International Financial Reporting: Analysis and Application

This report provides a comprehensive overview of international financial reporting, focusing on the context, purpose, and application of financial reporting standards. It explores the regulatory framework and governance of financial reporting, emphasizing the role of IFRS and its impact on multinational businesses. The report includes the preparation of financial statements for a case study company, Godwin Plc, and the calculation and interpretation of various financial ratios. Furthermore, it discusses the benefits of IAS and IFRS, different models of financial reporting and auditing, and the importance of financial reporting across different countries. The report highlights the significance of financial reporting in meeting organizational objectives, fostering development and growth, and ensuring transparency and accountability for stakeholders. The analysis of Aviva Plc's financial statements and ratio calculations further illustrates the practical application of financial reporting principles, providing insights into the company's profitability and liquidity.

International Financial
Reporting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................4
P1.Context of financial reporting including regulatory framework and its governance:............4
P2.Purpose of financial reporting for meeting organisational objectives, development and
growth..........................................................................................................................................5
TASK 2 ...........................................................................................................................................6
P3.Preparation of financial statements of GODWIN Plc:...........................................................6
P4. Calculation of various ratios and its interpretation: ..............................................................8
TASK 3..........................................................................................................................................11
P5.Benefits of IAS and IFRS:....................................................................................................11
P6.Models of financial reporting and auditing: ........................................................................13
TASK 4..........................................................................................................................................14
P7.Difference and importance of financial reporting across different countries: .....................14
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
In any business environment, financial reporting of its business operations are essential
for providing true and fair view of affairs of company to its shareholders and other stakeholders.
For any multinational business organisation, international financial reporting shall be required
for follow the different countries laws and regulations. International financial reporting
frameworks set common rules for preparation of financial statements which are consistent and
transparent around the world.
For better understanding of international financial reporting, a business firm named
Deloitte is chosen which is engaged in providing professional consultancy services. It specializes
in audit and assurance, tax, advisory and risk. This report explains about the context and
purposes of financial accounting reporting for meeting business related growth and objectives. It
provides interpretation of financial statements by calculating various ratios. This report
prescribes the benefits of international accounting standards (IAS) and IFRS and various models
financial reporting and auditing. It also provides the differences and importance of financial
reporting across different countries.
TASK 1
P1.Context of financial reporting including regulatory framework and its governance:
Financial reporting concerns with the annual disclosure requirements of financial
statements which includes income & expenditure statement, balance sheet and cash flows to the
management and concerned stakeholders. It is a regulatory norm to disclose critical financial
data by the organisation to the general public in order to ensure transparency, diligence and
accountability. It is integral to corporate governance. The stakeholders who are deeply concerned
with an organisation's financial health are investors, creditors, regulators, financial institutions,
government and society at large. Deloitte Ensues financial reporting as vital to its operations and
to satisfy the needs to disclose critical information to the public it annually meets its disclosure
requirements (Nobes, 2014).
Regulatory framework:
Company law 2006 recognises International financial reporting standards (IFRS) UK and
Generally accepted accounting practices (GAAP) as standard principles to record financial
statements and follow guidelines issued by these standards for disclosure requirements . FRS 100

includes in its purview IFRS, FRS 101,102,105 which are to be strictly followed by every
publicly listed company. These standards are bifurcated according to the characteristics of the
entity concerned. They are comprehensively adopted by European union as central standards to
meet the disclosure requirements. Deloitte Being a publicly listed company adheres to IFRS for
its internal reporting and for its sister concerns. As the complexity of functions increase along
with the threshold limit, results into increase in the more complex disclosure requirements.
Deloitte discloses annual financial statements based on the parameters set by the aforesaid
standards and strictly abide by the laws prescribed. Financial reporting council is the supreme
authority in UK to promote reporting and governance standards. It is responsible for perpetual
alteration in the norms, laws and procedures to ensure greater reliability (Madawaki, 2012).
Governance of Financial reporting:
Financial reporting is a pursuit of strong corporate governance practices which an
organisation must abide to. Corporate governance is a framework of crafted rules, regulations,
managerial practices and regulatory standards through which an organisation runs. It ensures
parallel development of business goals with ensuing ethical practices for utmost care of
stakeholder interests. Financial reporting in modern context is not limited to mere a low priority
accounting exercise, but a central function of good corporate governance practice. Information
flow is certainly very crucial in the formation of a broad network of information economics
which paves a significant way of delineating information to major factors affecting with the data
set. Linkage between good governance and financial reporting empowers the brand value of a
business firm. The provisions of companies act stretches a border line for a company's business
scope. It further adds greater reliance on the firm to prove its sanctity based on the premise of
just and fair principles of good corporate governance backed by true and fair financial reporting
practices.
International financial reporting standards (IFRS):
 IFRS 1: First time adoption of international financial reporting standards and It requires
a firm that is adopting IFRS standards for the very first time to prepare a comprehensive
set of financial statements to covering its beginning IFRS reporting period and the
previous year.
 IFRS10: It makes principles for preparing and presenting consolidated financial
statements for the entity which controls various other subsidiaries or sister concerns.

