ACCA

Strategic Professional

Strategic
Business
Reporting (SBR)

Revision Notes

For exams in September

2023, December 2023,
March 2024 and June 2024

HB2023

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 Contents
Introduction
Essential skills areas to be successful in Strategic Business Reporting (SBR) iv

Chapter 1: The financial reporting framework 1

Chapter 2: Ethics, related parties and accounting policies 3
Chapter 3: Revenue 6
Chapter 4: Non-current assets 8
Chapter 5: Employee benefits 11
Chapter 6: Provisions, contingencies and events after the reporting period 13
Chapter 7: Income taxes 14
Chapter 8: Financial instruments 16
Chapter 9: Leases 19
Chapter 10: Share-based payment 21
Chapter 11: Basic groups 23
Chapter 12: Changes in group structures: step acquisitions 25
Chapter 13: Changes in group structures: disposals 27
Chapter 14: Non-current assets held for sale and discontinued operations 29
Chapter 15: Joint arrangements and group disclosures 30
Chapter 16: Foreign transactions and entities 31
Chapter 17: Group statements of cash flows 34
Chapter 18: Interpreting financial statements for different stakeholders 35
Chapter 19: Reporting requirements of small and medium-sized entities 36
Chapter 20: The impact of changes and potential changes in accounting regulation37

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 Essential skills areas to be successful in Strategic
Business Reporting (SBR)
We think there are three areas you should develop in order to achieve exam success in SBR:
(a) Knowledge application
(b) Specific SBR skills
(c) Exam success skills
The specific SBR skills and exam success skills are shown in the diagram below.

cess skills
Exam suc

r planning
Answe

fic SBR Skills C
n Speci o
tio

rr req
a

ec ui
of
m

t i rem
or

nt
inf

erp ents
Resolving Applying
ng

financial good

reta
agi

reporting consolidation
Man

tion
issues techniques

Approaching
Exam
l y si s

ethical
Go od

Readiness
issues
ana
ti m

Creating
c al
em

effective
e ri

discussion
an

um
ag

tn
em

en

en
t ci
Effi
Effe cti
ve writing
a nd p r
esentation

Specific SBR skills

These are the skills specific to SBR that we think you need to develop in order to pass the exam.
In this Workbook, there are five Skills Checkpoints which define each skill and show how it is
applied in answering a question. A brief summary of each skill is given below.

Skill 1: Approaching ethical issues

Question 2 in Section A of the exam will require you to consider the reporting implications and the
ethical implications of specific events in a given scenario.
Given that ethics will feature in every exam, it is essential that you master the appropriate
technique for approaching ethical issues in order to maximise your mark.
BPP recommends a step-by-step technique for approaching questions on ethical issues:
Step 1 Copy and paste the question requirements to the word processor response option. Work
out how many minutes you have to answer the question and make a note of the time
under the question requirements.
Step 2 Read the requirements and analyse them. Underline each sub-requirement separately
and identify the verb(s). Ask yourself what each sub-requirement means.
Step 3 Read the scenario, identify which IFRS Accounting Standard may be relevant, whether
the proposed accounting treatment complies with that IFRS Accounting Standard.
Identify which fundamental principles from the ACCA Code of Ethics and Conduct are
relevant and whether there are any threats to these principles.
Step 4 Prepare an answer plan using key words from the requirements as headings. Ensure your
plan makes use of the information given in the scenario.

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 Step 5 Complete your answer using key words from the requirements as headings.
Skills checkpoint 1 covers this technique in detail through application to an exam-standard
question on ethics.

Skill 2: Resolving financial reporting issues

Financial reporting issues are highly likely to be tested in both sections of your SBR exam, so it is
essential that you master the skill for resolving financial reporting issues in order to maximise your
chance of passing the exam.
The basic approach BPP recommends for resolving financial reporting issues is very similar to the
one for ethical issues. This consistency is important because in Question 2 of the exam, both will
be tested together.
Step 1 Copy and paste the question requirements to the word processor response option. Work
out how many minutes you have to answer the question and make a note of the time
under the question requirements.
Step 2 Read the requirements and analyse them. Underline each sub-requirement separately,
identify the verb(s) and ask yourself what each sub-requirement means.
Step 3 Read the scenario, identify which IFRS Accounting Standard may be relevant and
whether the proposed accounting treatment complies with that IFRS Accounting
Standard.
Step 4 Prepare an answer plan using key words from the requirements as headings. Ensure your
plan makes use of the information given in the scenario.
Step 5 Complete your answer, using separate headings for each item in the scenario.
Skills checkpoint 2 covers this technique in detail through application to an exam-standard
question.

Skill 3: Applying good consolidation techniques

Question 1 of Section A of the exam is worth 30 marks and will be based on the financial
statements of group entities. Between 10 and 14 marks of Question 1 will be for adjusting a
prepopulated spreadsheet, which could be a consolidated statement of financial position,
consolidated statement of profit or loss, consolidated statement of changes in equity or
consolidated statement of cash flows, or extracts thereof. Section B of the exam could deal with
any aspect of the syllabus so it is also possible that groups feature in Question 3 or 4, however,
the pre-populated spreadsheet will only be a feature of Question 1.
Skills Checkpoint 3 is designed to demonstrate application of good consolidation techniques when
answering the group accounting element of Question 1.
A step-by-step technique for applying good consolidation techniques is outlined below.
Step 1 Copy and paste the question requirements to the word processor response option. Work
out how many minutes you have to answer each requirement (based on 1.95 minutes per
mark) and make a note under each requirement in the response option.
Step 2 Read the requirements and analyse them. Underline each sub-requirement separately
and identify the verb(s). Ask yourself what each sub-requirement means.
Step 3 Read the scenario, identify exactly what information has been provided. Add to your
notes under each requirement in the response option any key information, such as any
errors that have been made and adjustments that may be required.
Step 4 Briefly plan your answer: identify the group structure, which consolidation workings,
corrections and adjustments to the spreadsheet are required and any key points you
wish to make in your explanations. Do not perform any detailed calculations at this
stage.
Step 5 Complete your answer. Use key words from the requirements as headings for narrative
requirements. Ensure your explanations refer to underlying accounting concepts and the
relevant standards. If you are asked to provide a calculation and to explain it, perform
the calculation first, then explain it. Ensure your adjustments in the spreadsheet are clear
and easy to follow.

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 See Skills Checkpoint 3 to see how Skill 3 is applied to an exam-standard question.

Skill 4: Creating effective discussions

More marks in your SBR exam will relate to narrative answers than numerical answers. It is very
tempting to only practise numerical questions, as they are easy to mark because the answer is
right or wrong, whereas narrative questions are more subjective and a range of different answers
will be given credit. Even when attempting narrative questions, it is tempting to do a brief answer
plan and then look at the answer rather than attempting a full answer. Unless you practise
narrative questions in full to time, you will never acquire the necessary skills to tackle discussion
questions.
The basic five steps adopted in Skills Checkpoints 1-3 should also be used in discussion questions.
Steps 2 and 4 are particularly important for discussion questions. You will definitely need to spend
a third of your time reading and planning. Generating ideas at the planning stage to create a
comprehensive answer plan will be the key to success in this style of question. Consideration of
the Conceptual Framework, ethical principles and the perspective of stakeholders will often help
with discursive questions in SBR.
Step 1 Copy and paste the question requirements to the word processor response option. Work
out how many minutes you have to answer the question and make a note of the time
under the question requirements.
Step 2 Read the requirements and analyse them. Underline each sub-requirement separately,
identify the verb(s) and ask yourself what each sub-requirement means.
Step 3 Read and analyse the scenario.
Step 4 Prepare an answer plan.
Step 5 Complete your answer.
Remember that very few marks are available for just stating knowledge. You must make sure your
answers are applied to the scenario given. The March 2020 detailed marking guide says:
‘Some marks in each question are allocated for RELEVANT knowledge. Marks will not be awarded
for the reproduction of irrelevant knowledge or irrelevant parts of IFRS Accounting Standards. Full
marks cannot be gained unless relevant knowledge has been applied. Candidates may also
discuss issues which do not appear in the suggested solution. Providing that the arguments made
are logical and the conclusions derived are substantiated, then marks will be awarded
accordingly.’ (ACCA, 2020)
Skills Checkpoint 4 covers the technique for creating effective discussion in detail through
application to an exam-standard question.

Skill 5: Exam readiness

Skills Checkpoint 5 gives general advice on being ‘exam ready’ and focusses on how to make best
use of the computer-based exam software.

Exam success skills

Passing the SBR exam requires more than applying syllabus knowledge and demonstrating the
specific SBR skills; it also requires the development of excellent exam technique through question
practice.
We consider the following six skills to be vital for exam success. The Skills Checkpoints show how
each of these skills can be applied specifically to the exam.

Exam success skill 1

Managing information
Questions in the exam will present you with a lot of information. The skill is how you handle this
information to make the best use of your time. The key is determining how you will approach the
exam and then actively reading the questions.
Advice on developing this skill

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 To avoid being overwhelmed by the quantity of information provided, you must take an active
approach to reading each question.
Active reading means focussing on the question’s requirement first, identifying key verbs such as
‘prepare’, ‘comment’, ‘explain’, ‘discuss’, to ensure you answer the question properly. Then read
the rest of the question, and as you now have an understanding of what the question requires you
to do, you can highlight important and relevant information, and use the scratchpad within the
exam software to make notes of any relevant technical information you think you will need.
In the CBE, the highlighter tool provided in the toolbar at the top of the screen offers a range of
colours:

Highlight T Strikethrough

Remove Highlight

This allows you to choose different colours to highlight different aspects to a question. For
example, if a question asked you to discuss the pros and cons of an issue then you could choose a
different colour for highlighting pros and cons within the relevant section of an exhibit.
The strikethrough function allows you to delete areas of an exhibit that you have dealt with - this
can be useful in managing information if you are dealing with numerical questions because it can
allow you to ensure that all numerical areas have been accounted for in your answer.
The CBE also allows you to resize windows by clicking and dragging on the bottom right-hand
corner of the window:

1. Company information
Exhibits T
1. Company information Page 1 of 1 Automatic Zoom
1
2. Performance reporting system
2

3. Customer survey
3
Rezillos Engineering (Rezillos) is a listed company, manufacturing pumps and valves
4. Benchmarking proposal for use in the chemical industries. These highly engineered components must be
4 integrated into Reziollos’ customers’ own plant and equipment. The company has
grown significantly via acquisition in the last 20 years to become a worldwide
5. Appendix 1 5 business.
The overall objective of the company is ‘to deliver sustainable growth in value to the
6. Appendix 2 6 shareholders by working in partnerships with customers to deliver innovative and
value-for-money solutions utilising the skills of the highly-trained workforce.’
7. Appendix 3 7
The chief executive officer (CEO) has recognised that the company has been so
focused on making acquisitions that it has not improved other aspects of
T management. He has asked you to produce a report for the board of Rezillos to
Requirements
cover a number of areas.
Requirements (50 marks)

Response Options
Word Processor

Spreadsheet

This functionality allows you to display a number of windows at the same time, so this could
allow you review:
• the question requirements and the exhibit relating to that requirement, at the same time, or
• the window containing your answer (whether a word processing or spreadsheet document)
and the exhibit relating to that requirement, at the same time.

