Strategic Business

Reporting (SBR)
March/June 2022
Examiner’s report
The examining team share their observations from the
marking process to highlight strengths and
weaknesses in candidates’ performance, and to offer
constructive advice for those sitting the exam in the
future.

Contents
General comments .............................................................. 2
Question 1 – Luna ............................................................... 2
Part (a)(i) – 7 marks ......................................................... 2
Part (a)(ii) – 6 marks ........................................................ 3
Part (a)(iii) – 4 marks ....................................................... 4
Part (b) – 7 marks ............................................................ 4
Part (c) – 6 marks ............................................................ 5
Question 2 – Renshu........................................................... 6
Part (a) – 10 marks .......................................................... 6
Part (b) – 4 marks ............................................................ 7
Part (c) – 6 marks ............................................................ 8
Question 3 – Bohai .............................................................. 9
Part (a) – 9 marks ............................................................ 9
Part (b) – 7 marks .......................................................... 10
Part (c) – 9 marks .......................................................... 11
Question 4 – Wing ............................................................. 12
Part (a)(i) – 5 marks ....................................................... 12
Part (a)(ii) – 4 marks ...................................................... 13
Part (a)(iii) – 6 marks ..................................................... 13
Part (b) – 10 marks ........................................................ 14

Examiner’s report – SBR March/June 2022 1

General comments

This examiner’s report should be used in conjunction with the published March/June
2022 sample exam which can be found on the ACCA Practice Platform.
In this report, the examining team provide constructive guidance on how to answer
the questions whilst sharing their observations from the marking process,
highlighting the strengths and weaknesses of candidates who attempted these
questions. Future candidates can use this examiner’s report as part of their exam
preparation, attempting question practice on the ACCA Practice Platform, reviewing
the published answers alongside this report.

Question 1 – Luna

Question 1 in the SBR examination carries 30 marks which equates to 54 minutes of

the three hour examination. Candidates however seem to give this question
disproportionate significance with the result that candidates appear to spend more
time on this question than the allotted time. The result is that the final question on the
SBR exam is quite often poorly answered because of the lack of time available. A
candidate is more likely to pass the SBR exam with four reasonably answered
questions than if the final question is poorly answered because of time constraints.
There is a significant amount of material which discusses examination technique, but
it seems that many candidates still ignore the advice.

Part (a)(i) – 7 marks

Explain, with calculations, how the disposal of shares in Starlight Co should be

accounted for in the consolidated financial statements of the Luna group for the
year ended 31 March 20X6

Part (a)(i) required candidates to explain, with calculations, how a disposal of shares
should be accounted for in the consolidated financial statements. The disposal

Examiner’s report – SBR March/June 2022 2

reduced the equity interest from 80% to 70%. This would not result in a loss of control
and would therefore be accounted for as an equity transaction, ie a transaction
between owners in their capacity as owners. The carrying amounts of the controlling
and non-controlling interests (NCI) are adjusted to reflect the changes in their relative
interests in the subsidiary. No gain or loss on the disposal of the shares is recognised
within profit or loss.

In this part of the question, candidates needed to understand that this was an equity
transaction. Many candidates recognised this fact, but the question asked in addition
how the disposal should have been accounted for. Candidates found it difficult to
explain the actual accounting entries, and in particular the accounting for the NCI
which had obtained an extra 10% of the shares. Candidates could score one mark for
every valid point explained and the own figure rule was used for the calculations of the
increase in the NCI and the equity gain. There is more than one approach to
calculating the values to be used for this transaction and candidates are not penalised
for using one method rather than another. The sample answer covers two different
approaches.

Overall, the performance in this part of the question was encouraging despite obvious
weaknesses in some candidates’ answers.

Part (a)(ii) – 6 marks

Discuss the principles that should be considered by Luna Co in recording the

sale of the goods to Starlight Co in Luna Co’s INDIVIDUAL financial statements
for the year ended 31 March 20X6. Conclude on whether the accounting
treatment currently adopted is correct.

