Financial Reporting Analysis: Standards, Performance, and Framework

This report provides a comprehensive analysis of financial reporting, beginning with an introduction to the conceptual and regulatory frameworks, including GAAP and IFRS, and their significance for organizations like InterContinental Hotels Group. The report delves into the purpose of financial report...Read More

Financial Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
P1. Financial reporting and regulatory framework along with financial governance..................1
P2. Purpose of financial reporting in order to meet organizational growth, objectives and
development.................................................................................................................................3
TASK 2............................................................................................................................................5
P3. Produce financial statement of the company.........................................................................5
P4. Calculate financial ratios of company in order to evaluate performance and further
investment....................................................................................................................................8
TASK 3............................................................................................................................................9
P5. Difference between International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS).........................................................................................................9
P6. Models of financial reporting and auditing.........................................................................10
TASK 4..........................................................................................................................................11
P7. Identify the importance of IFRS across the world...............................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
APPENDICES...............................................................................................................................14

INTRODUCTION
Financial reporting is the method of disclosing financial information for the internal as
well as external parties which is called stakeholders. Reporting help the business to analyse their
performance in the specific duration. Financial reporting can be prepared on quarterly or
annually basis and it includes the various statement such as balance sheet, profit & loss account,
cash flow statement and change in the equity or it is also called statement of retained earning
(Barth, 2018). Oliver Wyman is UK based financial consultancy company and its client company
is InterContinental Hotels Group which is multimational hospitality organization. Its headquater
in Denham, England and it was established 2003 by Keith Barr who is CEO of the company.
This report cover various topics such as purpose of the fianacial reporting, coneceptual or
regulatory gramework and key pricinples. Along with this, it contain interpreation of financial
stataments which help the business to analyse their fianacial position. In addition, satandards of
financial reporting, models & concepts need to analyse. It includes the difference or importantce
of International Financial Reporting Standard (IFRS) in the various countries.
MAIN BODY
TASK 1
P1. Financial reporting and regulatory framework along with financial governance
Conceptual Framework: It is an analystical tool which assist the International
Accounting Standard Board (IASB) for the further development of the International Financial
Reporting Standards (IFRS). It helps the InterContinental Hotels Group to measure their
financial transaction in order to provide accurate information to the stakeholders. Conceptual
framework follow the Generally Accepted Accounting Principle (GAAP). Accountant improve
their management practices which further helps in developing effective or efficient report for the
external parties (Dunne and et.al., 2013). Lack of using these framworks will generate the
various scandels through misappropriation of the accounts and change in the financial transaction
and figures. So conceptual framework helps in various way such as:
 Helps in developing future standards which is used by the organization in order to follow
and develop accurate report.
 Maintain the relation between accounting standards and regulation.
 It helps in increasing communication with stakeholders by using financial reporting.
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Regulatory Framework: It is the underground injection which provide the direction to
the organization that how to move further by following all the standards. Every business has to
follow various regulatory framework in order to perform well and achieve their business goals &
objectives under the regulatory framework. International Financial Reporting Standard (IFRS) is
one of the regulatory body of the government and aim is to provide the transparency or
accountability in financial information. With the help of this accounting framework, business
communicate all the relevant information to the stakeholders of InterContinental Hotels Group.
Some of the regulatory framwork used by the organization which is discussed below:
 IFRS 1 – For the first time adoption of IFRS.
 IFRS 2 – Share based Payments.
 IFRS 4 – Insurance Contract.
 IFRS 7 – Financial discloser which contain all the financial information and presented in
Balance sheet, income statement or cash flow.
 IFRS 10 – Consolidated financial statement.
Purpose of conceptual framework provide the understanding of IFRS and GAAP. Along
with this, qualitative information devided in the below mentioned table:
Basis Components Description
Fundamental Relevance,
Faithful
representation of
financial
information.
These characteristics represent the accurate financial
information where it conforms that legal regulations &
guidelines, free of errors, complete and neutral all are
followed in proper way (Holthausen, 2015).
Enhancing Comparability,
Verifiability,
Timeliness,
Understandability
With the help of these characteristics, business show the
financial information which is required to increase their
capability and enhance decision-making process for its
users. It is understandable, easy to measure and provide
authentic information.
