Conceptual Framework For Financial Reporting

Discuss about the Conceptual Framework for Financial Reporting.

Diageo is a maker of drinks which range from liquor to wines. Diageo Plc conveys and passes on refreshment alcohol with spirits and wine brands. The company has manufactured beverages for a very long time. Diageo was set up in December 1997 and is headquartered in London, the United Kingdom. In this report we are going to analyse the different aspects of the company’s  financial reports of 2016(Business process management II: Diageo case study, 2006). Diageo operates in 21 countries  in Afria, North America, Europe among other continents.

The company has some highlights as it has scooped some of the worlds most coveted awards.Diageo, is  the world's leading premium drinks company Distilled and World Class beverages, it was honoured in one of  the most important events in the world of mixology, it scooped  the  "Coaster Awards 2015" national best in the world of mixology. This indicates that the company offers quality service and excellence in the world (An improved conceptual framework for financial reporting, 2008).

In all, ten have been awarded this award to 400 local opting Spain. The winners were chosen thanks to its vocation to offer quality service, work and excellence in the world of mixology.

In the last five years the company has doubled its business division of luxury brands and has managed to lead most markets with growth that in some cases reach up to 15% .

World Class highlights indicates  the strong commitment that keeps Diageo the leader in the  hospitality industry which it has achieved  through common effort and professionalism (Chavas, 2004).

The Framework Accounting is the set of fundamentals, principles and basic concepts whose fulfillment leads in a logical deductive process to the recognition and measurement of items of the financial statements, and is conceived in the same way for all companies, regardless its size, thus exhibiting an identical structure and a very similar to that provided by the General Accounting Plan content (Gill, Chatton and Osgood, 2009).

Small and medium-sized enterprises should formulate the balance sheet, income statement, statement of changes in equity and memory, which are documents that are part of its annual accounts.With the aim of simplifying the accounting obligations of companies that do not exceed the required size to force to submit its annual audited accounts,  does not require the presentation of these companies flow statement cash(Greuning,Scott&Terblanche,2011).. This state may be submitted voluntarily, in which case they must be prepared in accordance with the provisions of the General Accounting Plan. In exceptional cases where compliance was incompatible with the true and fair view such application shall be deemed inadmissible (Gill, Chatton and Osgood, 2009). It will be encouraged in the fact that memory and its influence on equity will be explained, financial position and results of the company. The balance sheet , profits statement , statement of changes in equity , the cashflow statement ( not mandatory for organizations that may build balance , statement of changes in equity as well as abbreviated memory ) as well as the memory section of the financial records of an organization(Business process management II: Diageo case study, 2006).

Conceptual framework

Past financial statements needs to be easy to understand and also helpful for people who make use of them to come up with economic decisions ; the General Accounting Strategy aims that the info found in the annual accounts display reasonably the net worth , financial position as well as end results of the organization.

The systematic as well as normal use of the requirements , process as well as conditions of this PGC can make the annual financial records give a true picture of the equity , financial position as well as outcomes of the organization . In accounting procedures will address its economic reality rather than just their legal form(Greuning,Scott&Terblanche,2011).

The information is true when the financial statements are free of errors and is neutral, ie it is free of bias, which allows users trust that is the true picture of what it purports to represent. Reliability derives integrity, which is reached when the financial information contienetodos data that can influence decision-making, without any omission (Hague, 2004).

Similarly the annual accounts are made in a comparable manner in order to assess the situation and profitability compared with previous periods or companies of similar characteristics. Likewise, the information provided should be as clear as possible in order to make more effective decision-making within companies.

The accounting principles that governed the General Accounting Plan are as follow. Company operation. Shall be deemed to company management will continue in the foreseeable future, so queno is intended to determine the value of equity, nor the resulting amount in the event of liquidation (Hill&McDonnell,2016) .

Accrual. The effects of transactions or economic events are recorded when they occur, are charged to exercise to which the annual accounts relate, expenses and revenues affecting the same, regardless of the date of payment or collection (Hague, 2004).  Uniformity. The criteria adopted by Diageo and were chosen to generate the annual accounts have to keep in time and applied uniformly (Lehman et al., 2005). When these assumptions may be changed to alter the criteria adopted, this fact is to happen in the memory necessary to inform the impact that quantitative and qualitative variation has on the annual accounts(Gray and Malone, 2008)... This principle is based on estimates and assessments should be handled with caution in conditions of uncertainty. Prudence does not justify the valuation of the assets does not meet the faithful image that must reflect the annual accounts (Harvard business review on corporate governance, n.d.).

