P2 INT study text 2013

emilewoolfpublishing.com

2013

ACCA P2 (INT)

Corporate

Reporting

Publishing

Study Text

ACCA

Paper

P2

Corporate Reporting

(International)

Publishing

Welcome to Emile Woolf‘s study text for

Paper P2 Corporate Reporting (INT) which is:

„ Written by tutors

„ Comprehensive but concise

„ In simple English

„ Used around the world by Emile Woolf Colleges

including China, Russia and the UK

ii © Emile Woolf Publishing Limited

Sixth edition published by   

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© Emile Woolf Publishing Limited, April 2013

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Emile Woolf Publishing Limited has made every effort to ensure that at the time of

writing the contents of this study text are accurate, but neither Emile Woolf Publishing

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British Library Cataloguing in Publications Data

A catalogue record for this book is available from the British Library.

ISBN: 978‐1‐84843‐194‐2

Printed and bound in Great Britain

Acknowledgements

The Syllabus and study guide are reproduced by kind permission of the Association of

Chartered Certified Accountants.

All IASB material is adapted and reproduced with the kind permission of the International

Accounting Standards Committee Foundation. © International Accounting Standards

Committee Foundation (IASB). All rights reserved.

© Emile Woolf Publishing Limited iii

Paper P2 (INT)

Corporate Reporting

c

Contents

Page

Syllabus and study guide v

Chapter 1 The professional and ethical duty of the accountant 1

Chapter 2 Social reporting 9

Chapter 3 The financial reporting framework 19

Chapter 4 Reporting financial performance 59

Chapter 5 Non-current and current assets 87

Chapter 6 Financial instruments 121

Chapter 7 Leases and substance over form 161

Chapter 8 Reporting requirements for listed companies 181

Chapter 9 Employee benefits and share based payments 203

Chapter 10 Taxation 229

Chapter 11 Provisions and events after the reporting period 251

Chapter 12 Specialised entities 273

Chapter 13 Group financial statements 281

Chapter 14 Group financial statements: complex groups 341

Chapter 15 Group financial statements: step acquisitions and disposals 365

Chapter 16 Group reorganisations and restructuring 381

Chapter 17 Foreign currency 395

Chapter 18 Statements of cash flows 419

Chapter 19 Performance measurement 453

Chapter 20 Other issues 481

Practice questions 489

Paper P2: Corporate Reporting (International)

iv © Emile Woolf Publishing Limited

Answers 525

Index 587

Examinable documents

© Emile Woolf Publishing Limited iii

Examinable documents

International Accounting Standards (IASs)/International Financial

Reporting Standards (IFRSs)

Chapter:

IAS 1 Presentation of Financial Statements 4

IAS 2 Inventories 5

IAS 7 Statement of Cash Flows 18

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 3

IAS 10 Events after the Reporting Period 11

IAS 12 Income Taxes 10

IAS 16 Property, Plant and Equipment 5

IAS 17 Leases 7

IAS 18 Revenue 4

IAS 19 Employee Benefits 9

IAS 20 Accounting for Government Grants and Disclosure of Government

Assistance 5

IAS 21 The Effects of Changes in Foreign Exchange Rates 17

IAS 23 Borrowing Costs 5

IAS 24 Related Party Disclosures 4

IAS 27 Separate Financial Statements 13

IAS 28 Investments in Associates and joint ventures 13

IAS 32 Financial Instruments: Presentation 6

IAS 33 Earnings per Share 8

IAS 34 Interim Financial Reporting 8

IAS 36 Impairment of Assets 5, 13

IAS 37 Provisions, Contingent Liabilities and Contingent Assets 11

IAS 38 Intangible Assets 5

IAS 39 Financial Instruments: Recognition and Measurement 6

IAS 40 Investment Property 5

IFRS 1 First-time Adoption of International Financial Reporting Standards 20

IFRS 2 Share-based Payment 9

IFRS 3 Business Combinations (revised) 13, 15

IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations 4, 5

IFRS 7 Financial Instruments: Disclosures 6

IFRS 8 Operating Segments 8

IFRS 9 Financial Instruments 6

IFRS 10 Consolidated Financial Statements 3, 13

IFRS 11 Joint Arrangements 3, 13

IFRS 12 Disclosure of Interests in Other Entities 3, 13

IFRS 13 Fair Value Measurement 3, 6

IFRS for SMEs IFRS for small and medium sized entities 12

Paper P2: Corporate Reporting (International)

iv © Emile Woolf Publishing Limited

Chapter:

Other Statements

The Conceptual Framework for Financial Reporting 3

Practice statement: Management Commentary 2

EDs, Discussion Papers and Other Documents

ED2009/12 Financial Instruments: Amortised Cost and Impairment 6

ED 2010/06 Revenue from contracts with customers 4

ED 2010/09 Leases 7

ED 2011/04 Investment Entities 13

© Emile Woolf Publishing Limited v

Paper P2 (INT)

Corporate reporting

S

Syllabus and study guide

Aim

To apply knowledge, skills and exercise professional judgement in the application and

evaluation of financial reporting principles and practices in a range of business contexts and

situations.

