Icaew Study Guide Summary Audit

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Icaew Study Guide - Summary Audit
Financial Accounting (University of Dhaka)
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The Institute of Chartered Accountants in England and Wales
FINANCIAL ACCOUNTING AND
REPORTING – IFRS

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For exams in 2018

Study Guide
www.icaew.com
Contents
1 Introduction 1
2 Financial Accounting and Reporting – IFRS 2
3 Skills within the ACA 3
4 Permitted texts 4
5 Study guide 5
6 Syllabus and learning outcomes 23
7 Technical knowledge grids 25
8 Key resources 34
9 Glossary 35

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1 Introduction
ACA qualification
The ICAEW chartered accountancy qualification, the ACA, is a world-leading professional qualification in
accountancy, finance and business.
The ACA has integrated components that give you an in-depth understanding across accountancy,
finance and business. Combined, they help build the technical knowledge, professional skills and
practical experience needed to become an ICAEW Chartered Accountant.
Each component is designed to complement each other, which means that you can put theory into
practice and you can understand and apply what you learn to your day-to-day work. Progression
through all the elements of the ACA simultaneously will enable you to be more successful in the
workplace and exams.
The components are:
 Professional development
 Ethics and professional scepticism
 Three to five years practical work experience
 15 accountancy, finance and business modules
To find out more on the components of the ACA and what is involved in training, visit your dashboard
at icaew.com/dashboard

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Study Guide 1
2 Financial Accounting and Reporting – IFRS
The full syllabus and technical knowledge grids can be found within the module study guide. Visit
icaew.com/dashboard for this and more resources.
2.1 Module aim
To enable students to prepare complete single entity and consolidated financial statements, and extracts
from those financial statements, covering a wide range of International Financial Reporting Standards
(IFRS).
Students will also be required to explain accounting and reporting concepts and ethical issues, and the
application of IFRS to specified single entity or group scenarios.
On completion of this module, students will be able to:
 explain the contribution and inherent limitations of financial statements, apply the International
Accounting Standards Board’s (IASB) conceptual framework for financial reporting and identify and
explain key ethical issues;
 prepare and present financial statements from accounting data for single entities in conformity
with IFRS and explain the application of IFRS to specified single entity scenarios;
 identify the circumstances in which entities are required to present consolidated financial
statements, prepare and present them in conformity with IFRS and explain the application of IFRS
to specified group scenarios; and
 describe the principal differences between IFRS and UK GAAP and prepare simple extracts from

financial statements in accordance with UK GAAP, for both single entity and consolidated financial
statements.
Learning outcomes apply to non-specialised profit-oriented entities unless otherwise specified.
2.2 Method of assessment
The Financial Accounting and Reporting module is assessed by a 3 hour computer-based exam. The
exam contains four written test questions. Students may use the permitted text(s) as detailed on the
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ICAEW website: icaew.com/permittedtexts.

The module will include questions on:
(a) Preparation of single entity financial statements (excluding statement of cash flows) from trial
balance (Question 1);
(b) Preparation of consolidated financial statements (excluding consolidated statement of cash flows)
from individual financial statements (Question 4); and
(c) Explanation of the application of IFRS to specified scenarios (Question 2).
Other question types (Question 3) could include:
(a) Preparation of a full consolidated statement of cash flows, or extracts, from consolidated financial
statements or preparation of revised extracts from a draft consolidated statement of cash flows, and
(b) Mixed or single topic questions requiring extracts from single entity or consolidated financial
statements (including from statement of cash flows) and/or explanation of financial reporting
treatment with supporting calculations.
Concepts, ethics and UK GAAP will be tested in any of the written test questions.
2.3 Specification grid
This grid shows the relative weightings of subjects within this module and should guide the relative
study time spent on each. Over time the marks available in the assessment will equate to the
weightings below, while slight variations may occur in individual assessments to enable suitably rigorous
questions to be set.
Syllabus area Weighting (%)
1 Accounting and reporting concepts and ethics 10
2 Single entity financial statements 60
3 Consolidated financial statements 30
3 Skills within the ACA
Financial Accounting and Reporting – both IFRS and UK GAAP
Assimilating and using information
Understand the situation and the requirements
 Demonstrate understanding of the business context
 Recognise new and complex ideas within a scenario
 Explain different stakeholder perspectives and interests
 Identify ethical issues including public interest and sustainability issues within a scenario
Identify and use relevant information
 Interpret information provided in various formats
 Evaluate the relevance of information provided
 Filter information provided to identify critical facts
Identify and prioritise key issues and stay on task
 Identify business and financial issues from a scenario
 Prioritise key issues
 Work effectively within time constraints
 Operate to a brief in a given scenario

Structuring problems and solutions
Structure data
 Structure information from various sources into suitable formats for analysis
Develop solutions
 Identify and apply relevant technical knowledge and skills to analyse a specific problem
 Use structured information to identify evidence-based solutions
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 Identify a range of possible solutions based on analysis

 Select appropriate courses of action using an ethical framework
 Identify the solution which is the best fit with acceptance criteria and objectives
Applying judgement
Apply professional scepticism and critical thinking
 Recognise bias and varying quality in data and evidence
 Identify faults in arguments
 Exercise ethical judgement
Relate issues to the environment
 Identify related issues in given scenarios
 Appraise ethical, public interest and regulatory issues
Concluding, recommending and communicating
Conclusions
 Apply technical knowledge to support reasoning and conclusions
 Use valid and different technical skills to formulate opinions, advice, plans, solutions, options and
reservations
Communication
 Present a basic or routine memorandum or briefing note in writing in a clear and concise style
 Communicate clearly to a specialist or non-specialist audience in a manner suitable for the recipient
 Prepare the advice, report, or notes required in a clear, concise and professional style
Study Guide 3
4 Permitted texts
At the Professional and Advanced Levels there are specific texts that you are permitted to take into your
exams with you. All information for these texts, the editions that are recommended for your
examinations and where to order them from, is available on icaew.com/permittedtexts.
Professional level exams Permitted text
Audit and Assurance 
Financial Accounting and Reporting 
Tax Compliance 
Business Strategy and Technology 
Financial Management 
Business Planning No restrictions
Advanced level exams
Corporate Reporting No restrictions
Strategic Business Management No restrictions

Case Study No restrictions
The exams which have no restrictions include the following:
 Business Planning: Banking;
 Business Planning: Insurance;
 Business Planning: Taxation;
 Corporate Reporting;
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 Strategic Business Management; and

 Case Study.
This means you can take any hard copy materials in to these exams that you wish, subject to practical
space restrictions.
Although the examiners use the specific editions listed to set the exam (as listed on our website), you
may use a different edition of the text at your own risk.
This information, as well as what to expect and what is and is not permitted in each exam is available in
the Instructions to Candidates. You will be sent the instructions with your exam admission details. They
can also be viewed on our website at icaew.com/exams.
5 Study guide
5.1 Help yourself study for your ACA exams
The right approach
1 Develop the right attitude
Believe in yourself Yes, there is a lot to learn. But thousands have succeeded
before and you can too.
Remember why you're doing it You are studying for a good reason: to advance your
career.
2 Focus on the exam
Read through the Syllabus and These tell you what you are expected to know and are
Study Guide supplemented by Examination context sections.
3 The right method
See the whole picture Keeping in mind how all the detail you need to know fits
into the whole picture will help you understand it better.
 The Introduction to each chapter in the study guide

puts the material in context.
 The Learning objectives, Section overviews and
Examination context sections in the study manual
show you what you need to grasp.
Use your own words To absorb the information (and to practise your written
communication skills), you need to put it into your own
words.
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 Take notes.
 Answer the questions in each chapter.
 Draw mindmaps.
 Try 'teaching' a subject to a colleague or friend.
Give yourself cues to jog your The Study Manual uses bold to highlight key points.
memory
 Try colour coding with a highlighter pen.
 Write key points on cards.
4 The right recap
Review, review, review Regularly reviewing a topic in summary form can fix it in
your memory. The Study Manual helps you review in many
ways.
 Each Chapter Summary will help you to recall that
study session.
 The Self-test actively tests your grasp of the essentials.
 Go through the Examples in each chapter a second or
third time.
Study Guide 5
5.2 Study cycle
The best way to approach the Study Manual is to tackle the chapters in order. We will look in detail at
how to approach each chapter below but as a general guide, taking into account your individual
learning style, you could follow this sequence for each chapter.
Key study steps Activity
Step 1 This topic list is shown in the contents for each chapter and helps you navigate
Topic list each part of the book; each numbered topic is a numbered section in the
chapter.
Step 2 The practical significance and working context sections for each chapter, set
Introduction out in this study guide give you the big picture in terms of the context of the
chapter. The content is referenced by the Study guide, and Examination
context guidance shows what the examiners are looking for. The Introduction
tells you why the topics covered in the chapter need to be studied.
Step 3 Section overviews give you a quick summary of the content of each of the
Section overviews main chapter sections. They can also be used at the end of each chapter to
help you review each chapter quickly.
Step 4 Proceed methodically through each chapter, particularly focusing on areas
Explanations highlighted as significant in the chapter introduction or study guide.
Step 5 Take brief notes, if you wish. Don't copy out too much. Remember that being

