International Financial Reporting Analysis for Marks and Spencer

This report delves into the intricacies of financial reporting, focusing on its application within Marks and Spencer. It begins by defining financial reporting and its core purpose, emphasizing its role in providing stakeholders with a clear understanding of an organization's financial health. The report then...Read More

International Financial
Reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Context and purpose of financial reporting.............................................................................1
2. Conceptual and regulatory framework and their requirement, purpose and key principles. . .2
3. Main stakeholders of an organisation and the way in which they get benefited with the help
of financial information...............................................................................................................4
4. Value of financial reporting in meeting organisational objective and growth........................5
5. Main financial statement of the organisation..........................................................................6
6. Financial statements of the organisation that are used to interpret and communicate
financial performance..................................................................................................................9
7. Difference between IAS and IFRS..........................................................................................9
8. Evaluation of benefits of IFRS..............................................................................................11
International Financial Reporting Standards:............................................................................11
9. Varying degrees of compliance with IFRS...........................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
APPENDIX....................................................................................................................................15

INTRODUCTION
Financial reporting is the process of formulating financial statements that are required to
analyse organisational performance and market position. It guides internal and external
stakeholders to determine that organisation is in good condition or not. It is essential for the
companies to conduct financial reporting regularly so that a good market image can be
established (Abata, 2015). While shareholders and investors are wiling to analyse that their
money is properly used by the company or not, in this situation they may get appropriate status
of their funds from financial statements. Junior auditor of an accountancy firm is going to
conduct financial reporting for Marks and Spencer. Various topics are discussed under this report
that are financial reporting and its purpose, conceptual and regulatory framework and their
requirement, purpose and key principles, main stakeholders of the organisation and they way in
which they get benefits form financial information, value of financial reporting in meeting
organisational objective and growth, formulation of main financial statements, difference
between IFRS and IAS. Benefits of IFRS and varying degrees of compliance with IFRS have
also been discussed under this report.
MAIN BODY
1. Context and purpose of financial reporting
Financial reporting: It is a process in which accountants of an organisation formulate
financial statements so that financial status and market position of the company can be analysed.
Three different types of statements are formulated under financial reporting these are income and
cash flow statement, balance sheet. All of them presented in front of stakeholders so that they
may analyse financial strength of the company. In Marks and Spencer financial statements are
created so that managers may get exact information of the company and also make effective
decisions according to organisational situation (Alali and Foote, 2012).
It is very important for all the companies to generate financial statements so that exact
status of the organisation can be analysed. Mainly financial reporting is done annually to
determine all the incomes, expenses, profits, revenues, losses, assets and liabilities that are
acquired or faced by a business entity in a specific time period. It is the main source for external
stakeholders to evaluate financial strength of a business and its operations. Top management of
Marks and Spencer is liable for the proper formulation of financial statements in which
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appropriate information is recorded. Appropriate financial reports help auditors to audit the
records and then give their opinion company's performance and appropriateness of the data
which is recorded in final accounts.
Purpose of financial reporting:
 Main purpose of financial reporting is to provide appropriate information of financial
status of the organisation to the stakeholders so that they may analyse actual status of
their money which has been invested by them in the company.
 Another purpose of financial reporting is to attract foreign investment by keeping a good
financial position in the market.
Financial reporting is a technique which is very beneficial for every organisation and help
to enhance investment by providing transparent financial information to the investors. If Marks
and Spencer is not able to attract large number of investors than it is not possible for the
organisation to operate business activities because funds that are acquired by investors are used
for business operations. As Marks and Spencer is executing business in multiple countries hence
foreign investment is required for the company which can be gathered with the help of large
number of investors (Aletkin, 2014).
2. Conceptual and regulatory framework and their requirement, purpose and key principles
Conceptual framework: It is an logical tool with respective fluctuation and context. It is
mainly used for make abstracted differentiation and coordinate opinions. In other words it can be
defined as combination of assumptions, principles, rules and regulations that are formed by
regulatory authorities in order to guide organisations while formulating financial statements. It is
vital for Marks and Spencer to follow all the relevant principles that are imposed by government.
