Financial Reporting Report: Financial Reporting Standards and Analysis

This report delves into the core aspects of financial reporting, commencing with an introduction to its context and purpose, emphasizing its role in measuring organizational performance and providing crucial information to stakeholders such as management, investors, and government entities. The report then explores the conceptual and regulatory frameworks, including the qualitative characteristics that underpin reliable financial reporting. It highlights the significance of financial information for various stakeholders and their roles in organizational growth and objectives. The report also examines the framing of financial statements in accordance with IAS 1, followed by an interpretation of Glaxo Smith Plc's financial performance using profitability ratios. A comparative analysis of IAS and IFRS is presented, including the benefits of IFRS adoption and compliance considerations. The report concludes by summarizing the importance of financial reporting in achieving organizational goals and objectives, providing a comprehensive understanding of financial reporting principles and their practical applications.

FINANCIAL REPORTING

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1.) Context and purpose of financial reporting............................................................................1
2.) Conceptual and regulatory framework of financial reporting and qualitative characteristics
of financial reporting....................................................................................................................2
3.) Main stakeholders of organisation and their importance in financial information.................4
4. Importance of financial reporting for accomplishing organizational growth and objectives. .1
5. Framing financial statements as per IAS 1..............................................................................2
6.) Interpretation of the financial performance of Glaxo Smith Plc............................................4
7.) Presenting the difference between IAS and IFRS..................................................................6
8. Benefits of IFRS......................................................................................................................8
9. Compliance with IFRS.............................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial reporting is known to be the process of producing financial statements for
measuring overall financial performance of organisation which disclose a performance status to
management, investor and government of the company (Nobes, 2014). This present report will
cover purpose of financial reporting with its conceptual framework. Importance of financial
reporting for stakeholders of organisation and financial statements as per IAS-1 is also to be
discussed in this report. Difference between international accounting standards and international
financial reporting standards with the benefits of IFRS is to be studied in this report. Further, this
report will cover degree of compliance with IFRS by organisation across the world is to be
cover.
MAIN BODY
1.) Context and purpose of financial reporting
Financial reporting is the process of measuring performance of the organisation. Purpose
of preparing financial information is to provide useful and relevant information to owners of
company. Preparation of financial statements in compulsory for every types of organisation but
mainly it is compulsory for public limited companies, where share capital of organisation is sold
through stock exchange among public of business market. This financial statements are analysed
by investors and government to analyse business performance in which they have invested their
money (Leuz and Wysocki, 2016). Mainly purpose of financial statements is for meeting needs
of the organisation according to their previous year financial performance of the company.
Context and purpose of financial statements is to provide information regarding the
business operations under which mainly three statements are prepared by the company which is
cash flow, income statements and balance sheet. Cash flow statement helps in revealing amount
of money which comes in and out from the organisation. Income statement of the organisation
will provide amount of expenses company has incurred in overall financial year of the company.
This statement helps in analysing overall operating profits in the organisation. Balance sheets of
the organisation will produce current status of company in which information has been used in
estimating liquidity, funding with overall debt position of company.
Another several purposes and context of producing financial statement are as follows-
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 Credit decision- financial reports are analysed by the lenders of the organisation form
which company has taken loan. They analysed overall financial position of the company
to develop decision which is about whether to extend credit in business or to restrict that
amount of credit which they have extended in business organisation.
Investment decision- investors analyse financial reports of the organisation in deciding whether
to invest in organisation or not (Adams, 2015). This analysis of the financial statements will help
investor in analysing price per share of organisation in which they want to invest. Taxation decision- government will also analyse the financial statements of the
organisation in which they measure its assets or income which helps government in
deriving the information which applying tax on business operations.
 Union bargaining decision- to analyse bargaining position and the ability of the
company to pay business compensation, unions analysed financial reports of the
organisation.
2.) Conceptual and regulatory framework of financial reporting and qualitative characteristics of
financial reporting
Conceptual framework is the attempt which defines nature and purpose of accounting.
