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ACCA FR
Financial Reporting
For exams in September 2021,
December 2021, March 2022 and June 2022
Tran Thi Phuong Thao (Ph.D)
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Exam Format

Citeria Financial reporting Financial accounting

Provides skills to apply Develop knowledge and

accounting standards,
Purpose conceptual framework in
preparation of FSs and how to
analyze, interpret FSs
FR exam includes 3 sections:
• Section A: Objective test
questions
Exam • Section B: Objective test
base questions
• Section C: Multitask
questions
understanding of the basic
principles and concepts of
financial accounting.
FA exam includes 2
sections:
• Section A: Objective
test questions
• Section B: Objective
test case questions

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Exam Format

Section Marks Question Type

A 30 15 objective test questions worth two marks

each

15 objective test questions worth two marks

B 30 each arranged around three scenarios

Two constructed response (written) questions

C 40 worth 20 marks each – can be financial
statement preparation or interpretation

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CBE exams

ACCA examines FR (and all Applied Skills) using computer based

examination (CBE).
In the CBE exams the two-mark questions in Sections A and B are
objective testing question (OTQ) format. OTQs include a wider
variety of question types including MCQ as well as number entry,
multiple response and drag and drop. More information on these
question types is available on the ACCA website.
http://www.accaglobal.com/

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CBE exams (cont)

When preparing for your FR exam it is essential that you use the
ACCA Exam Practice Platform http://www.accaglobal.com/
The Exam Practice Platform contains a number of full CBE questions
that are aligned to the current syllabus and are consistent with the
format and structure of questions you will face in your exam.
The Platform allows you to attempt questions under exam conditions
and to mark your own answers using the suggested solution and
marking guide.

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Syllabus 1

The FR syllabus sections are as follows.

A The conceptual and regulatory framework for financial reporting

1. The need for a conceptual framework and the characteristics of

useful information
2. Recognition and measurement
3. Regulatory framework
4. The concepts and principles of groups and consolidated financial
statements

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Syllabus 2
B Accounting for transactions in financial statements

1. Tangible non-current assets

2. Intangible assets
3. Impairment of assets
4. Inventory and biological assets
5. Financial instruments
6. Leasing
7. Provisions and events after the reporting period
8. Taxation
9. Reporting financial performance
10. Revenue
11. Government grants
12. Foreign currency transactions

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Syllabus 4

D Preparation of financial statements

1. Preparation of single entity financial statements

2. Preparation of consolidated financial statements including an
associate

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Syllabus 4

E Employability and technology skills

1. Use computer technology to efficiently access and manipulate

relevant information
2. Work on relevant response options, using available functions and
technology, as would be required in the workplace
3. Navigate windows and computer screens to create and amend
responses to exam requirements, using the appropriate tools
4. Present data and information effectively, using the appropriate tools

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Tackling the exam

The FR exam comprises fifteen 2-mark objective test

questions, three scenarios comprising five 2-mark objective
test questions each, and two 20-mark constructed response
(written) questions.
In the computer-based exam the 2-mark questions are OTQs.
All questions are compulsory, so there is no need to spend
time working out which questions to answer.
Go carefully through the 20-mark written questions, and
highlight the important points. Pay particular attention to dates
– especially acquisition and disposal dates – and work out
shareholdings if they have not been given to you.

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Tackling the exam

It is probably a good idea to begin with the MCQs. If there are

any to which you absolutely don't know the answer – guess.
You have a 25% chance of being right and you are not
penalised for incorrect answers.
For accounts preparation questions start by writing down the
format – you need to be able to write these from memory.
Make sure you remember to include lines relating to
associates or discontinued operations, if these apply.

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Tackling the exam

Computer-based exams
You will need to show your workings (either as formula or by
writing out your workings on the worksheet provided on the
screen).
You will have rough working paper – but this is NOT submitted
so ensure your workings are visible on the online response
form.

