Select a FTSE 100 2016 or 2017 annual report and in your report also address the following questions a to c which have 20 marks each
a] What are the main objectives of financial reporting using International Financial Reporting Standards (IFRS).
b] According to the IFRS conceptual framework who are the main users of financial statements and what should financial reporting deliver for these users.
c] What are the key qualitative characteristics of financial reporting? Use information from the financial reports to illustrate your answers.
Select a FTSE 100 2016 or 2017 annual report and in your report also address the following questions d to g which have 10 marks each
d] Does the Chairmanâ€™s statement/report relate to details contained in the financial statements.
e] Illustrate with two examples of how IFRS's have impacted on your company's financial report
f] Illustrate with some examples how your chosen company is disclosing non-financial information to enhance its financial reports (including CSR disclosures).
g] What material financial risks (and opportunities) might BREXIT present for your company .
International Financial Reporting Standards (IFRS) can be understood as accounting standards set by a non-profit independent organization like International Accounting Standards Board. The objective of the paper is to explain key objectives of financial reporting employing IFRS. The conceptual framework of IFRS evaluation will facilitate explaining users of financial statements and the aspects it delivers. Moreover, the paper will consider an FTSE 100 company of US that is Coca Cola HBC disclosure of non-financial information to enhance its financial reports and material financial risks and opportunities present for the company.
There are several objectives of financial reporting through use of IFRS that includes:
- To prepare considering public interest a set of understandable and superior quality, enforceable and understandable international accounting standards which needs superior quality comparable and transparent financial statements information along wit other financial reporting to facilitate participants within the global capital markets and other users in taking economic decisions.
- Promoting continuous application and use of accounting standards
- To generate convergence of international financial accounting, international and national accounting standards for superior quality solutions (Brüggemann, Hitz & Sellhorn, 2013).
- To address needs of medium and small sized companies along with emerging economies.
Relevant information from IFRS based financial statements is capable in ensuring difference in decisions if it has confirmatory or predictive value. Predictive value facilitates users of the financial statement in anticipating future outcomes. Confirmatory value facilitates users to confirm and check previous evaluations and predictions. Materiality aspect of the financial statements is deemed to impact the information if it is omitted or misstated that can be used by users that develops the basis of financial information regarding a particular reporting organization (Barth, 2015).
Moreover, financial statements prepared in accordance with IFRS conceptual framework is intended to provide comparability that facilitates the users to identify similarities and differences between items. Information regarding the reporting organization is observed to e extremely useful in case it is compared with information regarding other companies with identical information regarding same company for another date. Moreover, IFRS conceptual framework provides verifiability that ensures information faithfully signifies the economic phenomenon it indicates to represent (Cohen, Krishnamoorthy & Wright, 2017). It also indicates that several observers might reach that consensus which indicates users that a specific depiction is faithful representation. IFRS financial statements preparation framework provides understandability that indicates a company’s financial information that can be presented in a way that a user of reasonable business and financial knowledge and willingness to study information might be able to comprehend it.
There are two major qualitative characteristics of financial reporting that includes:
- Faithful representation- The financial report indicates financial information that indicates the aspects it represents. For instance, within the company’s financial reports faithful representation indicates the aspects that the financial report actually represents such as position of assets and liabilities and the results that took place after observing income and expenditure position. There are three characteristics of faithful representation such as neutrality, completeness and error free.
- Relevance- For maintaining relevance, the accounting information could be timely. For instance, within a financial report, financial statements issued three weeks later the accounting period is deemed to have increased relevance than the financial statements seven months later the end of period. Moreover, information relevance is impacted by its materiality and nature (Crawford & Power, 2015).
- Improvement of quality characteristics can be divided into four parts such as comparability, timeliness, variability and understandability. Classifying and charactering along with information presentation concisely and clearly ensures quality of financial statements that makes it understandable.
According to the report of the chairman contained in the financial statements of Coca-Cola HBC, the organization has renewed focus on management and revenue growth. In addition, the recovery of the margins in the market of Europe has empowered its conviction to continue optimizing production, logistics and route-to-route market, especially in Nigeria and Russia. The company declares dividends annually so that at least 35% of unconsolidated remain adjusted after tax IFRS profits (Coca Cola, 2017). Moreover, the consolidated financial statements of the company might be presented through employing values from consolidated financial statements of the company developed in adherence with IFRS and issued by IASB. The company explains its adjusted EBITDA as operating profit before making deductions for impairment of property, plant and equipment and deductions, stock option compensation along with adjustments with non-cash items and intangible assets.
Qualitative characteristics of financial reporting
Financial results of Coca Cola HBC Company are prepared in adherence to International Finance Reporting Standards (IFRS). The company declares dividends annually so that at least 35% of unconsolidated remain adjusted after tax IFRS profits. Moreover, the consolidated financial statements of the company might be presented through employing values from consolidated financial statements of the company developed in adherence with IFRS and issued by IASB. There has been a drastic impact of IFRS on the preparation of financial statements by Coca Cola HBC Company as this has impacted the calculation of parent’s basis within the foreign subsidiaries along with impacting cash repatriation plans (Dumay, 2016). Moreover, the local tax rules are relied on accounting standards and there has been corresponding impact of the same on tx authorities of a subsidiary within that jurisdiction.
