Financial Reporting of Grant Thornton: A Comprehensive Analysis

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UNIT 13 – FINANCIAL REPORTING
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Executive Summary
This report sheds light on the financial factors that have been used in analyzing the financial
reporting of an organization. In this context, Grant Thornton has been taken into
consideration. In addition, this report will highlight the importance of financial report with
respect to the organization. Moreover, the purpose of financial reporting that affects the
stakeholders will also be discussed in this report. Nevertheless, financial statements with the
interpretation of cash flow and balance sheet have been provided in this report. Various
models and concepts that implicate financial reporting are also discussed in this report. In
addition, the international difference of financial reporting along with their importance has
been provided in this report.
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Table of Contents
Introduction................................................................................................................................3
LO1 Purpose of financial reporting............................................................................................4
P1 Assess financial reporting with regulatory framework.....................................................4
P2 Purpose of financial reporting in context of Grant Thornton............................................4
M1 Illustrate financial reporting with respect to the needs of stakeholders...........................5
D1 Critical assessment of different regulatory framework....................................................6
LO2 Financial statement............................................................................................................6
P3 Interpretation of cash flow, Profit and loss, balance sheet................................................6
P4 Financial Ratios.................................................................................................................8
M2 Results of financial ratios in context of performance and decision-making..................10
D2 Appropriate theories and models....................................................................................10
LO3 Evaluation of model and concept.....................................................................................11
P5 Benefits of IAS and IFRS................................................................................................11
P6 Model of financial audit and reporting............................................................................12
M3 Critical evaluation of audit and reporting with models..................................................13
LO4 International difference of financial reporting.................................................................13
P7 Importance and difference of financial reporting with other countries...........................13
M4 Critical evaluation of factors that influence difference in international........................14
D3 Evaluation of IFRS.........................................................................................................15
Conclusion................................................................................................................................15
References................................................................................................................................16
Bibliography.............................................................................................................................18
Appendices...............................................................................................................................20
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Introduction
Several departments are responsible in functioning for an organization on daily basis. All
these organisations are bound with one single thread, which is the Finance and Accounting
Department. In this context, Grant Thornton has been taken into consideration. This
company works as business advisor for various other organisations in order to help them in
focusing on the ways to succeed. In this assignment, a brief discussion regarding the financial
aspects of this company will be discussed. Moreover, the profits and loss that affects this
company has been provided in this assignment. On the other hand, various models and
approaches will be taken in calculating the financial reports with respect to this company.
LO1 Purpose of financial reporting
P1 Assess financial reporting with regulatory framework
Financial reporting is essential in the world of economics. Therefore, every organisation
needs to have a financial department to carry out their accounting and financing operations
within their organisation. In this context, Grant Thornton has take care towards its financial
department. According to Davidson et al. (2015), the main purpose of financial reporting is
providing essential, useful and relevant data and information towards the owner of Grant
Thornton. Financial reporting is done when the company is taken over or id divided between
the owner and the controller of the company. Moreover, if there is no reporting system
present in the organisation, there are chances in reducing capital and affect business
respectively. Specific people of accounting are appointed in order to carry out the operations
regarding the presentation of financial reporting.
On the contrary, Grant Thornton implemented the accounting systems so that there are high
chances of fulfilling the needs of the users who are getting affected due to the financial
statements of the organisation. Crowther (2018) commented on the fact that these systems of
providing information towards the users need to be followed within an appropriate format
that meets the requirement of the information. Further, it was clarified that this format can be
achieved by creating a financial reporting framework. This framework is known as
conceptual framework of financial reporting.
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P2 Purpose of financial reporting in context of Grant Thornton
In this context, along with financial reporting various other aspects have impact on the
accounting systems of Grant Thornton. According to Bonsall et al. (2017), the factors that
have impact on accounting systems are as follows:
● Cash flows- It provides the receipts of cash and other various disbursements within
the organisation (Acharya and Ryan, 2016). The information that is provided to the
customers is considered considerable because the value of cash flows does not match
with the expenses and revenues of the income statement.
