The Institute of Chartered Accountants in England and Wales

CORPORATE REPORTING
Advanced Stage

For exams in 2012

Study Guide

www.icaew.com

Contents

Introduction

Aim of the Papers & Specification Grid

Study guide

Skills assessment guide

30

Technical knowledge

33

Getting help

36

1 Introduction
1.1

What is the Advanced Stage?

Structure and progression
The Advanced Stage of the ACA qualification is designed to ensure that students are able to integrate
and apply their technical, professional and ethical skills in a variety of business environments.
The diagram below shows the five modules which form the basis of the Advanced Stage. The Advanced
Stage is comprised of two technical integration modules and the Case Study. The two technical
integration modules will be examined in a business scenario context which draws together a number of
different areas of technical knowledge.

The Professional Stage consists of knowledge modules and application modules. The Knowledge
modules introduce the core technical knowledge and skills required by a chartered accountant. The
application modules further develop and assess practical application of technical knowledge and skills.
The technical knowledge acquired at the Professional Stage is developed to an advanced level and
integrated in a broader range of business scenarios in the Advanced Stage technical integration
modules. The application of technical knowledge in these modules requires an appreciation of the
typical issues and problems facing businesses and their relationship to corporate reporting, assurance
and taxation. A greater depth of business and financial analysis will be required to understand the
implications and risks arising from the business issues.
New technical topics are introduced in the technical integration modules, reflecting students greater
financial and business awareness and their emerging proficiency and ability to integrate knowledge and
skills both within and across technical subjects. Students will be required to use more complex financial
instruments in business finance and risk management for example.
Students will also be required to apply professional skills in the technical integration modules. These
professional skills are then examined to a greater extent in the final ACA module: the Case Study. This
module requires higher level cognitive skills, analytical and evaluative skills and emphasises the
importance of communication and articulation skills.

Assessment
The two technical integration modules will be examined using traditional paper based assessments. Each
paper based exam will be 3.5 hours in length. These exams will contain questions requiring the
integration of knowledge both within technical disciplines and across technical disciplines. Questions

Study guide

integrated across all subject streams are an essential step towards the Case Study but will have more
structure and guidance than those at the Case Study.
The Case Study will continue in its present format of a 4 hour written exam with advance information
provided to students ahead of the exam and impact information issued in the exam, containing the
Case Study requirements.

Flexibility
There are no regulations stipulating the order in which students must attempt the technical integration
modules. The Case Study must be the final module attempted and can only be attempted in the final
year of a training contract.
Students will be permitted a maximum of four attempts at each Advanced Stage module.

Open Book Policy

Students may take any written or printed material into the exam hall subject to practical space
restrictions.

Corporate Reporting

2 Aim of the Papers and Specification Grid

2.1

Module aim
The aim of the Business Reporting paper is:
To ensure that students can apply analysis techniques, technical knowledge and professional skills
to resolve real-life compliance issues faced by businesses.
Students may be put, for example, in the role of a preparer of financial statements, or other corporate
reports such as on sustainability and corporate responsibility, an advisor or in an assurance role facing
business issues where there are reporting implications. Compliance issues relating to taxation will also
feature in this module.
Students will be required to use professional judgement to identify and evaluate alternatives and
determine the appropriate solution(s) to compliance issues, giving due consideration to the commercial
impact of their recommendations.
The aim of the Business Change paper is:
To ensure that students can provide technical advice in respect of issues arising in business
transformations, mergers, acquisitions, alliances and disposals.
Students will be required to analyse and interpret both external and internal financial and non-financial
data in order to plan for change and provide advice. In undertaking this analysis students will be
expected to evaluate the impact of stakeholder influences on the data, including the impact of choice of
reporting policies.
Taxation and practical business techniques are particularly important in this module, where business
techniques include aspects of business strategy, business finance, performance management and
costing. There will also be assurance, ethical and legal implications to be considered when developing
and assessing strategic and business plans.

2.2

Specification grid
This grid is a general guide as to the subject matter within this module and assessment coverage over a
period of time.

Ethics and law

Taxation
Audit and assurance
Corporate reporting
Business analysis

BR
Weighting (%)
5 10
20 30
30 40
30 40
0

BC
Weighting (%)
5 10
25 35
10 20
15 25
30 35

Study guide

3 Study guide
3.1

Help yourself study for your ACA exams

The right approach
1

Develop the right attitude

Believe in yourself

Yes, there is a lot to learn. But thousands have succeeded

before and you can too.

Remember why you're doing it

You are studying for a good reason: to advance your

career.

Focus on the exam

Read through the Syllabus in this
guide

This tells you what you are expected to know.

The right method

See the whole picture

Use your own words

Keeping in mind how all the detail you need to know fits
into the whole picture will help you understand it better.

The Practical significance and Working context to

each chapter in the study guide put the material into
context.

The Learning objectives and Section overviews in

the Study Manual show you what you need to grasp.

To absorb the information (and to practise your written

communication skills), you need to put it into your own
words.

Give yourself cues to jog your

memory

The Study Manual uses bold to highlight key points.

Try colour coding with a highlighter pen.

Write key points on cards.

The right recap

Review, review, review

Take notes.
Answer the questions in each chapter.
Draw mindmaps.
Try 'teaching' a subject to a colleague or friend.

Corporate Reporting

Regularly reviewing a topic in summary form can fix it in

your memory. The Study Manual helps you review in many
ways.

Each Chapter Summary will help you to recall that

study session.

The Self-test actively tests your grasp of the essentials.

Go through the Examples in each chapter a second or

third time.

3.2

Study cycle
The best way to approach the Study Manual is to tackle the chapters in order. We will look in detail at
how to approach each chapter below but as a general guide, taking into account your individual
learning style, you could follow this sequence for each chapter.
Key study steps
Step 1
Topic list
Step 2
Introduction

Activity
This topic list is shown in the contents for each chapter and helps you navigate
each part of the book; each numbered topic is a numbered section in the
chapter.
The practical significance and working context sections for each chapter, set
out in this study guide give you the big picture in terms of the context of the
chapter. The Examination context guidance shows what the examiners are
looking for and tells you why the topics covered in the chapter need to be
studied.

