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DA8-Financial Reporting

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DA8-Financial Reporting

Course Features

Course Details

DA8-Financial Reporting

Learning outcomes

On successful completion of D8, students should be able to:
  1. Describe the conceptual and regulatory framework for financial reporting and apply the principles set out in the International Accounting Standards Board (IASB) Framework
  2. Prepare single entity financial statements which comply with International Financial Reporting Standards (IFRS)
  3. Analyse the information in published financial statements for performance reporting
  4. Acquire basic understanding of how to prepare group financial statements which comply with IFRS
  5. Identify the issues involved in preparing financial statements for specialised and public sector entities
Topic Weighting
The conceptual and regulatory framework 10%
Single Entity Financial statements 35%
Financial analysis and forecasting 20%
Group financial statements 25%
Financial Statements for Public sector entities 10%

Content

  1. The conceptual and regulatory framework
    1. The conceptual framework
      • Describe what is meant by conceptual framework for financial reporting
      • Explain the purpose of a conceptual Framework of accounting
      • Describe the qualitative characteristics of financial information including the application to the preparation of financial statements.
        • Faithful representation
        • Relevance
        • Comparability
        • Understandability
        • Verifiability
        • Timeliness
      • Explain the principle comparability in accounting for changes in accounting policy
      • Explain the importance of timeliness and comparability to users of financial statements.
      • Explain the recognition and measurement criteria for elements of financial statements.
      • Apply the recognition and measurement criteria contained in the Conceptual Framework to assets, liabilities, income and expenses
      • Calculate values of elements of financial statements using the following measures:
        • Historical cost
        • Current cost
        • Net realizable value
        • Present value of future cash flows
        • Fair value
      • Explain how the use of current value accounting overcomes the problems of historical cost accounting
      • Explain the concept of financial and physical capital maintenance and how it affects determination of profits
    2. The regulatory framework: IASB structure, global harmonisation
      • Explain why a regulatory framework is needed including the advantages and disadvantages of IFRS over national regulation
      • Explain why accounting standards on their own are not a complete regulatory framework
      • Distinguish between a principles based and a rules based framework and explain how they complement each other
      • Describe the structure and objectives of the IASB and the other bodies involved in formulating IFRSs
      • Describe the IASB’s standard setting process including revisions and interpretations of standards
      • Explain the relationship between the IASB and national standard setters
      • Outline the current progress of international harmonisation of accounting standards
  2. Single Entity Financial statements