Exam success skill 2

Correct interpretation of the requirements
The active verb used often dictates the approach that written answers should take (eg ‘explain’,
‘discuss’, ‘evaluate’). It is important you identify and use the verb to define your approach. The
correct interpretation of the requirements skill means correctly producing only what is being
asked for by a requirement. Anything not required will not earn marks.
Advice on developing correct interpretation of the requirements
This skill can be developed by analysing question requirements and applying this process:
Step 1 Read the requirement

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 Firstly, read the requirement a couple of times slowly and carefully and identify the
active verbs. Use the active verbs to define what you plan to do. Make sure you identify
any sub-requirements.
In SBR, the detailed aspects of a requirement are often embedded in the scenario. For
example, in the scenario, the directors may ask you explain something, and then the
requirement will ask you to respond to the director’s instruction. Therefore, the initial
requirement by itself may not provide a complete understanding of a question’s
requirement, although it is a useful starting point.
We recommend you copy the requirements into the word processor response option, in
order to form the basis of your answer plan. See Exam success skill 3: Answer planning
below.
Step 2 Read the rest of the question
By reading the requirement first, you will have an idea of what you are looking out for as
you read through the case overview and exhibits. This is a great time saver and means
you don’t end up having to read the whole question in full twice. You should do this in an
active way – see Exam success skill 1: Managing Information.
Step 3 Read the requirement again
Read the requirement again to remind yourself of the exact wording before starting your
written answer. This will capture any misinterpretation of the requirements or any missed
requirements entirely. This should become a habit in your approach and, with repeated
practice, you will find the focus, relevance and depth of your answer plan will improve.
It is particularly important to pay attention to any dates you are given in requirements. This is
especially the case when, for example, discussing an accounting treatment up to a particular
date. No marks will be awarded for discussing the treatment at a different date than that asked
for in the requirement.

Exam success skill 3

Answer planning: Priorities, structure and logic
This skill requires the planning of the key aspects of an answer which accurately and completely
responds to the requirement.
Advice on developing this skill
We recommend that you plan your answer directly in the word processor response option and
then fill out the detail of the plan with your answer. This will save you time spent on creating a
separate plan, say in the scratchpad, and then typing up your answer separately - though you
could copy and paste between the scratchpad and response option if you wanted to do so.
The easiest way to start your answer plan is to copy the question requirements to the word
processor response option and this is what we recommend you do. This will ensure that your
answer plan addresses all parts of the question requirements. Then, as you read through the
exhibits, you can copy and paste any relevant information into your chosen response option
under the relevant requirement. This approach also has the advantage of making sure your
answer is applied to the scenario given, which is crucial in the SBR exam.
Copying and pasting simply involves selecting the relevant information and either right clicking to
access the copy and paste functions, or alternatively using Ctrl-C to copy and Ctrl-V to paste.

Exam success skill 4

Efficient numerical analysis
This skill aims to maximise the marks awarded by making clear to the marker the process of
arriving at your answer. This is achieved by laying out an answer such that, even if you make a
few errors, you can still get some credit for your calculations. It is vital that you do not lose marks
purely because the marker cannot follow what you have done.
Advice on developing this skill
This skill can be developed by applying the following process:
Step 1 Use a standard proforma working where relevant

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 If answers can be laid out in a standard proforma then always plan to do so. This will
help the marker to understand your working and allocate the marks easily. It will also
help you to work through the figures in a methodical and time-efficient way.
Step 2 Show your workings
Keep your workings as clear and simple as possible and ensure they are cross-
referenced to the main part of your answer. Where it helps, provide brief narrative
explanations to help the marker understand the steps in the calculation. This means that
if a mistake is made you should not lose any subsequent marks for follow-on
calculations.
Step 3 Keep moving!
It is important to remember that, in an exam situation, it is difficult to get every number
100% correct. The key is therefore ensuring you do not spend too long on any single
calculation. If you are struggling with a solution then make a sensible assumption, state
it and move on.
You can use the spreadsheet response option to prepare calculations, if you wish. If you do so,
you can make use of formulas to help with calculations, instead of using a calculator. For
example, the ‘sum’ function: =SUM(A1:10) would add all the numbers in spreadsheet cells A1 to A10.
You can use the symbol ^ to calculate a number ‘to the power of…’, eg =1.10^2 calculates 1.10
squared - this is very useful if you need to perform a discounting calculation.
If you use the spreadsheet for calculations, make sure the spreadsheet cell includes your formula
and not just the final answer, so that the marker can see what you have done and can award
follow-on marks even if you have made a mistake earlier in the calculation.
If you do decide to use a calculator instead, don’t just put the final answer into a cell without
including your workings - make sure you type up your workings as well and cross refer to them in
your final answer.

Exam success skill 5

Effective writing and presentation
Narrative answers should be presented so that the marker can clearly see the points you are
making, presented in the format specified in the question. The skill is to provide efficient written
answers with sufficient breadth of points that answer the question, in the right depth, in the time
available.
Advice on developing this skill
Step 1 Use headings
Using the headings and sub-headings from your answer plan will give your answer
structure, order and logic. This will ensure your answer links back to the requirement and
is clearly signposted, making it easier for the marker to understand the different points
you are making. Underlining your headings will also help the marker.
Step 2 Write your answer in short, but full, sentences
Use short, punchy sentences with the aim that every sentence should say something
different and generate marks. Write in full sentences, ensuring your style is professional.
Step 3 Do your calculations first and explanation second
Questions often ask for an explanation with supporting calculations. The best approach
is to prepare the calculation first but present it on the bottom half of the page of your
answer, or on the next page (or in an Appendix if you are preparing a letter or report for
a client). Then add the explanation before the calculation. Performing the calculation
first should enable you to explain what you have done.
In an CBE, this is easy to do - prepare your calculation, then type up your answer above
it. If you wish, you can use the word processor to type up narrative discussion and the
spreadsheet to prepare any calculations. If you do so, make sure you clearly cross
reference to your calculation so the marker can follow what you have done. See Exam
success skill 4 - efficient numerical analysis.

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 Exam success skill 6
Good time management
This skill means planning your time across all the requirements so that all tasks have been
attempted at the end of the 3 hours 15 minutes available and actively checking on time during
your exam. This is so that you can flex your approach and prioritise requirements which, in your
judgement, will generate the maximum marks in the available time remaining.
Advice on developing this skill
The exam is 3 hours 15 minutes long, which translates to 1.95 minutes per mark. Therefore a 10-
mark requirement should be allocated a maximum of 20 minutes to complete your answer before
you move on to the next task. At the beginning of a question, work out the amount of time you
should be spending on each requirement and note the finishing time next to each requirement on
your exam. We recommend you put the time allocation next to the requirements in your answer
plan. If you take the approach of spending 10–15 minutes reading and planning at the start of the
exam, adjust the time allocated to each question accordingly; eg if you allocate 15 minutes to
reading, then you will have 3 hours remaining, which is 1.8 minutes per mark.
Keep an eye on the clock
Aim to attempt all requirements, but be ready to be ruthless and move on if your answer is not
going as planned. The challenge for many is sticking to planned timings. Be aware this is difficult
to achieve in the early stages of your studies and be ready to let this skill develop over time.
If you find yourself running short on time and know that a full answer is not possible in the time
you have, consider recreating your plan in overview form and then add key terms and details as
time allows. Remember, some marks may be available, for example, simply stating a conclusion
which you don’t have time to justify in full.

Question practice
Question practice is a core part of learning new topic areas. When you practice questions, you
should focus on improving the Exam success skills – personal to your needs – by obtaining
feedback or through a process of self-assessment. You should attempt questions under timed
conditions and ensure you produce full answers to the discussion parts as well as doing the
calculations. Also ensure that you attempt all mock exams under exam conditions.
ACCA CBE practice platform
ACCA have launched a free on-demand resource designed to mirror the live exam experience
helping you to become more familiar with the exam format. You can access the platform via the
Study Support Resources section of the ACCA website navigating to the CBE question practice
section and logging in with your myACCA credentials.
Practising as many exam-style questions as possible in the ACCA CBE practice platform will be
key to passing the exam.

