1. UNIT 13: FINANCIAL REPORTING
UNIT CODE: K/508/0526
CREDIT VALUE: 15

2. UNIT 13: FINANCIAL REPORTING
Learning Outcome 1: Analyse the context and purpose of financial reporting

3. THE BASIC SYLLABUS
1. Analyse the context and purpose of financial reporting.
2.Interpret Financial statements
3.Evaluate financial reporting standards and theoretical models and concepts
4. Evaluate international differences in financial reporting

4. LEARNING OUTCOMES
Analyse the context and purpose of financial reporting
P 1: Analyse the context of financial reporting including regulatory frameworks and governance of financial reporting

5. OVERVIEW
Financial reporting includes all financial communication from the business to outside users including press releases, shareholder minutes, management letters and analysis, auditor reports, and even the notes of the financial statements. Basically, anything that can convey financial information to the public is considered financial reporting of some kind.

6. ELEMENTS OF FINANCIAL STATEMENT
The elements of financial statements are the building blocks with which financial statements are constructed—the classes of items that financial statements comprise. They focus directly on items related to measuring performance and to report on the financial position of the organisation. The accrual accounting model actually is embodied in the element of financial statement.

7. ELEMENTS OF FINANCIAL STATEMENT
The elements of financial statements are the general groupings of line items contained within the statements. These elements are as follows:
Assets. These are items of economic benefit that are expected to yield benefits in future periods. Examples are accounts receivable, inventory, and fixed assets.

8. ELEMENTS OF FINANCIAL STATEMENT
Liabilities. These are legally binding obligations payable to another entity or individual. Examples are accounts payable, taxes payable, and wages payable.
Equity. This is the amount invested in a business by its owners, plus any remaining retained earnings.

9. ELEMENTS OF FINANCIAL STATEMENT
Revenue. This is an increase in assets or decrease in liabilities caused by the provision of services or products to customers. It is a quantification of the gross activity generated by a business. Examples are product sales and service sales.
Expenses. This is the reduction in value of an asset as it is used to generate revenue. Examples are interest expense, compensation expense, and utilities expense.

10. ELEMENTS OF FINANCIAL STATEMENT
Of these elements, assets, liabilities, and equity are included in the balance sheet.
Revenues and expenses are included in the income statement. Changes in these elements are noted in the statement of cash flows.

11. CONTEXT OF FINANCIAL REPORTING
Financial reporting plays a vital role in world economies. Its primary purpose is to provide relevant and useful information to the owners of a company where there is a division between the ownership and control of that company. This occurs mainly in public limited companies, where share capital is sold to the public through a stock market/exchange system.

12. CONTEXT OF FINANCIAL REPORTING
The users of financial information are a broad and diverse group as discussed in Financial Accounting. The users of financial information require information for a wide variety of reasons.
Nonetheless, every user of financial information has a common requirement, i.e. that the information is relevant, fairly presented, understandable and comparable.

13. CONTEXT OF FINANCIAL REPORTING
To this end a broad range of regulation has developed around the preparation and presentation of a set of financial statements. Combined these are referred to as the Regulatory Framework or Generally Accepted Accounting Practices (GAAP).

14. CONTEXT OF FINANCIAL REPORTING
The term GAAP is used widely in relation to accounting regulation although the term is seldom referred to, in the Companies Acts and is not defined therein. Generally Accepted Accounting Practices are made up of all the accounting rules and regulation in a particular jurisdiction.

15. COMPLYING WITH REGULATORY FRAMEWORKS
There are many laws and regulations that a reporting entity may have to comply with in order to continue in business. For example, many entities (particularly in the UK) will have to comply with strict health and safety legislation.

16. COMPLYING WITH REGULATORY FRAMEWORKS
A food manufacturer may have strict food hygiene legislation to comply with, and an accountancy firm will have a code of ethics to follow from its professional body. Such laws and regulations will have both a direct effect on the financial statements and an indirect effect.

17. COMPLYING WITH REGULATORY FRAMEWORKS
The IASB – International Accounting Standards Board, (Formerly IASC), issued its Framework for the Preparation and Presentation of Financial Statements in This is referred to as its conceptual framework. The framework sets out the concepts that shape the preparation and presentation of financial statements for external users.

18. COMPLYING WITH REGULATORY FRAMEWORKS
In addition, the framework may assist: • Preparers of financial statements in applying International Accounting Standards and in dealing with topics that have yet to form the subject of an International Accounting Standard; • Auditors in forming an opinion as to whether financial statements conform with International Accounting Standards;

19. COMPLYING WITH REGULATORY FRAMEWORKS
• Users of financial statements in interpreting the information contained in financial statements prepared in conformity with International accounting Standards; and • Those who are interested in the work of IASB, providing them with information about its approach to the formulation of accounting standards.”

