The Financial Reporting of ITV plc - Case Study Example

Introduction Accounting is discipline whose worldwide repercussion reach the financial systems of nations across the globe that are need of a commonlanguage or conversion tools that allows different frameworks to converge into equal values. ITV a UK based firm is utilized in the case study of this report to illustrate understanding of principles, concepts and knowledge related to the topics of accounting standards, business law and regulations, and corporate social responsibility. The paper studies and analyzes the communication services industry and its operations in the United Kingdom with ITV plc as the company emphasized. Company Profile ITV plc is a company established in the United Kingdom in the communication & media industry. The company has captured and penetrated television market to the tone of becoming UK’s biggest commercial service broadcaster. Broadcasting companies such as ITV are highly dependent on advertising revenues. The company has various digital channels as well as a highly diversified programming offering for its clients in the UK and internationally. The internet business is a great opportunity to export the material of the station to other markets such as the North American market. ITV was created in 2003 after the merger of Carlton & Granada Corporations. The international production businesses of the company promise to be a source of future income which was created by the company’s ability to forecast the marketplace and make strategic moves to further enhance the multiple sources of renewable income a company in the television and media broadcasting business needs to be successful. In 2006 ITV obtained 2189 million euros in sales globally. The firm performed very well financially in comparison with the communication industry. In order to show the company’s achieved an financial ration analysis of the financial statements of ITV was performed and compared to the communication services industry SIC 4899. Appendix A shows a ratio analysis of ITV along with a comparative data from the performance of the communications industry. The company’s net margin in 2006 was over 10% which is extremely good considering the industry had a -1.6% net margin (Dun & Bradstreet, 2007). The return of assets of the company was 7.8% which is 10.2% higher than the industry median performance of -3%. The company’s debt to equity ratio is a bit higher than the industry, but considering the way ITV invested its capital the debt was put to good use. Compliance with the law The broadcasting communication services industry is a highly regulated business in that requires companies to keep up and comply with the stipulated laws created by the state. As the industry moves from analogue platforms to fully digital television and the effects of convergence are seen more regulatory requirements will soon follow. By the end of 2008 there all television stations must be fully digitalized in order to air their shows (Plunkett Research, 2007). ITV already has a fully digitalized channels, thus there are already complying with the coming regulations. ITV is a company fully integrated in the convergence age which has telecast of its shows through television, internet and mobile mediums. The UK government in order to let innovative companies such as ITV continue its business affairs created a short term resolution called Contract Right Renewal (CRR) remedies. CRR were utilized by this company when the merger between Carlton / Granada that created the new ITV was finalized. It allowed the new entity to continue its course of business complying with UK law and regulations. The company complies with current laws while keeping a sound corporate governance and business strategic approach which complies with the expectation of its shareholders. A four step process utilize by this company to achieve its goals follows the following path: Listen to the needs of the viewers Develop content based on feedback Deliver product through its digitalized channels Exploit other market opportunities (Annual Report: ITV, 2006). ITV is currently complying with the Communications Act of 2003 as required by law. This particular regulation is imposed by the biggest communication regulatory agency in the United Kingdom, Ofcom. Advertising is regulated by the Advertising Standards Board, the company did not received any bad reviews by the board during the audits performed in 2006. Compliance with accounting standards ITV plc operates in the United Kingdom and its stocks are openly traded in the London Stock Exchange (LSE). The company financial statements were prepared in 2006 according to the International Financial Reporting Standards in compliance with the 2005 EC regulation which order all public companies in Europe actively trading its stocks in a registered exchanged to prepare its financial statements according to IFRS. IFRS is an international initiative of the International Accounting Standards Board (IASB) to standardize the financial reports of companies around the globe. The first nation to get on board the project was the European Community (EC) in 2005. Other nations such as Canada are in the process of converting. IFRS differ from GAAP in its investment section requirements, formatting of statements, consolidation definition and valuation financial instruments among other things (Pwc, 2007). The financial statements of the company include an Independent’s Auditors Report prepared by a certified public accountant. All public companies around the globe are required by law to comply with this requirement which is a way to ensure that the company’s financial statement are not fraudulent and do not have any material errors. KPMG chartered accountants were responsible for the audit of the firm’s financial statements. The financial statements of the company which included a consolidated income statement, consolidated balance sheet and consolidated statement of cash flow complied