Step 3
Section overviews

Section overviews give you a quick summary of the content of each of the
main chapter sections. They can also be used at the end of each chapter to
help you review each chapter quickly.

Step 4
Explanations

Proceed methodically through each chapter, particularly focusing on areas

highlighted as significant in the chapter introduction or study guide.

Step 5
Note taking

Take brief notes, if you wish. Don't copy out too much. Remember that being
able to record something yourself is a sign of being able to understand it. Your
notes can be in whatever format you find most helpful lists, diagrams,
mindmaps.

Step 6
Examples

Work through the examples very carefully as they illustrate key knowledge and
techniques.

Step 7
Answers

Check yours against the suggested solutions, and make sure you understand
any discrepancies.

Step 8
Chapter summary

Review it carefully, to make sure you have grasped the significance of all the
important points in the chapter.

Step 9
Self-test
Step 10
Learning objectives

Use the Self-test to check how much you have remembered of the topics
covered.
Ensure you have ticked off the Learning objectives.

Moving on...
When you are ready to start revising, you should still refer back to the Study Manual.

As a source of reference (you should find the index particularly helpful for this).

As a way to review (the Section Overviews, Examination Context, Chapter Summaries and Self-test
questions help you here).

Remember to keep careful hold of the Study Manual you will find it invaluable in your work.

Study guide

Study
Period

What are the challenges presented in

the preparation of interim financial
reporting?

What is the purpose of presenting a

statement of comprehensive income?

Stop and think

The preparation of interim financial

statements may present a number of
challenges. It is common for some
business arrangements, such as supply
pricing agreements, bonus schemes,
taxation and overhead allocation, to be
based on annualised approaches. The
measurement and presentation of such
information may therefore be complex.

Financial markets constantly require

up-to-date corporate information.
Reporting frequency has increased,
with interim reporting playing an
important role in the corporate
reporting cycle.

Practical significance

As a professional accountant, you will

need to prepare both year end and
interim financial reports.

Working context

You should note that the guiding

principle of IAS 34 is that an entity
should use the same recognition and
measurement principles in its interim
statements as it does in its annual
financial statements.

IAS 34 Interim Financial Reporting (a

new topic at Advanced Level) lays
down the principles and guidelines
for the production of interim reports.

You have studied IAS 1 in depth in

your earlier stages. IAS 1 was revised
in 2011, and a brief discussion of the
revision is included for completeness,
although the standard came out to
late to be examinable in 2012.

Chapter 1 addresses two standards:

IAS 1 Presentation of Financial
Statements and IAS 34 Interim
Financial Reporting.

Approach

Study guide

Guiding principles in the

preparation of interim
statements

Form and content of interim

reports, use of estimates

Amended purpose of
statement of changes in equity

Presentation of other
comprehensive income

Revised IAS 1 terminology

Essential points

Syllabus links and essential points

Due
Date

Study
Period

Corporate Reporting

What types of intangibles can be

revalued?

How are impairment losses accounted

for?

How do we assess impairment?

Stop and think

The valuation of inventory involves the

exercise of management's judgement
which includes determination of cost
and consideration of valuation policies,
to ensure that it is not stated at an
amount above that which is realisable.
In addition, whether an asset is
capitalised or not, the value attributed
to it and how it is depreciated or not
has a significant impact on the
statement of financial position, equity
and profits of a company. These in turn
affect analysts' measures of return and
gearing, which are used as a basis for
making investment decisions.

Inventories can often be the most

significant current asset on an entity's
statement of financial position.

Practical significance

Chapters 2 and 3 give a brief revision

of standards covered in great detail in
terms of content and application at
professional level.

As a professional accountant you may

need to value inventory, including
work-in-progress in service industries.
You may need to exercise judgement
as to whether an asset is capitalised
or not and assess impairment for
both tangible and intangible noncurrent assets.

IFRS 13 Fair Value Measurement is

discussed briefly to give you an
overview. It came out too late to be
examinable in 2012, but you will
need it later in your working life.

Revise the main principles and

attempt the interactive questions. Go
back to your earlier studies if you
have a problem answering these. Use
the Self-test questions for further
revision.

They address the reporting of assets,

impairment, liabilities, provisions and
contingencies and events after the
reporting period These are likely to
be examined in an integrated way
with other areas at Advanced Level.

Approach

Working context

Non-current assets held for

sale are covered by IFRS 5
Non-current Assets held for sale
and Discontinued Operations.
Biological assets are reported
in accordance with IAS 41
Agriculture and mineral rights,
mineral reserves and similar
non-regenerative resources are
covered by IFRS 6 Exploration
for and Evaluation of Mineral
Resources. These are covered in
Chapter 13.

Other Standards may therefore

be required to be applied in
conjunction with IAS 16. These
include IAS 2 Inventories and
IAS 40 Investment Property
where there is a change in use
of an asset or at different
stages in an asset's life.

IAS 16 sets out the accounting

treatment for property, plant
and equipment except where
another Standard requires or
permits otherwise.

The reporting of assets has

been covered in great detail at
Professional level and the
current chapter revises that
material.

Syllabus links and essential points

Due
Date

Study
Period

Why should the date on which the

financial statements were authorised be
disclosed?

What type of events could affect the

underlying principle of going concern?

What type of events could be classified

as adjusting or non-adjusting
respectively?

Stop and think

IAS 37 has strengthened the required

treatment of provisions in this area
which is now more objective and
restrictive. Provisions need to be
recognised on the basis of obligations
rather than management intentions.

IAS 37 Provisions, Contingent

Liabilities and Contingent Assets

Regardless of how quickly the financial

statements are published after the end
of the year subsequent events and
transactions can be so significant that
they need to be considered for either
disclosure or adjustment or (in extreme
situations) for their effect on the
underlying principle of going concern.

IAS 10 Events After the Reporting

Period

Practical significance

Revise the main principles and

attempt the interactive questions. Go
back to your earlier studies if you
have a problem answering these. Use
the Self-test questions for further
revision.

Study guide

You will have covered these at

Professional level and will
encounter them through the
illustrations and questions in
this chapter.

They address the reporting of assets,

impairment, liabilities, provisions and
contingencies and events after the
reporting period (previously known
as post balance sheet events). These
are likely to be examined in an
integrated way with other areas at
Advanced Level.