Requirements information to include in the annual accounts

Only benefits achieved to date are accounted year end. On the contrary, they should take into account all the risks. No compensation. Can not offset the asset and liabilities or expenses and income, and valued separately the integral elements of the annual accounts, unless some rule otherwise(Chand and Patel, 2011).

Relative importance. Possible non-application of certain accounting principles and criteria when determining the importance in quantitative or qualitative terms of the variation that such fact produces is barely significant and therefore does not alter the expression of the true picture. Items or amounts whose relative importance is low may appear grouped with others of similar nature or function (Lehman et al., 2005).
In case of conflict between principles you should prevaleces the most conducive to the financial statements give a true and fair view of the assets, liabilities, financial position and results of the company.

Accoording to the 2016 Diageo financial statements, the company takeabout the taxationsince they are a multinational company. The company’s net profit dropped by 4.4% from the year 2015 to 2016 (refer to page 25 of the financial statement).  At the end of year 2016, the reported tax rate was 17.4% this is an increase compard to 15.7% in june 2015.  From the annual rep[ort it is clear that Diageo should report on taxes in a more comprehensive manner.  Thwe inestors and stakeholders need to know how exactly the taxation is handled in various countries that the company is operating in (Mallin, 2004). This is useful because it enables better decisions to be made. Although the company does not have any accounting scandal and the end of year statements are formulated according to accounting framework and FASB, it is the responsibility of the management to ensure that the information presented in the financial statements  is comprehensive and understandable for the stakeholders (Mirza, Holt and Orrell, 2006).

International Accounting Standards dictates on the methodology for presentation of financial statements (Gray and Malone, 2008). Additionally,  Statements of financial positions which includes balance sheet and income statements, statement of changes in equity, cash flow statements, accounting policies and comparative information.

Figure 1: Diageo  Market performance

Just like a number of other areas of the corporate environment , corporate governance measures must not comply with a single design . On the other hand , experience demonstrates that the methods to apply and also achieve better governance in the organization , they vary significantly in each and every state and each organization , even within the similar industry (Mirza, Holt and Orrell, 2006).

Relevancy and faithful representation in financial statements

Likewise , the factors that steer people who run businesses to put into practice corporate governance procedures are diverse . Any of these might be simply because the survival of the organization is set , wherein case it is very important put into practice immediately(Gray and Malone, 2008).  . One other reason could be that shareholders believe of the benefits as well as benefits that such procedures signify the outcomes of the organization as well as 3rd parties involved , both internally ( stakeholders , staff ) as well as externally ( customers , suppliers ) . In any event , will probably be the needs and the degree of dedication the key elements to accelerate the strategy of implementing these types of practices . The reason behind corporate governance would be to Access to capital or decrease its cost ,Face as well as react to external industry pressures .Balancing the needs , on numerous instances , diverging stakeholders . Guarantee the sustainability of the organization and Attain better operating results .

The adoption of governance practices is easy when shareholders and persons responsible for their implementation are committed to their task, convinced of the value of change and motivated to achieve a common vision(Hill&McDonnell,2016)s.

The main objective of corporate governance is the establishment of agreements to avoid conflicts between current and future shareholders, ensuring that business information is presented in a transparent, reliable and timely manner, in addition to providing legal certainty and security to shareholders in their economic rights and its transmission, which is necessary to:Design mechanisms to ensure the efficient operation of the Shareholders' Meetings,Design and implement a Board of Directors that generates value,Design and implementation of the Committees that provide certainty to shareholders about the reliability of information on the operations of the Company, Agreements and pacts succession process management and management positions (Zuber-Skerritt, 2012).Design mechanisms to ensure that the effects of the shareholding structure of the company are equitable for all shareholders (Rights of minorities).Designing a dividend policy that provides certainty to shareholders and creditors even to contingencies like death and safeguard the operation of the Company (Sun, Stewart and Pollard, 2010).

environmental social responsibility: the collective consciousness to improve the world
The environment has become one of the points of social responsibility more care by businesses. And it is that if we take care of our planet, the consequences can be devastating(Chand and Patel, 2011).. It is therefore essential raise awareness and educate those around us of the importance of small gestures, those who though small, have a great impact. At our fingertips it is to apply and teach the next generation to recycle, use less paper, to bring cloth bags to the supermarket ... because our example is undoubtedly the best teaching.And if these good practices moved to the business sector, we find environmental policies social responsibility, which are manual action to protect the planet (Sun, Stewart and Pollard, 2010).

