U10473 Contemporary Issues in Accounting
INTRODUCTION
Annual report refers to the detailed document which furnishes information regarding the firm’s operations and financial performance over a specific period of time. It is the most crucial report which assists in communicating all the pivotal information to the stakeholders such as investors, employees and shareholders in a clear and concise manner. Tesco is the leading retail organization of UK which involved towards offering large variety of goods and services such as books, electronics, furniture, toys, petrol, financial services, telecommunication and internet services. The organization was established by jack Cohen in 1919 and was located at more than 4673 places across world (Description of Tesco, 2024). Tesco hire over 330000 employees and earn annual revenue of 67.673 billion pound in year 2024. The current essay includes information regarding the manner in which Tesco’s stakeholder use annual reports and accounts.
MAIN BODY
Understanding Basic Theory and Practice of Financial Accounting in Modern Context
Financial accounting is the branch of accounting which is related to summary, analysis and reporting of financial transaction of business entity. This accounting aims at drafting of financial statement that is provided to general public for estimating firm’s performance. Financial reporting council (FRC) have provided IFRS framework with aim of promoting integrity and transparency in business (Accounting standard of UK, 2025). In traditional accounting there was high risk of window dressing which impact on overall quality of the statements. For example: During Corona crisis, Tesco has been claimed for over stating its profits to attract the large number of investors. It has been identified that Tesco has overstated its profits by 145 million pound with the aim of the managing trust and confidence of all the stakeholders (Window dressing of Tesco, 2025). In the current time, automation and technology has been introduced in the financial accounting with the aim of promoting accuracy and reduces scope of error. Moreover, data analytics and visualization tool has been introduced with the aim of enhancing transparency and improving overall decision making process. Annual report comprises of different types of financial statements such as balance sheet, cash flow and income statement which together assists in defining the overall liquidity, solvency and profitability position of the organization. This statement together assists in promoting transparency, accountability and trust that ultimately assists stakeholders in taking the most accurate decision.
Stakeholders of Tesco Plc
Shareholders refer to the group, individuals and entities that are having diverse interest in the overall operation of the business entity. Internal and external are two different types of stakeholders present within an organization. All the stakeholders have huge interest in the published annual report of the company as it acts as the basis for future decisions (Breuer, 2021). Internal stakeholders of the Tesco include employees, shareholders, Board of director and management whereas external stakeholders include suppliers, creditors, community, customers, government (Stakeholder of Tesco, 2024). The brief description regarding the way in which stakeholders uses annual reports are as follows:
Internal stakeholders:
Management:
Management of the firm also evaluate income statement which helps in carrying out the strategic planning. Tesco’s NP ratio depicts that even after increasing overall sales revenue firm is not able to earn an adequate net profit due to inefficiency in managing the cost. On the basis of this evaluation, manager will focus on reviewing its pricing strategies and attaining economies of scales which assist in boosting overall profitability of the business entity. Besides this, top level manager of the organization also do analysis and comparison of balance sheet of two or more years as to identify the overall firm health and supports in taking the informed decision. This aid in providing comprehensive understanding regarding the firm’s performance based on which necessary policies and strategies are formulated. Managers are also involved towards the evaluation of cash flow statement with the aim of determining all the cash generated from operating activities based on which future strategies are developed (Lee and Raschke, 2023). Along with this, cash flow provides an estimation regarding the future cash flow and aids in tracking the firm’s spending based on which long and short term goals are formulated. This statement also provides insight regarding the working capital movement which guides manager in taking accurate decision for optimum fund utilization.
Employees:
Employees are also interested in annual report with the aim of ensuring their job security and determining their growth opportunity. High profitability denotes that firm will able to provide adequate increments leading to fulfilling their entire fund requirement. Staff members of Tesco will also include evaluation of the firm’s balance sheet to get assurance regarding their job. Higher assets position define that company is working effectively which provides them with the job security and also defines the growth opportunity. Workers are also highly interested in evaluating cash flow of the company with the aim of determining the firm’s efficiency in paying out their salaries and wages. High cash flow defines that firm is having adequate cash balance which helps in receiving their incentives timely and also indicates the scope of increments and promotions.
Shareholders:
All the shareholders of Tesco’s make use of annual report with the aim of taking the most accurate decision. Investors undertake this statement for identifying overall profitability of the firm based on which future decision could be determined (Danso et al, 2020). In order to get accurate information related to the firm’s profitability GP and NP ratio are usually calculated which clearly reflects the growth prospect and thereby aid in future decisions. For example: Tesco is having constant GP ratio in the year of 2023 and 2024 i.e. 7% which indicates the firm’s inefficiency in attracting the large number of customers (Profitability ratio of Tesco, 2024). Further, there are only 1% incline in the net profit ratio of Tesco in the two consecutive years which indicates the company’s inefficiency in managing its cost. This is not a good indicator from investors’ point of view as it indicates that firm will not be able to provide higher ROI due to the shrink profits.
