Unit 13: Financial Reporting Assignment Sample – BTEC-HND-LEVEL
The main aim of the unit is to develop the knowledge, skills, and concepts needed to prepare a financial statement. Students will get to know about standards, influencing the financial statements of organizations.
They will likewise explore the frameworks associated with financial reporting. It tells how they relate to the financial information report. On successful completion of the project, students will be able to analyze, Audit, and prepare financial statements in the context of the organization.
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They will be able to help their senior college to interpret intricate financial information. Along with that, students will have the knowledge and skills to advance for higher study.
Assignment solutions of Unit 13 Financial Reporting in UK
Financial reporting refers to the act of disclosing finance-related information to a company’s stakeholders. Information may include financial position and financial performance over a specific period. Stakeholders are loan providers, government and non-government agencies, Public creditors, and investors.
Registered companies need to perform financial reporting every alternate 6 to 4 months.
A financial statement is the end product of accounting. Components of financial reporting are as follows:
Financial statement: Balance sheet, cash flow statement, alterations in stakeholder’s equity are different forms of financial statement.
- Registered companies need to produce financial statements once every four to six months.
- Prospectus: It is crucial for companies applying for IPOs.
- Public organizations or businesses need to Record management Discussions and analysis
- Institute of Chartered Accountants of India issued several Accounting standards and guidance notes. Standards introduced by ICAI relate to financial reporting and assessment.
- It ensures standardization or uniformity across industries. It is because they present and prepare financial statements.
Let’s proceed to the Objectives and purposes of financial reporting.
Analyze the context and purpose of financial reporting
Context of financial reporting
- To follow regulatory frameworks and Systems
- It is imperative for Incorporated and unincorporated Organization
- Governance of the financial report including responsibilities and duties of involved officers
Purpose of financial statements
- It meets user Expectations and requirements
- Ensures that all organizations follow the same laws and regulations.
- It serves the purpose of seeking funds or Investments.
Q. What are the objectives and purposes of Financial reporting?
The National Accounting Standard board states that the goal of the financial report is to inform the organizational position. It informs standings and changes in the financial position of an organization. A diverse range of users needs to make thoughtful decisions.
LO2 Interpret Financial Statements of an organization
These are the Purposes and objectives of financial statements:
- Financial statements profile valuable information to the management that uses it for decision-making, planning analysis, benchmarking, and more.
- Providing insights to the investors, Bankers, loan providers, and creditors that enable them to make logical decisions Related to investment, and credit.
- A financial statement provides in-detailed information about the resources of an organization, claims to the resources. It likewise explains how the resources and claims changed with time.
- A financial statement serves society by considering the requirements and expectations of the trade unions, employees, and government.
- A financial statement provides insightful information about statutory audits that promotes financial auditing and statements.
- A financial statement provides information to the public and stakeholders on listed organizations about many aspects of an organization.
Now that you know the purposes of financial statements, let’s proceed to the importance of recording financial statements.
There is no need to emphasize the importance of financial statement auditing, as it serves several purposes and reasons to the company’s stakeholders.
Organizations need to furnish the financial statements and reporting for government supplies, labor contracts, and Bidding.
- From the financial statements, public organizations can assess the performance of management and the organization itself.
- Financial reporting helps business organizations to raise funds for both domestic and overseas projects.
- Financial statements form the basis of benchmarking, Decision-making analysis, and financial planning. These are some of the ways by which the company’s stakeholders use financial statements.
- Auditors need to audit financial statements to express their perspectives or opinions.
- Financial statements help organizations to follow statutory requirements and audits. Incorporated organizations need to report financial statements to government agencies and roc.
Listed and incorporated and unincorporated organizations need to report stock exchanges once every 4 to 6 months.
We can conclude from the above statement that financial statements are vital for stakeholders of an organization. Recording financial statements become complicated for large organizations. But, the benefits ripped from financial statements exceed the intricacies.
We conclude that a financial statement is a source of reliable information used by the stakeholders in many ways. A robust and sound financial statement auditing framework makes organizations competitive. It streamlines cash flow that promotes the commercial growth of an organization.
LO2 Interpret financial statements
Report analysis act of analyzing Different sorts of Financial statements of business organizations. An external analyst utilizes the ratio analysis for Identifying and determining the different aspects of a business Including liquidity, equity, solvency, and more.
External and internal analysts rely on different financial statements to track the financial performance of an organization. Data derived from ratio analysis get used to determine whether the company is in an upward or downward Trend, and compare the financial performance of the organization against its competitors.
What are the different functions of ratio analysis?
One of the purposes of ratio analysis is to compare the financial performance of an organization with its competitors to understand the financial position of the company. It figures out pricing, earnings from industry competitors, and the ratio with that of the company’s productivity. Besides finding out the market caps, ratio analysis helps to evaluate the weakness, opportunity, and strength of an organization. Information collected from ratio analysis helps the management to make decisions to improve the financial position of the organization.
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- Improves the organizational efficiency
Management uses financial ratio analysis to determine the efficient use of the Company’s assets, liabilities, and inefficient utilization of the same. If the company makes improper use of its resources or assets like Construction, land. It might result in unnecessary expenses. Current ratio analysis helps to minimize the wastage of resources. In simple terms, ratio analysis helps to determine whether the resources get over or underutilized.
If the company earns 2 million dollars, it doesn’t mean that the organization has that much bank locker. Financial statements consider the accrual accounting, which includes the non-cash items as well. Acid, financial statement includes the non-cash items and gives a clear picture of the financial position of the company.
What do you mean by the term cash flow?
Business is all about trading and exchanging values between two or more parties. Cash is the asset required to participate in the trading system. While some industries are cash-intensive, No business can survive without a positive cash flow in the long run.