Note taking able to record something yourself is a sign of being able to understand it. Your
notes can be in whatever format you find most helpful; lists, diagrams,
mindmaps.
Step 6 Work through the examples very carefully as they illustrate key knowledge and
Examples techniques.
Step 7 Check yours against the suggested solutions, and make sure you understand
Answers any discrepancies.
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Step 8 Review it carefully, to make sure you have grasped the significance of all the
Chapter summary important points in the chapter.
Step 9 Use the Self-test to check how much you have remembered of the topics
Self-test covered.
Step 10 Ensure you have ticked off the Learning objectives.
Learning objectives
Moving on...
When you are ready to start revising, you should still refer back to the Study Manual.
 As a source of reference (you should find the index particularly helpful for this).
 As a way to review (the Section overviews, Examination context, Chapter summaries and Self-test
questions help you here).
Remember to keep careful hold of the Study Manual – you will find it invaluable in your work.
5.3 Detailed study guide
Use this schedule and your exam timetable to plan the dates on which you will complete each study
period below.
Revision phase – your revision should be centred around using the questions in the ICAEW Question
Bank.
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Study Due
Period Practical significance Working context Approach Syllabus references and exam context Date
1 Reporting framework In all areas of Read through this chapter of the Study In the examination, students may be
accounting and Manual carefully as this is important required to:
In order to fully appreciate international
reporting individuals background knowledge of which you must be  Discuss the purpose of accounting
accounting standards and their
will need a working aware. Take particular note of the section on regulations and standards for both profit-
significance it is important to
knowledge of ethics. This area will be covered in each topic making and not-for-profit entities.
understand the regulatory background
international as you progress through the Study Manual
from which these accounting standards  Explain, with examples, the objectives
accounting standards. A but this section gives you the detail you
have come. and limitations of financial statements.
knowledge of the require. Finally work through the Self-test
Over time different practices and background to these questions carefully to ensure that you have  Explain the qualitative characteristics of
regulations have evolved to meet the standards is also grasped the main points in the chapter. financial information and the constraints
requirements of national economic, important. on such information.
financial and legal systems. The
As professional  Describe the financial effects of the
challenge of international harmonisation
accountants you are application of the definitions in the IASB
is to eliminate or reduce the differences,
expected to have a high Conceptual Framework.
to produce a level playing field for
level of personal and
financial reporting and to help create
professional integrity  Perform simple calculations to
more efficient international capital
and it is important that demonstrate the difference between the
markets.
you are aware of the accrual basis, cash accounting and the
The globalisation of accounting ethical standards that break-up basis.
standards and the convergence process the ICAEW expects of
 Discuss and comment on the
is one of the events in the field of you.
convergence process, including recent
financial reporting in the last decade.
developments.
This process is more than likely to
continue with increasing effects on UK  Identify and explain the ethical and
and other countries alike. professional issues for a professional
accountant.
Stop and think
Have you ever wondered how a Specific syllabus references for this
company’s accountant/finance director chapter are: 1a, 1b, 1c, 1d, 1e, 1f, 1g, 1i
decides which amounts should appear and 2g.
where in a set of annual financial
statements? Part of the answer to this is
the regulatory framework and the
accounting standards that have come
from that.
Study Guide 7

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Study Due
2 Format of financial statements You will have come Chapter 2 is an important chapter as it In the examination, students may be
across financial introduces formats for the statement of required to:
The way that financial information is
statements in the financial position, statement of profit or loss  Discuss the way IAS 1 builds on the
presented to shareholders and other
context of your working and other comprehensive income, and principles contained in the IASB
users is a fundamental part of financial
life. They are a statement of changes in equity. You must be Conceptual Framework, including the
accounting. Corporate scandals have
fundamental part of able to reproduce these. You may also find it following matters:
increased public concern as to the
accounting, audit and useful to refer to the Appendix at the end of – Fair/faithful presentation
adequacy of transparency in financial
tax services. It is less the manual which includes a proforma set of – Accrual basis
statements. Accounting standards
likely these days that financial statements. – Going concern
provide guidance on presentation,
you will have had to – Materiality
although no system of rules can cover Section 9 deals with the financial statements
all eventualities.
prepare financial
of not-for-profit entities. Read through this  Draft in accordance with IAS 1:
statements yourselves as – A statement of financial position,
section carefully.
To ensure that financial statements are this process is largely distinguishing between current and
prepared to an adequate level it is computerised. Exam requirements non-current items
important that entities are provided However, in order to
The ability to prepare financial statements for – A statement of profit or loss and other
with a basic framework for the understand financial
an individual entity (including the statement comprehensive income
preparation of their financial statements. information you need
IAS 1 Presentation of Financial Statements to know the basis on of cash flows) is a fundamental part of the – A statement of changes in equity
provides a basic framework but still which the information Financial Accounting and Reporting syllabus – Notes to the financial statements
allows a degree of flexibility so that has been prepared. and has a syllabus weighting of 60%. It will – Students may be provided with trial
formats and headings can be adapted therefore be examined in some form at every balance/nominal ledger information or
Some of you may have sitting.
so that information is presented in a draft financial statements may be
come across not-for-
way that aids understanding. provided which need finalising.
profit organisations A typical written test question would involve
Stop and think including charities, the preparation of, say, two of the main – Prepare extracts from a statement of
clubs and societies. This components of the financial statements from a cash flows in accordance with IAS 7.
Can you think of any advantages and type of entity may have trial balance, for example, a company  Explain the difference between UK GAAP
disadvantages of standardised formats to comply with statement of financial position and a and international requirements, preparing
for financial statements? additional regulations, statement of profit or loss. You would also be simple calculations to illustrate.
for example the asked to make adjustments based on Specific syllabus references for this
Charities Act in the UK. additional information and/or to produce chapter are: 2a, 2b, 2c, 2e, 2g.
notes to those financial statements.

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Study Due
3 Reporting financial performance It is highly likely that Section 1 deals with IAS 8 and the effects of In the examination, students may be
entities that you come changes in accounting policy required to:
One of the key financial statements is
across in your work will  Prepare financial statements or extracts
the statement of profit or loss and other Section 2 deals with discontinued operations.
operate in different including adjustments for:
comprehensive income which indicates Note the presentation of discontinued
business sectors and
the performance of the business for the operations in the financial statements. – Changes in accounting policies
trade in several
accounting period. – Changes in accounting estimates
countries round the Section 3 covers the treatment of foreign
Many entities have operations in many world. They may also currency transactions and balances. This is at a – Prior period adjustments
different types of business and many have related party very basic level and should not cause any – Foreign currency transactions
different countries. This will almost relationships with other problems.
always involve accounting for foreign And be able to explain the required
individuals and entities.
Read through section 4 carefully making accounting treatment:
currency transactions.
particular note of the definitions involved in  Identify and explain the circumstances in
Many entities will have individuals and identifying related parties. This is a disclosure which an operation would meet the IFRS
other entities connected with them in only standard, but you need to understand 5 definition of a discontinued operation.
some way or another. The basic why it is important and be able to recognise
assumption is that all transactions that related parties in a given scenario.  Calculate basic EPS and comment on
entities make are ‘arm's length’ how it might be affected by different
Section 5 deals with the calculation of EPS. accounting policies.
transactions but this may not always be
You must be able to calculate basic EPS
the case for transactions with related
including accounting for the effect of rights  Identify the distributable reserves for an
parties. Therefore, disclosure of such
and bonus issues. entity and explain the rules surrounding
related party transactions gives users the
the calculation.
opportunity to reassess their view of the Read through section 6 to give yourself an
performance of the entity. awareness of the rules on profits available for  Identify and discuss a related party
distribution. In the final section carefully note situation.
Stop and think
the differences between UK GAAP and
 Explain the difference between UK GAAP
Information about discontinued international practice in each of the areas
and international requirements, preparing
operations is important in assessing the covered in the chapter.
simple calculations to illustrate.
expected future performance of an Finally, work through the Self-test questions
entity, so it must be accurately carefully to ensure that you have grasped the Specific syllabus references for this
presented in the financial statements. main points in the chapter. chapter are: 2a,2b,2c,2d,2e,2f.
Study Guide 9

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Study Due
4 Property, plant and equipment As a professional Sections 1 – 3 deal with the basics of In the examination, students may be
accountant you will recognising and measuring property, plant required to:
In most entities the carrying amount of and equipment.
frequently be required  Explain how the IASB Conceptual
property, plant and equipment is an
to deal with non- Section 4 looks at borrowing costs, which can Framework applies to the recognition of
extremely significant figure in their
current assets. You must also form part of the carrying amount of a property, plant and equipment.
statement of financial position.
therefore know whether non-current asset.
Increasingly, for many entities, the value  Prepare and present financial statements
or not they are to be
of their intangible assets is also a Sections 5 – 7 deal with changes to the initial or extracts therefrom in accordance with:
recognised in a
significant figure. carrying amount of an asset, in particular
statement of financial – IAS 16 Property Plant and Equipment
As non-current assets are such a position, and at what depreciation and revaluation. Pay particular
significant element of the statement of amount. When you attention to the impact of revaluation on the – IAS 23 Borrowing Costs
financial position, it is important that analyse a business, it is depreciation charge.
– IAS 36 Impairment of Assets
they are not overstated. Impairment vital that you Section 8 is important. Make sure that you
reviews and asset writedowns should understand the basis on – IFRS 5 Non-current assets held for Sale
learn the meaning of recoverable amount and
therefore regularly take place in which the financial and Discontinued operations
the definition of the three figures that must be
accordance with IAS 36. statements are compared in order to determine recoverable  Explain the accounting treatment of
prepared. The reporting amount. property, plant and equipment,
Stop and think
policies have a direct borrowing costs, asset impairment and
effect on the view given Section 9 covers non-current assets held for
If an entity’s statement of financial non-current assets held for sale.
by the financial sale. Note the treatment and presentation of
position shows a carrying amount for
statements. these assets.  Explain and illustrate the difference
non-current assets of £1 million, a user
between the relevant treatment under
of the financial statements would expect Section 10 deals with disclosure. Make sure
IFRS and UK GAAP.
that those assets will provide a return of you can prepare a property, plant and
at least that amount to the business. If equipment note.  Identify and explain any ethical issues.
some of these assets are impaired, then
In the final section carefully note the
this asset value could be misleading. Specific syllabus references for this
differences between UK GAAP and
chapter are: 1d,2b, 2c, 2d 2e.
international practice in each of the areas
covered in this chapter.
Finally, work through the Self-test questions
carefully to ensure that you have grasped the
main points in this chapter.