Main capabilities

On successful completion of this examination candidates should be able to:

A Discuss the professional and ethical duties of the accountant

B Evaluate the financial reporting framework

C Advise on and report the financial performance of entities

D Prepare the financial statements of groups of entities in accordance with

relevant accounting standards

E Explain reporting issues relating to specialised entities

F Discuss the implications of changes in accounting regulation on financial

reporting

G Appraise the financial performance and position of entities

H Evaluate current developments

Paper P2: Corporate Reporting (International)

vi © Emile Woolf Publishing Limited

Rationale

The syllabus for Paper P2, Corporate Reporting, assumes knowledge acquired at the

Fundamentals level including the core technical capabilities to prepare and analyse

financial reports for single and combined entities.

The Paper P2 syllabus takes the subject into greater depth and contextualises the

role of the accountant as a professional steward and adviser/analyst by initially

exploring the wider professional duties and responsibilities of the accountant to the

stakeholders of an organisation.

The syllabus examines the financial reporting framework within which the

accountant operates and examines detailed financial reporting requirements for

entities leading to the preparation of group financial reports in accordance with

generally accepted accounting practice and relevant standards.

The syllabus then deals with the nature of reporting for specialised entities

including not-for-profit and small and medium-sized enterprises.

The final sections of the syllabus explore – in more depth – the role of the

accountant as financial analyst and adviser through the assessment of financial

performance and position of entities, and the accountant’s role in assessing and

advising on the implications of accounting regulation on corporate reporting.

Finally, the syllabus covers the evaluation of current developments and their

implications for financial reporting.

Syllabus

A The professional and ethical duty of the accountant

1. Professional behaviour and compliance with accounting standards

2. Ethical requirements of corporate reporting and the consequences of

unethical behaviour

3. Social responsibility

B The financial reporting framework

1. The applications, strengths and weaknesses of an accounting framework

2. Critical evaluation of principles and practices

C Reporting the financial performance of entities

1. Performance reporting

2. Non-current assets

3. Financial instruments

4. Leases

5. Segment reporting

6. Employee benefits

7. Income taxes

8. Provisions, contingencies and events after the reporting date

9. Related parties

10. Share-based payment

Syllabus and study guide

© Emile Woolf Publishing Limited vii

11. Reporting requirements of small and medium-sized entities (SMEs)

D Financial statements of groups of entities

1. Group accounting including statements of cash flows

2. Continuing and discontinued interests

3. Changes in group structures

4. Foreign transactions and entities

E Specialised entities and specialised transactions

1. Financial reporting in specialised, not-for-profit and public sector

entities

2. Entity reconstructions

F Implications of changes in accounting regulation on financial reporting

1. The effect of changes in accounting standards on accounting systems

2. Proposed changes to accounting standards

G The appraisal of financial performance and position of entities

1. The creation of suitable accounting policies

2. Analysis and interpretation of financial information and measurement

of performance

H Current developments

1. Environmental and social reporting

2. Convergence between national and international reporting standards

3. Current reporting issues

Approach to examining the syllabus

The syllabus is assessed by a three-hour paper-based examination. It examines

professional competences within the corporate reporting environment.

Students will be examined on concepts, theories, and principles, and on their ability

to question and comment on proposed accounting treatments.

Students should be capable of relating professional issues to relevant concepts and

practical situations. The evaluation of alternative accounting practices and the

identification and prioritisation of issues will be a key element of the paper.

Professional and ethical judgement will need to be exercised, together with the

integration of technical knowledge when addressing corporate reporting issues in a

business context.

Global issues will be addressed via the current issues questions on the paper.

Students will be required to adopt either a stakeholder or an external focus in

answering questions and to demonstrate personal skills such as problem solving,

dealing with information and decision making.

The paper also deals with specific professional knowledge appropriate to the

preparation and presentation of consolidated and other financial statements from

accounting data, to conform with accounting standards.

Paper P2: Corporate Reporting (International)

viii © Emile Woolf Publishing Limited

The paper will comprise two sections.

Number

of marks

Section A Compulsory question 50 marks

Section B 2 from 3 questions of 25 marks each 50 marks

–––––––––

100 marks –––––––––

Section A will consist of one scenario based question worth 50 marks. It will deal

with the preparation of consolidated financial statements including group

statements of cash flows and with issues in financial reporting.

Students will be required to answer two out of three questions in Section B, which

will normally comprise two questions which will be scenario or case-study based

and one essay question which may have some computational element. Section B

could deal with any aspects of the syllabus.

Syllabus and study guide

© Emile Woolf Publishing Limited ix

Study guide

This study guide provides more detailed guidance on the syllabus. You should use

this as the basis of your studies.

