Corporate Reporting

Powerful Essays
To: Elizabeth Bruce – Line Manager

From: Charvin Ebanja – Accountant

Date: 7 November 2002

Subject: Introduction and discussion of Directors (Pentium plc) concerns about the use of published financial statements for evaluating the success of a company. You should discuss the purpose of financial statements for various stakeholders. You should also discuss the impact the different accounting policies have on the final published figures.

The company we have chosen to focus on is the Selfridges Group plc. In this report we will look at the published financial statements to analyse their financial performance and positioning. We will also focus on the objectives, limitations and users of financial statements. As well as the how the various accounting policies impact on these statements.

Before discussing directors concerns we must look at the objectives of the financial statements. The ASB states in their statement of principles, that the objective of financial statements

 To provide information about the reporting entity’s financial performance and financial position that is useful to a wide range of users for assessing the stewardship of management and for making economic decisions.

 It can usually be presumed that this objective can be met by focusing exclusively on the information needs of the defining class of user, investors.

 Investors need information about the reporting entity’s financial position and performance that is useful to them in evaluating the entity’s ability to generate cash ( including the timing and the certainty of its generation) and assessing the entity’s financial adaptability

Financial information regarding the operations of and resources controlled by an entity will be of interest to a wide range of stakeholders (user groups). Although, various stakeholders will be able to obtain bespoke financial information to suit their particular requirements the vast majority will have to rely on the published financial statements. Although the various user groups will have different requirements it does not follow that financial statements are not designed to meet the specific needs of all interested parties.

The Statement of Principles identifies seven user groups. These being, investors, customers, employees, lenders and other creditors, suppliers, gov...

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...r accounts the exchange rate had increased to 3 = £1. Euroself decided to sell their asset for 96000. With the return they repaid their loan, and returned Selfridges initial investment of 24000 at an exchange rate of 3 = £1.

This can be calculated using both methods:

Temporal Closing Rate

£000 £000

Non-Monetary Asset

Exchange Rate

(2=£1) 48

(3=£1) 32

Share Capital 24 8

Loan (3=£1) 24 24

48 32

Exchange gain/(loss) 12 (4)

Under the temporal method Selfridges will receive £8000 back of their original investment and will show a loss £16000. While under the Closing rate method the company receive nothing back and Euroself would still be £4000 behind in the deal.

Again we see how the different methods demonstrate how a different outcomes can be depending on the method of calculation.


‘Financial Reporting’ 6th Edition, Alexander & Britton

‘ACCA Study Text, Advanced Corporate Reporting’ BPP Publishing

‘ACCA Accounting Handbook 1999/2000’

‘GAAP Handbook 1999/2000’

‘The Magic Circle’ Accountancy June

‘Good Report For Governance’ Accountancy December 2001