You will be required to identify

circumstances in which provisions will
be required and when contingent
liabilities or contingent assets should
be recognised.

You should be aware of the

interrelationships between
standards which are significant
in answering questions.

Chapters 2 and 3 give a brief revision

of standards covered in great detail in
terms of content and application at
professional level.

In a working environment you will

have to assess transactions and
events taking place after the
reporting period and advise how
these should be accounted for or
disclosed. You will need to identify
the appropriate cut-off date which
will depend on the process of
authorisation and the reporting
entity's jurisdiction.

Syllabus links and essential points

Approach

Working context

Due
Date

Study
Period

Corporate Reporting

When should a contingent asset be

recognised?

Under what circumstances should a

provision be recognised? What is the
relationship between a provision and a
contingent liability?

How should an entity deal with an

error that was identified after the
financial statements have been
authorised?

How should an error that is highlighted

in the period of review up to the
authorisation date be dealt with?

Practical significance

Working context

Approach

Syllabus links and essential points

Due
Date

Study
Period

Why do companies enter into sale and

leaseback transactions?

Why is the unguaranteed residual value

of a leased asset important?

Why is the classification of leases

important when analysing financial
statements?

Stop and think

Sale and leaseback arrangements can

provide entities with capital funding by
releasing capital caught up in the
business for investment in other core
opportunities.

Lease finance is a common route to

acquiring operating assets. The
classification of leases is a particularly
sensitive issue for corporate entities. If
leases are capitalised, financial gearing
will increase and this may have adverse
consequences on other key ratios, such
as return on capital employed and
interest cover and the level of
perceived risk may increase.

Practical significance

You may also have to account for

borrowing costs and government
grants.

In a working context you may have

to decide on the classification of a
lease and may need to review
contractual arrangements to
determine whether these contain a
lease.

Working context

Revise IAS 20 and IAS 23 through

interactive questions and go back to
earlier material if necessary.

Note the requirements of IFRIC 4

which you will not have encountered
in earlier studies.

It is important to understand the

related accounting requirements to
appreciate how such transactions
may lead to a boost in profits,
reduction in assets and consequent
improvement in return on asset
ratios.

Revise the topic through interactive

questions and ensure you understand
the different scenarios relating to sale
and leaseback .You will later
encounter sale and leaseback
transactions again in practical real life
situations in Chapter 16 on financial
analysis.

You will have covered IAS 17 Leases

in great detail in your earlier studies,
including sale and leaseback
transactions.

Approach

Study guide

Borrowing costs

Government grants

Determining whether an
arrangement contains a lease

Essential points

10

You will have covered both IAS

23 Borrowing Costs and IAS 20
on government grants in your
earlier studies.

Tax cash flows are also

important in determining the
commercial merits of a lease in
Business Analysis.

The evaluation of leases and

the lease-buy decision are
covered in the Business
Analysis Study Manual. The
taxation of leases is covered in
the Taxation Study Manual
and needs to be understood to
determine any deferred tax
implications of leases under
IAS 12.

You will have covered most of

the material on IAS 17 Leases
at Professional Stage. This
chapter deals with some
further issues and IFRIC 4.

Syllabus links and essential points

Due
Date

11

Study
Period

Corporate Reporting

Why was it necessary to issue a detailed

standard on disclosures?

What is the significance of the

classification of convertible stock
between debt and equity?

Stop and think

The detailed qualitative and

quantitative disclosures required by
IFRS 7 are intended to provide to the
users of financial statements an
understanding of the significance of
financial instruments for the entity's
position and performance and an
analysis of the risks to which the entity
is exposed and how it manages them.

Practical significance

Look in particular at the qualitative

disclosures required by IFRS 7 for
each type of risk.

Credit risk and change in value

Qualitative disclosures

Quantitative disclosures

Significance of financial
instruments disclosures or
financial position and
disclosure

Accounting for different types

of preference shares

Accounting for compound

financial instruments

Essential point

This chapter provides an

overview of IAS 32 and
addresses in more detail the
requirements of IFRS 7.

All areas of IAS 32 were

examinable at Professional
level although only the basic
areas of IFRS 7 were covered at
that stage.

Chapter 5 covers the presentation

and disclosure requirements of IAS 32
and
IFRS 7.

You will need to prepare detailed

disclosures for financial instruments
and establish the correct presentation
of preference shares and convertible
instruments between debt and
equity.
Although you will have a detailed
knowledge of IAS 32 from earlier
studies, the importance of this topic
cannot be underestimated. Make sure
you understand the issues relating to
the accounting of compound
financial instruments.

Syllabus links and essential points

Approach

Working context

Due
Date

Study
Period

What is the accounting treatment of

derivatives?

What instruments qualify as derivatives

for accounting purposes?

How are impairment losses recognised?

What are the derecognition rules for

assets and liabilities?

How are transaction costs recognised?

Stop and think

Financial instruments, especially

derivatives can significantly change the
risk profile of organisations. Therefore
the IASB requires that fair value
measurement is used for some
financial assets and liabilities.

Note in particular the need where

relevant, to separate the host
instrument from the embedded
derivative. (This will change for
financial assets when IFRS 9 comes
into force.)

Study carefully the section on

embedded derivatives noting their
key characteristics and the required
accounting.

Work carefully through section 4 on

derivatives including all the worked
examples, interactive questions and
illustrations.

Note the accounting treatment of

transaction costs in section 3.3 of this
chapter.

Make sure you are familiar with the

accounting treatment of financial
assets and liabilities by going through
the overview before moving onto
section 2 on recognition and
derecognition.

Study guide

IFRS 9 as a current issue.

Embedded derivatives

Treatment of transaction costs

IAS 39 derecognition criteria

Factoring
Sale and repurchase
agreements
Securitisations

Accounting for regular way

purchases
Trade date accounting
Settlement date accounting

12

Recognition and derecognition

of financial assets

Essential points

The characteristics of
derivative instruments referred
to in this chapter such as call
and put options have been
addressed in your Business
Analysis Study Manual.

You will have been introduced

to the recognition and
measurement of financial
instruments at professional
level. In this chapter we
address further aspects of
recognition and measurement
and cover embedded
derivatives.