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Study Due
5 Intangible assets At this stage of your Read through Chapter 5 carefully. In section 3 In the examination students may be required
training it is less likely note how the underlying principles of the IASB to:
In recent years the recognition and
that you will have had Conceptual Framework are reflected in IAS 38.  Explain how the IASB Conceptual
measurement of intangible assets has
practical experience of Section 9 introduces the topic of goodwill Framework applies to the recognition of
been one of the most controversial areas
the issues affecting which will be covered in more detail in intangible assets.
of financial reporting. As the nature of
intangible assets. You Chapters 10 – 15.
business has changed intangible assets  Prepare and present financial statements
may have come across
have become a significant part of the You should attempt all Interactive questions or extracts therefrom in accordance with:
some of the more
value of an entity. The most important and Self-test questions to confirm your
common examples – IAS 38 Intangible Assets
assets for many businesses are now understanding of this topic.
including development – IAS 36 Impairment of Assets
brands, market positions, knowledge
expenditure, patents Examination commentary
capital and people, but these are rarely
and goodwill. However,  Explain the accounting treatment of
recognised in financial statements. Bill
the issues affecting Intangible assets could be examined in the intangible assets.
Gates is said to estimate that 97% of the
recognition and context of a question where extracts to the  Explain and illustrate the difference
value of Microsoft is not recognised in
valuation of these assets financial statements are required. Such a
the statement of financial position as a between the relevant treatment under
are often complex and question could feature the treatment of
result. IFRS and UK GAAP.
would normally be dealt research and development expenditure,
In contrast to the treatment of internally with by more senior goodwill or other intangibles.  Identify and explain any ethical issues.
generated intangibles, acquired members of the audit
Alternatively, intangibles could feature in a Specific syllabus references for this
intangibles are normally recognised in team. published accounts question where financial
the statement of financial position. For chapter are: 1d, 2b, 2c, 2d, 2e.
statements are produced or could be
example, an entity that has acquired a
examined within the context of group
brand, as opposed to internally accounts.
generated an equally valuable brand,
will recognise it, since a fair value can be Questions could also focus on the way in
attributed to it. As the acquirer has paid which the accounting treatment of intangibles
a price to acquire this brand, that price applies the principles of the IASB Conceptual
provides a reliable measure. Framework.
Stop and think
Can you think of any other types of

intangible assets that might add value to a
business apart from those listed above?
Study Guide 11

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Study Due
6 Revenue and inventories Accounting for revenue Read through sections 1 and 2 of Chapter 6 In the examination, students may be
and inventories is a and attempt Interactive question 1. Pay required to:
In more traditional businesses the point
complex area as there particular attention to section 2 which  Prepare and present financial statements
at which revenue should be recognised
are many judgemental demonstrates how the concepts of IAS 18 or extracts therefrom in accordance with:
is usually straightforward. However, in
decisions which need to Revenue apply to specific types of transactions.
recent years as business transactions – IAS 18 Revenue
be made. As a result of Then try Interactive questions 2 to 7.
have become more complex this area of – IAS 2 Inventories
this it is likely that more
accounting has become more The remainder of this chapter then deals with
senior members of staff  Explain the accounting treatment of
controversial with some companies inventories. You will have covered the basic
will be involved. If you revenue and inventories.
adopting aggressive, and in some cases principles involved in your Accounting studies
work in audit you may
questionable, accounting policies for so much of this will be revision. Notice
have been involved in  Explain the differences between the
revenue recognition. however that the manual puts the topic into
some aspects of this accounting treatment using the accrual
the context of IAS 2 Inventories. Complete basis and cash basis in relation to revenue
IAS 18 Revenue aims to provide work, for example
Interactive question 8. recognition.
guidance on when revenue can be attending inventory
recognised. counts. You should also try all the Self-test questions  Know that the principles of revenue and
to confirm your understanding of these topics. inventory measurement and recognition
The valuation of inventories will involve
management judgement. For example, Examination commentary are the same under IFRS and UK GAAP.
decisions will need to be made about
which costs to allocate to individual Revenue could feature in an explain question, Specific syllabus references for this
items of inventory and estimates may mixed question or in a company accounts chapter are: 1d, 1f, 2b, 2c, 2d, 2e.
need to be made regarding estimated question where a statement of profit or loss is
selling prices in order to establish net produced.
realisable value. These decisions will
Inventories could be examined in its own right
have an impact not only on the carrying
in an explain question although it is more
value of the asset but will also have a
likely to feature in a mixed question or a
direct impact on reported profits.
published accounts question.
IAS 2 Inventories provides guidance in
this area.
Stop and think
What is the relationship between revenue

recognition and inventories?

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Study Due
7 Leases You are likely to come Read carefully through section 3 and make In the examination, students may be
across more entities sure you understand all the definitions as required to:
In Financial Accounting and Reporting
that are lessees than these are important when trying to determine  Explain and apply the principle of
the issue of how finance leases and
those that are lessors. the figures for accounting for a finance lease substance over form.
operating leases should be accounted
Many entities enter into for a lessee. Work carefully through the
for by lessees is examined. Most assets  Prepare and present financial statements
sale and leaseback example and interactive question.
are leased out by specialist lessors and or extracts therefrom in accordance with
transactions and
financial institutions. In this paper we Sections 7 and 8 deal with operating leases. IAS 17 Leases.
therefore this is an area
only look at leasing from the viewpoint Make sure you know how to deal with rent-
that you are likely to be  Explain the accounting treatment of
of the lessee. free periods.
exposed to. lessee accounting including sale and
An important source of finance for Section 9 deals with land and buildings and leaseback transactions and prepare
many entities comes in the form of the the requirement to consider the two elements relevant financial statement extracts.
sale and leaseback of assets. An asset, separately for lease classification purposes.
typically a property, is sold to alleviate  Identify and explain the judgements to
Read carefully through section 10 as sale and be made relating to the classification and
cash flow problems or release capital for
leaseback is an important area. Make sure that treatment of leases and sale and
investment opportunities, and then
you understand that the accounting leaseback transactions.
leased back. This allows continuing
treatments depend upon whether the
usage of the asset, albeit without legal
leaseback is a finance lease or an operating  Explain and illustrate the differences
ownership. These transactions can
lease and on a comparison of the sales value between the relevant treatment under
become quite complex and we consider
to fair value and carrying amount. IFRS and UK GAAP.
the accounting treatment in a variety of
circumstances. In the final section carefully note the  Identify and explain any ethical issues.
differences between UK GAAP and
Stop and think Specific syllabus references for this
International practice in each of the areas
covered in this chapter. chapter are: 2b, 2c, 2d, 2e.
Why do you think it is important to
account for leasing transactions Finally work through the Self-test questions
according to their substance rather than carefully to ensure that you have grasped the
their legal form? main points in this chapter.
Study Guide 13

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Study Due
8 Financial instruments As a professional The subject of financial instruments can be In the examination, students may be
accountant you will be very complex. However, for Financial required to:
In recent years there has been huge
working with the Accounting and Reporting purposes only the  Describe the recognition and
growth in the number and complexity
financial statements of more straightforward areas are examinable. derecognition criteria for financial
of financial instrument. Historically
many companies. instruments.
many of these complex financial Sections 1 and 2 deal with the definition and
Financial instruments,
instruments were not even recorded in initial measurement of financial assets and  Calculate the liability and equity elements
even the more complex
company statements of financial liabilities. of compound financial instruments.
ones, are so widespread
position as many derivatives, for
and available for use by In section 3 make sure that you understand  Classify financial instruments and prepare
example, had an immaterial initial cost.
companies that they what is meant by a compound instrument and extracts of financial statements for basic
However, the implementation of IAS 32
will inevitably feature in work through the example showing how the financial instruments.
and IAS 39 initially, followed by IFRS 7,
financial statements of equity and liability elements of such an
has brought in detailed accounting and
companies of all instrument should be measured.  Calculate the carrying amount of a financial
disclosure requirements for such
different sizes. asset or liability measured at amortised cost
financial instruments. Section 4 deals with disclosures in respect of using the effective interest method.
Even companies that financial instruments, all of these now being
Stop and think
you work with which contained in a single IFRS.  Recognise the correct accounting treatment
A company issues convertible loan stock have straightforward of a variety of financial instruments.
Section 5 is very short, but read it carefully as
business and financial
which is almost certain to be converted the ethical considerations are important.  Describe the disclosure requirements for
into equity shares at some point in the strategies enter into
financial instruments and their usefulness
future. Should this loan stock be financial instrument Finally, work through the Self-test questions
to users of financial instruments.
classified as debt or as equity in the transactions such as carefully to ensure that you have grasped the
statement of financial position? What purchasing inventories main points in the chapter.  Identify ethical issues and professional
effect would the classification as debt or using a foreign judgements involving financial instruments
equity have on a user’s interpretation of currency, raising asset- and the effect this may have on financial
the financial statements? based finance and cash performance and financial position.
management activities.
Points to note:
Knowledge of derivatives is not required.
Only those types of financial instruments
included in the learning materials will be
included in examination questions.
Hedge accounting is excluded from the
Professional Stage syllabus.
Specific syllabus references for this
chapter are: 1d, 2a, 2b, 2c, 2d, 2e.

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Study Due
9 Other standards Historically some Make sure that you understand the In the examination, students may be
entities have abused the discounting of provisions and how that required to:
This chapter deals with IAS 37
use of provisions but discount unwinds, covered in section 3.  Explain the IASB Conceptual Framework
Provisions, Contingent Liabilities and
this should no longer Do Interactive Question 2. definitions and recognition principles and
Contingent Assets, IAS 10 Events after the
happen. However you explain how they relate to IAS 37.
Reporting Period, and IAS 20 Accounting Section 7 on IAS 10 is very straightforward.
will come across
for Government Grants and Disclosure of  Prepare extracts from the financial
provisions, contingent Section 8 deals with IAS 20. Make sure you
Government Assistance. Particularly statements and notes to the financial
liabilities, contingent can apply both methods of accounting for a
important are requirements in respect of statements in respect of provisions and
assets and events after government grant.
provisions. In the past provisions were contingencies and explain the financial
the reporting period in
sometimes used to manipulate profits, Finally, work through the Self-test questions reporting treatment required.
almost every entity’s
which is why IAS 37 provides specific carefully to ensure that you have grasped the
financial statements  Prepare financial statements or extracts
guidance on when a provision should main points in the chapter.
that you deal with. taking into account the effect of events
and should not be recognised.
after the reporting period and explain the
Stop and think financial reporting treatment required.
A provision is set up in Year 1 (when  Explain the accounting treatment of
profits are high) with the effect that profits government grants.
are charged with an expense. In Year 2
when profits are lower the expenditure  Draft financial information including
relating to that provision is incurred but is government grants.
not recognised as an expense in profit or  Explain and illustrate the difference
loss but charged to the provision in the between the relevant treatment under
statement of financial position instead. IFRS and UK GAAP.
Effect? Profits in Year 1 are reduced –  Identify and explain any ethical issues.
profits in Year 2 are increased – profits
are smoothed. Specific syllabus references for this
chapter are: 1d, 2b, 2c, 2d, 2e.
Study Guide 15

