Financial Reporting: IFRS, Stakeholders, Financial Statement Analysis

This report provides a comprehensive overview of financial reporting, focusing on the objectives of financial reporting, key principles of the regulatory framework, and the main stakeholders involved. It explores how financial reporting achieves its objectives and includes an analysis of financial statements, such as the income statement, balance sheet, and cash flow statement, alongside their interpretation. The report also highlights the differences between IAS and IFRS, the benefits of IFRS adoption, and factors influencing compliance. The task involves in-depth examination of financial reporting standards, emphasizing the significance of financial statements for decision-making by investors and management. The report also covers the importance of IFRS in providing a standardized approach to financial reporting, ensuring transparency, and facilitating comparisons across different companies and jurisdictions. Moreover, the report examines the impact of financial reporting on business operations, including the use of financial statements for strategic planning and performance evaluation. The report also includes the financial statements of a company for better understanding and interpretation. Finally, the report discusses the role of stakeholders in financial reporting and the benefits they receive, such as reliable information for investment decisions.

FINANCIAL REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
1. Financial reporting objectives............................................................................................1
2. Key principles of regulatory framework............................................................................2
3. Main Stakeholders and benefits received by them.............................................................3
4. Achievement of objectives by using financial reporting....................................................3
5. Financial statements of company.......................................................................................4
6. Interpretation by using financial statements.......................................................................6
7. Difference among IAS and IFRS.......................................................................................8
8. Benefits of IFRS.................................................................................................................9
9. Compliance of IFRS and factors influencing them..........................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Finance is the major thing under this business as this makes its operations to run
effectively. Without finance nothing can happen. But, for effective running of business, few
international bodies have made certain financial reporting standards so that the firm can adhere
with them while having financial reporting. Financial reporting includes income statements,
balance sheet and cash flow statements (Agoglia, Doupnik and Tsakumis, 2011). Various
international bodies forms so many laws and regulations regarding under which various
standards are required to be adhere by each company while making financial statements. under
this report, various IFRS standards have been elaboratesd in details in order to make their
business operations effective.
TASK
1. Financial reporting objectives
There are various standards that needs to adhere by each company during framing of
financial statements. This has also been seen that the International financial reporting standards
have formed various regulatory standards for framing financial statements. On the basis of IFRS
guidelines, company made financial statements. Financial statements are the major thing by
which investors and other concerned parties take their investment decisions regarding the firm.
This is the main tool which reflects the genuine picture of firm. However, there are various
issues or conflicts for which these guidelines are not specified. In that case, special guideline
shall be issued to deal with these kinds of issues within a company. Tesco plc. needs to adopt
various reporting standards while making the financial statements. Tesco on the basis of financial
statements can make various strategies and also get to know about its financial positions in an
effective manner. With the help of these standards or policies, company can present their entire
information in a systematic manner along with various concepts like determination, measurement
and definition of whole expenses as well as revenues, assets and liabilities are demonstrated as
per the IFRS framework.
By applying these standards in business, Tesco plc is able to manage its business
activities in the most effective manner, and financial statement can be used by the outside
investor and other management for the decision making. Such financial reporting will also assist
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in identifying the financial performance and make the firm to run effectually (Altamuron and
Beatty, 2010).
2. Key principles of regulatory framework
To gain stability in an organization regarding financial reporting, the organization should
adopt IFRS rules issued by the IASB and FASB which helps the auditors to ensure that all the
standards which are prescribed by the IASB are followed by the organization in a proper way.
The New Revenue Recognition Standard- Retail & Consumer Product:
IFRS 15 Revenue from Contracts with Customers is the standard which is released by the
IASB that was an outcome of a collective project with the FASB. The new standards, which are
considerably consistent which will replace virtually entire revenue recognition standards in IFRS
and US Generally Accepted Accounting Principles.
IFRS 15 reflects the accounting treatment for entire revenue arising from contracts with
customers. This influence whole entities which makes contracts to render goods or services to
their customers. The standard also furnish a model for the identification and knowing of profits
and losses which arise on the sale of definite non-financial assets, like property and equipment
and intangibles.
