Introduction to Corporate Reporting

Review course structure & requirements

Review iLearn – study & seminar materials

Review ACCA resources

Chapters 1 and 2
 Assessment – Corporate Reporting
2

ASSESSED COURSEWORK 10% – 5 X homework & seminar exercises

TAKE HOME CLASS TEST 15% – week 7 individual & open book

RESEARCH ASSIGNMENT 20% – week 8 individual

FINAL EXAM 55% – 3 hours & closed book; no hurdle

3 THE CONCEPTUAL FRAMEWORK – Ch. 1

A set of principles for the purpose of:

a) assisting the IASB when developing new standards for financial reporting

b) assisting national standard setters to develop new standards

c) providing guidance on issues not covered by IFRS

d) assisting auditors
4 THE CONCEPTUAL FRAMEWORK

1. The objective of general purpose financial reporting:

To provide information about economic resources

• extant resources and claims and changes to them

• financial performance on both accrual and cash flow bases

• changes to resources & claims not resulting from financial performance

Information about the use of economic resources

FINANCIAL PERFORMANCE

is evidenced by changes to
economic resources and claims
that were not sourced directly
from investors or creditors
5 THE CONCEPTUAL FRAMEWORK – text p. 5

2. Qualitative characteristics of useful financial information:

Fundamental qualitative characteristics

• relevance (material & will affect the decisions of users)

• faithful representation (economic substance over legal form)

Enhancing qualitative characteristics

• comparable • timely

• verifiable • understandable
6 THE CONCEPTUAL FRAMEWORK
3. Objective of financial statements
Provide information about the financial elements that is useful to users of financial

statements in assessing both the prospects for future cash inflows and

management’s stewardship

• prepared for a period of time and with comparative information

• presents the perspective of the entity as a whole, not targeting a user group

Underlying assumption – going concern

The entity is a going concern – it will continue to operate for the foreseeable

future and doesn’t expect to curtail the scale of operations materially.

 THE CONCEPTUAL FRAMEWORK – text p. 8
4. Elements of financial statements

increase assets or decrease assets or

decrease liabilities increase liabilities &
& increase equity decrease equity

DR CR CR CR DR
8 THE CONCEPTUAL FRAMEWORK

Economic benefits defined

Cash inflows, such as returns on investments

Exchange of goods or services at a profit

Reduction of liabilities
 THE CONCEPTUAL FRAMEWORK
5. Recognition and derecognition
10 THE CONCEPTUAL FRAMEWORK

Derecognition
Derecognise a part or the whole of an asset when control is lost

Derecognise a liability when there is no longer a present obligation

11 CONCEPTUAL FRAMEWORK
6. Measurement

The framework describes measurement bases used in IFRSs

Specific accounting standards prescribe measurement bases for specific elements –

e.g. IFRS 16 Leases, IAS 16 PP&E, IAS 40 Investment Properties, IAS 2 Inventories

IFRSs take precedence over the framework where there is apparent conflict.
12 CONCEPTUAL FRAMEWORK
Two main measurement bases – text p. 11
1. historical cost
o the cost incurred when an asset was acquired or created
o the consideration received when a liability was incurred

2. current value – updates the carrying amounts of assets & liabilities at the reporting date
o fair value – market value, per IFRS 13
o value in use – present value of cash flows or other economic benefits expected from
an asset
o fulfilment value – present value of cash or other economic resources expected to
fulfil a liability
o current cost
• cost of acquiring an equivalent asset, plus transaction costs
• consideration receivable from an equivalent liability, less transaction costs
13 CONCEPTUAL FRAMEWORK – text p. 12
14 CONCEPTUAL FRAMEWORK
7. Presentation and disclosure

• focus on objectives and principles, rather than rules

• group similar items and separate dissimilar items
• aggregate information to avoid unnecessary detail and to reveal necessary detail

Profit or loss and other comprehensive income (OCI)

• the primary source of information about performance

• in principal, all income and expenses are included in profit or loss

• in exceptional cases, income or expenses from changes in current value is

classified as OCI
15 CONCEPTUAL FRAMEWORK
8. Concepts of capital and capital maintenance

Profit is measured by the change in capital, described by 2 concepts

1. Maintenance of financial capital

o capital is defined as net assets (equity capital)
o profit is evidenced by change in net assets between the reporting dates,
excluding contributions from and distributions to shareholders

2. Maintenance of physical capital remove gains

from income
o capital is defined as the productive capacity
o uses the current cost basis of measurement
o profit is measured as change in capital adjusted for changes from current-
cost measurement
 CONCEPTUAL FRAMEWORK