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Study Due
10 Group accounts: basic principles If you work in a small or The aim of this chapter is to set down the In the examination, students may be
medium-sized firm you broad principles which are applied when required to:
In very simple terms a group is a
may have been involved preparing group financial statements. Work  Explain and demonstrate the concepts
collection of entities, where one, the
in the preparation of through it carefully reviewing the Worked and principles surrounding the
parent, controls the activities of the
consolidated financial examples and completing the Interactive consolidation of financial statements
others, its subsidiaries. In these
statements. questions. including:
circumstances the group is required to
produce ‘consolidated’ financial If you work in a large Examination commentary
– The single entity concept
statements. These present the position audit firm then a
Because the preparation of consolidated – Substance over form
and results of the individual companies as significant number of
financial statements makes up 30% of the – The distinction between control and
if they were one entity. audit assignments are
syllabus, each paper will feature questions ownership
likely to involve the
Examples of the issues involved include: requiring either a consolidated statement of
audit of a group of
 Whether an investment meets the financial position or a consolidated statement  Prepare the consolidated statement of
companies. This
definition of a subsidiary. of profit or loss. Some papers may also include financial position or statement of profit or
involves two key steps:
questions requiring a consolidated statement loss (or extracts) including the results of
 Whether there are circumstances  The financial of cash flows or a consolidated statement of the parent entity and one or more
when it might be appropriate to statements of each changes in equity. subsidiaries.
exclude a subsidiary from individual entity
consolidation. within the group Specific syllabus references for this
chapter are: 3b and 3d.
 The value at which the net assets will be audited.
and results of the subsidiary should  The consolidated
be consolidated. financial
statements will be
Relevant standards are:
audited by the
 IFRS 3 Business Combinations principal auditor.
 IFRS 10 Consolidated Financial The principal
Statements auditor is
responsible for the
 IFRS 12 Disclosure of Interests in
overall audit
Other Entities
opinion on the
 IAS 27 Separate Financial consolidated
Statements financial
statements.
Stop and think
You may have been
From the shareholders’ point of view what
involved in either of
do you think the benefits are of
consolidated financial statements?
these steps.

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Study Due
11 Group accounts: consolidated The preparation of the Chapter 11 applies the principles introduced In the examination students may be required
statement of financial position consolidated statement in Chapter 10 to the consolidated statement to:
of financial position of financial position specifically. Note the
The consolidated statement of financial involves the combination  Prepare a consolidated statement of
technique to answering questions on this
position provides the owners of the of the individual financial position (or extracts therefrom)
topic.
group with important information over statements of financial including the results of the parent entity
and above that which is available in the position of the group Sections 4 – 7 introduce a number of and one or more subsidiaries from
parent’s own statement of financial members. As we said in consolidation adjustments. These may feature individual financial statements and
position. The cost of the investment Chapter 10, this process in full consolidation questions or questions including adjustments for the following:
made in the subsidiary is replaced with is often computerised. requiring extracts or discussion of principles,
the net assets controlled by the parent However, detailed work – Acquisition or disposal of a subsidiary
so review these carefully.
company. This application of substance will be needed on the or acquisition of an associate
consolidation Issues in this area, include goodwill including mid-year acquisitions
over form provides a more realistic
adjustments. This might calculations, fair value adjustments and the (subsidiary or associate) or disposals
representation of what their investment
include for example, elimination of intra-group transactions and (subsidiary)
is really worth as the statements of
establishing fair values at balances. – Goodwill
financial position of the parent and
subsidiary are produced as if they were the date of acquisition so – Intra-group items
a single entity. The single entity concept that goodwill can be
– Unrealised profits
correctly calculated and
has more detailed implications for the – Fair values
the identification and
preparation of the statement of financial
position which we will look at in this
elimination of intra-  Other consolidation adjustments.
group balances. In this
chapter. chapter, we will look at  Explain the process of preparing a
Stop and think consolidation consolidated statement of financial
adjustments from the position in the context of the single entity
Why is information about the assets and perspective of the concept, substance over form and the
liabilities of the subsidiary of more use to consolidated statement distinction between control and
the shareholders than the cost of their of financial position. ownership.
investment? Chapter 12 considers the
same consolidation  Explain the two methods of measuring
adjustments from the the non-controlling interest at acquisition
perspective of the and prepare financial information by the
consolidated statement two methods.
of profit or loss.  Explain and illustrate the difference
IFRS and UK GAAP.
Specific syllabus references for this

chapter are: 1d, 1h, 3d, 3e, 3f, 3g.
Study Guide 17

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Study Due
12 Consolidated statements of In very simple terms, Section 2 deals with the major issues in In the examination students may be required
financial performance the preparation of the preparing the consolidated statement of profit to:
consolidated statement or loss – intra-group trading and non-current  Prepare a consolidated statement of
The consolidated statement of profit or
of profit or loss and assets transfers. Do Interactive questions 1 and profit or loss (or extracts therefrom)
loss provides the owners of the group
consolidated statement 2. including the results of the parent entity
with important information over and
of changes in equity and one or more subsidiaries from
above that which is available in the Section 3 shows you the standard workings
involves the individual financial statements and
parent’s own statement of profit or loss. which you should learn for the exam.
combination of the including adjustments for the following:
The investment income receivable from Interactive question 3 will take you through
individual statements of
the subsidiary is replaced with the these.
the group members. As – Acquisition or disposal of a subsidiary
profits controlled by the parent
we said in Chapter 10, Make sure you understand how to deal with a or acquisition of an associate,
company.
this process is often mid-year acquisition and go carefully through including a mid-year acquisitions
The consolidated statement of changes computerised. Section 7 on the consolidated statement of (subsidiary or associate) or disposals
in equity provides a ‘bridge’ between However, detailed work changes in equity. (subsidiary)
the consolidated statement of financial will be needed on the
– Intra-group transactions
position and consolidated statement of consolidation
profit or loss or statement of profit or adjustments, – Unrealised profits
loss and other comprehensive income. It particularly in respect of
– Interest and management charges
achieves this by reconciling the group’s the consolidated
opening equity (capital, reserves and statement of profit or  Explain the preparation of a consolidated
non-controlling interest) to the closing loss. This might include statement of profit or loss in the context
position. the identification and of the single entity concept, substance
Note elimination of intra- over form and the distinction between
group transactions and control and ownership.
Consolidation issues arise in profit or the elimination of
loss rather than in other comprehensive unrealised profit. We  Prepare a consolidated statement of
income, so in this chapter we will look at a number of changes in equity (or extracts there from)
concentrate on the statement of profit consolidation including the effects of new and
or loss. adjustments in this continuing interests in subsidiaries.
Stop and think chapter.  Explain and illustrate the difference
Why is information about the profits of the IFRS and UK GAAP.
subsidiary of more use to the shareholders
than information about the investment Specific syllabus references for this
income received? chapter are: 1d, 1h, 3d, 3e, 3f, 3g.

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Study Due
13 Associates and joint ventures If you have worked on a Chapter 13 deals with the treatment of an In the examination students may be required
client which involves a associate or joint venture in the consolidated to:
In Chapters 10 – 12 we have seen that
group of companies the financial statements. Read through section 1,
companies may acquire other entities as  Incorporate the results of an associate in
investments made by paying particular attention to the definition of
a means of achieving growth and the consolidated financial statements using
the parent company significant influence. Then move on to the
meeting corporate objectives. We have the equity method.
may have included an equity method in sections 2 and 3. Review
been looking at situations where an
investor obtains control of an investee
associate or a joint these sections carefully working through  Explain the equity method and the
venture. As we saw in Interactive question 1 and 2. Make sure that principles behind it.
through the ownership of a majority of
Chapter 10 the you understand the difference between this
the ordinary share capital. However,  Incorporate the results of a joint venture in
subsidiaries in a group method and the consolidation technique used
there are other ways in which an the consolidated financial statements.
are normally for subsidiaries.
investment may be made. A non-
consolidated by  Explain and illustrate the difference
controlling stake could be obtained Work through section 5. Make sure that you
preparing a between the relevant treatment under
such that the investor can influence, appreciate that the treatment of unrealised
consolidation package. IFRS and UK GAAP.
rather than control, the key decisions profits will depend on whether the associate
Typically the same type
made by the entity. This is normally or the parent is the selling company. Specific syllabus references for this
of procedure is used in
achieved through the acquisition of chapter are: 3c,3d, 3e, 3f, 3g.
respect of an associate Sections 6 – 8 cover joint ventures. These are
20% or more of the voting rights
or joint venture. The also accounted for using the equity method.
(normally attached to ordinary shares).
key issues which would
This type of investment is referred to as Section 9 deals with disclosure requirements
need to be addressed
an associate. under IFRS 12.
specifically include the
Another option is the acquisition of joint correct identification of
control by entering into a joint venture the investment as an
with other parties. Joint ventures are associate or joint
accounted for using the equity method venture and the
– the same method used for associates. appropriate accounting
treatment in the
Stop and think?
financial statements.
How do you think a simple trade
investment differs from an investment in
an associate or in a joint venture?
Study Guide 19

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Study Due
14 Group accounts: disposals Where a subsidiary has Chapter 14 covers a lot of technical detail, In the examination students may be required
been disposed of there dealing with the disposal of subsidiaries. You to:
So far, we have been looking at the
are a number of key may find the summary table at the end of the
circumstances in which one entity  Prepare consolidated financial statements
issues which the chapter useful as it provides an overview of
acquires an investment in another including the effects of a complete
accountant will need to the topic.
entity. However, the decision to dispose disposal of a subsidiary.
consider. The most
of an investment is an equally important Sections 2 – 3 cover the disposal of a
decision. A company may decide to
important of these
subsidiary. Ensure that you can calculate the  Prepare extracts from the consolidated
considerations will financial statements including the
dispose of an investment for a number group profit or loss on disposal and that you
include establishing the calculation of the group profit or loss on
of reasons, including: understand the implications for the
date of disposal and the complete disposal of a subsidiary.
consolidated financial statements. Also notice
 The need to generate cash. net assets of the
subsidiary at the
that the complete disposal of a subsidiary  Explain the principles behind the treatment
 The fact that the investment does constitutes a discontinued activity which of the complete disposal of a subsidiary.
disposal date. The
not fit in with future strategic plans. should be disclosed as such.
disposal must be Specific syllabus references for this
 Underperformance of the appropriately Examination commentary
chapter are: 1h, 3d, 3e, 3f.
investment. accounted for and
Preparation of consolidated financial
disclosed.
This chapter considers the accounting statements represents 30% of the syllabus and
treatment of the complete disposal of a disposals of subsidiaries forms part of this.
subsidiary. Partial disposals are not Questions are likely to focus on the impact of
included in the FAR syllabus. the disposal on the consolidated financial
statements as a whole.
Stop and think
What kinds of strategic decisions might

lead to the disposal of an investment?

