ATHE Level 7 Financial Reporting Assignment: Ethics & Group Statements Case Guide

ATHE Level 7 Introduction

Corporate reporting, particularly the strategic report, provides a communication channel between a company and its stakeholders, offering a holistic view of its business model, strategy, risks, and future prospects. This communication includes both financial and non-financial data, aiming for transparency, equity, and accountability. It’s a crucial tool for strategic business decisions, influencing how stakeholders perceive and engage with the company

ATHE Level 7 Assignment: Task 1

You have decided to prepare a resource guide for distribution to trainee accountants working in the firm. The guide will focus on fundamental ethical and professional principles in relation to accounting standards and corporate reporting and the appropriateness of the financial reporting framework. The resource guide must

• Explain the importance of professional behaviour and compliance with accounting standards.

Professional behaviour and compliance with accounting standards are crucial for maintaining trust, ensuring transparency, and promoting ethical practices within the accounting profession. They safeguard the integrity of financial information, prevent fraud, and uphold the profession’s reputation, ultimately benefitting businesses, investors, and the public.

Importance of Professional Behaviour:

• Ethical Conduct: Accountants are expected to adhere to ethical standards like honesty, integrity, and objectivity, which are fundamental for building trust and credibility.
• Public Interest: Professional behaviour requires acting in the public interest, even when it conflicts with personal or organizational interests.
• Maintaining Reputation: Dishonest or unprofessional conduct can damage the profession’s reputation and erode public confidence in financial reporting.
• Preventing Fraud: Ethical conduct and professional judgment help prevent financial fraud and ensure the accuracy of financial statements.
• Confidentiality: Maintaining client confidentiality is a key aspect of professional behaviour, protecting sensitive information and building client trust.
• Compliance with Laws and Regulations: Professional accountants must comply with relevant laws and regulations to ensure legal compliance and avoid discrediting the profession.

Importance of Compliance with Accounting Standards:

• Consistency and Comparability: Accounting standards ensure that financial statements are prepared in a consistent manner, making it easier to compare different organizations and assess their performance.
• Transparency and Accuracy: Compliance with standards promotes transparency and accuracy in financial reporting, allowing stakeholders to make informed decisions.
• Building Stakeholder Confidence: Accurate and reliable financial information based on accounting standards builds confidence among investors, creditors, and other stakeholders.
• Preventing Fraud: Accounting standards provide a framework for identifying and preventing fraudulent financial reporting practices.
• Efficient Markets: Compliance with accounting standards contributes to efficient and well-functioning financial markets.
• Regulatory Compliance: Organizations are often required to adhere to accounting standards as part of legal and regulatory requirements.

In essence, professional behaviour and compliance with accounting standards are intertwined, both essential for maintaining the integrity and credibility of the profession and promoting ethical practices that benefit all stakeholders.

Figure 1 Professional code of ethics

Figure 2 Professional ethics

• Analyse ethical requirements of corporate reporting.

Objectivity: Objectivity is key for accountants to remain impartial and unbiased. They should avoid conflicts of interest and not let personal biases influence their professional decisions, ensuring fair and unbiased financial reporting.

Ethics in accounting is the foundation of trust in financial reporting. It ensures transparency, accuracy, and integrity, preventing fraud and conflicts of interest. By adhering to ethical principles and regulations, accountants protect stakeholder confidence and uphold the business credibility.

Key Ethical Requirements in Corporate Reporting:

• Accuracy and Completeness: Financial statements should reflect the true and fair view of a company’s financial position, including all relevant information.
• Transparency: Companies should be open and honest about their operations, including information about their risks, performance, and non-financial activities.
• Objectivity: Reporting should be impartial and free from bias, ensuring that stakeholders have a reliable and balanced view of the company.
• Professional Competence: Individuals involved in corporate reporting should possess the necessary skills, knowledge, and experience to prepare and audit financial statements.
• Compliance with Regulations: Companies must adhere to all applicable accounting standards, laws, and regulations related to financial reporting.
• Confidentiality: While transparency is important, companies should also protect confidential information, such as trade secrets, while complying with reporting requirements.
• Sustainability and Corporate Social Responsibility (CSR): In addition to financial reporting, companies are increasingly expected to disclose information about their environmental, social, and governance (ESG) performance, promoting sustainability and social responsibility.
• Stakeholder Engagement: Companies should consider the information needs of their various stakeholders, including investors, employees, customers, and the public, when developing their corporate reporting practices.
• Integrity: Ethical reporting requires a commitment to honesty, honesty, and fairness in all financial reporting practices.
• Accountability: Companies should be held accountable for their financial reporting, ensuring that their reports are accurate and reliable.
• Assess the applications of the financial reporting framework.

Financial reporting standards address such a challenge by creating accounting standards which ensure that both companies record similar transactions in a similar manner. For example, the standards might require that both companies create an asset on the balance sheet.