Chapter 6 builds on knowledge

brought forward from earlier studies
and takes the areas of recognition,
derecognition and measurement of
financial instruments further.

In a working environment you will

have to account for financial assets
and liabilities including derivatives
and embedded derivatives and
identify the appropriate treatment
when recognition and derecognition
criteria are met.

The use of financial instruments by

business for funding, investment and
risk management purposes is an
essential part of operations.
Examples of financial instruments
include the use of foreign currency to
purchase assets from abroad, debt
instruments such as debentures or
convertible corporate bonds and
derivative instruments such as swaps,
options, and futures.
Work through the summary of
material covered in earlier studies as
this is a complex topic.

Syllabus links and essential points

Approach

Working context

Practical significance

Due
Date

13

Study
Period

Corporate Reporting

How is hedging effectiveness

measured?

What are the qualifying criteria for

hedge accounting?

What is the difference between the

different types of hedges?

What is a hedging instrument?

What is a hedged item?

What is hedge accounting?

Stop and think

Most entities which are exposed to

various financial risks employ hedging
techniques to reduce fluctuations in
the value or cash flows of financial
instruments. Hedge accounting
attempts to reflect the economic
aspects of hedging in the accounting
treatment of such relationships. The
hedge accounting requirements of the
international accounting standards
require the recording of strategies and
measurement of the effectiveness of
the hedges. Entities must, therefore,
develop and maintain systems,
processes and documentation. Entities
will normally undertake a cost/benefit
analysis to determine whether or not to
undertake hedging strategies and
hedge accounting

Practical significance

(The treatment of hedging will be

simplified when IFRS 9 comes into
force.)

Ensure you are able to assess and

explain hedge effectiveness.

Do the Self-test for further practice.

The hedge criteria are very important
and could be tested in an integrated
question as part of the auditing of
controls and documentation relating
to derivatives.

Hedge effectiveness

Hedge criteria

Cash flow hedge

Fair value hedge
Hedge of a net investment in
a foreign operation

Types of hedging relationships

Essential points

The characteristics of
derivatives referred to in this
chapter have been covered in
the Business Analysis Study
Manual.

Chapter 7 is perhaps the most

complex and demanding in this text
and likely to take you the longest to
study.

In a working environment you may

have to test hedging transactions to
establish whether these qualify for
hedge accounting, to prepare the
necessary documentation and
implement the accounting treatment.
Study carefully the three types of
hedges and work through all worked
examples and interactive questions.

Syllabus links and essential points

Approach

Working context

Due
Date

Study
Period

Pension deficits are an important

consideration in mergers and
acquisitions as venture capitalists and
private equity providers regard these as
equivalent to taking on additional debt
in the statement of financial position.
In the UK, the pensions regulator
imposes a duty on trustees to require
substantial assets up front in the event
of a leveraged buy-out where pension
benefits need to be safeguarded.

Although IAS 19 Employee Benefits sets

detailed accounting and disclosure
requirements to ensure that all pension
plans are accounted for and presented
in a consistent manner, the underlying
assumptions in the estimation process
are highly subjective.

For the latter you will need to rely on

the expertise of actuaries which will
be critical to the ability to properly
account for defined benefit plan
costs.

You will need to be able to apply the

requirements of IAS 19 to the
relatively straightforward defined
contribution plans and the vastly
more complex defined benefit plans.

Whereas accounting for short-term

benefits presents few if any, problems,
the cost of long-term and postemployment benefits, which include
pension plans, medical benefits and life
insurance is difficult to estimate. This is
because the entity's obligation depends
on factors such as life expectancy,
future wage and benefit rates and
investment returns over a very
extended future period.

IAS 19 was revised and simplified in

2011. Although the revision was too
late to be examinable in 2012, we
have included a summary of the
changes for completeness. The main
change is the abolition of the
corridor method: all actuarial gains
and losses will go through other
comprehensive income.

The accounting for defined benefit

schemes is by far the more complex
of the two. Section 5 addresses the
most challenging concepts in the
chapter.

Section 3 addresses post employment

benefits. Note the two types, defined
contribution (section 4) and defined
benefit (section 5) pension schemes.

Section 1 gives a summary of the

types of benefits that the standard
addresses. Note that the accounting
for short-term employee benefits
(covered in section 2) is relatively
straightforward.

Share-based employee benefits

are excluded from IAS 19 as
these are dealt with in IFRS 2
Share-based Payment.

Employee benefits is one of two

chapters addressing employee
remuneration. It is a new and
complex topic to which you will need
to devote a significant amount of
time.

You will need to be able to account

for a range of employment benefits.

Employee benefit costs can be a very

significant proportion of total revenue.

Study guide

14

IAS 2 Inventories allows the

cost of relevant personnel
including short-term employee
benefits under IAS 19 to be
included in inventories,
effectively the work-in progress
of service-based entities.

IAS 24 Related Party Disclosures

requires information to be
disclosed about key
management personnel
compensation which includes
all benefits as defined by IAS
19 and IFRS 2.

Where the entity shares

the risks of actuarial losses
or shortfalls of other
entities in multi-employer
plans.

As termination benefits in
a redundancy plan, or

IAS 19 refers to the need for

an entity to recognise or
disclose information in relation
to contingent liabilities as
required by IAS 37. These
contingencies may arise:

Syllabus links and essential points

Approach

Working context

Practical significance

Due
Date

15

Study
Period

Corporate Reporting

What are the accounting complications

of post-retirement benefits other than
pensions?

Why is the concept of expense

smoothing allowed by IAS 19
considered controversial?

Why do we have to disclose key

assumptions and methods used in the
accounting for defined benefit pension
schemes?

Why is the accounting for the defined

benefit scheme far more difficult than
the defined contribution scheme?

What is the difference between defined

benefit and defined contribution
schemes for post-employment
benefits?

What are the main types of short-term,

long-term and post-employment
benefits?

Stop and think

Practical significance

Working context

Approach

IAS 19 requires plan assets to

be valued at their fair value
which is defined as in IAS 39
Financial Instruments:
Recognition and Measurement.

IAS 19 contains offset criteria

for employers with more than
one plan where some are in
surplus and others in deficit
which closely follow those of
IAS 32 Financial Instruments:
Presentation.