Summary of the new standard:
IFRS 15 determines the need under which a firm must use to measure and recognize
revenue and the concerned cash flows. The core principle of the standard is that a firm would
recognize earnings at an amount which shows the consideration under which the firm expect to
be entitled in exchange for transferring promised goods or services to a customer (Ball,
Jayaraman and Shivakumar, 2012). The principles in IFRS 15 are applied using the following
five steps:
1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract(s)
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognize revenue when (or as) the entity satisfies each performance obligation.
This standard gives proper guidance and benefit to the organization to achieve their goals
and objectives by keeping in mind the requirements of the today’s customer. This standard also
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helps the auditor to make sure that the organization follows the accounting standard prescribed
by the IFRS.
3. Main Stakeholders and benefits received by them
Whenever the organization earning more returns in their operations, it is required that all
the information regarding earnings shall be made available to the stakeholders of the
organization. This information helps the investors to take the decision regarding investment.
Organization should also states that their upcoming projects and share each information to their
stakeholders to keep their good reputation in the mind of the stakeholders.
Organization provides proper financial statement of each year through which the
investors can compare current scenario with past scenario of the organization. Financial
statement also helps the investors that the organization meets its liabilities and obligations on
time or not. It’s shows financial soundness of the organization so, that the investors take right
decisions regarding their investment.
Cash flow statement shows the investors that how much cash is available to the
organization and also tells him that the available funds are utilized in appropriate manner (Barth
and Landsman, 2010).
4. Achievement of objectives by using financial reporting
In an organization, there are various objectives which are required to be achieved and this
can be done with the use of financial reporting according with standards. This is because; it helps
in the evaluation of performance by comparing it with the past data which is available to the
organization in a proper manner that is audited by the auditor. By evaluating the performance,
organization can find out mistakes and rectify them so that future performance runs without any
error and omission.
Together with this, investors are attracted and transparency can be attained by using all
the IFRS standards which are mentioned under financial reporting of the organization through
which the investment is increases and the funds are utilizes in the futures operations.
All these rules are framed by the regulatory bodies and organization should follow all the rules in
a prescribed manner because it helps auditors and others stakeholders to find out organization’s
performance in market.
Financial reporting helps the investors and other stakeholders to take decisions regarding
investment and earnings from the organization. With the help of financial reporting, investors
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compare with the other organization in order to take the investment decisions. (Cheng, Dhaliwal
and Zhang, 2013).
Due to this, organization can improve their performance and achieve their objectives in a
time. Organization performance regarding their operations will be improving and this will
enhance profitability of the business.
5. Financial statements of company
a) Statements of profit and loss
Particulars Amount
Sales 285100
Less: Cost of sales -195300
Gross profits 89800
Rental income 1600
Loss on revaluation of investment property -3300
Loss on sale of inventory -400
Operating expenses -43100
Profit from operations 44600
Bank interest -1030
Preference dividend -1330
Profit before tax 42240
Tax expense 12000
Profit after tax available for equity
shareholders 30240
b) Statements of changes in equity
Particulars
Ordinary
capital
Retained
earnings
opening balance 26700 23300
Dividend paid -5340
Profit from current year 30240
Closing balance 26700 48200
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C) Statements of changes in financial position
Particulars Amount
Current Assets
Inventory 12930
Trade receivables 18000
Bank -530
Total current assets 30400
Non-Current Assets
Investment property 18000
Land and property 80000
Plant and equipment 22400
Total non-current assets 120400
Total assets 150800
Liabilities and equities:
Current liabilities
Trade payables 15700
Provision for tax 12000
Deferred taxation 6900
Total liabilities 34600
Equities:
Revaluation reserves 28000
Retained earnings 48200
Ordinary shares 26700
10% redeemable preference shares 13300
Total equity 116200
Total equities and liabilities 150800
Working note:
Calculation of Depreciation:
On Land and property:
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Property 4000
Plant and equipment 3200
Total 7200
Charged to cost of sales 3600
Charged to operating expenses 3600
It can be noticed that previously mentioned calculation are a portion of the imperative
financial statements which are needed to be set up by each association and on the premise of
them different strategies and decisions are to be made with in order to attain the emergence.