20. THE GOVERANCE OF FINANCIAL REPORTING INCLUDING DUTIES AND RESPONSIBLE OFFICERS
Responsibility of Management
It is the responsibility of management, with the oversight of those charged with governance, to ensure that the entity's operations are conducted in accordance with the provisions of laws and regulations, including compliance
with the provisions of laws and regulations that determine the reported amounts and disclosures in an entity's financial statements.

21. THE GOVERANCE OF FINANCIAL REPORTING INCLUDING DUTIES AND RESPONSIBLE OFFICERS
Responsibility of the Auditor
The auditor is responsible for obtaining reasonable assurance that the financial statements as a whole are free from material misstatement, whether caused by fraud or error. In conducting an audit of financial statements, the auditor takes into account the applicable legal and regulatory framework.

22. THE GOVERANCE OF FINANCIAL REPORTING INCLUDING DUTIES AND RESPONSIBLE OFFICERS
Responsibility of the Auditor
Because of the inherent limitations of an audit, an unavoidable risk exists that some material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with generally accepted auditing standards (GAAS)or international accounting standard (IAS).

23. THE GOVERANCE OF FINANCIAL REPORTING INCLUDING DUTIES AND RESPONSIBLE OFFICERS
In the context of laws and regulations, the potential effects of inherent limitations on the auditor's ability to detect material misstatements are greater for the following reasons: Many laws and regulations relating principally to the operating aspects of an entity typically do not affect the financial statements and are not captured by the entity's information systems relevant to financial reporting.

24. THE GOVERANCE OF FINANCIAL REPORTING INCLUDING DUTIES AND RESPONSIBLE OFFICERS
• Noncompliance may involve conduct designed to conceal it, such as collusion, forgery, deliberate failure to record transactions, management override of controls, or intentional misrepresentations made to the auditor. • Whether an act constitutes noncompliance is ultimately a matter for legal determination, such as by a court of law.

25. UNINCORPORATED ORGANISATIONS
An unincorporated organisation is a membership organisation. It can be whatever its members want it to be, and carry out whatever activity you choose. It is the easiest, quickest and cheapest way for a group to set itself up. This structure is suitable for groups such as playgroups, pensioners associations, film clubs, arts groups and campaigning groups. Many groups fall into this category (sometimes without knowing it).

26. INCORPORATED ORGANISATIONS
An organisation that is a corporate body can enter into contracts, hold property, and take part in lawsuits, in its own right. It enjoys limited liability. This means that if it has more debts that it can pay and is wound up, its members as individuals are only liable for their shareholdings or the amount they have each guaranteed.

27. INCORPORATED ORGANISATIONS
Incorporated organisations are more complicated to set up, and more closely controlled by the law, than unincorporated associations. There are four sorts of incorporated structure suitable for voluntary organisations:

28. INCORPORATED ORGANISATIONS
• Company Limited by Guarantee • Community Interest Company (CIC) • Charitable Incorporated Organisation • Community Benefit Society (formerly the Industrial and Provident Society)

29. REFERENCES
FINANCIAL REPORTING My Accounting Course. N.p., Web. 30 Aug
Kfknowledgebank.kaplan.co.uk. N.p., Web. 30 Aug
"The Regulatory Framework Under Which Financial Statements Are Prepared." N.p., Web. 30 Aug

30. REFERENCES
Spiceland, J. David, James F. Sepe, and Lawrence A Tomassini. Intermediate Accounting. 4th ed. McGraw and Hill, Print.
Bragg, Steven, and Steven Bragg. "The Elements Of Financial Statements." AccountingTools. N.p., Web. 30 Aug
ACCA. "Laws And Regulations | ACCA Global." Accaglobal.com. N.p., Web. 31 Aug
Cpaireland.ie. N.p., Web. 31 Aug

31. REFERENCES
"Consideration Of Laws And Regulations In An Audit Of Financial Statements." N.p., Web. 31 Aug
"Finding A Legal Structure To Suit Your Group | Resource Centre." Resourcecentre.org.uk. N.p., Web. 31 Aug

32. REFERENCES
"Unincorporated And Incorporated – What’S The Difference?." / N.p., Web. 31 Aug
Cpaireland.ie. N.p., Web. 31 Aug. 2017