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Study Due
15 Group statement of cash flows If you have worked for a Section 1 is a useful recap of the method of In the examination students may be required
large company you may preparing the statement of cash flows. Note to:
The process involved in preparing a
have worked on a the treatment of finance leases.
consolidated statement of cash flows is  Prepare a consolidated statement of cash
group statement of
very similar to that used in the Section 2 goes over the particular issues flows for a group of companies including
cash flows.
preparation of a statement of cash flows involved in a group statement of cash flows – subsidiaries and associates.
for an individual entity. acquisitions and disposals, dividends paid to
the non-controlling interest and dividends  Prepare extracts from a consolidated
Stop and think statement of cash flows.
received from associates and joint ventures.
What information do investors obtain from In acquiring a subsidiary, the parent will Specific syllabus references for this chapter
a group statement of cash flows? probably also be acquiring cash balances and are: 3e, 3f.
these will need to be adjusted for. Note also
that the effect of assets and liabilities acquired
on the group working capital movements will
have to be accounted for. Interactive Question
4 is good practice for this.
Make sure you do self-test questions 9 and 10.
Study Guide 21

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Study Due
16 UK GAAP – FRS 102 You may be working Sections 1-12 cover the topics included in this In the examination students may be required
for, or working on the manual – but from a UK GAAP perspective. to:
FRS 102 is the new UK standard, based
audit of, a company
on the IFRS for SMEs. Section 13 compares this to IFRS.  Explain the principal differences between
which reports under UK
Examination commentary IFRS and UK GAAP and prepare simple
It reflects the general approach under GAAP and will now be
extracts from single entity financial
IFRS, but there are some differences. moving to FRS 102
Note carefully those areas where FRS 102 statements in accordance with UK GAAP.
Stop and think diverges from IFRS. These are the topics that
 Explain the principal differences between
are likely to be tested in your exam.
IFRS and UK GAAP and prepare simple
What type of company is likely to be
extracts from consolidated financial
reporting under FRS 102?
statements in accordance with UK GAAP
Specific syllabus references for this chapter
are: 2e, 3g.

6 Syllabus and learning outcomes
Covered in chapter
6.1 Accounting and reporting concepts and ethics
Students will be able to explain the contribution and inherent limitations of financial statements
apply the International Accounting Standards Board’s conceptual framework for financial
reporting and identify and explain key ethical issues.
In the assessment, students may be required to:
(a) Explain the standard-setting process used by UK and international bodies and the authority
of UK and international standards, using appropriate examples as illustration. 1
(b) Explain the objectives and inherent limitations of financial statements, giving appropriate
examples. 1
(c) Explain the qualitative characteristics of financial information and the constraints on such
information, using appropriate examples to illustrate the explanation. 1
(d) Identify the financial effects of transactions in accordance with the IASB Conceptual
Framework. 1
(e) Discuss the concepts of 'fair presentation' and 'true and fair view' and the circumstances in
which these concepts may override the detailed provisions of legislation or of accounting

standards. 1
(f) Explain the differences between financial statements produced using the accrual basis and
those produced using the bases of cash accounting and break-up, performing simple
calculations to illustrate the differences. 1
(g) Explain, in non-technical language, the different bases of measurement of the elements of
the financial statements and the different definitions of capital and capital maintenance used
in accrual basis financial statements, illustrating the explanation with simple calculations and
examples. 1
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(h) Explain and demonstrate the concepts and principles surrounding the consolidation of financial
statements. 10
(i) Identify and explain the ethical and professional issues for a professional accountant
undertaking work in financial accounting and reporting and identify appropriate action. 1,8
Study Guide 23
6.2 Single entity financial statements
Students will be able to prepare and present financial statements from accounting data for single
entities, in conformity with IFRS requirements and explain the application of IFRS to specified
single entity scenarios.
(a) Identify the laws and regulations, and accounting standards and other requirements
applicable to the statutory financial statements of an entity. 1,2
(b) Calculate from financial and other data the amounts to be included in an entity’s financial
statements according to the international financial reporting framework. 2,3,4,5,6,7,8,9
(c) Prepare and present the financial statements, or extracts, of an entity according to its
accounting policies and appropriate international financial reporting standards. 2,3,4,5,6,7,8,9
(d) Explain the application of IFRS to specified single entity scenarios. 2,3,4,5,6,7,8,9
(e) Describe the principal differences between IFRS and UK GAAP and prepare simple extracts
from single entity financial statements in accordance with UK GAAP. 2,3,4,5,6,7,8,9,16
(f) Define and calculate from information provided the distributable profits of an entity. 3
(g) Identify the circumstances in which the use of IFRS for not-for-profit entities might be
required. 1,2

6.3 Consolidated financial statements
Students will be able to identify the circumstances in which entities are required to present
consolidated financial statements, prepare and present them in conformity with IFRS and explain
the application of IFRS to specified group scenarios.
(a) Identify and describe the circumstances in which an entity is required to prepare and
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present consolidated financial statements. 10

(b) Identify the laws and regulations, and accounting standards and other requirements
applicable to the legal entity and consolidated financial statements of an entity. 10
(c) Identify from financial and other data any subsidiary, associate or joint venture of an entity
according to the international financial reporting framework. 10, 13
(d) Calculate from financial and other data the amounts to be included in an entity’s
consolidated financial statements in respect of its new, continuing and discontinued
interests in subsidiaries, associates and joint ventures (excluding partial disposals of
subsidiaries and disposals of associates or joint ventures) according to the international
financial reporting framework. 10,11,12,13,14,15
(e) Prepare and present the consolidated financial statements, or extracts, of an entity in
accordance with its accounting policies and the international financial reporting framework,
using calculated amounts and other information. 10, 11, 12, 13, 14, 15
(f) Explain the application of IFRS to specified group scenarios. 10, 11, 12, 13, 14, 15
(g) Explain the principal differences between IFRS and UK GAAP and prepare simple extracts
from consolidated financial statements in accordance with UK GAAP. 11, 16
7 Technical knowledge grids
The table contained in this section shows the technical knowledge in the disciplines of financial
reporting and ethics covered in the ACA syllabus by module.
For each individual standard the level of knowledge required in the relevant Certificate and Professional
Level module and at the Advanced Level is shown.
The knowledge levels are defined as follows:
Level D
An awareness of the scope of the standard.
Level C
A general knowledge with a basic understanding of the subject matter and training in its application
sufficient to identify significant issues and evaluate their potential implications or impact.
Level B
A working knowledge with a broad understanding of the subject matter and a level of experience in the
application thereof sufficient to apply the subject matter in straightforward circumstances.
Level A
A thorough knowledge with a solid understanding of the subject matter and experience in the
application thereof sufficient to exercise reasonable professional judgement in the application of the

subject matter in those circumstances generally encountered by chartered accountants.
Key to other symbols:
→ the knowledge level reached is assumed to be continued
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Study Guide 25
Financial Reporting – IFRS
Certificate & Professional Advanced
Level Level
Accounting &
Accounting
Corporate
Reporting
Reporting
Financial
Title
Preface to International Financial Reporting Standards A A
Conceptual Framework for Financial Reporting B A A
IAS 1 Presentation of Financial Statements A A A
IAS 2 Inventories B A A
IAS 7 Statement of Cash flows B A A
IAS 8 Accounting Policies, Changes in Accounting Estimates and B A A
Errors
IAS 10 Events after the Reporting Period A A

IAS 11 Construction Contracts – A
IAS 12 Income Taxes C A
IAS 16 Property, Plant and Equipment B A A
IAS 17 Leases B A
IAS 18 Revenue C A A
IAS 19 Employee Benefits – A
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IAS 20 Accounting for Government Grants and Disclosure of A A

Government Assistance
IAS 21 The Effects of Changes in Foreign Exchange Rates C A
IAS 23 Borrowing Costs A A
IAS 24 Related Party Disclosures B A
IAS 26 Accounting and Reporting by Retirement Benefit Plans – D
IAS 27 Separate Financial Statements B A
IAS 28 Investments in Associates and Joint Ventures B A
IAS 29 Financial Reporting in Hyperinflationary Economies – D
IAS 32 Financial Instruments: Presentation B A
IAS 33 Earnings Per Share C A
IAS 34 Interim Financial Reporting – A
IAS 36 Impairment of Assets B A
IAS 37 Provisions, Contingent Liabilities and Contingent Assets C A A
IAS 38 Intangible Assets C A A
IAS 39 Financial Instruments: Recognition and Measurement C A
(Note 2)
IAS 40 Investment Property – A
Certificate & Professional Advanced
Level Level
Accounting &
Accounting
Corporate
Reporting
Reporting
Financial
Title
IAS 41 Agriculture – D
IFRS 1 First-Time Adoption of IFRS – A
IFRS 2 Share-based Payment – A
IFRS 3 Business Combinations B A
IFRS 4 Insurance Contracts (Note 2) – D
IFRS 5 Non-Current Assets Held for Sale and Discontinued B A
Operations
IFRS 6 Exploration for and Evaluation of Mineral Resources – D
IFRS 7 Financial Instruments: Disclosures C A
IFRS 8 Operating Segments – A

IFRS 9 Financial Instruments – C
IFRS 10 Consolidated Financial Statements B A
IFRS 11 Joint Arrangements B A
IFRS 12 Disclosure of Interests in Other Entities B A
IFRS 13 Fair Value Measurement C A
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IFRS 14 Regulatory Deferral Accounts C

IFRS for SMEs – A
IFRS 15 Revenue from Contracts with Customers (Note 1)
IFRS 16 Leases (Note 1)
Note 1: The effective dates for IFRSs 15 and 16 are after 1 January 2017 so these standards are therefore
not examinable for the Professional Level 2018 syllabus.
Note 2: Business Planning: Banking and Insurance covers these standards in more detail than in the
Financial Accounting and Reporting syllabus at Professional Level.
Study Guide 27
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DIFFERENCES BETWEEN IFRS AND UK GAAP

The following table identifies the scope of the differences examinable in the Accounting, Financial Accounting and Reporting and Corporate Reporting Modules and where
they will be introduced. In general, the differences will become examinable where the relevant IFRS is set at knowledge level ‘A’. The differences may also be examined in
subsequent modules but only in a different context, for example at the Advanced Level where knowledge of the differences forms part of an integrated question. Where a
general awareness only of an accounting standard is expected (knowledge level ‘D’) any differences will also be dealt with at this level.
Title Key examinable differences between IFRS and FRS 102 (and Companies Act 2006 where appropriate)
Preface to International Financial Not applicable.

