Financial Status of the Vodafone - Coursework Example

Financial status of the Vodafone Introduction Every business entity is required to prepare annual reports so as to communicate its financial status to the shareholders, to other interested parties as well as to the government. The preparation of annual reports by the company’s responsible board requires complying with various rules and regulations so as to satisfy the legal requirements of the nation. This paper deals with legal rules and regulations demanded by the jurisdictions of UK for the preparation of annual reports by a business entity. In this paper, Vodafone will be considered in order to study the rules and regulations followed by the company for the preparation of its annual report. Vodafone is a multinational organisation dealing in the telecommunication industry worldwide. About the Company, Vodafone Vodafone Group Plc is a British telecommunication company which operates in multiple nations worldwide. Headquarters of Vodafone is located in London, United Kingdom (UK). It is also considered as world’s largest mobile telecommunication organisation with respect to its generation of revenues (London Stock Exchange, 2011). The name Vodafone was derived from the ‘voice data fone’ which meant transferring the condition of voice and data through the help of mobile phones. Vodafone is listed in the London Stock Exchange and is counted among the constituents of FTSE 100 Index of UK. Its revenue earnings were recorded to be around £93 billion at the end of April in the year 2011. Based on its revenue, the company was remarked to be the fourth largest company amongst all the constituents of London Stock Exchange Index (London Stock Exchange, 2011). Every organisation is entitled to prepare annual report not only to satisfy the regulatory requirements but also to analyse its financial position as well as its growth in monetary terms. An annual report is considered as a comprehensive report that takes into account the various quantitative organisational activities and operations functioned throughout the preceding year. Annual reports are prepared by the organisation with an intention to provide its shareholders and other related and interested parties as well as the responsible legal bodies with needed information about its financial position and performance. Most of the nations’ jurisdictions require organisations to prepare and provide disclosure of its annual reports. A few legal prospective also demand the annual report to be filed at the organisational registry (Laidler & Donaghy, 1998). Rules and Regulations for Preparation of Annual Report for the Companies in UK The preparations of annual reports are not an easy task for any organisation. Every organisation is assigned to follow certain rules and regulations so as to satisfy the enquiries of the shareholders and other interested parties and as well as that of the government. Annual report is perceived to be quite important as it acts as one of the documented means of establishing trust among its customers, shareholders and other community members. It is worth mentioning that every nation has their own sets of rules and regulations ought to be followed by the companies while preparing their annual report (Laidler & Donaghy, 1998). Vodafone too has adopted a specific ‘code of conduct’ for the timely and understandable disclosure of the company’s financial results in accordance with the applicable disclosure standards (Vodafone, 2011). The company is listed in the London Stock Exchange according to the listing rules of the UK listing authority. It is very important and compulsory for the company to execute its accounting practices with accordance to Generally Accepted Accounting Principles (GAAP). The required informations needed to be disclosed by Vodafone as a listed company in the London Stock Exchange are briefly discussed below: Legal Requirements In UK, the law related to the disclosure of required information by company in its accounts is mentioned in the Companies Act 1989. Adding to this, a new Company Act was introduced recently that has been titled as Company Act 2006 where secondary legislation may be enacted by permission of Statutory Instruments (SI). While preparing annual reports, the company must stick to the legal format to prepare its accounting statements in accordance to the references from Companies Act 2006. The Act includes detailed conditions regarding the application of the basic accounting requirements (Laidler & Donaghy, 1998). The accounting norms prescribed by Companies Act differ for companies which are guest to the UK and for those which are the native companies in the economy. For instance, the directors of the company need to prepare a balance sheet and a profit and loss account that must consist of fair and accurate disclosures of its expenditures, earnings, reserves, assets and debts as mentioned under the Sec. 227 and Sec. 228 in case of guest companies in UK as mentioned in Company Act, 1989 (Laidler & Donaghy, 1998). But it is the Company Act 2006 which is being followed by the companies in their UK operations. Accordingly, the Vodafone, which is an UK based company, requires preparing consolidated balance sheets and profit and loss accounts concerning its financial position satisfying the requirements as mentioned in Article 4 of the IAS Regulation (Legislation.Gov,UK, 2011). Any information related to the financial status of Vodafone is mandatory to be recorded by the company according to the Company Act 2006, Sec. 386(3)a, which also includes the maintenance of entries on a daily basis. The company needs to maintain its annual report in a particular standard format as suggested by the Statutory Instruments (SI). According to the Sec. 386(3)b, a record of assets and liabilities of the company is