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Financial Reporting is a organised field of accountancy that handles activities related with recording of financial events or accounting and, preparation and presentation of various reports called financial statements. The financial statements exhibits a business organisation's actual financial condition, outcomes of different operations, performance of functions and tasks, cash flows, ratios and other information. Financial statements contains statement of financial position or balance sheet, profit & loss account, income statement, statement of changes in equity, cash flows statement and other relevant notes (Bagdonaite, 2014). The main objective of financial reporting is to furnish relevant information related to financial performance and position, and significant changes in financial conditions of entity like Marks And Spencer Group plc that is beneficial to wide range of users in effective decision making. This report covers analysis of definition of financial reporting and its purpose, conceptual and regulatory framework and the governance of financial reporting, key accounting principles and their purpose and requirement, key stakeholders and their need for financial reports, value of financial reporting for meeting organizational objectives and growth, explanation about IAS and IFRS and differences in financial reporting across the world. This report also evaluates financial reporting in Marks And Spencer through application of theories and models to support judgments and conclusions.
Financial reporting refers to systematic disclosure or presentation of financial performance, outcomes and related information to top management and internal or external stakeholders such as shareholders, suppliers, investors, customers, regulators etc.) about manner in which business organization is performing over a particular period. For a business entity, it is significant to adopt an appropriate reporting systems that helps to achieve business objectives and goals. In “M&s” financial reporting provide its investors, shareholders and other business stakeholders about idea of performance, integrity, viability of different running projects and worth of the company. Through results of financial reporting process company can develop a framework for effective decision-making and assess its own management performance, liquidity position, gearing and potential or existing risk factors (Lu and Fang, 2013).
According to International accounting standard board companies like “M&S” required to follow all IAS and IFRS as the case may be for reporting and accounting purposes to make uniformity and enhance credibility of financial statement. Financial reporting ensures necessary disclosures to maintain transparency in final accounts. It also helps to avoid window dressing in preparation of financial statement and presents true and fair view of business organization.
Purpose of financial reporting: Following are the key purposes of financial reporting in UK, as follows:
Regulatory Framework of Accounting refers to set of policies. rules and guidelines required for preparation of financial statements. Consideration of these set of rules and guideline by business organization helps to easily compare financial statements. Regulatory Framework of Accounting primarily includes International accounting standards and international financial reporting standards for Financial Reporting. Different have been introduced to provide framework for producing fair accounts. In UK main standards are: Statements of Standards Accounting Practice (SSAP) and Financial Reporting Standards (IFRSs). These both standards emphasizes on maintaining consistency while preparing different reports for limited public companies. Whereas International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) have been introduced to maintain conformity in reports related to large international companies.
A conceptual framework is set of principles providing universal or generally accepted guidance to build new reporting practices for latest and new challenges, and to evaluate existing practices. The International Accounting Standards Board has introduced its conceptual framework in 1989 with an intention to regulate or govern international and national standard and to provide help to auditors in interpreting standards or provide solution for issues that the standards do not cover (Russo, Mitschow and Schinski, 2015). Conceptual framework is to ensure a equality of accounting across the world and to provide information about enterprises more vital and transparent.
Key principles: Following are the key principle of conceptual and regulatory framework and the governance of financial reporting, as follows:
Purpose of regulatory and conceptual framework:
The objective of regulatory design is very specific that it is responsible for taking organisation towards right direction thus helps in attaining overall aims and objectives of M&S during future times. The primary purpose of regulatory framework is to check the performance of a business firms so that stakeholders can take wise decisions regarding the company. Under regulatory and conceptual framework there are certain objectives related with the international regulation so that business can efficiently plan their activities (Mir, 2013).
Quality feature of financial information: There are specific attributes of financial data that can help firm to make more reliable as well as effective decision in coming period of time. There are certain points of quality financial information as described below:
Relevance: It is most crucial factor for a firm to record actual data so that it can help them to analyse their actual performance as well as financial position of a firm.
Faithful representation: This is most valuable aspects to gain trust of stakeholder such as creditors, investors and shareholder. However, this can guide the organization that whether it is in good situation and can get long term advantage such as higher rate of return on capital investments.
The key users of financial information or data are generally individuals holding substantial interest or stake in business organisation in form of shares or investment. Moreover there are some potential investors that are concerned with company's future expected growth and performance. Those individuals, persons, group of individuals who are directly or indirectly interested in an organisation's results, performance, financial position or existing or potential growth are called as Stakeholders. In the context of M&S major stakeholders are owners, top management, suppliers, customers and shareholders (Lemieux, 2012). There are the major benefits of financial information to different stakeholders as discussed below:
Internal stakeholders: These are individual or group of individuals who are internally related and already committed to serve organization such as board of directors, internal staff, volunteers and other employees. Some of these internal stakeholder and their benefits are discussed below:
External stakeholders: There are persons, individuals, group or organisation not directly concerned with M&S but they are having interest or concern in company's performance, results, reports and financial position such as investors, lenders and creditors, suppliers, government and regulators. Some them are discussed below:
Financial reporting helps business organisations to manage their overall activities related with accounting and finance to achieve its objectives and goals. It creates a framework for management in M&S to take effective economic and financial decision. Financial reporting by providing true picture of company which leads to build and enhance trust of investors. Financial statement framed under financial reporting process helps organisation to asses their over performance and position in market. Financial reporting requires compliance of IAS and IFRS which enhance the credibility and relevance of financial statements. Investors and customers of company are main factors for an organisation's growth and survival and creditability of financial statement attracts them to invest or choose the company (Kimbro and Xu, 2016). Main motive of M&S is to attract investors, customers and to enhance profit while increasing efficiency. Financial information provided by financial statement of company helps to increase brand value and market share on company because all internal and external stakeholders consider financial information to take decisions. M&S reporting financial statement in every accounting period that helps organisation to compare one or more years performance and analysis of trends.
