This is the main financial
regulatory body which are used to adhere by each company for incorporating business
accounting tools. These are required to frame accounts accordingly. However, these are required
to make their business operations effectively. These financial reporting information are used by
the outsiders and the top level management for making making the strategies. Now, this also
been seen that the management is not able to make their business objectives effective. The
outsiders, with the help of financial statements, are able to make certain investment decisions
after analysing the firm performance (Armstrong, Guay and Weber, 2010). However this has to
be sure that the financial statements are made by the Tesco plc is using the IFRS and regulatory
framework for formulating various financial statement in order to make their business
operations. However, these are made by the accounts specialist so that the transparency can be
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achieved. Various regulatory frameworks are used while formulating their business financial
statement. Financial statements are used by the company for knowing the financial performance
in order to make their business operations effective.
2. Conceptual frameworks of financial reporting:
Under financial reporting, a conceptual framework is the theory which is made by the
accounting prepared by the standard setting body against which practical issues could be tested
objectively (Chen and et. al., 2011). A conceptual framework addresses the fundamental
financial reporting problems like- objectives and users of financial statements, characteristics
which form accounting information useable, the fundamental elements of financial statements,
and concepts for addressing these factors under the financial statements.
There are certain benefits of conceptual framework of financial reporting. Which covers:
framing concise definitions which enables discussion of accounting factors; rendering guidance
to accounting standards setters at the time of emerging and reviewing financial reporting rules;
assisting to insure that accounting standards are pursuant with the organisation; assisting
framework makers and auditors to address financial reporting problems under the absence of
accounting standard, and assisting to lower the volume of accounting standards by rendering an
overarching theory of accounting which could be applied to specific reporting issues.
The emergence of first conceptual framework was emerged in the late 1970s by the Financial
Accounting Standard Board (Barth and Landsman, 2010).
3. Stakeholder of Tesco plc and and its benefits from financial information:
Stakeholders: That group of an individual without whom a company cannot exist or operate its
activities are known as stakeholders. Individuals who has some kind of interest in an enterprise
are known as stakeholders. These are the one who affect the activities and business actions of an
organisation. Customers, employees, shareholders, suppliers, local community and national
government are the main stakeholders of an organisation.
It is very essential that all stakeholders of company should have information about the
funds of company as this help in run the business properly and contribute in making more
profits. Financial conditions of a company are one of the major concern for creditors and
investors. Capital provider and creditors of a company rely on financial conditions of a company
for safety. All investors need to know where their money went. Various financial statements such
as balance sheet give them detail information about investment of firm. As balance sheet is list of
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all company's debts and it help equity investors to better understand the financial condition of
company. Further financial reports help investors to get information about sales, purchase, loss
and profits of company. Income statement help investors to evaluate company's past
performance. Cash flow statement help stakeholders to get information about exchange of cash
and it help investors to know whether company have enough cash to pay its expenses or not
(Costello, 2011).
Like the other financial reports statement of shareholders equity because it help them to
know about the changes take place in equity components and retain earning of a company at a
specific period of time. Overall various financial reports help stakeholders to know about the
financial positioning of a company and guide investors whether to provide financial help to
company or not. It reveal the information like whether firm has funds to pay its expenses or not.
With the help of financial report of TESCO its stakeholders can decide whether to invest in its
business activities or not.
4. Financial reporting for meeting firm objectives:
The financial reporting is helpful in meeting the organisational objectives. In the financial
report, this includes the balance sheet, profit and loss statement, cash flow statements etc. with
the help of this, company can analyse its financial performance and also compare its
performance level with the any other business rivals. From this, the business firm can compare to
make improvement in its current position. Now, this also has been seen that the financial
reporting does not only helps the firm to attain its financial objectives but also make business
sustainable and attract investors to invest in the organisation (Agoglia, Doupnik and Tsakumis,
2011). Financial reporting within the firm is made by complying various accounting standards
for making transparency within the firm. There are so many accounting regulatory bodies which
made certain rules and standards for completing firms financial reporting and assures
transparency as well.
