Financial Reporting


Financial reporting considered as a method of executing information of financial events, transactions, strategies and plans to managers, executives and stakeholders of organisation. This report annotates the concept of financial reporting with purpose and objectivity (Ayila, 2015). This report is produced to line manager of Ernst & Young to define the background and concept of international financial reporting. Company provides professional services as accounting, auditing services to manufacturers, engineering and construction companies. Assessment of the regulatory and conceptual framework of financial reporting and accounting is analysed to evaluate the purpose and principle of business. Reason of financial reporting requirements and characteristics of reliable financial information explain in a very terse manner. Meaning of stakeholder of a company with their interest in organisational goals and how they get benefited by accomplishment of organisational goals elaborated with practicality. Essentiality of financial reporting defined in terms of fulfilment of business goals and growth perspective in this report. With the help of understanding of IAS 1, users would be able to construct the financial statements for a company. Interpretation of financial statements of the Marks and Spencer. The diversity between the IAS and financial reporting standard analysed defined properly. Benefits of IFRS in order to maintain ethicalness in the financial reporting explained in this report properly. Degree of compliance is measured with IFRS by companies across the countries. The impact of international financial and accounting standards upon national accounting standards with appropriate examples are evaluated in more strateg

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P1 Context of financial reporting including regulatory framework

Sound financial coverage is a crucial component of the resilience of a corporation. It’s really is vital to companies as well as the shareholders to be able to believe and comprehend the economic situation of a company (Szychta and de la Rosa, 2012). False or outdated financial statements leave a business vulnerable to failures and missed opportunities. The findings for companies and their shareholders and borrowers could be devastating. When financial conditions shift and enterprise difficulties and possibilities emerge, most significant instrument is prompt and precise financial information.

Regulatory framework

GAAP is the authentic regulatory reform that regulates the laws and legislation at national and international level with identification of particular jurisdiction. In Ireland and the UK various parts of regulations are combined and constituted with regulatory reforms (Wayne Gould, 2012). The structure is determined format. Professional regulation subject to international and national financial reporting standards others financial reporting standards with the professional and accounting bodies are treated in specific transactions. It also contains the company law requirements and directives. The Stock exchange and regulations subject to listing and ruling the parties among various sections considered in more strategic confined manner. Regulations are considered more strategic with the specific accounting aspects.

International Accounting Standards Board (IASB) substituted the IASC in January 2001. The IASC was formed in 1997 and charged with the structured process. As IASB adopted the IAS which was given under IASC analysed properly (Xavier, 2014). After being replaced form IASC to IASB the new standards were introduced with International Financial Reporting Standards (IFRS). The present structure of IASB is defined as follow;

Monitoring board: It is operated by the trustees of the IFRS foundation. The monitoring board was formed in February 1, 2009 subject to improve the accountability of the IFRS Foundation (Crane and Livesey, 2017).

IFRS Foundation: This was formed in March 2010 with 21 Trustees. The monitoring board also consider significant operation and activities which are undertaken by IFRS foundation. Managing the financing arrangements.

The International Accounting Standards Boards (IASB): The IASB has complete control over the development and establishment of self-technical strategy, the IFRS Structure believes this ideology, but do not have the authority to determine it. The IASB had fifteen participants taken from all over the world for centuries of reading, although in the near future they feel compelled to extend this amount to seventeen.

IFRS interpretation Committee: There are fourteen committees in it. It key operation is to analyse accounting issues and challenges ascend from IFRS. It tries to resolve the issues by valid accounting treatment and provides an effective and authoritative guidance subject to associated issues (Grünewald and et. al., 2012).

Governance of financial reporting

Corporate governance was structured in order to improve the ethics and key consideration while keeping the financial records and information. Governance is recognised as a system that manages and control the accountability of business to protect the rights of stakeholders, associated parties and staff members of company. Safeguard the integrity and the morality of accounting standards is the main objective of the corporate governance. It provides a valid considerations and assurance to mangers that the financial operations are carried out properly and in effective manner.