IFRS 3 Business Combinations

requires that in a business
combination, an entity
recognises assets and liabilities
arising from post-employment
benefits in accordance with
IAS 19.

IAS 16 Property, Plant and

Equipment allows directly
attributable costs of employee
benefits arising directly from
the construction or acquisition
of property, plant and
equipment to be included in
the cost of initial recognition.

Syllabus links and essential points

Due
Date

Study
Period

Practical significance

Working context

Approach

Study guide

Corridor method to be
abolished and so less
important for the exam than
previously.

Defined benefit plans

Investment risk
Actuarial risk
Pension surplus or deficit
Current service cost
Interest cost
Actuarial gains and losses
Plan assets

Post employment benefits

Defined contribution plans
Defined benefit plans

Short term employee benefits

Essential points

Syllabus links and essential points

16

Due
Date

17

Study
Period

Corporate Reporting

What is the impact of share-based

payments on earnings per share?

Why has this been a controversial

standard polarising views at the
highest political level?

If the granting of equity instruments

does not require the entity to part with
assets why should a charge be
recognised in profit or loss?

Stop and think

Before the publication of IFRS 2 there

was no requirement to include an
expense in profit or loss for this kind of
remuneration. This resulted in entities
that offered low cash salaries but large
quantities of share-based
compensation recording low costs in
their performance statements. By
comparison, entities operating in a
more stable and mature industry where
cash-based remuneration was the
norm recorded higher employee costs
in the performance statement.

In major capital markets the potential

gains that senior management can
achieve through share-based payment
transactions are so significant that they
may dwarf other elements of
remuneration packages.

Practical significance

Note the three types of share-based

payment recognised by the standard
and the importance of vesting
conditions.

Share-based payment
transactions
Equity-settled
Cash-settled
With a choice of settlement

Essential points

Under IAS 12 Income Taxes, the

cumulative expense associated
with share-based payment
transactions gives rise to a
deductible temporary difference
as it is fully expensed in advance
of being recognised for tax
purposes.

IAS 24 Related Party Disclosures

requires an entity to disclose
the consideration given to key
management personnel in
terms of all share-based
transactions.

To estimate the fair value of

options, IFRS 2 requires the
use of an option pricing
model, although the Standard
does not specify which model
should be used. Option
pricing, suitable models and
the inputs or parameters to
these models are covered in
your Business Analysis Study
Manual.

Chapter 9 Share-based Payment is

another new topic at Advanced Level.
It is highly topical and its adoption
has not been without controversy.

In a working environment you may

have to assess the effect of granting
stock options as a remuneration
policy on the entitys financial
statements and advise on how these
should be reported and disclosed.
It is important for its impact on
performance and the potential
dilution of EPS.

Syllabus links and essential points

Approach

Working context

Due
Date

Study
Period

What is the impact in the statement of

financial position?

Practical significance

Working context

Approach

Study guide

Determining the fair value of

equity instruments use of
models

Modifications to equity
instruments

Vesting conditions
Market based
Non-market based

Syllabus links and essential points

18

Due
Date

19

10

Study
Period

Corporate Reporting

Why are business combinations

becoming increasingly complex?

Stop and think

Users should carefully review the

disclosures included in the financial
statements regarding business
combinations. In the year that a
business combination has taken place,
the financial results of the acquired
entity will be . Extensive disclosures
allow users of the financial statements
to understand the effect of the
combination on the group's operations
during the period. This improves the
predictive value of the financial
information.

Business combinations are becoming

increasingly complex. The nature of
purchase consideration and the legal
form of such transactions are often
driven by financial and tax features.
Structures are carefully modelled to
ensure that transactions optimise postacquisition earnings as well as meeting
corporate strategic objectives.

Practical significance

IFRSs 10 to 12 revise the definition of

control and the treatment of joint
arrangements, and also change the
required disclosures. A summary is
given for completeness, but they
were published too late for the 2012
examination.

Revise the principles relating to

consolidated statements of cash flows
and return to your earlier studies if
necessary.

You must also ensure that you

understand the calculations required
for step acquisitions and disposals
again these differ from those seen
previously.

Work through the examples and

interactive questions to ensure you
understand the key principles.

IFRSs 10 to 12 as a current
issue

Consolidated statements of
cash flows

Part-disposals

Step acquisitions

Investments

Joint Ventures

Associates

Subsidiaries

Essential points

You will have covered all the

Standards revised in this
chapter at Professional Stage,
although not necessarily in the
level of detail required for
Corporate Reporting.

You will have covered the standards

revised in this chapter in your earlier
studies. Pay particularly attention
calculation of goodwill including the
non-controlling interest

In a working context you will have to

account for acquisitions, disposals
and business combinations such as
investments in associates, joint
ventures, or consolidations of
subsidiaries.
You may also be required to prepare
consolidated statements of cash
flows, which are likely to include the
effect of acquisitions and disposals.

Syllabus links and essential points

Approach

Working context

Due
Date

11

Study
Period

The measurement and use of inflationadjusted figures is essential to

understand business performance.
The adjustments to financial
statements are not simple, and it
requires a substantial learning process
by preparers and users of financial
statements to implement and
understand the end result.

In recent years levels of general

inflation in G7 and developed countries
have been low, so the management
and reporting of inflationary price rises
has not been a major challenge to
investors and the users of financial
statements.

IAS 29 Financial Reporting in

Hyperinflationary Economies

It is essential that translation processes

are undertaken on a consistent basis to
ensure comparability of financial
statements.

The management of foreign exchange

risk is an important aspect of business
operations. Importing and exporting
goods introduces foreign exchange risk
and results in earnings volatility with
reporting implications on earnings and
cash flow.

IAS 21 The Effects of Changes in

Foreign Exchange Rates

Practical significance

This chapter also covers the impact of

foreign currency on statements of
cash flows.

An awareness of the scope of IAS 29

Financial Reporting in Hyperinflationary
Economies is required.

Note the accounting requirements

for reporting of foreign transactions,
consolidation of foreign subsidiaries
and goodwill and fair value
adjustments.

Note the significance of the

functional currency in section 2 and
how this is determined.

