AC3102 Risk Reporting And Analysis

Semester 2 Academic Year 2017/ 2018 (January 2018 to May 2018)

Seminar Outline for seminar 1 to seminar 15.

Instructions for submission of weekly group presentation

1. Each team should submit a written report on the weekly preset cases and questions before the
start of class in each week. See item 11 below for details.
2. The report should contain clear, concise and precise complete sentences. Bonus points will be
awarded to a report that directly and accurately addresses the relevant issues in a clear and
concise manner.
3. The report should be typed based on this format
-Arial font size 11 and double-line spacing
-maximum length of twenty (20) single-sided pages (excluding cover page – see below). In
general, any material beyond page 20 will not be graded. All pages must be numbered.
- If your report contains tables and excel spreadsheets, ensure they are properly formatted in
your word file (e.g. font-size 11) to facilitate printing the entire MS-word document in one-
step.
4. There will be a 30% penalty for non-compliance of the required format.
5. Late submissions will not be graded.
6. Submissions that contain plagiarism will be given zero marks.
7. To be fair to all students, the instructors will not discuss the assignment with any student
prior to the scheduled in-class presentation. The non-presenting students and the instructor
will play an active role in class to comment, challenge and critique the presentation done by
the presenting team. By the third calendar day after the presentation, the presenting team
should update their presentation material (e.g. incorporate in-class comments and rectify
errors) and post their word file on the course website for sharing with all students. Both the
presenting team and the instructors will not bear responsibility for the usage of the posted
presentation material.
8. To create the appropriate incentive for each student to prepare for the weekly assignment, the
instructors will not be posting any solution to the questions. If you are absent from class,
please follow-up with your class members.
9. Format of cover page:
Date and time of class: Monday 21 January 20x1 (2.30 pm to 4.30 pm )
Venue : Seminar room SR 4

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 Team number : Three
Full Name of each student in the team as it % contribution**
appears in the class list
1
2
3
4
Total 100%
** State each team member’s contribution to the completion of this project. For example,
for a team of 4 members, if all members have equal contribution, the % stated above will be
25% for each team member. This means that all 4 members will have the same score for this
project. Unequal contribution means that members within the same team will have different
scores. You are required to be honest in stating each member’s contribution.

10. Email correspondence

We welcome your questions. For efficiency purposes, you should adhere to these guidelines
in your email communication with us:-
1. Write clearly, precisely and concisely using complete words and sentences.
2. Outline your initial views and response to your questions so that we know your current
position and potential problem areas.
3. We will give priority to those who demonstrated initiatives to help themselves.
Due to the recent changes in the financial reporting standards, we will not review (nor
comment) your attempt on
a) past year examination questions
b) additional questions in the textbook that are not covered in seminars.

Where appropriate, we have incorporated several relevant past year examination questions
(such as those that are not superseded by recent changes in the financial reporting standards)
into the weekly discussion questions. We assume that you have been diligently attending the
seminars and following up class discussion with your classmates (if you are absent from
specific seminar).

11. Submission of weekly report

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All presenting and submitting teams for the scheduled week will have to (i) submit their
presentation report (in a MS-word file) by email to their seminar instructor and (ii) to
post their presentation report before the stipulated deadline indicated for the specific
seminar. For example, if Sunday falls on 1 August 20X1 and the scheduled presentation for a
specific team (say Team 6) falls on either Monday 2 August 20X1 or Tuesday 3 August
20X1, the team will have (i) to submit their presentation report (in a MS-word file) by email
to their seminar instructor and (ii) to post their presentation report on or before the Sunday 1
August 20x1 (9 a.m.). Similarly, if Sunday falls on 1 August 20X1 and the scheduled
presentation for a specific team (say Team 7) falls on either Thursday 5 August 20X1 or
Friday 6 August 20X1, the team will have (i) to submit their presentation report (in a MS-
word file) by email to their seminar instructor and (ii) to post their presentation report on or
before the Wednesday 4 August 20x1 (9 a.m.).

Please name your MS Word file as follows AC3102_SemGroupX_TeamY.doc. X is your

seminar group number and Y is the team number. For example, if you are from team 7
in seminar group 1, the file must be labelled as AC3102_SemGroup1_Team7.doc. Late
submissions will NOT be graded.