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Tackling the exam

If the amount you end up with is wrong and your workings are
illegible or indecipherable – or non-existent – you won't get any
marks.
As you do each working, transfer the amounts to the format.
Students sometimes forget to do this, which is a waste of all
that work.
If you are preparing a statement of profit or loss or statement
of profit or loss and other comprehensive income, you need to
arrive at final profit for the year, because you may need to
allocate some of it to the non-controlling interest, for which
there are marks available.
If you are doing a statement of cash flows, you need to total it
down to get to the reconciliation of cash and cash equivalents
b/f and c/f, for which there are marks available.
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Tackling the exam

However, in a statement of financial position there are no

marks available for adding up the two sections. You can spend
time in the exam doing this just to see if it balances (it won't)
and then spend more time worrying about where the difference
comes from and scrabbling back through your workings
looking for it. This is not a good idea. Leave it and move on.
Come back to it if you have time at the end.
There is likely to be a question on analysis of financial
statements. These are often badly answered. It is important to
read the information carefully, preferably twice, and be really
clear about what the question is asking. You are not being
tested on your ability to work out lots of ratios and if you
produce any that are not relevant you will get no marks for
them.

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Tackling the exam

Having produced a few, relevant ratios, you then have to say

something intelligent about them. The examining team does
not want to be told that they have gone up or gone down. They
can see that. They also do not want information that they have
provided in the question fed back as your answer.
What you need to do is look for how the information in the
question – perhaps an acquisition or disposal or a
restructuring, or even a major investment in non-current assets
– will have impacted the financial situation and how that is
reflected in the ratios. So spend some time thinking about this.
One page of proper, reasoned argument will earn you more
marks than six pages of everything you know about ratios.

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• Conceptual framework and GAAP

Chapter 1
• The IASB's Conceptual Framework
• The objective of general purpose
The conceptual financial reporting
framework • Underlying assumption
• Qualitative characteristics of financial
information
• The elements of financial statements
• Recognition and measurement of the
elements of financial statements
• Fair presentation and compliance with
IFRS

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Learning objectives 1

The need for a conceptual framework and the characteristics of

useful information
• Describe what is meant by a conceptual framework for financial reporting
• Discuss whether a conceptual framework is necessary and what an
alternative system might be
• Discuss what is meant by relevance and faithful representation and
describe the qualities that enhance these characteristics
• Discuss whether faithful representation constitutes more than compliance
with IFRS standards
• Discuss what is meant by understandability and verifiability in relation to
the provision of financial information
• Discuss the importance of comparability and timeliness to users of
financial statements
• Discuss the principle of comparability in accounting for changes in
accounting policies

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Learning objectives 2

Recognition and measurement

• Define what is meant by 'recognition' in financial statements and
discuss the recognition criteria.
• Apply the recognition criteria to
i. assets and liabilities
ii. income and expenses
• Explain and compute amounts using the following measures:
i. Historical cost
ii. Current cost
iii. Value in use
iv. Fair value

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Learning objectives 3

Recognition and measurement

• Discuss the advantages and disadvantages of the use of historical
cost accounting
• Discuss whether the use of current value accounting overcomes the
problems of historical cost accounting
• Describe the concept of financial and physical capital maintenance
and how this affects the determination of profits
• Discuss how the interpretation of current value-based financial
statements would differ from those using historical cost-based
accounts

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Chapter overview

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Chapter overview (cont)

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Conceptual Framework and GAAP 1

What is a conceptual framework?

• A statement of generally accepted theoretical principles
which form a frame of reference for financial reporting.
• These provide a basis for developing new IFRS
standards and a platform to evaluate those already in
existence.
Users and their information needs
Users of accounting information consist of:
• Investors
• Lenders and creditors
• Customers

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Conceptual Framework and GAAP 2

Scope of Conceptual Framework

The Conceptual Framework deals with:
(a) The objective of financial statements
(b) The qualitative characteristics of useful financial information
(c) Financial statements and the reporting entity
(d) The elements of financial statements
(e) Recognition and derecognition
(f) Measurement
(g) Presentation and disclosure
(h) Concepts of capital and capital maintenance

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Conceptual Framework and GAAP 3

Advantages of a conceptual framework

• Having a consistent conceptual base should avoid
contradictions and inconsistencies in basic concepts
and so produce standardised consistent accounting
practices.
• The development of standards is less subject to
political pressure.
• A consistent statement of financial position driven or
profit or loss driven approach is used.

