ACCA paper f 7 financial reoirting F7FR session00 j08

ATC INTERNATIONAL ACCA PAPER F7 FINANCIAL REPORTING (INTERNATIONAL) STUDY SYSTEM 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 All rights reserved No part of this training material may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system, without permission in writing from the Accountancy Tuition Centre Limited SESSION 00 – CONTENTS CONTENTS Session Page GAAP and the IASB 0101 Framework for the Preparation and Presentation of Financial Statements 0201 Substance over Form 0301 IAS – Presentation of Financial Statements 0401 IAS – Accounting Policies, Changes in Accounting Estimates and Errors 0501 IAS 18 – Revenue 0601 IAS 16 – Property, Plant and Equipment 0701 IAS 23 – Borrowing Costs 0801 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 – 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 – Statement of Cash Flows 2601 27 IAS 33 – Earnings Per Share 2701 28 IFRS – Non-current Assets Held for Sale and Discontinued Operations 2801 29 IAS 10 – Events after the Reporting Period 2901 Index 3001 (iii) SESSION 00 – CONTENTS (iv) 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 CL (F4) CR (P2) BA (P3) FR (F7) AA (F8) FA (F3) 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 E Analyse and interpret financial statements (v) SESSION 00 – SYLLABUS RELATIONAL DIAGRAM OF MAIN CAPABILITIES A conceptual framework for financial reporting (A) A regulatory framework for financial reporting (B) Financial statements (C) Analysis and interpreting financial statements (E) 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 The need for a conceptual framework Understandability, relevance, reliability and comparability Recognition and measurement The legal versus the commercial view of accounting Alternative models and practices (vi) SESSION 00 – SYLLABUS B The concept of ‘faithful representation’ (‘true and fair view’) A regulatory framework for financial reporting Reasons for the existence of a regulatory framework The standard setting process Specialised, not-for-profit, and public sector entities C Financial statements Statements of cash flows Tangible non-current assets Intangible assets Inventory Financial assets and financial liabilities Leases Provisions, contingent liabilities, and contingent assets Impairment of assets Taxation 10 Regulatory requirements relating to the preparation of financial statements 11 Reporting financial performance D Business combinations The concept and principles of a group The concept of consolidated financial statements Preparation of consolidated financial statements including an associate E Analysing and interpreting financial statements Limitations of financial statements Calculation and interpretation of accounting ratios and trends to address users’ and stakeholders’ needs Limitations of interpretation techniques Specialised, not-for-profit, and public sector entities (vii) 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 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 and 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 Candidates will be expected to have an appreciation of the need for specified accounting standards and why they have been issued For detailed or complex standards, candidates need to be aware of their principles and key elements (viii) SESSION 00 – EXAM TECHNIQUE EXAMINATION TECHNIQUE Time allocation 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 Stick to this time allocation 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 Set up a pro-forma structure to your answer before working the numbers Use a columnar layout if appropriate This helps to avoid mistakes and is easier for the marker to follow Include all your workings and cross-reference them to the face of your answer A clear approach and workings will help earn marks even if you make an arithmetic mistake If you spot a mistake in your answer, it is not worthwhile spending time amending the consequent effects of it The marker of your script will not punish you for errors caused by an earlier mistake Don’t ignore marks for written recommendations or comments based upon your computation These are easy marks to gain If you could not complete the calculations required for comment then assume an answer to the calculations As long as your comments are consistent with your assumed answer you can still pick up all the marks for the comments (ix) SESSION 00 – EXAM TECHNIQUE Case Study/Scenario based questions Read the requirements carefully to identify Instruction e.g “outline, discuss .” Content eg “the factors, the advantages ” Vehicle/Format eg “report, memo, letter ” Addressee eg “the board, the accountant ” Read the scenario quickly to identify Company name, dates, nature of business, performance Recall the technical knowledge you have learned relating to the content from the requirements and your quick read of the scenario Read the scenario again slowly and actively highlighting key points, or noting implications in the margin, and noting points on a plan of your answer 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 Read the requirements carefully at least twice to identify exactly how many points you are being asked to address Jot down relevant thoughts on your plan Give your plan a structure which you will follow when you write up the answer Presentation Use headings, indentation and bullet points to give your answer structure and to make it more digestible for the marker Use short paragraphs for each point that you are making Use “bullet points” where this seems appropriate Separate paragraphs by leaving at least one line of space between each one (x) SESSION 00 – EXAM TECHNIQUE Style Long philosophical debate does not impress markers Concise, easily understood language scores marks Lots of points briefly explained tends to score higher marks than one or two points elaborately explained Imagine that you are a marker, you would like to see a short, concise answer which clearly addresses the requirement (xi) SESSION 00 – EXAM TECHNIQUE (xii) ... interpret financial statements (v) SESSION 00 – SYLLABUS RELATIONAL DIAGRAM OF MAIN CAPABILITIES A conceptual framework for financial reporting (A) A regulatory framework for financial reporting (B) Financial. .. 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... preparation of financial statements 11 Reporting financial performance D Business combinations The concept and principles of a group The concept of consolidated financial statements Preparation of consolidated