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 Chapter 1: The financial reporting framework
The financial reporting framework
IAS 1 Presentation of Financial Statements
Fair presentation
• Fair presentation is achieved if IFRS
Accounting Standards are appropriately
applied and additional disclosure is given
when it is necessary
• True and fair override
Presentation of items of OCI
• Other comprehensive income comprises items
of income and expense (including
reclassification adjustments) that are not
recognised in profit or loss as required or
permitted by other IFRS Standards
• Some inconsistent use of OCI in financial
statements
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Materiality
• Revised definition of materiality: 'Information
is material if omitting, misstating or obscuring
it could reasonably be expected to influence
decisions that the primary users of general
purpose financial reports make on the basis
of those reports, which provide financial
information about a specific reporting entity’
(IAS 1: para. 7)
• IFRS Practice Statement 2 Making Materiality
Judgements
– Non-mandatory guidance
– Aims to encourage to greater application of
judgement by preparers of financial
statements
– Will help to tackle the problem of excessive
disclosure which was obscuring material
information
Key points:
– Recognition and measurement criteria only
need to be applied if resulting information
is material
– Disclosure need not be made if the
information provided by the disclosure is
not material
– 4-step process to making materiality
judgements: identify, assess, organise,
review
– Materiality factors include quantitative and
qualitative (internal and external) factors
– The presence of a qualitative factor (eg
related party) lowers the quantitative
threshold
• Disclosure of material accounting policies
Judgements made and measurement
uncertainty
• Disclosure required of significant judgements
made by management
• Disclosure required of key assumptions and
major sources of measurement uncertainty
1
 The Conceptual Framework for Financial Reporting
Purpose of the Conceptual Framework
• Assist IASB to develop IFRS Accounting Standards
that are based on consistent concepts
• Assist preparers to develop accounting policies in
cases where there is no applicable IFRS Standard or
where a choice of policy exists; and
• Assist all in the understanding and interpretation of
IFRS Accounting Standards
1. The objective of general purpose financial reporting
'To provide financial information about the reporting
entity that is useful to existing and potential investors,
lenders and other creditors in making decisions about
providing resources to the entity'
2. Qualitative characteristics of useful financial
information
• Fundamental qualitative characteristics: relevance
and faithful representation
• Enhancing qualitative characteristics:
comparability, verifiability, timeliness,
understandability
• Subject to cost constraint
3. Financial statements and the reporting entity
• Objective of financial statements: 'To provide
financial information about the reporting entity’s
assets, liabilities, equity, income and expenses that
is useful to users of financial statements in
assessing the prospects for future net cash inflows
to the reporting entity and in assessing
management’s stewardship of the entity’s
economic resources'
• Going concern is assumed
• Reporting entity can be part of an entity, a single
entity or a group of entities
4. The elements of financial statements
• Asset: 'a present economic resource controlled by
the entity as a result of past events'
• Liability: 'a present obligation of the entity to
transfer an economic resource as a result of
past events'
• Economic resource: 'a right that has the potential
to produce economic benefits'
• Income: 'Increases in assets, or decreases in
liabilities, that result in increases in equity, other
than those relating to contributions from holders of
equity claims'
• Expenses: 'Decreases in assets, or increases in
liabilities, that result in decreases in equity, other
than those relating to distributions to holders of
equity claims'
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5. Recognition and derecognition
• Recognise an asset, liability, income, expense or
equity when:
1. It meets the definition of an element
2. It provides relevant information that is a faithful
representation at cost that does not outweigh
benefits
• Derecognise:
– An asset when control is lost
– A liability when there is no longer a present
obligation
6. Measurement
• May be at:
– Historical cost
– Current value (includes fair value, value in use,
fulfilment value and current cost)
• Factors to consider in selecting a measurement
basis/bases:
– Nature of information provided by the basis
– Must be useful – relevant
and faithful representation
– Also consider cost constraint and enhancing
qualitative characteristics
7. Presentation and disclosure
• Effective presentation and disclosure requires:
– Focusing on presentation and disclosure
objectives and principles rather than
on rules
– Classifying information by grouping similar
items and separating dissimilar items
– Aggregating information so that it is not obscured
by unnecessary detail or excessive aggregation
• SPL: primary source of information about
performance
• In principle all items of income and expenses
reported in SPL
• However IASB may develop Standards that include
income or expenses arising from a change in the
current value of an asset or liability as OCI if this
provides more relevant information or a more
faithful representation.
• In principle, OCI is recycled to profit or loss in a
future period when doing so results in the provision
of more relevant information or a more faithful
representation
8. Concepts of capital and capital maintenance
• Financial capital maintenance: profit is the increase
in nominal money capital over the period
• Physical capital maintenance: profit is the increase
in the physical productive capacity over the period
 Chapter 2: Ethics, related parties and accounting policies

Ethics, related parties and accounting policies

Professional and ethical issues

Ethical principles in corporate reporting Complying with accounting standards

• ACCA Code of Ethics and Conduct • Ethical problems on preparing FS/advising on
– Objectivity corporate reporting:
– Integrity – Duty of professional competence:
– Professional competence and due care ◦ Insufficient time
– Confidentiality ◦ Incomplete/inadequate information
– Professional behaviour ◦ Insufficient training/experience
◦ Inadequate resources
– Threats to fundamental principles:
Threats to fundamental principals ◦ Self-interest
• Self-interest ◦ Self-review
• Self-review ◦ Advocacy
• Advocacy ◦ Familiarity
• Familiarity ◦ Intimidation
• Intimidation – Prohibition of association with reports that:
◦ Are materially misleading
◦ Contain reckless information
Framework for decisions ◦ Are biased
What are the relevant facts? ◦ Omit/obscure information
↓
What are the ethical issues involved?
↓
Which fundamental principles are threatened?
↓
Do internal procedures exist that mitigate
the threats?
↓
What are the alternative courses of action?
↓
Finally, can you look yourself in the mirror after
making the decision and applying any
necessary safeguards?

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 Related parties
Related party
• A person (or close family member) if that
person:
(i) Has control or joint control (over the
reporting entity);
(ii) Has significant influence; or
(iii) Is key management personnel of the
entity or of its direct or indirect parents
• An entity if:
(i) A member of the same group (each
parent, subsidiary and fellow subsidiary
is related)
(ii) One entity is an associate*/joint venture*
of the other
(iii) Both entities are joint ventures* of the
same third party
(iv) One entity is a joint venture* of a third
entity and the other entity is an
associate of the third entity.
(v) It is a post-employment benefit plan for
employees of the reporting entity/related
entity
(vi) It is controlled or jointly controlled by
any person identified above
(vii) A person with control/joint control has
significant influence over or is key
management personnel of the entity (or
of a parent of the entity)
(viii) It (or another member of its group)
provides key management personnel
services to the reporting entity (or to its
parent)
* including subs of the associate/joint venture
Not related parties
(a) Two entities simply because they have a
director/key manager in common
(b) Two venturers simply because they share
joint control over a joint venture;
(c) (i) Providers of finance;
(ii) Trade unions;
(iii) Public utilities;
(iv) Government departments and
agencies; simply by virtue of their
normal dealings with the entity.
(d) A customer, supplier, franchisor, distributor
or general agent with whom an entity
transacts a significant volume of business,
simply by virtue of the resulting economic
dependence
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Disclosure
• Reasons for disclosure, to identify:
– Controlling party
– Transactions with directors
– Group transactions that would not
otherwise occur
– Artificially high/low prices
– 'Hidden' costs (free services provided)
• Materiality needs to be taken into account, no
disclosure req'd if not material.
– Name of parent (and ultimate controlling
party) (irrespective of whether transactions
have occurred)
– For transactions:
◦ Nature of relationship
◦ Amount
◦ Outstanding balance (including
commitments)
◦ Bad & doubtful debts
– Similar items may be disclosed in aggregate
except where separate disclosure is
necessary for understanding
– No disclosure req'd of intragroup
transactions in consolidated FS (as are
eliminated)
– Government related entities (ie where a
gov't has control/joint control or significant
influence), for transactions with the
government/entities related to same
government, only need to disclose:
◦ Name of government
◦ Nature of relationship
◦ Nature and amount of each individually
significant transaction
– Key management personnel compensation
 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Accounting policies Accounting estimates

• Specific principles, bases, conventions applied by an • Accounting estimates are monetary amounts in
entity in preparing/presenting financial statements financial statements that are subject to
• To choose: measurement uncertainty. They involve the use of
(1) Apply relevant IFRS (choice within IFRS is a judgement and assumptions based on latest reliable
matter of accounting policy) information.
(2) Consult IFRS dealing with similar issues • Change in accounting estimate
(3) Conceptual Framework – Apply prospectively ie adjust current and future
(4) Other national GAAP periods
• Change in policy:
Apply retrospectively unless transitional provision of
IFRS specifies otherwise Errors
• Omissions and misstatements in for one or more
prior periods arising from a failure to use, or misuse
of, reliable information
• Correct by restating the comparative figures, or, if
they occurred in an earlier period, by adjusting
opening reserves

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 Chapter 3: Revenue
Revenue
Revenue recognition (IFRS 15)
(1) Identify contract with customer
Contract = an agreement that creates
enforceable rights and obligations
(2) Identify performance obligation(s)
For distinct goods or services (ie can benefit on
own or with other readily available resources)
(3) Determine transaction price
Amount to which entity expects to
be entitled
– Discount to PV (not required if < 1 year)
– Include variable consideration if highly probable
significant reversal will not arise
(probability-weighted expected value or most
likely amount)
(4) Allocate transaction price to performance
obligations
Based on stand-alone selling prices
(5) Recognise revenue when (or as) performance
obligation satisfied
When good/service transferred (= when/as
customer obtains control)
↓ (revenue = fee or commission)
• Satisfaction of a performance obligation over time:
(a) The customer simultaneously receives
and consumes the benefits provided; or
(b) The performance creates/enhances an asset
that the customer controls as it is
created/enhanced; or
(c) The performance does not create an
asset with an alternative use and the entity has
an enforceable right to payment for
performance completed.
• Satisfaction of a performance obligation at a point
in time:
– Indicators of transfer of control of an asset:
(a) Entity has a present right to payment
(b) Customer has legal title to the asset
(c) Entity has transferred physical possession
(d) Customer has the significant risks and
rewards of ownership
(e) The customer has accepted the asset
↓ customer is likely to exercise the option:
• Incremental costs of obtaining a contract:
– Recognised as asset if expected to be recovered
• Costs to fulfil a contract:
– Recognised as an asset and amortised if costs:
◦ Can be specifically identified;
◦ Generate/enhance resources used to satisfy
performance obligation; and
◦ Are expected to be recovered.
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6 Strategic Business Reporting (SBR)
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Specific guidance in IFRS 15
• Sale with right of return – recognise revenue for
amount of consideration that entity expects to be
entitled to (exclude goods expected to be
returned), a refund liability and an asset for right
to recover products on settling refund liability
• Warranties:
(1) Treat as separate performance obligation if
customer has option to purchase warranty
separately
(2) Account for warranty in accordance with IAS 37
if customer does not have option to purchase
warranty separately
(3) If warranty provides customer with service in
addition to complying with specifications,
promised service is a performance obligation
• Principal versus agent
(1) If entity controls goods or service before
transfer to customer, entity = principal (revenue
= gross amount of consideration)
(2) If entity arranges for goods or services to be
provided by another party, entity = agent
• Non-refundable fees – if it is an advance payment
for future goods and services, recognise revenue
when future goods and services provided.
• Consignment arrangements – goods are delivered
to a third party for sale to end customers. Control
of the goods does not pass to the third party at the
delivery date. Inventory remains in the accounting
records of the seller and revenue is not recognised
until control passes.
• Repurchase agreements - entity sells an asset &
promises or has the option to repurchase it:
(a) If entity has the obligation (forward contract)
or right (call option) to repurchase: if
repurchase price < original selling price, then =
lease under IFRS 16; if the repurchase price is ≥
original selling price, then = financing
arrangement
(b) If the customer can request repurchase (put
option), entity should consider whether the
– If repurchase price < original selling price &
customer does not have economic incentive
to exercise, then = outright sale with right of
return; if customer does have economic
incentive to exercise, then = lease
– If repurchase price is ≥ original selling price &
is above the expected market value of the
option, then = financing arrangement
 Change in transaction price and contract modifications

