LO1 Understand the regulatory framework for financial reporting

Introduction
This assignment will show the importance of a financial report, who needs to know what and why from the John Lewis financial statement.
It will also explain what legislation and regulation that influence the preparation of the financial statement and how.
Types of financial statements are
1. Balance sheet – This shows the assets, liabilities and equity
2. Profit and Loss Account – shows the profit and loss of the business.
3. Cash flow – Tells you where the money came from and how it is being spent.

(1.1) There are many users of a financial report and their needs vary. Examples of users are:
Managers
Shareholders
Customers
Prospective investors
Employees

(kfknowledgebank.kaplan.co.uk)

Managers
The managers will need the profit and loss account information to help them understand the needs of the business. Managers generally want to know where the business stands against itself in previous reports and rival companies.

2014(£m) 2013 (£m)
Profit Before Partnership Bonus and Tax 239.1 343.3
Partnership Bonus (202.5) 210.8
Profit Before Tax 126.6 132.5
Taxation
(25.0) (31.5)
Profit for The Year 101.6 101.0

*You can see the income statement for Net Profit between the years 2013-2014 shows a decrease in profit before tax although after taxation they are up by 0.6.
With this information managers are able to manage the company’s affairs by assessing financial performance in order to make the correct business decisions. Do they need to stop taking risks or maybe start making some investments? Although the sales are up from £9,541m in 2013 to £10,171m in 2014 a loss of £5.9m was still made but after tax has been deducted their profit is actually on par with the previous year. A more detailed analysis should be done to figure out where the problem lies.

Shareholders
Share holders want to see what their return on their investment would be, if any. They would want to know if the business is making a profit. To find this information they would analyze the profit and loss account to see if the business is consistent in making profit. Would it be a risk to invest again? It would be helpful to look at the current profit and loss account and comparing it to previous years, this would give a good indication of the progression of the business. Other information that could be useful to shareholders or possible shareholders can be found on the balance sheet extract below.

Equity
2014(£m)
2013 (£m)
Share Capital
0.6
0.6
Other Reserves
0.8
10.3
Retained earnings
1,780.3
1,890.6
Total Equity
1,781.7
1,901.5

With the information provided we can see the money that was made on collective shareholders investments. → = 0.05 = 5%
This information would be attractive to anyone looking to buy shares in John Lewis as it shows the return on total investments made. This does not show what return on any investment a specific shareholder has made as the value and share prices fluctuate rapidly.
Therefore, while the profit and loss account provides shareholders with useful information the future success of the business cannot be fully predicted as there are many variable factors that determine this.
Employees
Generally employees would want to see the profit and loss account to make sure the business is doing well and they feel as if they have job security. However, in this case with the employees of John Lewis Partnership are automatically shareholders. So for this reason they would like to see this information for the same beneficial reasons as the shareholders, but whereas shareholders