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A Brief Report on the Financial Reporting Policies of Abbey Plc

Page 1 of 14

Table of Contents

Abstract 2

Introduction to IFRS 3

Company Profile 4

Financial Reporting Policies 6

IAS1 – Presentation of Financial Statements 6

IAS 2 – Inventories 9

IFRS 10 – Consolidated Financial Statements 10

IAS 21 - The Effects of Changes in Foreign Exchange Rates 11

Literature Review 13

Abstract

The objective of this project is to prepare a brief report on financial reporting policies of public limited company. For this purpose, the financial statements of chosen company (Abbey plc) were analysed and compared to financial statements of the company in the same industry (Telford Homes plc). In this paper, International Financial Reporting Standards (IFRSs) were reviewed and it was examined how the adoption of these standards affects companies’ financial statements. Four accounting standards were examined more closely and companies’ compliance with these standards was studied based on Annual Reports.

Introduction to IFRS

International Financial Reporting Standards (IFRSs) are the rules that companies must follow in preparing financial statements. These standards act as a common language for business affairs to make financial statements understandable and comparable to users in different countries. International Accounting Standard Board (IASB) was developing these standards since 2001. Growing shareholding and trade around the world led to the need of introduction of IFRSs and they are highly important for the companies that have dealings in several countries. Before IASB was established International Accounting Standards Committee (IASC) was responsible for developing accounting rules known as International Accounting Standards (IASs). Since 2001 over 100 countries including all EU member states either required or permitted IFRSs.(www.unctad.org, 2008)

“IFRSs are developed through a formal system of due process and broad international consultation that involves accountants, financial analysts and other users of financial statements, the business community, stock exchanges, regulatory and legal authorities, academics and other interested individuals and organisations from around the world.” (IASB, 2004, p.15)

IFRS foundation defends the use of IFRSs across the EU stating that adoption of IFRSs improves quality and brings clarity and transparency in financial reporting. However IFRSs are heavily criticised particularly with regards of using fair value model instead of depreciated historic cost. “Critics have blamed the fair value model for disproportionately overstating banks profitability and in turn overstating profit enabling excessive dividends to be paid. The upshot of all this led to the financial crisis, resulting in banks having to be bailed out by the taxpayer.” (Collings, 2010, p.1)

The main purpose of financial statements to present true and fair view of a company’s position and IFRSs are the rules to be followed by accountants to prepare books of accounts to be comparable, understandable, reliable and relevant.

“Some British critics claim IFRS, adopted by the EU in 2002, has made accounting less prudent by undermining or even jettisoning the principle that financial statements must be ‘true and fair’.” (Financial Times, 2013)

Company Profile

Abbey Plc is a construction company and its principal activity is a residential housing development in the United Kingdom, Ireland and Czech Republic. Abbey Plc is engaged in property investment, house rentals and plant hire. It operates a plant hire division, M&J Engineers Limited, which is located in the United Kingdom.

Abbey Plc was incorporated in the Republic of Ireland in 1936 as private limited company with the name Torc Manufacturing Company Ltd. The name was changed for Abbey Ltd in 1973 and registered accordingly. In 1984 Abbey Ltd was re-registered as a public company limited by shares.

Abbey Plc’s shares are listed on the ESM on the Irish Stock Exchange and the AIM on the London Stock Exchange. Current share price of Abbey plc on Irish Stock Exchange is €13.30 and £11.20 on London Stock Exchange.

In the year ended 30 April 2016 revenue of the group was €220,603,000 with the profit attributable to equity shareholders of the parent €49,468,000. The average number of persons employed by the group, including executive directors in the financial year was

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