Change in transaction price

• Amount of change is allocated to peformance obligations on
the same basis as the original transaction price was
allocated
• If the performance obligation is already satisified, recognise
the related revenue immediately
• If the performance obligation is not yet satisified, recognise
the related revenue on the same basis as the original
transaction price that was allocated to it

Contract modification
• Contract modification = change in scope and/or price of a
contract which creates new or changes existing rights and
obligations
• Must be approved by both parties
• Treated as either a separate contract or an adjustment to
the original contract
• Separate contract if:
– Scope increases because of addition of distinct
goods/services AND price increases by amount reflecting
stand-alone selling price of additional goods/services
– Otherwise treat as adjustment to the original
• Adjustment to the original contract, can be:
– Termination of original contract and replacement with new
contract if goods/ services are distinct (treatment: allocate
to the remaining performance obligations total of
unrecognised revenue from original contract plus
consideration in new contract)
– Continuation of the original contract if goods/ services
not distinct and therefore part of existing performance
obligation (treatment: may need to recognise a 'catch-up'
adjustment to revenue)
– Combination of both of these

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 Chapter 4: Non-current assets

Non-current assets

Property, plant and Impairment of assets (IAS 36)

equipment (IAS 16)

• Tangible items: held for use in • External impairment indicators
production/supply of goods or – Significant fall in market
services, for rental to others, or value
for administrative purposes – Significant external adverse
and are expected to be used changes
during more than one period – Increase in market interest
• Recognise when: rates
– Probable that future – Net assets > market
economic benefits will flow capitalisation
to the entity • Internal impairment indicators
– The cost of the asset can be – Obsolescence/damage
measured reliably – Significant internal adverse
• Initial recognition at cost changes
– Components of assets: – Performance worse than
recognised separately if expected
expected to generate • Impairment loss where:
different patterns of benefits recoverable amount (RA) <
• Subsequent measurement, carrying amount
choice of • RA = higher of:
– Cost model: Cost less FV less costs Value in use
accumulated depreciation/ of disposal CF DF PV
impairment losses X 1/(1+r) X
– Revaluation model: Revalued X 1/(1+r)2 X
amount less subsequent etc
accumulated depreciation/ X
impairment losses (entire
class), fair value (FV) (using • CGUs:
FV hierarchy in IFRS 13) (1) Test individual CGUs
– Depreciate on systematic (2) Test group of CGUs
basis over useful life including:
– Review useful – Unallocated goodwill
life/depreciation – Unallocated corporate
method/residual value at assets
least each year end Imp
– Impairment: charge first to Before loss After
OCI (for any revaluation Goodwill X (X)
surplus) then profit or loss Other assets X (X) After
(P/L) X (X)
– Exchanges of items of PPE −
measured at fair value
• Annual impairment tests
required for:
– Goodwill
– Intangibles not yet ready for
use
– Intangibles with indefinite
useful life
• Impairment loss:
Dr OCI (& Revaluation surplus)
(First if revalued)
Dr P/L
Cr Goodwill of CGU (First)
Cr Other assets pro-rata
• Impairment loss reversals:
– Permitted where RA increases
– Opposite double entry
– Cannot reverse above
lower of:
◦ RA
◦ Carrying amount if no
impairment occurred
◦ Goodwill never reversed
X
X
X

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 Fair value measurement
(IFRS 13)
• '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'
• Fair value is after transport
costs, but before transaction
costs
• Market-based measure (ie
use assumptions market
participants would use), not
entity specific
• Hierarchy for inputs to
valuation techniques:
(1) Unadjusted quoted prices
(active market) for identical
items
(2) Inputs other than quoted
prices that can be
observed directly (prices)
or indirectly (derived
from prices)
(3) Unobservable inputs
• Multiple markets, use FV in:
(1) Principal market (if there
is one)
(2) Most advantageous market
(ie the best one after both
transaction and transport
costs)
• Non-financial assets: highest
and best use that is physically
possible, legally permissible
and financially feasible
• FV of a liability (example):
Expected value of cash flows
Third-party contractor
mark-up
Inflation adjustment
flows)
Discount to PV
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Intangible assets Investment property
(IAS 38) (IAS 40)
• Identifiable non-monetary • Property held to earn rentals or
assets without physical for capital appreciation or
substance both rather than for:
• An asset is identifiable if: – Use in the production or
(a) It is separable; or supply of goods or services
(b) It arises from or for administrative
contractual/legal rights purposes; or
• Recognise when: – Sale in the ordinary course
– Probable that future of business
economic benefits will flow to • Recognise when:
the entity – Probable that future
– The cost of the asset can be economic benefits will flow to
measured reliably the entity
• Initial measurement: – The cost of the asset can be
– Purchased: measured reliably
Cost (as IAS 16) • Initial measurement:
– Internally generated: – Cost
Capitalise if ◦ Purchase price
◦ Probable future economic ◦ Directly attributable
benefits expenditure
◦ Intention to complete & • After recognition, choice of
use/sell asset – Cost model: as IAS 16 unless
◦ Resources adequate and held for sale (IFRS 5) or
available to complete & leased (IFRS 16)
use/sell – Fair value model: Market
◦ Ability to use/sell value at year end, gain/loss
◦ Technical feasibility in P/L, not depreciated
◦ Expenditure can be
• Impairment: charge to P/L
measured reliably
– Never capitalised:
Internally generated brands,
mastheads, publishing titles
& customer lists, start-up
costs, training, advertising,
relocations/reorganisations
– After recognition, choice of
◦ Cost model: as IAS 16
◦ Revaluation model:
revaluation only by
X
reference to an active
X
market
X
• Amortisation:
X – Finite useful life: Systematic
basis over useful life (UL)
X – Indefinite UL: at least annual
X impairment tests
X • Impairment: charge first to OCI
(for any revaluation
9
 Government grants
(IAS 20)
• Recognised when 'reasonably
certain' condition met
(NB: different to Conceptual
Framework)
• Grants re assets:
– Deferred income; or
– Reduce carrying amount
• Grants re income:
– In P/L when expense
recognised
(i) Other income; or
(ii) Reduce related expense
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Borrowing costs
(IAS 23)
• Capitalise:
– Funds borrowed specifically:
actual borrowing costs less
income on temporary
investment of funds
– Funds borrowed generally:
weighted average borrowing
costs (excl specific borrowing
costs) × weighted average
expenditure
• Cease capitalisation when
ready for intended use
• Suspend if development
interrupted (for an extended
period)
Agriculture
(IAS 41)
• Biological asset: A living
animal or plant
• Agricultural produce: The
harvested product of the
entity's biological assets
(Bearer plants accounted for
under IAS 16)
• Recognise when:
– Controlled as a result of
past events
– Probable future economic
benefits; and
– Fair value or cost can be
measured reliably
• Measurement:
– Biological assets: FV less
costs to sell
– Agricultural produce:
◦ At the point of harvest: FV
less costs to sell (becomes
IAS 2 cost)
◦ Thereafter – as inventories
 Chapter 5: Employee benefits

Employee benefits (IAS 19)

Short-term benefits Defined contribution plans

• Recognised as a liability as employee renders
service (ie accruals basis)
• Not discounted
• Accrue for short-term compensated absences (eg
holiday pay) that can be carried
• An entity pays fixed contributions into a separate
entity (a fund) and will have no legal or constructive
obligation to pay further contributions if the fund
does not hold sufficient assets to pay all employee
benefits relating to employee service in the current
or prior periods
• Company's only obligation is agreed contribution,
eg 5% × salary
• Accounted for on accruals basis

Defined benefit plans Other long-term benefits

• Post-employment plans other than defined • Employee benefits other than short-term benefits,
contribution plans post-employment benefits and termination benefits
• Company guarantees pension • Accounting: apply the accounting for defined
years worked benefit plans, except remeasurements not
Eg Final salary ×
60 recognised in OCI. Instead, recognise in P/L:
• Projected unit credit method: service cost, net interest on the liability/asset and
Net interest cost: Dr Net interest cost (P/L) remeasurement of liability/asset
Cr PV obligation (x% × b/d)
Dr Plan assets (x% × b/d)
Cr Net interest cost (P/L)
Current service cost: Dr CSC (P/L)
Cr PV obligation
Past service cost: Dr/Cr PSC (P/L)
Cr/Dr PV obligation
(amendment/curtailment)
Contributions: Dr Plan assets
Cr Company cash
Benefits: Dr PV obligation
Cr Plan assets
Remeasurements:
– Recognise immediately in OCI
• Settlements
– A transaction that eliminates all further
legal/constructive obligation for part/all benefits
– Any gain/loss recognised in P/L
• Asset ceiling test
– Net asset measured at lower of:
◦ Net defined benefit asset (FV of plan assets less
PV of obligation)
◦ PV refunds available from plan/ reductions in
future contributions
• Disclosure
– Risk-based disclosures: what are the risks and
how are they managed