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Conceptual Framework and GAAP 4

Disadvantages of a conceptual framework

• Financial statements have many users all with differing
needs:
– A single framework cannot satisfy the needs of all
users.
– There may be a need for a variety of IFRS
standards, each produced for a different purpose
with different conceptual bases.
• Having a conceptual framework may not make it any
easier to prepare IFRS standards.

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Conceptual Framework and GAAP 5

Generally Accepted Accounting Practice (GAAP)

• Comprises the rules, from all sources, which govern accounting.
• The major components include:
– National accounting standards, for example those prepared by
the Financial Accounting Standards Board (FASB) in the USA
– National company law, for example the Companies Act in the
UK
– Local stock exchange requirements
– Regional bodies, such as the European Union. For example, an
Accounting Directive issued by the EU requires companies
listed on an EU stock exchange to prepare their consolidated
financial statements using IFRSs.

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The IASB's Conceptual Framework 1

• Published in 2010
• Updated by the IASB in March 2018

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The IASB's Conceptual Framework 5

A revised Conceptual Framework was published in early

2018:
• Revisions to the definitions of elements in the
financial statements
• Guidance on derecognition
• Discussions on measurement bases
• Principles for including items in other comprehensive
income

The Conceptual Framework is NOT an accounting

standard

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The objective of general purpose financial reporting 1

Objective of general purpose financial reporting

• The economic resources of the entity
• The claims against the entity
• Changes in the entity's economic resources and claims
Such decisions are likely to include:
• Decisions to buy, hold or sell equity investments
• Assessment of management stewardship and accountability
• Assessment of the entity's ability to pay employees
• Assessment of the security of amounts lent to the entity

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The objective of general purpose financial reporting 2

Stewardship of the entity

• The Conceptual Framework introduced the concept of
users being able to review the stewardship of the entity
by management
• Reviewing the financial performance (income and
expense)
• Utilisation of the economic resources, such as capital
maintenance, monitoring of debt and issuing new share
capital

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The objective of general purpose financial reporting 3

Basis of preparation
This information should be prepared on an accruals basis.
‘Accruals basis: The effects of transactions and other
events and circumstances on a reporting entity’s economic
resources and claims are recognised in the periods in
which they occur even if the resulting cash receipts and
payments occur in a different period.’
(Conceptual Framework, para.1.17)

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Underlying assumption

Underlying assumption
• Going concern:
‘The financial statements are normally prepared on
the assumption that the entity is a going concern
and will continue in operation for the foreseeable
future’ (Conceptual Framework, para.3.9)
• It is assumed that the entity has neither the intention
not the need to liquidate the business or curtail major
operations.
• If it did, the financial statements would be prepared on
a different basis and this basis would be disclosed.

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Qualitative characteristics of financial information 1

Qualitative characteristics of useful financial information

• These describe the attributes that information needs to
have in order for it to be most useful for existing and
potential investors, lenders and other creditors for making
decisions about the reporting entity.
• They are divided into two categories:
– Fundamental qualitative characteristics
– Enhancing qualitative characteristics

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Qualitative characteristics of financial information 2

Fundamental qualitative characteristics

Relevance Faithful representation

Relevant financial information is
capable of making a difference in the
decisions made by users, ie if it has:
• Predictive value; and/or
• Confirmatory value.
Materiality
Information is material if omitting it
or misstating it could influence
decisions that users make on the
basis of financial information.
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To be useful, financial information
must faithfully represent the
phenomena it purports to
represent.
A perfect faithful representation
would be:
• Complete
• Neutral
• Free from error
Prudence
‘The exercise of caution when
making judgements under
conditions of uncertainty’
(Conceptual Framework, para.2.16)

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Qualitative characteristics of financial information 3

Enhancing qualitative characteristics

Comparability Verifiability Timeliness Understandability

Information is more Assures users that Having information Classifying,

useful if it can be information faithfully available to characterising and
compared with similar represents the decision-makers in presenting
information about: economic phenomena time to be capable information clearly
• Other entities; and it purports to represent of influencing their and concisely
• Other periods. Verification can be decisions
Consistency helps direct or indirect
achieve comparability.