compulsory to be mentioned (Legislation.Gov,UK, 2011) in the annual reports. Following the rules mentioned in the schedule, accounting principles such as consistency, prudence, accruals, going concern and separate determination should be adopted by the company (Laidler & Donaghy, 1998). The accounting policies adopted by the company for the preparation of balance sheets and profit and loss accounts must be mentioned in a note as stated in Schedule 4 of the legislation. The accounts must include a statement that its annual report is prepared with accordance to the applicable standards. Particulars must be provided in case of departure of any material from those standards as stated in the Article 4 of the IAS Regulation. It is worth mentioning that the Accounting Standards Board is responsible for dealing with the accounting standards as this board is nominated as the standard setting body of UK (SI 1990, no. 1667). Accounting Standards Accounting standards are the set of rules followed by the companies of various nations for the purpose of disclosure and measurement of financial transactions. They are formulated and executed by the Standard Setting Bodies with an intention of achieving the targeted level of standardization. In this context, Vodafone should follow specific accounting standards as prepared by the Accounting Standards Board (ASB) of UK and guided by the Company Act 2006, Sec. 386 which states that it is one of the most important duties of the companies to maintain accounting records. The accounting reports so maintained must be adequate in nature as stated by Company Act 2006, Sec. 386(1). According to the sec. 386(2), the adequate accounting records refer to those records which will be sufficient to draw the financial position of the company. So it becomes very essential for Vodafone to explicitly deliver the detailed report about its financial position (Legislation.Gov,UK, 2011). In the case of Vodafone, it can be observed that annual reports are prepared according to the legal standard and the disclosure of annual report complies with Disclosure and Transparency Rule 6.3.5. For instance, the Board of the company tends to assure that the annual report prepared is consolidated and strictly abides to the standards set by the International Financial Reporting Standard (IFRS) and as suggested by the International Accounting Standards Board (IASB). Vodafone’s annual report also provides with the ‘fair and true view’ in its balance sheet including assets and liabilities and also about profit and loss of the entity drawing a true picture about the financial position of the company (Financial Reporting Council, 2011; Vodafone, 2011). Conclusion It is mandatory for the companies operating in UK to provide with detailed information about its financial positions and doings. It is crucial not only from the legal point of view but also from the organisational point of view in order to ascertain the financial position of the shareholders, other interested parties as well as government who demand for the disclosure of annual report. It is in this context that Vodafone prepares its annual report with accordance to the legal rules and regulations implemented by the concerned regulatory bodies operating in the UK such as Accounting Standards Board (ASB), International Financial Reporting Standards (IFRS) and others. In Vodafone, the annual reports and accounts are specially designed targeting the shareholders and other providers of the capital (Vodafone, 2011). Therefore, the annual report of an organisation plays a very significant role in establishing trust among the groups of shareholders. Government take interest with the intention to determine the true information about the company’s real financial status as well as related activities. The interferences of the legal bodies in this context are with the intention to protect the shareholders’ rights. Furthermore, accurate annual reports or financial disclosures are also considered to evaluate the industrial progress of the economy to a considerable extent (Financial Reporting Council, 2011). References Financial Reporting Council, 2011. True and Fair. Home. [Online] Available at: http://www.frc.org.uk/about/trueandfair.cfm [Accessed October 21, 2011]. Laidler, J. & Donaghy, P., 1998. Understanding UK Annual Reports and Accounts: A Case Study Approach. Cengage Learning EMEA. Legislation.Gov,UK, 2011. Part 15. Companies Act 2006. [Online] Available at: http://www.legislation.gov.uk/ukpga/2006/46/section/386 [Accessed October 21, 2011]. London Stock Exchange, 2011. International Markets. Home. [Online] Available at: http://www.londonstockexchange.com/prices-and-markets/markets/prices.htm [Accessed October 21, 2011]. Vodafone, 2011. Introduction. Code of Ethics. [Online] Available at: http://www.vodafone.com/content/index/investors/management/governance/code_of_ethics.html [Accessed October 21, 2011]. Vodafone, 2011. Investors. About Vodafone. [Online] Available at: http://www.vodafone.com/content/index/investors.html [Accessed October 21, 2011]. Bibliography Department for Business Enterprise and Regulatory Reforms, 2008. Guidance for UK Companies on Accounting and Reporting. Requirements under the Companies Act 2006 and the Application of the IAS Regulation. Laidler, J. & Donaghy, P., 1998. Understanding UK Annual Reports and Accounts: A Case Study Approach. Cengage Learning EMEA. Stolowy, H. & Ding, Y., 2003. Regulatory Flexibility and Management Opportunism in the Choice of Alternative Accounting Standards: An Illustration Based On Large French Groups. The International Journal of Accounting, Vol: 38, pp. 195 – 213. Williams, C. A. & Conley, J. M., Triumph or Tragedy? The Curious Path of Corporate Disclosure Reform in the U.K. William & Mary Environmental Law and Policy Review, Vol: 31. Read More