A The professional and ethical duties of the accountant

1 Professional behaviour and compliance with accounting standards

a) Appraise and discuss the ethical and professional issues in

advising on corporate reporting.

b) Assess the relevance and importance of ethical and professional

issues in complying with accounting standards.

2 Ethical requirements of corporate reporting and the consequences

of unethical behaviour

a) Appraise the potential ethical implications of professional and

managerial decisions in the preparation of corporate reports.

b) Assess the consequences of not upholding ethical principles in the

preparation of corporate reports.

3 Social Responsibility

a) Discuss the increased demand for transparency in corporate

reports, and the emergence of non-financial reporting standards.

b) Discuss the progress towards a framework for environmental and

sustainability reporting.

B The financial reporting framework

1 The applications, strengths and weaknesses of an accounting

framework

a) Evaluate the valuation models adopted by standard setters.

b) Discuss the use of an accounting framework in underpinning the

production of accounting standards.

c) Assess the success of such a framework in introducing rigorous

and consistent accounting standards.

2 Critical evaluation of principles and practices

a) Identify the relationship between accounting theory and practice.

b) Critically evaluate accounting principles and practices used in

corporate reporting.

C Reporting the financial performance of entities

1 Performance reporting

a) Prepare reports relating to corporate performance for external

stakeholders.

b) Discuss the issues relating to the recognition of revenue.

c) Evaluate proposed changes to reporting financial performance.

Paper P2: Corporate Reporting (International)

x © Emile Woolf Publishing Limited

2 Non-current assets

a) Apply and discuss the timing of the recognition of non-current

assets and the determination of their carrying amounts including

impairments and revaluations.

b) Apply and discuss the treatment of non-current assets held for

sale.

c) Apply and discuss the accounting treatment of investment

properties including classification, recognition and measurement

issues.

d) Apply and discuss the accounting treatment of intangible assets

including the criteria for recognition and measurement subsequent

to acquisition and classification.

3 Financial Instruments

a) Apply and discuss the recognition and de-recognition of financial

assets and financial liabilities.

b) Apply and discuss the classification of financial assets and

financial liabilities and their measurement.

c) Apply and discuss the treatment of gains and losses arising on

financial assets and financial liabilities.

d) Apply and discuss the treatment of impairments of financial

assets.

e) Account for derivative financial instruments, and simple

embedded derivatives.

f) Outline the principles of hedge accounting and account for fair

value hedges and cash flow hedges including hedge effectiveness.

4 Leases

a) Apply and discuss the classification of leases and accounting for

leases by lessors and lessees.

b) Account for and discuss sale and leaseback transactions.

5 Segment Reporting

a) Determine the nature and extent of reportable segments.

b) Specify and discuss the nature of segment information to be

disclosed.

6 Employee Benefits

a) Apply and discuss the accounting treatment of short term and

long term employee benefits.

b) Apply and discuss the accounting treatment of defined

contribution and defined benefit plans.

c) Account for gains and losses on settlements and curtailments.

d) Account for the “Asset Ceiling” test and the reporting of actuarial

gains and losses.

7 Income taxes

a) Apply and discuss the recognition and measurement of deferred

tax liabilities and deferred tax assets.

Syllabus and study guide

© Emile Woolf Publishing Limited xi

b) Determine the recognition of tax expense or income and its

inclusion in the financial statements.

8 Provisions, contingencies and events after the reporting date

a) Apply and discuss the recognition, de-recognition and

measurement of provisions, contingent liabilities and contingent

assets including environmental provisions.

b) Calculate and discuss restructuring provisions.

c) Apply and discuss the accounting for events after the reporting

date.

d) Determine and report going concern issues arising after the

reporting date.

9 Related parties

a) Determine the parties considered to be related to an entity.

b) Identify the implications of related party relationships and the

need for disclosure.

10 Share based payment

a) Apply and discuss the recognition and measurement criteria for

share-based payment transactions.

b) Account for modifications, cancellations and settlements of

share based payment transactions.

11 Reporting requirements of small and medium-sized entities (SMEs)

a) Outline the principal considerations in developing a set of

accounting standards for SMEs.

b) Discuss solutions to the problem of differential financial reporting.

c) Discuss the reasons why the IFRS for SME’s does not address

certain topics.

d) Discuss the accounting treatments not allowable under the IFRS

for SME’s including the revaluation model for certain assets

e) Discuss and apply the simplifications introduced by the IFRS for

SME’s including accounting for goodwill and intangible assets,

financial instruments ,defined benefit schemes, exchange

differences and associates and joint ventures.

D Financial statements of groups of entities

1 Group accounting including statements of cash flows

a) Apply the method of accounting for business combinations

including complex group structures.

b) Apply the principles in determining the cost of a business

combination.

c) Apply the recognition and measurement criteria for identifiable

acquired assets and liabilities and goodwill including step

acquisitions.

d) Apply and discuss the criteria used to identify a subsidiary and an

associate.