Part (a)(ii) required candidates to discuss for 6 marks the principles which should be
considered in recording the sale of the goods in the individual financial statements of
the holding company. Candidates also had to conclude on whether the accounting
treatment currently adopted was correct. This part of the question required the
application of IFRS 15 Revenue from Contracts with Customers and knowledge of the
principles of variable consideration. Candidates who discussed that revenue should
be recognised when a performance obligation is satisfied and that this can be over
time or at a point in time, gained marks. However, simply setting out the five-step
approach adopted in IFRS 15 did not score marks. If candidates recognised that the
value of the consideration was variable and uncertain, they scored marks.
Even though the requirement emphasised the fact that the accounting was in the
individual financial statements, many candidates discussed the elimination of inter-
company profit which scored no marks.

Many candidates did recognise that IFRS 15 should be applied but failed to discuss
the principles of variable consideration. IFRS 15 states that when estimating the
amount of variable consideration, revenue must only be recognised to the extent that
it is highly probable that a significant reversal of the cumulative revenue will not be
required in the future. In this case, the value of the consideration was highly contingent
on factors outside the control of Luna Co so it was unlikely that Luna Co could conclude
that it is highly probable that a significant reversal in revenue will not be required. IFRS
15 has been in issue since 2014 and candidates still appear to have only a superficial
knowledge of the standard which is very disappointing. IFRS 15 appears regularly in
SBR questions and knowledge level three is required as set out in the syllabus. This

Examiner’s report – SBR March/June 2022 3

means that candidates should be capable of synthesis and evaluation. Unfortunately,
in many cases, candidates do not show this level of knowledge or application.

Part (a)(iii) – 4 marks

Using exhibits 1 and 2 only, present extracts that should be included in the
consolidated statement of profit or loss of the Luna group for the year ended 31
March 20X6. Your answer should include revenue, cost of sales and the profit
of Starlight attributable to the non-controlling interest.

Part (a)(iii) required candidates to present extracts, for 4 marks, from the consolidated
statement of profit or loss including revenue, cost of sales and the profit attributable to
the NCI. It required candidates to eliminate intercompany profit and to time-apportion
the profit attributable to the NCI. This part of the question was not well answered. Many
candidates failed to time-apportion the profit attributable to the NCI and there were
many candidates who did not attempt this part of the question. This was quite
surprising given that the knowledge level required is that of Financial Reporting.
Although narrative was not required, credit was given for an explanation of the process
for example, the calculation of NCI share of profits. It was surprising that many
candidates could calculate but not eliminate the unrealised profit of $600,000.

Part (b) – 7 marks

Discuss, with calculations, how the investment in Roquet Co and the sale of the
property should be accounted for in the consolidated financial statements of the
Luna group in the year ended 31 March 20X6.

Part (b) required candidates to discuss, with calculations for 7 marks, how an
investment in a joint venture and the sale of the property should be accounted for in
the consolidated financial statements. Many candidates realised that the equity
method should be used to account for the joint venture. However, few could explain
the accounting for the gains and losses arising between a parent entity and its joint
venture.

The joint venture is not part of the single entity concept and therefore it is not
necessary to eliminate transactions and outstanding balances at the reporting date
between the parent and the joint venture. However, IAS 28 Investments in Associates
and Joint Ventures does require that gains and losses arising between a parent entity
and its joint venture should only be recognised to the extent of the unrelated investors’
interest in the joint venture. An exception to this rule is that losses should be
recognised in full by the parent where a downstream transaction provides evidence
that the asset is impaired.