If there is evidence of cheating (e.g. where the presentations among different groups are
unusually similar), the school’s rules on dealing with cheating will be invoked. To test the
integrity of the presentations, questions will be asked to each presenter to assess his
original preparation. Thus, each presenter must be fully conversant with ALL material
submitted in his team’s presentation report. The rest of the class should prepare properly for
the weekly questions to enhance the quality of the in-class discussion.

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 Seminar 1: Introduction, Concepts and Context
Learning objectives
1. Understand the differences between the reporting by legal and economic (group) entities.
2. Understand the economic incentives for the provision of consolidated financial information.
3. Understand the economic context of group reporting — mergers and acquisitions as risk
management strategy and the impact on financial reporting.
4. Understand the concept of “control” and the determination of the parent-subsidiary
relationship.
5. Understand the concept of “significant influence” and the notion of “associate”.

References
TLK chapter 2
FRS 110
MS (1990)
WH (1987)
Review recorded lecture and seminar notes on “Introduction, Concepts and Context”.

Self-study material
Illustration 2-1 Relative voting rights – TLK page 43.
Illustration 2-2 Potential voting rights – TLK page 44.
Illustration 2-3 Decision making rights over different activities – TLK page 46.
Illustration 2-4 Potential voting rights – TLK page 50.

The following material is not examinable in this course:-

1) Consolidation theories (TLK page 54 to page 62)

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 Seminar 2
Application of the Acquisition Method under FRS 103
Learning objectives
1. Understand the difference between investor’s separate financial statements and the
consolidated statements.
2. Understand the differences in various modes of business combinations.
3. Understand the significance of the acquisition method under FRS 103 and its implications for
consolidation.
4. Understand accounting issues concerning control and identification of the acquirer.
5. Know how to recognize and measure identifiable assets, liabilities, and goodwill under FRS
103.
6. Basic consolidation entries at date of acquisition.

References
TLK chapter 3
FRS 103
FRS 110
AMS (2001)
BN (1993)
Review recorded lecture and seminar notes on “Application of the Acquisition Method under
FRS 103”.

Self-study material
 Illustration 3.2 - Fair value of equity issued - TLK page 86.
 Further issues: pre-existing relationships between acquirer and acquiree and
reacquired rights – TLK page 87
 Illustration 3.3 – recognition of contingent liability and indemnification asset - TLK
page 93.
 Illustration 3.4 – direct acquisition of net assets of a business - TLK page 101.
 Illustration 3.5 –acquisition of a subsidiary - TLK page 105.
 Illustration 3.6– gain on bargain purchase - TLK page 108.
 Illustration 3.7 – acquisition of assets that do not constitute a business- TLK page 111.

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 The following material is not examinable in this course:-
1) Appendix 3A Investment Entities (TLK page 113 to page 117)
2) Appendix 3B Reverse acquisitions (TLK page 118 to page 122)
3) Appendix 3C Determining what is part of the business combination transaction (TLK page
123 to page 147)

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 Seminar 3
Consolidation: Post-Acquisition
Learning objectives:-
1. Understand the rationale for elimination of investment in subsidiary,
2. Understand the concept of non-controlling interests.
3. Appreciate the alternative measurement basis for non-controlling interests.
4. Prepare consolidation journal entries relating to goodwill, depreciation, and amortization of
differences between book values and fair values of identifiable assets, contingent liabilities of
acquired subsidiaries, and non-controlling interests.
5. Prepare consolidation journal entries to allocate current and past income to non-controlling
interests.
6. Prepare consolidated statement of comprehensive income and consolidated statement of
financial position.

References
TLK chapter 4
FRS 103
FRS 110
Review recorded lecture and seminar notes on “Consolidation : Post Acquisition”.

Self-study material
Illustration 4.1 – eliminate investment in subsidiary - TLK page 164.
Illustration 4.2 – determine non-controlling interest (NCI) in goodwill - TLK page 172.
Analytical check on the non-controlling interest balances – TLK page 177-179.
Illustration 4.3A – non-controlling interest as a debit balance - TLK page 179.
Illustration 4.4A – accounting for NCI - TLK page 180.
Illustration 4.5A – amortization of fair value differential - TLK page 186.
Illustration 4.6A – Multi-year consolidation - TLK page 191.
Illustration 4.7 – goodwill impairment tests - TLK page 206.
Appendix 4A – illustrations on NCI measured as a proportion of acquisition date identifiable
net assets.