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 Termination benefits
• Employee benefits provided in exchange for
termination of employment – either due to:
– Employee decision to accept employer's offer of
benefits in exchange for termination (voluntary
redundancy), or
– Employer's decision to terminate employment
(compulsory redundancy)
• Dr Expense, Cr Liability
• Recognise at earlier of:
– Date at which the entity can no longer withdraw
the benefit
– Date when IAS 37 restructuring provision is
recognised (when restructuring involves
termination payments)
• Measurement:
– If expect to wholly settle before 12 months of end
of reporting date measure as per short-term
benefits
– Otherwise, measure as other long-term benefits
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Criticisms of IAS 19 and recent amendments
• Criticisms:
(a) Definitions of the types of plan and treatment of
more unusual plans
(b) Measurement of plan liabilities
(c) Off-setting defined benefit assets
(d) Use of profit vs OCI
• 2018 amendment to IAS 19:
Clarification: when the net defined benefit
liability/asset is remeasured as a result of a plan
amendment/curtailment/settlement, updated
actuarial assumptions should be used to determine
current service cost/net interest for remainder of
reporting period
 Chapter 6: Provisions, contingencies and events after the reporting
period

Provisions, contingencies and events after the reporting period

Provisions Specific types of provision

(IAS 37)

• 'A liability of uncertain timing or Future operating losses Restructuring

amount' Do not provide • Only provide if:
• Recognise liability: – Detailed formal plan; and
– Present obligation (as a result – Valid expectation raised by
of a past event) Onerous contracts
starting to implement it or
(i) Legal obligation, or Provide for unavoidable cost: by announcing main features
(ii) Constructive obligation Lower of • Includes only direct
– Probable outflow of resources
expenditures:
embodying economic benefits Net cost Penalties from
(a) Necessarily entailed by the
– Reliable estimate of fulfilling failure to fulfil
restructuring; and
• Large population → expected
(b) Not associated with the
values
ongoing activities of the
• Single obligation → most likely
entity:
outcome
(i) Retraining/relocating
• Discount if material
staff
(ii) Marketing
(iii) Investment in new
systems/distribution
networks

Environmental provisions
• Make a provision where there
is a legal or constructive
obligation to clean up/
decommission
– Provision is discounted to
present value
– DR Asset (depreciate over UL)
CR Provision

Contingent liabilities Contingent assets Events after the

(IAS 37) (IAS 37) reporting period (IAS 10)

• Possible obligation; or Possible asset • Adjusting:

• Present obligation where: – Evidence of conditions at
– Outflow of resources not Inflow
year end
probable; or
Virtually Probable Not • Non-adjusting:
– Cannot make reliable estimate
certain probable – Other → disclose
↓
• Disclose (unless outflow of • Going concern implications →
Recognise Disclose Do
resources is remote) adjust
– nature nothing
↓ – estimate
• Brief description of nature
practicable

• Estimate of financial effect

where

• Indication of uncertainties
• Possibility of reimbursement

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 Chapter 7: Income taxes
Current tax
• Tax charged by tax authority
• Unpaid tax recognised as a
liability
• Benefits of tax losses that can
be carried back recognised as
an asset
• Explanation required as to
difference between expected
and actual tax expense
Deferred tax:
recognition
• DT is recognised for all
temporary differences, except
(initial recognition exemption):
– Initial recognition of goodwill
– Initial recognition of an asset
or liability, provided:
◦ The asset or liability was
not acquired in a business
combination;
◦ The transaction has no
effect on accounting profit
or taxable profit; and
◦ The transaction does not
give rise to equal taxable
and deductible temporary
differences.
• DT recognised in same section
of SPLOCI as transaction
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Income taxes
Deferred tax principles: revision
• A/c CA X • Provisions tax deductible when
Less: tax base (X)
Taxable/(deductible) TD X/(X)
x % = (DTL)/DTA (X)/X
• Accelerated tax depreciation
– A/c CA > tax WDV
– Tax base = tax WDV
– → DTL
• Revaluations not recognised
for tax
– A/c CA > tax WDV
– Tax base = tax WDV
– DTL always recognised even
if no intention to sell, as
revalued amount recoverable
through use generating
taxable income
• Accrued income/expense
taxed on a cash basis
– Accrual in SOFP, but no
accrual for tax
– Tax base = 0
Deferred tax:
measurement
• Tax rates expected to apply
when asset realised/liability
settled, based on tax rates/
laws:
– Enacted; or
– Substantively enacted by
end of reporting period
• Cannot be discounted
(inconsistency with IAS 37
which requires discounting if
material)
paid
– Accrual in SOFP, but no
accrual for tax
– Tax base = 0
– DTA based on prov'n
• Accrued income/expense
taxed on an accruals basis
– Tax base = accrual
– ∴ No DT effect
• Never taxable/tax deductible
– No DT effect
• Calculation of charge/(credit)
to P/L:
DTL (net) b/d X
OCI (re rev’n or
investment in equity
instruments) X
Goodwill (re FV increases) X
∴P/L charge/(credit) X/(X)
DTL (net) c/d X
Deferred tax:
group financial statements
• Fair value adjustments
– DTL on FV increases
(& higher goodwill)
– DTA on FV decreases
(& lower goodwill)
• Undistributed profits of
subsidiary/associate/joint
venture
– DTL recognised unless:
(i) Parent is able to control
timing of reversal, and
(ii) Probable will not reverse
in foreseeable future
• Unrealised profit on intragroup
trading
– DTA recognised at receiving
company's tax rate
 Deferred tax: other Deferred tax:
temporary differences presentation

• Development costs • DT assets/liabilities must be

– DTL on A/c CA if fully tax offset, but only if:
deductible as incurred (tax – Legal right to set off current
base = 0) tax assets/liabilities, and
• Impairment (& inventory) – DT assets/liabilities relate to
losses same tax authority
– DTA on loss if not tax
deductible until later (as tax
base does not change)
• Financial assets
– DTL on gains not taxable
until sale
– DTA on losses not tax
deductible until sale
– Recognised in same section
of SPLOCI as gain/loss
• Unused tax losses/credits
– DT asset only if probable
future taxable profit
available for offset
• Share-based payment
– See Chapter 10 Share-based
Payments
• Leases
– See Chapter 9 Leases

Key
A/c CA = accounting carrying amount
DT = deferred tax
DTA = deferred tax asset
DTL = deferred tax liability
FV = fair value
OCI = other comprehensive income
SOFP = statement of financial position
SPLOCI = statement of profit or loss and
other comprehensive income
Tax WDV = tax written down value

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 Chapter 8: Financial instruments

Financial instruments

Standards Classification (IAS 32)

• IAS 32 on presentation Financial asset (FA) Equity instrument

• IFRS 7 on disclosures (a) Cash • Any contract that evidences a
• IFRS 9 on recognition (b) Contractual right to: residual interest in the assets of an
and measurement (i) Receive cash/FA entity after deducting all its liabilities
(ii) Exchange FA/FL under • Only equity if neither (a) nor (b) of FL
potentially favourable conditions def'n met
(c) Equity instrument of another entity
(d) Contract that will/may be settled in
entity's own equity instruments Compound instrument
• Separate debt/equity components:
PV principal (X x 1/(1 + r)n) X
Financial liability (FL)
PV interest flows:
(a) Contractual obligation to
(Nominal interest x 1/(1 + r)1) X
(i) Deliver cash/FA
(Nominal interest x 1/(1 + r)2) X
(ii) Exchange FA/FL under
potentially unfavourable (Nominal interest x 1/(1 + r)3) X
conditions ...etc X
(b) Contract that will/may be settled in Debt component X
entity's own equity instruments ∴Equity component X
Cash received X
• Discount using rate for
non-convertible debt

Recognition Derecognition (IFRS 9)

(IFRS 9)

• When party to Financial assets Financial liabilities

contractual provisions • When: • When obligation:
of instrument – The contractual rights to cash – Is discharged;
• Outside scope: flows expire; or – Cancelled; or
contracts to buy/sell – The FA is transferred (based on – Expires
non-financial items in whether substantially all risks &
accordance with rewards of ownership transferred)
entity's expected
• Recognise in P/L:
purchase/sale/usage
– Consideration received less CA
req'ments
(measured at date of
derecognition)

HB2023
16 Strategic Business Reporting (SBR)

These materials are provided by BPP

 Classification and measurement (IFRS 9)
Financial assets
• Initial measurement
– Fair value + transaction costs (TC)
(except FA @ FV through P/L, TC →
P/L)
• Subsequent measurement
(1) Investments in debt instruments
– Business model approach:
◦ Held to collect or collect and
sell cash flows, and
◦ Cash flows solely principal
and interest
– Held to collect (only) –
amortised cost
– Held to collect and sell – FV
through OCI with interest in
P/L (calculated as per
amortised cost)
(2) Investments in equity instruments
not 'held for trading'
– Fair value through OCI
(optional irrevocable election)
– No reclassification on
derecognition
(3) All other FA (or designated at FV
through P/L to eliminate/
significantly reduce an
'accounting mismatch')
– Fair value through P/L
• Reclassification:
– Permitted only for debt instruments
where entity changes its business
model
HB2023
These materials are provided by BPP
Financial liabilities
• Initial measurement
– Fair value – transactions cost (TC)
(except FL @ FV through P/L, TC →
P/L)
• Subsequent measurement
Amortised cost (1) Most financial liabilities
calculation – Amortised cost
Initial value b/d (incl (2) FL at FV through P/L
trans costs) X – Held for trading (short-term
profit making)
% b/d X – Derivatives
Coupon at nominal – Designated at FV through P/L to
% par value (X) eliminate/significantly reduce
Amortised cost c/d X an 'accounting mismatch'
– Portfolios managed and
performance evaluated on a FV
basis
(3) FL arising when transfer of FA
does not qualify for
derecognition
– FL = consideration received not
yet recognised in P/L
– Measured on same basis as
transferred FA (FV or amortised
cost)
(4) Financial guarantee contracts
and commitments to provide a
loan at below market interest rate
– Higher of:
◦ IAS 37 valuation; and
◦ Amount initially recognised
less amounts amortised to P/L
17
 Impairment
(IFRS 9)

