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Financial reporting is a system in which financial statements are prepared that shows the actual position of an organization. It includes formulation of income statement, balance sheet, cash flow statement etc. It shows the performance of the organization to public and managers. It helps the management in strategic decision making and also help to identify strengths and weaknesses of the business (Ball, Jayaraman and Shivakumar, 2012). It shows the result of operational activities of the enterprise to the investors, creditors, shareholders and public. The main purpose of this report is to analyse financial performance of Alpha Ltd, which is a manufacturing company of computer hardware and it is mainly based in UK.

This project report consists financial reporting its purpose, importance, objectives, regulatory framework, governance. Interpretation of financial statements, calculation of ratios, International Accounting and International Financial Reporting Standards, models of financial reporting and differences of financial reporting across different countries are covered under this report.


P1 Analysis of financial reporting including regulatory framework and governance of financial reporting

Financial reporting refers to the preparation of financial statements that help the management of the organization to analyse the performance and its current position in the market. Alpha Ltd is a manufacturing company, thus it is essential for the managers to plan financial reporting for achieving long term goals and objectives (Bertoni and De Rosa, 2012). Financial reporting include various financial statements such as balance sheet, cash flow statement and income statements. These types are explained below:

Importance of financial reporting

  • It helps the organization to fulfil regulatory requirements of filing annual reports because, the organizations are required to file financial statements legal agencies.
  • It facilitates the auditing process. The auditors are required to examine the annual reports of a company to explicit their views.
  • Financial reports are essential for business planning, analysis,  and strategic decision making. These reports are used by various stakeholders to analyse performance of company.
  • It  helps the companies to generate capital for business purposes.
  • With the help of  financial reporting, the public in large organisations can examine the execution activities of the company as well as performance of its management.
  • It is also used for the purpose of bidding, labour contract, government supplies etc. because the organisation involved in such functions have to show their financial reports to the government.

Purpose of financial reporting

  • Main purpose of financial reporting is to provide actual financial information of the company to the stakeholder.
  • Another purpose is to provide information of financial status of the company.
  • Companies prepare financial reports to facilitate auditor while auditing the annual reports of the company.
  • Financial reporting is conducted within the organisation to analyse economic resources.

Internation Financial Reporting Standards (IFRS): These financial reporting standards are issued to deliver a common world wide language for the enterprise's transactions so that it can facilitate the understanding and compatibility of company's accounts (Dyreng, Mayew and Williams, 2012). Few selected IFRS are explai