● Balance sheets- It helps in informing the users their amount of their assets and
liabilities (Abbott et al. 2016). The information present in balance sheets provides
information regarding to the estimation of funding and liquidity ratios.
● Income statements- It provides information to the customer of Grant Thornton
regarding their profit achievements within the financial year. Moreover, the sales
volume, types of expenses and way of using the expenses are present in the income
statements of the users.
● Liquidity fund ratios- It helps comparing the cash fund along with the total assets of
the user of Grant Thornton. Moreover, it helps in maintaining a mutual liquidity
funding ratios within the organisation (Bonsall et al. 2017).
According to Acharya and Ryan (2016), financial auditing is dependent on article ISA 250
(Revised) which undertakes Consideration of Laws and Regulations in an Audit of
Financial Statements of an organisation. In this context, Grant Thornton has followed the
objectives of obtaining sufficient audit that determines their financial statements. According
to ISA 250, the organisation is bound to follow the rules in financial accounting. They are as
follows:
1. To follow the terms that can help them operate their license
2. To maintain regulatory requirements
3. To follow regulations which are environmental
M1 Illustrate financial reporting with respect to the needs of stakeholders
As per the stakeholders are concerned, they are involved with the company and have various
rights to perform within the organisation. Therefore, they need to be preferred more by
providing them the financial report that has been made by the accounting department of
Grant Thornton. Nevertheless, they are considered as the owners of the company and
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therefore, they have the right to receive the annual statement of profits and losses that have
occurred in the organisation (Call et al. 2017). Moreover, they are responsible of checking
the performances of the employees and provide feedback according to their service towards
the organisation. Nonetheless, the recruitment process for accounting department is also
depended on the stakeholders of Grant Thornton. On the contrary, the stakeholders are
employees, analysts, competitors, owners, management, customers, creditors, suppliers and
government. These internal and external stakeholders affect the organisation in every aspect.
D1 Critical assessment of different regulatory framework
The regulatory framework of financial accounting with respect to Grant Thornton has
various importance and needs towards the organisation. According to Abbott et al. (2016),
the regulatory frameworks are required in order to prepare the financial report statements of
the customers who are taking service from Grant Thornton. Thus, the requirement of this
framework is as follows:
● It helps in ensuring the needs of the users regarding their financial statements
● It helps in providing the appropriate information with respect to the economic value
within the organisation
● It helps in increasing confidence of their customers relevant to their individual
financial reporting process
● It helps in regulating the behaviour of the owners and co-owners of the company
towards the stakeholders
For example- The Accounting Standards Board of the UK deals with the financial reporting
standards. Moreover, the Financial Services Authority has their aim in achieving
accountability in financial services with respect to the public. Thus, the importance of
regulatory framework is also required by London Stock Exchange in order to provide equal
shares to the organisations that are present under their department in the market. Therefore, it
can be concluded that every financial department needs to maintain a regulatory framework.
This will help them provide information to customers and stakeholders. On the other hand,
the stakeholders are provided more importance because they are responsible of affecting the
working of Grant Thornton with respect to financial reporting.
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LO2 Financial statement
P3 Interpretation of cash flow, Profit and loss, balance sheet
Grant Thornton is a UK based company that majorly operate world’s largest professional
service network and is also a consultant member that provides assurance to individuals. It has
a advisory firm over 135 countries in all over the world. It has a total number 7,281
employees working under the company (Grantthornton.co.uk, 2019). Thus in this
organisation it focuses to show the cash flow statement for the financial year 2018 ended in
30 June. Cash flow statement is generally prepared to show how the changes in balance sheet
and income of cash thus affect its cash and cash equivalents and in additional to that it
focuses on to show investing and financial activities of organisation. It has been shown that
Grant Thornton has borrowed some business equipments worth of about £67,900 and is
repaying the borrowing amount of worth £55,356 and has paid a interest of £2,036. Thus the
organisation is repaying its former member in the financial year of 2018 with an amount of
£5,968 [refer to appendix 1].