The following material is NOT examinable in this course:-

1) Appendix 4B – accounting for other components of Non-controlling interests.

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 Seminar 4
Consolidation : Intra-group Transactions
Learning objectives:
1. Understand the principles underlying the elimination of intra-group balances and transactions
in consolidation;
2. Understand the rationale for consolidation adjustments to opening retained earnings.
3. Appreciate the significance of upstream versus downstream transactions and the
consequential impact on non-controlling interests.
4. Prepare the consolidation adjustments with respect to unrealized profit or loss arising from
typical intra-group transactions such as intercompany transfers of inventory and fixed assets.
5. Prepare consolidated statement of comprehensive income and consolidated statement of
financial position.

References
TLK chapter 5
FRS 103
FRS 110
Review recorded lecture and seminar notes on “Consolidation : Intra-group Transactions”

Self-study material
Illustration 5.1 – upstream sale - TLK page 253.
Illustration 5.2 – multi period effects of upstream sale and downstream sale - TLK page 257.
Illustration 5.3 –downstream sale fixed assets - TLK page 269.
Illustration 5.3 –extension – upstream sale fixed assets - TLK page 272.
Illustration 5.4 – comprehensive example with intercompany transfers - TLK page 280.
Illustration 5.4 extension – comprehensive example with intercompany transfers- TLK page
288.
Illustration 5.5 – loss from intra-group transfers - TLK page 290.
Illustration 5.6 –transfers at a loss - TLK page 292.

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Seminar 5
Student presentation 1 – Basic concepts and Application of the Acquisition Method
under FRS 103
Submit by Sunday 28-1-2018 (9am). Follow the “instructions on the submission on
weekly presentation”.
The presenting team will have (i) to submit their presentation report (in a MS-word file) by
email to their seminar instructor and (ii) to post their presentation report on or before the
Sunday 28-1-2018 (9 a.m.).
Question 1
CQ2.1 Parent-subsidiary relationship - TLK page 63.

Question 2
CQ2.8 Potential voting rights - TLK page 64.

Question 3
CQ2.11 Principal – agent relationship - TLK page 65.

Question 4
P3.2 Determining the consideration transferred - TLK page 151.

Question 5
P3.5 Different forms of business combinations - TLK page 153.

Question 6
P3.6 Fair value of consideration transferred - TLK page 155.

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 Seminar 6
Equity accounting and Joint Arrangements
This seminar will be done via e-learning. Thus, there is no physical class on Thursday 1-2-
2018 and Friday 2-2-2018.
Learning objectives
1. Understand the concept of significant influence and joint control.
2. Understand the differences between equity method and consolidation.
3. Apply the equity method in accounting for investment in an associate and joint venture.
4. Appreciate the nature of joint arrangements and apply the appropriate accounting treatment
for joint arrangements.

References
TLK chapter 6
FRS 28
Review recorded lecture and seminar notes on “Equity accounting and joint
arrangements”

Self-study material
Illustration 6.1 equity accounting – TLK page 343.
Illustration 6.2 comprehensive problem – TLK page 351.
Illustration 6.3 comprehensive problem – TLK page 359.
Illustration 6.4 accounting for joint arrangement – TLK page 376.
Illustration 6.5 accounting for joint operations – TLK page 378.
Illustration 6.6 accounting for joint operations – TLK page 381.

Attempt On-line Quiz #1

Details will be announced later.

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Seminar 7
Student presentation 2 - Consolidation : Post-Acquisition
Submit by Sunday 4-2-2018 (9am). Follow the “instructions on the submission on
weekly presentation”.
The presenting team will have (i) to submit their presentation report (in a MS-word file) by
email to their seminar instructor and (ii) to post their presentation report on or before the
Sunday 4-2-2018 (9 a.m.).

Question 1
P4.1 goodwill fair value adjustments - TLK page 225

Question 2
P4.5 acquisition method and non-controlling interest at fair value - TLK page 231.

Question 3
P4.6 acquisition method and non-controlling interest at proportion of net assets - TLK page
232.

Question 4
P4.11 consolidation and analytical check of non-controlling interest - TLK page 235.

Question 5
P4.12 consolidation and analytical check of non-controlling interest - TLK page 236.

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Seminar 8
Student presentation 3 – Consolidation: Intra-Group Eliminations
Submit by Wednesday 7-2-2018 (9am). Follow the “instructions on the submission on
weekly presentation”.
The presenting team will have (i) to submit their presentation report (in a MS-word file) by
email to their seminar instructor and (ii) to post their presentation report on or before the
Wednesday 7-2-2018 (9am).