Governance in financial reporting help the InterContinental Hotels Group and their
accountants to follow all the regulations and practrices in order to develop accounts by using
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effective methods. It will provide the proper process that how to record each financial
information and what is the treatment of different types of transection. With the help of financial
governance, business record, maintain or control the operational activities and then disclose.
InterContinental Hotels Group follow all the relavant regulations in their organisation in order to
produce accurate stataemnet which provide the true position of the business.
P2. Purpose of financial reporting in order to meet organizational growth, objectives and
development
Financial reporting: It is the discloser of financial information which help the
stakeholders to understand and analyse the final results. This reporting include the cash flow,
balance sheet and income statement. With the help of reporting, internal as well as external
parties can analyse and take further decision regarding their investment. It also include the
footnotes which provide the more details and provide better understanding. All the financial
information included in the annual report which is prepared for the shareholders of the company.
So InterContinental Hotels Group include all the information in the their prospectus to attract
potential investors.
Purpose of financial reporting: main purpose of financial reposting is to disclose the
information for the business and their stakeholders. It will helps in analysing the financial
position which further beneficial for the potential investors to take decision regarding investment
(Dalnial, and et.al., 2014). Because if organisation is profit making the external parties will show
their interest or if business generate the loss then stakeholders not interest for the further
investments. With the help of financial reporting, organization meet their objectives and get the
opportunity for the future development.
 Balance sheet provide the true position of the business so interested people can analyse
the current status and then take their decision in respect of the further investment.
 Purpose of income statement is to show the net profit or loss in the financial year and it
help the manager to analyse the results which provide the clear idea that business able
to achieve their objectives or not.
 Cash flow provide the actual flow of cash in the organization for the further analysis.
Main purpose of financial report is to disclose accurate financial information which help
the external as well as internal parties. For example: Financial statements of InterContinental
Hotels Group help the stakeholders to give their decison for the investment because they want
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good return. Or if company is loss making then it will affect the investors and their other
shareholders. It is essentialy required because it will provide the sustanable development in the
market as well as helps in acheiving business goals & objectives.
Identify the main stakeholders and how they get benefit from financial information:
Stakeholders Benefits from financial information
Competitors They have to analyse strategy and business plan in order to improve their
performance and gain competitive advantage.
Employee Employees are always interest in the financial information because they
wanted to know weather company performing well or not. Business able to pay
their salary or not (Hopkins, Maydew and Venkatachalam, 2014).
Government Government body & other agencies complying with the legal instruction which
organization have to follow at the time of preparing financial statements.
In order to enhance their reach, InterContinental Hotels Group have to satisfy their
stakeholder to incraese their interest in the organization. When organizatrion perform well then it
will be shown in their financial statments which contain lots of information. It will encourage the
potential investors and maintain their existing investors. Through satisfying their stakeholder,
organization can achieve business goals & objectives which provide the future growth and
development.
Evaluate the value of financial reporting which meet the business objectives, growth and
development:
Financial reporting of every organization contain various information which is valuable
for the business and it help the stakeholder to analyse financial statement. Financial reporting
include the balance sheet, cash flow & income statement of the company and disclose all the
information for its users. It includes internal as well as external stakeholders which helps the
organization to achieve their objectives or goals in order to enhance their future growth for the
development. Earning power is most popular aspect of the income statement which generate
value for the InterContinental Hotels Group (Jonas and Blanchet, 2012). With the help of balance
sheet, people analyse the financial position of the company. So basically, financial reporting help
the business to develop interest of the stakeholders which further helps in achieving busines
goals & objectives and provide growth in the market.