• Applies to investments in debt and other receivables (unless held at FV through

P/L)
• No test required for FA at FV through P/L (as impairment automatically dealt with)
• Follows an 'expected loss' model:
– At initial recognition of a financial asset, a loss allowance equal to 12-month
expected credit losses must be recognised.
– At subsequent reporting dates:
No significant increase in Significant increase in Objective evidence of
credit risk since initial credit risk since initial impairment at the
recognition (Stage 1) recognition (Stage 2) reporting date (Stage 3)
↓ ↓ ↓
Recognise 12-month Recognise lifetime Recognise lifetime
expected credit losses expected credit losses expected credit losses
↓ ↓ ↓
Effective interest Effective interest Effective interest
calculated on gross calculated on gross calculated on net
carrying amount carrying amount carrying amount
of financial asset of financial asset of financial asset
• Credit losses (and loss reversals) recognised in P/L
• For investments in debt held at FV through OCI, change in FV not due to credit
losses still recognised in OCI
• For investments in debt not held at FV through OCI a separate allowance account
is used:
Gross carrying amount X
Allowance for impairment losses (X)
Net carrying amount X
• Permitted simplified approaches:
– Trade receivables and contract assets (with no financing element):
→ lifetime expected credit losses on initial recognition

Hedging (IFRS 9)

• Objective-based (rather than • Fair value hedge: • Hedge of net

quantitative) assessment of whether
hedge relationship exists
• Accounted for as a hedge if hedging
relationship:
– Only includes eligible items,
– Designated at inception, and
– Is effective
(i) Economic relationship between
hedged item and hedging
instrument exists;
(ii) Change in FV due to credit risk
does not distort hedge; and
(iii) Quantity of hedging instrument
vs quantity of hedged item
('hedge ratio') designated as
the hedge is same as actually
used
– Hedges changes in value of investment in foreign
recognised asset/liability operation:
– All gains/losses → P/L (but → OCI if – Hedges changes in
re an investment in equity value of foreign
instruments measured at FV subsidiary's net
through OCI) assets
• Cash flow hedge: – Accounted for
– Hedges changes in value of future similarly to CF
cash flows: gain/loss on effective hedges
portion → OCI until CF occurs • Single hedging
excess → P/L disclosure note (or
– Reclassified from OCI to P/L when section) shows all the
cash flow occurs (unless results in effects of hedging in
recognition of non-financial item → one place
include in initial CA instead)

HB2023
18 Strategic Business Reporting (SBR)

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 Chapter 9: Leases

Leases (IFRS 16)

Lessee accounting

Definitions Accounting treatment

• A contract, or part of a contract, that • Lease liability:
conveys the right to use an asset (the PVFLP not paid on/before
underlying asset) for a period of time in commence. date X
exchange for consideration Interest at implicit % X
• Contract contains a lease if the contract Payment in arrears (X)
conveys the right to control an asset for a
Liability c/d (split NCL & CL) X
period of time for consideration, where,
throughout the period of use, the • Right-of-use asset:
customer has: PVFLP not paid on/before
(a) Right to obtain substantially all of the commence. date X
economic benefits from use, and Payments on/before comm. date X
(b) Right to direct use of identified asset Initial direct costs X
Dismantling/restoration costs X
X
Depreciate to earlier of end of useful life (UL)
and lease term (UL if ownership expected to
transfer)
• Optional exemptions (expense in P/L):
→ Short-term leases (lease term < 12 months)
→ Underlying asset is low value (eg tablet
PCs, small office furniture, telephones)
• Remeasurement:
→ Revised lease payments discounted at
original rate where re residual value
guarantee or payments linked to index or
rate (and revised rate otherwise)
→ Adjust right-of-use asset

Deferred tax implications

Accounting CA: Right-of-use asset X
Lease liability (X)
(X)
Tax base: 0
(X)
Deferred tax asset at x% X

HB2023
19

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 Lessor accounting
Finance leases
• A lease that transfers substantially all the
risks and rewards incidental to ownership of
an underlying asset
• Indicators of a finance lease:
– Transfer of ownership by end of term
– Option to purchase at bargain price
– Leased for major part of economic life
– PVLP is substantially all of FV
– Asset very specialised
– Cancellation losses borne by lessee
– Gain/loss on RV accrue to lessee
– Secondary term at bargain rent
• Derecognise underlying asset and recognise
lease receivable:
PV lease payments X additional financing (split PV lease liability
PV unguaranteed residual value X
= ‘Net investment in the lease’ X market rates)
• Unguaranteed residual value (UGRV)
→ That portion of the residual value of the
underlying asset, the realisation of which
by a lessor is not assured or is guaranteed
solely by a party related to the lessor
• Recognise finance income on lessor's net
investment outstanding
• Manufacturer/dealer lessor:
Revenue (lower of FV & PVLP) X
Cost of sales (CA – UGRV) (X)
Gross profit X
Operating leases
• A lease that does not transfer substantially
all the risks and rewards incidental to
ownership of an underlying asset
• Asset retained in books of lessor &
depreciated over UL
• Credit rentals to P/L straight line over lease
term unless another systematic basis is more
representative
HB2023
20 Strategic Business Reporting (SBR)
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Sale and leaseback transactions
Transfer is in substance a sale
• Seller/lessee:
– Derecognises asset transferred
– Recognises a right-of-use asset at
proportion of previous CA re right of use
retained
– Recognises gain/loss in relation to rights
transferred
• If consideration received is not equal to
asset's FV (or lease payments not at market
rates):
→ Below-market terms:
prepayment of lease payments (add to
right-of-use asset)
→ Above-market terms:
between loan and lease payments at
• Buyer-lessor accounts for:
– The purchase as normal purchase
– The lease per IFRS 16
Transfer is NOT in substance a sale
• Seller-lessee:
– Continues to recognise transferred asset
– Recognises financial liability equal to
transfer proceeds (and accounts for it per
IFRS 9)
• Buyer-lessor:
– Does not recognise transferred asset
– Recognises financial asset equal to transfer
proceeds (and accounts for it per IFRS 9)
 Chapter 10: Share-based payment

Share-based payment (IFRS 2)

Types of share-based payment Recognition

• Equity-settled: Over vesting period

– Goods/services for shares/share options
• Cash-settled:
– Goods/services for cash based on value of shares/share options
• Choice of settlement:
– Entity chooses or counterparty chooses

Measurement

Equity-settled Cash-settled Choice of settlement

• Dr Expense (/asset)
Cr Equity
• Measure at:
– FV goods/services rec'd, or
– FV of equity instruments at
grant date
• For employee services not
vesting immediately, recognise
change in equity over vesting
period
• Dr Expense (/asset) • If counterparty has the choice:
– Recognise at FV – Treat as a compound
• Cr Liability instrument
– Adjust for changes in FV until – Measure equity component
date of settlement at grant date FV:
FV shares alternative X
FV cash (debt) alternative (X)
Equity component X
• If entity has the choice:
– Treat as equity-settled
unless present obligation to
settle in cash

Equity/liability b/d X Estimated no. of

Movement (bal) → P/L X Estimated no. Cumulative
employees entitled FV per
× of instruments × × proportion of vesting
Cash paid (liab only) (X) to benefits at instrument*
per employee period elapsed
Equity/liability c/d X vesting date
* Equity-settled: grant date
Cash-settled: year end

HB2023
21

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 Vesting conditions Deferred tax implications

• Period of service: Deferred tax asset

– Over period A/c carrying amount of
• Performance conditions (other SBP expense 0
than market): Less tax base
– Estimate at y/e instruments (future tax ded’n
expected to vest estimated at y/e) (X)
– Where vesting period varies
(X)
(eg target) accrue over most
DT asset × X% X
likely period at y/e
• Market conditions: If tax ded'n > SBP expense,
– Ignore (already considered excess DT → equity not SPLOCI
in FV)

HB2023
22 Strategic Business Reporting (SBR)

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 Chapter 11: Basic groups
Consolidated
financial statements
• Exemption: consolidated FS not
necessary if:
– P is wholly owned subsidiary
(or NCI agrees)
– Debt/equity not publicly
traded
– Ultimate or any intermediate
P publishes IFRS FS including
all subs
• A/c in separate financial
statements of parent:
– At cost; or
– At fair value (as a financial
asset under IFRS 9); or
– Using equity method
HB2023
These materials are provided by BPP
Basic groups
Subsidiaries
Definition Key intragroup adjustments
• An entity that is controlled by (a) Cancellation of intragroup
another entity (known as the sales/purchases:
parent) DR Group revenue X
• Control: when an investor has CR Group cost of sales X
all the following: (b) Elimination of unrealised
(a) Power over the investee; profit on inventories/PPE:
(b) Exposure, or rights, to
Sales by P to S:
variable returns from its DR Cost of sales/ret'd
involvement with the earnings of P X
investee; and CR Group inventories/PPE X
(c) The ability to use its power
Sale by S to P:
over the investee to affect
DR Cost of sales/ ret'd
the amount of the investor's
earnings of S X
returns
CR Group inventories/PPE X
(affects NCI)
Accounting treatment (IFRS 3, (c) Cancellation of intragroup
IFRS 10) balances:
• Consolidation (purchase DR Payables X
method) of 100% of assets, CR Receivables X
liabilities, income and expenses (d) Cash in transit:
• Cancellation of intragroup DR Cash X
items CR Receivables X
• NCI shown separately (e) Goods in transit:
• Uniform accounting policies DR Inventories X
• Adjustments to fair value CR Payables X
• Goodwill arises (tested
annually for impairment)
Exclusion
• Not possible under IFRS unless
no control or parent is an
investment entity:
– Dissimilar activities
Consolidated + IFRS 8
disclosures
– Held for re-sale
Consolidated under IFRS 5
principles (held for sale in
CA/CL)
– Severe LT restrictions
No control ∴ not a sub
– Investment entities
Subs held at FVTP/L
• Purpose is investment
management services
• Invest solely for returns from
capital appreciation and/or
investment income
• Performance measured &
evaluated on FV basis
23
 IFRS 3
Business Combinations
• Business combination:
transaction in which an entity
obtains control of one or more
businesses
• Business: integrated set of
activities that generates goods
or services for customers,
investment income or other
income
• Business has inputs +
processes capable of
generating outputs
• Acquisition method: identify
the acquirer, determine the
acquisition date, recognise
and measure identifiable
assets/liabilities acquired and
NCI, recognise and measure
GW
• Measure NCI at proportionate
share of FV of net assets or at
fair value
HB2023
24 Strategic Business Reporting (SBR)
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Associates
• Definition:
– An entity over which the
investor has significant
influence
– Significant influence: the
power to participate in the
financial and operating
policy decisions of the
investee but not control or
joint control over those
policies
• Accounting treatment (IAS 28):
– Equity method
SOFP: Cost + share of post
acq'n retained
reserves
less: impairment
losses to date
SPLOCI: Share of profit for
the year (shown
before group profit
before tax)
Share of other
comprehensive
income
– Eliminate investor's share of
any unrealised profit/loss on
transactions with associate
(unless a 'business' is
transferred to the associate
– profit/loss not eliminated
as similar to loss of control
of a subsidiary)
Fair
values
Consideration transferred
Measuring consideration:
• Transaction costs
– Expensed to P/L
– But to equity if re SC
(IAS 32)
• Deferred
– Present value
• Contingent
– Fair value at acq'n date
– Subsequent measurement:
(i) Equity instruments – not
remeasured
(ii) Cash – remeasure to FV,
gains or losses through
profit or loss
(iii) Financial instrument –
IFRS 9
Fair value (FV) of assets and
liabilities
Exceptions to FV recognition/
measurement:
• Contingent liabilities –
recognised if present
obligation exists and FV can
be measured reliably
• Indemnification assets – same
val'n as contingent liability
less allowance if uncollectable
• Reacquired rights – FV
based on remaining term
(ignore renewal)
• Use normal IFRS values for
deferred tax, employee bens,
share-based payment and
assets held for sale
 Chapter 12: Changes in group structures: step acquisitions