Reporting Standards
Conceptual Framework for Financial  Qualitative characteristics are simplified as a list on one tier rather than being based on fundamental qualitative characteristics
Reporting of relevance and faithful representation and then having enhancing qualitative characteristics.
 Two common measurement bases are described, being historical cost and fair value rather than four.
IAS1 Presentation of Financial  Choice of presenting performance in a single statement of comprehensive income or in two statements being an income
Statements statement and a statement of comprehensive income.
 A single statement of income and retained earnings rather than a statement of comprehensive income and statement of
changes in equity may be used in specific circumstances.
 The 'bottom line' of the statement of comprehensive income may be presented as 'profit or loss' where there are no items of
comprehensive income.
 Although FRS 102 uses similar terminology to IFRS, CA 2006 uses different terminology for line items in the statement of
financial position (which is referred to as a balance sheet in the Companies Act) such as debtors and creditors, rather than
receivables and payables and fixed assets rather than non-current assets.
 Non-current (due after more than one year) debtors and creditors may be combined on the face of the statement of financial
position.
 Minor differences in the classification of headings on the face of the financial statements.
IAS2 Inventories  Inventories (referred to as ‘stocks’ in CA 2006) held for distribution at no or nominal consideration, or through a non-
exchange transaction, should be measured at adjusted cost (to recognise any loss of service potential). IAS 2 includes no such
requirement.
 Additional guidance is provided on what should be included in production overheads.
 Impairment losses can be reversed if there are changes in economic circumstances or circumstances which led to the
impairment no longer exist. No such guidance is provided in IAS 2.

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IAS7 Statement of Cash Flows  An exemption from the preparation of a statement of cash flows is available for a member of a group where the parent entity
prepares publicly available consolidated financial statements and that member is included in the consolidation. IAS 7 contains
no such exemption
IAS8 Accounting Policies, Changes in  The standard explicitly states that a change to the cost model when a reliable measure of fair value is no longer available is
Accounting Estimates and Errors not a change in accounting policy. IAS 8 contains no such statement.
IAS10 Events after the Reporting  Consistent with IAS 10 a dividend declared after the end of the reporting period should not be recognise as a liability.
Period However, the standard states that the amount of the dividend may be presented as a segregated component of retained
earnings (referred to as a profit and loss account reserve in CA 2006) at the end of the reporting period.
IAS12 Income Taxes  The standard requires deferred taxation to be recognised on the basis of timing differences rather than IAS 12’s temporary
differences.
 The standard specifically states that current tax should not be discounted, however IAS 12 is silent on the issue.
 The treatment of VAT is included. IAS 12 does not include such guidance.
 Simplified guidance is provided.
 Reduced disclosures are set out compared with IAS 12.
IAS16 Property, Plant and Equipment  If indicators of a change exist then residual value, depreciation method and the useful life of an asset should be reviewed. IAS
16 requires the residual value, depreciation method and the useful life of an asset to be reviewed at least at each financial
year-end.
 Compensation from third parties for items of property, plant and equipment (referred to as tangible fixed assets in CA
2006) that have been impaired/lost should be recognised in profit or loss when the receipt of the amount is 'virtually certain'.
IAS 16 states that the amount should be recognised when it becomes 'receivable'.
 A plan to dispose of an asset before the previously expected date is an indicator of impairment that triggers the calculation of
the asset’s recoverable amount for the purpose of determining whether the asset is impaired. IFRS 5 deals with non-current
assets held for sale and would require the asset to be valued at the lower of carrying amount and fair value less costs to sell.
IAS17 Leases  Reduced disclosures are set out compared with IAS 17.
IAS18 Revenue  The standard is specific in its guidance and uses clear examples whilst being all encompassing. A definition for turnover is
included as well as one for revenue – there are no examinable differences.
IAS20 Accounting for Government  A government grant may be recognised using either the performance model or the accrual model (prohibiting the deduction
Grants and Disclosure of Government of a government grant from the carrying amount of the related asset). IAS 20 has the more general requirements that they
Assistance should be recognised on a systematic basis matching the related expenditure (which in practice means using a capital or
income approach).
 There is a specific requirement that the accounting policy should be applied on a class-by-class basis. No such requirement
exists in IAS 20.
Study Guide 29

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IAS21 The Effects of Change in Foreign  On the disposal of a net investment in a foreign operation any related exchange differences accumulated in equity should not
Exchange Rates be recognised in profit or loss. IAS 21 requires such accumulated exchange differences to be reclassified from equity to profit
or loss.
 IAS 21 requires the cumulative amount of exchange differences recognised in other comprehensive income to be presented in
a separate component of equity. FRS 102 includes no such specific requirement.
 Reduced disclosures are set out compared with IAS 21.
IAS23 Borrowing Costs  Entities are provided with the choice of capitalising borrowing costs. This is a choice of accounting policy and must be applied
consistently to a class of assets. IAS 23 requires borrowing costs to be included as part of the directly attributable costs of a
qualifying asset.
 Where general borrowings are used, the amount of borrowing costs eligible for capitalisation are determined by applying a
capitalisation rate to the expenditure on that asset, which is consistent with IAS 23. However, for this purpose the expenditure
on the asset is the average carrying amount of the asset during the period, including borrowing costs previously capitalised.
No such guidance is provided in IAS 23.
IAS24 Related Party Disclosures  Unlike IAS 24, wholly owned UK subsidiaries are not required to disclose transactions between two or more members of a
group.
IAS27 Separate Financial Statements  There are three options for accounting for investments in subsidiaries, associates and joint ventures in a parent entity’s
separate financial statements. IAS 27 allows cost, use of the equity method in accordance with IAS 28 or measurement and
recognition in accordance with IFRS 9.
 Additional disclosures are required under IAS 27.
 The accounting treatment for exchanges of businesses and other non-monetary assets for an interest in a subsidiary, joint
venture or associate is provided. IAS 27 provides no such guidance.
 The standard includes guidance on the accounting treatment for intermediate payment arrangements. IAS 27 provides no
such guidance.
IAS28 Investments in Associates and  Simplified guidance is provided on recognising an associate where the investor is not a parent and hence only prepares
Joint Ventures individual company financial statements. Under IFRS, accounting for such financial instruments in individual financial
statements would instead follow guidance in IAS 27 and IFRS 9.
 Less detail is provided in the definition of ‘significant influence’ compared with IAS 28.
 Simplified disclosures are set out. Detailed disclosures are instead set out in a single accounting standard, being IFRS 12.
IAS32 Financial Instruments: Simplified language is used with specific examples – there are no examinable differences.
Presentation

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IAS33 Earnings per Share No separate guidance is provided, instead it states that IAS 33 should be followed.
IAS36 Impairment of Assets  Additional guidance is provided on the measurement of fair value less costs to sell.
 Where future cash flows are estimated using financial budgets or forecasts, extrapolation techniques should be used. IAS 36
states that such financial forecasts or budgets should cover a maximum of five years unless there is justification for a longer
period.
 Reduced disclosures are provided.
IAS37 Provisions, Contingent Liabilities  The standard’ scope extends to include certain types of financial guarantee contracts. Such contracts are instead within the
and Contingent Assets scope of IAS 39/IFRS 9.
IAS38 Intangible Assets  The capitalisation of development expenditure is optional, although a consistent accounting policy should be adopted. IAS 38
requires development expenditure to be capitalised where it meets the recognition criteria.
 Heritage assets are specifically excluded from its scope, with separate guidance instead provided for such assets. IAS 38 does
not include a similar exclusion.
 An intangible asset acquired in a business combination should not be recognised when it arises from legal or other contractual
rights and there is no history or evidence of exchange transactions for the same or similar assets and otherwise estimating fair
value would be dependent on immeasurable variables. IAS 38 does not include this specific requirement for recognition.
 If an intangible asset is acquired by way of a grant, the cost of that intangible asset is its fair value at the date the grant
becomes receivable. IAS 38 states that there is a choice of recognition at fair value or at the nominal value of the grant.
 All intangible assets are considered to have a finite useful life. IAS 38 permits both intangible assets with finite and indefinite
useful lives.
 If an entity is unable to make a reliable estimate of the useful life of an intangible asset, a maximum useful life of ten years is
allocated. IAS 38 contains no such limitation.
 If indicators of a change exist then the amortisation method and period for an intangible asset should be reviewed. IAS 38
requires the amortisation method and period for an intangible asset to be reviewed at least at each financial year-end.
IAS39 Financial Instruments:  The choice to use simplified measurement provisions is available for basic financial instruments.
Recognition and Measurement
 Measurement after initial recognition is generally at amortised cost or fair value through profit or loss, whereas IAS 39 has
more complex categories with four for financial assets and two for financial liabilities.
 Simplified guidance in relation to hedge accounting is provided.
 IAS 39 includes more detailed and specific guidance on derecognition of financial assets and liabilities and the accounting for
non-closely related embedded derivatives.
Study Guide 31