Notwithstanding to it, cash flow statements likewise required by the assistance of which financial
position of business is determined. Entire business transactions which identified in cash are
divided in three parts which are from investing, operating and financing. Under the provided
situation, transactions which are to be engaged to sales, rent and they are to transferred from
profits and loss account and bank amount from balance sheet (Costello, 2011). They will be
demonstrating to the sum which is utilized by business in current period. By the assistance of
firm's cash position of organization is assessed and it is distinguished that whether assets are
being allotted in suitable way or not.
6. Interpretation by using financial statements
Income
Statement 2016 2017
Turnover 53933 55917
EBITDA 2617 2185
EBIT 1386 887
Operating
Profit 1072 1017
Pre-tax
Profit 202 145
Profit After
Tax 256 58
Profit For
Financial 138 -40
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Year
Retained
Profit 138 -40
Normalized
EPS 7.1 -1.02
Balance
Sheet 2016 2017
Assets
Non-Current Assets
Intangible 2874 2717
Tangible 17978 18172
Investments 3395 2865
Other 4973 6682
Total 29220 30436
Current Assets
Stock 2430 2301
Debtors 5240 5654
Cash and
Securities 6778 7118
Total 14448 15073
Held for
Disposal 236 344
Total Assets 43904 45853
Liabilities and Equity
Liabilities
Current 17866 19405
Non-Current 17422 20034
Total 35288 39439
Equity
Share 5502 5505
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Capital
Reserves 3124 933
Shareholders
’ Funds 8626 6438
Minorities -10 -24
Total 8616 6414
Total
Liabilities
and Equity 43904 45853
Valuation 2016 2017
Net
Tangible
Asset Value
Per Share p 67.58 43.71
Profitability
Operating
Margin % 1.25 0.23
Profit
Margin % 1.01 0.04
ROE % 4.6 -0.6
ROCE % 4.43 2.34
Financial
Health
Net Gearing % 121.2 139
Interest
Cover x 2.12 1.05
Quick Ratio r 0.69 0.68
Current
Ratio r 0.82 0.79
Norm EPS % -22.86 -
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Growth
Cash Flow
Cash Flow
Per Share p 26.7 25.26
CAPEX PS p 8.47 10.58
Previously mentioned calculation are the financial statements of Tesco Plc. and on the
premise of them, evaluation can be done that can be utilized for the aim of decision making in
business. For determination of profitability, this can be said that profit margin is getting lower at
1.01 and 0.04 in years 2016 and 2017 and this demonstrates the are lowering and this isn't a
decent sign for any firm. In addition to this, equity and return on capital employed has also
reduced and this demonstrates negative part of organization.
This can be observed that current ratio is practically similar yet is far substantially less
than standard ratio required. Quick ratio that speaks to liquidity is same in the two years which
implies that organization is meeting its commitments in a comparable way. Organization's
interest cover is decreased which demonstrates that instability is expanding and this isn't useful
for any business (Council, 2010).
7. Difference among IAS and IFRS
There are various international bodies which are authorized to issue several standards that
are known for the International accounting standards and these standards are needed to be
adhered by companies. By using these international standards, company can overcome
misrepresentation which might arise while preparing financial statements. The accounting
standards have be frame out under IAS and all the companies must adhere these standards while
forming financial reporting.
In 2001, a committee was established by the IAS, as per this committee, there were some
modifications which are required to be introduced in the old international accounting standards.
Which emerge the new accounting standard that named as International Financial Reporting
Standards, which comprises all the accounting standards including new.
There are so many differences or variation arises among IAS and IFRS which covers that IFRS is
made after 2001 and names as IFRS and the rest is IAS. Under IAS, there are 39 standards that
have been defined under this, while in IFRS, there are only 9 accounting standards have been
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defined. International accounting standard committee and IASB are the main body that were
authorized for making the IAS and IFRS. However, under IAS, nothing is mentioned which are
available in IFRS that covers presentation, identification, measurement and revealing various
amounts which are there under statements. The things that are mentioned under IAS requires to
be follows but which are mentioned in IFRS must have to compulsory adhered along with the
guidelines that assist the manner according to which task is required to be performed (Epstein,
and Jermakowicz, 2010).