Thus paying it members on behalf of £59,048 amount finally can be seen at the end of the
year that Grant Thornton has a total of cash and cash equivalent amount that is £13,846. On
the other hand, profit and loss account is being followed by organisation to see how much it
has a profit or loss in the financial year. As said by Abbott et al. (2016), thus it shows
whether a business has made loss or profit in a financial year. Profit and loss statement is
used to summarise the net income that helps stakeholders to take better decision-making for
organisation. It has been shown in the statement that it has an operating profit of about
£75,388 for financial year 2018 in the accounts of Grant Thornton. Thus finance cost of
organisation is being deducted with and amount of worth £4,970. In addition to an amount of
£637 as finance income of company is being added in their books. Thus a tax expense has
been deducted from the books of accounts in context to Grant Thornton with an amount of
£1,963 [refer to appendix 2]. As opined by Bamber and McMeeking (2016), In addition to
member remuneration charge has also been deducted for £6,572. Thus for the financial year
2018 the organisation has a profit amount of £63,101 in their books of accounts. Lastly,
organisation focuses on to follow balance sheet that mainly follows to show financial status at
a specific point of time. Hence in this balance sheet it generally owns assets and liabilities of
company and equity amount that is invested by the business. In this balance sheet statement
of Grant Thornton under the asset column various non-current asset has been added.
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Goodwill with and amount of £13,101 is being added under non-current asset section. In
addition to, other plant equipment and property of about £19,099 and long term financial
asset and other tangible asset with an amount of £8,900 and £5,617. Thus a total of
noncurrent asset that organisation has is about £55,795. However, the organisation has a total
of current assets including trade receivable amount and cash flow amount a total of £295,002
is being present in organisation account. As mentioned by Brasel et al. (2016), with this on
the liability side it has a deficit amount of £34,578 in company accounts.
P4 Financial Ratios
Current Ratio
Amount(
£)
Total Current Assets 239207
Total Current Liabilities 34578
Current Ratio 6.917896
Figure 1: Current ratio of Grant Thornton
(Source: Created by Learner)
Cash Ratio Amount(£)
Cash Equivalents 13846
Cash 52670
Cash + cash equivalent 66516
Current liabilities 34578
Cash Ratio 1.923651
Figure 2: Cash ratio of Grant Thornton
(Source: Created by Learner)
Quick asset Ratio
Amount(£
)
Current Assets 295002
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Inventory 19099
Current Assets -
inventory 275903
Current liabilities 34578
Quick Asset Ratio 7.979149
Figure 3: Quick asset ratio of Grant Thornton
(Source: Created by Learner)
Total Debt Ratio
Amount(£
)
Total Liabilities 34578
Total assets 295002
Total debt ratio 0.117213
Figure 4: Total debt ratio of Grant Thornton
(Source: Created by Learner)
Financial Leverage
Ratio
Amount(£
)
Asset of year 2017 295449
Asset of year 2018 295002
Average total assets 295225.5
Equity of year 2017 45678
Equity of year 2018 34578
Average total equity 40128
Financial leverage ratio 7.357095
Figure 5: Financial Leverage ratio of Grant Thornton
(Source: Created by Learner)
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M2 Results of financial ratios in context of performance and decision-making
Thus from the above calculated ratio it has been seen that in context of current ratio of Grant
Thornton it is been calculated to show comparison of current asset to current liabilities of
organisation. Hence, in this organisation it shows that a current ratio of amount £6.917896 is
been in the accounts of organisation. Thus, it looks like organisation has a better current or
liquid ratio to pay short term loans or obligation for its organisation. Hence the amount can
be used to pay debt of Grant Thornton within a year. However, in figure 2 of cash ratio it is
generally prepared to show total cash of organisation. As opined by Christiaens et al. (2015),
thus in this context it can be seen that company has a ratio of about £1.923651. It can be
clearly seen that organisation has a better performance in market as it has a better asset and
has cash ratio stability in market. Thus it can make a better decision for organisation’s
sustainable growth. On other side in figure 3 of quick asset ratio it can be seen that
organisation has a good quick asset ratio in its accounts. Hence this can help Grant Thornton
to pay its current liabilities in market and have a better performance in market. The total debt
ratio in figure 4 shows that organisation has a lower amount of about £0.117213 ratio in its
account. Hence the lower the ratio helps organisation’s to use less leverage and have a better
stronger equity position (Dumay et al. 2017). Lastly, in figure 5 of financial leverage ratio
Grant Thornton has a high debt load in market. Thus it shows that a ratio of an amount
£7.357095 belong to shareholders. Thus it shows overall that company has a good financial
status in market. In addition to, shareholders of Grant Thornton holds a maximum asset that
helps in performing better within organisation.
