Understanding Financial Reporting With Example Of Marks And Spencer

1: Financial reporting

In every business organisation, it is crucial to make use of reliable reporting systems that can lead to the generation of relevant profit in the coming period of time. It is one of the effective processes of producing statements that can disclose “M&S” financial status to the owners and the government. It is basically a combination of external financial statements such as income statements, comprehensive statements, balance sheets, and changes in stakeholder's equity. It is used to provide investors, creditors, and other business stakeholders with an idea of the integrity and worth of the company. This will give crucial information that can be used to make reliable business decisions such as they should open new businesses with the available resources (Russo, Mitschow, and Schinski, 2015).

As per IASB “M&S” needs to formulate financial records to show the outcome status of the company in front of their shareholders. There must be transparency of data can be helpful for business entities to deal with business effectively. It is crucial to follow every accounting principle, rule, and regulation that could be helpful for recording data in different records so that it should be helpful in depicting the real position of “M&S”. This company is preparing its financial reports consistently to operate a business at international level (Lu and Fang, 2013).

Purpose:

The main objective of financial reporting is to deliver information regarding the financial position, performance, and changes in the financial position of an organisation that is valuable for an organisation for a longer period of time. To help managers of M&S to make accurate strategic planning so that external stakeholders can increase total sales, profits, and market share in order to gain a competitive advantage over other companies.

2: Requirement, purpose, and key principles of regulatory and concept framework

A conceptual framework is basically an effective type of analytical component with the motive of variable quantity and certain related textual aspects. It is applied through organisation when overall performance and status of business are needed (Lu and Fang, 2013). It is basically used by most companies to make variations and arrange innovative ideas more effectively. A regulatory framework is the combination of legal obligations and regulations that are set the by higher authority of the UK regarding various companies that are operating in a business environment. According to the law and rules that are implemented in the company is been required to conduct financial reports for their business because it is used to examine the actual position and financial stability of M&S. This is related to the following regulation that is based on IASB because it can be helpful the stakeholders to analyse organisational performance effectively. These rules and regulations are imposed in the specific format of IFRS as mentioned below:

IFRS: It Stands for International financial reporting standards that are introduced through IASB. This particular body is responsible for formulating principles and a specific set of regulatory norms. There are certain key principles which are explained below:

IFRS 1: It is associated with the initial implementation of IFRS, under which companies adopt IFRS for the first time. It would have related directly with M&S to develop financial statements effectively.

IFRS 3: This is associated with the combination under which merger and acquisition are taken into account. It would assist organisation to combine all their assets and liabilities so that liabilities can be paid to reduce financial losses (Lemieux, 2012).

Purpose of regulatory and conceptual framework:

There is a specific objective of regulatory design that is responsible for guiding organisation in the right direction as it will help in attaining the overall aims and objectives of M&S in future times. The primary purpose of the framework is to examine the overall performance of business firms so that stakeholders can make effective decisions regarding the company. There are certain objectives related to the regulatory and conceptual framework which is related to international regulation so that businesses can plan their activities more effectively (Singh, 2015).

Quality feature of financial information: There are specific characteristics of financial data that can assist them in making more reliable decisions in the coming period of time (Kimbro and Xu, 2016). There are certain points:

Relevance: It is most crucial for an organisation to record actual data so that it can assist them in analysing their actual performance or financial position of the company.

Faithful representation: This is a valuable aspect to gain the overall trust of stakeholder such as investors and shareholder because of this they can ensure that organisation is in a good situation and can get long term benefits such as higher return on capital investments.

3: Main stakeholders of an organisation and their advantage from financial data

The primary users of financial records are basically said to be more commonly grouped as investors and potential investors who are interested in their potential gains and the overall security of their investments. In the case of future profits, it can be predicated on the targeted companies' past performance as mentioned in the income statements. Stakeholders are considered as primary aspects of M&S that are associated with internal and external parties of M&S (Khanzhyn, 2012). The company has to have a wide number of stakeholders with the assistance of operating the business more effectively. There are various benefits of financial information to stakeholders such as:

Internal stakeholders: These are directly associated with the operation departments of an organisation. It consists of certain parties that are mentioned below:

• Shareholders: They are considered a valuable part of the company as individuals who are providing capital to M&S. The Company entirely relies on their investments through which future plans can be made accordingly. They can benefit from the financial information of dividend reports from which they can ascertain their profitability.
• Managers: In M&S, managers can benefit by using financial information as it would help them to make valuable decisions through analyzing the organisational performance. In case, operations are not in an effective manner they can implement appropriate plans to overcome those issues (Jayasinghe, 2014).