Further, first time investors also use this statement with the motive of identifying potential growth rate of the firm which helps in describing their overall return. Investors use balance sheet to determine the firm’s capital structure which assists in assessing the overall financial risk of the organization (Gupta, Crilly and Greckhamer, 2020). For example: Tesco is having debt equity ratio of 0.49 in the year of 2024 which indicates that firm is having lower amount of debt in its capital structure (Debt- Equity ratio of Tesco, 2025). It is positive sign for the investors as firm is having lower risk and obligations ensuring regular return on their investment. Investors use this statement with the aim of determining firm’s cash balances which assist in identifying firm’s liquidity position. This information ensures that firm is having sufficient cash balance which help in maintaining overall stability of the business entity (La Torre et al, 2020). This statement also confirms firm’s long term growth capability based on which investment decision could be initiated.
External stakeholders:
Creditors and lenders:
Creditors use annual report to identify the firm’s ability to pay off all the debt obligations. High profitability denotes the firm’s ability to easily pay out the interest obligations based on which future lending decisions could be taken. Creditors and lenders assess balance sheet to determine the firm’s worth for the collateral purpose. This information helps creditors in identifying whether the organization will be able to pay the entire interest obligation or not based on which lending decision could be initiated. For example: Tesco is having current ratio of 0.81 which indicate that firm is having high current liabilities than asset indicating inefficiency of organization in easily paying out all the obligations (Tesco’s current ratio, 2024). On the basis of this ratio, creditors will not lend any additional fund as it indicates the firm’s inability to pay out all its obligations. Tesco’s cash balance has increased by 37 million pound in the year of 2023 which is positive indicator for both lenders and creditors (Tesco’s cash flow statement, 2025). This also denotes that Tesco is having effective liquidity position which assists in easily paying out the entire obligation and ensures the long term stability of the business entity.
Competitors:
They are also interested in the income statement as to identify the firm’s sources of income which facilitates them in taking the strategic decision. Competitors also do financial statement analysis with the aim of determining the firm’s financial health and capital structure (Jørgensen, Mjøs and Pedersen, 2022). If the company is able to earn higher amount of profit with particular capital structure then competitors generally focuses on adopting the same. This statement also helps in gauging the entire strengths and shortcoming based on which competitors could take necessary actions. Competitors are also interested towards evaluating the firm’s cash flow statement as it provides crucial information regarding the organization’s cash management strategies based on which overall decision are taken. This analysis helps competitors in adjusting their policies according to other businesses so that competitive edge could be created.
Government:
Regulatory authorities and government also uses the firm’s annual report in order to identify any irregularities or anomalies within the firm (Dyson and Franklin, 2020). Further, government undertakes annual report to ensure that the entire firm is effectively complying with the tax obligations. For ensuring effective compliance with the regulatory requirement government also evaluates balance sheet. This statement supports in ensuring that company is effectively complying with the financial reporting rules and standards (Kaawaase et al, 2021). At the end of 24 Feb 2024, Tesco have paid total tax of 5.4 billion pound which depict that organization is effectively aligning with all the regulations (Tax Liability of Tesco, 2025).
Community:
Community and environmentalist are also highly interested in annual report of the business entity. They are not involved towards determining the firm’s profitability rather focuses on evaluating overall CSR policies of the organization. Business entities share information regarding future sustainability goals which reflects the firm’s commitment towards society, environment and governance (Monciardini, Mähönen and Tsagas, 2020). This information aids in accurately communicating the firm’s policies and supports in maintaining transparency which eventually impacts the overall goodwill of the business entity. For example; Tesco has claimed to reduce 61% carbon emission and aims at attaining Zero carbon emission goals at end of 2030 (Tesco’s CSR policy, 2024). This information depicts the firm’s concern overall safeguarding natural resources and promoting sustainability which aids in gaining the trust and confidence of society.
Suppliers:
Suppliers are also involved towards evaluating annual report carefully before making any decision (Lakshan, Low and de Villiers, 2021). They are usually emphasis over evaluating cash flow statement which support in determining whether sales should be initiated on credit basis or not. If an organization is having higher cash balances then supplier initiates credit sales as it ensures that firm will be able to pay out all the bills and vice-a-versa. Moreover, they are also involved in evaluating other statements which aids in determining the firm overall profitability position based on information regarding long terms stability could be determined.