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TASK 2
P3. Produce financial statement of the company
Trial balance of Godwin Plc for the year ended 31 December 2018
Particulars £'000 £'000
Debits Credits
Cost of sales 3,91,700
Revenue 5,85,100
Trade receivables 78000
Trade payables 62700
Operating expenses 80500
Rental income from investment properties 9600
Closing inventory 31 December 2018 (Note 2) 25000
Bank interest 1200
Preference dividend (full year) 2500
Ordinary divident paid 1 July 2018 4500
Investment property at valuation 28000
Land and property at valuation (Note 1) 150000
Plant and equipment at cost (Note 1) 148000
Plant and equipment accumulated depreciation as at 1
January 2018 32400
Revaluation reserve 40000
Retained earnings as at 1 January 2018 45500
Ordinary share capital 25p shares 86700
10% redeemable preference shares £1 26500
Deferred taxation 10000
Bank overdraft 10900
909400 909400
Working Notes*
(1)
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Particulars Land and Property P&E
Cost/valuation 150000 148000
Accumulated Depreciation as at 1 Jan 2018 32400
Current depreciation charge -5938 -17340
144062 163060
*Property is valued @ £95000 has a life 16 years
Depreciation on property = 95000/16 years = 5938
Current depreciation on Plant and Equipment = X%*(cost – acc dep.) = 15%*(148000 -
32400) = 17340
(2)
Particulars Cost of sales Operating expenses
Balance as per TB 391700 80500
Add adjustment in closing inventory 300
Depreciation on Property 2969 2969
Depreciation on Plant and Equipment 8670 8670
403639 92139
Particulars Amount
Cost of damaged goods 2470
realisable value 2670
less remedial cost -500
Net Realisable Value (NRV) 2170
Closing inventory TB 25000
less cost of damaged goods -2470
add NRV 2170
Adjusted 24700
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Income statement of GODWIN PLC.
Profit & Loss for the year ended December 31, 2018
Particulars £ (000)
Sales 585100
Rental Income from Investment Properties 9600
Total sales 594700
Less: Cost of Sales(WN.2) 403638.75
EBIT 191061.25
Less: Operating Expenses(WN.3)
92138.75
Operating Profit 98922.5
Less: Bank Interest -1200
Profit Before Tax 97722.5
Less: Taxation Charge -9500
Net Profit after Tax 88222.5
Revaluation Gain/Loss -
Total Comprehensive Income 88222.5
Interpretation: From the above calculation, it has been interpreted that operating profit
of the company is 98922.5 in 2018 and net profit after tax is 88222.5.
Changes in Equity for the year ended December 31, 2018
Particulars
Ordinary Share
Capital (£'000)
Revaluation
Reserve (£'000)
Retained
Earnings (£'000) Total (£'000)
Amounts As per
trial balance 86700 40000 45500 172200
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Net Profit after
Tax - - 88222.5 88222.5
Preferential
Dividend - - -2500 -2500
Ordinary
Dividend - - -4500 -4500
Total 86700 40000 126722.5 253422.5
Interpretation: From the above calculation, it has been concluded that change in the
ordinary share is 86700, in reserves 40000, 126722.5 retain earning and total change in the
equity was 253422.4.
Statement of Financial Position as at December 31, 2018
Assets £'000 £'000
Non - Current Assets:
Land and Property 144062.5
Plant and Equipment 98260
Investment Property 28000
Total Non - Current Assets 270322.5
Current Assets:
Closing Stock of Inventory 24700
Trade Receivables 78000
Total Current Assets 102700
Total Assets 373022.5
Owner's Equity and Liability
Equity:
Ordinary share capital 25p. Shares 86700
Revaluation Reserve 40000
Retained Earnings 126722.5
Total Equity 253422.5
Non - Current Liability:
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10% Redeemable Preferential Share Capital £1 26500
Deferred Taxation 10000
Total Non - Current Liabilities 36500
Current Liability:
Trade Payables 62700
Bank Overdraft 10900
Tax Payables 9500
Total Current Liabilities 83100
Total Equity & Liabilities 373022.5
P4. Calculate financial ratios of company in order to evaluate performance and further
investment
In the context of InterContinental Hotels Group, financial ratio of the company calculated
below and it represent the liquidity of the business.