Conceptual framework is known to be theoretical and conceptual issues which are surrounding
financial reporting in which accounting standards are developed in this report. For the financial
reporting, conceptual framework mainly seen as statement of generally accepted accounting
principles for its development.
Purpose of financial reporting is to provide useful and relevant information to the users of
the company and for the conceptual framework used as form of theoretical basis which is for de
terming record of transaction in report and its measurements (Francis, Park and Wu, 2015).
When reports are developed in accordance with conceptual framework then accounting standards
often produced as serious defects.
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Qualitative characteristics of financial reporting
Main purpose of financial statements is to educate users of the company which is about
financial status and financial performance of the company. Mainly financial reporting are
analysed by the shareholders of company because they are the real owners of company which is
governed by directors. It is the duty of directors to prepare financial statements which is free
from material misstatements as well as which also possess qualitative characteristics in
statements (Frias‐Aceituno, Rodríguez‐Ariza and Garcia‐Sánchez, 2014). There are mainly four
contents of qualitative characteristics in financial report that is Understandability, Relevance,
Reliability and comparability.
Relevance- financial reports provides relevance information which adds value which is for
decision making. This will help users to evaluate decision for company.
Reliability- financial reports are free from errors, mainly it is free from material errors and free
from bias.
Comparability- financial reports provides information which is full of comparable and have
ability in providing useful financial information to the users of the company.
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Illustration 1: conceptual framework of accounting and reporting problems
(Source: Objectives of General Purpose Financial Reporting, 2014)

Understandability- financial reports are very much understandable for the users. Therefore,
entities present their financial reports in a way that it provides clear Understandability of the
financial performance.
3.) Main stakeholders of organisation and their importance in financial information
There are many users of financial statements for which financial information is the
essential part. Therefore, financial reporting is mainly produced by organisation to provide
information which is about the stability and capability of organisation in business market.
Shareholders generally want financial statements of the organisation to analyse their
performance and to measure whether the money which they invest in organisation is used by
directors for business purpose or not (Cheng, Konishi and Romi, 2014). Main stakeholder of the
organisation and its importance for financial information are as follows-
 company management-
Management of the company generally needs information regarding financial position of the
company to analyse its profitability, liquidity and cash flow so that they work accordingly to
meet goals of organisation. Therefore, management is considered as shareholders of organisation
it is necessary for directors to disclose their financial reports to company's management.
 Competitors
This is point where management analyse their financial statements with competitors of
organisation. So that effective decision will be developed in improving overall performance and
profitability of the organisation in business market. Competitors are considered as shareholder of
company because by comparing their financial report, company will determine their business
outcomes.
 Customers
For selecting which supplier is selected for major contract, financial statements of the company
are review by customers of the organisation. This analysis of the financial statements helps
customers to select which supplier has effective financial ability in providing goods and services
to customer on long term basis.
 Employees
Financial reports are important for employees so that employees will able to measure overall
capability of company to pay their compensation. These financial statements help employees to
understand business policy so that they work accordingly in achieving overall business goals.
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 Government
Government also consider financial reports of organisation to analyse capability of company and
to analyse their overall income so that taxation will be charged to entity for generating revenues.
Government analyse financial statements to analyse entity in which jurisdiction company has
located whether pays their tax or not.
 Investors
Company disclose their financial statements among investors so that effective decision will
develop by them for invest in organisation.
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4. Importance of financial reporting for accomplishing organizational growth and objectives
The financial reporting could not be easily overemphasized as it is mandatory for every
stakeholder for numerous reasons and purpose as it helps business entity for complying with
different statues along with regulatory requirements. The company has need for filing financial
statements to government agencies. If any of listed organization, quarterly along with annual
outcome is in need to be filed for published and stock exchanges. In the similar aspect, it will
facilitate statutory audit and these auditors are in need for auditing financial statements of
business entity for expressing their opinion. The financial reports would be replicated as
backbone for financial planning, benchmarking, decision making and analysis. It is used with
multiple perspective of various stakeholders. This will help business entity for increment of
capital both overseas and domestic. Furthermore, with context of financials the public in large
could analyse the performance of business entity along with management. With context to
bidding, government, supplies and labour contract etc. the business entities are in need for
furnishing financial reports with statements as well (Importance of Financial Planning for
Organizations, 2018).