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Qualitative characteristics of financial information 3

The cost constraint on useful financial reporting

This is a pervasive constraint, not a qualitative characteristic.
When information is provided, its benefits must exceed the costs of
obtaining and presenting it.
(Conceptual Framework: para.2.39-41)

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The elements of financial statements 1

The elements of financial statements

• An item can only be recognised in the financial
statements if it can be defined as one of the following
elements:
• Asset
• Liability
• Equity
• Income
• Expense

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The elements of financial statements 2

ASSET A present economic resource controlled by an entity

as a result of past events. An economic resource is a
right which has the potential to produce economic
benefits.
(Conceptual Framework, para.4.3‒4.4)

LIABILITY A present obligation of the entity to transfer an

economic resource as a result of past events.
(Conceptual Framework, para.4.26)

EQUITY The residual interest in the assets of an entity after

deducting all its liabilities
(Conceptual Framework, para.4.63)

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The elements of financial statements 3

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

EXPENSE Decreases in economic benefits during the period

other than distributions to equity participants
(Conceptual Framework, para.4.68‒4.69)

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Question?

• Consider the following situations. In each case, do we have an asset

or liability within the definitions given by the Conceptual Framework?
(a) Pat Co has purchased a patent for $20,000. The patent gives the
company sole use of a particular manufacturing process which will
save $3,000 a year for the next five years.
(b) Baldwin Co paid Don Brennan $10,000 to set up a car repair shop,
on condition that priority treatment is given to cars from the company's
fleet.
(c) Deals on Wheels Co provides a warranty with every car sold.

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Question?

• Which of the following would be classified as a liability?

A Dexter's business manufactures a product under licence. In 12
months' time the licence expires and Dexter will have to pay $50,000
for it to be renewed.
B Reckless purchased an investment 9 months ago for $120,000.
The market for these investments has now fallen and Reckless's
investment is valued at $90,000.
C Carter has estimated the tax charge on its profits for the year just
ended as $165,000.
D Expansion is planning to invest in new machinery and has been
quoted a price of $570,000

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Question

• Which of the following items should be recognised as an asset in the

statement of financial position of a company?
A. A secret formula for the manufacture of a best selling sauce. The
recipe is kept secure at the company premises and known only by
the company directors.
B. A highly lucrative contract signed during the year which is due to
commence shortly after the year end
C. Items that are to be sold via a third party agent which the company
can no longer control and cannot be returned to the company of they
are unsold
D. A receivable from a customer which has been sold (factored) to a
finance company. The finance company has full recourse to the
company for any losses.

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Recognition and measurement 1

Recognition of the elements of financial statements

• Recognition is the process of recording or showing an
item in the financial statements
• An item can only be recognised in the financial statements
when it satisfies the recognition criteria
• An asset or liability should be recognised if it will be both
relevant and provide users with a faithful representation
of the transactions of the entity

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Recognition and measurement 2

Recognition of the elements of financial statements

Recognition criteria
An item meets the definition of an element of the financial
statements
Faithful representation
Even if an item is not recognised, then the preparers
should consider whether, in order to meet the faithful
representation requirement, a note or further narrative is
required to explain the issue to the users of the financial
statements.

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Case study: Footballers 1

Are transfer fees paid for footballers an asset?

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Case study: Footballers 2

Are the recognition criteria satisfied?

• Firstly, is there an asset?

– Control
– Past event
– Expected generation of future economic benefit

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Case study: Footballers 4

What are the future economic benefits?

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Recognition criteria
Derecognition is the removal of all or part of a recognised asset or
liability from an entity's statement of financial position.
Derecognition normally occurs when that item no longer meets the
definition of an asset or liability.

