Financial Reporting

Financial Reporting


Dilip. S. Patil Finance Manager, Padmabhushan Krantiveer Dr. Nagnathanna Naikawadi Hutatma Kisan Ahir S. S. K. Ltd.

Management practices with professional approach tend to improve the financial performance of sugar factories by implementing some innovative practices to reduce the controllable cost and generating additional revenues.” Keywords: Financial statements, Analysis, Ratio analysis, Variance analysis Introduction The basis for financial analysis, planning and decision making reflects in scientific analytical financial statement which mainly consists of Balance Sheet and Profit & Loss account of a sugar factory.

Financial statements provide information about an entity’s

  1. Assets
  2. Equity & Liabilities
  • Income and expenses, including gains and losses
  1. Cash flows.

Financial ReportingSignificance of Analysis of Financial Statements Financial analysis is useful and significant to different users in the following ways:

(a) Finance Manager: Financial analysis techniques enable the finance manager to make constant reviews of the actual financial operations of the sugar factory for analyzing the causes of major deviations, which may help in taking corrective action.

(b) Top Management: Financial analysis helps the Top Management in measuring the success of the company’s operations, appraising the individual’s performance and evaluating the system of internal control.

(c) Trade Payables: The traders are particularly interested in sugar factory’s ability to meet their claims over a very short period of time, which evaluate factory’s liquidity position.

(d) Lenders: Banks and Financial Institutions are concerned about the sugar factory’s long term solvency and survival. They analyze the historical financial statements to assess its future solvency and profitability.

(e) Investors: Investors, who have invested their money in the sugar factory’s shares, are interested in the sugar factory’s earnings and present and future profitability to ascertain its effects on sugar factory’s earning. 2

(f) Others: Economists, Researchers, Government etc., analyze the financial statements to study the economic conditions for price regulations, taxation and other similar purposes.

Tools of Analysis of Financial Statements The most commonly used techniques of financial analysis are as follows:

  1. A) Comparative Statements: The comparative Profit & Loss account gives an idea of the progress of business over a period of time. This analysis is also known as ‘horizontal analysis or Intra sugar factory analysis. Horizontal analysis compares each item with an item for a selected base year.
  2. B) Common Size Statements: The common size statements analysis compares each item with a base item of two different factories to realize where we actually stand as compared to other sugar factories and what the exact reasons of deviation are.



Our goal is to support WBG teams and clients in addressing two key policy areas:

  1. a) Building effective systems of corporate financial reporting and auditing

Transparent corporate financial reporting and effective audit practices are essential to protect the interests of investors, creditors, employees, public authorities, and other stakeholders and enable them to make informed decisions. They are critical for the integrity of financial markets, help develop access to finance for local enterprises (particularly SMEs), and contribute to a better business climate, furthering the integration of local companies in the world economy. They also contribute to financial stability by supporting a reliable information infrastructure for banks and other lenders.  The quality of corporate financial  reporting  and  audit practices depends primarily on the robustness of the institutional environment supporting them.

  1. b) Improving the governance of SOEs

In many partner countries, the SOE sector provides essential goods and services to citizens and local businesses and are a significant source of employment as well as productive investment (or GDP).  When SOEs have low accountability, poor controls, ineffective boards and inadequate governance, they tend to perform poorly in delivering goods and services to citizens, create space for political patronage and corruption, and can pose a serious fiscal risk to the country. Improving SOE governance is a complex process involving a multi-pronged approach to strengthen transparency and controls; promote active and effective boards.

A multidisciplinary group

The GSG combines the experience and skills of specialists in financial management, corporate reporting, public sector reform, procurement and fiscal risks.  We aim to bring together all the Bank’s global experience on the management and infrastructure of corporate entities (including SOEs) to provide a source of knowledge, advice, tools and relevant training for teams and clients.

Our support takes the form of:

  1. a) Just-in-time support, policy and capacity building advice to clients or country/task teams;
  2. b) Knowledge activities and global learning programs for clients and staff; and
  3. c) Training staff to use diagnostic tools and tackle complex governance issues.