Changes in group structures: step acquisitions

Step acquisitions

Acquisition

Control is achieved Significant influence is achieved Control is retained

Investment to subsidiary Associate to subsidiary Investment to associate Subsidiary to subsidiary

(eg 10% to 80% (eg 30% to 80% (eg 10% to 40% (eg 60% to 70%
shareholding) shareholding) shareholding) shareholding)

Step acquisitions where control is achieved

Group financial statements Control achieved in stages

• Associate to subsidiary • Goodwill calculation (at date control achieved):
– SPLOCI: Consideration transferred X
◦ Equity account to date NCI (at FV or at %FVNA) X
of control
FV of previously held investment X
◦ Remeasure associate to
fair value FV of net assets at acquisition (X)
◦ Consolidate from date X
of control • Consolidated retained earnings if step acquisition partway through
– SOFP: year (associate to subsidiary and subsidiary to subsidiary):
◦ Calculate goodwill at date P S S
of control
% before % after
◦ Consolidate
step acq’n step acq’n
• Investment to subsidiary At year end/date of step acq’n X X X
– SPLOCI:
Group or loss on remeasurement/
◦ Remeasure investment to
adjustment to parent’s equity X/(X)
fair value
◦ Consolidate from date of At acquisition/date of control (X) (X)
control Y Z
– SOFP: Group share:
◦ Calculate goodwill at date (Y x % before step acq’n) X
of control (Z x % after step acq’n) X
◦ Consolidate X

HB2023
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 Step acquisitions where Step acquisitions
significant influence where control
is achieved is retained

Group financial statements – Group financial statements – Subsidiary to subsidiary

Investment to associate
• SPLOCI:
– Equity account from date of
significant influence
• SOFP:
– Equity account (original
investment is treated as part
of cost of associate measured
either at cost or fair value)
• SPLOCI:
– Consolidate results for whole period
– Time apportion NCI
• SOFP:
– Consolidate
– Record decrease in NCI
– Calculate and record adjustment to equity (in parent's column in
consolidated retained earnings working)

NCI (SOFP)
NCI at acquisition (date of control) X
NCI share of post acq’n reserves to date of step acquisition X
NCI at date of step acquisition X
Decrease in NCI * (X)
NCI after step acquisition X
Next 2 lines only required if step acquisition is partway through year:
NCI share of post-acq’n reserves
From date of step acquisition to year end X
NCI at year end X

Adjustment to equity
FV of consideration paid (X)
Decrease in NCI * X
Adjustment to equity (X)/X

* NCI at date of % purchased

×
step acquisition NCI % before step acq'n

HB2023
26 Strategic Business Reporting (SBR)

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 Chapter 13: Changes in group structures: disposals

Changes in group structures: disposals

Disposals

Disposal

Control is retained Control is lost

Subsidiary to subsidiary Full disposal (subsidary Subsidiary to associate Subsidiary to investment

(partial disposal) to no shareholding) (partial disposal) (partial disposal)

Subsidiaries: disposals where control is lost

Group financial statements – Full disposal Group profit or loss on disposal

• SPLOCI: FV consideration received X
– Consolidate/time apportion results/NCI to date FV any investment retained X
of disposal Less share of consol carrying amount
– Nothing after at date control lost:
• SOFP: Net assets X
– No subsidiary to consolidate Goodwill X
Less NCI (X)
Group financial statements – Subsidiary to associate (X)
• SPLOCI: X/(X)
– Consolidate to disposal then equity account
(time apportion)
Consolidated retained earnings (if disposal partway
• SOFP: through year)
– Equity account (fair value at date control lost =
cost of associate) (eg 80% subsidiary to 30% associate):
P S S
80% 30%
Group financial statements – Subsidiary to
At year end/date of disposal X X X
investment
Group profit on disposal X
• SPLOCI: Parent's separate financial statements
At acquisition/date control lost (X) (X)
– Consolidate to disposal (time apportion) then
Y Z
recognise changes in FV and dividend income
Group share:
• SOFP:
– Treat per IFRS 9 (Y × 80%) X
(Z × 30%) X
X

Parent's separate financial statements

Calculation of gain/(loss) on disposal:
FV consideration received X
Less carrying amount of investment (X)
X/(X)

HB2023
27

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 Subsidiaries: disposals where Deemed Associates
control is retained disposals

Group financial statements – subsidiary to subsidiary • Where a subsidiary Associate to investment

• SPLOCI: issues new shares and • SPLOCI:
– Consolidate results for parent does not take – Equity account to
whole period up its proportionate disposal (time
– Time apportion NCI share (ie % falls) apportion) then
• Treat as normal recognise changes
• SOFP:
disposal in FV and dividend
– Consolidate
– Record increase in NCI income
– Calculate and record adjustment to equity (in • SOFP:
parent's column in consolidated retained – Treat per IFRS 9

Group financial statements – NCI (SOFP)

NCI at acquisition (date of control) X
NCI share of post-acquisition reserves to
date of disposal X
NCI at date of disposal X
Increase in NCI * X
NCI after disposal X
Next 2 lines only required if step acquisition is partway
through year:
NCI share of post-acquisition reserves to year end X
NCI at year end X

Group financial statements – adjustment to equity

FV of consideration paid (X)
Increase in NCI * X
Adjustment to equity (X)/X

% sold
* NCI at date of disposal ×
NCI % before disposal

HB2023
28 Strategic Business Reporting (SBR)

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 Chapter 14: Non-current assets held for sale and discontinued
operations

Non-current assets held for sale and discontinued operations

IFRS 5 Non-current Assets Non-current assets/ Discontinued

Held for Sale and disposal groups to operations
Discontinued Operations be abandoned

• Only when at year end: • Not classified as held • A component of an entity (ie
– Available for immediate sale in for sale operations and cash flows can be
present condition, subject to usual • Show results and cash clearly distinguished operationally
and customary sales terms, and flows as discontinued and for financial reporting purposes)
– Sale is highly probable: operation if meets that either:
◦ Price actively marketed at is definition – Has been disposed of; or
reasonable vs FV – Is classified as held for sale and
◦ Unlikely that significant changes (a) Represents a separate major line
made to plan of business or geographical area
◦ Management committed to plan of operations;
to sell (b) Is part of a single co-ordinated
◦ Active programme to locate buyer plan to dispose of a separate
◦ Sale expected to be completed major line of business or
within one year of classification geographical area of operations;
or
(c) Is a subsidiary acquired
Accounting treatment exclusively with a view to resale
(1) Depreciate and (if previously held • Presentation/disclosure
at FV) revalue – On face of SPLOCI
(2) Reclassify as 'held for sale' and Single amount comprising:
write down to fair value less costs to ◦ Post-tax profit/loss of
sell* (if < carrying amount) discontinued operations
(3) Any loss recognised in P/L ◦ Post-tax gain or loss on
(4) Do not depreciate remeasurement to FV – CTS or on
(5) Subsequent changes disposal
– Impairment loss/loss reversal – On face or in notes
(reversals capped at losses to Revenue X
date) through P/L Expenses (X)
* 'Costs to distribute' if the asset is held Profit before tax X
for distribution to owners Income tax expense (X)
X
Gain/loss on remeasurement/
Presentation disposal X
• Single amount Tax thereon (X)
• On face of SOFP X
• Separate
X
• Normally current assets/liabilities
Net cash flows
(not offset)
Operating X/(X)
Investing X/(X)
Financing X/(X)

HB2023
29

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 Chapter 15: Joint arrangements and group disclosures

Joint arrangements and group disclosures

Joint arrangements Joint operations Joint ventures

Definitions • Definition: • Definition

• Joint arrangement: an
arrangement of which two or
more parties have joint control
• Joint control: the contractually
agreed sharing of control of an
arrangement, which exists only
when decisions about the
relevant activities require
unanimous consent
– The parties that have joint – The parties that have joint
control of the arrangement control of the arrangement
have rights to the assets, have rights to the net assets
and obligations for the of the arrangement
liabilities, relating to the • Accounting treatment:
arrangement – Parent's separate financial
• Accounting treatment: statements
– In investor's separate ◦ Cost;
financial statements, show: ◦ Fair value; or
◦ Own assets, liabilities and ◦ Equity method (required if
expenses no subs)
◦ Share of assets held and – Consolidated financial
expenses and liabilities statements
incurred jointly
◦ Revenue from the sale of its
share of the output arising
from the joint operation
◦ Share of revenue from the
sale of output by the joint
operation itself.
– No adjustments required on
consolidation