Ratios 2017 ($ m) 2018 ($ m)
Current Ratio
= Current Assets / Current
liability
= 839 / 1304
= 0.6434
= 1376 / 1370
= 1.004
Quick Ratio
= Current assets – inventory /
Current liability
= 839-3 / 1304
= 0.6411
= 1376-5 / 1370
= 1.001
Operating Profit Ratio
= (Operating profit / Revenue)
* 100
= (763 / 1784) * 100
= 42.76%
= (566 / 4337) * 100
= 13.05%
Net Profit Ratio
= ( Net profit / Revenue ) *
100
= ( 593 / 1784 ) * 100
= 33.23%
= ( 352 / 4337 ) * 100
= 8.11%
Current Ratio: It is a liquidity ratio which help the organization to measure available
resources to meet the short term obligations. In the InterContinental Hotels Group, current ratio
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of 2017 was 0.6434 and in the 2018 was 1.004. Ideal ratio is 1:1 which help the business to pay
off their liabilities through available sources. High as well as low from the ideal ration not good
for the company. Manager of the company have to maintain their liquitidy as in the 2018. It help
the manager to evaluate fianncial performance of the company. Currently InterContinental
Hotels Group performanceis goods (InterContinental Hotels Group, 2019)
Quick Ratio: It is also called acid test ratio and it measure the ability of the company
regarding their liquidity which isnear by cash. It exclude the inventory because it will take time
to convert into cash. In the InterContinental Hotels Group, quick ratio of the year 2017 was
64.11 and 1.001 in 2018. This ratio represent the liquidity which help the organization to pay off
their debt immediatly.
Operating Profit Ratio: With the help of this ratio, business measure the revanue from
operating activities. In the InterContinental Hotels Group, operating profit of 2017 was 42.76%
and 13.05 in 2018. It clearly shows that operating profitl decreased in the current year due to
their over expenses. So manager have to reduce their product cost in order to increase the
margin.
Net Profit Ratio: This ratio show the net profit after deduction of tax, it is the final profit
for the owner. It remain the profit after reducing all the cost of production and administration. In
the 2017, net profit was 33.23% and 8.11% in 2018. Profit of the year decreased because
operating profit already decrease from previous year.
TASK 3
P5. Difference between International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS)
Basis IFRS IAS
Definition International Financial Reporting Standard
(IFRS) are the standards which issues by
the IFRS foundation. Main objective is to
develop public interest for high quality,
transparency and accountability regarding
financial information. IFRS provide the
common set of standards which followed
It is a set of global standards which
followed by the organizations which
deals in the multiple country. It
includes the set of rules and
principles which shows that how to
present financial information which
is going to be understandable.
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by the organization to use same
accounting methods to produce financial
statement. With the help of IFRS,
InterContinental Hotels Group represent
their financial information to the
stakeholders and converted them into
potential investors.
Organization follow the IAS which
is common and provide the accurate
results. Companies represent
financial information which further
helps the manager to communicate
with their international clients
(Laswad, Fisher and Oyelere, 2015).
Governed
Body
IFRS issues by the International
Accounting Standard Board (IASB).
This is governed by the Internation
Accounting Standards Committee
(IASC).
Evaluate the benefits of IFRS:
 It is beneficial for the economy through increasing growth of international business.
 With the help of this, organization encourage the international investors and lead to
generate the more capital flow from foreign country.
 Those organization follow the IFRS will able to generate the capital from foreign market
at lower cost and it will be happen when they develop confidence in the foreign investor's
mind (McDaniel, Martin and Maines, 2012).
 It will also provide professionalism at the time or preparing accounts and these practices
followed through out the world.
P6. Models of financial reporting and auditing
Model of financial reporting:
 Three Statement Model: It is the basic model of organization which contain three
statement such as balance sheet, cash flow and income statement. Main objective of this
model is to linked all three statement with each other to eliminate the error as well as any
default at the time of recording transaction. .
 Discounted Cash Flow (DCF) Model: It is the another type financial model which
include the forecasting of cash flow. Discounting value of security in the current and
future time and it also provide the insight gain in relation to enterprise value. This model
will be implemented for the identification of future value. Main aim is to identify the best
11

option which provide high returns in the future (McGuire, Omer and Sharp, 2011). This
model include the capital budgeting methods such as net present value, internal rate of
return etc.
Auditing Models:
 Verification: With the help of auditing, business verify the different departments and
analyse the financial information of the organization. This process will be done through
physical examination such as vouching and analysing the financial statement of the
company. It is also used to provide information to their stakeholders and try to control
internal system in order to increase efficiency.
 Reconciliation: It is the complementary model of auditing which allow the manager of
the company to change the figures in the financial reports. If business identify any kind or
error than they can resolve through reconciliation (Pucheta‐Martínez and García‐Meca,
2014).