 IFRS 13: It prescribes framework to measure fair value, fair value and disclosure of the
fair value measurements.
P2.Purpose of financial reporting for meeting organisational objectives, development and growth
Financial reporting and organisational objectives:
An organisation going public for funds through initial public offering and other modes of
raising capital is concerned greatly with the meeting financial reporting standards. Since a huge
number of stakeholders directly or indirectly gets attached to an organisation when it goes
public, the reliance on emancipation of consolidated financial reporting increases manifold. The
objective of a business concern is to achieve its timely goals, earn maximum profits and acquire
market share in the relevant industry. All these objectives are realisable only when the financial
statements are prepared through modest IFRS standards. Stakeholders, most importantly
investors would only be interested in investing their wealth in the business only when the firm
has disclosed fair statements. The risk free & compliance feature would make the organisational
targets of acquiring funds more attractive than its competitors hence would result in full
achievement of its predetermined goals (Albu and Albu, 2012).
Financial reporting and organisational development:
The regulatory requirements are the biggest hurdles that can possibly daunt the corporate
image of any entity. There are regulatory norms like taxation norms, companies act compliances,
financial conduct authority, reporting and disclosures which every corporate entity shall duly
address. Promulgating robust financial reporting system would result into releasing extra
compliance burden. This is helpful in broadening the learning curve of a firm because it tries to
match up to the industry standards , it focuses on adhering to established laws, it charges on the
fore front to create a positive image in the market. All such measures taken in unison leads to the
perpetual organisational development in a phased manner. Financial reporting increases the
decision making capacity of the management because they are of the view that in the back end
the reporting standards are met with due diligence, further more the management can decipher
the mistakes they have been committing which in turn would result into experiential learning for
them in gradual stages (Ikpefan and Akande, 2012).
Financial reporting and organisational growth:
The maximum time the employees of an organisation spend is on compiling the data in
precise manner and doing analytics to produce self explanatory financial statements. The

financial reporting eliminates the accounting risks and ensures free movement of capital across
boundaries and reduces listing defaults and stock exchange thrashings. Financial statements
prepared based on international standards makes the organisation more appealing for the global
investors because of the comparable data set justified by records. Efficient disclosure mechanism
improves the legal and ethical quality of the entity resulting into market appreciation for it . The
dependence of contributories on the financial data creates more burden on the business to
disseminate proper and judicious information. However the major benefit it could receive for
doing so it the international growth , employee growth and accountability.
TASK 2
P3.Preparation of financial statements of GODWIN Plc:
GODWIN Plc Statement of Profit or Loss for the year ended 31 December 2018
£
Revenue 585100
Cost of Sales w1 -403639
Gross Profit 181461
Operating expenses w1 -92139
Operating Profit 89322
Investment Income 9600
Finance cost -1200
Profit Before Tax 97722
Taxation -9500
Profit for the Year 2018 88222
(b)
Godwin Plc Statement of Changes in Equity for the year ended 31 December 2018
Ordinary
Share
Capital @
25p
Revaluation
Reserves
Retained
Earnings Total

£ £ £ £
Balance as per TB 86700 40000 45500 172200
Profit for the year 88222 88222
Preference dividend -2500 -2500
Ordinary dividend -4500 -4500
Total Equity 86700 40000 126722 253422
(c)
Godwin Plc Statement of Changes in Equity for the year ended 31 December 2018
ASSETS £
Non-Current Assets
Land and Property w2 144062
Plant and Equipment w2 98260
Investment Property 28000
Total Non-Current Asstes 270322
Current Assets
Inventory note (i) 24700
Trade receivables 78000
Total Current Assets 102700
Total ASSETS 373022
EQUITY AND LIABILITIES
EQUITY
Ordinary Share Capital @ 25p each 86700
Revaluation Reserve 40000
Retained Earnings 126722
Total Equity 253422
Non-Current Liabilities
10% Preference share Capital of £1 each 26500
Deferred Taxation 10000
Total Non-Current Liabilities 36500

Current Liabilities
Trade Payables 62700
Tax Payables 9500
Bank Overdraft 10900
Total Current Liabilities 83100
Total EQUITY AND LIABILITIES 373022
P4. Calculation of various ratios and its interpretation:
For calculating and interpretation of ratios based on the two year's financial statements of
Aviva plc are as follows:
Income statement of Aviva Plc for two year (Amount in million)
Particulars 2017-12 2018-12
Revenues 49477 17647
Cost of goods sold (47474) (15518)
Gross profit 2003 2129
Operating expenses 567 701
Net profit 1436 1428
Income tax expenses (357) (442)
Net income 1079 986
Balance sheet of Aviva Plc for two years (Amount in million)
Particulars 2017-12 2018-12
ASSETS:
Loans and advances 27857 28785
Cash and cash equivalent 43347 46484
Premium and other receivables 348 311