Note that, for a positive cash flow, long-term cash outflow should exceed the long-term inflows.
Flow occurs when a company transfers funds to a third party. The company transfers cash to pay for creditors, employees, and suppliers, long-term investments and assets, and legal expenses. Students should know that the legal transfer of debt amount or Purchase made on a credit card doesn’t get recorded as cash outflow until the company pays for that.
Cash inflow is just the opposite. Cash inflow occurs when a company receives an amount. The majority of the cash inflows come from the customers, Lenders, and investors who buy the equity. Rarely, cash flows from legal settlements where the proprietors make deals on real estate properties and equipment.
What is the significance of a cash flow statement?
There are three critical parts of a financial statement: Balance sheet, cash flow statement, and Income statement. While the cash flow statement indicates the profitability of the organization within a certain period, the Balance sheet gives a one-time picture of the company’s liabilities and assets.
There is a slight difference between cash flow statements and other financial statements, as cash flow statements are corporate checkbooks that reconcile two bank accounts. The cash flow statement records the cash inflow and outflow within a certain period. It indicates that all the revenues mentioned in the Income statement got collected.
Cash outflow from operating activities: This section determines the cash used or provided by normal activities of an organization. It demonstrates the company’s capacity to generate positive outflows from business activities. It projects the normal Operations as the core business activities. For instance, the normal operation of Microsoft is selling software licenses.
Cash outflows from Investable assets: This segment concentrates on the cash generated or earned by selling the investable assets. For instance, if Microsoft makes a profit or loss by selling companies, that amount gets recorded in this section of the cash inflow statement.
LO3: Assess financial reporting standards
International Financial reporting standards formed a set of rules that would make financial statements transparent, consistent and comparable across the world. IASB issued the IFRS set of rules and regulations. It specifies how the companies should Mention and prepare their reports. Got prepared to form a centralized accounting language, so that financial statements can be reliable and consistent in companies operating across the world.
IFRS was designed to bring about consistency in accounting languages, principles, and statements so that businesses make informed financial decisions and analyses. IFRS Proved to be beneficial for the companies s Investors and stakeholders are more likely to trust an organization If the business practices are direct and transparent.
People confuse IFRS Accounting Principles with IAS, which includes solder standards that got replaced by IFRS.
What are the standard requirements of IFRS?
IFRS covers a range of financial activities. IFRS accounting Principles for Specific aspects of business operations.
As of 2021, about 120 countries follow the IFRS accounting rules and regulations, including the Asian countries, European Union and South America. But, the United States of America follows GAAP (aka generally Accepted Accounting Principles).
Statement of comprehensive income: Takes the form of one statement or different from profit and loss account statement, and counting statements including the equipment and property of the businesses.
Statement of financial physician: It is also known as a balance sheet. IFRS Influences how the entities in the balance sheet get reported.
Statement of equity changes: Statement of equity changes (aka Statement of retained earnings) records the changes in profit and earnings for the particular financial year.
Apart from these basic reports, a company is to give a summary of its accounting policies. Businesses compare the current year report with that of the previous year to note changes in profit and loss.
A Parent company needs to create separate reports for each of its subsidiaries. Differences exist between the IFRS and GAAP accounting principles, and their effects on the ratio analysis. For instance, IFRS provides an affirmative and allows companies to report revenues. IFRS also has a distinctive perspective on expenses. For example, a company investing in improvements for the future but doesn’t have to record it.
Another difference between IFRS and GAAP is the styles of inventory management. FIFO and LIFO are the two inventory recording techniques. FIFO inventory accounting style implies that inventory is left unsold until the older ones get sold. LIFO inventory accounting styles states the recent inventory gets sold first.
- Equity theory
Equity theory is based on the ideology that influences motivations and actions taken by employees of an organization that relies on fairness and discriminates in the workplace. In 1978 Caroll stated that the employees will try to distort outputs and inputs by changing inputs, changing inputs, or leaving the organization.
Business psychology places equity theory under the realm of organizational justice Relates to the impact of external and internal factors of the working environment, and how these factors change to propel the behavior and attitude of the individuals.
- Legitimacy theory
Legitimacy Theory refers to the assumption that the behavior of an entity is Appropriate or proper and complies with the norms, definitions, beliefs. Legitimacy theory is one of the most cited theories in the 21st century. Legitimacy theory includes the social values set by the organization and expectations of the society from the business organization.
Corporations use the disclosures made by private organizations to fulfill the needs and expectations of the shareholders.
Schuman identified three varieties of legitimacy. Three categories of legitimacy are as follows:
Pragmatic legitimacy: It refers to the immediate response to a particular incident that helps an organization to gain the support of the stakeholders.
Moral legitimacy: Refers to the expectation from an organization to a responsive situation. For instance, a chemical factory produces a huge amount of toxins that cause environmental pollution in a specific area among the inhabitants. In that scenario, model legitimacy requires the organization to reduce emissions and foster waste management, so that it doesn’t pollute water-borne diseases. Moral legitimacy relates to pragmatic Mein legitimacy. Oftentimes moral legitimacy leads to pragmatic legitimacy.
Cognitive legitimacy: it’s when the society or the organization accepts certain business activities as Inevitable or Essential.
Most of the legitimacy of theories closely link or Interrelate to one another. Management either tries to gain social acceptability or follows legitimate norms. Legitimacy can be described as the acceptance of organizational activities. Since businesses make use of societal resources, a company becomes indebted to society. In simple terms, a Social contract exists between the business organization and Society, and it complies with the agency theory. In such cases, society closely observes the firms, ensuring that it takes acceptable measures.
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