    1. Presentation of financial statements (IAS 1) (A)
      • Illustrate the formats and content of published financial statements presented under IFRS
      • Prepare the statements of an individual entity in accordance with IFRS
        • Statement of Profit or loss
        • Statement of Financial Position
        • Statement of Cash flows
        • Statement of changes in equity
      • Explain the content and purpose of each of the above financial statements
    2. Tangible Non-current assets (IAS 16, 23 and 40)
      • Define tangible non-current assets
      • Identify the components of cost of a tangible non-current assets, including subsequent expenditure that may be capitalised
      • Define and compute initial measurement of non-current asset (acquired and constructed)
      • Distinguish between capital and revenue items
      • Discuss the requirements of relevant accounting standards in relation to revaluation of non-current assets
      • Account for revaluations and disposal gains and losses for non-current assets
      • Account for the revaluation and disposal of items of property, plant and equipment
      • Discuss the treatment of investment property and explain why it should differ from the treatment of other tangible non-current assets
      • Apply the requirements of IAS 40 to accounting for investment property
    3. Intangible assets (IAS 38 and IFRS 3)
      • Describe the criteria for the recognition of intangible assets
      • Discuss the nature and accounting treatment of internally generated and purchased intangibles
      • Describe the criteria for the initial and subsequent measurement of intangible assets
      • Indicate why the value of purchase consideration for an investment may be less than the acquired identifiable net assets and how the difference should be accounted for.
      • Apply the requirement of relevant accounting standard to research and development expenditure
      • Distinguish between goodwill and other intangible assets
      • Describe how goodwill arises and its accounting treatment IFRS
      • Apply amortization and impairment losses to relevant intangibles
    4. Impairment of assets (IAS 36 and IFRS 3)
      • Define an impairment loss and identify the circumstances which indicate that an impairment may have taken place
      • Describe what is meant by a cash generating unit
      • Apply the correct accounting treatment to an impairment loss for an individual asset or a cash generating unit
      • State the basis for allocating impairment losses and allocate impairment loss to assets of a cash generating unit
    5. Reporting financial performance (IAS 8, IAS 20, IFRS 5 and IFRS 15)
      • Distinguish between changes in accounting policies and changes in accounting estimates
      • Account for changes in accounting policies, changes in estimates and the correction of prior period errors
      • Define government grants and distinguish between income related and asset related government grants
      • Account for income related and asset related government grants including the recognition criteria for government grants
      • Explain the accounting treatment for repayment of government grants
      • Define and account for non-current assets held for sale and discontinued operations
      • Explain why it is important to separately identify the results of discontinued operations
      • Define and account for non-current assets held for sale and discontinued operation
      • Indicate circumstances where separate disclosure of material items of income and expense is required
      • Describe and apply the requirements of International Financial Reporting Standards on revenue recognition
        • Identification of contracts
        • Identification of performance obligations
        • Determination of transaction price
        • Allocation of the price to performance obligations
        • Recognition of revenue when performance obligations are satisfied
        • Explain and apply criteria for recognising revenue when performance obligations are satisfied:
        • Over time o At a point in time
      • Describe acceptable methods for measuring progress towards complete satisfaction of performance obligation
      • Explain and apply the criteria for recognition of contract costs
      • Apply principles of recognition of revenue, and specifically account for the following types of transactions:
        • Principal versus agent
        • Consignments
        • Bill and hold arrangements
        • Repurchase agreements
      • Prepare financial statement extracts for contracts where performance obligations are satisfied over time
      • Apply the provisions of relevant accounting standards in relation to accounting for government grants
    6. Inventories and construction contracts (IAS 2)
      • Define and apply the principles of inventory valuations
    7. Provisions and events after the reporting period (IAS 37 and 10)
      • Explain why an accounting standard on provisions was needed
      • Identify the circumstances in which provisions are appropriate and apply the correct accounting treatment
      • Distinguish between legal and constructive obligation
      • Explain how provisions should be measured
      • State when provisions may or may not be made
      • Define contingent assets and contingent liabilities and explain how they are treatment
      • Apply the requirements of international Financial Reporting Standards to warranties, onerous contracts, environmental and similar provisions and restructuring costs
      • Identify and account for:
        • Warranties/guarantees
        • Onerous contracts
        • Environmental and similar provisions
        • Provisions for future repairs or refurbishments
      • Distinguish between adjusting and non-adjusting events after the reporting period and apply the correct accounting treatment
      • Identify items requiring separate disclosure, including their accounting treatment
    8.  Accounting for leases (IAS 17) (M)
      • Distinguish between a finance lease and an operating lease
      • Explain the importance of accounting for finance leases according to their commercial substance
      • Describe and apply a method for determining a lease type
      • Account for finance and operating leases in the financial statement of the lessee
      • Discuss the effects on financial statements of a finance lease being incorrectly treated as an operating lease
      • Account for sale and leaseback
    9. Accounting for taxation (IAS 12)
      • Account for current taxation in accordance with international accounting standards
      • Explain how taxable and deductible temporary differences arise
      • Explain the effect of taxable temporary differences on accounting and taxable profits
      • Calculate and account for deferred tax amounts in the financial statements
    10. Segment reporting (IFRS 8)
      • Define a reporting segment
      • Explain how the IFRS 8 approach differs from the business and geographical approach under IAS 14
      • Prepare a simple segment report in accordance with IFRS 8
      • Describe criteria for identifying a reportable segment
    11. Agriculture (IAS 41) (M)
      • Define and measure biological assets
      • Apply the requirements of international standards in accounting for agricultural activity
    12.  Statement of cash flows (IAS 7)
      • Outline the purpose and objectives of a statement of cash flows
      • describe operating, investing and financing activities
      • Define cash and cash equivalents
      • Prepare a statement of cash flows for a single entity using both the direct and indirect methods
      • Explain the benefits of users of a statement of cash flows, including its usefulness in assessing the performance of an entity
    13. Branch accounting
      • Account for the activities of branches where each branch maintains its own distinct accounting records
      • Account for activities where head office maintains records for all branches
    14. Foreign currency translation
      • Discuss and distinguish functional currency and presentation currency
      • Apply relevant accounting standards for the translation of foreign currency amount at different time periods
    15. Basic financial instruments
      • Explain the need for an accounting standard on financial instruments
      • Define financial instruments in terms of financial assets and financial liabilities
      • Explain and account for factoring of receivables
      • Explain classification and measurement of financial instruments using:
        • Amortized cost
        • Fair value through other comprehensive income
        • Fair value through profit or loss
      • Distinguish between debt and equity instruments
      • Apply requirement of relevant accounting standard to issue and finance costs of
        • Equity
        • Redeemable preference shares
        • Convertible debts
      • Indicate how gains and losses from subsequent measurement of financial instruments will be treated in financial statements
  3. Interpretation and analysis

