ATC
INTERNATIONAL
ACCA
PAPER F7
FINANCIAL REPORTING (INTERNATIONAL)
No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, editor or publisher.
This training material has been published and prepared by Accountancy Tuition Centre Limited
16 Elmtree Road Teddington TW11 8ST United Kingdom.
Editorial material Copyright Accountancy Tuition Centre (International Holdings) Limited, 2008.
SESSION 00 – CONTENTS
CONTENTS
Session
Page
1 GAAP and the IASB 0101
2 Framework for the Preparation and Presentation of Financial Statements 0201
3 Substance over Form 0301
4 IAS 1 – Presentation of Financial Statements 0401
5 IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors 0501
6 IAS 18 – Revenue 0601
7 IAS 16 – Property, Plant and Equipment 0701
8 IAS 23 – Borrowing Costs 0801
9 IAS 20 – Accounting for Government Grants &
Disclosure of Government Assistance 0901
10 IAS 17 – Leases 1001
11 IAS 38 – Intangible Assets 1101
12 IAS 40 – Investment Properties 1201
13 IAS 36 – Impairment of Assets 1301
14 IAS 2 – Inventories 1401
15 IAS 11 – Construction Contracts 1501
16 IAS 37 – Provisions, Contingent Liabilities and Contingent Assets 1601
17 IAS 12 – Income Taxes 1701
18 Financial Instruments 1801
19 Regulatory Framework 1901
20 Basic principles – Consolidated Statement of Financial Positions 2001 21 Consolidated Statement of Financial Positions – Cosmetic adjustments 2101 22 Consolidated Statement of Financial Position – Further adjustments 2201
23 Consolidated Statement of comprehensive income 2301
24 IAS 28 – Investments in Associates 2401
25 Analysis and Interpretation 2501
26 IAS 7 – Statement of Cash Flows 2601
27 IAS 33 – Earnings Per Share 2701
28 IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations 2801
29 IAS 10 – Events after the Reporting Period 2901
SESSION 00 – INTRODUCTION
INTRODUCTION
This Study System has been specifically written for the Association of Chartered Certified Accountants fundamentals level examination, Paper F7 Financial Reporting.
It provides comprehensive coverage of the core syllabus areas and is designed to be used both as a reference text and interactively with the ATC Learning System to provide you with the knowledge, skill and confidence to succeed in your ACCA studies.
SYLLABUS
CR (P2)
FR (F7)
FA (F3)
CL (F4) AA (F8)
BA (P3)
Aim
To develop knowledge and skills in understanding and applying accounting standards and the theoretical framework in the preparation of financial statements of entities, including groups and how to analyse and interpret those financial statements.
Main capabilities
On successful completion of this paper, candidates should be able to: A Discuss and apply a conceptual framework for financial reporting B Discuss a regulatory framework for financial reporting
C Prepare and present financial statements which conform with International accounting standards
D Account for business combinations in accordance with International accounting standards
SESSION 00 – SYLLABUS
RELATIONAL DIAGRAM OF MAIN CAPABILITIES
A conceptual framework for financial reporting
(A)
Financial statements (C) Analysis and
interpreting financial statements (E) A regulatory framework for financial reporting (B)
Business combinations (D)
RATIONALE
The financial reporting syllabus assumes knowledge acquired in Paper F3, Financial Accounting, and develops and applies this further and in greater depth.
The syllabus begins with the conceptual framework of accounting with reference to the qualitative characteristics of useful information and the fundamental bases of accounting introduced in the Paper F3 syllabus within the Knowledge module. It then moves into a detailed examination of the regulatory framework of accounting and how this informs the standard setting process.
The main areas of the syllabus cover the reporting of financial information for single
companies and for groups in accordance with generally accepted accounting principles and relevant accounting standards.
Finally, the syllabus covers the analysis and interpretation of information from financial reports.
