International Corporate Reporting - Essay Example

TABLE OF CONTENTS PART A 2 Overview: 2 Users of Financial ments: 2 Narrative Reports: 3 Key Staff Saying, 3 Achievements 3 Threads 4 Opportunities: 4 Financial Reports: 5 Conclusion 6 PART B 7 Relevant IAS to Financial Statements Along with Critical Analysis 7 IAS 7 Cash Flow Statement: 7 Cash Flow Statement Format: 7 Cash flow from operating activity: 7 Cash Flow from Investing Activity: 8 Cash Flow from Financing Activity: 9 Intangible Assets: 10 IAS 16 Property Plant and Equipment: 11 Conclusions: 12 References 13 PART A Overview: Published financial statements of a company provide detailed information of the company’s financial aspects, it provide information not only about existing state of affairs of the company but about its future prospects as well, as it include Chief Executive, BOD, and key management view about the company along with its future prospects that how they forecast about company in future. Further they provide complete set of financial statement which include statement of comprehensive income, statement of financial position, statement of changes in equity, cash flow statement, along with explanatory notes forming their part, Users of Financial Statements: There are different range of users of financial statements that include both internal and external users, but as far as financial statements of Britvic are considered it include different KPIs that convey different messages about the company, like take a look at performance highlight about the company where Britvic key management personnel discloses different facts about the company’s performance that has value of information about the company for users specially investors. Accounting estimates that are uses by preparers of financial statements while preparing these financial statements are subjective decisions, which is one of the big limitation of the financial statement as due to this factor the users of financial statements may be misled. Professional judgment uses by preparer of financial statement is also one of the reason which undermine the uses of financial statements, as it involve judgment in preparation of financial statements that may be wrong and can ultimately hit financial decision taken by users of financial statements on the basis of these financial statements. Verifiability of these financial statements through audit is not an absolute verifiable factor so one cannot take decisions like take over just on the basis of these financial statements while assuming that these are audited accounts, Historical costing is also one of the reason that may cause users of financial statements to be misled as in historical costing asset are carried in the books as cost of asset less accumulated depreciation that may not be the market value hence it may miss lead the users. Measurability is also one of the reason that undermine the uses of financial statements because it involve only those areas that can financially be measured and areas that cannot be valued or out of financial statements hence like good will and employees performance cannot be seen while reviewing financial statements. Limited predictive view for investors is also one of the reason that undermine the use of financial statements. Susceptibility of financial statement to fraud and error can also miss lead the users of financial statements. All of the above are some of the factors about which the investor or any user of financial statements should be aware otherwise it can miss lead the users of financial statements, Narrative Reports: Key Staff Saying, The company is going to increase its redistribution capacity in order to improve its assets utilization, Britvic is going to completely changing its Irish It intend to completely change the operational and manufacturing optimization Company has established a management team with full resources to derive their objectives Achievements . Volume growth – there is an increase in number of liter sold by the group as compared to last year sales Revenue growth – Britvic has achieved new targets of sales, As an exceptional item cost of 9.6m is recognized as aborted merger with AG Barr plc. Basic EPS for the current year is more than as compared to last year, The BOD is recommending a dividend of 13 per share, Threads Following are the threads: Britvic sell a number of PepsiCo’s products in GB and Ireland from which the company is earning a large portion of revenue, and there is risk that such license be terminated in the future The company uses a wide variety of raw material in their products, which are subject to crop availability and increasing Demand from around the world. As a result of this, there is a risk that company would not be able to provide these commodities specially when the company require them and further due to seasonal nature and price Fluctuations Company may run out of stock. Reduction in key operational sites there is risk that product availability could e reduced that can ultimately affect sales of the company. There is a wide range of regulation that need to complied by the company that include labelling, packaging, and other monitory regulation that need to be complied. Obligation in respect of pensions have been increased which is a regulatory one that can harm the company’s performance in future, Opportunities: Due to a long range of products and brands company has opportunity to serve and reach all type of consumers as Britvic has different range of products. Due to long standing relationship with PEPSI co company it has result in exclusive agreement with them which were renewed for further 15 years Due to exclusive rights Britvic has opportunity to sell PEPSI and 7up in G and Ireland Due to developed and flexible operation and manufacturing setup company has opportunity to reach all type of customers across all territories, And as for as market conditions are concerned it is evident from the annual report that company is in highly competitive market where there is no room for mistakes. On the other hand if financial reports of Britvic plc, are considered it indicates: financial performance of the company is good as compared to its