You must understand the difference

between monetary and nonmonetary items in section 1 of the
chapter.

Study guide

Foreign currency and

consolidation

Translation of financial
statements

Functional currency
Determining functional
currency
Indications of functional
currency

Non-monetary items

Monetary items

Essential points

IAS 12 Income Taxes applies to

the associated tax effects of
foreign currency transactions.
In reporting exchange
differences on monetary items
the hedge accounting
provisions of IAS 39 overrule
the requirements of IAS 21.

20

An entity's financial statements

whose functional currency is
the currency of a
hyperinflationary economy
must be restated under IAS 29
Financial Reporting in
Hyperinflationary
Economiesprior to translation
into a different presentation
currency.

Covers IAS 21 The Effects of Changes

in Foreign Exchange Rates and IAS 29
Financial Reporting in Hyperinflationary
Economies

In a working context you may have

to establish the functional currency,
determine the accounting treatment
of exchange differences on monetary
and non-monetary items and
translate the financial statements for
consolidation purposes. You may also
be required to use or prepare
inflation adjusted figures.
IAS 21 is another complex standard
you will not have covered in earlier
studies.

Syllabus links and essential points

Approach

Working context

Due
Date

21

Study
Period

Corporate Reporting

How are inflationary price rises

managed and reported in the financial
statements?

How are foreign cash flows reported in

the statement of cash flows?

How is the statement of

comprehensive income translated for
consolidation purposes and where are
exchange differences reported in the
consolidated financial statements?

How are an entity's financial statements

translated from its functional into a
presentation currency?

What is the accounting treatment of

exchange differences on monetary and
non-monetary items?

At what rate are foreign currency

transactions recognised initially and
how are outstanding monetary and
non-monetary items at the reporting
date translated?

What are the primary and secondary

indicators of functional currency?

Stop and think

Practical significance

Working context

Approach

Foreign currency cash flows

Transactions in foreign
currency
Foreign subsidiaries
Reporting translation
differences

Gain/loss on net monetary

items

Re-state
Monetary assets/liabilities
Non-monetary
assets/liabilities
Items of income/expenses

Syllabus links and essential points

Due
Date

12

Study
Period

How may deferred tax arise in group

accounting or when non-current assets
are revalued?

How does deferred tax arise and how is

it measured?

Stop and think

Corporate income taxes are a means

by which governments provide
incentives for companies to act in a
particular way, for example beneficial
tax credits to encourage research and
development and allowances to
encourage investment. Therefore,
although taxable profit is based on
accounting profit, there are often
important differences. Accounting for
these types of differences is the major
emphasis of this chapter.

Taxation is a major expense for

business entities and has a direct effect
on cash flow and performance.

Practical significance

Study the presentation and disclosure

requirements

Ensure that you follow the steps

relating to the recognition and
measurement of deferred tax.

Study guide

Determining the deferred tax

balance

Tax base of assets and

liabilities

Deductible temporary
differences

Taxable temporary differences

Essential points

The revaluation of property,

plant and equipment under
the allowed alternative
treatment of IAS 16 Property,
Plant and Equipment leads to
temporary differences arising.

IAS 27 Consolidated and

Separate Financial Statements
can lead to deferred tax
balances in the consolidated
financial statements where the
accounting treatment may
differ from the tax treatment
in the individual company
financial statements of the
subsidiaries.

The recognition of a business

combination in accordance
with IFRS 3 Business
Combinations may lead to
temporary differences arising.

Chapter 12 Income Taxes gives a brief

overview of the material that you
have covered at professional level on
current tax and goes on to address
the complex and new topic of
deferred tax.

In a working context you may have

to identify deferred tax assets and
liabilities arising out of deductible
and taxable differences and report
and present these as appropriate in
the financial statements.
You must understand the concept of
temporary differences and how these
give rise to deferred tax. Go through
the examples very carefully.

Syllabus links and essential points

Approach

Working context

22

Due
Date

23

Study
Period

Corporate Reporting

Practical significance

Working context

Approach

Deferred tax and business

combinations

Deferred tax and revalued

asset

Syllabus links and essential points

Due
Date

IAS 40 Investment Property

13

IFRS 6 permits entities to continue with

their previous accounting policies
provided the resulting information is
relevant and reliable.

Entities such as those in the oil and gas

industry follow a wide range of
practices for the accounting of
exploration and evaluation
expenditure.

IFRS 6 Exploration for and

Evaluation of Mineral Resources

Since the use of a historic cost model

was not seen as wholly appropriate for
accounting for agricultural activity, the
IASB issued IAS 41 Agriculture based on
a fair value model.

The reporting of financial performance

and position in the agricultural sector
poses a number of challenges.

IAS 41 Agriculture

Entities also invest in property for the

potentially attractive returns that are
available from capital gains and rental
income. Measuring such investment
properties as a series of out-of-date
historic costs is not an appropriate
reflection of volatility caused by
changes in property values.

Practical significance

Study
Period

In a working context you may be

required to identify an insurance
contract; understand the various
forms that an insurance contract may
take and set out the disclosure
requirements which, in particular,
help to explain the risks associated
with an insurance contract.

Working in the context of extractive

industries you will need to make
judgments on the appropriate
capitalisation of expenditure.

Working in the context of the

agricultural sector you will need to
distinguish between biological assets
and agricultural produce; apply
market-based measures for valuing
biological assets and agricultural
produce; recognise assets and
produce and account for the gains
and losses arising.
You need to be aware of the scope
and basic application principles of the
other standards in this chapter which
you are encountering for the first
time at Advanced level.

This is likely to be tested at Advanced

Stage is in an integrated way with
other standards.

Study guide

Accounting for retirement

benefit plans

Agricultural activities
Exploration for mineral
resources
Insurance contracts

Further aspects of recognition

Cost model
Fair value model

Essential points

24

You will have covered IAS 40

Investment Property at
Professional stage. This is the
first time that you encounter
IAS 41 Agriculture, IFRS 4
Insurance Contracts, and IAS 26
Accounting and Reporting by
Retirement Benefit Plans.

Chapter 13 deals with the following

industry specific standards, IAS 40,
IAS 41, IFRS 4 and IFRS 26.

