Financial Reporting Analysis: IFRS and Mark & Spencer's Performance

This report provides a comprehensive analysis of financial reporting, with a specific focus on Mark & Spencer. It begins by defining financial reporting, its purpose, and its context, highlighting its importance for stakeholders like investors, creditors, and managers. The report then explores the conceptual and regulatory frameworks, emphasizing key principles of IFRS. It identifies and discusses the main stakeholders of companies and their advantages, followed by an examination of the values of financial reporting, such as creating goodwill and maximizing profit. The report then presents and analyzes Mark & Spencer's financial statements, including the statement of profit and loss, changes in equity, and financial position. It examines the use of financial statements to interpret and communicate financial performance, highlighting differences between IFRS and IAS, the benefits of IFRS, and the varying degrees of compliance with IFRS. The report concludes with a summary of the findings and references to support the analysis.

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 key principle........................................................2
3. Main stakeholder of companies and their advantage...............................................................3
4. Values of Financial reporting...................................................................................................4
5. Financial statements of the organisation..................................................................................4
6. Use of financial statements of a company to interpret and communicate financial
performance.................................................................................................................................6
7 Difference between IFRS and IAS...........................................................................................7
8 Evaluation of benefits of IFRS.................................................................................................8
9 Ascertaining the varying degree of compliance with IFRS......................................................9
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10
APPENDIX....................................................................................................................................11

INTRODUCTION
Financial reporting is described as the process of recording useful financial information
and then communication the same gather data to the financial statement user such as creditor and
investor. This method help information of useful financial statements like balance sheet,
statements of equity, cash flow statements and income statements. With the help of report and
statements internal manager use to analyse the performance of company and determine the
financial status and strength. In this report Mark & Spenser is taken to better understand the
importance of financial reporting.
In this report, context and purpose and difference of financial reporting, interpret of last
two year financial statements. Report shows the actual difference between IAS and IFRS and the
main advantage of IFRS. This assignment also discuss the varying degree of compliance with
IFRS.
MAIN BODY
1. Context and purpose of financial reporting.
Financial reporting is a internal process of gathering, reporting, analysing and presenting
the important financial information to the external parties those are interested in company
operation. Basically financial statements and report provide relevant financial information to
stakeholder so that they make useful investment decision. They also determine the financial
strength and market position of company with the help of cash flow and balance sheet. In Mark
& Spencer manager use to formulate important accounting statements that help to ascertain the
actual inflows and outflows during a year. The main purpose and importance of financial
reporting to Mark & Spenser are discussed below:
Purpose:
 It provide the useful information to the internal manager of M&S that is further used for
the purpose of making effective plans, benchmarking for further activities and aid in
decision making.
 It also provide the information to different shareholder and public at a large platform as
M&S hold its business at global level.
 Financial report provide information to various stakeholder regarding performance
management of M&S as to how they execute there jobs and responsibility.
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 The main purpose of financial reporting is to enhance social welfare by looking into the
interest of worker, government and trade union.
Importance:
 Accurate Financial report and statements facilitate statutory audit. This help auditor to
audit the financial statements of M&S and provide their opinion.
 These accounting report are consider to be the backbone for financial planning, decision
making and analysing that are useful for stakeholder.
 With the support of financial reporting M&S are able to raise their capital from both
domestic and overseas market.
 It is observed that financial reporting also use for the purpose of government supplies,
Bidding and labour contact etc.
2. Conceptual and regulatory framework and key principle.
Conceptual frameworks: It is defined as an analytical tool that have some variable and
textual matter. It is basically used by companies to analyse and measure the financial information
of an accounting year. Thus, it help in determine the overall status and performance of company.
In Mark & Spenser manager make use of this elements to make abstract differentiation and
formulate and arrange different business ideas to execute business operation and improve
performance of company.
Regulatory frameworks: These are defined as the set of legal laws and rules that are
implemented by government. It is to be followed by each and every company performing their
operation in that nation. According to laws every company is required to conduct financial
reporting for business because it help to determine the financial actual position and status of
company. M&S is implementing the set that are imposed by IASB in the form of IFRS. Some
IFRS are discussed below that are also consider as Key principle of conceptual and regulatory
framework:
IFRS 1: This actually provide the guideline to the companies in order to adopt the
international financial reporting standard for the very first time (IFRS, 2018.). Thus it guide
manager of M&S to formulate and prepare the annual financial statements in effective and
appropriate manner.
IFRS 10: This IFRS support business firm to [prepare their financial statement in a
consolidate formate so that transaction of main company could be combined with the transaction
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of subsidiary company. This help in determining the overall performance and improve the
profitability and productivity in an accounting year.
Qualitative features of financial information:
Understandability: This means that financial statements report must be accurate and
transparent and make easy to understand. This help the user to make a better understanding either
to do investment in company or not.