past from shareholders point of view EPS of the last two years is as follow Financial Reports: 2013 2012 Earnings per share Basic earnings per share 25.5p 23.8p Diluted earnings per share 25.3p 22.4p Adjusted basic earnings per share** 35.2p 27.2p Adjusted diluted earnings per share** 34.9p 26.5p Above fig are copied from annual reports Earnings per share EPS is KPI through we can check its financial performance and especially it is one of the most sensitive indicator for financers of the company that how much company is earning for them, before going to invest in the company potential investors want to see these figures in order to take decision about investment in the company , EPS is calculated on the following basis, Total distributable profits of the company divided by no of shares, so we get basic earnings per share, From above analysis of Britvic financial statements it is clear that company’s financial prospects are better and it is earning further with time these prospect are becoming more and more brighter, Conclusion After careful review of the financial statements and analysis it is evident that performance of the company is good from both point of view that is either investor or member of the company, and all the above information about the company that we have discussed above provide a positive impression about the company but it is advisable that before going for any decision it is better consult some detail information. And further the risk that have been identified above are also of serious nature means it can affect going assumption concern of the company. PART B Relevant IAS to Financial Statements Along with Critical Analysis IAS 7 Cash Flow Statement: As per international accounting standards for cash flow it provide a standard format for recording and processing such information and at a result we arrive at cash fig that is to be presented in statement of financial position, as this statement is prepared on the basis of other statement like statement of comprehensive income and statement of financial position therefor for the reliability of cash fig the basis upon which these statements are prepared should be correct, (hussain, 2015) Cash Flow Statement Format: Basically there are three broad activities in the statement of cash flow of Britvic, that include Cash flow from operating activity: This area of cash flow statement start from profit before tax and then move on where noncash items are added back in order to arrive the amount that indicate cash flow from operation, if we consider the financial information from the financial statements of Britvic than it would as follow, Cash flows from operating activities Profit before tax Finance costs Other financial instruments Impairment of property, plant and equipment and intangible assets Depreciation Amortization Share based payments Net pension charge less contributions (Increase)/decrease in inventory Increase in trade and other receivables Increase/(decrease) in trade and other payables Increase in provisions Loss on disposal of tangible and intangible assets Income tax paid Net cash flows from operating activities If we critically analyze the above data that was included in operating activity of Britvic than it would be clear that depreciation and amortization amounts involve some degree of judgment that can be wrong as well and in return cash amount may be wrong so it is not the only way to ascertain the cash amount, (Knight, 2015) Cash Flow from Investing Activity: This area of cash flow statement involve activities which relate cash flow due to acquisitions and disposals assets, as for as financial statements of Britvic is considered cash flow from this activity include, Net cash flows from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Purchases of property, plant and equipment Purchases of intangible assets Net cash flows used in investing activities This activity of cash flow statement is also vulnerable to fraud and risk as it involve cash receipts and giving away which may be manipulated in for committing fraud, further which can also be concealed from audit of these statements, And as the financial statements are prepared on the basis of certain level of materiality than it may also affect cash flows as well. (IFRS, 2015) Cash Flow from Financing Activity: In this area of cash flow statement finance related activities are taken into account that generally include issuance of shares and moment of other equity items, In relation to Britvic plc. This area of cash flow include, Cash flows from financing activities Finance costs Interest paid Interest bearing loans repaid Issue of shares Purchase of own shares Dividends paid to equity shareholders Net cash flows used in financing activities As preparation of cash flow statement is based on other financial statements therefor one should be aware about the estimates, materiality and professional judgments involved in these financial statements, (IASB, 2015) Further it is also evident from the study of financial statements of Britvic plc. That cash flow statement has been prepared in accordance with international financial reporting standards i.e. IFRS as all the requirements’ as per IFRS are fully complied, financial information presented in financial statements are sometimes presented just to fulfill regulatory requirements, not for the purpose of decision making where for this purpose some managements accounts are prepared separately. . (IASB, 2015) Intangible Assets: IAS 38 incorporate intangible assets but it does not include self-generated intangible like good will etc. as this area of financial statements also include estimates and some range of professional judgment e.g. in assessing useful life for the asset for the purpose of amortization. As for as financial statements of Britvic are concerned as its main business products are soft drinks therefor they would have a long range of intangibles which is clearly evident from financial statements of Britvic plc. As per statement of financial position of Britvic plc. The company has 317 £m of worth intangibles which is greater amount than property plant and equipment of the company, therefor it is important