Question 1
P5.1 consolidation adjustments and worksheet – TLK page 298.

Question 2
P5.3 consolidation and analytical check – TLK page 301.

Question 3
P5.9 capitalization of intra group interest and consolidation – TLK page 309.

Question 4
P5.11 construction accounting and consolidation – TLK page 313.

Question 5
Read:
(i) Andrade, Mitchell, Stafford. 2001. New evidence and perspectives on mergers,
Journal of Economic Perspectives Volume 15(2), 103-120.
(ii) Berkovitch, Narayanan. 1993. Motives for takeovers : an empirical analysis,
Journal of Financial and Quantitative Analysis, 347-362.

[Note: In general, the abstract, introduction, hypothesis development and conclusion of a

paper provide a good summary of the key message and main findings of the paper. Do not be
derailed by the statistical analysis and quantitative results in the paper. Hence, you can still
have a good understanding of the paper without being derailed by the statistical analysis.]

In most mergers and acquisitions (M&A), the acquirer’s gains (measured by various metrics
such as stock price reaction around the announcements of M&A and operating profitability

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post-merger) seem to be considerably lower than the target’s gains. Suggest and explain
three reasons to explain why the acquirer’s gains in M&A is lower than the target’s gains in
M&A.

[Note: Your response to this question should not exceed one page. Feel free to enrich your
presentation by reading/ expanding beyond the prescribed readings. Avoid generic statements
and be specific with your response.]

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Seminar 9
Complex group structures
Learning objectives
1. Appreciate the implications of indirect ownership interests on consolidation and
equity accounting.
2. Prepare consolidation adjustments and equity accounting entries for multi-tier group
structures.
3. Prepare consolidated financial statements for multi-tier group structures.

References
TLK chapter 7
FRS 110
Review recorded lecture and seminar notes on “complex group structures”.

Self-study material
Illustration 7-1 – Simultaneous consolidation – TLK page 427.
Illustration 7-2 – extension of sequential consolidation – TLK page 432.
Illustration 7-3 – Simultaneous consolidation of an existing sub-group of companies – TLK
page 437.
Illustration 7-4 – Simultaneous consolidation with fair value adjustments – TLK page 446.
Illustration 7-5 – Indirect holding of an associate through a subsidiary – TLK page 459.

Note: There is no seminar on 15-2-2018 and 16-2-2018.

Lunar New Year public holiday.

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Seminar 10
Accounting for changes in ownership interests
This seminar will be done via e-learning.
Thus, there is no physical class on Monday 19-2-2018 and Tuesday 20-2-2018.
Learning objectives
1. Understand business combinations achieved in stages and changes in ownership
interests in a subsidiary.
2. Prepare consolidation adjustments for changes in ownership interests in a subsidiary,
with and without change in control.
3. Understand the differences in profit recognition arising from the cost, consolidation,
and equity methods.
References
TLK chapter 7
FRS 103
FRS 110
Review recorded lecture and seminar notes on “Accounting for changes in ownership
interests”.

Self-study material
Illustration 7-6 – Business combination achieved in stages – TLK page 467.
Scenario 1: Loss of control – from 90% to 30% - TLK page 472.
Scenario 2: Gain of control – from 30% to 80% - TLK page 475.
Scenario 3 : No loss or gain of control - from 90% to 95% -TLK page 477. This example only
shows the CJE on date of change of control. There is insufficient data to work out CJE to
eliminate investment on 1-1-20x8 (when P buys 80% of S) and CJE post-acquisition change
in retained earnings (as there is no data on retained earnings of S). You should supplement
with seminar example on increased in ownership without any change in control.
Scenario 4 : No loss or gain of control – from 90% to 60% - TLK page 478.
Appendix 7C: Change in significant influence.
Illustration 7-7 – transfer asset between a subsidiary and an associate – TLK page 481.
Illustration 7-8 – comparison of cost, equity methods and consolidation – TLK page 487.

Attempt on-line Quiz #2. Details to be announced.

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Seminar 11
Student presentation 4 – Equity accounting and joint arrangements.
Submit by Wednesday 21-2-2018 (9am). Follow the “instructions on the submission on
weekly presentation”.
The presenting team will have (i) to submit their presentation report (in a MS-word file) by
email to their seminar instructor and (ii) to post their presentation report on or before the
Wednesday 21-2-2018 (9am).