Company's performance and brand value helps to gain competitive advantage. Reliable and effective financial statements helps an organisation to analyse their overall growth and potentials in market and promote organisation to take advantages of opportunities (Hung, and Chuang, 2012). Decision taken by company on the basis of financial statement prepared under financial reporting process ensures viability and effectiveness of decision that leads to growth and expansion. Identification of expansion opportunities is easy for organisation by using reports under financial reporting.
IFRS (International Financial Reporting Standards):This was introduced by IASB which is an international accounting standard board that was made for the organizations to provide guidance of recording transactions in financial statements of company. It is very essential for all the companies to follow all the rules and regulations for accounting so that report can be prepared appropriately to present external shareholder so that they can formulate further decisions.
IAS (International Accounting Standards): All the standards under IAS are induced by International Accounting Standards Committee (IASC) in which organizations are guided to implement the accounting standards in an accounting process. Thus, helps to record required information in the books of accounting (Khanzhyn, 2012).
Benefits of IFRS ans IAS: Following are the benefits of compliance of IFRS and IAS:
5.These standards offers accounting professionals like auditors, accountants more potentials or opportunities across the world.
Evaluation of financial reporting helps various stakeholders such as investors, shareholders, owners or management, employees etc. to ensure that organization is able to maintain sustainable growth. Various accounting models and theories supports evaluation of financial reporting of a business organization (Jayasinghe, 2014). Following are the major models and theories of accounting that helps to evaluate financial reporting in Marks and Spencer, as discussed below:
Conservatism Model and Theory: This model and theory of accounting leads to need for creation of provisions for expenses. Conservatism requires recognition of expenses and liabilities as soon as possible when there is uncertainty about outcome, but to only recognize revenues and assets when they are assured of being received. M&B has reported in financial statements that provision of foreign exchange loss, provision for doubtful debts and provision for sales allowance etc. are made by organization due to uncertainty involved in these items and also attached a special note and schedule for provisions amount to fulfill disclosure requirement.
Historical Cost Model and Theory :Under this theory business organization records assets on the books as each asset is acquired means this theory requires that assets be recorded at cash amount or equivalent monetary value at time that an asset is acquired. M&B reported in his financial statement that assets are recorded at historical cost and accumulated depreciation is provided by company to present actual position of assets (Hung and Chuang, 2012).
Matching Model and Theory: As per matching principle theory, in accounting process record a transaction as a unit as per double entry system and in way that all expenses are associated with a specific revenue. The expenses are reported in the same period as the revenue generated. M&S reported income statement prepared by company is as per matching principle theory and schedule of all expenses exhibits expenses for current period.
The objective of IFRS is to compare the financial report across various countries. But this comparison can only be made if different countries adopt and apply it in similar manner. On contrary, if different countries make changes in IFRS or an account not able to apply changes in an effective manner then objective of comparability could not be achieved (Feng, 2018).
In order to reduce the difference or constraints among various factors of nation like cultural, competitors pressure, economic factor etc. need to be identified. Moreover, the financial report of a country is affected by local environmental factor. Hence, the national environment difference need to be identified and measures should be taken to overcome these constraint.
Along with this, the differences in the factor of infrastructure and legal requirement among different countries does not help in bringing uniformity of financial report.
Due to lack of research and theoretical framework causes the difference in the country's accounting practices. This was analyses after studying the four south pacific countries that include Australia, Guinea, Fiji and New Zealand. Therefore, the study depict that comparability becomes difficult across various countries even after adopting IFRS.
Overall, it depict that along with the differences in macro, micro environment the difference in individual attribute act as a constraint of comparability between financial report of various countries.
International Financial Reporting Standards are International Accounting Standards Board to make uniformity in accounting and financial reporting and to provide a common or generally accepted language for business affairs at international level so a business organization's accounts are easily understandable and commensurate cross international territories or boundaries, Compliance with different IFRS is necessary for those companies or business organization which exceeds the thresholds for mandatory compliance. These thresholds limits may vary from country to country. Accounting standards also different in different countries.Marks and Spencer being a multinational company so it is not easy to adopt the accounting policies and rules of different-different countries in which company is operating, so IFRS are best alternative to consolidate their financial statements. This standards also helps to invite foreign investors for investment in organization (Alyousif and Kalenkoski, 2017).
Main purpose of IFRS is to provide guidance to organizations for framing financial statement in effective and appropriate way. All these standards helps to combine financial statements of units in different countries to asses overall performance of M&S group. At first IAS were issued by IASB but various complexities and difficulties are identified in compliance of IAS. So in order to deal with all such difficulties and complexities IASB issued IFRS. Some of IAS are still applicable to companies. GAAP or generally accepted accounting standards are also used by companies in UK and other countries, whereas IFRS is applicable in approx 110 nations all over the world. IFRS are internationally accepted by major countries and rating agencies which makes compliance of these standards necessary. In some countries these standards are re-commendatory not mandatory so in such countries for maintaining equality in reporting IFRS are followed.
From above project report, it has been concluded that financial reporting is systematic and organized process, used by business organizations to document all financial data and information in financial statements to assess financial performance during a particular period. IFRS and IAS provides a guideline for recording of financial transaction and reporting of financial performance and outcomes. Beside these standards; Accounting policies, concepts and other fundamental conventions used in financial reporting maintains uniformity in financial reporting. Reporting under financial reporting process assists various stakeholders like shareholders, investors, suppliers etc to evaluate their vital economic and financial decisions. Shareholders and investors critically analyze their investment decisions whether these decisions are profitable or not.
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