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IFRS3 Business Combinations  The definition of a business combination is included in its simplest form and provides expanded guidance on what it might
include. IFRS 3 includes a more open definition although additional discussion/guidance is provided in the basis of
conclusions.
 The standard includes the separation of group reconstructions from other business combinations and the use of merger
accounting for such transactions. Common control transactions are outside of the scope of IFRS 3.
 Business combinations should be accounted for using the purchase method. IFRS 3 stipulates the use of the acquisition
method.
 Guidance on the identification of the acquirer is provided. IFRS 3 includes a more open definition although additional
discussion/guidance is provided in the basis of conclusions.
 The standard requires acquisition-related costs to be included in the cost of the business combination. IFRS3 requires them to
be treated as period costs recognised in profit or loss.
 Where control is achieved following a series of transactions, the cost of the business combination is the aggregate of the fair
values of the assets given, liabilities assumed and equity instruments issued by the acquirer at the date of each transaction in
the series. IFRS 3 instead requires the acquirer to remeasure its previously held equity interest at its acquisition date fair value.
 Post-acquisition changes to the estimates of contingent consideration affect the amount of goodwill recognised (assuming the
adjustment is probable and can be reliably estimated). IFRS 3 permits few subsequent changes to be reflected in goodwill.
IFRS 3 also requires contingent consideration to be reassessed at fair value each year and the difference taken to profit
or loss.
 Goodwill arising from a business combination is considered to have a finite useful life. IFRS 3 prohibits amortisation and
requires annual impairment reviews.
 If an entity is unable to make a reliable estimate of the useful life of goodwill arising from a business combination, a maximum
useful life of ten years is required. IFRS 3 prohibits amortisation.
 Negative goodwill is capitalised as a separate item within goodwill and amortised over the period over which any related
losses are expected and as acquired non-monetary assets are realised. IFRS 3 requires immediate recognition as a gain in profit
or loss and also refers to 'negative goodwill' as a 'bargain purchase'.
 The non-controlling interest should be measured based on the share of ownership not held by the parent (ie on a
proportionate basis). IFRS 3 contains an option to measure the non-controlling interest at fair value.
 Reduced narrative disclosures are provided compared with IFRS 3.
IFRS5 Non-current Assets Held for Sale  Continuing and discontinued activities must be analysed. Unlike IFRS 5 detailed analysis is shown on face of the income
and Discontinued Operations statement (profit and loss).
 Classification and measurement of assets generally continues as normal without regard for the disposal. This includes
depreciation until the date of disposal. IFRS 5 on the other hand requires depreciation to cease while a non-current asset is
held for sale as well as separate classification.

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IFRS7 Financial Instruments: Simplified disclosures are provided in line with the simplified measurement and valuation basis.
Disclosures
IFRS10 Consolidated Financial  The exemptions from the preparation of consolidated financial statements are slightly different and include an exclusion of a
Statements subsidiary from consolidation on the grounds of severe long-term restrictions No such exemption exists under IFRS 10.
 The definition of control in FRS 102 is linked to the power to govern the financial and operating policies. IFRS 10 is slightly
wider in its definition.
 Special purpose entities are specifically identified as being included in consolidated financial statements where they are
controlled by the entity.
 The standard includes extensive guidance on the treatment of total and partial acquisitions and disposals of subsidiaries. IFRS
10 includes less detailed guidance.
IFRS11 Joint Arrangements  The accounting treatment for all types of joint venture arrangements are covered, including the separate treatment of jointly
controlled assets. IFRS 11 instead classifies jointly controlled assets as jointly controlled operations.
 Simplified guidance is provided on recognising a joint venture where the investor is not a parent and hence only prepares
individual company financial statements. Accounting for such financial instruments in individual financial statements would
instead follow guidance in IAS 27 and IFRS 9.
 Simplified disclosures are set out. Detailed disclosures are instead set out in a single accounting standard, being IFRS 12.
IFRS12 Disclosure of interests in Other Simplified disclosures are generally set out.
Entities
IFRS13 Fair Value Measurement Simplified guidance is provided on how fair value should be determined and suitable valuation techniques.
IFRS in individual company financial statements

Students may be required to discuss the key issues that need to be considered when considering whether UK companies should retain UK GAAP for their individual company
financial statements or to move to IFRS. This is examinable in the Financial Accounting and Reporting module.
FRS 105 for micro-entities also forms part of the suite of UK standards with effect from 1 January 2015.
Study Guide 33

8 Key resources
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9 Glossary
Accounting policies The specific principles, bases, conventions, rules and practices applied by an
entity in preparing and presenting financial statements.
Accrual basis of Accrual accounting depicts the effects of transactions and other events and
accounting circumstances on a reporting entity’s economic resources and claims in the
periods in which those effects occur, even if the resulting cash receipts and
payments occur in a different period.
Accumulated The total amount of the asset's depreciation that has been allocated to
depreciation reporting periods to date.
Adjusting events Events that provide evidence of conditions that existed at the end of the
reporting period and are therefore adjusted for in the current reporting
period.
Asset The Conceptual Framework states that an asset is a resource controlled by the
entity as a result of past events from which future economic benefits are
expected to flow to the entity. Assets are a key element of financial
statements.
Associate An entity, including an unincorporated entity such as a partnership, over
which the investor has significant influence and that is neither a subsidiary nor
an interest in a joint venture.

Bonus issue An issue of fully paid shares to existing shareholders, free of charge, in
proportion to their existing shareholdings.
Business combination A transaction or other event in which an acquirer obtains control of one or
more businesses.
Capital expenditure Expenditure which results in the acquisition of long-term assets, or an
improvement or enhancement of their earning capacity.
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Cash Comprises cash on hand and demand deposits.

Cash equivalents Short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in
value (maturity of three months or less from the date of acquisition).
Cash flows These are inflows and outflows of cash and cash equivalents.
Change in accounting An adjustment of the carrying amount of an asset or a liability or the amount
estimate of the periodic consumption of an asset, that results from the assessment of
the present status of, and expected future benefits and obligations associated
with, assets and liabilities. Changes in accounting estimates result from new
information or new developments and, accordingly, are not corrections of
errors.
Closing rate The spot exchange rate at the year-end date.
Comparability Comparability is the qualitative characteristic that enables users to identify
and understand similarities in, and differences among, items.
Consistency Consistency refers to the use of the same methods for the same items either
from period to period within a reporting entity, or in a single period across
entities.
Consolidated financial The financial statements of a group in which the assets, liabilities, equity,
statements income, expenses and cash flows of the parent and its subsidiaries are
presented as those of a single economic entity.
Study Guide 35
Constructive obligation An obligation that derives from an entity's actions where:
 By an established pattern of past practice, published policies or a
sufficiently specific current statement, the entity has indicated to other
parties that it will accept certain responsibilities; and
 As a result, the entity has created a valid expectation on the part of
those other parties that it will discharge those responsibilities.
Contingent asset A possible asset that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the entity.
Contingent An obligation of the acquirer to transfer additional consideration to the
consideration former owners of the acquiree if specified future events occur or conditions
are met.
Contingent liability Either:
 A possible obligation that arises from past events and whose existence
will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of the entity,
or
 A present obligation that arises from past events but is not recognised
because:
– It is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation; or

– The amount of the obligation cannot be measured with sufficient
reliability.
Control An investor controls an investee when it is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee.
Conversion costs Any costs involved in converting raw materials into final product, including
labour, expenses directly related to the product and an appropriate share of
production overheads (but not sales, administrative or general overheads).
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Current asset An asset is current when it is expected to be realised in, or intended for sale or
consumption in, the entity's normal operating cycle, or it is held for being
traded, or it is expected to be realised within 12 months of the date of the
statement of financial position, or it is cash or a cash equivalent.
Current cost Assets are carried at the amount of cash or cash equivalents that would have
to be paid if the same or an equivalent asset was acquired currently.
Liabilities are carried at the undiscounted amount of cash or cash equivalents
that would be required to settle the obligation currently.
Current liabilities Debts of the business that are payable within one year, or within the entity's
normal operating cycle, or that are held to be traded.
Depreciation The systematic allocation of the cost of an asset, less its residual value, over its
useful life.
Discontinued operation A component of an entity that has either been disposed of, or is classified as
held for sale, and
 Represents a separate major line of business or geographical area of
operations,
 Is part of a single co-ordinated plan to dispose of a separate major line of
business or geographical area of operations, or

Is a subsidiary acquired exclusively with a view to resale.
Effective interest rate The rate that exactly discounts estimated future cash payments or receipts
through the expected life of the instrument or, when appropriate, a shorter
period to the net carrying amount of the financial asset or financial liability.
Equity The Conceptual Framework states that equity is the residual interest in the
assets of the entity after deducting all its liabilities. Equity is a key element of
financial statements.
Equity instrument Any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities.
Equity method The investment in the associate is initially recognised at cost, but the
carrying amount is then increased or decreased by the investor's share in
the post-acquisition change in the associate's net assets.
Events after the Those events, favourable and unfavourable, that occur between the end of
reporting period the reporting period and the date when the financial statements are
authorised for issue.
Expenses Decreases in economic benefits over a period in the form of outflows or
depletion of assets, or increases in liabilities, resulting in decreases in
equity/capital (Conceptual Framework). Expenses are a key element of financial
statements.
FIFO (first in, first out) Items are used in the order in which they are received from suppliers, so
oldest items (first-in) are issued first (first-out). Inventory remaining is
therefore the newer items.
Fixed production Those indirect costs of production that remain relatively constant regardless
overheads of the volume of production, such as depreciation and maintenance of factory

buildings and equipment, and the cost of factory management and
administration.
Fair presentation The faithful representation of the effects of transactions, other events and
conditions in accordance with the Conceptual Framework.
Fair value The price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement
date.
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Faithful representation Information that is complete, neutral and free from errors, so that users can
understand the nature and significance of what is presented.
Finance lease A lease that transfers substantially all the risks and rewards incidental to
ownership of an asset. Title may or may not eventually be transferred.
Financial asset Any asset that is:
 Cash
 An equity instrument of another entity
 A contractual right:
– To receive cash or another financial asset from another entity; or
– To exchange financial assets or financial liabilities with another
entity under conditions that are potentially favourable to the entity;
Financial capital Under a financial concept of capital maintenance, such as invested money or
maintenance invested purchasing power, capital is synonymous with the net assets or
equity of the entity.
Financial instrument Any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
Financial liability Any liability that is:
 A contractual obligation:
– To deliver cash or another financial asset to another entity; or
– To exchange financial assets or financial liabilities with another
entity under conditions that are potentially unfavourable to the
entity.
Functional currency The currency of the primary economic environment in which the entity operates.
Study Guide 37
Going concern The assumption that the business will continue in operation for the
foreseeable future. It is assumed that the entity has neither the intention nor
the necessity of liquidation or of curtailing materially the scale of its
operations.
Goodwill An asset representing the future economic benefits arising from other assets
acquired in a business combination that are not individually identified and
separately recognised.
Group A parent and all its subsidiaries.
Historical cost Assets are recorded at the amount of cash or cash equivalents paid or the fair
value of the consideration given to acquire them at the time of their
acquisition. Liabilities are recorded at the amount of proceeds received in
exchange for the obligation.
Income Increases in economic benefits over a period in the form of inflows or
increases of assets, or decreases of liabilities, resulting in increases in
equity/capital (Conceptual Framework). It can include both revenue and gains.
Income is a key element of financial statements.
Intangible asset An identifiable non-monetary asset without physical substance.
Inventories Assets:
 Held for sale in the ordinary course of business
 In the process of production for such sale; or

 In the form of materials or supplies to be consumed in the production
process or in the rendering of services.
Inventories, cost of All costs of purchase, of conversion (eg labour) and of other costs incurred in
bringing the items to their present location and condition.
Inventories, cost of The purchase price, import duties and other non-recoverable taxes, transport,
purchase handling and other costs directly attributable to the acquisition of finished
goods and materials.
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Irrecoverable debt A debt which is not expected to be paid.