The 3 main advantaged of single set of international accounting standards are

  • An increased comparability between firms, which reduces investor risk and facilitates cross broader, financing and investment
  • a reduction in the cost of preparing consolidated financial statements for multi-functional firms
  • improved reliability and credibility of financial reports

Once the business has identified its stakeholders and their importance to the business, it can begin to plan based on their needs and expectations. Each stakeholder has concerns that it expects to be met by the business. For example, the business’s owners expect it to be profitable and to distribute that profit to them while local and federal government agencies expect it to obey the law and pay its taxes on time.


The impact of stakeholder needs and expectations on businesses is inescapable and ubiquitous. Businesses exist to meet the expectations of one specific stakeholder in the sense that businesses are set up and operated to produce profit for their owners and investors. Businesses also must consider the needs and expectations of other stakeholders because of their ability to help and hinder their operations. For example, a business should be considerate of its host communities because that improves its reputation and strengthens its market presence. On the other hand, if the business chooses to ignore its host communities, that disregard becomes a black mark on its reputation and can result in other sanctions if relations become bad enough.

The general form of P&L report starts with the revenue entry, from which the operative expense, salary, depreciation expense, interest expense and other expenses are being subtracted in order to compute the net earnings in the end. The net earnings are presented as an absolute value, and also as the division of net earnings by the number of shares outstanding (earnings per share). Both horizontal and vertical analysis can be applied to the income statement.

Basic elements of the profit and loss report are:

  1. 1. Revenue (Net Sales). This entry represents the value of goods or services a company has sold to its customers. Commonly sales are presented net of different discounts, returns, etc.
  2. Cost of Goods Sold. This element measures the total amount of expenses, related to the product creation process, including the cost of materials, labor, etc. Costs of goods sold include direct costs and overhead costs. Direct costs (materials; parts of product purchased for its construction; items, purchased for resale,
  3. Gross Profit. Gross profit is net revenue excluding costs of goods sold.
  4. Operating Expenses. Operating expenses include selling and administrative expenses. Selling are the expenses, which relate to the process of generating sales by a company, including miscellaneous advertisement expenses, sales commission, etc.
  5. Operating Income. Operating income is gross profit excluding operating expenses.
  6. Other income or expense. This entry contains all the other income or expense values that weren’t included to any of the previous entries. It may be dividends, interest income, interest expense, net losses on derivatives, etc.
  7. Income Before Income Taxes. Income before income taxes is operating income including (or excluding) other income or expense.


Fixed assets turnover ratio :Net sales /fixed assets


= 1.117

Working capital turnover ratio : Net sales / net working capital

=          1050-510

*networking capital = current assets

–                           = 5.2

Current liabilities
Current assets turnover ratio = net sales /current assets

= 2860/1050


Capital turnover ratio : Net sales /capital employed

= 2860/3100

=   0.922


The first three steps involving the work of the accountant in the accumulation and summarization of financial and operating data as well as in the construction of financial statements are:

(I) Analysis of each transaction to determine the accounts to be debited and credited and the measurement and variation of each transaction to determine the amounts involved.

(ii) Recording of the information in the journals, summarization in ledgers and preparation of a worksheet.

(iii) Preparation of financial statements.

The fourth step of accounting, the analysis and interpretation of financial statements, results in the presentation of information that aids the business managers, investors and creditors.



Performance assessment of the sugar industry and setting targets for the relatively inefficient mills to improve their efficiency and productivity is crucial, as the interests of various stakeholders are largely dependent on its performance. This paper, therefore, attempts to assess the performance of the sugar mills of Uttar Pradesh, the largest sugarcane producing state of India. Data envelopment analysis models have been applied on the input-output data of 36 sugar mills for the period 1996-97 to 2002-03. The paper finds that during the period, the average overall technical efficiency (OTE) in the sugar mills of the State has been 93 per cent. This implies that an average mill can make radial reduction in all its inputs by 7 per cent without detriment to its output levels. The OTE shows a cyclical pattern mainly due to fluctuations in the scale efficiency. The performance of the mills is found to vary significantly across sector, plant size, and region.