You will need to be able to identify

investment properties and apply the
appropriate recognition and
measurement criteria. You may also
need to understand and apply the
effect that a change in use will have.
You will have detailed knowledge of
IAS 40 Investment Property both in
terms of content and application
from your earlier studies.

Syllabus links and essential points

Approach

Working context

Due
Date

25

Study
Period

Corporate Reporting

How do we distinguish between

biological assets and agricultural
produce?

What are the financial reporting

challenges in the recognition and
continued measurement of investment
properties?

Why do entities hold investment

properties?

Stop and think

Retirement benefit plans (otherwise

called 'pension schemes',
'superannuation schemes' or
'retirement benefit schemes') are
collectively, financially significant as
major suppliers of funds for corporate
financing.

IAS 26 Accounting and Reporting

by Retirement Benefit Plans

IFRS 4 Insurance Contracts attempts to

provide a framework within which a
common set of reporting principles are
set out to provide relevant information
that will assist a user's understanding of
the entity's financial statements.

IFRS 4 Insurance Contracts

Practical significance

Working context

Approach

Syllabus links and essential points

Due
Date

Study
Period

Why is the reporting of relevant and

timely information by retirement
benefit plans important?

What are the issues relating to

insurance contracts that need to be
considered in setting out the reporting
principles?

Practical significance

Working context

Approach

Study guide

Syllabus links and essential points

26

Due
Date

27

14

Study
Period

Corporate Reporting

Why are additional EPS measures often

disclosed?

What is the impact of convertibles,

options and contingently issuable
shares on EPS?

What is the impact of bonus issues,

rights issues and share consolidations
on EPS?

Stop and think

In addition to basic EPS, IAS 33

requires a diluted figure which takes
into account the existence of
convertible instruments already issued
that could increase the number of
shares. Additional EPS figures are often
reported by entities based on what
they consider to be sustainable
earnings. These are intended to
provide a more realistic measure of
future performance.

Earnings per share (EPS) is one of the

most commonly used performance
measures worldwide. Moreover, it is
also a component in the price earnings
ratio which is a key summary statistic in
business valuation. IAS 33 Earnings per
Share seeks to provide guidance to
ensure a consistent basis is followed so
that a meaningful comparison can be
made over time.

Practical significance

As a professional accountant, you will

need to calculate basic earnings per
share and diluted earnings per share
where applicable. You will also need
to appreciate the significance of
additional EPS figures and how these
may be calculated to provide a more
stable performance measure.

Working context

Contingently issuable shares

Options and diluted EPS

Convertibles and diluted EPS

Diluted EPS

Impact of preference shares

Basic EPS

Essential points

Employee share options which

can lead to dilution of EPS are
covered by IFRS 2 Share-based
Payment. These are briefly
addressed in this chapter and
covered in more detail in
Chapter 9.

Where an entity has preference

shares in issue these will be
classified as debt or equity
according to their terms as
required by IAS 32 Financial
Instruments: Presentation which
you will have already studied
at Professional level.

Chapter 14 addresses IAS 33 Earnings

per Share. You will have had a
working knowledge of IAS 33 from
earlier studies including the
calculation of basic and diluted
earnings per share (EPS).
Advanced level addresses further
aspects of dilution including the
effect of options.

Syllabus links and essential points

Approach

Due
Date

15

Study
Period

How does disaggregation of data help

facilitate the assessment of a
companys performance?

What is the significance in terms of the

companys performance of disclosing
related party transactions?

How do standards such as IFRS 5 and

IFRS 8 help provide disaggregated
information to users of financial
statements?

How should a reportable segment be

determined?

Governance, the Directors Report

and Reporting for Small Entities are
topics you have covered in earlier
studies and in your auditing text. This
chapter gives a brief summary of the
reporting aspects.

You will have acquired a thorough

knowledge in your earlier studies
both of their subject matter and their
application and how in providing
disaggregated information they
enhance the reporting of
performance.

- IFRS for SMEs

Study guide

Small and medium-sized

entities
- Less guidance than full IFRS
- Written in clear English
- Some choices available in full
IFRS omitted
- Topics not relevant omitted
- Fewer disclosures.

Related party transactions

Definition of a related party
Disclosable transactions

Discontinued operations

Accounting for revenue

Changes in accounting
estimates, and errors

28

Changes in accounting policies

Segment reporting

Essential points

With the exception of IFRS 8

Operating Segments you will
have covered all the material
in this chapter at Professional
Level.

Chapter 15 starts with IFRS 8

Operating Segments.
The rest of the chapter gives a
revision of IAS 8, IAS 18, IFRS 1, IFRS
5, IAS 24 and the IFRS for Small and
Medium-Sized Entities.

Syllabus links and essential points

Approach

Why is segment reporting an

important aspect of reporting financial
performance?

In a working context you will need to

identify and present information on
reportable segments, identify and
disclose related party transactions
and apply the requirements of a
number of standards that have been
covered at Professional Stage such as
accounting for revenue, changes in
accounting policies, and discontinued
operations.

Working context

You need to note the importance of

these standards when you study the
final chapter on financial statements
analysis.

Stop and think

Listed entitiess often operate in a range

of geographical and business markets,
each of which provides different risks
and rewards for an entity. Segmental
information is therefore important.

External users of financial statements

rely on the limited disaggregation
provided as a result of the
requirements of accounting standards
such as the disclosure of discontinued
operations and segmental information.

Practical significance

Due
Date

29

16

Study
Period

Corporate Reporting

How do we forecast financial

statements and analyse the impact of
business decisions on the value of a
company?

What are the main financial ratios and

what are the main accounting issues
involved in their construction and
application?

What are the main types of creative

accounting, and how can accounts be
restated?

Stop and think

The information that is provided by a

company to its shareholders forms the
basis for the formation of ideas about
the prospects of the company.
Financial analysis assesses the quality of
this information and helps stakeholders
make decisions.

Practical significance

Section 10 has a number of

miscellaneous current issues, included
for completeness

Note the significance of financial

analysis in assessing the quality of
information provided to stakeholders
and in helping form decisions.