CONCLUSION
By summing up the essay, it has been identified that all the stakeholders are involved towards carefully evaluating all the financial statements which aids in taking most effective decision. Shareholders are involved in evaluating annual report with aim of determining overall firm’s income which define long term growth prospect of organization. Employees are focused on analysis financial statement as to get job security and to receive regular compensation and benefits. Moreover, creditors and investors are involved towards analysing annuls report which aids in determining firm’s ability in paying out all the debt and obligation. Moreover, cash flow statement defines organization’s liquidity position which aids supplier in taking credit decision. Along with this, managers are involved towards evaluating financial statement based on which strategies decisions are taken by the business entity. Moreover, this statement are analysed by competitors for determining firm’s strategies and policies based on which necessary changes are initiated. Along with this, there are various financial reporting issue such as window dressing which eventually influence overall financial statement and provide irrelevant information to the stakeholders that impact on decisions.
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REFERENCES
Books and Journals
Breuer, M., 2021. How does financial‐reporting regulation affect industry‐wide resource allocation?. Journal of Accounting Research, 59(1), pp.59-110.
Danso, A., Adomako, S., Lartey, T., Amankwah-Amoah, J. and Owusu-Yirenkyi, D., 2020. Stakeholder integration, environmental sustainability orientation and financial performance. Journal of business research, 119, pp.652-662.
Dyson, J. and Franklin, E. (2020), Accounting for non-accounting students (10th ed.), Pearson Education Limited: Harlow.
Gupta, K., Crilly, D. and Greckhamer, T., 2020. Stakeholder engagement strategies, national institutions, and firm performance: A configurational perspective. Strategic Management Journal, 41(10), pp.1869-1900.
Jiang, W., Wang, A.X., Zhou, K.Z. and Zhang, C., 2020. Stakeholder relationship capability and firm innovation: A contingent analysis. Journal of Business Ethics, 167, pp.111-125.
Jørgensen, S., Mjøs, A. and Pedersen, L.J.T., 2022. Sustainability reporting and approaches to materiality: tensions and potential resolutions. Sustainability Accounting, Management and Policy Journal, 13(2), pp.341-361.
Kaawaase, T.K., Nairuba, C., Akankunda, B. and Bananuka, J., 2021. Corporate governance, internal audit quality and financial reporting quality of financial institutions. Asian Journal of Accounting Research, 6(3), pp.348-366.
La Torre, M., Sabelfeld, S., Blomkvist, M. and Dumay, J., 2020. Rebuilding trust: Sustainability and non-financial reporting and the European Union regulation. Meditari Accountancy Research, 28(5), pp.701-725.
Lakshan, A.M.I., Low, M. and de Villiers, C., 2021. Management of risks associated with the disclosure of future-oriented information in integrated reports. Sustainability Accounting, Management and Policy Journal, 12(2), pp.241-266.
Lee, M.T. and Raschke, R.L., 2023. Stakeholder legitimacy in firm greening and financial performance: What about greenwashing temptations?☆. Journal of Business Research, 155, p.113393.
Monciardini, D., Mähönen, J.T. and Tsagas, G., 2020. Rethinking non-financial reporting: A blueprint for structural regulatory changes. Accounting, Economics, and Law: A Convivium, 10(2), p.20200092.
Online
Accounting standard of UK. 2025. Online. Available through: < https://frc.gov.au/all-frc-documents/general/1-role-and-composition-frc#:~:text=FRC's%20role&text=The%20FRC%20monitors%20the%20development,12%20of%20the%20ASIC%20Act.>
Debt- Equity ratio of Tesco. 2025. Online. Available through: < https://ycharts.com/companies/TSCDF/debt_equity_ratio >
Description of Tesco. 2024. Online. Available through: < https://www.tescoplc.com/about >
Profitability ratio of Tesco. 2024. Online. Available through: < https://ivypanda.com/essays/tesco-plc-financial-analysis-and-recommendation/#:~:text=In%20this%20case%2C%20Tescos%20PLC,shares%20(Eley%2C%202020).>
Stakeholder of Tesco. 2024. Online. Available through: < https://www.tescoplc.com/investors/corporate-governance/stakeholders>
Tax Liability of Tesco. 2025. Online. Available through: < https://www.tescoplc.com/media/zgvhd0dn/tescos_ar24.pdf>
Tesco’s cash flow statement. 2025. Online. Available through: < https://www.tescoplc.com/investors/reports-results-and-presentations/financial-performance/group-cash-flow-statement/ >
Tesco’s CSR policy. 2024. Online. Available through: < https://www.tescoplc.com/media/iksjndde/cr_report_may2004.pdf>
Tesco’s current ratio. 2024. Online. Available through: < https://www.wisesheets.io/current-ratio/TSCDF#:~:text=The%20Current%20Ratio%20as%20of,of%20the%20last%204%20quarters. >
Window dressing of Tesco. 2025. Online. Available through: < https://www.proactiveinvestors.co.uk/companies/news/930869/look-past-tesco-s-window-dressing-and-its-pandemic-profits-are-clear-930869.html >
