Marks and Spencer Financial Statements - Coursework Example

Introduction Mark Bolland in his Chief Executives review of Marks and Spencer in the 2011 financial review said “The M&S team: It’s not just the products that make M&S special, it’s the people.” (M&S Annual Review and Financial Staetements, 2011, p 9). This statement may not seem to reflect the company’s commitment in terms of pricing its people, when we look at the financial statement of the company for the year 2011. This statement would be reveiwed and analyzed against the framework for preparation and presentation of financial statements that aim to apply the qualitative characteristics and the most appropriate accounting standards to convey a true and fair view of the company to its shareholders and the general public. Conceptual framework for financial reporting- Many of the private companies in the UK use International Financial Reporting Standards (IFRS) conceptual framework for financial reporting (Holland, 1998) and address issues regarding fair value accounting in terms of the 8 phases, out of which four are active: the objective and qualitative characteristics, elements and recognition, measurement, and reporting entity. The conceptual framework itself provides guidance on which measurement bases to be used or outcomes to be obtained through the measurements decisions. The measurements of the different segments are aimed at fair value to meet the qualitative characteristics of the framework. As IFRS includes fair value measurements required by United Kingdom Generally Accepted Accounting Principles (UK GAAP) (Ballard, 2010, p 704), it is obvious that the different identifiable components (Connolly, 2012) like pension and other associated costs and liabilities of M&S are according to fair value measurement that meets the qualitative characteristics of the framework (Ballard, 2010, p 703). Also, according to the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), the objective of fair value measurement is “to provide guidance for selecting measurement bases that satisfy the objectives and qualitative characteristics of financial reporting” (FASB, 2009b, p2; Ballard, 2010, p 703). The qualitative characteristics aid financial reporting in the selection of a measurement method which the company has attained through identifying its employees as their valuable asset and also having certain policies and schemes like the pension scheme and work, health and safety schemes as part of its sustainability drive (M&S How We Do Business, 2011). Further, identifiable segments are reportable or operating segments of the company that have a reported revenue of more than 10% of the combined revenue of both internal and external revenue of all other segments. Also, if the profit or loss of a particular segment, like employee remuneration or employee benefits, including pension benefits, is greater than profit or loss of all operating segments combined or the assets are worth more than 10% of all combined operating segment assets, then the segment is said to be reportable (Connolly, 2012, p2). This means that M&S has the option of not including the employee remuneration benefits or pension liabilities and costs in the financial report. Measurement is defined in the IASB’s framework as “the process of determining the monetary amounts at which the elements of financial statements are to be recognized and carried in the balance sheet and income statement” (IASB, 2001, p 99; Ballard, 2010, p 706). M&S has recognized the measurements relating to employee remuneration, costs and benefits in its financial statement in 2011 (Appendix 1 & 2). Many of the financial reporting institutes have recognized that there exists ambiguity in standards attained in financial reporting. There are limitations in financial reporting and public information disclosure as it is common practice with companies to practice mandatory and voluntary public and private disclosure of information that is targeted at specific stakeholders of the business (Holland, 1998). Such an information disclosure mechanism can be related to M&S decision to put constraints on its financial reporting as evident in the limited information disclosed in its annual report for 2011. Annual review 2011- M&S has a group policy for pension scheme for those on permanent role before 01st Arpil 2002 and those joining after 01st April 2002. Those joined before 01st April 2002 as permanent employees are entitled to ‘defined benefit’ (DB) which is non-contributory, a one-off scheme and is subject to an independent trust. Employees who joined the group after 01st April 2002 are free to join a funded pension scheme where in they have the option of choosing among equity, bonds and property partnership interests under the ‘defined contribution’ (DC) scheme (M&S Annual Report and Financial Statements, 2011, p 55). The financial statement in the public domain has stated reference to the pension liabiliites in terms of DB, DC, aggregate remuneration and associated costs as in Figure 1 below (M&S Annual Report and Financial Statements, 2011, pp 49:87). Figure 1: Aggregrate remuneration. Source: (M&S Annual Report 20 and Financial Statements 11, 2011, p87). M&S has also adopted different group schemes for employees based on joining date and location, as evident in different schemes for those joined before 01st April 2002 and those joined afterwards. Similarly, it has different group schemes for its employees in England, Ireland and the rest of the world facilities. This may have been the reason behind the company’s seeming decision to have public and private disclosures for its stakeholders to give them a sense of the economic activities and engagements of its operations. Also, since its major group scheme, the pension scheme is evaluated against the present value of assets (Ballard, 2010, p 706), it may be that the company chose to represent the information relating to employee remuneration and costs and benefits of pension scheme as private disclosure information. And since DC includes equity and bonds among other interests, disclosing all information relating to employee benefits may not be in the interests of the company. The company’s Plan A for sustainable development where reducing the carbon footprint fully is the major consideration has been successful but the costs and benefits are not measured accurately leading to the data not featuring in the financial statement (Askew, 2012). This implies that either there is no cost involved in the effort or it has a considerable effort that has gone into it which has been identified as a separate operational segment but has not been measured. Since it is obvious that the effort must have taken a significant amount of resources to go green, the costs accrued could be featured in its sustainability report that also includes financial statement and which could also be as part of its public disclosure. Conclusion- M&S’s annual report has limited information on the company’s employees against its CEO’s claims that its people are its major asset. This is reiterated by the facts presented in its annual report in 2011. However, as financial reporting itself has standard setting in terms of fair value measurement of its operating assets or segments, it can be seen that information regarding the company’s most valuable asset, its employees is limited due its present value evaluation. Disclosing such information in the public may not be in the interests of the company, for which reason, it may have constraints in the extent of information regarding its employee costs and benefits that is disclosed in its annual report of 2011 that is in the public domain. References Askew, K., 2012. UK: M&S hits ‘carbon neutral’ target. Available online: http://www.just-food.com/news/ms-hits-carbon-neutral-target_id119387.aspx Accessed 05th June 2012. Ballard, D., 2010. Measurement in financial reporting. Proceedings of ASBBS, Las Vegas. Volume 17 Number 1. pp 703:706. Connolly, C., 2012. IFRS 8 Operating segments. Certified Public Accountants. p2. Financial Accounting Standards Board (FASB). 2009b. Project update. Available online: http://www.fasb.org/project/cf_phase-c.shtml Accessed 05th June 2012. Holland, J., 1998. Private Disclosure and Financial Reporting. Working Paper 98/6. Department of Accounting and Finance, University of Glasgow, Glasgow. International Accounting Standards Board (IASB). 2001. Framework for the Preparation and Presentation of Financial Statements. Available online: http://eifrs.iasb.org/eifrs/bnstandards/en/framework.pdf. Accessed 05th June 2012. M&S Annual Report and Financial Statements. 2011. Available online: http://corporate.marksandspencer.com/documents/publications/2011/annual%20report%202011 Accessed 05th June 2012. M&S Annual review and financial statements. 2011. Available online: http://corporate.marksandspencer.com/documents/publications/2011/annual%20review%202011 Accessed 05th June 2012. M&S How We Do Business Report. 2011. Available online: http://plana.marksandspencer.com/media/pdf/how_we-do_business_report_2011.pdf Accessed 05th June 2012. Appendices Appendix 1- Retirement benefits obligations (M&S Annual Report and Financial Statements, 2011) Appendix 2- Retirement benefits (assets and expected rates of returns) (M&S Annual Report and Financial Statements, 2011) Read More