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Recognition and measurement 3

Measurement of the elements of financial statements

• The process of determining the monetary amounts at
which the elements of the financial statements are to be
recognised and carried in the statement of financial
position and the statement of profit or loss
• There are four choices available:
– Historical cost
– Current cost
– Value in use
– Fair value

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Recognition and measurement 4

Measurement Definition
basis
Historical cost Assets are recorded at the amount of cash or
cash equivalents paid or the fair value of the
consideration given to acquire them at the time of
their acquisition.
Liabilities are recorded at the amount of proceeds
received in exchange for the obligation.
Fair value The amount of cash or cash equivalents that
could currently be obtained by selling an asset or
liability in an orderly disposal.

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Recognition and measurement 5

Measurement Definition
basis
Current cost Assets are recorded at the amount of cash or
cash equivalents that would have to be paid if the
same or an equivalent asset was acquired at the
current time.
Liabilities are carried at the undiscounted amount
of cash or cash equivalents that would be
required to settle the obligation at the current
time.
Value in use A current estimate of the present discounted value
of the future net cash flows in the normal course
of business, less costs of its ultimate disposal

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Example

• Historical cost
Cost: $200,000 (1 Jan X1)
Life: 10 years
Dep: $20,000 p.a
CV: $160,000 (31 Dec X2)
• Fair value
FV: $180,000 (SFP)
• Current cost
• VIU

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Fair presentation and compliance with IFRS 1

• Financial statements should present fairly the financial

position, financial performance and cash flows of an
entity.
• It is presumed that this fair presentation will be achieved
where an entity complies with both the Conceptual
Framework and IFRSs.
• Fair presentation also requires an entity to:
– Select and apply appropriate accounting policies
– Present information in a manner that provides relevant
information and which is a faithful representation
– Provide additional disclosures where further information
is required to enable users to understand the impact of
transactions

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Tackling the exam 1

It is likely that this area of the syllabus will be tested as part

of the Section A and Section B OTQ questions.
An example may test knowledge as follows:
Question
The Conceptual Framework identifies an UNDERLYING
ASSUMPTION in preparing financial statements. This is:
A Going concern
B Materiality
C Substance over form
D Accruals

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Tackling the exam 3

An example may test application as follows:

Question
Which of the following would be classified as a liability?
A Alpha Co's business manufactures a product under licence. In 12
months' time the licence expires and Alpha Co will have to pay
$50,000 for it to be renewed.
B Bravo Co purchased an investment 9 months ago for $120,000.
The market for these investments has now fallen and Bravo Co’s
investment is valued at $90,000.
C Charlie Co has estimated the tax charge on its profits for the year
just ended as $165,000.
D Delta Co is planning to invest in a new warehouse and has been
quoted a price of $1,570,000

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Chapter Summary 1

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Chapter Summary 2

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Chapter Summary 3

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Chapter Summary 4

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Chapter Summary 5

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Chapter Summary 6

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Chapter 2 • The need for a regulatory

framework
• The International Accounting
The regulatory Standards Board (IASB)
framework • Setting of International Financial
Reporting Standards (IFRS)

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Learning objectives 1

• Explain why a regulatory framework is needed, including

the advantages and disadvantages of IFRS over a national
regulatory framework
• Explain why IFRS Standards on their own are not a
complete regulatory framework
• Distinguish between a principles based and a rules based
framework and discuss whether they can be
complementary

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Learning objectives 2

• Describe the IASB's Standard setting process including

revisions to and interpretations of Standards
• Explain the relationship of national standard-setters to the
IASB in respect of the standard setting process

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Chapter overview

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The need for a regulatory framework 1

• A regulatory framework is required for two main

reasons:
– To act as a central source of reference of generally
accepted accounting practice (GAAP) in a given
market
– To designate a system of enforcement of that GAAP
to ensure consistency between companies
• Its aim is to narrow the areas of difference and choice
in financial reporting and to improve comparability.