Regulatory framework: It can be defined as a set of regulations that are published by
government for the purpose of regulating and supervising organisations while recording financial
information in final accounts. For Marks and Spencer it is very important to follow all the
regulations so that business can be executed appropriately with no government interference.
IASB (international Accounting Standards Board) and IASC (International Accounting
Standards Committee) are the two regulatory bodies who are liable to impose different
accounting and financial reporting standards. It is essential for the organisations who are willing
to operate business globally to follow all the standards. IFRS (International Financial Accounting
Standards) are the principles of regulatory and conceptual framework and launched by IASB.
2

IFRS: These are the set of principles that are introduced for the organisations in order to
follow while creating final accounts (IFRS, 2018). Some of the selected IFRS are defined below
that are required to be followed by Marks and Spencer:
 IFRS 1: This standard is mainly introduced for those companies who adopt IFRS for the
first time and work as a guide for them.
 IFRS 3: It is related to business combinations like merger and acquisitions. All the
organisations who been a part of merger and acquisitions related activities are have to
implement this standard.
 IFRS 9: Financial instruments are measured and recorded according to this standard.
This standard direct organisation to recognise and record all financial instruments on
book value.
 IFRS 10: According to this standards business entities are directed to formulate financial
statements in consolidated form. The parent company is liable to generate statements of
all subsidiaries.
All the standards are required to be followed by all the organisation as they guide the
companies to formulate all the statements in appropriate manner and also help to be more
competitive in the market. All the standards are required for Marks and Spencer as organisation
is operating business on international level and this may help to reduce burden of using different
type of accounting system of each country.
Purpose of regulatory and conceptual framework:
 Main purpose of regulatory and conceptual framework is to guide organisations to
prepare their financial statements in appropriate manner so that a transparent image of the
company can be presented in front of shareholders.
 Another purpose of these frameworks is to help companies to attract foreign investors so
that business can be operated in more effective manner.
All the above mentioned rules and standards are required to be followed by marks and
Spencer as they may help to attain organisational objectives (Bentley, Omer and Sharp, 2013).
Qualitative characteristic of financial information:
 Relevance: If the financial information is relevant to the transaction and appropriate than
it may help to enhance reliability of information.
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 Faithful representation: This feature of information can help to enhance trust of
investors and shareholders and this will also help to enhance reliability.
 Understandability: As the information recorded in the financial statement is
understandable than it may help to enhance its reliability because it can be understood
easily.
3. Main stakeholders of an organisation and the way in which they get benefited with the help of
financial information
Stakeholders of an organisation can help the company to operate business more
smoothly. These stakeholder make strategic decisions by analysing organisational performance.
There are two different types of stakeholders who are part of a company (Clacher, De
Ricquebourg and Hodgson, 2013). All the stakeholders of Marks and Spencer are as follows:
Internal stakeholders: All the internal stakeholders analyse organisational situation and
than take decisions to enhance sales and profits. All the internal stakeholder are as follows:
 Shareholders: Shareholders of are the persons who provide funds to the organisation so
that it may execute business. They analyse financial information of the company and
analyse that their money is properly used by the organisation or not.
 Managers: They are mainly concerned with the decisions making process and they get
benefits from financial information because it help them to analyse actual position of the
company and then they may formulate appropriate decisions accordingly.
External stakeholders: They are external parties of Marks and Spencer and use financial
information for different perspective. All of them are describes below:
 Creditors: The individuals who lend good or material on credit to the company are
called creditors. Before providing goods on credit they analyse organisation's market
image and assure that all the money will be reimbursed.
 Investors: The external parties who invest their money for the purpose of getting higher
return on the invested amount. Financial information benefit them because this benefit
them to determine possible rate of return which can be acquired by them in future.
 Customers: They analyse organisation's market image to make buying decision for any
product. For this purpose financial information may help them and they may take
appropriate decision and get satisfied (Cotter 2012).