P2. Purpose of financial reporting to attain organisational objectives, development and growth

The scope of financial reporting has become vital in organisational context due to its subjectivity and practicality. Relevancy of information is considering the main factor of enhancing the scope of financial reporting with in organisation. Financial statements of company are the key source of information that helps to analyse the actual financial performance of the organisation. As per IAS 1, Financial statements of company are categorised in five pats as Income statement, balance sheet, Statement of change in equity, statement of cash flow and Notes to financial statements. Every statement gives a specific information to users as income statements states that how much profit or loss earned by company subject to a particular accounting year, balance sheet states the number of assets and liabilities retained by organisation in a particular period, cash flow statements presents the information related to flow of cash and cash equivalents in order to run business operations, Change in equity statement presents the information related to overall equity and reserves retained by company and variation in the share capital, Notes to financial accounts contains the subjective information of each elements recorded in income statement and balance sheet of company (Deng, Kang and Low, 2013). Subjectivity and purpose become vast with the increasing scope of financial reporting. The key purpose of financial reporting is defined as follows:

Strategic formulation: Companies formulate plans, budgets and strategies for sustainable business operation. Building a sustainable business structure remains key objective of business. Optimum use of financial resources is the key solution to attain the financial goals. Financial reporting helps the entity to analyse the strength and capacity whether the sustainable business structure can be formed. For this purpose, team of accountants and executives put their efforts to track the financial transactions and events to attain the business objectives in best possible manner. Organisation’s revenue and profits are monitored on periodic basis and proper reporting done in order to control excessive or misuse of financial resources. By utilizing information at required areas helps entity to grab opportunities on the right time that is considered great sign of growth and development of business.  

Correlating objectives of business to stakeholders: Gaining the stakeholder interest and faith is also considered prime objective of companies. Communicating goals and objectives of business to suppliers, customers, investors, owners, financial institutions, shareholders is also main objective of organisation and communicating the valuable information is become the purpose for organisation. Investors invest their amount in the business and expect higher return in consideration. If organisation be successful to meet the expectations of stakeholders than the changes of having less funding facility in future. This maintain the regular flow of financial resources with in the operation through which organisation be able to accomplish the goals of business in more effective manner (Hörisch, Freeman and Schaltegger, 2014).

Keeping the employees well informed: Effective employee engagement leads entity towards targets. For the purpose of connecting employees with the financial position of organisation, a periodic reporting is carried out by management. This boost up the confidence level of employees and staff members in order to work more efficiently. Future plans are also communicated with employees that also keep engaging them for long term period.

To Comply the statutory requirements: Organisations are required to comply the international rules and regulations to file reports to different parties as governments, stock exchange and registrar of companies (Nour  and Mouakket, 2013). Financial reporting is useful for this purpose also. It remains essential to circulate new agreements and renew existing agreements under the legal law and legislations. Image of organisation become clear if all the statutory requirements are fulfilled by entity. This helps to grow the business by building strong loyal.

M1 Evaluation of benefits given to stakeholders

Stakeholders are considered as a most essential element of the organisation because efforts of the stakeholders helps the administrators to run the organisation effectively. There is a reciprocal relation found between the organisation and the stakeholders of the organisation. As the organisation gets better results as the stakeholders also gets benefited with the growth of the business (Fox and et. al., 2013). Ernst & Young has both the internal and external stakeholders that keep seeking the essential information produced by organisation. How the stakeholders of E&Y get benefited are defined below:

External stakeholders

These kinds of participants have no stake in the companies ' everyday operations but are duly affected in one manner by an organization's operation (Iyoha and Owolabi, 2012). The chosen business EARNEST & YOUNG consists of a wide range of stakeholders as external investors, financial institutions, banks and suppliers.

Government- It is component of any company ' internal participant by collecting corporate tax rates, income taxes as well as further taxes such as GST and TDS. Each organization give government tax for contributing to GDP in order to improve the rate of development as well as reduce the inflation associated with any region (Liapis and Thalassinos, 2013).

Investors- Such kinds of investors, including bond holders but also stakeholders, spend their capital in the company. Reasonable return rates are expected on the investment capital. It depends primarily on organisation's market value. E&Y stakeholders have a commensurate mortgage-to-equity percentage. EARNEST & YOUNG has performed the best business practices to gain the interest of investors and building the brand image in more effective manner.

Creditors- Company uses a formal protocol to keep the interest of creditors. Crashaw Group Plc, Crawshaw Butchers Limited (‘Butchers’) East Yorkshire Beef Limited (‘EYB’) Gabbotts Farm (Retail) Limited (‘GFRL’) are the creditors to paid for further. A letter to these creditors was sent due to non-payment with proper reason and misconduct. This procedure helps to maintain the trust among creditors even after delaying in payments.

Internal stakeholders

The stakeholder that retain a particular share in the entity are pointed as internal stakeholders of the organisation. E&Y understand the responsibility of keeping the interest of internal stakeholders for better accomplishments of set targets and aims.