This was relevant to Luna Co as they had sold the property to the joint venture at a
loss which provided evidence that the property was impaired. The loss of $2 million
was recognised within Luna Co’s individual and consolidated financial statements for
the year. Again, it was difficult to find candidates who had the knowledge to discuss
this transaction. Many candidates had no knowledge of this subject, with the result
that some candidates simply did not attempt this part of the question.
Many candidates who attempt SBR are not fully prepared for the examination. The
knowledge level required is mainly at level three which means that rote learning
knowledge is not sufficient to pass the examination.

Examiner’s report – SBR March/June 2022 4

Part (c) – 6 marks

Discuss whether the acquisition of Eclip Co should be treated as a business

combination in accordance with IFRS 3 Business Combinations. Your answer
should consider whether the skills and experience of the team of scientists can
be recognised as a separate identifiable asset

Part (c) of the question required candidates to discuss for 6 marks whether an
acquisition should be treated as a business combination in accordance with IFRS 3
Business Combinations. Candidates were also asked to consider whether the skills
and experience of the team of scientists could be recognised as a separate identifiable
asset. This type of question has been asked several times in the past and requires
discussion of whether the acquisition constitutes a business. The components of a
business consist of inputs and processes which have the ability to create outputs.
Inputs are economic resources which have the ability to create outputs when one or
more processes are applied to it.
Candidates needed to consider the scenario, otherwise it is impossible to conclude.
Some candidates mentioned the optional concentration test which eliminates the need
to consider further whether the activities of the acquiree constitute a business and
gained marks. However, it is important to apply the test to the scenario and many
candidates failed to do this.
The activities of Eclip Co did constitute a business and many candidates came to this
conclusion. However, opinion seemed split as to whether the company would be
permitted to recognise the knowledge and skills of the workforce as a separate
intangible asset within the consolidated financial statements. A workforce is not
separable and therefore cannot be recognised separately. However, the intellectual
property acquired may be able to be recognised as an intangible asset. Candidates’
performance was mixed on this part of the question. Some produced excellent
answers whilst many failed to demonstrate the principles involved. Also, where
knowledge was demonstrated, the application to the scenario was often missing. More
than half of the allotted marks were given for the application of knowledge to the
scenario.

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Question 2 – Renshu

The scenario for this 20 mark question describes a company that develops gaming
apps for which customers are encouraged to buy enhancements and add-ons to play
more effectively. It sets out how the company used artificial intelligence systems to
determine the credit worthiness of its customers for the purpose of lending them
money to purchase the enhancements. The company had recently acquired some
intangible assets and develops new games and products.

Part (a) – 10 marks

Discuss the ethical and professional dilemmas for the financial accountant in
overseeing the loans made to customers and the appropriate actions to be
taken. (8 marks)
Professional marks will be awarded in part (a) for the quality of the discussion.
(2 marks)
Part (a) of the question required candidates to discuss the ethical issues surrounding
the granting of loans to customers with various social backgrounds. This part of the
question carried 8 marks and 2 professional marks.
The financial accountant, an ACCA member, was responsible for overseeing the
authorisation of small loans of up to $500 to customers. The accountant was paid a
commission based upon the number of loans granted within a period (with an effective
interest rate of approximately 1076% per annum). Many candidates stated that the
financial accountant‘s decision-making was influenced by the fact that he receives a
commission based upon the number of loans approved and that there was a moral
dilemma for the financial accountant as he authorises loans with a loan interest rate
of 1076% per annum. Additionally, many candidates discussed the bias shown in the
granting of loans to group A as the financial accountant knew that this group was
unlikely to repay the amounts on time and therefore, they will be subject to the high
interest charge on the loan.