IFRS adoption by the company has impacted its statutory reporting that has been accomplished primarily that has resulted in likely implementation of consistent accounting standards set and it also generates an opportunity for centralizing and standardizing statutory reporting conducts. IFRS accounting standards implementation by Coca Cola HBC Company needs necessary changes to the accounts and modifications chart for capturing IFRS based data needs. Moreover, this also had impact on the company’s general ledger accounting that accommodated several ledgers (Li, Sougiannis & Wang, 2017). The company explains its adjusted EBITDA as operating profit before making deductions for impairment of property, plant and equipment and deductions, stock option compensation along with adjustments with non-cash items and intangible assets. IFRS also has an impact on financial statements of the company that can be observed in return on invested capital that serves as a additional indicator of the company’s performance and not as a replacement for the measures like profit after tax attributable to investors and operating profit of the company as defined by IFRS (Mardini, Crawford & Power, 2015).
In consideration to IFRS standard of accounting, Coca Cola HBC Company is deemed to disclose all its non-financial information for improving its financial reports. The company ensures good governance, the social responsibility committee of the board along with establishing sustainability steering committee that includes major subject matter experts along with decision makers through constantly reviewing the company’s priorities in consideration to altering expectations and issues (Markelevich, Riley & Shaw, 2015). Corporate social reporting is focused on non-financial information disclosure for IFRS standards necessitates that strong governance along with transparent reporting are vital for long term value creation. Corporate governance commitment related best practices have a vital role in dealing with risks along with opportunities along with maintaining trust of the shareholders. The non-financial disclosure of Coca Cola HBC Company are responsible for addressing such demand through packaging, manufacturing along with merchandising finished branded beverages to consumers that is responsible for outlet execution and consumer marketing (Mignolet, 2017).
Impact of IFRS on financial statements of Coca Cola HBC
In alignment with the IFRS conceptual framework, Coca Cola HBC focuses on implementation and establishment of risk management process along with yearly reviewing effectiveness of its material financial risks. There are certain material financial risks that have been identified in areas of business opportunities and risks (Moscariello, Skerratt & Pizzo, 2014). Certain material risk that has been identified in the company includes risk transfer strategy by means of insurance. IFRS has made sure that Coca Cola HBC Company’s material issues encompass environmental, economic and social risks that might impact the company’s capability to generate reputation and value for generating value over medium, shot and long term. IFRS accounting standards implementation facilitates the company in recognizing the most important risks along with its impacts along with reporting the company’s progress and approach in consideration to material issues transparently.
Material issues of the company are reviewed yearly that facilitates Coca Cola HBC to make sure that it always reflects new insights from the stakeholders and business. Material opportunities of the company are present in social and environmental impact of the company’s work for consumers. This has a vital opportunity as the company can anticipate its significance that can boost as consumer interest and environmental regulation constantly grows. A material risk that is high is damage to the company’s reputation from compliance with marketing standards and ethics along with increasing transparency regarding marketing practices (Picker et al., 2016). This is for the reason that the company fails to comply with the marketing standards that can impact reputation of the company or its relationship with consumers.
The objective of the paper was to explain key objectives of financial reporting employing IFRS. It is gathered from the paper that the company declares dividends annually so that at least 35% of unconsolidated remain adjusted after tax IFRS profits. Material issues of the company are reviewed yearly that facilitates Coca Cola HBC to make sure that it always reflects new insights from the stakeholders and business. Material opportunities of the company are present in social and environmental impact of the company’s work for consumers. This has a vital opportunity as the company can anticipate its significance that can boost as consumer interest and environmental regulation constantly grows.
Barth, M. E. (2015). Commentary on Prospects for Global Financial Reporting. Accounting Perspectives, 14(3), 154-167.
Brüggemann, U., Hitz, J. M., & Sellhorn, T. (2013). Intended and unintended consequences of mandatory IFRS adoption: A review of extant evidence and suggestions for future research. European Accounting Review, 22(1), 1-37.
Coca Cola, 2017. Coca Cola Annual Report. [online] Coca-colacompany.com. Available at: <https://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/investors/2016-AR-10-K.pdf> [Accessed 1 Dec. 2017].
Cohen, J., Krishnamoorthy, G., & Wright, A. (2017). Enterprise risk management and the financial reporting process: The experiences of audit committee members, CFOs, and external auditors. Contemporary Accounting Research, 34(2), 1178-1209.
Crawford, L., & Power, D. M. (2015). Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8. Journal of Applied Accounting Research, 16(1), 2-27.
Dumay, J. (2016). A critical reflection on the future of intellectual capital: from reporting to disclosure. Journal of Intellectual capital, 17(1), 168-184.
Li, S., Sougiannis, T., & Wang, I. (2017). Mandatory IFRS Adoption and the Usefulness of Accounting Information in Predicting Future Earnings and Cash Flows.
Mardini, G. H., Crawford, L., & Power, D. M. (2015). Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8: Evidence from Jordan. Journal of Applied Accounting Research, 16(1), 2-27.
Markelevich, A., Riley, T., & Shaw, L. (2015). Towards Harmonizing Reporting Standards and Communication of International Financial Information: The Status and the Role of IFRS and XBRL. Journal of Knowledge Globalization, 8(2).
Mignolet, F. (2017). A study on the expected impact of IFRS 17 on the transparency of financial statements of insurance companies.
Moscariello, N., Skerratt, L., & Pizzo, M. (2014). Mandatory IFRS adoption and the cost of debt in Italy and UK. Accounting and Business Research, 44(1), 63-82.
Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J., & Van der Tas, L. (2016). Applying international financial reporting standards. John Wiley & Sons.
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