International accounting standards and International financial reporting standards are the main
bodies which set out the standards for accounting, and every firm is required to adheres these set
out rules for making financial statements. The main objectives of financial reporting helps the
firm to render existing and potential investors and creditors with relevant informations which
could guide them in forming business decisions on investments, lending and other “ resource
allocation” matters. Financial reporting includes:
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Income statements: This is the main statement under which firm covers revenues and
expenditures. On the basis of such revenues and expenditures, income statement is prepared
(Council, 2010). The income statement also offers insights on how efficient firm managed by
telling observers these things as how much amount of profits and how long it takes to sell items
in stocks.
Cash flow statements: A main disadvantage of the income statement is that this only reports
only the earnings of the firm and spendings overall. Which does not reflects the cash position of
the firm (Nobes, 2014). Hence, this can be said that the cash flow statements is the main tool to
know about the cash earnings and expenses. As, cash is the major source for running the firm. If
cash does not exist then firm cannot survive. This statement helps the firm to know about the
amount which is left for the firm and used for the business operations.
Balance sheet: This is the most perfect tool which represents the financial positions about all its
assets and liabilities. On the assets side, this reflects to the outsiders and observers, how much
amount the firm has, inventory has, and how much amount this is anticipating to gather from its
customers and what physical property it has (Iatridis and Rouvolis, 2010). On the liability side,
this reflects the amount which the company owes- to suppliers, to lenders, to its own workers and
to others. Mostly, the balance sheet represents to an observer at a glance the answers to key
questions about firm's financial health: the amount of debt is carrying, whether this has money
available to pay forthcoming bills, how well this is handling this inventory and aggregations- and
whether this is in danger of becoming insolvent from liabilities which exceeds assets.
Owner's equity statements: Equity is the difference between firm's assets and its liabilities, so
they could think of it as part of firm's entire value which belongs to the investor. The equity
statement defines how much stake owners have in the firm (Epstein and Jermakowicz, 2010).5.
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Financial statements:
a) Statements of profit and loss
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Cash flows are the transactions which are carried out in business and in which cash is
involved. Almost all the transactions involve cash and in statement of cash flows they are to be
represented by bifurcating them in three categories. They are operating, investing and financing
activities. From the profit and loss account the amounts which are to be shown in this includes
sales, bank interest, income from rent and dividend (Ball, Jayaraman and Shivakumar, 2012). All
the amount which is received from sales and paid for the purchase of inventory is to be
incorporated. All of the expenses which are paid and other incomes which are earned in cash are
presented. From statement of balance sheet there is no amount which is to be shown in current
case otherwise the change which take place in equity that means the amount received on issue of
shares or redemption of shares is to be included. In this opening amount is to be reconciled with
the closing amount of cash that is presents so that it can be known that there is no fraud that has
been carried out in respect of it. Also it is determined that all the funds have been utilised in the
best manner possible for the overall benefit of organisation.
6. Financial statement of Tesco plc and interpretation of financial performance:
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From the above mentioned financial statements, if we talk about the profitability, then we
will find that the company profit margin was 1.01 in 2016 which was reduced to 0.04 in 2017.
this shows that firm operating profit margin is reducing as compare to the last year. Return on
equity of the firm in 2016 was 4.6 which also reduced to -0.6 in 2017. return on capital employed
of the firm does also reflects the negative figure in 2017 as compare to the previous year figure.
Hence, in terms of profitability, firm performance is getting down as compare to the 2016
financial positions.
However, the firm's quick ratio is almost same to the last year ratio, and current ratio slightly
change.
So, this is observed that the company needs to make their business positions effective by using
firm's resources effectively so that the operations could have framed great.