Deferred policy acquisitions 6374 2965
Property and equipment 509 548
Goodwill 5331 5073
Other assets 358919 346312
TOTAL 442685 430478
LIBILITIES
Short term debt 490 814
Long term debt 10295 9169
Deferred income taxes 2377 1885
Taxes payable 290 254
Other liabilities 410098 399901
Preferred stock 200 200
Common stock 1003 975
Additional paid up capital 1221 1258
Retained earnings 4918 4523
Treasury stock - 29
Accumulated other companies 10558 10504
Other liabilities 1235 966
TOTAL 442685 430478
Profitability Ratios:
These are ratios which are calculated by the management accountant for knowing the
financial condition and profitability of the company. It helps the company in better
understanding of Aviva Plc volume of operations. Some of profitability ratios are as follows:
 Gross Profit Ratio: Gross Profit / Sales * 100
Particulars 2018-12 2017-12

Gross profit 2129 2003
Sales 17647 49477
G.P. Ratio(%) 12.06 4.05
Interpretation: Gross Profit Ratio means the ratio that indicate percentage of sales,
company is earning gross profit. Company must maintain its gross profit ratio or must have
increase in gross profit ratio as compare to last year. Presently company is having gross profit
ratio of 12.06% in 2017-18, whereas company is having gross profit ratio of 4.05% in 2016-17.
Therefore company have take concern on this matter.
 Net Profit Margin Ratio: Net Profit / Sales * 100
Particulars 2018-12 2017-12
Net profit 1428 1436
Sales 17647 49477
G.P. Ratio(%) 8.09 2.9
Interpretation: Net Profit Ratio means the ratio that indicate percentage of sales, company
is earning net profit. Presently company is having net profit ratio of 8.09% therefore company
and management has done its duty in good manner and no steps needs to be taken.
Liquidity Ratios:
These ratios are calculated to find the liquidity position of the Aviva Plc whether
company has sufficient liquid funds to pay its short term outstanding payments. Liquidity ratios
are as follows:
 Current Ratio: Current Assets / Current Liabilities
Particulars 2018-12 2017-12
Current assets 56781 53741
Current liabilities 9983 10785
Current Ratio 5.69 4.98

Interpretation: Current ratio means excess of current assets over current liabilities by
taking current liabilities as a base '1'. Generally 2:1 current ratio is considered as good. Company
having current ratio as 5.69:1 which is more than standard. Therefore, there is no need to take
any action.
 Quick Ratio: Quick Assets / Current Liabilities
Particulars 2018-12 2017-12
Quick assets 53845 51041
Current liabilities 9983 10785
Current Ratio 5.39 4.73
Interpretation: Quick ratio means excess of quick assets over current liabilities by taking
current liabilities as a base '1'. Generally 1:1 quick ratio is considered as good. Company having
current ratio of 5.39:1, which is more than standard. It means there sufficient liquid fund with the
company to pay its liquid assets.
Investment Ratios:
 Return on Equity: Profit after tax / Net worth *100
Particulars 2018-12 2017-12
Profit after tax 1428 1436
Net worth 17489 17900
Return on equity (%) 8.17 8.02
Interpretation: Return on equity means earning for owners of the company. Generally 15-
20% return on equity is considered as good and company has 8.17% as return on equity which is
considered as quite good performance but not as per standard. Therefore, company shall require
to take appropriate action for improving its return on equity.
 Return on Assets: Net Profit / Total Assets * 100
Particulars 2018-12 2017-12

Profit after tax 1428 1436
Total assets 430478 442685
Return on assets(%) 0.33 0.32
Interpretation: Return on assets means what percentage of total assets, company is
earning profit. Presently company have a negative return on assets of 0.33%, so management
will have not utilise its fixed assets as per shareholders expectation. Therefore company shall
need to improve its return on total assets by increasing net profit and decreasing its total assets
(Terzi, Oktem and Şen, 2013).
TASK 3
P5.Benefits of IAS and IFRS:
For achieving good compliance with laws and regulations of various countries in which
Deloitte engaged in providing services. Therefore, it shall require to comply with requirements
of international accounting system (IAS) and International financial reporting system (IFRS). For
better understanding of IAS and IFRS, the benefits derived by the company are as follows:
Benefits of International Accounting system:
 Facilitates ethics compliance: Any organisation can expand it's business in every country
and each country follows different ethics for business. An international accounting
system provides an uniform code of accounting standards and it also allows entrepreneurs
to follow same guidelines while operating business in any part of the world.
 Improvise international statements: The main benefit of international accounting system
is that it helps in improving international investments of an organisation. This provides a
platform for making easier and convenient for comparing business performance with
other international organisations. This eliminates uncertainty while making decision for
financial operations of the company.
 Sets generalised standards: There is a rapid evolution of e-commerce and opportunities
for business so it is important to build international accounting system. This helps in
making a set of standards which are followed for making financial decisions of the
company.