D2 Appropriate theories and models
It can be shown that using various models Grant Thornton in market can have a better
performance in market. Thus few models are shown below:
● Budget model
Thus using the budget model organisation can create budget for financial year. Hence it will
help them to have a better performance in market. As said by Kachelmeier (2017), using this
model it will company to know how much liquid cash they have within their organisation and
this will them to use according the remaining cash. Thus budget model in another side would
help Grant Thornton to ensure that they will have enough money to run business in market.
● 3 statement model
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Using the 3 statement model that is mainly income statement, balance sheet and profit and
loss account. Preparing this 3 statement model shall help organisation to know the
information of its current year profit and see the total current asset and liabilities of company.
Thus this model will help Grant Thornton to know its financial position and profitability ratio
of current year. Through this existing model it can help organisation to forecast unlevered
free cash flow within market.
LO3 Evaluation of model and concept
P5 Benefits of IAS and IFRS
International accounting standard (IAS) is generally a accounting method to calculate
accounting based problem within organisation. Thus the various benefits of international
accounting standards are shown below:
1. Improves international investment
Thus using the international accounting method it helps investors of organisation and other
stakeholders to feel more comfortable while using this method. As opined by Katta (2018),
hence, through this method it allows reviewing financial documents of organisation and
hence helps to prepare new uniform method. Hence it also helps in helping to invest in
foreign companies and provide reliable information about accounting relation. Due to such
using of IAS method it improves investment in other foreign organisation.
2. Benefit to investors
Another major benefit that IAS provides is, in this context it helps investors to compare
financial statement with other countries and hence provide basic international guidelines to
individuals. Thus investors are more concern about adoption of international stock exchange
and hence focus on to merge with other organisation as this shall help in increasing
investment ratio of business in market.
3. Benefit to multinational companies
This IAS simplifies the use of accounting standards to multinational companies. As many
other companies focus on to use international accounting standard method rather than their
own country’s accounting method. As mentioned by (Leuz and Wysocki, 2016), Due to using
this method by multinational companies it helps them to avoid confusion regarding various
accounting techniques and this method is also helps to improve accuracy and efficiency of
organisation.
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International financial reporting standard (IFRS) is generally to provide organisation with a
global language with business affairs as to understand accounts of company and to other
international countries. The major benefit of IFRS is shown below:
1. Reduce time and effort
Major benefit that this method provides is it generally reduces the time for preparing
accounting transaction within organisation. Using this method there are fewer cost associated
with the given standard. Hence no longer multiple standards are being required to prepare
accounting report. Due to this it helps in cutting the time period of preparing multiple reports.
2. Higher return in equity
Thus in this system organisation can experience a higher return of equity in market. Thus
through this method it helps firm to increase stock value by providing exact data and other
dividend payments. Through this providing exact data this helps to provide higher return on
equity.
P6 Model of financial audit and reporting
The various financial reporting and auditing model are shown below:
● Forecasting model
Forecasting model generally helps organisation to provide a report on forecasting future data
and function of past data. As said by Miah (2019), thus in this model it focuses to assume in
taking previous year data and calculate future profit or loss for organisation. Due to this
model it helps Grant Thornton in providing better patterns of data about future loss or profit
in market.
● Consolidation model
In this model it provide a report of organisations financial statement results so as to help
managers in working more efficiently to increase revenue of organisation in market. Thus in
this model a depth research is being done by managers of organisation to provide information
about total cost and profit revenue of organisation.
● Option pricing model
This is another type of model that is majorly being used by Grant Thornton. Thus in this
model it focuses to provide a theoretical value of option available for input of better value for
company as to increase revenue in market. Thus various options are available in which it
helps managers to take better decision-making and thus provide better financial position to
organisation.
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