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 Government: For government financial information is very beneficial because this may
help to determine that organisation is paying appropriate tax and operating business in
legal way.
All the above described stakeholders of Marks and Spencer analyse financial information
and than make decisions regarding sales, investments and providing credit. It is very important
for accountants of Marks and Spencer to provide appropriate and transparent information to all
of them so that they may help the organisation to attain all its long as well as short term goals.
4. Value of financial reporting in meeting organisational objective and growth
Financial reporting help to attain organisational goals but it is possible in only one
situation if the company is formulating appropriate statements and recording transparent
information in those statements. Marks and Spencer is a large organisation and mainly involved
in retail business of clothes. The organisation is having various goals like attract large number of
investors, enhance foreign investment, satisfy customers and increase sales. All these objectives
can be achieved with the help of accurate financial statements.
Main objective of Marks and Spencer is to attract large number of investors, for this
purpose organisation have to provide them appropriate financial information. If the company is
able to provide them accurate information than they may take investment decision, but it is only
possible if the company is having good financial record and attain profits from a long profits.
Investors always invest in such organisations who may provide them higher returns on
investment. As market image and financial position of the organisation is very good hence this
can help to fulfil this objective of attracting large number of investors (Ikpefan and Akande,
2012).
Another objective of increasing foreign investment can be acquired with the help of
financial reporting if organisation is following IFRS because they are based on international
reporting. As Marks and Spencer is executing business on international level and following IFRS
for recording financial information hence this may help foreign investors to analyse
organisation's position and they may get attracted toward the company. If Marks and Spencer is
having foreign investment than it will also help to grow faster because foreign investment can
help to increase profits which is beneficial for future growth.
Customer satisfaction and sales maximisation both are interrelated with each other
because sales will be enhanced with the help of large number of customers. They analyse
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financial statements of the organisation to determine that they are buying products of a good
company or not. If Marks and Spencer is able to attain all the organisational goals than it will
help to acquire growth for the company. Appropriate information which is recorded in financial
statements can help to fulfil all the requirements of stakeholders and achieve growth and
objectives of the business enterprise (Iyoha and Owolabi, 2012).
5. Main financial statement of the organisation
A. Statement of profit and loss
Particular Amount
Revenues 385100
Less: Cost of sales -297563
Profit 87537
Add: Other income 5600
Gross profit 93137
Less: operating expenses -83663
Operating profit 9475
Less: Finance cost -830
Profit before tax 8645
Less: Tax -1500
Profit after tax 7145
Add: Other comprehensive income 2100
Total Comprehensive income 9245
The above table summarises that total profit which was acquired by the company was
87537 and total revenues for the company were 385100. Gross profits of the company were
93137 and operating profit was 9475. Profit before tax for the organisation was 8645 and profit
after tax was 7145. Other comprehensive income for the organisation was 2100 and total
comprehensive income is 9245.
B. Statement of changes in equity
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Particular
Ordinary
share
capital
Revaluatio
n reserve
Retained
earnings Total
As per trial balance 86700 40700 32100 159500
Total Comprehensive income 2100 7145 9245
Preference dividend -2330 -2330
Ordinary dividend -4340 -4340
86700 42800 32575 162075
Statement of changes in equity shows that ordinary share capital for the organisation is
86700, revaluation reserve for the company is 42800, retained earnings were 32575 and in total
all the items were 162075.
C. Statement of financial position
Assets Amount
Non current assets:
Land and property 115000
Plant and equipment 37275
Investment property 25400
Total non current assets 177675
Current assets:
Inventory 17300
Trade inventories 62000
Total current assets 85300
Total assets 262975
Equities and liabilities
Ordinary Share @25 each 86700
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Revaluation reserve 42800
Retained earning 32575
Total equities 162075
Non current liabilities:
10% redeemable preference share 23300
Deferred taxation 8900
Total non current liabilities 32200
Trade payables 65700
Bank overdraft 1500
Tax payables 1500
Total current liabilities 68700
Total equities and liabilities 262975
Statement of financial position of the company is showing that total non current assets of
the organisation were 177675 and total current assets were 85300. Total assets of the company
were 262975. Total equities of the organisation were 162075 and total non current liabilities for
the business were 32200. According to the above statement company have current liabilities of
68700 and organisation's total equities and liabilities were 262975.