Comparability: It implies to have like things reported in a similar manner and unlike
thing must be reported differently so that comparison can be made. With the help of appropriate
and distinguish report investor are able to compare report of M&S with other companies and
make decision accordingly.
3. Main stakeholder of companies and their advantage.
Internal and external parties those have interest in companies operation and have their
affect on different company activities are commonly known as stakeholder. They help companies
to provide valuable feedback thus support to operate and manage business activities in effective
manner. Mark & Spenser also have number of stakeholder such as creditor, investor,
shareholder, customer etc. So it the responsibility of internal manger to provide financial
statements so that important investment decision are taken. Some of the basic benefits of
financial information to these stakeholder are discussed below:
Shareholder: These are also known as owner of company. There main role is to make
sure that company have sufficient amount to run their daily business activity. They raise fund to
M&S to perform production, sales and marketing function in proper manner. They use financial
report to analyse that their money is being used in effective manner or not.
Manager: These group of individual manage and control function and business activities
of company. They make use of financial report in order to analyse and determine the actual
performance of employees and company.
Investor: The make investment in company for the purpose of earning huge return and
acquire more profit. This financial information help to determine the current position of company
Mark & Spenser so that investment decision can be made.
Customer: They are consider to be the valuable part for every company. Financial
information is used by customer to know the actual market position of company so they make
decision to buy product.
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Government: Financial statements prepared by Mark & Spenser is ascertained by Legal
authority of UK that help government to make sure that company is not doing any illegal
activity. This information help government to make sure that company is paying tax or not.
Government: Financial statements prepared by Mark & Spenser is ascertained by Legal
authority of UK that help government to make sure that company is not doing any illegal
activity. This information help government to make sure that company is paying tax or not.
4. Values of Financial reporting.
In present era, it has been determined that financial reporting aid to attain predefined
goals and opportunities for growth and development. The main objective of M&S is to attract
large number of investor and more customer so that profit for year could be maximised. So, It is
very important for company to formulate and maintain the accurate financial statements that help
in achieving the goals and set targets (Formisano, Fedele and Calabrese, 2018). Stakeholder are
influenced through transparent, appropriate reports so that they ascertain that company is
performing well or not. So the values of financial information is discussed below:
Create goodwill at global level: Basically financial statements provide valuable
information to number of stakeholder and customer. This help them to determine the current and
actual position of company. Once stakeholder are satisfied with report it help Mark & Spenser to
build strong goodwill at global level.
Profit maximisation: In M&S, internal manager use financial statement to examine that
weather are doing well in market or not. With the help of accurate and appropriate statements
manager are able to determine that company utilise their fund in effective manner. They use to
control expenses of company on different business project so that profit of company could be
determined.
Customer satisfaction: In order to satisfy customer manager of company provide goods
and services of good quality and at best suitable price. So customer accurate financial report help
company to determine the actual position of M&S. So they make their decision on the basis of
good market image as they wants best quality of goods that satisfy them most.
5. Financial statements of the organisation
A: Statement of profit and loss:
Consolidated statement of profit or loss
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Continuing operations
Revenue 385100.00
Cost of sales of goods 291700.00
Gross Profit 93400.00
Operating Expenses 78500.00
Operating Profits 14900.00
Finance Income 5600.00
Finance Cost 830.00
Profit before income tax 19670.00
Income tax expenses 15000.00
Profit after tax 4670.00
Dividend
Equity 830.00
Preference 2330.00
Retained Earning 1510.00
From the above calculated profit and loss account of Mark & Spenser, gross profit after
deducting cost of sales from revenues for company is 93400. Statement also displays the
operating profit 14900 and profit before tax is 19670. Company earn profit after tax is equal to
4670 and the retained earning for company is 1510.
B. Statement of changes in equity for the year ended 31st December 2017
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
C: Statement of financial position:
Financial Statement
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Assets
Land & Property 160700.00
Less:Depreciation -185100.00 -24400.00
Property 88000.00
Less:Depreciation -8000.00 80000.00
Investment property 23300.00
Plant & Equipment 78000.00
Deferred tax assets 8900.00
Other assets
Total non-current assets 165800.00
Inventories 17230.00
Accounts receivable 68000.00
Other assets
Short-term investments
Cash and cash equivalents 1500.00
Total current assets 86730.00
Total assets 252530.00
Equity and liabilities
Equity
Equity share capital 86700.00
10% Pref. Share capital 23300.00
Revaluation Reserve 42800.00
Retained Earning 33610.00
Total non-current liabilities 186410.00
Provisions
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Accounts payable 66120.00
Total current liabilities 66120.00
Total equity and liabilities 252530.00
From the above presented balance sheet, it has been determined that total non current
assets for M&S is 165800 and balance of current assets is 86730. On the other side the balance
of equity and non current liabilities is equal to 186410 and the current liabilities shows the
balance of 66120. Both liabilities and assets side are equal and shows the balance of 252530.