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The need for a regulatory framework 2

Principles-based vs rules-based systems

• A principles-based system works within a set of laid
down principles.
• International Financial Reporting Standards use a
principles-based system: they are written based on the
definitions of the elements of financial statements and
the recognition and measurement principles as detailed
in the Conceptual Framework for Financial Reporting.
• These principles are designed to cover a wide range of
scenarios without the need for a set of rules which
govern every eventuality.

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The need for a regulatory framework 3

Principles-based vs rules-based systems (continued)

• A rules-based system regulates for issues as they
arise, this means that accounting standards contain
rules which apply to specific scenarios.
• US GAAP has historically used a rules-based system;
however many of the recent corporate accounting
scandals have arisen as a direct result of companies
acting in a way that avoids rules.
• The FASB (US Standard setters) and the IASB
collaborated on IFRS 15.

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The need for a regulatory framework 4

There are both advantages and disadvantages of a

principles vs rules-based system:
• Advantages:
– A principles-based approach on a single conceptual
framework ensures that standards are consistent with
each other.
– Rules can be broken and 'loopholes' found whereas
principles are more likely to offer a 'catch all' scenario.
– Principles reduce the need for excessive detail in
standards.
• Disadvantages:
– Principles can become out of date and can be overly
flexible and therefore subject to manipulation.

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The IASB

• The International Accounting Standards Board (IASB) is an

independent accounting standard setter established in 2001.
• It has three formal objectives:
– To develop, in the public interest, a single set of high
quality, understandable and enforceable global accounting
standards that require high quality, transparent and
comparable information in general purpose financial
statements
– To promote the use and vigorous application of those
standards
– To work actively with national accounting standard setters
to bring about convergence of national accounting
standards and IFRS to high quality solutions

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Setting of IFRS (1)

Below are the key steps in the process used to issue an International Financial
Reporting Standard.

Issues Paper IASB staff prepare an issues paper including studying the
approach of national standards setters.
The IFRS Advisory Council is consulted about the
advisability of adding the topic to the IASB's agenda.

Discussion Paper A Discussion Paper may be published for public

comment.

Exposure Draft An Exposure Draft is published for public comment.

International After considering all comments received, and IFRS is

Financial Reporting approved by a majority of the IASB. The final standard
Standard includes both a basis for conclusions and any dissenting
opinions.

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Setting of IFRS (2)

• For the IASB to achieve its objective in relation to the

harmonisation of accounting standards it is important
that it works closely with other national standard setters.
• The IASB is trying to coordinate its work plan with
national standard setters such that when it adds an item
to its agenda, national standard setters do the same
thing so that a standard can be agreed which has
international consensus.
• There are also plans to review all standards where there
are significant differences between IFRS and national
standards.

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Setting of IFRS (3)

Current standards examinable in the FR exam are:

• IAS 1
• IAS 2
• IAS 7
• IAS 8
• IAS 10
• IAS 12
• IAS 16
• IAS 20

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Setting of IFRS (4)

Current standards examinable in the FR exam are:

• IAS 21
• IAS 23
• IAS 27
• IAS 28
• IAS 32
• IAS 33
• IAS 36
• IAS 37
• IAS 38

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Setting of IFRS (5)

Current standards examinable in the FR exam are:
• IAS 40
• IAS 41
• IFRS 3
• IFRS 5
• IFRS 7
• IFRS 9
• IFRS 10
• IFRS 13
• IFRS 15
• IFRS 16

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Tackling the exam

• It is likely that this area of the syllabus will be tested as

part of the Section A and Section B OTQ questions.
• Ensure that you understand the process of how new
standards are issued and you are familiar with the process
and aims of the IASB.

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Question: IFRS (Specimen CBE 2016)

Which of the following statements are true or false regarding the duties of
the IFRS Interpretations Committee?
1. To interpret the application of IFRS Standards
2. To work directly with national standard setters to bring about
convergence with IFRS Standards
3. To provide guidance on financial reporting issues not specifically
addressed in IFRS Standards
4. To publish draft interpretations for public comment

BPP LEARNING MEDIA

Chapter Summary 1

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Chapter Summary 2

BPP LEARNING MEDIA

Chapter Summary 3

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