Board of Directors – The members who take the valuable decisions, making policies and provide change policies are considered as board of directors (Jindrichovska and Kubickova, 2014). These members are recognised as key internal stakeholders because major decisions of strategic planning and control are taken by these members. Future existence of organisation depends upon the strategies and decision of the board members. Being a valuable stakeholder of organisation they also answerable to further stakeholders too. Board members of Ernst and Young remain committee to their deliverables and keep stable with their plans and strategies for better results.

Employees – Professional and skilled staffs is delivering great services to the E&Y and company also keep record of every employee working in it (Miková, 2014). Each member of EARNST & YOUNG are associated with the growth and development of business. Company offers opportunities of high pay scales, fringe benefits and award them for their best results. These type of considerations emerge the confidence and motivates the staff. Staff get the full support form senior authorities in terms of valuable information and sources.


P3 Benefits of International Accounting Standards and International financial reporting standards

IAS is also considered Global Accounting Standards followed by the multinational organisations. IAS was published form 1973 and after reconstructing the laws and legislations related to IAS rules was incorporated effectively in 2001. In Europe the Financial accounting standards not only consider the framework and global risk enforcement of business in terms of determining the legislations with proper analysis (Lim and Greenwood, 2017). The organisational changes and variations impacted the scale and operation of business in more clerical manner.

Advantages of IAS

There is no ruling power for global norms to implement. Relevant international norms provide participants with a multitude of different advantages and represent as an premature template for future globally regulated and enforced standards. IAS is The Board of International Tax regulations establishes norms of audit worldwide. With the exception of nation-specific norms such as the GAAP (usually accepted accounting principles) of the United States. Advantages of IAS can be measured by following criteria which are defined beneath:

Maintaining ethics: There is a different legislation and regulations made regarding corporate ethics and governance and the domestic norms and legislations may differ from the international accounting standards. IAS is one of the independent controlling authorities that provides common norms can be applied to international companies and may diverse the legal guidance of organisation (Hope, Thomas and Vyas, 2013). The ethical guidelines in terms of managing and adherence of ethical values are consider essential form all over the aspects.The IASB team consist of high professional accountants and executives that advise appropriate information and details to management authority and create values for better formation of business.

International Trade: The international organisation which deals in import and export activities get benefited with IAS accounting rules. The accounting format is prepared in more categorised manner which helps organisations to keep the transaction effectively. It provides flexibility in order to evaluate the value of organisation and also helps in considering the objectivity of business in more effective manner. It increases the comparability between the firms and also facilities the domestic and international financial investments. It also helps in decreasing the cost as well as increasing the credibility of financial reports to make the transaction more feasible.

Cost reduction: IAS has played a valuable contribution for multinational companies by reducing the accounting cost. There is only five major financial statements required to prepare to communicate the financial information to stakeholders. Earlier, organisation had to produce the reports on based upon national accounting standards too. After implementing the IAS rules, Companies need not to follow domestic accounting standards. This reduced the additional resources utilised in financial reporting as time, finance and materials.

Holding the customer interest: IASB has reduced the impractical legislations and formalities form reporting to make the accounting more transparent. Clear and fair presentation of financial rules and legislations helped to attain domestic as well as international investors. They invested the amount in business to explore them with more strategic approach. IASB permits the businesses to raise funding from international financers too. This enhanced the scope of business at international and build a strong relation with international financers too.

Benefits of IFRS

IASB formed IFRS to protect the laws and legislations of international financial reporting. There is a correlating concept provided by organisation for The implementation of IFRS has many advantages both for shareholders as well as businesses, like the substantial enhancement in the quality of information conveyed to lenders, resulting in greater disclosure in the financial statements of both the corporations, thereby reducing the readiness of speculators to provide funding to those businesses (Ball, Jayaraman and Shivakumar, 2012). Enforcement standard is an indication to investments that the data they receive is precise and accurate, to lead the organisation in right direction. With far more than 120 countries implementing IFRS, multinationals profit from preparing their accounts as per the one set of norms rather than numerous. With the changing business requirements accounting and auditing standards of organisations also get changed. IFRS gave a path to understand the changing business requirement and helped international manufacturing and accounting firms to correlate the objective of business in more effective manner. Key benefits are explained as below;

Enhanced the structure of financial reporting: IFRS provided a specific format of financial reporting. A categories format helped the accountants to record and publish the information of net profitability, total debts and liabilities. Single format of presenting information helped the manager to avoid useless records and excess formalities. It assisted the operational managers to understand the key performance of business in more effective manner. E&Y get be able to clarify the financial requirements in more categorised and concise manner.