HB2023
30 Strategic Business Reporting (SBR)

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 Chapter 16: Foreign transactions and entities

Foreign transactions and entities (IAS 21)

Functional currency Presentation currency

• 'The currency of the primary economic environment in which the entity • 'The currency in which the
operates' financial statements are
• Transactions are measured in this currency presented'
• Translated at spot rate at date of transaction (or average for period) • Can be any currency
• At year end: • Translation from functional
– Restate monetary items → CR currency:
– Non-monetary items →not restated – Presentation currency
– Items held at FV → use rate when FV determined method (see below)
• Exchange differences → P/L • Exchange differences → other
• Considerations in determining functional currency: comprehensive
– Currency that mainly influences sales prices
– Currency of the country whose regulations mainly determine sales
prices
– Currency that mainly influences labour, material and other costs
Also:
– Currency in which financing generated
– Currency in which operating receipts usually retained
Also for a foreign operation:
– Degree of autonomy
– Volume of transactions with parent
– Whether cash flows directly impact the parent

Foreign operations that are subsidiaries

• Use presentation currency – SPLOCI:

rules: FC PC
– SOFP: Revenue X X
FC PC .. X X
Assets X CR X .. X X
X X PFY X AR X
SC X HR X OCI X X
SP X HR X TCI X X
Pre acq’n RE X HR X
X X • Calculate goodwill (see below)
• Calculate FX differences for
Post-acq’n:
year (see below)
PFY year 1 X AR X
Dividend (X) actual (X)
PFY year 2 X AR X
Dividend (X) actual (X)
Trans res – X
X X
Liabilities X CR X
X X

HB2023
31

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 Foreign operations that are subsidiaries (continued)

Calculate goodwill
Functional Functional Presentation
currency currency Rate currency ($)
Consideration transferred X X
Non-controlling interests (at FV or at
%FVNA) X X
Fair value of net assets at acquisition:
HR at date
Share capital X of control
Share premium X (eg 1.1.X1)
Reserves X
Fair value adjustments X
(X) (X)
At acquisition (1.1.20X1) X X
Impairment losses 20X1 (X) AR/CR* 20X1 (X)
– – β
At 31.12.X1 X CR 20X1 X Cumulative
FX
Impairment losses 20X2 (X) AR/CR* 20X2 (X) differences
– – β
At 31.12.X2 X CR 20X2 X

*There is no explicit rule on which rate to use for impairment losses, therefore use of an average rate or the
closing rate is acceptable.

Exchange differences in the year

$
On translation of net assets
Closing net assets as translated (at closing rate) X
Less opening net assets as translated at the time (at opening rate) (X)
X
Less retained profit as translated at the time (profit at average rate less dividends at actual rate) (X)
X/(X)
On goodwill – see standard working X/(X)
X/(X)

HB2023
32 Strategic Business Reporting (SBR)

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 Foreign operation Monetary items forming part of
(associate or JV) net investment in foreign operation

• IAS 21's requirements for foreign operations • Receivable/payable and settlement neither
are applied as follows to an associate, A (or to planned
a JV): nor likely to occur in foreseeable future
– On initial recognition, investment in A is – Separate FS of Co:
translated at spot rate at date of acq'n ◦ FX differences → P/L
– Subsequently, investment in A is translated – Consolidated FS:
at closing rate at reporting date ◦ FX differences → OCI (& reserves)
– Group share of A's profits is translated using ◦ Reclassified from OCI to P/L on disposal of
the average rate (as permitted as an net investment
approximation)
– Exchange differences resulting are
recording in OCI and accumulated in equity

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 Chapter 17: Group statements of cash flows

Group statements of cash flows (IAS 7)

Definitions Consolidated statements of cash flows

and formats

• Cash flows are cash Additional considerations • Dividends rec'd from associates/JVs:
and 'cash equivalents' • Cash paid/received to acquire/sell Inv in A/JV
(short term highly subsidiaries (net of cash acq'd/ b/d X
liquid investments disposed)
– Readily convertible SPLOCI (%PFY + %OCI) X
• Cash paid/received to acquire/sell
into cash Acquisition of A/JV X
associates/joint ventures
– Insignificant risk of Disposal of A/JV (X)
• Adjust workings for assets/liabilities
changes in value) of subsidiaries acquired/disposed Non-cash (eg FX loss
• Formats: • Dividends paid to NCI: foreign A/JV) (X)
– Indirect method NCI Cash (dividends rec’d) β (X)
– Direct method b/d – SOFP X c/d X
SPLOCI (NCI in TCI) X • Foreign currency transactions:
Acquisition of S (NCI at FV Eliminate FX differences that are not
or %FVNA) X cash flows:
Disposal of S (X)
Profit before taxation 3,350
Non-cash (eg FX loss foreign S) (X)
Adjustment for:
Cash (dividends paid to NCI) β (X)
Depreciation 450
c/d – SOFP X
Foreign exchange loss 40
Investment income (500)
Interest expense 400
3,740
• Adjust in workings (see examples
above)

Analysis and interpretation of Criticisms of

group statements of cash flow IAS 7

• Components of cash flows • Presentation – direct vs indirect method

• Overall change in cash
• Cash flows vs expectations, eg operating
activities should be a key inflow, investing activities
a key outflow
• Inconsistency of classification – eg interest can be
operating or financing cash flow
• Purpose of cash flows – may be inconsistency
between purpose of cash flow and classification in
statement of cash flows

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 Chapter 18: Interpreting financial statements for different
stakeholders

Interpreting financial statements for different stakeholders

Performance Sustainability Integrated

measures reporting reporting

Financial • Sustainable development: • Combines financial reporting and

• Ratios development that meets the needs of sustainability reporting
• EPS present generations, without • Focuses on value creation
• Scope for compromising the rights of future • Integrated report is a concise report
manipulation generations to fulfil their needs focusing on value creation in short,
• Sustainability reporting: medium and long term.
– Integrates environmental, social • Fundamental concepts: value
Alternative and governance issues creation, the capitals, value creation
– GRI Standards on sustainability process
• EBITDA
reporting • Guiding principles: Strategic focus
• EVA®
– Creation of International and future orientation; Connectivity
• Balanced scorecard
Sustainability Standards Board of information; Stakeholder
• ESMA guidelines
(ISSB) by IFRS Foundation in 2021 relationships; materiality;
• Consider: conciseness; reliability and
– UN’s Sustainable Development completeness; consistency and
Non-financial
Goals comparability
• Staff • General disclosure requirements:
– Climate-related disclosures
• Customers material matters; disclosure about
• Productivity the capitals; time frame for short,
• Environmental medium and long term; aggregation
and disaggregation

Management Segment
commentary reporting

• Supplements and complements Reportable segments

financial statements • '10%' test for identifying
• Provides managements view of reportable segments
performance, position • 75% external revenue reported
• Looks forward to future
financial position
• IFRS Practice Statement – Disclosure requirements
non-binding IFRS sets out
• Revenue, profit or loss, assets
principles for preparation of
mandatory
management commentary
• Geographical segments

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 Chapter 19: Reporting requirements of small and medium-sized
entities

Reporting requirements of small and medium-sized entities

IFRS for SMEs Key differences in accounting treatment between full IFRS
Accounting Accounting Standards and the IFRS for SMEs Accounting Standard
Standard

• Applies to SMEs that: Financial instruments Non-current assets

– Do not have public • 'Basic' debt instruments: • Revaluation model not permitted
accountability; and – Returns fixed, variable or for intangibles
– Publish general combination of positive fixed and • Internally generated research and
purpose financial variable development expensed
statements – No contractual provision to lose • Investment property held at FV
• No size test principal/interest through P/L
• Practical exemptions – Prepayment not contingent on • Government grants recognised in
available on transition future events P/L when conditions met, or (if no
to the IFRS for SMEs – Returns not conditional (other than conditions) when receivable
Acccounting Standard re variable rate/prepayment option • Borrowing costs expensed
above)
→ Amortised cost
• Investments in shares (excl Defined benefit pension plans
convertible pref shares and puttable • Simplified calculation of defined
shares): benefit obligations permitted
→ Fair value (FV) through P/L (or cost • Actuarial gains/losses on defined
less impairment if FV cannot be benefit pension plans recognised
measured reliably) in P/L or OCI
• All other financial instruments:
→ FV through P/L

Simplifications introduced by the IFRS for SMEs Accounting Standard

Presentation Separate financial statements of

Combined SPL and SOCIE permitted (if parent
no OCI and no equity changes other Investment in subsidiary, associate or
than dividends and PPA) joint venture at cost or FVTP/L or
equity method

Revenue recognition
• Goods: when risks and rewards
transferred
• Services: stage of completion basis
• Intangibles and goodwill always
amortised (useful life cannot exceed
10 years if cannot be established
reliably)
Group financial statements
• Investment in associate or joint
venture at cost or FVTP/L or equity
method
• NCI in goodwill at % net assets not FV

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 Chapter 20: The impact of changes and potential changes in
accounting regulation

The impact of changes and potential changes in accounting regulation

Developments in sustainability reporting Contemporary

and sustainability standards issues

• Definitions of sustainability and sustainability
reporting – see Chapter 18
• International Sustainability Standards Board
(ISSB) established by the IFRS Foundation in
2021
• Two exposure drafts for sustainability
standards released in 2022:
– IFRS S1 General Requirements for Disclosure
of Sustainability-related Financial
Information
– IFRS S2 Climate-related Disclosures
Questions in the exam could require you to
apply existing accounting standards to the
following contemporary issues:
• Digital assets – including cryptocurrency,
initial coin offerings and security token
offerings
• Natural disasters – potential issues include
events after the reporting period, impairment
of assets, onerous contracts, effect on debt
covenants, going concern, additional
disclosure likely to be required
• Global events, eg could include a pandemic
• Climate change
• Going concern – eg going concern
assessments

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HB2023

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HB2023

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HB2023

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