GlaxoSmithKline Contents Contents 2 Introduction 3 Part 1 3 Accounting Concepts & Process 3 Part 2 7 Key Users of Financial Statements 7 Uses of Accounting Information 8 Conclusion 10 References 12 Bibliography 12 Introduction This project is divided into two parts…
GSK is a UK based MNC which its presence in the pharmaceuticals and consumer health care. The GSK group prepares its consolidated statements in accordance with the IFRS and the company’s financial statements follow the guidelines of UK GAAP. The second part includes the main uses and types of users of accounting information. It has been analyzed if the Group has provided sufficient and relevant information to enable the users to form an opinion about the Group’s financial health. The main area of investigation from its annual report has been the notes to financial statements as this present the policies and standards applied in the accounts’ preparation. Part 1 Accounting Concepts & Process There are many types of businesses in the world where all the businesses regularly need basic financial information about their operations. The function of keeping the records of that information and providing this financial information to the owners and other stakeholders is the prime objective of accounting. The financial information of an enterprise is essential for the accountability of its business. Therefore accounting serves as a link between the decision makers and business activities. The financial accounting is a process of preparation of financial statements and providing these statements to the external user such as shareholders, banks and creditors, fund managers, and regulators (Needles, Powers & Crosson, 2010, p.7). The preparation of financial statements involves some basic steps which are, 1. Analysis of transactions from vouchers or other source documents. 2. Journal entries 3. Posting to ledger accounts 4. Trial balance preparation and then adjusted for accrual entries. 5. Final statements preparation from adjusted trial balance. 6. Closure of temporary accounts. The financial statements mainly include Income Statement, Balance Sheet, Cash flow statement and Notes to the statements. Glaxo Smithkline (GSK) in its most recent annual report of 2010 has disclosed the consolidated financial and notes to the financial statements (Glaxo Smith Kline, 2011, p.104-108). The consolidated statements include the combined accounting figures of all group companies for the financial year. The income statement gives the financial performance of the company. The balance sheet provides the financial position and cash flow statement gives the cash flow from operating, financing and investing activities. Presenting the cash flow statement is not required by law but it is a requirement for companies other than ‘small’ companies to prepare the cash flow statement under FRS1, professional accounting standard (Stittle, 2003, p.39). The consolidated statement of changes in equity explains how the shareholders’ funds have changed over the reporting period. The notes to the financial statements are the most important tool in analyzing the financial statements because these explain the principles and basis on which the transactions in the accounts have been recorded. GSK in its notes to financial statements has included the presentation basis, accounting principles and policies related to consolidation, business combinations, foreign currency translation, revenue and expenditure recognition, R&D, provision for environmental and legal expenditure, pensions and various post-employment benefits, employee share plans, fixed assets, intangible assets including goodwill, asset impairment, ...
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As put into words by Lee (1996, p32-37):
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