TASK 4
P7. Identify the importance of IFRS across the world
Financial reporting is beneficial as well as important for the organization and every
stakeholders. With the help of this, manager develop strategic plan, organize operational
activities etc. Along with this, different countries will compliance with the different accounting
standards and statutory bodies. Such as UK follow the International Financial Reporting
Standards (IFRS) on the other hand, US follow the Generally Accepted Accounting Principle
(GAAP). To eliminate the conflict and confusion in the organization by following different
standards and principles. So most of the business follow the common accounting standards. UK
organizations totally follow the IFRS standards to remove the confusion and follow the same
standards to develop their financial statement which is very important for the organization
(Wallace, 2018).
Variations model used at the time of adopting IFRS and use reporting frameworks among
different countries to increase complexity, structural differences and this process will take longer
time to adopt.
12

CONCLUSION
From the above discussion it has been concluded that, financial reporting is very
important for the organization because with the help of this stakeholder are able to understand
and take effective decision regarding their investment. Conceptual & regulatory frameworks help
the business that how to maintain or prepare their financial statement which is going to represent
for the analysis. With the help of IFRS and IAS, company perform their activities in effective
manner and able to achieve business goals & objectives. Financial reporting help the internal as
well as external stakeholders to analyse the financial information and then take strategic decision
to enhance productivity or profitability.
13

REFERENCES
Books & Journals
Barth, M. E., 2018. Global financial reporting: Implications for US academics. The Accounting
Review. 83(5). pp.1159-1179.
Dalnial, H., Kamaluddin, A., Sanusi, Z. M. and Khairuddin, K. S., 2014. Detecting fraudulent
financial reporting through financial statement analysis. Journal of Advanced
Management Science Vol. 2(1).
Dunne, T., and et.al., 2013. Stakeholder engagement in internet financial reporting: The diffusion
of XBRL in the UK. The British Accounting Review. 45(3). pp.167-182.
Holthausen, R. W., 2015. Accounting standards, financial reporting outcomes, and
enforcement. Journal of Accounting Research. 47(2). pp.447-458.
Hopkins, J.J ., Maydew, E. L. and Venkatachalam, M., 2014. Corporate general counsel and
financial reporting quality. Management science. 61(1). pp.129-145.
Jonas, G. J. and Blanchet, J., 2012. Assessing quality of financial reporting. Accounting horizons.
14(3). pp.353-363.
Laswad, F., Fisher, R. and Oyelere, P., 2015. Determinants of voluntary Internet financial
reporting by local government authorities. Journal of Accounting and Public Policy.
24(2). pp.101-121.
McDaniel, L., Martin, R. D. and Maines, L. A., 2012. Evaluating financial reporting quality: The
effects of financial expertise vs. financial literacy. The accounting review. 77(s-1).
pp.139-167.
McGuire, S. T., Omer, T. C. and Sharp, N. Y., 2011. The impact of religion on financial
reporting irregularities. The Accounting Review. 87(2). pp.645-673.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Pucheta‐Martínez, M. C. and García‐Meca, E., 2014. Institutional investors on boards and audit
committees and their effects on financial reporting quality. Corporate Governance: An
International Review. 22(4). pp.347-363.
Wallace, R. S. O., 2018. Corporate financial reporting in Nigeria. Accounting and Business
Research. 18(72). pp.352-362.
Online
InterContinental Hotels Group. 2019. [Online]. Avialble Through:
<https://www.londonstockexchange.com/exchange/prices/stocks/summary/
fundamentals.html?fourWayKey=GB00BHJYC057GBGBXSET1>
14

APPENDICES
Working Notes:
1. Inventory Valuation
Particulars £ (000)
Value of Damaged Goods (A) 2470
Fair value of such goods 2670
Less: Remedial Work Costs -500
Net Realisable Value (B) 2170
Net increase in Cost of Sales (A) – (B)(WN1) 300
2. Cost of Sales to be shown in P& L account
Particulars £'000 £'000
Cost of Sales (as per trial balance) 391700
Net increase in cost of sales (WN1) 300
Depreciation on Non-Current Assets:
Property 2968.75
Plant and Equipment 8670 11638.75
Total 403638.75
3. Operating Expenses to be shown in P& L account
Particulars £'000 £'000
Operating Expenses (as per trial balance) 80500
Depreciation on Non-Current Assets:
Property 2968.75
Plant and Equipment 8670 11638.75
Total 92138.75
4. Determination of Balances of Non-Current Assets
15