Environmental social responsibility is the commitment to acquire companies to preserve and protect the environment. The objective is to evaluate all the natural resources that the company uses to create its products or services, such as water, electricity or raw materials used for packaging.

In fact, the interest of companies for the environment is closely related to the demands of consumers (Zuber-Skerritt, 2012). It is increasingly common that your customers are people with "environmental awareness", ie, they have a lifestyle in which care about the environment and make their everyday purchases require products or services that require it coupled to their way of thinking and living.

Diageo put up green marketing strategies in two different ways. One focuses on commercial and business area and refers to the process of creating products. The aim is to implement appropriate measures to prevent damage to the environment and market a product or a final service that does not believe any pollution, that does not generate waste and optimizing resources has been created.

The other green marketing strategy focuses on the social area, that is, initiatives to raise awareness promoted internal staff and external customers of the need to protect and care for the environment.Diageo used more than 46 million dollars towards environmental sustainabe solutions in the last financial year. This shows that the company has done a lot in giving back to the community and changing the environment.

So, to get a more sustainable world a lot is needed. Each to the extent of our possibilities and our responsibility, starting with our daily lives and spreading respect for the environment. And always with a purpose and a common goal: to work to leave a green and healthy planet to those who come after(Chand and Patel, 2011)..
It is defined as the responsiveness that the company against the effects of their actions on the different groups with which it relates. Companies are socially responsible when they develop activities that meet the needs of its employees, society and those who benefit directly from its business; likewise for the care and preservation of the environment performing (Taparia, 2004).

It is defined as the responsiveness that has government organizations against the effects of their actions on the different groups with which it relates. It is important to consider that to implement a policy represents for the company internally, the ideal culture, based on values, respect for society and efficiency for Diageo (Weygandt, Kimmel and Kieso, 2009).

Conclusion

Diageo is one of the biggest companies dealing with alcoholic beverages in the world. With this it has very many responsibilities to give back to the society. Moreover, it has been mandated to keep clean books of accounts in accordance with IAS and IFRS standards for accounting. It provides for management commentaries and the chairman’s report in reporting of financial standards (Chand and Patel, 2011).

References

An improved conceptual framework for financial reporting. (2008). London, U.K.: International Accounting Standards Board.

Business process management II: Diageo case study. (2006). Houston: American Productivity & Quality Center (APQC).

Chand, P. and Patel, C. (2011). Achieving global convergence of financial reporting standards. Bingley, U.K.: Emerald.

Chavas, J. (2004). Risk analysis in theory and practice. Amsterdam: Elsevier Butterworth-Heinimann.

Gill, J., Chatton, M. and Osgood, W. (2009). Understanding financial statements. [Rochester, NY]: Axzo Press.

Greuning, H., Scott, D. and Terblanche, S. (2011). International financial reporting standards. Washington, D.C.: World Bank.

Hague, I. (2004). Applying international financial reporting standards. London: LexisNexis.

Harvard business review on corporate governance. (n.d.). .

Hill, C. and McDonnell, B. (2016). Economics of corporate law. Cheltenham, UK: Edward Elgar Publishing Limited.

Lehman, C., Tinker, T., Merino, B. and Neimark, M. (2005). Corporate governance. Amsterdam: Elsevier JAI.

Mallin, C. (2004). Corporate governance. Oxford: Oxford University Press.

Mirza, A., Holt, G. and Orrell, M. (2006). Wiley IFRS. Hoboken, N.J.: Wiley.

Sun, W., Stewart, J. and Pollard, D. (2010). Reframing corporate social responsibility. Bingley, U.K.: Emerald.

Taparia, J. (2004). Understanding financial statements. Oak Park, IL: Marion Street Press.

Weygandt, J., Kimmel, P. and Kieso, D. (2009). Accounting principles. New York: Wiley.

Zuber-Skerritt, O. (2012). Action research for sustainable development in a turbulent world. Bingley [England]: Emerald Group Pub.