CHAPTER SUMMARY p. 17-18

KNOWLEDGE DIAGNOSTIC p. 19

FURTHER READING p. 20
PROFESSIONAL & ETHICAL DUTIES
LEARNING OBJECTIVES – chapter 2 
 appraise and discuss the ethical and professional issues in advising
on corporate reporting

 assess the relevance and importance of ethical and professional

issues in complying with accounting standards

 appraise the potential ethical implications of professional and

managerial decisions in the preparation of corporate reports

 assess the consequences of not upholding ethical principles in the

preparation of corporate reports

 identify related parties and assess implications of relationships

 discuss and apply judgement in selecting accounting policies,

changing estimates and in correcting prior period errors
 PROFESSIONAL & ETHICAL DUTIES – text p. 24
no bias
comply with laws no conflict of interest
and regulations no undue influence from
others

open
honest
truthful

maintain
knowledge and
skills
see ACCA Rulebook pages 259 - 311
PROFESSIONAL & ETHICAL DUTIES – text p. 23
20 PROFESSIONAL & ETHICAL DUTIES

IAS 1 Presentation of financial statements

• an entity must present its financial position, performance & cash flows fairly

• “fair presentation” means correctly presenting the effects of transactions

• “fair presentation” should occur when IFRS are adhered to

• an entity must disclose its compliance with IFRS

• disclosing compliance means compliance with all requirements of IFRS

• inappropriate accounting isn’t rectified by disclosure

21 PROFESSIONAL & ETHICAL DUTIES – text p. 25

ACCA framework for assessing ethical issues

1. define the issue

2. is non-compliance with fundamental principles evident?

3. is the threat of non-compliance material?

4. are safeguards available to mitigate the threat?

Managing ethics within an organisation

• compliance-based approach – concern for the law and penalties for breaches

• integrity-based approach – concern for the law supported by ethical influences

22
ETHICS – practice questions

Exam focus – text p. 26

Illustration 2

Activity 1 – text p. 27
o refer to the applicable standard and its requirements

o discuss the scenario with reference to the standard

o explain the correct application of the standard

o explain any ethical issues, referencing the main ethical threats

23 RELATED PARTIES – IAS 24 text p. 30
24 RELATED PARTIES – IAS 24
Control is defined in IFRS 10 Consolidated Financial Statements as when an
investor:

• has power over the investee

• is exposed to or has rights to variable returns from the investee and
• has power to affect those returns
Control is presumed when the investor holds > 50% of equity in the investee

Significant influence is defined in IAS 28 as the power to participate in, but not
control, financial & operating policy decisions of an entity
Significant influence is presumed when the investor holds between 20% & 50%
of equity in the investee

Key management personnel have authority & responsibility for planning, directing
& controlling activities of the entity
25 RELATED PARTIES – IAS 24

Disclose all material

transactions between
related parties, in
financial statements,
including amounts.
 RELATED PARTY DISCLOSURES – IAS 24 ¶ 2
26

IAS 24 shall be applied in: 

(a) identifying related party relationships and transactions; 

(b) identifying outstanding balances, including commitments, 
between an entity and its related parties; 

(c) identifying the circumstances in which disclosure of the items is required; 
and 

(d) determining the disclosures to be made about those items. 
 RELATED PARTIES – exceptions – IAS 24 ¶ 11
27

The following are not related parties:

• entities just because they have a common director or common

key management personnel

• joint venturers just because they share joint control of the

venture

• financiers, trade unions, public utilities that simply have normal

dealings

• significant customers or suppliers, simply by virtue of economic

dependence
28 RELATED PARTIES – IAS 24

Exam focus – identify related party relationships

Activity 2 – text p. 32

Activity 3 – text p. 33
29 ACCOUNTING POLICIES, ESTIMATES & ERRORS – IAS 8

Accounting policies are the principles and rules applied by an entity which
specify how transactions are reflected in the financial statements.

To increase comparability, IAS 8 Accounting Policies, Changes in Accounting

Estimates and Errors says that accounting policies should be kept the same from
period to period. Changes should only be made if required by an IFRS Standard
or if they will result in more reliable or relevant presentation in the financial
statements.

If an accounting policy is changed then it is adjusted retrospectively:

Comparative information is re-stated as if the new policy had

always been applied

The opening retained earnings balance in the statement of

changes in equity is adjusted.
30 ACCOUNTING POLICIES, ESTIMATES & ERRORS – IAS 8

Accounting estimates are assessments of the present status of assets and

liabilities as well as their expected future benefits and obligations.

recognise
Examples of accounting estimates include:
prospectively
 depreciation

 amortisation recognise
retrospectively
 provision measurement.

Prior period errors are misstatements and omissions in the financial statements
of prior periods as a result of not using reliable information that should have
been available.

Prior period errors can result from mistakes or fraud.

31 ACCOUNTING POLICIES, ESTIMATES & ERRORS – IAS 8

Activity 4 – text p. 36

Chapter summary – text p. 38

Knowledge diagnostic – p. 41

Further reading – p. 42

Question 2 from practice bank – p. 745

Question 3 from practice bank – p. 745-746