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Financial Reporting for Cadbury plc

Fair and true view

The idea of a true and fair view means that the financial statement shows the true economic position of a company. The accounts are said to a true and fair view position when the opinion of the auditor is positive. The auditor considers the materiality of any item of accounts that deviates from a normal accounting practice.

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Financial statements of Cadbury and a fair and true view

The financial statements of a company should give a true and fair view of the company’s operations. A company’s management can decide to present financial statements containing an accounting treatment or disclosure that is not in conformity with financial standards. For example, Management may not wish to capitalize leases and show the related debt, may calculate earnings per share using a different formula, may not accrue unbilled revenue at the end of a period, may make unreasonable accounting estimates, or may be reluctant to disclose all the known details of a contingency (Fridson and Álvarez, 2002).

Cadbury has a statement that states that an intangible asset will be held indefinitely and they are recorded in compliance with IAS38. Holding intangible assets indefinitely without recording them in the books is a material departure from the principle of true and fair view. The main focus of this paper is whether the financial statements represent a true and fair view or not. Any departure that is material enough to potentially affect users’ decisions based on the financial statements, the opinion must be qualified (Tracy, 1980).

Any adverse opinion is exactly the opposite of the qualified opinion. In this case, the auditor is passing a message that the company does not keep records that present a true and fair view financial position of the company. The introductory and scope paragraphs should not be qualified because, in order to decide to use the adverse opinion, the audit team must possess all evidence necessary to reach the decision. When this opinion is given, all the substantive reasons must be disclosed in the report in explanatory paragraphs.

As a practical matter, auditors generally require more evidence to support an adverse opinion than to support an unqualified opinion. Perhaps this phenomenon can be attributed to auditors’ reluctance to be bearers of bad news. However, audit standards are quite clear on the point that, if an auditor has a basis for an adverse opinion, the uncomfortable position cannot be received by giving a disclaimer of opinion (Tamari, 1978).

Cadbury has all presented the information in a generalized manner. The first financial statements are presented in the GAAP format, next to the same financial statements are presented in the IAS Format. The GAAP and IAS both require that the financial statements be presented in three separate statements, each showing a different set and a different perspective of the information. After looking at the Financial Statements, the fact that neither the income statement nor the statement of cash flow is important became obvious. Both the statements are important from different perspectives (Financial Reports, 2010). While the investors will look at the financial information in order to gauge the profit-making capability of the organization, the creditors and the employees will look at the statement of cash flow in order to ascertain the capability of the organization to pay off its debt. While the Income State shows the income generated by the organization during a period, the state of cash flow from operating activities shows the amount of cash generated by the organization from its regular business activities. The cash flow activities also include the cash outflow of the business, thereby providing a comprehensive guide to the spending and collection of cash of the business (Jae and Shim, 2008). The importance of either statement of financial information cannot be overstressed since both statements provide different information and are useful to a different set of users (Leonard and Brookes, 2009).

Changes in Cadbury position

After analyzing the financial information of the organizations it can be reasonably concluded that Cadbury is reporting the intangible asset in a fair and true view. This trend does not appear to be favorable since in the coming years a uniform method is recommended. Cadbury appears to be making a considerable amount of profit and from the profit statement, it is apparent that the organization is focusing on the impairment of these assets. Cadbury has lost a considerable portion of its profit to the cleanup operations with have a hefty cost attached to them (ICFAI Center for Management Research ICMR, 2004). The research and development of the organization have also increased, indicative of the fact that either the organization is acquiring new resources or it is researching technology to clean up and avoid future oil spills, either way, the loss of funds is also evidentiary in the statement of cash flow.

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The most prominent lesson within the accounts of Cadbury was ethical issues should also be taken into consideration in preparing accounts. The reputation of the organization or the auditors of the organization, or the regulating authorities is irrelevant. The system is made in such a manner that any person with the slightest bit of sense can hoodwink it and plant a worm that just as well maybe the next Enron. The articulateness of the executives in describing the process of their fraud highlights the fact that these executives are well aware of the punishments of their actions, yet at the same time these executives are certain that they will not have to bear the burden of these actions, there is a simple lesson in all of this the market can be easily manipulated. The current system of growth and sustenance implemented by the organizations is based on apparently fallacious assumptions that do not require any solid evidence for validation; rather the market depends upon the intangible goodwill generated by the organization in order to propel itself and the organization forward, this goodwill can be generated with relative ease if the correct marketing and PR strategy is implemented (Berk and DeMarzo, 2011).

Looking at the ethical, legislative, and financial implications of the reporting, it can be said that the corporate culture remains unaltered. A mindset that is generally found only at the strategic level in other organizations is prominent even in the operational division of Cadbury (Gustafson, Peroni, and Pugh, 2006).