Working notes
Calculation of cost of sales and operating expenses:
Particulars
Cost of
sales
Operating
expenses
As per trial balance 291700 78500
Adjustment in investment 700
Depreciation on land and property 2500 2500
Depreciation on plant and equipment 2663 2662
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Amount to be shown in P & L 297563 83662
Cost of damaged good 1470
Can be sold 1670
Residential -990
Net realisable value 770
Decreased by 700
Cost of sales increased by 700
Calculation of net carrying amount of land and property, plant and equipment and
investment property:
Non current assets:
Land and
property
Plant and
equipment
Investment
property
As per question 120000 88000 23300
Accumulated depreciation -45400
Current year depreciation -5000 -5325
Revaluation 2100
Carrying value 115000 37275 25400
Calculation of new amount of closing inventory:
Closing inventory 18000
Goods on cost -1470
Net realisable value 770
Amount to be shown in balance sheet 17300
D. Information provided by cash flow statement differs from information provided by
statement of financial position
Cash flow of the company provides cash related information but the statement of
financial position shows all the relevant information which is related to revenues, expenses,
9

incomes, assets and liabilities. Cash flow cannot provide other organisational information and
but statement of financial position is bale to provide detailed information of the organisation.
6. Financial statements of the organisation that are used to interpret and communicate financial
performance
As analysed from appendix Marks and Spencer's total revenues have been increased in
year 2018 as compare to year 2017. for both the years revenues were 10622000 and 10698200
respectively. Gross profits of the organisation have been decreased in current year as cost of
revenues have been increased as compare to previous year. Profits for both they years were
3992700 and 3952600 respectively. Total operating expenses of the organisation have been
increased in 2018 as compare to 2017. in 2017 these were 9914700 and for 2018 these were
10020800. Operating income of Marks and Spencer has been decreased up to 677400 in year
2018 as compare to year 2017. For 2017 the income was 707300. net income of Marks and
Spencer have also been affected due to the changes in cost of sales and operating expenses. It has
been decreased up to 25700 from 117100 which is for 2017. Total current assets of the company
were 1723300 in year 2017 and these are decreased up to 1317900 in year 2018. Marks and
Spencer is having total assets of 7550200 in year 2018 that are decreased as compare to previous
year. Total current liabilities of the organisation were 2368000 in year 2017 and these are
decreased up to 1826000 in year 2018. Organisation's total liabilities were 5142100 in year 2017
and these are decreased in year 2018. Net tangible assets have been decreased up to 2357500 in
year 2018 as compare to previous year.
7. Difference between IAS and IFRS
IFRS: IFRS stands for international financial reporting standards, it is a set of
international accounting rules that ascertain the transaction and another events which are
necessary to record in financial statements (Jackling, 2013). These standards of accounting are
developed by IASB that is international accounting standards boards. The main objectives of
IFRS is global structure and guidance for preparation and disclosure of public company financial
statements instead of setting rules for them. It is generally essential for large firms which are
having its subsidiaries in various countries. International standards records the implementing
IFRS cost that may be starts by compliance capability so that credit rating can be improve. After
adopting IFRS companies transparency increases, capital cost, share price higher because of
investors confidence and transparent data, national standard setting cost decreases, maximises
10

domestic market credibility to international market providers and ability of foreign merger
partners.