Question 1
P6.5 Comprehensive problem set – TLK page 385.

Question 2
P6.6 Comprehensive problem set – TLK page 387.

Question 3
P6.12 Comprehensive problem set – TLK page 398.

Question 4
Read:-
-Feng, Gramlich, Gupta, 2009. Special Purpose Vehicles – Empirical evidence on
determinants and earnings management. The Accounting Review 84(6), 1833-1876.

[Note: In general, the abstract, introduction, hypothesis development and conclusion of a

paper provide a good summary of the key message and main findings of the paper. Do not be
derailed by the statistical analysis and quantitative results in the paper. Hence, you can still
have a good understanding of the paper without being derailed by the statistical analysis.]

Although Special-Purpose-Entities (SPE) may be created for legitimate business reasons

(“efficiency reasons”), they can also be potentially be used to provide misleading financial
information (“opportunistic reasons”). Thus, investors and analysts are generally interested in
detecting companies that use Special-Purpose-Entities (SPE) to reduce financial accounting
transparency.

Required

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a) Outline three characteristics of companies that are likely to use Special-Purpose-Entities
(SPE) to provide misleading financial information.

b) Obtain the annual report of a listed company (in any country) that did not consolidate its
SPE. If the company was to consolidate the SPE, quantify the impact on net income after tax,
cash flow, assets, liabilities and equity in the consolidated financial statements. Bring the soft
copy of the annual report to class to facilitate discussion.

[Note: Your response to this question should not exceed two pages. Feel free to enrich your
presentation by reading/ expanding beyond the prescribed readings. Avoid generic statements
and be specific with your response.]

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Seminar 12
Student presentation 5 – Complex group structures.
Submit by Sunday 25-2-2018 (9am). Follow the “instructions on the submission on
weekly presentation”.
The presenting team will have (i) to submit their presentation report (in a MS-word file) by
email to their seminar instructor and (ii) to post their presentation report on or before the
Sunday 25-2-2018 (9am).

Question 1
P7.3 Simultaneous consolidation – TLK page 597.

Question 2
P7.4 Indirect associate – TLK page 598.

Question 3
P7.6 Comprehensive problem set – TLK page 598.

Question 4
P7.7 Comprehensive problem set – TLK page 601.

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Seminar 13
Other consolidation issues and disclosures
This seminar will be done via e-learning.
Thus, there is no physical class on Thursday 1-3-2018 and Friday 2-3-2018.

Learning objectives
1. Prepare consolidated cash flow statement.
2. Understand the disclosures of interest in other entities such as subsidiaries, associates, joint
operations, unconsolidated structured entities.
3. Understand the nature of related parties disclosures.

References
TLK chapter 7
FRS 110
FRS 112
FRS 24
Review recorded lecture and seminar notes on “Other consolidation issues and
disclosures”.

Self-study material
Illustration 7.9 – consolidated statement of cash flow – TLK page 489.
Appendix 7A – Disclosure of interests in other entities – TLK page 497.
Related party disclosures - TLK page 9-10.

Attempt On-line Quiz #3 (details to be announced)

Note: - Recess week from 5-3-2018 to 9-3-2018.

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Seminar 14
Student presentation 6 – Accounting for changes in ownership interests
Submit by Sunday 11-3-2018 (9am). Follow the “instructions on the submission on
weekly presentation”.
The presenting team will have (i) to submit their presentation report (in a MS-word file) by
email to their seminar instructor and (ii) to post their presentation report on or before the
Sunday 11-3-2018 (9am).

Question 1
P7.10 Business combination achieved in stages – TLK page 606.

Question 2
P7.11 increase ownership from 65% to 75% – TLK page 607.

Question 3
P7.14 decrease ownership from 80% to 50% – TLK page 609.

Question 4
P7.15 Multilevel consolidation and change in ownership interests.
Consolidation and equity accounting entries - TLK page 609 to 611.

Question 5
P7.16 Multilevel consolidation and change in ownership interests.
Analytical checks and end results approach - TLK page 609 to 611.

Note – The Mid-term test is scheduled on Wednesday 14-3-2018

(6.30 pm to 8.30 pm). Details to be announced.

Seminar 15
Review of mid-term test.

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