with both the Companies Act of 1985 and Article 4 of the IAS Regulation. The ITV financial statement complied with the Companies Act of 1985 the last year of its validity, since next years financial statements of ITV and all other public companies in the United Kingdom must comply with the new Companies Act of 2006 if the financial statements are released prior to October of 2008 (Fleshcompliance, 2006). Article 5 of the IAS is a very practical law. It allows member states of the EC access to companies that would normally not be permitted to trade its shares in any European stock exchange entrance into EuroNext, London Stock Exchange or any other stock exchange in the European market as long as the consolidated financial statements of the company are prepared in conformity with IFRS (Maxa, 2006). Compliance with corporate responsibility The company released in 2006 a report called ITV plc Corporate Responsibility Report to summarize the different initiatives taken by the company regarding social responsibility. Competition and the expectations of the customer have transformed the position of corporation regarding the community and the citizens that support the products and services offered by a company. Enterprises are now expected to serve a good social function and take into consideration the impact decision have on the general community. For example in a manufacturing industry a company must reinvest its processes to ensure no polluting agents affect the ecosystem in which a company is located. As a business dedicated to broadcasting programmers one of the focal points in the company’s social responsibility strategy is to offer programming that is not offensive to the public and that the overall offering of programming include topics related to social and environmental issues to raise awareness among the television, online and mobile audience. Social cohesion is an objective of the company, ITV ensures minorities are properly represented on-screen in its programming (Corporate Social Responsibility Report: ITV, 2006). Part of any good corporate social responsibility strategy includes operating procedures design to protect the environment. ITV closely monitors the amount of energy used in its operation constantly looking for way to reduce overall consumption, recycling programs are used by the company and the materials purchased by the company are being screened in order to support green product initiatives. Many social issues are touched in the original television series created by the company such as illnesses, teenage pregnancy, environmental damage caused by humans and the importance of education in young people’s lives. The company gets involved and with the community and helps out in noble cause by donating free air time to worthy initiatives such as the event that took place on September 17, 2006 called Clean up the World Weekend. This event was a television show to encourage people especially the youth to go out into their community and clean up the parks, forest and other lands across the country (Corporate Social Responsibility Report: ITV, 2006). During this innovative campaign ITV developed a special guide for its viewers to teach people how to select and purchased products utilized on a daily basis to start purchasing green version of the same products from companies with green product offerings. Other institutions doing good deeds that were supported by ITV as part of corporate social responsibility strategy are UNICEF, an organization dedicated to fighting children’s hunger and aids worldwide. Conclusion In a new world order in which technology has taken over our everyday lives and the effect of new economy era dominated by high speed internet access and the convergence of media medium into a single channel ITV has fully adapted to the changes in the marketplace. The UK broadcasting company has been able to diversify its offering into all there major platforms: television, internet and mobile. Mobile been the new hottest trend in communication for which ITV already launch its firms mobile channel with its original content been transmitted via 3G mobile networks. The company is complying with all accounting regulation imposed by the IASB and its IFRS impositions that must be followed in its preparation of financial statements. The company’s financial results illustrate a company that is doing much better than the industry with a high profitability of a 10% net margin. The company has been complying will all laws and regulation of the state. Its corporate social responsibility strategy is excellent. Compliance with laws, regulations and consumer expectations is extremely important at all levels. This company is a great model of how a firm should operate in any industry. ITV has a long term vision of the future which has ensure the success of this enterprise for years to come. References Annual Report: ITV (2006). Available from [Accessed 4 January 2008]. Dun & Bradstreet (2007). Communication Industry Business Ratios. Available from [Accessed 5 January 2008]. Corporate Social Responsibility Report: ITV (2006). Available from [Accessed 5 January 2008]. Fleshfields.com (2006). Company Act 2006. Available from [Accessed 6 January 2008]. Maxa, M (2006). Free movement of capital, company law and corporate governance. European Commission. Available from [Accessed 4 January 2008]. Plunkett Research (2007). Communication Industry Trends. Available from [Accessed 3 January 2008]. Pwc.com (2007). Similarities and Differences: A comparison of International Financial Reporting Standards, US GAAP, and Canadian GAAP for Investment Funds. PriceWaterHouseCoopers. Available from [Accessed 5 January 2008]. Appendix A: ITV Financial Ratio analysis with industry SIC 4899 comparison Financial Ratio ITV plc SIC 4899 Current Ratio 1.41 1.3 Debt to Equity 0.93 0.492 Net Margin 10% -1.40% ROA 7.82% -3% ROE 7.02% -6.20% Sales / Inventory 16.52 22.4 (Dun & Bradstreet, 2007). (Annual Report: ITV, 2006). Read More