Detailed syllabus
A
A conceptual framework for financial reporting
1. The need for a conceptual framework
2. Understandability, relevance, reliability and comparability 3. Recognition and measurement
SESSION 00 – SYLLABUS
6. The concept of ‘faithful representation’ (‘true and fair view’)
B
A regulatory framework for financial reporting
1. Reasons for the existence of a regulatory framework 2. The standard setting process
3. Specialised, not-for-profit, and public sector entities
C
Financial statements
1. Statements of cash flows 2. Tangible non-current assets 3. Intangible assets
4. Inventory
5. Financial assets and financial liabilities 6. Leases
7. Provisions, contingent liabilities, and contingent assets 8. Impairment of assets
9. Taxation
10. Regulatory requirements relating to the preparation of financial statements 11. Reporting financial performance
D
Business combinations
1. The concept and principles of a group
2. The concept of consolidated financial statements
3. Preparation of consolidated financial statements including an associate
E
Analysing and interpreting financial statements
1. Limitations of financial statements
2. Calculation and interpretation of accounting ratios and trends to address users’ and stakeholders’ needs
3. Limitations of interpretation techniques
SESSION 00 – SYLLABUS
Approach to examining the syllabus
The syllabus is assessed by a three-hour paper-based examination.
All questions are compulsory. It will contain both computational and discursive elements. Some questions will adopt a scenario/case study approach.
Question 1 will be a 25 mark question on the preparation of group financial statements and/or extracts thereof, and may include a small discussion element. Computations will be designed to test an understanding of principles.
Question 2, for 25 marks, will test the reporting of non-group financial statements. This may be from information in a trial balance or by restating draft financial statements.
Question 3, for 25 marks, is likely to be an appraisal of an entity’s performance and may involve statements of cash flow.
Questions 4 and 5 will cover the remainder of the syllabus and will be worth 15 and 10 marks respectively.
An individual question may often involve elements that relate to different subject areas of the syllabus. For example the preparation of an entity’s financial statements could include matters relating to several accounting standards.
Questions may ask candidates to comment on the appropriateness or acceptability of management’s opinion or chosen accounting treatment. An understanding of accounting principles and concepts and how these are applied to practical examples will be tested. Questions on topic areas that are also included in Paper F3 will be examined at an appropriately greater depth in this paper.
SESSION 00 – EXAM TECHNIQUE
EXAMINATION TECHNIQUE
Time allocation
¾
Divide your time in proportion to the marks on offer. To allocate your time multiply the marks for each question by 1.7 minutes. If you allocate 1.8 minutes per mark you will find that at the end of the exam you need a couple more minutes!e.g. 25 mark question should take you 25 × 1.7 = 43 minutes
¾
Stick to this time allocation.¾
The first marks are the easiest to gain in each question, so don’t be tempted to overstep the time allocation on one question to tidy up a complicated answer, start the next question instead.Numerical questions
Before starting a computation, picture your route. Do this by jotting down the steps you are going to take and imagining the layout of your answer.
¾
Set up a pro-forma structure to your answer before working the numbers.¾
Use a columnar layout if appropriate. This helps to avoid mistakes and is easier for the marker to follow.¾
Include all your workings and cross-reference them to the face of your answer.¾
A clear approach and workings will help earn marks even if you make an arithmetic mistake.¾
If you do spot a mistake in your answer, it is not worthwhile spending time amending the consequent effects of it. The marker of your script will notpunish you for errors caused by an earlier mistake.
¾
Don’t ignore marks for written recommendations or comments based upon your computation. These are easy marks to gain.¾
If you could not complete the calculations required for comment thenassume an answer to the calculations. As long as your comments are
SESSION 00 – EXAM TECHNIQUE
Case Study/Scenario based questions
¾
Read the requirements carefully to identifyInstruction e.g. “outline, discuss ...”
Content eg “the factors, the advantages ...” Vehicle/Format eg “report, memo, letter ...” Addressee eg “the board, the accountant ...”
¾
Read the scenario quickly to identifyCompany name, dates, nature of business, performance.
¾
Recall the technical knowledge you have learned relating to the content from the requirements and your quick read of the scenario.¾
Read the scenario again slowly and activelyhighlighting key points, or
noting implications in the margin, and noting points on a plan of your answer.
¾
Draw together your technical knowledge and the points from the scenario. Do this by thinking and rearranging your plan, before you write up your answer.Written questions
Planning
¾
Read the requirements carefully at least twice to identify exactly how many points you are being asked to address.¾
Jot down relevant thoughts on your plan¾
Give your plan a structure which you will follow when you write up the answer.Presentation
¾
Use headings, indentation and bullet points to give your answer structure and to make it more digestible for the marker.¾
Use short paragraphs for each point that you are making.¾
Use “bullet points” where this seems appropriate.SESSION 00 – EXAM TECHNIQUE
Style
¾
Long philosophical debate does not impress markers. Concise, easily understood language scores marks.¾
Lots of points briefly explained tends to score higher marks than one or two points elaborately explained.