This is considered as base for purpose of financial control as finance team has
information about allocation of money and to which activity, they could not be applicable for
getting information about going over or under budget. In case of any remedial action undertaken,
there will be presence of base for purpose of taking corrective measures. The financial reporting
is one of the important element in the company's financial reporting which takes into account
internal operations of company. Moreover, it helps firm to carry out the duty to provide
effectively results to the stakeholders involved in company and adhering to statutory and
regulatory requirements in the best manner possible.
It is required that business may should provide financial statements in a understandable
manner so that even layman can understand the same without any difficulty. It is required in
order to clarify financial position or health of company in effective manner. The financial
reporting include balance sheet, cash flow statement, statement of changes in equity, notes to
financial statements, quarterly and annual reports mandatory for listed companies on the
recognised stock exchange. Prospectus is also included in case of firm opting for IPO (Initial
Public Offering) and management discussion analysis when company is public limited. It can be

analysed that business will be able to gain trust of stakeholders in effectual manner. Hence,
financial reporting is quite significant in meeting organisational objectives with ease.
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5. Framing financial statements as per IAS 1
a)
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Working notes:
b)
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c)
Interpretation-
It can be interpreted that above financial statements of company is prepared. It shows that
company is able to attain profits as reflected by income statement. Net profit after tax comes to
2192 whereas as gross profit was 93140. This clearly shows that firm is not able to attain good
amount of income as it is not able to minimise its expenses which has led to reduction in profits
despite of having adequate amount of revenue. Moreover, statement of changes in equity can be
analysed which shows that firm has issued 110000 of share capital to be subscribed by the
public. Balance sheet is also been produced showing that total of assets are increased.
6.) Interpretation of the financial performance of Glaxo Smith Plc.
Profitability ratio:
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Particular 2017 2016
Net profit margin 5.08 3.27
Return on asset 2.65 1.62
Return on Equity 290.15 29.2
Interpretation:
The above table represent probability of the Glaxo Smith plc. for two consecutive years
2016 and 2017. An increment in net profits margin can be seen in 2017 at 5.08 as compared to
that of 2016 at 3.27. The growth in percentage of net profit margin is result of having significant
control over the operation expenses of the organisation. The return on assets ratio has also
increased from 1.62 to 2.65 in 2016 and 2017 respectively. A huge jump in the return on equity
ratio can be seen from the figures presented in above table. The ratio was 29.2 in year 2016 and
it shoots up to 290.15 in 2017. Thus shows the fact that Glaxo Smith is using its investment
effectively and efficiently for generation of profits and enhancing the growth of the organisation.
Liquidity ratio:
Particular 2017 2016
Current ratio 0.6 0.88
Quick ratio 0.36 0.56
Interpretation:
With this ratio the ability of Glaxo Smith is determined as capacity to meet its current
liabilities and obligations. A fall in the current ratio is seen from .088 to 0.60 from 2016 to 2017.
A fall in ratio is due to the fact that three is a decrease in the current asset of the firm. Quick ratio
defines the ability of firm to meet the immediate liability of the Glaxo smith. A fall in this ratio
has also seen from year 2016 to 2017. This reflects the fact that the liquidity position of the firm
is not good. For both years the ratio were not at ideal level, the idea current ratio is 2:1 and quick
ration is 1:1. The position of the organisation is not good in context of the liquidity means
business does not own sufficient cash and cash equivalent assets to pay off its current liabilities.
