FINANCIAL REPORTING

Financial Reporting Course Work: Rolls Royce

Part A3

Part B Financial Statement Analysis Report12

A)Introduction12

B)i) Return On Equity (ROE)13

Level 1 Analysis13

Level 2 Analysis14

Level 3 Analysis16

B) ii) Analysing the Statement of Cash flow17

References19

Appendix22

Financial Reporting Course Work: Rolls Royce

Part A

Introduction

There is enough evidence present in the literature that suggests that the regulatory framework in the financial sector has been one of the major reasons behind any financial crisis or the financial corporate collapses in the sector. In United Kingdom, the collapse of the Barings Bank led to a dramatic shift in the structure and the composition of the financial regulatory framework of the organization to avoid future financial crisis. Due to the increasing scandals and controversies that arise in the financial sector worldwide, it led to the change in the regulatory framework. For instance, in U.S. there were changes made in the U.S. Securities regulations with adherence with the Sarbanes Oxley Act in the year 2002. Today, after facing the major financial crisis of 2007-09, the processes of financial accounting and financial reporting both saw a huge change and restructuring to gain back the steady growth rates of world's financial markets.

After the crisis of 2007-09, proposals were bought forward to bring about changes in the regulatory framework of financial markets as well as financial institutions. All these changes were made to diminish the chances of such large scale destructive financial crisis that meltdown the entire economies of nations. This crisis in specific had energized and motivated the politicians and economists to scrutinize and evaluate the validity of the financial accounting and reporting standards that were being used in the financial sector by all the institutions. The crisis that led to nearly the systematic collapse of the entire banking sector had raised many questions as to what had led to the crisis and what practices did the institutions like Lehman Brothers, Merrill Lynch and Bear Sterns were carrying out (Bushman and L et al., 2010, pp. 259-273).

Contribution of Financial Reporting to the Financial Crisis

The different objectives of Financial Reporting

As defined in the US GAAP and IFRS, the main objective of financial reporting is to provide the required financial information to the financial investors in order to make correct investment decisions, credit or resource allocation decisions as well. This applies to all the companies belonging to any industry for the use of financial reporting in the most honest manner.

Objectives of regulation on banking

The primary and the most important objective that bank regulation provides the banking sector with, is the reduction in the level of risk to which the investors or the bank creditors or depositors are exposed and to lessen the overall systematic financial risks. The bank regulator although prefer the general purpose financial reporting and one should not just simply limit their information sharing to the general purpose financial reports.

In the United States of America, the bank controllers need to have a variety of additional disclosures relating to recognized asset and liabilities in the financial reports like, the non-performing loans and deposits, as well ...