    1. Earnings per share (IAS 33)
      • Compute basic EPS in accordance with international Standards including dealing with changes in capital structure
      • Discuss the importance and limitations of EPS as a measure of performance
    2. Interpretation of financial statements (A)
      • Compute and explain ratios assessing profitability, solvency, efficiency and the value of a shareholders investment in the entity
      • Illustrate how these are compared with the results of previous periods, the results of other entities and industry average ratios
      • Discuss the limitations of financial statement information and ratio analysis in assessing the financial performance of an entity
    3. Cash forecasts (A)
      • Explain importance and uses of cash flow forecasts
      • Prepare cash flow forecasts
    4. Forecast of Financial statements (A)
      • Prepare forecast financial statements and apply outcome to appropriate decision making.
  4. Group financial statements

    1. Business combinations (M)
      • Define a group, a subsidiary and an associate
      • Identify the circumstances in which a group is required to prepare consolidated financial statements and the circumstances under which a group can claim exemptions from this requirement
      • Outline the rules on exclusion of a subsidiary from consolidation
      • explain why directors may not wish to consolidate a subsidiary and when this is permitted by IFRS and other regulation
      • discuss the issues of continuous year ends and uniform accounting policies when preparing group financial statements
      • List the contents of a set of group financial statements
    2. Accounting for subsidiaries (IAS 27, IFRS 3, IFRS 10)
      • Apply the basic consolidation procedure, including calculation of non-controlling interest (using proportionate of net assets and fair value methods) in the preparation of group statements of financial position and statement of profit and loss with a single subsidiary
      • Apply the required accounting treatment of goodwill, including calculation of goodwill arising on acquisition.
      • Accounting for the impairment of goodwill
      • Account for the effect on intra-group transactions
      • Account for the effects of fair value adjustments
    3. Accounting for associates and joint ventures (IAS 28 and 31)
      • Define joint venture, joint control and significant influence
      • Describe the accounting treatment for associates in group financial statements
      • Describe different forms of joint ventures including: jointly controlled operation, jointly controlled assets and jointly controlled entities
      • Describe accounting treatment involving joint ventures and account for joint venture transactions
  5. Financial statements for public sector entities

    1. Financial Reporting Framework for public sector entities (M)
      • Explain the progress in the development of the conceptual framework for not for profit entities
      • Contrast the aims of public sector entities with those of profit making
    2. International public sector accounting standards (IPSAS)
      • Discuss the extent to which International standards are relevant to public sector entities C Preparation of financial statements for public sector entities
      • Discuss the content of public sector financial entities in accordance with IPSAS 1
      • Outline how the performance of public sector entities can best be measured

Format of the exam

 Section Marks
Section A: 2 compulsory questions, 25 marks each 50
Section B: Any 2 out of 3 questions, 25 marks each 50
TOTAL 100
Time allowed: 3 hours, plus 15 minutes reading time

Recommended reading

  1. ZiCA D8 Study Manual
  2. 2015 International Financial Reporting Standards, IFRS Foundation Education Initiative
  3. Dodge, R, Foundations of Business Accounting, 2nd edition, Cengage Learning, 1997
  4. Dunn, J, Financial Reporting and Analysis, Wiley, 2010
  5. Elliott, B J and Elliott, J, Financial Accounting and Reporting, 14th edition, FT Prentice Hall, 2010
  6. Wood, F and Sangster, A, Business Accounting 1, 12th edition, FT Prentice Hall, 2011
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