Joint arrangement A contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control.
Joint venture A joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement.
Lease An agreement whereby the lessor conveys to the lessee in return for a
payment or series of payments the right to use an asset for an agreed period
of time.
Lease term The non-cancellable period for which the lessee has contracted to lease the
asset together with any further terms for which the lessee has the option to
continue to lease the asset, with or without further payment, when at the
inception of the lease it is reasonably certain that the lessee will exercise the
option.
LIFO (last in, first out) Items issued (first-out) originally formed part of the most recent delivery (last-
in), while oldest consignments remain in stores. This is disallowed under IAS 2
Inventories.
Liability The Conceptual Framework states that a liability is a present obligation arising
from past events, the settlement of which is expected to result in an outflow
from the entity of resources embodying economic benefits. Liabilities are key
elements of financial statements.
Material Omissions or misstatements of items are material if they could, individually or
collectively, influence the economic decisions of users taken on the basis of
the financial statements. Materiality depends on the size and nature of the
omission or misstatement judged in the surrounding circumstances. The size
or the nature of an item, or a combination of both, could be the determining
factor.
Minimum lease Payments over the lease term that the lessee is or can be required to make,
payments excluding contingent rent, costs for services and taxes to be paid by and
reimbursed to the lessor, together with any amounts guaranteed by the lessee
or by a party related to the lessee.
Monetary items Units of currency held and assets and liabilities to be received or paid in a
fixed or determinable number of units of currency.
Non-controlling The equity in a subsidiary not attributable, directly or indirectly, to a parent.
interest
Non-current assets Assets acquired for continuing use within the business, with a view to earning
income or making profits from their use, either directly or indirectly, over
more than one reporting period.
Non-current liability A debt which is not payable within one year. Any liability which is not current
must be non-current.
Non-monetary items Items which do not carry the right to receive, or the obligation to deliver,a

fixed or determinable number of units of currency, for example, property,
plant and equipment.
Onerous contract A contract in which the unavoidable costs of meeting the obligations under
the contract exceed the economic benefit expected to be received under it.
Operating cycle The time between the acquisition of assets for processing and their realisation
in cash or cash equivalents.
Operating lease A lease other than a finance lease.
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Parent An entity that has one or more subsidiaries.

Physical capital Under a physical concept of capital, such as operating capability, capital is
maintenance regarded as the productive capacity of the entity based on, for example, units
of output per day.
Present value Assets are carried at the present discounted value of the future net cash
inflows that the item is expected to generate in the normal course of
business. Liabilities are carried at the present discounted value of the future
net cash outflows that are expected to be required to settle the liabilities in
the normal course of business.
Prior period errors Are omissions from, and misstatements in, the entity's financial statements for
one or more prior periods arising from a failure to use, or misuse of, reliable
information that:
 Was available when financial statements for those periods were
authorised for issue.
 Could reasonably be expected to have been obtained and taken into
account in the preparation and presentation of those financial
statements.
Such errors include the effects of mathematical mistakes, mistakes in applying
accounting policies, oversights or misinterpretations of facts, and fraud.
Profit The excess of income over expenses.
Study Guide 39
Property, plant and Tangible items that are both:
equipment  Held for use in the production or supply of goods or services, for rental
to others or for administrative purposes.
 Expected to be used during more than one period.
Provision A liability of uncertain timing or amount.
Realisable value The amount of cash or cash equivalents that could currently be obtained by
selling an asset in an orderly disposal.
Realised profit Profit which has been realised in the form either of cash or of other assets, the
ultimate cash realisation of which could be assessed with reasonable certainty.
Recognition The process of incorporating in the statement of financial position, statement
of profit or loss or statement of other comprehensive income an item that
meets the definition of an element and satisfies the following criteria for
recognition:
 It is probable that any future economic benefit associated with the
item will flow to or from the entity, and
 The item has a cost or value that can be measured with reliability.
Recoverable amount The higher of:
 Fair value less costs of disposal, and
 Value in use.

Reducing balance The annual depreciation charge is a fixed percentage of the brought forward
depreciation carrying amount of the asset.
Related party A person or entity that is related to the entity preparing its financial
statements (the reporting entity).
Related party A transfer of resources, services or obligations between a reporting entity and
transaction a related party, regardless of whether a price is charged.
Relevant financial Information which is capable of making a difference in the decisions
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information made by users.

Replacement cost The cost of an inventory unit is assumed to be the amount it would cost now
to replace it. This is often (but not necessarily) the unit cost of inventories
purchased in the next consignment following the date of the statement of
financial position.
Residual value The estimated amount that the entity would currently obtain from disposing
of an asset, after deducting estimated disposal costs.
Restructuring A programme that is planned and controlled by management, and materially
changes either:
 The scope of a business undertaken by an entity; or
 The manner in which that business is conducted.
Retrospective Applying a new accounting policy to transactions, other events and
application conditions as if that policy had always been applied.
Retrospective Correcting the recognition, measurement and disclosure of amounts of
restatement elements of financial statements as if a prior period error had never occurred.
Revenue The gross inflow of economic benefits during the period arising in the course
of the ordinary activities of an entity when those flows result in increases in
equity, other than increases relating to contributions from equity participants.
Revenue expenditure Expenditure which is incurred either:
 For trade purposes. This includes purchases of raw materials or items
for resale, expenditure on wages and salaries, selling and distribution
expenses, administrative expenses and finance costs, or
 To maintain the existing earning capacity of long-term assets.
Rights issue New shares are offered to existing owners in proportion to their existing
shareholding, usually at a discount to the current market price.
Significant influence The power to participate in financial and operating policy decisions of the
investee, but is not control or joint control over those policies.
Spot exchange rate The exchange rate for immediate delivery.
Statement of changes Financial statement that shows the changes in owners' equity
in equity (capital) invested in a business during the period.
Statement of financial A list of all the assets controlled and all the liabilities owed by a business as at a
position particular date: it is a snapshot of the financial position of the business at a
particular moment. Monetary amounts are attributed to assets and liabilities.
It also quantifies the amount of the owners' interest in the company: equity.
Statement of profit or A statement displaying items of income and expense in a reporting period as
loss components of profit or loss for the period. The statement shows whether the
business has had more income than expense (a profit for the period) or vice
versa (a loss for the period).

Statutory accounts Financial statements which limited companies are obliged by law to publish in
a particular form.
Straight line The depreciable amount (cost less residual value) is charged in equal
depreciation instalments to each reporting period over the expected useful life of the
asset. (In this way, the carrying amount of the non-current asset declines at a
steady rate, or in a 'straight line' over time.)
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Subsidiary An entity that is controlled by another entity.

Substance over form The principle that transactions and other events are accounted for and
presented in accordance with their substance and economic reality and not
merely their legal form.
Timeliness Financial information should be available in time to be capable of influencing
users' decisions.
UK GAAP The rules, from whatever source, that govern accounting and financial
reporting in the UK.
Understandability Financial information needs to be capable of being understood by users
'having a reasonable knowledge of business and economic activities and
accounting'.
Unrealised profits Profits that are unrealised as far as the group as a whole is concerned. These
profits can result from:
 Intra-group trading when goods still held in inventory of buying
company
 Intra-group transfers of non-current assets.
Useful life The estimated economic life (rather than the potential physical life) of the
non-current asset.
Value in use The present value of the future cash flows expected to be derived from an
asset.
Variable production Those indirect costs of production that vary directly, or nearly directly, with
overheads the volume of production, such as indirect materials and labour.
Verifiability Information is verifiable if different observers can broadly agree that a
particular way of presenting an item is a faithful representation.
Study Guide 41
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Icaew Study Guide - Summary Audit

Financial Accounting (University of Dhaka)

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For exams in 2018

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 Identify a range of possible solutions based on analysis

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 Strategic Business Management; and

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8 Financial Accounting and Reporting – IFRS

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10 Financial Accounting and Reporting – IFRS

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Stop and think

Can you think of any other types of

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What is the relationship between revenue

12 Financial Accounting and Reporting – IFRS

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14 Financial Accounting and Reporting – IFRS

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16 Financial Accounting and Reporting – IFRS

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Specific syllabus references for this

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18 Financial Accounting and Reporting – IFRS

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What kinds of strategic decisions might

20 Financial Accounting and Reporting – IFRS

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22 Financial Accounting and Reporting – IFRS

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present consolidated financial statements. 10

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IAS 20 Accounting for Government Grants and Disclosure of A A

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IFRS 14 Regulatory Deferral Accounts C

DIFFERENCES BETWEEN IFRS AND UK GAAP

Preface to International Financial Not applicable.

28 Financial Accounting and Reporting – IFRS

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30 Financial Accounting and Reporting – IFRS

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32 Financial Accounting and Reporting – IFRS

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