IAS: IAS is international accounting standards which is a older standards that is replaced
by IFRS. It is the first Globally accounting standard which were issued by IASC that is
international accounting standard committee. By comparing standards of accounting globally
upgrade accountability, clarity and financial market efficiency over the world. This helps
capitalist and other participants of market so that informed decisions are made related to
allocation of capital and opportunities and risk of investments. Some advantages of International
accounting standards are it maximises company comparability that decreased risk of investors
and provides cross-wise investments and financing. It reduces preparation cost of consolidated
financial statements for multinational organisation. Also developed quality and responsibility of
financial reports (Kerr and Murthy, 2013).
Differentiation between IFRS and IAS:
IFRS IAS
It stands for international financial reporting
standards.
It refers to international accounting standards.
This standards issued by International
accounting standard boards(IASB)
It is issued by International accounting
standard committee(IASC).
If there is contradiction then IFRS principles
have more priority.
Principles of IAS are less important as this has
been dropped.
It were promulgated from 2001. It were promulgated from 1973 to 2001.
It is current set of accounting standards. It is older accounting standards.
From the above mentioned information Marks And Spencer's have to follow International
Financial Reporting Standard (IFRS) as this improve credit rating so more and more numbers of
customers attracted which help them to attain their goals and objectives
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8. Evaluation of benefits of IFRS
International Financial Reporting Standards:
This standards are issued by the International Accounting Standard Board and IFRS
foundation to rendering a common international language for transaction of business in which
accounts of M&S company are comparable and understandable across global boundaries. They
are a outcomes of growing global trade and shareholding and are especially significant for the
company which has dealings in various nations. They are increasingly exchange the many
several national accounting standards. They are the regulation to be followed by comptroller and
accountants to keep books of accounts that are relevant, comparable, reliable and understandable
according the users external and internal (Skaife, Veenman and Wangerin, 2013).
UK country that adopt IFRS, then both investors and M&S company benefits from
choosing this method since investors are take more interest to invest money into this company if
its practices of business are transparent. Mostly the investments costs are lower. M&S company
who do more international business can take advantages from the IFRS. International Financial
Report Standards considered wide scope of accounting processes. IFRS set some mandatory
rules such as statements financial position, comprehensive income, cash flows and changes in
equity. M&S company should also provide a summary of its accounting policies.
Benefits of IFRS:
There are some specific types of benefits which are as under:
Improved tax planning and financial reporting: In IFRS, company produce a consistent
and standardised set of financial and accounting reports for complying with consolidated
requirements and local statutory.
Better managed resources: By standardising accounting and processes, M&S company
will be capable to streamline and standardise accounting methods across the organisation and
decrease the cost of statutory reporting and auditing.
Improved day-to-day activities: Business of M&S get quicker approach to more in-depth
information of financial performance to use in making effective decision and analysing about
regular operations.
Lower cost of capital: Support to high-quality financial standards and enhanced
penetration into financial results, as mere by the IFRS, can advantage for both the investors and
M&S company with decrease the cost of capital.
12

Improved financial controls: By regulation the approach and control over legal
coverage, businesses decrease the penalties risk and compliance difficulties in individual
countries and in wide enterprise.
By choosing IFRS, M&S should be choosing a “global financial reporting” base that
enable this company to be interpreted marketplace on international basis. This support in
approaching global capital markets and promoting new business of the company. It permits to
M&S company to sensed as an global player.
9. Varying degrees of compliance with IFRS
IFRS are the set of different types of standards that are formulated by the government and
these are mainly followed by those companies who are executing business in multiple countries.
While formulating financial statements it is very important for the companies to follow these
standards so that a transparent image of the company can be presented in front of the
stakeholders. It is essential for the organisations to record appropriate and accurate data in the
annual report so that stakeholders may analyse the organisational position. IFRS guide the
business enterprises to generate all the final accounts effectively because this is required to
attain financial strength (Nobes, 2014).
For example, Marks and Spencer is operating business all around the world. The
organisation have to follow the accounting and financial reporting standards of all the countries.
This may create problem in financial reports because organisation will not be able to provide
appropriate information to all its stakeholders. IFRS is a good option for the company because
this may help to resolve the complexities in the financial reporting and provide accurate
information to the stakeholders.