The private sector mills achieve the highest efficiency scores, followed by the cooperative sector. It has also been observed that the mills with bigger plant size attain relatively higher efficiency scores. Moreover, the mills located in the WR are found better performer as compared to their counterparts of other regions. Labor and energy inputs are found highly underutilized in almost all the inefficient mills. Targets set for relatively inefficient mills suggest that on average, these mills can become as efficient as the mills in their reference set, if they could adjust their operation to the associated target point determined by the efficient mills that define their reference set.

(e) Investors:Investors, who have invested their money in the sugar factory’s shares, are

interested in the sugar factory’s earnings and present and future profitability to ascertain its

effects on sugar factory’s earning.


Facilitates Ethics Compliance

In a utopia, every business in the world would operate with a firm standard of behavior that customers could admire but the world isn’t perfect, and neither is the ethics employed by some company owners. This speaks to the importance of international accounting standards because countries around the world have different cultures and practices. For example, in some developing countries, paying others bribes and providing financial incentives is an accepted way of doing business. In other countries, however, even the hint of this kind of impropriety can lead to fines and even a jail sentence. The importance of international accounting standards in these cases can’t be overstated. By having a uniform code of accounting standards, it evens the playing field and allows business owners in different parts of the world to adhere to the same guidelines.

Improves International Investment

You can’t talk about the scope and importance of international accounting without mentioning the benefits of accounting standards when it comes to investment. Investors and other stakeholders find it more convenient to compare their business performance with other international companies. This makes it easier and cheaper for them to raise business capital from investors across the globe. The IASB allows you to review financial documents from foreign companies that you may want to invest in or at least establish relations with because you are all working under the same set of accounting principles. That means that regardless of where the foreign company is based, you will have reliable accounting information that was prepared using uniform methods.

Sets Generalized Standards

The IFRS stipulations are flexible enough to account for expected and unexpected changes in the global business environment because they are based on broad principles. With the rapid evolution of ecommerce, the opportunities for businesses around the globe to work with each other have never been greater. As a result, the scope and importance of international accounting necessitates general standards that are applicable and accommodative to varying jurisdictional circumstances and traditions, with minimal IASB intervention. For example, the IASB does not recommend any specific formats for preparing financial statements.


Standard IFRS Requirements

IFRS covers a wide range of accounting activities. There are certain aspects of business practice for which IFRS set mandatory rules.

  • Statement of Financial Position: This is also known as a balance sheet. IFRS influences the ways in which the components of a balance sheet are reported.
  • Statement of Comprehensive Income: This can take the form of one statement, or it can be separated into a profit and loss statement and a statement of other income, including property and equipment.
  • Statement of Changes in Equity: Also known as a statement of retained earnings, this documents the company’s change in earnings or profit for the given financial period.
  • Statement of Cash Flow: This report summarizes the company’s financial transactions in the given period, separating cash flow into Operations, Investing, and Financing.

In addition to these basic reports, a company must also give a summary of its accounting policies. The full report is often seen side by side with the previous report, to show the changes in profit and loss. A parent company must create separate account reports for each of its subsidiary companies.

experience, and competence.


There are several steps required to build a three statement model, including:

  1. Input the historical financial information into Excel
  2. Determine the assumptions that will drive the forecast
  3. Forecast the income statement
  4. Forecast capital assets
  5. Forecast financing activity
  6. Forecast the balance sheet
  7. Complete the cash flow statement


1 Legitimacy theory The legitimacy theory has been widely discussed, and some authors have defined it, such man (1995: 574) has examined several definitions of legitimacy, since 1960 and adopt this: “Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions”. Those external perceptions about companies could be ways by the management of corporate disclosure policies (Deegan, 2002). Then the companies could have a strategy legitimacy and choice and change their legitimacy status and consequently the external perceptions (Alerts and Cormier, 2009). Normally the legitimacy theory is used to explain social and environmental reports disclosure. But the legitimacy theory can be used in corporate report, suggested by Woodward et al. (1996), as one possible legitimacy/accountability reporting framework, to communicate with the shareholders and clarify the importance of this relationship. 5 Tsang (2001) has concluded that the organizational legitimacy is a useful concept to explain corporate report behavior.