8. Benefits of IFRS
International financial reporting standards are the standards that are required to adhere by
each company so that these firms can records and make financial reporting. With the help of
financial statements, company and other outsiders get to know the actual picture of the
organization and then make their decisions in an effective manner. These reporting standards can
lead to provide a great picture about the company in an effective manner.
Various stakeholders will take the benefits of IFRS. Some of them are mentioned hereunder:
For investors: By adopting the IFRS standards by the company, investors would get to
know the accurate picture of the company. So that they could take their investment decisions in a
most effective manner. Now this also been observed that the transparency can be attained by
adhering these standards. Information achieved through financial statements which is prepared as
per the IFRS guidelines are better for investors to take their investment decisions. Company also
limits the international differences under financial reporting standards.
Timely recognition of loss: The main feature of IFRS is to identify the loss of the
company which will assist the investors and the management and other stakeholders. By
implementing IFRS in the company. Company can enhance the efficiency of the contact between
companies and management.
Comparability: By implementing IFRS standards, company can compare its performance
via financial statements in an effective manner. By applying these standards, company is able to
compare its financial performance in an effective manner. Such would be attained by
implementing same reporting standards in an under the same market.
Standardized accounting and financial reporting: This is the key benefits of financial
reporting that enhance the comparability of financial statements. This also able to eliminate the
trade barrier by implementing single reporting standards.
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Enhance transparency and consistency of financial reporting: This is the important
advantage of IFRS to establish financial statements most transparent that enhance the connection
ship between investors and firms among various other nations.
Easy access of financial information with international competitors: If all the firms would
implements IFRS then this would be very useful and convenient for the investors and lenders to
compare one financial statements with the global competitors and the frame decisions as per the
available information (Iatridis and Rouvolis, 2010).
Relevance: New IFRS standards assist the firms and various stakeholders to demonstrate
the financial transactions fairly and appropriately. Under this way, IFRS demonstrates the IFRS
in a most credible and reliable position. Balance sheet according to IFRS is more detailed due to
its layout and this would be more regular and consistent. As new IFRS does not permits to frame
the new hidden reserves via manipulations via managers.
Compliance of IFRS and factors affecting them: As per the process o for making
financial statements, there are so many standards which are used by entire businesses. By
applying them, transparency in the financial accounts can be achieved, and also able to eliminate
various contingencies. Various countries have their own boards that are authorized to frame
standards and there are few or other restrictions which can lead to hamper the firm efficiency and
in this manner, company is able to deal with them, various guidelines and standards are issued.
However, there are few conflicts that could arise in the international standards and other
various financial reporting rules that leads the process somewhat complex and that is why
adequate assessment shall be made in order to eliminate them. And these reporting standards can
be implement via professionals (Li, 2010).
9. Compliance of IFRS and factors influencing them
Under the process of incorporating of financial statements, there are so many standards
that are to be implemented by firms. By implementing IFRS companty can attain the
transparency under entire operations of the firm. There are various contingencies that needs to
overcome by the aid of it. Entire nations have having their own board that are authorised to
frame standards. and also few limitations in this regards them which spoils the efficiency in
operations. In that case, IFRS issued standards. Some of the disputes arise in the global
standards which needs to overcome by issuing IFRS standards in order to avoid these conflicts
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those (Nobes, 2014). Under this purpose, only professionals are hired as they can eliminate
deviations and make process better.
CONCLUSION
From the above mentioned report, it can be concluded that IFRS are used in the process
of financial reporting which helps in the process of financial reporting and make it possible to
present the actual position of business. Various issues arise in business are properly deal with the
help of such international financial reporting standards. These standards are also used for the
preparation of various financial statements of company including profit & loss account, balance
sheet and other statements. These standards are also used in the purpose of identification of
various ratios by using interpretation of such IFRS standards. Using IFRS in the preparation of
financial statements help in identifying the errors which are present in these statements.
Ultimately, these IFRS provide common standards used by all organisations for preparing their
standards which help in easy comparison of the financial statements with others.
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