Management of better financial resources: The inappropriate use of financial resources be able to control after adopting the IFRS rules and legislations. The business conveyed the potential effectiveness of business operations and the financial performance get enhanced due to implementation of IFRS rules. Cash flow statement provides vast opportunity to understand the financial requirement in terms of operating the business are evaluated by analysing categorised information. Cash flow from investing, financing and operating activities gives a 360 overview to invest the financial resources in organisation.

Increased financial control: Regulatory reforms helps in managing the sections with creating the control in various form. A proper audit plan is created and internal audit for organisation in terms of the actions whether the organisation is following the legislations properly or not. Security Exchange Commission (SEC) prefer the accounting standards and law based upon IFRS and GAAP. It allows company to compare itself with multinational companies with effective market rate and returns. The procedure of organisational changes and variations also be easily being detected with the help of worldwide financial analysis and control (Cao, Myers and Omer, 2012).

Effective execution of information to stakeholders: Profitability position, financial stability, capital structure, market share, earning per share, return on investment, return on invested capital, debt and equity position are kind of information remain essential form stakeholders’ perspective. These information is produced to customers in the form of presenting financial statements and annual reports. Companies follows IAS 1 to present the financial statements to companies.

P4 Assessment of models of financial reporting and Auditing

An organised structure of reporting and accounting make the financial reporting more specific manner. There is type of model analysed with more systematic manner to understand the basic model and understanding of financial reporting. Different streams of organisations use the financial models to present the financial information of company with more practical manner. There are type of financial models and theories are defined as follows:

Three statement model: This model is the also known as set up model of financial modelling and the three statement contains income, financial position and cash flow statement. This is the most common and applied financial reporting model used by domestic and international organisations. Main objective of this model is to consolidate the overall financial requirement in three statements so that users be able to understand the basis tactics of financial performance. This model is made of various assumptions and theories that remain associated with various laws and legislations. This model of financial modelling is very useful for small and medium size organisations.

Volterra Model: This model is based upon the combined or consolidated presentation of financial information to users. The model focuses on developing the maritime cluster evolution by implementing the symbiosis theory in ecology with the Lotka -Volterra model. This model contains the compatibility among biotic communities (Hatipoglu, Alvarez and Ertuna, 2016). Numerous comparative pairs are presented in this model to consolidate the financial information of organisation in organisational context. The use of this information mainly associated with considering the cluster model and simulative presentation approach.

Consolidated financial reporting model: This model is basically used by the organisation having more than one business units in the world. The accounting for each units is recorded in a single statement and overall information is consolidated in one format. Suppose the information of income and expenditure of different business units are asked to frame in a single format than the information is categorised in the same format contain income and expenditure information in all the manner (Cheng, Dhaliwal and Zhang, 2013).

LBO model: This is one of the reporting model that presents the information of capital structure of organisation and provides an overview of capital stability of business. The revels the information related to different capital structure and leverage of capital structure of business and transactions are combined with proper practical approach. This model states for Leverage Buy-Out transaction of organisation. The variations among the debts and its impact upon the earnings evaluated under this model. Users who willing to invest small amount in company be able to analyse the capital structure variability within the organisation in this model.


P5 Importance and differences of financial reporting across various countries

By using available unverifiable and naturalistic explanations, Nigeria is likely to abandon the positive impact of the country's new financial reporting and legal and regulatory initiative. From which, if not addressing the Nigeria administration's continuing attempt to reinforce Nigeria's economic reporting environment may not be depreciable. Depending on the evaluation, it is discovered that bad surveillance and enforcement processes resulting from competing for legislative legislation and the deficiency of management board and auditors independent from either the nature of Nigeria's corporate ownership framework add to in accounting error and governance practice. Unintentional implications of compulsory implementation of IFRS are in its inception. It is found that both expected and unintended effects merit more consideration to evaluate the expenses as well as advantages of obligatory implementation of IFRS, and it is provided particular advice for additional studies. Existing objective evidence and perspectives from sub-IFRS environments, though, indicate compulsory implementation of IFRS has the ability to have a significant impact on agreement results.

IFRS Adoption in U.S.

