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.
Bibliography
‘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
...are accountable to a board of directors and shareholders and publish annual reports that are public record so to make sure there financial standards are on the up and up.
The objective of financial reporting/statements is 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 the entity’s management and for making economic decisions.
The annual report or 10-K of a company is a useful source of information for many agents outside of the corporation. Shareholder’s can view the contents of an annual report to get a more comprehensive idea of what the company is built upon. Additionally, annual reports show a company’s progress over the past financial periods and give a detailed breakdown of company investing and operations. The 10-K and all related documents are easily accessible on a company’s website for the public to view. i
An important part of financial planning for corporations is the annual report. Publically held companies are required to submit an annual report to the SEC and private companies, even though not required, can use an annual report to gauge the performance of the company for the past year and use the report to plan for the future. The financial statements that make up an annual report are the income statement, the balance sheet, and the statement of cash flows. (Melicher, 2014) Once all of the financial information has been compiled and the three statements that make up the annual report have been completed a corporation can then start to analyze the data. There are several different categories of financial ratios
This report includes financial analysis of retail company ‘’Sainsbury’s’’, one of the biggest retail companies in the United Kingdom .The report examines the financial health of the business and evaluates the business performance by summarising the financial performance and applying financial ratios to further analyse the business’ financial . The financial analysis is displayed by analysing the information gathered from website ‘‘companies’ house’’. All the taken information contains income statements, cash flow statements and balance sheets. By the end of this report, a clear understanding of ‘Sainsbury’s’ financial analysis will be made, so that viable investment decision could be made accurately.
As technology progresses it can truly change how a business operates in terms of accounting and financial reporting. Online software has become a widely used system by many businesses around the globe. Financial reporting is essential to any business especially when seeking for potential investors or stakeholders. The reason being is because a financial report contains all of the records of how a business is performing financial wise. Likewise there are purposes of securities regulations and the main one is to disclose any schemes.
Moreover, it has to contain any information that helps investors to make their decisions. • Accurate Records and Accounts We believe that business and financial records are necessary to our business operations. We depend on the integrity and accuracy of those records to make our decision and the benefit of investors. Also, the records it is important to report government agencies and others whom the company report to.
In conclusion, appropriate principles could lead to clearer interaction and more comparable financial reporting standards without the need of the current rules. The NZ Framework has provided parts of clear and appropriate underlying principles to lead the application of NZ GAAP and other financial reporting standards. However the standards setting movement from ‘rule-driven’ approach to ‘principle-based’ approach is still half-way in New Zealand. How could principles be sufficiently clearly portrayed and put into practice require the profession to think and support. Just as Tweedie (2007, p.7) states, a principle based system will only work if preparers, auditors, users and regulators wish to make it work.
It outlines the interconnection of a company’s financial and non-financial elements and aims to combine them and show value creation and maintenance. It identifies resources and their effective and responsible usage. It intends to create a dialogue between the shareholders and other stakeholders and provides them with detailed information.
The directors need to be able to view the financial performance of the group in order to make relevant and informed decisions. In order to obtain this information the correct procedures, as mentioned, must be followed to ensure that assets are not overstated and liabilities
The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine who the financials should be catered towards and what level of prudence is necessary for quality judgment.
ii. A company borrows £2,000,000 in 1998, with a fixed interest rate of 8%, payable annually for a 5 year period.
It should be pres... ... middle of paper ... ... o monitor the health of the company and also to make the right choices. They are the most important users of financial information as without this group using the information properly the company could cease to survive. Bibliography Biz/ed 2004, Accounting [Online], available http://www.bized.ac.uk Duncan Williams 2004, User of Financial Statements, [online], available http://www.duncanwill.co.uk Finance Demon 2004, User of Financial Information, [online], available http://www.financedemon.co.uk Financial Reporting Council 2004, About the FRC [online], available http://www.asb.org.uk Hacker Young Chartered Accountants 2004, Accounts Explained [online], available http://www.account-explained.co.uk Joe Corbett 2004, Class Notes, Borders College, Galashiels
"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions."[Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities and equity are directly related to an organization's financial position. Reported income and expenses are directly related to an organization's financial performance.
The second purpose is to disclose risk faced by the company to public including stakeholders and shareholders. Companies are obliged to disclose all the necessary information that is related to the performance of the company to stakeholders and shareholders. This is probably preventing shareholders to make wrong decisions in their investments due to insufficient information provided by the company.