to critically analyze this fig so that users of financial statements may understand this in its true sense, (Bird, 2015) As per IAS 38 intangible should be recognized in the financial statements at fair value of consideration given and for an exchanged assets it depend upon the circumstances, but in books of account it is to be measured on historical cost basis or at revalued amount If we consider financial statement s of Britvic plc. Than it would be clear that the company has used historical costing method where assets in the books of accounts are presented as cost of asset less accumulated amortization, and at end this amount represent value of asset in the books which is also one of the recommended method of IFRS, (Averkamp, 2015) Here the problem arises when asset in books of company represent value which has no concern with market value and as result users of financial statements may be miss lead due to fact that market value of asset may be different which is usual, Further the estimate involved in these fig of financial statements are also judgmental as a lot of judgment and estimates are involved in them while assessing useful life and residual value, But this method is one of the recommended method as per IAS 38 therefor depending upon the user the base document for the decision would matter. Further these standards attempt to make financial statements more transparent as per IAS 38 where intangible are recognized as per standard criteria and majority of inbuilt assets like goodwill are not accounted for that can miss lead users of financial statements specially such user who know not that about financial statement (Analysis, 2015) IAS 16 Property Plant and Equipment: As the company is following international financial reporting standards for the purpose of recording assets in the statement of financial positions, where assets are to be recorded on historical cost basis, means cost of asset is recorded in the books as its cost along with cost incurred in bringing the asset to its intended condition as to be used by management, (Accounting-Simplified.com#sthash.TnYddvBy.dpuf, 2015) As for as Britvic’s financial statements are considered the cost of asset is 215 m £ which is comparatively a large amount there for users of financial statements need to be clear about this amount so that they can take an effective decision on the basis of these financial statements, For critical review of these statements we should be first aware of about these statement that how they are prepared and what the basis for these statement so that users decisions on the basis of these financial statement can be made more effective, as per IAS 16 cost of new asset is recorded along with all direct and indirect costs in bringing the asset to its intended condition not including the employees training and other cost that is not prescribed by IAS 16 as cost of asset, and then after estimates are made in deciding the useful life of the assets and the method to be adopted for the depreciation of the assets, and further deciding upon the estimated cost of dismantling, all these are some important factors that need to be consider before going for any decision on the basis of figs of PPE in the financial statement, (Accounting, 2015) After one has completed this task than the next step is the devising estimates for the depreciation and residual value that also need some sort of assessments and estimates or professional judgment, and one should be clear about the basis that how these estimates are made so that one can understand these figs in financial statements more comprehensively, as these estimates are revised after some period and then revised values are used in calculating carrying amount of the assets. Hence the users of financial statement need to be clear about the underlying judgment and estimates involved, otherwise it would not be that much effective in providing the concerned information, Further as the company is following the international financial reporting standards in preparing the financial statements there for these information follow a standardize format in comprehending the financial information. (Accounting), 2015) Conclusions: Financial statements are prepared on the basis of certain assumptions and estimates that need to be accounted for before going into decision making on the basis of these financial information, and one should be kept in mind that the type of decision is important factor for determining the type of information to be required, foe example for the decisions like take over than financial statement may not provide the complete information here you would need management accounts details but on the other hand for decisions like closing stock, amount of sales and other expenses it would need only financial statements . References Accounting), A. (., 2015. britvic plc.. [Online] Available at: http://www.britvic.com/about-us.aspx [Accessed 7 April 2015]. Accounting, I. t., 2015. Introduction to Accounting. [Online] Available at: http://accounting-simplified.com/financial/users-of-accounting-information.html [Accessed 6 May` 2015]. 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Katarina Zager, L. Z., 2015. THE ROLE OF FINANCIAL INFORMATION. THE ROLE OF FINANCIAL INFORMATION, p. 1. Kimmel, P. D., 2015. Accounting: Tools for Business Decision Making, Fifth EditionOct 10, 2012 | Kindle eBook. s.l.:s.n. Knight, K. B. a. J., 2015. Financial Intelligence, Revised Edition: A Managers Guide to Knowing What the Numbers Really Mean. In: Financial Intelligence, Revised Edition: A Managers Guide to Knowing What the Numbers Really Mean. s.l.:s.n. Martin S. Fridson (Author), F. A. (., 2015. Financial Statement Analysis: A Practitioners Guide, s.l.: s.n. page, B. P. -. l. t. h., 2014. Britvic PLC - link to home page. [Online] Available at: http://www.britvic.com/about-us.aspx [Accessed 7 April 2014]. Piper, M., 2015. Accounting Made Simple: Accounting. s.l.:Kindle Edition. plc., B., 2015. http://www.britvic.com/about-us.asp. [Online] Available at: http://www.britvic.com/investor-centre.aspx [Accessed 7 April 2015]. Pysh, S. B. a. P., n.d. 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