Auckland University of Technology

Private Bag 92006, Auckland 1142, NZ

T: +64 9 921 9999
www.aut.ac.nz

ACCT865 Advanced Financial Accounting

Trimester 2, 2020
Assessment 1: Conceptual framework and Fair Value Measurement
Weighting: 30%
Maximum marks: 30
Due date: 12 noon, 31/07/2020
Please see the Study Guide for information on this piece of assessment

Marking criteria:
a) Technical content (70%) – This includes the following criteria:
 appropriate use of the requirements of the relevant NZ IFRSs standards and the NZ
Conceptual Framework
 analysis
b) Quality of writing, presentation, structure and flow (30%) – This includes the following sub-
criteria:
 use of academic language, grammar and clarity of communication
 articulation and flow of ideas
 in-text citations and references
Instructions
1. You are expected to utilize all relevant online resources.
2. Plagiarism is strictly prohibited.
3. Use APA citation and referencing style.

Question 1 (15 marks = 10 marks + 5 marks)

B Ltd, a New Zealand company, has invested heavily in the shares of many New Zealand listed companies,
and is required by NZ IFRSs to measure the investment in shares at fair value. The balance date of B Ltd is
31 May 2020. Because of the corona virus pandemic, prices of shares of all listed companies experienced
significant volatility, and the price of the shares in which B Ltd invested declined significantly during the
year ended on 31 May 2020. Although NZ IFRSs require B Ltd to measure its investment in shares at fair
value, the company did not measure its investment at fair value on 31 May 2020. The auditor of B Ltd
asked the firm to measure its investment at fair value. The company disagrees with the auditor, and argues
that share prices have been volatile during the COVID-19 crisis, and hence do not reflect faithfully the fair
value of its investment. Measuring the investment at fair value at 31 May 2020 would be misleading to
investors. The management of B Ltd and its auditor agreed to sit in a meeting to discuss this disagreement.

Required
a) Suppose you are a junior auditor at the audit firm auditing the financial statements for the year
ended 31 May 2020. Write down a memo for the engagement partner that they would use to
prepare for the meeting.
b) Why do you think the management of B Ltd might not be interested in measuring the investment in
shares of listed companies at fair value?

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Auckland University of Technology
Private Bag 92006, Auckland 1142, NZ
T: +64 9 921 9999
www.aut.ac.nz

Guidance to students
In the first part of your answer, you need to refer to appropriate paragraphs of the Conceptual Framework,
NZ IAS 1 and NZ IFRS 13 in your answer. To write the second part of your answer, study section 2.4 of
Chapter 2 of the text book. The answer should not exceed 700 words.

Question 2 (5 marks)

Explain why NZ IFRS 13 prioritizes level 1 inputs over level 2 and level 3 inputs when estimating the fair
value.

Guidance to students
Link your answer to the Conceptual Framework concepts. The answer should not exceed 200 words.

Question 3 (10 marks = 3 marks + 7 marks)

NZ IFRS 13 requires reporting entities to disclose the fair value measurement techniques and inputs used
to develop those measurements. The Financial Markets Authority evaluates the compliance of New
Zealand entities with NZ IFRSs. Suppose you are a junior accountant at FMA. As part of the evaluation,
your boss asked you to develop a disclosure checklist for NZ IFRS 13, and evaluate, using that checklist,
whether Kiwi Property complies with the disclosure requirements of NZ IFRS 13 for investment property
in its 2020 annual report.

Required
a) Develop a disclosure checklist for NZ IFRS 13.
b) Using the checklist, evaluate whether Kiwi Property complied with the disclosure requirements of
NZ IFRS 13. Your evaluation must incorporate two components:
i. workings to show whether the company complied with each item in the checklist, and
ii. based on your workings, write a memo to your boss. In this memo, state your conclusion
of whether the company complied with all the material disclosure requirements of NZ
IFRS 13, identify any disclosure requirement of NZ IFRS 13 with which the company did
not comply, and any possible improvement in disclosures the company can make keeping
in view the disclosure objective of NZ IFRS 13, para. 91.

Guidance to students
Follow the following format for workings:

Answer to (a): disclosure checklist Answer to (b)(i): workings to

evaluate compliance
NZ IFRS 13 Disclosure item Complied In case of
paragraph (√/×) compliance, page
number number in the
annual report

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Auckland University of Technology
Private Bag 92006, Auckland 1142, NZ
T: +64 9 921 9999
www.aut.ac.nz

Answer to (b)(ii)
Overall comments:
(maximum 200 words)