Examiner’s report – SBR March/June 2022 6

It is always important for a professional accountant to ensure that the company they
work for is complying with applicable laws and regulations, which meant for this
company that the AI system should take into account the laws on consumer credit.
This a fundamental principal of professional behaviour. Accountants should be fair and
act in a moral way at all times, therefore it was morally unacceptable to provide credit
to a social demographic group A knowing that they would not be able to afford to repay
the loan. Many candidates discussed the ethical issues but not the moral implications
of what is right and wrong. Candidates were also asked to discuss the appropriate
actions which the accountant should take in this situation.
The marking scheme is written to allow candidates a mark for every valid point made.
Often candidates can make two valid points in a single sentence by discussing the
ethical or moral principle involved and then applying that principle to the scenario.
Markers would give a mark for identifying the problem from the scenario and a mark
for the ethical issue. However, only one mark in total was given for just quoting ethical
guidance without any application to the scenario. Many candidates scored the
maximum marks of 8 from this part of the question. The scenario was used well by
candidates and the answers were very pleasing given that it also dealt with artificial
intelligence systems and cyberattacks. The professional marks were allocated on the
basis of one mark for the discussion of the dilemmas and one mark for appropriate
actions.
If candidates summarise the key issues from the scenario, link these issues with
ethical and moral principles involved and set out appropriate and sensible actions,
then very high, possibly full, marks can be obtained.

Part (b) – 4 marks

Discuss whether the customer databases and domain names should be

recognised under IAS 38 Intangible Assets and how the purchase price should
have been allocated in accordance with IFRS 3 Business Combinations

Part (b) of the question dealt with the recognition of a customer database and domain
names under IAS 38 Intangible Assets, together with the principles of the purchase
price allocation.
Many candidates recognised that an intangible asset should be recognised for
contractual rights as it was probable that expected future economic benefits would
flow to Renshu Co. Renshu Co also acquired domain names which satisfied the
separability criterion for recognition as an intangible asset. Few candidates made this
point in their answer.
Candidates were told that the company had to allocate the purchase price to the
individual identifiable assets in accordance with IFRS 3. The arbitrary allocation of the
purchase price 50:50 between the customer database and the domain names was not
in accordance with IFRS 3. The purchase price should be allocated on the basis of
their relative fair values, but few candidates discussed this principle

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It is safe to assume that in a short question such as this for 4 marks, that 2 marks will
be awarded for each part of the question. However, if candidates answered the
recognition part very well then 3 marks could have been awarded for that part. Similarly
for the discussion of the purchase price allocation, 3 marks could be awarded if
discussed in detail. The total mark would be limited to 4 marks.
The question was quite well answered with most candidates setting out the recognition
criteria for intangible assets and gaining good marks. However fewer candidates
realised that the purchase price should be allocated based upon the relative fair
values. In general, the question attracted marks above a pass mark.

Part (c) – 6 marks

Advise Renshu Co on the accounting treatment of the payments for the app in
the year ended 31 December 20X8 on the assumptions that the amounts:
• did meet the recognition criteria for an intangible asset; or
• did not meet the recognition criteria for an intangible asset

Part (c)(i) of the question dealt with the recognition of payments for a gaming app on
the basis that they had been recognised as intangible assets in a previous period. It
was not appropriate to derecognise the intangible assets in this case, but instead
Renshu Co should have assessed whether the intangible assets were impaired in
accordance with IAS 36 Impairment of Assets.
Part (c)(ii) dealt with the situation where the payments for apps had been accounted
for as intangible assets in previous periods but the accounting was being changed to
derecognise the assets and expense the payments. In this case, the amounts should
be treated as prior period errors. Candidates performed better when answering why
the payments should be recognised as intangible assets rather than why they should
not have been recognised. There was often some overlap in the answers as regards
the recognition criteria and candidates were given credit where this was relevant
knowledge. Candidates often dealt incorrectly with the prior period error.
Overall, this part of the question was well answered. As in part (b), it was safe to
assume that in a short question such as this for 6 marks, that 3 marks will be awarded
for each part of the question. However, if candidates answered the first part very well
then 4 marks could have been awarded for that part. Similarly for the discussion of
part (c)(ii), 4 marks could be awarded if discussed in detail. The total mark would be
limited to 6 marks.