Efficiency ratio
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Particular 2017 2016
Receivables Turnover 6.5 6.61
Payable Period 125.71 131.93
Inventory Turnover 1.94 1.89
Interpretation:
Efficiency ratio defines expenses as percentage of the revenues. With these ratio the
level of spending is determined in context to generation of profits. The receivable turnover ratio
defines how effectively of the Glaxo Smith is using its assets (GlaxoSmithKline PLC ADR,
2018). This ratio is very much similar for both that years and is at level for 6.5 for 2017 and 6.61
for 2016. The payable period defines the timer taken from the creditors to pay the due for credit
purchases. There is a fall of approximately 6 days in payable period. This mean Glaxo Smith
now has to pay its suppliers 6 days earlier as compared to 2016. The inventory turnover ratio
defines the number of time inventory is used or sold in a time period of the year. There is not
much difference in ratios of both the years as in 2016 it was at 1.89 and 2017 it was at 1.94.
Solvency ratio
Particular 2017 2016
Debt equity ratio — 13.04
Interest Coverage 5.9 3.77
Interpretation:
The solvency ratio defines the ability of an organisation it meet the future cost and
expenses. Lower solvency ratios means higher risk in defaulting in the payments. The debt
equity ratio is not defined for year 2017 but from 2016 it was at 13.04 which states the fact that
Glaxo Smith at good solvency condition and it have great probability of meeting its future debts
and liabilities. The interest coverage ratio for year 2017 have increased in 2107 which sates the
fact that Glaxo Smith is getting at better position of meeting its debt obligations.
7.) Presenting the difference between IAS and IFRS
IAS (International accounting standards):
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These are set of guidelines on treatment of financial and accounting transaction in
books of accounts, which each and every organization is required to follow. The IAS was issues
by an international board named as International Accounting standard Committee (IASC) till
2001. Since 2001 the name of the standard is changed to IFRS and these are now issued by
IASB. With change in the name authenticity and eligibility IAS has not been lost completely.
With introduction of IFRS, most of the IAS was adopted with certain changes and some are still
applicable in the name of IAS.
IFRS (International financial Reporting standards):
These are the standard issued by International accounting standard board (IASB), which
gives a common accounting language at global level for recording business affairs and
transactions (IFRS (International Financial Reporting Standards), 2018). This makes the
account understandable and comparable across the international boundaries. The mission behind
these standard is to ensure transparency, accountability and efficiency in the financial markets
global level. The standard provide guidelines as set of accounting rules which determines how a
business transaction and other accounting event must be reported and recorded in financial
books and statement.
Difference between IAS and IFRS
Basis of difference IAS IFRS
Full name of the standard Internationals accounting
standard
International Financial
reporting Standards
Publication From 1973 to 2001 From 2001 till today.
Publication authority IASC- international
Accounting standard
committee.
IASB- international accounting
standard board
Preferences IAS principle is being dropped
over IFRS (Difference
Between IAS and IFRS, 2018).
IFRS are given preference over
IAS in case of any
contradiction.
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Technically both IAS and IFRS are different version of same accounting standard. The
IAS is older version and IFRS are newer version of the standards. The name of the publishing
body has also changed from IASC to IASB (Difference between IAS and IFRS, 2018). The
major point that must be noted here rthat not all the IAS have becomes out dated, they are still
IAS which are not superseded by IFRS. Till data only 9 IFRS have been issued. This can be
concluded that IAS is older set of standard stating that how particular transaction must be
reflected in financial statement on the contrary IFRS are the newer version of the old set of the
accounting standard that is IAS.
8. Benefits of IFRS
The International Financial Reporting Standards which are called to as IFRS set example
and standard for all sort of business activities so that books of accounts of all companies across
world could be comparable with each other. They are the set of standard and guideline which
was developed by International Accounting Standard Board (IASB). Thus helping all companies
to collect, report and summarise their financial information in set direction so that it could be
easy for them to compare according to their industry (Kothari, Mizik and Roychowdhury, 2015).
As with the increase in globalisation there is many chance when 2 international company could
be merging with each other so for this the way they are recording their financial information
must be same. It is also important for accountants from around to world to develop harmony
within their recording pattern. Each of the book of account whether it is profits and loss account,
cash flow, fund flow or balance sheet need to be understandable, relevant and reliable so that it
could compared with that of others.