  • CAPITAL MARKET: The literature points to several factors affecting how an accounting system develops and is shaped that could be grouped under “capital market” as a common denominator

1 . Namely, although fundamentally different financing systems are involved, in this case the term “capital market” encompasses both the level of development of financial instruments and the globalization level of a given capital market.


In explaining the preceding factor, we have explained its influence on financial reporting. On the other hand, considering a financial reporting system in the context of individual influential factor primarily implies the existence of singular or dual, that is, separate or joint reporting for business and taxation needs.


The previously described influential factor implies an understanding of the legal system as a factor in how an accounting system is created and how it operates. The legal systems of most countries can be classified as systems marked by strict adherence to laws and regulations (Code law; legalistic; Roman law) (Saudagaran, 2004, 7; Mueller, Gernon, Meek, 1987, 13; Choi, Mueller, 1992, 40; Buchanan, 2003, 66 – 67), or as systems in which common law (Common law; non – legalistic) is predominant (Saudagaran, 2004, 7; Mueller, Gernon, Meek, 1987, 13; Choi, Mueller, 1992, 40; Buchanan, 2003, 66 – 67).


The political system as an influential factor is often mentioned in the literature under the term of colonial inheritance (Nobes, 1998, 170) and as such, it is considered a major influential factor of accounting systems and reporting systems alike. The impact of this factor is also evident through history, with invading countries imposing their political, as well as their accounting system on the countries they have conquered and colonized. It is also a fact that many countries, upon gaining independence, have continued to use the same political and accounting system even though it no longer suits their current needs and economic situation, whereas others have opted for a different political and accounting system

4 . The influence of a political system is reflected in the strong effect of other cultures on certain countries because of their size (small), low level of their development or their previous colonial status.


In the literature, the quality of education in the field of accounting is often referred to as a factor in the development and design of an accounting system. Various authors agree that this factor, if lacking, can represent a constraining factor in accounting system development

While the quality of accounting education is directly influenced by a society’s general level of knowledge, it is also affected by other factors such as the status of the accounting profession in a country, the level of economic development, economic relations with other countries, and so on. Accordingly, accounting will not be more than average in countries in which the general level of knowledge is low. Bringing in accountants from advanced countries or sending accounting professionals to advanced countries for education is not a perfect solution because advanced countries may not have or do not have the same accounting system as less developed countries.


In the literature, the influences of these factors are explained mostly together and in a very similar manner, based on the assumption that larger business enterprises also constitute systems that are more complex. According to one opinion, it is highly likely that the level of economic development a country has achieved will affect the number and size of business enterprises operating in that country (Saudagaran, 2004, 6). As this means that large business enterprises prevail in more developed countries, and small enterprises, in developing countries, the accounting system of developed countries with complex forms of business enterprises will differ from the accounting system of developing countries.


An economy’s level of inflation can also be considered in the context of its influence on a country’s accounting system, in particular because it affects the asset valuation method and because, in conditions of high inflation, it is essential to have an accounting system suited to inflationary conditions. For example, countries such as the U.S. or Great Britain (Saudagaran, 2004, 8) in which inflation levels are mostly under control apply the historical cost method for the needs of financial reporting. This method, however, cannot be fully applied in countries such as Bolivia or Mexico (Saudagaran, 2004, 8), which have had or do have a high rate of inflation.


The accounting systems of countries differ not only by accounting regulations but also by the degree to which current accounting regulations are applied in practice. This factor can be viewed as being a continuation of the influence of the political and legal systems, as well as the way in which a country has set up its accounting regulations. Accordingly, deviations between accounting regulations and accounting practice in a country will depend upon its degree of application assistance and degree of application control, that is, upon its power of enforcement.