7. Difference between IFRS and IAS
IAS are set of standards which International accounting standards committee issue and
are required to be complied by all the companies. They were developed so that financial
statements can be understood in better manner and also the chances of misrepresentation is
reduced with the help of them. In them, the manner in which any particular transaction shall be
recorded in statements is specified (Iatridis, 2010). Then, IASC was taken over by IASB in 2001
and decided that the standards which are there currently will be adopted but after some
modifications being made to them. They were revised to bring them at international level and
named them as international financial reporting standards. By this change was made to all the
businesses and markets. Although IFRS is revised form of IAS but there are some differences
which exist among them. The main difference is the time period, according to which all
standards which were issued till 2011 are known as IAS and the ones that were made after this
period are considered as IFRS. IASC is authorise for the purpose of issuance of IAS and in
respect of IFRS the authority which is responsible for making of them is IASB. The rules which
are made in IFRS in respect of measurement, identification, disclosure and presentation of
various assets that are held is different from what has been mentioned in IAS. The total standards
which are made in IFRS are 9 whereas there were total 39 IAS that has been issued.
Another difference which can be noted is the meaning of bold text which is represented
under both cases. In IFRS It refers to guiding principles of that standards and they are
compulsory elements In case of IAS which are required to be followed by all without any
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negligence. Also in IFRS the manner in which decisions shall be taken by taking into
consideration some important factors is specified which was not there in IAS.
So above mentioned are some of the differences which exist among both of them ans are
to be noted so that all the functioning in company can be carried out in most appropriate manner
(Altamuro and Beatty, 2010).
8. Advantages of IFRS
International financial reporting standards are used and there are various benefits which
will be received by it. Some of them are mentioned below:
 The main merit of them is that in it focus is provided to investors and so it is ensured that
such statements shall be made which are accurate and competed on timely basis. It has
been noted that the manner in which statements are represented under this are more
understandable for investors and they can take decisions in better manner.
 The another feature of it is that in this loss is recognised on immediate basis and this will
be beneficial for all including lenders, investors and stakeholders. With the help of this
corporate governance is improved as efficiency with which companies can contract with
management is increased.
 The next merit is increase in comparability and this is because now all the entities are
required to prepare there accounts by using same standards and policies. So it will be
easy to make proper comparison.
 The financial statements have been standardised due to adoption of these standards and
this also increase the level of comparability. It also helps in removal of various trade
barriers which are there as all are now complying same reporting formats (Cheng,
Dhaliwal and Zhang, 2013).
 By the adoption of IFRS, financial reporting has become all the more consistent and
transparent. By this all the investors have required information which is needed by them
in order to take best decisions and also relation with other countries is improved.
 As the financial statements are prepared using same standards so it will be possible to
have better access on the foreign investments and capital market. Now they can
understand the accounts of others and decide that which investments shall be made and in
which country.
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 Competition is the main threat in economy and in order to deal with it in best manner it is
very much necessary to have knowledge regarding all the policies a d practices which are
adopted by them. With the help of IFRS this is possible as they are globally accepted so it
will be easier to understand the data of other rivals and then take measures to overcome
them.
So all of these are some of the major benefits which are attained with the adoption of
IFRS and makes it as the positive aspect for any company or nation as whole.
9.Various degree of compliances with the IFRS by firms across the globe and components
affecting it:
IFRS is the standard which is used by the company for making financial statement. This
is the standard which has been used by almost each countries across the globe in order to make
transparency in the business operations. With the help of this, company can protect themselves
from any contingency. Under this, various standards have been set out in order to make financial
reporting in an efficient manner. By applying this, firms' can avoid any frauds and contingency
error in term of financial reporting (Van Greuning, Scott and Terblanche, 2011). However,
various countries have their own accounting standard boards which have various issues or
constraints in order to make their business operations effective. In United Kingdom, Accounting
standard board issues standards for issuing for financial reporting standards which are applicable
to all the organisations which are incorporating in the region. However, there are some
inconsistency between the international financial reporting standard and financial reporting
standards. Henceforth, accounting professionals while making financial reporting, trying to
eliminates inconsistency between them.
CONCLUSION
From the above mentioned report, this has been concluded that the Tesco Plc adopted
IFRS standards for formulating the financial reporting for reflecting the actual picture of the
firm financial positions. There are certain problems that can be eliminated by the firm for making
their business operations effective. Under this, project, financial statements are formulated and
analysing the firm financial positions by using ratios. By applying firm IFRS board, firm is able
to find out various error and trying to overcome this.
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REFERENCES
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