However it could also be included that there exist some criticisms on part of IFRS like
this is not accepted into USA where US GAAP is followed while it is also not followed in France
as well. IFRS will be having many benefits as one of which is providing standard into providing
information and recording it as well others are been mentioned below:
Increasing growth of international business- This will be improving the growth of
company in way of increasing growth of overall international business of country. As if there is
common financial statement of two company and if they are forming part of one business
enterprise only then this would be improving their relationship (Ioannou and Serafeim, 2017).
With the help of good relationship between two of the companies which are sharing 2 different
international border then there will be growth of global business of firm as well.
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Increase in international investors- With the improving relation with other companies of
global market it will be easy for country to invite and attract more number of investors from all
across the world. The foreign capital market flow within country could be increased with help of
IFRS.
Standard in financial statement- It could also be included that IFRS is always setting
common standard for all type of financial statement could be prepared from all companies of
world. Thus providing specified standard which will be helpful for the investors to understand
the background of company and comparing in which company they need to invest. Then the
industry could also be able to raise more foreign capital market that too at lower cost as it would
be creating confidence into mind of foreign investors. It will be very much clear to comply with
Globally Accepted Accounting Standard (GAAS) in way of creating the financial statement for
company.
Opportunity for accountants- This standards will be creating greater opportunity for
accountants from all across the world as they could practice and do their job in any part of world
due to similarities of book keeping practice in any country. It will offer accounting professionals
more opportunities in any part of world if they are been following the same accounting practices
prevail throughout world.
9. Compliance with IFRS
With the impact of globalisation in world it could be included that sectors of world need
to comply with specified rules and regulations which will be carried out by companies of world.
But it could be included that not all the countries of world are following this IFRS standards
which need to be done so that they could be carrying their work accordingly (Dumay, Guthrie
and Demartini, 2016). However it is very much mandatory that all countries are not following
their own standard of accounting but that which is laid down by IASB. As this is very much
accepted by all standard setters, policy makers and preparers as well. It could be noted that about
120 nations of world are having the convergence of their standards into that of IFRS and many of
the nations are in recent years are adopting and applying the IFRS which is required by IASB.
While it could also be included that the process of IFRS will be regarded to as very much
challenging task for implementation and adoption for the other countries of world.
As various countries would also be having their own accounting principles and practice
which they need to follow so this will be regarded to as one of the most influential factor. The
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political and economic system in country will be influencing the adaptation practice of IFRS by
the companies of that particular country (Cheng, Konishi and Romi, 2014). It would be
encouraging to all investors in way of protecting them with applying the reporting standards for
the manager so that their performance and producing high quality financial report. Across the
world there are some countries which are not properly following the IFRS while they are only
having their own accounting principles or practice which they follow. But it is required that they
are following the international code of practice and professional standards as well which will be
providing standards for the company. For example USA and France are not following the IFRS
while they are following GAAP which is not providing standard between recording systems.
CONCLUSION
From the above report on Financial Reporting (International Financial Reporting) it could
be concluded that there are certain countries which are not following the IFRS standards which
show that there are no standardisation between the reporting and recording system of companies.
There are many stakeholder of company who will be having certain amount of interest into
strategic decision making of company like that of customers, shareholders, government and
employees as well.
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REFERENCES
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making: Evidence from accounting conservatism. Contemporary Accounting
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Frias‐Aceituno, J.V., Rodríguez‐Ariza, L. and Garcia‐Sánchez, I.M., 2014. Explanatory factors
of integrated sustainability and financial reporting. Business strategy and the
environment, 23(1), pp.56-72.
Ioannou, I. and Serafeim, G., 2017. The consequences of mandatory corporate sustainability
reporting.
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earnings management via real activities versus accruals in SEO valuation. The
Accounting Review, 91(2), pp.559-586.
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regulation: Evidence and suggestions for future research. Journal of Accounting
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