How we can improve the

quality of financial information
forecasting

Creative accounting

Accounting distortions

Accounting analysis

Industry analysis

Business strategy analysis

Financial ratios

Essential points

The material is based on the

ratios, financial analysis as well
as all the standards and their
application as covered at
professional level. It also draws
on the additional aspects of
IFRS covered in this book and
builds on knowledge gained in
the Business Analysis Study
Manual.

This chapter brings together

elements of your study from your
whole text, aspects of Business
Analysis and a significant amount of
your earlier study on financial ratios.

As a professional accountant you

need to appreciate the importance of
disaggregated information as a basis
for financial analysis, performance
evaluation and decision making. You
should be aware of the difficulties in
interpreting financial information as a
result of the flexibility afforded by
certain standards and the potential
misrepresentation of such
information.
Make sure you are familiar with the
financial rations covered in earlier
studies.

Syllabus links and essential points

Approach

Working context

Due
Date

4 Skills assessment guide

4.1

Introduction
As a Chartered Accountant in the business world, you will require the knowledge and skills to interpret
financial and other numerical and business data, and communicate the underlying issues to your clients.
In a similar way to the required knowledge, the ACA syllabus has been designed to develop your
professional skills in a progressive manner. These skills are broadly categorised as:

4.2

Assimilating and using information

Structuring problems and solutions
Applying judgement
Drawing conclusions and making recommendations

Assessing your professional skills

The work experience requirements for students provide a framework to develop appropriate work
experience, completion of which is essential in order to qualify for membership. Work experience is also
an essential component for examination preparation.
The work experience framework is built around five key skills:

30

Business awareness being aware of the internal and external issues and pressure for change facing
an organisation and assessing an organisations performance.
Technical and functional expertise applying syllabus learning outcomes and where appropriate,
further technical knowledge to real situations.
Ethics and professionalism recognising issues, using knowledge and experience to assess
implications, making confident decisions and recommendations.
Professional judgement making recommendations and adding value with appropriate, targeted
and relevant solutions.
Personal effectiveness developing, maintaining and exercising skills and personal attributes
necessary for the role and responsibilities.

Corporate Reporting

The examinations, and in particular the Advanced Stage, embrace all of these skills.
The link between work experience and the examinations is demonstrated by the skills development
grids produced by the examiners.
This will help students see that their practical knowledge and skills gained in the workplace feed back
into the exam room and vice-versa.

4.3

Assessment grids
The following pages set out the learning outcomes for Corporate Reporting that are addressed under
each of the four skills areas. In addition, for each skills area, there is a description of:

The specific skills that are assessed

How these skills are assessed

Using these grids will enable you to determine how the examination paper will be structured and to
consider whether your knowledge of Corporate Reporting is sufficiently strong to enable you to apply it
in the required manner.

Study guide

31

32

Corporate Reporting

5 Technical knowledge
The table contained in this section shows the technical knowledge covered in the ACA Syllabus by
module.
For each individual standard the level of knowledge required in the relevant Professional Stage module
and at the Advanced Stage is shown.
The knowledge levels are defined as follows:
Level D
An awareness of the scope of the standard.
Level C
A general knowledge with a basic understanding of the subject matter and training in its application
sufficient to identify significant issues and evaluate their potential implications or impact.
Level B
A working knowledge with a broad understanding of the subject matter and a level of experience in the
application thereof sufficient to apply the subject matter in straightforward circumstances.
Level A
A thorough knowledge with a solid understanding of the subject matter and experience in the
application thereof sufficient to exercise reasonable professional judgement in the application of the
subject matter in those circumstances generally encountered by Chartered Accountants.
Key to other symbols:
the knowledge level reached is assumed to be continued

Study guide

33

Corporate Reporting

Preface to International Financial Reporting Standards

Conceptual Framework for Financial Reporting

IAS1 Presentation of Financial Statements

IAS8 Accounting Policies, Changes in Accounting Estimates and Errors

IAS10 Events after the Reporting Period

IAS11 Construction Contracts

IAS12 Income Taxes

IAS2 Inventories
IAS7 Statement of Cash Flows

IAS16 Property, Plant and Equipment

IAS17 Leases

IAS18 Revenue

IAS19 Employee Benefits

IAS20 Accounting for Government Grants and Disclosure of Government

Assistance

IAS21 The Effects of Changes in Foreign Exchange Rates

IAS23 Borrowing Costs

IAS24 Related Party Disclosures

IAS26 Accounting and Reporting by Retirement Benefit Plans

IAS27 Consolidated and Separate Financial Statements

IAS28 Investments in Associates

IAS29 Financial Reporting in Hyperinflationary Economies

IAS31 Interests in Joint Ventures

IAS32 Financial Instruments: Presentation

IAS33 Earnings per Share

IAS34 Interim Financial Reporting

IAS36 Impairment of Assets

IAS37 Provisions, Contingent Liabilities and Contingent Assets

IAS38 Intangible Assets

IAS39 Financial Instruments: Recognition and Measurement

IAS40 Investment Property

34

Advanced Stage

Financial
Reporting

Title

Financial
Accounting

Accounting

Professional Stage

IAS41 Agriculture

IFRS1 First-Time Adoption of IFRS

Corporate Reporting

IFRS2 Share-based Payment

IFRS3 Business Combinations

A
B

IFRS4 Insurance Contracts

IFRS5 Non-current Assets Held for Sale and Discontinued Operations

Advanced Stage

Financial
Reporting

Financial
Accounting

Title

Accounting

Professional Stage

A
D

IFRS6 Exploration for and Evaluation of Mineral Resources

IFRS7 Financial Instruments: Disclosures

IFRS8 Operating Segments

IFRS9 Financial Instruments

IFRS for SMEs

Study guide

35

6 Getting help
Firstly, if you are receiving structured tuition, make sure you know how and when you can contact your
tutors for extra help.
Identify a work colleague who is qualified, or has at least passed the paper you are studying for, who is
willing to help if you have questions.
Form a group with a small number of other students. You can help each other and study together,
providing informal support. You can meet and share ideas and study tips with other ACA students
online visit www.icaew.com/studentcommunity
Go to www.icaew.com/students and look under student societies, to find your local society and find out
what additional support they offer.
Call +44 (0) 1908 248040 or email studentsupport@icaew.com with non-technical queries.
Watch the ICAEW website for future support initiatives.

36

Corporate Reporting