6. Use of financial statements of a company to interpret and communicate financial performance.
From the last two year financial statements, it has been determined that Mark & Spenser
has revenue of 10622000 for year 2017 that increases in 2018 to 10698200. Due to fluctuation in
cost of good sales the profit decreased in 2018 as profit in 2017 is 3992700 and in year 2018
3952600. So net profit of company also decreased to 25700 in year 2018 which was much higher
in year 2017. From the balance sheet it has also been determined that balance of current assets of
company has been declined in year 2018 1317900 which was 1723300 in year 2017. This also
shows the impact on total assets as in year 2017 the balance of assets was 8292500 which comes
to 7550200 in year 2018. It is also determined that short term debt of M&S has also decreased in
year 2018 125300 which was 517600 in year 2017. Total shareholder's equity of the company
has been decreased in year 2018. For 2017 equities were 3156300 and for 2018 these are
2956700.
Financial ratios of Marks and Spencer
Particular ratios Formula 2017 2018
Liquidity ratio’s:
Current ratio: Current asset/ current liabilities
0.7217415
115
0.7277449
324
Liquid ratio: Current asset- inventory+ prepaid
expenses/ Current liabilities
0.2940306
681
0.4073057
432
Liquidity ratio: This ratio help to determine the ability of company to pay off their
current debt without making money from the external parties.
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Current ratio: This ratio help to determine the liquidity of company as it have enough
resources to meet their short term responsibility.
From the above calculated ratio, it has been determined that current ratio of company is
0.727 (approx) for year 2018 and liquid ratio of company is 0.40 (approx) for 2018. In year 2017
the current ratio was 0.721 (approx) and in year 2018 it was 0.29 (approx).
7 Difference between IFRS and IAS.
In accounting world, there are number of rules and regulation that need to be followed by
companies to make accurate and transparent financial statement. Some of these are international
financial reporting standard that are imposed by IASC and internation accounting standard
imposed by IASB. These all principle help accountant of company to posting relevant transaction
in proper and appropriate manner (Guo, 2018). It is also determined that many time accountant
of company get confused between the concept of IAS and IFRS. So to understand the both basic
difference are discussed below:
International financial reporting standard International accounting standard.
It is essentially defined as the newly formed
principle of accounting, that assist business
person of company to report/record transaction
in closing account.
These standard are consider to be outdated as
these were made to give the base accounting
principle to the companies.
In IFRS, all essential applicable decision are
analysed and executed by IASB.
This is ascertained that all incidental decision
are taken by IAS are performed by IASC.
International accounting standard Board
introduced IFRS in year 2001.
In 1973, the IASC introduced new set of
principle for companies for the very first time
there are called IAS (Kassem, 2012).
8 Evaluation of benefits of IFRS.
IFRS stands for International Financial Reporting Standard. IFRS provide common
language which can be used globally for understanding and comparing of financial statements of
company. IFRS are developed by International Accounting Standard Board(IASB) which are
used as accounting standards. Various benefits of IFRS which can be achieved by Marks and
Spencer are as follows:-
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 It allows greater comparability in preparation of financial statements since it have same
standards. This is very useful in comparing businesses of different countries.
 New and small investors are benefited by IFRS in making reporting standards for better
quality and this put investors in a similar position with professional investors, which was
not feasible under previous standards. This will reduce the risk of the investors because
nature of financial statements is become very easy to understand.
 Marks and Spencer as a multinational company may allow consistent financial reporting
to apply common accounting standards with its subsidiaries worldwide.
 The company will be able to rasie capital from foreign market at lower rate after creating
confidence in the foreign investor's mind that their financial statements are complying
with globally accepted standards on accounting (Koh, 2011).
 It offers more opportunities to accounting professionals, all over the world if same
accounting policies and practices prevails throughout the world.
 Philosophy which is based on principles, instead of rules, will set the standards which
will have the goal of arriving at a reasonable valuation with various ways of accomplising
tasks.
 IFRS allows the company in increasing competitive markets to set a benchmark against
its peers throughout the world and allow to compare company's performance globally by
the investors (Nurunnabi and Alam Hossain, 2012).
9 Ascertaining the varying degree of compliance with IFRS.
IFRS was developed in April 2001, since then it have become a hot topic and issue in
accounting field. In adaptation and implementation of IFRS process have many challenges
because it incorporate absence of absence of political inspirations, solid rootless in the domestic
culture, lack of political motivation, high implementation cost of IFRS etc. The application of
IFRS, with addition disclosure when necessary, is presumed to result in financial statements that
achieved a fair presentation. Level of compliance with IFRS can be examining by knowing that
each IFRS was implemented at the time when survey was implemented on Yes / No basis. This
result will also indicate that some standards are implemented more than the others. There will be
consistent financial reporting for Marks and Spencer as a multinational company and all of its
subsidiaries will have a common standards of accounting and reporting.
Examples of degree of compliance of IFRS for an organisation are:
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