In Feb 2010, the SEC released the "Council Declaration on Integration Assistance and International Tax rules" to reinforce its stance (Poon, 2016). Reform is in the long term interests of U.S. shareholders and financial markets, and a commitment was anticipated in 2011 of whether, when, and also how IFRS should be incorporated into another U.S. accounting scheme. Now it is 2015 and perhaps a judgment has not yet been taken by the SEC. Nevertheless, depending on the claims made at the Baruch College Corporate Governance Convention in May 2015 by SEC Newly appointed Accountant James Schnurr, it seems that the SEC could make a choice very quickly. Finally, the process for the judgment of both the SEC might be over. This document offers an introduction on how IFRS might be incorporated in to the U.S. accounting scheme.

Degree of Compliance with IFRS in Developed countries

The last two years of implementation for Europe were challenging, as when the switch from regional norms to global norms mandated the development of fresh data and management systems, training employees, and interact with non-motivated executives. The change, moreover, had quite a beneficial effect on income as executives have been less driven to influence financial figures in order to boost profits. The proposition was to encourage wholly owned corporations in the U.S. to commence IFRS implementation by the end of last years from 2014 to 2016. At the end of 2008, the Securities and Exchange Commission (SEC) published a proposition obligated' Roadmap for the Potential Use of Accordingly Formulated Financial Statements with International Financial Reporting Standards by the issuers of U.S ". Though, in a study, Society general indicated that the likelihood of IFRS becoming fully integrated in the America over the designated number of years is increasing less probably compared to the IASB and the FASB (Financial Accounting Standards Board) drifting away from complete implementation of their standards.

Conclusions of many other experts investigating the amount of adherence to IFRS norms in Bahrain and the GCC nations by concentrating on one nation, Bahrain, and one criterion, IAS 18, for 2013, and an affiliation of 5 company details, including volume, productivity, capital, type of employee and company age, of adherence levels. The current study relevance rests in it being in the Country of Bahrain, a developing country that has suffered elevated growth rates because oil was discovered, and has significant economic and political significance (Mason and Simmons, 2014).

Enron's case in 2001, WorldCom's case in 2002, and Lehman Brothers ' case in 2008 all are proof of commercial crash due to bad practices in financial statements and failure in management. Even though excellent governance and reporting procedures might not ensure corporate entities ' permanent presence, it reduces the incidence of company crash resulting from inaccurate economic news. The mixed impacts of all these scandals contribute to the audit profession's gripping confidence problem. that is teh reason the real world and pending legal reforms of financial regulation and accounting throughout the world respond to corporate inability.


The above context analyses the essentialness of financial reporting by adhering international financial reporting standards and norms. Form the above report it is concluded that IASB and IFRS gave direction to report financial reports. By examining the benefits of IFRS users be able to understand the dynamics of authentic financial reporting that how it validates the accounting formation and maintain governance. The context helped to identify the stakeholders’ needs and requirements and them desired benefits. Along with the benefits of financial reporting in terms of accomplishing business objectives also determined in this report. IAS 1 implemented to frame the financial accounts for better control and accounting formation. FTSE 100 listed organisation’s financial statements are interpreted to analyse the financial performance of company. At the end the difference between the IFRS and IAS also defined with benefits. The degree of compliance with IFRS at global level analysed with proper standards.


  • Ayila, R. U., 2015. Association between Corporate Attributes and Extent of Compliance with Accounting Standards Disclosures by commercialized federal Government enterprises in Nigeria (Doctoral dissertation, University of Jos).
  • Szychta, A. and de la Rosa, D., 2012. Comprehensive income presentation under IAS 1: the reporting practices of the largest companies listed on the Warsaw Stock Exchange. Zeszyty Teoretyczne RachunkowoÅ›ci. 68(124). pp.121-145.
  • Wayne Gould, R., 2012. Open innovation and stakeholder engagement. Journal of technology management & innovation. 7(3). pp.1-11.
  • Cheng, M., Dhaliwal, D. and Zhang, Y., 2013. Does investment efficiency improve after the disclosure of material weaknesses in internal control over financial reporting?. Journal of Accounting and Economics. 56(1). pp.1-18.
  • Xavier, B., 2014. Shaping the future research agenda for compensation and benefits management: Some thoughts based on a stakeholder inquiry. Human resource management review. 24(1). pp.31-40.
  • Crane, A. and Livesey, S., 2017. Are you talking to me?: stakeholder communication and the risks and rewards of dialogue. In Unfolding stakeholder thinking 2 (pp. 39-52). Routledge.
  • Grünewald, P. H. and et. al., 2012. The socio-technical transition of distributed electricity storage into future networks—System value and stakeholder views. Energy Policy. 50. pp.449-457.

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