The influence of the achieved level of economic development on an accounting system is also evident in some of the influential factors depicted above. Undoubtedly, the development of an accounting system is conditioned by a country’s economic development, that is, by the level of economic development it has reached. Considering that most of the world can be divided into the rich and the poor, countries can also be divided as “accounting “have” and “have nots” nations” (Mueller, Gernon, Meek, 1987, 15). In addition to a powerful economy, developed countries are also marked by a diversity of economic – and, in turn, financial – activities. Stockholders prevail in the ownership structure of capital; securities markets are present and operating. Earlier it was mentioned, when explaining the influence of the size and complexity of business enterprises, that a country’s level of economic development also affects these attributes.


In addition to knowing a country’s legal, political or financing system, it is also necessary to know something about its culture in order to better understand the country’s differences and its accounting practice. Even when financial reports are comprehensible to users with regard to language, monetary unit or the accounting principles applied, culture should be considered as a factor that affects the development of an accounting system. The assertion that culture is interrelated with the environment and that it is, at the same time, affected by other influential factors is the likely reason of its rarely mentioning in the literature as an influential factor. Nonetheless, the influence of culture is considered and mentioned in several articles and studies6 .


The diversity of accounting systems’ models of development and functioning is the result of the diversity of business environments around the world. The fact is that accounting, as a social science, is interrelated with its environment and, therefore, exceptionally susceptible to influences from this environment, with the similarities and differences in business environments being manifested in the similarities and differences of accounting systems. The relevant literature lists and describes the individual influential factors, seeking in this way to justify or refute their effects, rather than to quantifiably prove their influence, or to look for interdependence, for the purpose of explaining the differences in the accounting systems of countries. The intensity of accounting differences at the international level will also depend upon the intensity of dissimilarity of influential factors among countries.


  1. Costs-benefits of adoption of IFRS’s in countries with different harmonisation histories.

Dennis W.Taylor, Asian review of Accounting, 2013

  1. Investment analysts perception of disclosure in UK interim financial reports

Must Magena et al., a journal of Applied Accounting Research,,2013

  1. The conceptual underwear of financial reporting Michael Page et al., Account, Aud& Journal, 2012
  2. Financial statements and corporate accounts, conceptual framework

Timothy Eccles, Property management, 2013

  1. Classification of profit-sharing investment accounts: A survey of financial statements of Islamic banks in Asia Aprilia Beta Saundi, International journal of Islamic and Middle Eastern Finance and Management, 2017



  1. Agarwal N.P., “Analysis of Financial Statements”– National Publishing House, 23 Darya Ganj, New Delhi , 1981.
  2. Choudhary B. Roy, “Working Capital Management” – Eastern Law House, Calcutta, 1977.
  3. Dobrovolsky S.P., “The Economics of Corporate Finance” -Tata Mcgrew Hill, New Delhi, 1976.
  4. Fregmen J.M., “Accounting for Managerial Analysis” – Homewood, Irwin, 1972.
  5. Ghosh P.K. and Gupta S.C., “Fundamental of Management Accounting” – National Publishing House, New Delhi, 2nd Ed., 1979.
  6. GitmanL.J.,Harper and Row, “Principles of Managerial Finance” – New York, 1979.
  7. Gupta L.C., “Corporate Management and Accountability towards a Joint Sector – Macmillan, Madras, 1974.
  8. Gupta P.K., “Principles and Practice of Cost Accounting” – Agra Book Store, Agra, 1974.
  9. Hingorani N.L. and Ramnathan A.R., “Management Accounting” – Sulthan Chand & Sons, Delhi, 1973.
  10. Horngren C.T., “Accounting for Management Control”- Englewood Cliffs, Prentice Hall, 1978.
  11. Joy O.M., “Introduction to Financial Management” – Homewood, Irwin, 1977.
  12. Kuchcl S.C., “Corporate Finance – Principles and Problems” – Chaitanya Publishing House, Allahabad, 2nd Edn. 1976.
  13. Lav.B., “Financial Statement Analysis – A New Approach” – Englewood, Cliffs, Prentice Hall, 1974.
  14. Lee C.A., “Modern Financial Accounting”– Thomas Nelson and Sons Ltd., Londan, 2nd Edn. 1975.
  15. Levy H. and Sarnat, “Capital Investment and Financial Decisions” – Englewood, Cliffs, Prentice Hall, 1978.

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