The aims of Financial Reporting are to develop knowledge and skills in understanding and applying accounting standards and the conceptual and regulatory frameworks in the preparation of financial statements of single and group entities. The analysis and interpretation of the operating performance and financial position of financial statements will also be tested. The exam also forms the basis of the assumed knowledge required in the Professional Level Corporate Reporting.
On successful completion of Financial Reporting, candidates should be able to:
- Discuss the need for a conceptual framework for financial reporting and prepare and present financial statements that conform with International Financial Reporting Standards (IFRS)
- Account for business combinations in accordance with IFRS, and
- Analyse and interpret the financial statements of a single entity and a group.
Financial Reporting builds on the knowledge and skills acquired from Knowledge Level, Financial Accounting. FR will provide the platform for progression to Corporate Reporting, and (to a lesser extent) to Case Study
As indicated, a substantial element of Financial Reporting is the requirement to understand and apply accounting standards. Not all extant accounting standards are examinable; the examinable standard have been clearly spelt out in the Financial Reporting Pack produced by ICAN.
Some International Financial Accounting Standards are very detailed and complex and it would be inappropriate to expect candidates at this level to have a complete knowledge of such standards. Therefore, candidates will be expected to understand the main principles and objectives of accounting standards, and to be able to apply these when required to produce financial statements that are made available publicly (often referred to as published accounts questions) and in scenario questions.
Further important aspects of the syllabus are the conceptual issues and definition of the elements of financial statements that underpin IFRSs and generally accepted accounting principles. Much of the conceptual knowledge is to be found in the IASB’s Conceptual Framework for Financial Reporting (Framework). The role of the IASB is an important element of the regulatory framework.
The concept of business combinations and the preparation of consolidated financial statements (group accounts) is an important element of the Financial reporting exam. Accounting for business combinations can be seen as a progression from preparing the financial statements of a single entity. Consolidation questions will be limited to a parent company and one subsidiary, with the possible inclusion of an associate that will require equity accounting.
It should be noted that joint ventures are not examinable in Financial Reporting.
Candidates may observe that some accounting standards appear in all three financial accounting exams (Financial Accounting-Financial Reporting-Corporate Reporting). This illustrates the relationship between the exams, and reflects the continuity and progression of the syllabus. Where a topic that appears in FA is also included in FR, any examination of that topic will be at more advanced level, requiring greater understanding and appropriately higher level skills.
The final element of the syllabus is the analysis and interpretation of the financial statements of a single entity or a group. Although candidates will be expected to calculate various accounting ratios, FR places emphasis on the interpretation of what particular ratios are intended to measure and the impact that consolidation adjustments may have on any comparisons of group financial statements.
To summarise, candidates need to understand the concepts underlying the preparation of an entity’s financial reports, to apply their knowledge of accounting standards to prepare financial statements of both single and group entities, and finally, to demonstrate their analytical skills to assess aspects of the performance of single entities and groups based on their financial statements and accounting ratios derived from them.
Format and structure of the examination
The revised structure of the three-hour examination will comprise of three sections, A, B and C.
You are expected to answer 5 of 7 questions
Section A will contain a compulsory question representing 30% of the examination. Simply put section A carries 30 marks
SECTION B: YOU ARE REQUIRED TO ANSWER ANY TWO OUT OF THREE QUESTIONS IN THIS SECTION (40 MARKS).
YOU ARE REQUIRED TO ANSWER ANY TWO OUT OF THREE QUESTIONS IN THIS SECTION (30 Marks)
SECTION A
The 30 mark question in this section can potentially test any area of the syllabus. It is always computational and test both knowledge and application. This question always revolve around
- preparation of a profit or loss account and preparation of statement of a financial position.
- Statement of Cash Flow
SECTION B
The three case questions in Section B will be based on a scenario. All the three questions in the case might be related to a single topic area or a few syllabus topics might be contained in each scenario. These case questions allow syllabus topics to be examined in depth and can be drawn from any part of the syllabus.
SECTION C
Section C questions on group financial statements will be largely computational but there may also be a short written element.
Aspects of group accounting can also be examined in Sections A and B.
The consolidation question might require the preparation of the consolidated statements of profit or loss and other comprehensive income and/or the consolidated statement of financial position. Usually, the group will include only a single subsidiary, but may include an associate. It may be that ‘extracts’ of financial statements are required rather than the preparation of full financial statements.
Important consolidation topics to master are: the concept of pre- and post-acquisition profits, calculation of goodwill and non-controlling interests, fair value adjustments and elimination of intra-group transactions.
Section C questions on the preparation of single entity financial statements are a good example of where several syllabus areas can be tested in a single question, for example such questions are likely to cover several IFRS topics.
Commonly information will be in the form of a trial balance (or extracts) accompanied by several notes that will need to be taken into account in preparing the financial statements. Topics that often appear in these questions are: accounting for leases, the revaluation or impairment of non-current assets, dealing with financial instruments, taxation including deferred tax and calculating earnings per share.
Candidates may also be asked to comment on the appropriateness or acceptability of management’s proposed accounting treatment of a transaction or event.
Questions on the analysis and interpretation of financial statements may require the calculation of certain ratios prior to their analysis. Candidates should be prepared to interpret the comparative performance of an entity over periods of time, one entity against a competitor entity or against industry sector averages. Candidates will need an understanding of how certain transactions or events, including consolidation adjustments, may have affected a valid comparison.
Please remember the above is not an exhaustive list of the topics that may appear in Section C, virtually the whole of the syllabus may be examined here.