Financial reporting is a technique that may help the organisation to attain all the
objectives and growth by following IFRS that are imposed by IASB which is legal authority and
publish financial reporting standards for the companies to reduce complexities in reporting
system (Lang and Stice-Lawrence, 2015).
CONCLUSION
From the above project report it has been concluded that financial reporting is the process
of maintaining financial statements of the organisation in appropriate manner. It is essential for
all the organisations to follow the standards that are imposed by IFRS because this may help to
13

attain objectives like attract investors, maximise profits and sales. These standards are mainly
published for those companies who are operating business on international level and willing to
acquire higher profits. Stakeholders like customers, creditors, investors, shareholders and other
use financial information to make appropriate decisions because they want to be a part of such
business entity who have a good market image and financial strength.
14

REFERENCES
Books and Journals:
Abata, M. A., 2015. The impact of international financial reporting standards (IFRS) adoption on
financial reporting practice in the Nigerian banking sector. Journal of Policy and
Development Studies. 289(1850). pp.1-16.
Alali, F. A. and Foote, P. S., 2012. The value relevance of international financial reporting
standards: Empirical evidence in an emerging market. The international journal of
accounting. 47(1). pp.85-108.
Aletkin, P. A., 2014. International financial reporting standards implementation into the Russian
accounting system. Mediterranean Journal of Social Sciences. 5(24). p.33.
Bentley, K. A., Omer, T. C. and Sharp, N. Y., 2013. Business strategy, financial reporting
irregularities, and audit effort. Contemporary Accounting Research. 30(2). pp.780-817.
Clacher, I., De Ricquebourg, A. D. and Hodgson, A., 2013. The value relevance of direct cash
flows under International Financial Reporting Standards. Abacus. 49(3). pp.367-395.
Cotter, D., 2012. Advanced financial reporting: A complete guide to IFRS. Financial
Times/Prentice Hall.
Ikpefan, O. A. and Akande, A. O., 2012. International financial reporting standard (IFRS):
Benefits, obstacles and intrigues for implementation in Nigeria. Business Intelligence
Journal. 5(2). pp.299-307.
Iyoha, F. O. and Owolabi, A., 2012. Adopting international financial reporting standards (IFRS)
in Africa: benefits, prospects and challenges. African J. Accounting, Auditing and
Finance. 1(1).
Jackling, B., 2013. Global adoption of International Financial Reporting Standards: implications
for accounting education. Issues in Accounting Education. 28(2). pp.209-220.
Kerr, D. S. and Murthy, U. S., 2013. The importance of the CobiT framework IT processes for
effective internal control over financial reporting in organizations: An international
survey. Information & Management. 50(7). pp.590-597.
Lang, M. and Stice-Lawrence, L., 2015. Textual analysis and international financial reporting:
Large sample evidence. Journal of Accounting and Economics. 60(2-3). pp.110-135.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Skaife, H. A., Veenman, D. and Wangerin, D., 2013. Internal control over financial reporting and
managerial rent extraction: Evidence from the profitability of insider trading. Journal of
Accounting and Economics. 55(1). pp.91-110.
Online
IFRS. 2018. [Online] Available through:
<https://www.ifrs.com/>
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APPENDIX
Income statement of Marks and Spencer:
particulars 2018 2017
Revenue 31/03/18 01/04/17
Total revenue 10698200 10622000
Cost of revenue 6745600 6629300
Gross profit 3952600 3992700
Operating expenses
Selling general and administrative 3324700 3348600
Others -49500 -63200
Total operating expenses 10020800 9914700
Operating income or loss 677400 707300
Income from continuing operations
Total other income/expenses net -610600 -530900
Earnings before interest and taxes 677400 707300
Interest expense -95400 -100200
Income before tax 66800 176400
Income tax expense 37700 60700
Minority interest -2500 -5900
Net income from continuing ops 29100 115700
Net income 25700 117100
Balance sheet of Marks and Spencer:
particulars 31/03/18 01/04/17
16