Every company, as on the date of the balance sheet is required to assess if the assets are impaired. In case, no such assets are found, then it is necessary that the company tests certain assets for impairment like the ones like intangible assets which do have an indefinite life of use. The standard also summarizes the circumstances under which a firm can invalidate a loss due to impairment. Certain assets are not covered by IAS 35 and such assets are generally dealt with by a few other standards like IAS 39 for financial assets etc. Also, according to the standard, factors like the decline in the market value of the asset and internal causes like physical damage of the asset can be considered an indication for the impairment of the asset.

With all the problems and issues dealing with financial instruments, the IASB and FASB started working together on IFRS 9 to replace IAS 39. IFRS 9’s purpose is to reduce difficulty in accounting for financial instruments and hedging activities. This development took place in phases. Phase one tends to improve and simplify the measurement and classification of the financial instruments. Though this phase has been completed, the exposure draft has been under a plan to be issued, and the implementation is to be completed in the current year.

This new standard has raised concerns in the world of corporate sectors. The major concerns are how this will be implemented and how it will affect their operations. Many are happy for the change to take place, as the IAS 39 is thought to be a difficult standard to implement. The replacement is a result of the world’s economic crises after which all the investors and regulators of financial institutions demanded an accounting system that showed the types of assets and liabilities held at a given time, the risks that they are exposed to, and gain and losses expected to be realized(Carl and Warren, 2008).

However, they could not see the situation of the bank’s exposure in financial instruments related to subprime loans because less information was disclosed for their understanding. Hence it was later suggested that accounting needs to be clearer, which became evident upon the fall of many banks. IFRS 9 strived to cater to and answer all these major issues at hand while giving organizations an option to adopt this standard before it becomes mandatory in 2013. Only the first phase of the standard is completed, and all the shareholders are waiting to implement it upon the finalization of IFRS 9(Bragg, 2010).

IFRS 9 looks to tackle all the current problems and questions probed by various investors, but it cannot give a guarantee to prevent any crises in the future. It is important that accountants, regulators, and investors remain vigilant because no matter how much IFRS 9 helps to simplify the accounting of financial reporting when this economy starts its recovery phase no one can stop the development of new financial instruments escaping the rules like before. The European Union refused to adopt IFRS 9 last year, posing some questions relating to the fair value of investments coverage. On the other hand, Japan signed for early adoption in March 2010, which is a significant step toward promoting transparency in policies and implementation.

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From all of the details above, we can conclude that the company has responsibility have a responsibility to the public, the clients, various third parties, and the government to present accounts that are true and fair. They are highly accountable because they have a huge amount of money to work with. Even if money isn’t the case, there is still the effect of one wrong decision being made and the entire company or interest of the public being destroyed (Jerry and Weygandt, 2008).

In summary financial statements should give a true and fair view. The financial statement of Cadbury in books shows the accounts does not give a true and fair view position. Now because of the misleading information, the company had made some mistakes in their decision making, leading to certain material losses as well as the impairment of their goodwill and reputation (Ormiston and Fraser, 2004).

Reference List

Berk, J., & DeMarzo P., 2011. Corporate finance. Boston: Pearson Education.

Bragg, S., 2010. The Ultimate Accountants’ Reference: Including GAAP, IRS and SEC Regulations, Leases, and More. New York: John Wileys & Sons.

Carl, S. & Warren, J., 2008. Accounting. California: South-Western/Cengage Learning.

Financial Reports, 2010. Cadbury Financial Reports 2008. Cadbury

Fridson, M., & Álvarez, F., 2002. Financial statement analysis: a practitioner’s guide. John Wiley and Sons.

Gustafson, C., Peroni, R., & Pugh, R., 2006. Taxation of International Transactions: Materials, Text and Problems. London: Publisher – Thomson West.

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ICFAI Center for Management Research ICMR. 2004. Financial Accounting & Financial Statement Analysis. Hyderabad : ICFAI Center for Management Research..

Jae, K., & Shim, J., 2008. Financial Management.London: Barron’s Educational Series.

Jerry, J. & Weygandt, P. 2008. Accounting Principles. New York: John Wileys & Sons

Leonard, J. & Brookes, P., 2009. Business & Professional Ethics for Directors, Executives & Accountants. New York: South-Western College Publishers.

Ormiston, L. & Fraser, A. 2004. Understanding Financial Statements. New Jersey : Pearson-Prentice Hall.

Tamari, M. 1978. Financial Ratios: Analysis and Prediction. Paul Elek Ltd.

Tracy, J. 1980. How to Read a Financial Report. New York: John Wiley & Sons, Inc.

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