Examiner’s report – SBR March/June 2022 8

Question 3 – Bohai

The scenario for this question, set in the context of a global recession, was based on
a leisure travel group offering unique vacations through cruise ships. The introduction
explains how the group had been suffering liquidity problems and was in negotiations
with creditors to defer debt payments. This sets the scene for three requirements
relating to impairment, deferred tax assets and leases.

Part (a) – 9 marks

Discuss whether the directors of Bohai Co were correct in not conducting an

impairment test at 31 December 20X8

Part (a) for 9 marks, required a discussion on whether the directors were correct in not
conducting an impairment test at the end of the financial year. The related exhibit listed
out five factors raised by the directors to support their claim, followed by some further
facts they had ignored (impairments by industry competitors undertaken for
overcapacity and idle ships, losses on disposal of Bohai’s ships amounting to 40% of
carrying amount, cruise prices and expected delay in market recovery). A good answer
should always start with a demonstration of your knowledge relating to the issue.
Relatively easy marks are often available for describing relevant accounting standards
relating to the requirement: “Discuss whether the directors of Bohai Co were correct
in not conducting an impairment test at 31 December 20X8.” The key verb is to
discuss, so begin with what IAS 36 Impairment of Assets requires for an impairment
test to be undertaken: are there impairment indicators (internal or external)? You could
begin by outlining the more obvious indicators: such as negotiations with creditors to
defer payments and challenging market conditions (overcapacity and idle cruise
ships). It may also help to outline the impairment review process, since information
provided may relate to the recoverable amount (value in use or fair value less costs of
disposal). Good answers discussed the five bullet points alongside the additional
details, which may counter the directors’ arguments. A price-to-book ratio below 1 is
an indicator mentioned in the standard, good answers would explain what a ratio of
0.3 implies in terms of the market viewpoint. Just because competitors have similar
ratios, this does not reduce the need for an impairment, particularly when the
competitors had impaired their ships during the year. Disposal losses on surplus ships
may be immaterial in the context of the financial statements, but where the loss is 40%

Examiner’s report – SBR March/June 2022 9

of carrying amount, this is material from an impairment viewpoint. Most answers
identified the fact that directors’ fleet valuations are from an unqualified valuer and not
based on market transactions and are of little relevance. Falling fuel prices and
increased demand are mitigated by fixed cruise prices and conservative estimates
used in future budgets (which form the basis for value in use).

Of the three parts to this question, this was the best answered. A good answer first
briefly described when IAS 36 requires an impairment review, and then applied this
knowledge using the information provided, making clear points in the discussion
leading to a justified conclusion. Weaker answers were too brief and covered general
knowledge on IAS 36 without specific application to the scenario.

Part (b) – 7 marks

In accordance with IAS 12 Income Taxes, discuss:

• whether it is acceptable for Bohai Co to recognise the additional deferred
tax asset of $5 million in profit or loss rather than equity at 31 December
20X8; and

• whether the deferred tax liability of Yuyan Co of $10 million can be offset
against the deferred tax asset of $30 million of Bohai Co at the same date

For 7 marks, part (b) asked for a discussion on the acceptability of recognising a
deferred tax asset in profit or loss rather than in equity and offsetting a subsidiary’s
deferred tax liability against the holding company’s deferred tax asset. It is important
to answer both bullet points in the requirement to maximise opportunities for marks;
and weaker answers lost focus, particularly when answering the offsetting aspect.
Where knowledge of IAS 12 Income Taxes is explained, you need to make sure it is
relevant to the scenario: merely stating aspects of the standard without considering its
relevance or application to the scenario is unlikely to earn you marks. In this case both
issues relate to financial statement presentation, so candidates who considered the
principle of consistency would gain credit. In the case of the first bullet point, whether
to recognise a deferred tax asset in profit or loss or equity, the exhibit describes how
the deferred tax asset rises due to a change in the expected credit loss under IFRS 9
Financial Instruments. Knowledge of this standard helps identify the treatment, since
all impairment charges are recognised in profit or loss and explaining this would be a
good start to then considering how the related deferred tax adjustment should be
recognised. IAS 12 requires a consistent approach in that the deferred tax is
recognised in the same location as the item to which the deferred tax relates. Since
an impairment under IFRS 9 is recognised in profit or loss, this is where the deferred
tax movement can also be recognised. Some answers to this part of the question lost
focus on the requirement, particularly where candidates seemed to misread the exhibit
and suggested that no deferred tax asset should be recognised (despite the question
saying it had been correctly accounted for retrospectively).