External stakeholders: They are not directly associated with the M&S of an organisation but they have the right option to collect financial data because they are an essential part of the company. some of the valuable parts are:

• Investors: They are a primary part of the group of individuals that invest their money in M&S projects for the motive of earning maximum profits. They can get benefit from the balance sheet of the organisation as they can ascertain probable returns that can be gained by them.
• Creditors: The individuals who can provide goods on credits to M&S are considered as creditors. Financial data can assist them in analyzing the organisation performance to pay back their amount in the given period of time.

4: Value of financial data for meeting organisational growth and purpose

Financial reporting would assist in the overall management of organisational performance that will assist them in attaining overall aims and objectives M&S is operating all around the nation and for which appropriate financial statements so that all the stakeholders of the company can get satisfied and show more interest in the company. Objectives of M&S are to attract most of the investors, satisfy clients, and increase profit from the total amount of sales. Most of the investors used to attract toward maximum return on their overall investments. Customer satisfaction can be attaining with the help of a positive market position which can be determined through the help of increased revenue for the company for a longer period of time.  In the case of M&S, it has a good image in the market which can help clients to be satisfied because they can be assured about the products of the company.

If the organisation is performing well in the market then it will assist them more competitive in the market and will try to acquire maximum profit for the company. Effective and accurate financial statements can assist an organisation in examining the overall growth and opportunity and will make efforts to grab them to attain more competitive benefits in the near future time. For this purpose, the finance account of M&S can be the right option to analyse the organisation efficiency and profitability position of the company (Hung, and Chuang, 2012).

Financial statements of M&S can be another valuable business that can be examined to determine its financial position in the market in order to assist specific growth in the near future time. Another aspect of this statement is to attain a competitive advantage by measuring the strength of the company. With the help of this, the company can easily be able to attain the maximum amount of profit in the coming period of time.

5: Financial statements of an organisation 

(a): Statement of profit and loss

From the above statements, it has been seen that the financial position of the company can help them to assist the total earnings after the making of all adjustments such as tax expenses and others. The P&L statements for the company show a gross profit of 93400. After taxation, the balance amount is valued at 19670, and profit after deduction is amounted to 4670.

(b): Changes in equity

(c): Statements of financial position

According to the above balance sheet or financial changes, it is valuable for the companies to determine the actual cash position during an accounting period of time. The above-mentioned balance sheet can provide the total assets and debts which is held by the company for a specific period of time. The balance sheet shows current assets of 86730 and total liabilities of 186410.

(d): Statements of cash-flow statements

In financial reporting, a cash flow statement shows total changes in overall balance sheet accounts and profit affects cash and cash equivalents. It would break the analysis down to operating, investing, and financing. The company can use this information for the purpose of analysing total inflows and outflows. The primary objective of preparing cash flow statements for a specific period is to show information regarding the availability of cash and the total amount going out of the business. The cash flow statement is mentioned in the appendix. The information is related to the reduction in the capital and expenditure which was partially offset through weaker business performance with adjusted operating gain down of 94.3 million. Working capital was internationally flat on the overall year with a reduction in clothing and home inventory offset through minimizing creditors.

6: The way in which financial statements are used to communicate and interpret financial performance

As analysed from the appendix Revenues of Marks and Spencer for the year 2017 were 10622000 and these increased in year 2018 and reached up to 10698200. The cost of sales for both the years is 6629300 and 6745600 for years 2017 and 2018 respectively. Gross profit was reduced to 3952600 in year 2018 from 3992700 which was for the year 2017. The operating period for both years is 707300 and 677400 respectively. Net income for the organization were 117100 and 25700 for both the years 2017 and 2018. Cash and cash equivalents of Marks and Spencer decreased up to 207700 in the year 2018 as compared to 468600 which was for the year 2017. Total current assets in year 2017 were 1723300 that is decreased to 1317900 in year 2018. Long term investment of the organization for the year 2017 was 51500 which decreased in the year 2018. The total assets of the organization were 7550200 in year 2018 and in 2017 there were 8292500. Total liabilities in year 2018 were 4596000 which decreased as compared to year 2017. Total shareholder's equity for the year 2017 was 3156300 that is decreased to 2357500 in the year 2018.