The applications of a financial reporting framework extend across various business contexts, from setting high standards for corporate governance and reporting to ensuring the quality of financial statements and helping businesses make informed strategic decisions. These frameworks guide the preparation and presentation of financial information, ensuring it is useful for investors, lenders, and other stakeholders.

Elaboration:

1. Setting Standards and Promoting Quality: Financial reporting frameworks, like those established by the Financial Reporting Council (FRC) in the UK, are designed to set high standards for corporate governance, reporting, and audit practices. This includes promoting the quality of corporate reporting and ensuring accuracy and reliability in financial statements.
2. Guidance for Financial Statement Preparation: These frameworks provide a structured approach for entities to prepare their financial statements, including the balance sheet, income statement, and statement of cash flows. They outline the applicable standards and reporting requirements, helping entities determine which framework to use based on factors like their size, type, and the needs of users.
3. Support for Strategic Decision-Making: Financial reports, prepared within a recognized framework, provide valuable information for businesses to analyze their performance, identify strengths and weaknesses, and make informed strategic decisions. This includes using performance analysis and benchmarking to evaluate business performance and identify areas for improvement.
4. Ensuring Compliance and Transparency: Frameworks like the Conceptual Framework for Financial Reporting provide a foundation for the development and application of accounting standards, ensuring that financial statements are prepared in a consistent and transparent manner. This helps to build trust among stakeholders and promotes responsible business practices.
5. Applications Across Different Sectors: Financial reporting frameworks are applicable to a wide range of entities, including public companies, private businesses, not-for-profit organizations, and schools. For example, the Consistent Financial Reporting (CFR) framework is used by schools to collect and report on their income and expenditure.
6. Evolution and Updates: Accounting standards and frameworks are regularly updated and reviewed to address evolving business environments and emerging issues. The FRC, for example, periodically revises its standards in response to particular issues or through regular reviews, ensuring that frameworks remain relevant and effective.

• Analyse the strengths and weaknesses of the financial reporting framework

The ACCA financial reporting framework, primarily based on IFRS, offers the strength of globally standardized accounting, promoting comparability and transparency. However, it also faces challenges like complexity, potential for manipulation, and the need for specific industry knowledge.

Strengths:

• Global Standardization: IFRS ensures a consistent approach to accounting across different countries, making financial statements more comparable and easier to understand for international investors.
• Enhanced Transparency: IFRS standards provide detailed disclosures, improving transparency and accountability for companies.
• Focus on Relevance and Faithful Representation: The Conceptual Framework, which underlies IFRS, emphasizes the need for financial information that is relevant, reliable, and faithfully represents the economic reality of a business.
• Clear and Concise Reporting: IFRS standards are designed to be clear and concise, making it easier for users to understand and interpret financial statements.

Weaknesses:

• Complexity: The sheer number of IFRS standards and the complexity of some of them can be a challenge for preparers and auditors, potentially leading to errors.
• Potential for Manipulation: IFRS standards offer some flexibility, which can be exploited by companies to manage earnings or distort financial performance.
• Need for Specific Industry Knowledge: Some IFRS standards are more relevant to specific industries, requiring preparers and auditors to have industry-specific knowledge.
• Lack of Clear Guidance in Emerging Areas: In areas like cryptocurrencies or environmental reporting, there is a lack of definitive accounting standards, leading to inconsistent or incorrect valuations or disclosures.
• Cost of Compliance: Implementing IFRS standards can be expensive, particularly for smaller companies, due to the need for training and system updates.

In summary, the ACCA financial reporting framework offers significant benefits in terms of global comparability and transparency. However, its complexity, potential for manipulation, and the need for specific industry knowledge require careful consideration by preparers and auditors.

Merit

Task To achieve a Merit, your resource guide must compare and contrast the reporting of financial performance of different entities. LO2 2M1

ATHE Level 7 Assignment: Task 2

You have decided to prepare a practical business case study showing how to prepare financial statements for groups of entities. You should explain how the financial statements have been prepared and show workings for all of your calculations. Your case study must include: Prepared group accounts:

• including statements of cash flows.
• incorporating associates and joint arrangements.
• involving changes in group structures.

LO3 AC 3.1, 3.3, 3.3

Merit Task To achieve a Merit your case study must analyse the accounting requirements that relate to foreign transactions and entities.

LO3 3M1 Distinction Task To achieve a Distinction your case study must evaluate the need to prepare detailed financial statements when changes in a group structure occur. LO3 3D1

ATHE Level 7 Assignment: Task 3

For the final section of the portfolio, you have decided to provide an example of a report you would send to a client who has asked you to interpret financial statements and make justified recommendations for their business stakeholders Your report must:

• Interpret financial statements using ratio analysis.
• Make justified recommendations based on financial statement integration.