The second issue, relating to the offsetting of a subsidiary’s deferred tax liability
against the holding company’s deferred tax asset, was less well answered. Credit was
awarded to answers which considered the legal standpoint, where there is a legally
enforceable right to a net settlement, then offsetting is permissible. Applying this
principle to the scenario, a conclusion can be drawn that offsetting would not be
allowed, unless both companies in the group are under the same tax jurisdiction which

Examiner’s report – SBR March/June 2022 10

allows the group to file returns on a consolidated basis, which is rare. Whilst many
candidates may have found this section of the question challenging, answers which
started with a broader theoretical positioning (consistency in the first case, and the
legal standpoint in the second) would form a solid foundation for any further
arguments.

Part (c) – 9 marks

Explain how Bohai Co should account for the lease and non-lease components
of the cruise ship agreements in accordance with IFRS 15 Revenue from
Contracts with Customers and IFRS 16 Leases

For 9 marks, part (c) asked for an explanation of how lease and non-lease components
of cruise ship agreements should be accounted for under IFRS 15 Revenue from
Contracts with Customers and IFRS 16 Leases. Most candidates were aware of the
IFRS 15 recognition requirements and made sensible comments regarding
performance obligations and when they could be recognised, for which credit was
given. IFRS 16 was also well explained in most cases, identifying a right-of-use asset
from the lease (the cruise ship), although the treatment of the operation’s management
fees was more challenging. Fewer candidates identified that Bohai Co was only acting
as an agent relating to the fuel and food supplies and therefore most missed the point
regarding the ‘gross’ revenue recognition within the question requirement. Where this
was overlooked (despite the phrase “acts as a principal” being included in the exhibit),
candidates lost opportunities for marks from discussing the differences between
accounting for income under IFRS 15 when acting as principal or agent. Bohai should
be identified as the principal for providing maintenance and cleaning (by controlling
the service before transfer), although the fuel and food is not under their control as the
lessee can deal with third parties; so Bohai acts as an agent in the latter case. Weaker
answers failed to focus sufficiently on both accounting standards, and this would limit
opportunities for marks.

The marking team found that most candidates were wisely separating their points out
and therefore making it easy to award relevant marks. Using paragraphs and
subsections is recommended; as well as taking the first few minutes to draft a plan for
your answer. It should by now be common practice for candidates to copy and paste
the requirements from the question, using bold or a different font to identify this from
their answer, and refer back to this requirement to ensure that they are keeping on
track.

Examiner’s report – SBR March/June 2022 11

Question 4 – Wing

As commented on earlier, the final question on the SBR exam is often poorly
answered, which may well be because candidates are not as disciplined in keeping to
time. A candidate is more likely to pass the SBR exam with four reasonably answered
questions than with a poorly answered final question due to poor time management.
This question, Wing, provided a single exhibit which describes how a pandemic has
impacted upon Wing Co, a textile manufacturer. As is often the case for the fourth
question, the focus is on a particular user of the financial statements – in this case, the
investor. The question was extremely topical and covered a range of issues which
would be at the forefront of reporting considerations during a pandemic: going
concern, onerous contracts, fair value measurements and disclosures of uncertainties,
events after the reporting period, government measures and covenants. Well prepared
candidates should be aware of these in their reading around the subject.