7: Difference between IFRS and IAS

IFRS (International Financial Reporting Standards): These were induced by IASB which is International Accounting Standard Board that was introduced for organisations to provide guidance while recording transactions in financial statements. All the companies need to follow all the regulations for accounting so that reports can be formed appropriately as they are presented to external shareholder in order to formulate decisions.

IAS (International Accounting Standards): All the standards under IAS are introduced by the International Accounting Standards Committee (IASC) in which organisations are directed to implement accounting standards in the accounting process. It helps to record appropriate information in the books of accounting (Feng, 2018).

Difference between IFRS and IAS:

8: Benefits of IFRS

IFRS: These are the set of standards that are mainly related to financial reporting in which organisations are directed to follow all the rules and regulations of the government that are set for the reporting procedure of financial transactions (Benefits of IFRS, 2017). All the benefits of IFRS are as follows:

• It is a technique that may contribute to the enhancement of the economy by providing good opportunities to investors.
• Directs organisations to record appropriate information in financial statements so that shareholders may analyse whether their money is used effectively or not.
• It helps companies to set benchmarks for themselves and attain a competitive advantage in the market.
• As these standards are related to international financial reporting hence they help to attract foreign investment so that business can be operated smoothly.
• It helps to set a global language in which investors from all around the world may become part of an organisation.
• IFRS was launched to guide companies so that accurate and appropriate financial statements can be formulated and managers may analyse the actual financial status of the company and make effective decisions according to the conditions of the company.

All the IFRS are very beneficial for Marks and Spencer because they are the best standards that may help the managers and other stakeholders to make effective decisions that may result positively for the organisation. According to law, it is essential for the companies to follow all the rules and regulations of government so that business can be operated effectively.

9: Varying degrees of compliance with IFRS by organisations across the world

There are various types of standards that are introduced by the government for the business entities and all of them are required to follow the standards because all of them may help to formulate financial statements appropriately. As Marks and Spencer is operating its business all around the world it is not possible to implement the accounting rules of all the countries hence IFRS is the best option as they are related to international accounting. This helps the organisation to attract foreign investors toward the organisation so that investments can be enhanced (Alyousif and Kalenkoski, 2017).

The main purpose of IFRS is to direct organisations so that they may formulate financial accounts in appropriate manner and their investors may make investment-related decisions. All the standards are related to the financial transactions and their treatment in the financial reports. Firstly, IAS was introduced by the IASC and then different complexities are identified in the IAS. To deal with all such complexities IASB introduced IFRS so that it may facilitate organisations to record all the financial information accurately. These standards may help to attain organisational goals and objectives such as enhanced investments, satisfied customers, and increased sales. For Marks and Spencer, it is very important to implement all the standards that are induced by IASB so that the business can be operated legally and according to the financial requirements. If an organisation is not able to follow the rules and regulations that are published by IASB then it may take strict action against that organisation. IFRS is very helpful for organisations that are operating businesses all around the world and have to formulate financial statements in consolidated form. GAAP accounting standards are used in the UK, while IFRS is used in almost all over 110 nations all over the nation. GAAP is the combination of authoritative standards and commonly accepted as well as reporting with certain accounting data. It consists of principles of regularity and consistency.

CONCLUSION

From the above project report, it has been concluded that financial reporting is a method that is used by organizations to record all the financial information in the financial statements so that financial performance can be measured. All the companies are required to follow all the standards of IFRS and IAS so that all the transactions can be recorded accurately. Stakeholders of the business entities determine financial strength so that they may pass judgment on their investing decisions. Shareholders analyze whether their money is used by the company in an appropriate manner or not. Financial information helps the stakeholders to analyze financial statements and then pass judgment on the financial position of the organization.

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REFERENCES

• Alyousif, M. and Kalenkoski, C. M., 2017. Who seeks financial advice?
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• Hung, C. T. and Chuang, F. C., 2012. The Influence of Global Economic Crisis towards the Financial Performance of the Shipping Industry. In Applied Mechanics and Materials (Vol. 145. pp. 480-484). Trans Tech Publications.
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• Khanzhyn, V., 2012. Three essays on the role of financial development. The University of Nebraska-Lincoln.
• Kimbro, M. B. and Xu, D., 2016. Shareholders have a say in executive compensation: Evidence from say-on-pay in the United States. Journal of Accounting and Public Policy. 35(1). pp.19-42.
• Lemieux, V. ed., 2012. Financial analysis and risk management: Data governance, analytics, and life cycle management. Springer Science & Business Media.
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• Lu, T. and Fang, S., 2013. The Value of Gold as a Super-Sovereign Zero-Coupon Bond.
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