Part (a)(i) – 5 marks

With regards to Wing Co’s financial statements for the year ended 31 December
20X8, discuss the impact that the pandemic and subsequent events will have
on:
(i) the assessment regarding Wing Co’s ability to remain a ‘going concern’;

Part (a)(i), for 5 marks, asked for an assessment regarding Wing Co’s ability to remain
a ‘going concern.’ Our marking team was somewhat surprised by the extent of
answers which failed to provide an adequate definition of going concern, with few
describing how this is an underlying assumption of the IFRS Conceptual Framework
for Financial Reporting. Knowledge marks were available for describing when an
assessment of an entity’s ability to continue as a going concern is required, and the
types of disclosure which are needed. Better answers related the going concern
concept to the content of the exhibit and considered the issues relating to the
pandemic which are described. Application marks were available for discussion of the
impact of issues such as government support, the impact of suspended operations
and liquidity on this review.

Examiner’s report – SBR March/June 2022 12

Part (a)(ii) – 4 marks

With regards to Wing Co’s financial statements for the year ended 31 December
20X8, discuss the impact that the pandemic and subsequent events will have
on:
(ii) accounting for onerous contracts; and

Part (a)(ii) asked for a discussion on how to account for onerous contracts, for 4 marks.
Onerous contracts were often defined well, and most candidates gained good
knowledge marks by explaining how they arise under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. Few answers described the need for an impairment
loss on assets dedicated to that contract, prior to recognising the provision; and
weaker answers tended to focus too long on explaining what a provision was. Better
answers applied the information from the exhibit to conclude that, for contracts which
could be cancelled without penalty, there is no obligation and no onerous contract.

Part (a)(iii) – 6 marks

With regards to Wing Co’s financial statements for the year ended 31 December
20X8, discuss the impact that the pandemic and subsequent events will have
on:
(iii) fair value measurement of investment property
Part (a)(iii) required a discussion on the impact of changes in fair value of investment
property. Most answers provided a good description of the fair value measurements
described in IFRS 13 Fair Value Measurement, and this part of the question was
generally very well answered and appropriately applied to the scenario. The 6 marks
were achievable through a description of knowledge (what fair value constitutes, and
the hierarchy of measurements which can be used) combined with an application to
the scenario (eg requiring an orderly transaction, not forced; and how value
information from similar properties is likely to provide more relevant information than
unobservable inputs like income).
Quite a few answers to part (a) failed to provide a response for all three sections, which
may have been a down to timing issues and not allowing sufficient time to complete
this question.

Examiner’s report – SBR March/June 2022 13

Part (b) – 10 marks

Discuss the nature of the information that investors of Wing Co will expect to
be disclosed in financial statements as a result of the pandemic. Candidates
should include amongst other things such factors as disclosure of
uncertainties, events after the reporting period, government measures and
covenants. (8 marks)
Professional marks will be awarded in part (b) for clarity, and quality of
discussion (2 marks)

Part (b) had 8 marks available to discuss the nature of information which investors
would expect to be disclosed in financial statements as a result of a pandemic. This
section was generally well answered, with most candidates picking up reasonable
marks here. However, some answers lacked the required investor focus. Marks were
available for valid comments relating to those items in the financial statements which
were unusual or infrequently occurring, items which required significant judgement
calls, or explanations relating to the assessment of materiality. Candidates should
appreciate how these are impacted by a global economic crisis resulting from a
pandemic. Candidates should have presented a brief discussion on each of the factors
specifically referenced in the requirement, to ensure all potential marks were earned.
These included disclosures relating to uncertainties, events after the reporting period,
government measures and covenants. Better answers used subsections or headings
to make it clear that these were covered. In addition to these aspects, any further
issues would receive credit if they were justified, such as the extent of disclosures on
performance measures and policy changes, the impact of a pandemic on revenue
(variable consideration, contract modifications, onerous contracts), and redundancy,
restructuring and continuity plans.

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