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Accasbrsample Notes - Summary ACCA accounting
ACCA accounting (SBR P3)
Sunway University
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ACCA SBR
COMPLETE SUBJECT NOTES
BY VERTEX LEARNING SOLUTIONS
VALID UNTIL DEC 2024
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- 15 IFRS 11 and IFRS
- 16 IAS 21 Foreign Exchange
- 17 Group Statement of Cash Flows
- 18 Interpreting Financial Statement
- 19 Reporting Requirements for SMEs
- 20 Current Issues
4 Chapter 1 Conceptual Framework IAS 1 Presentation of Financial Statements In order to achieve fair presentation, an entity must comply with:
- International Financial Reporting Standards (IFRSs, IASs and IFRIC Interpretations)
- The Conceptual Framework for Financial Reporting The Conceptual Framework for Financial Reporting Definition: A conceptual framework for financial reporting is a statement of generally accepted theoretical principles. These principles provide basis for:
- The development of accounting standards (IFRS)
- Assist preparers of accounting in areas where IFRS standards are not available.
- Understanding and interpretation of accounting standards. Revised Conceptual Framework The Conceptual Framework for Financial Reporting was revised and reissued in
- The revision follows criticism that the previous Conceptual Framework was incomplete, and out of date and unclear in some areas. The revised Conceptual Framework now includes:
- New definitions of elements in the financial statements
- Guidance on derecognition
- Considerable guidance on measurement
6 Accrual’s Concept: Effect of transactions should be recorded when they are occurred and not when there is cash inflow/outflow. However, going concern and accrual concept is linked. Because we are sure that our business will continue till foreseeable future, we can record the cost of production of goods that are yet to be sold. Chapter-2: Qualitative Characteristics of Financial Information: A financial statement is meaningful if it is true and fair. To achieve this there are some characteristics that should be considered while producing the financial statements Fundamental Qualitative Characteristics:
- Relevance: Relevant information possesses either predictive or confirmatory value or both. Predictive values are capable of predicting and influencing future decisions. Confirmatory values are used to check, confirm or correct prior predictions.
- Faithful Representations: Information must be complete, neutral and free from errors. Thus the information must include all the necessary details and explanations needed to understand the financial statement. To be neutral, the information must be without biasness. It should not be manipulated in order to influence the decisions. Free from errors mean that there are no omissions or misstatements even in the estimates that are a matter of judgment.
7 Substance over form is also an aspect of faithful representation. Enhancing Qualitative Characteristics:
- Comparability: The financial statements should be measured in a way that they can be compared over the past years or with the other similar businesses. This can be achieved through consistency and disclosure.
- Verifiability: Information that can be verified independently is more trusted. Verifiability means that different people with the same information are most likely to reach the same conclusion.
- Timeliness: Information may be less useful if it is not provided at an appropriate time. However, there should be a balance between timeliness and reliability.
- Understandability: The financial statement should be presented in such a way that is understandable to people with reasonable knowledge of finance and economics.
9 Income: It is an increase in assets or decrease in liabilities other than those relating to contributions from equity participants. Expense: It is a decrease in assets or increase in liabilities other than those relating to contributions from equity participants. Chapter 5: Recognition and Derecognition Recognition Of Elements: The element is recognized if it meets the definition of one of the elements from CLEAR (Capital, Liability, Expenses, Assets, Revenue) and if it adheres to the qualitative characteristics of useful information. The revised Conceptual Framework recognition criteria removes the probability and reliability criteria and replaces it with recognition of an element if that recognition provides users with relevant information that is a faithful representation of that element. De Recognition of Elements: It is normally when an item no longer meets the definition of an element. For an asset, it is when the control is lost whereas for liabilities, it is when there is no longer an obligation present.
10 Chapter 6: Measurement There are usually two measurement bases: Historical cost: It is the cost that was incurred when the asset was acquired or created and for liability, it is the value of consideration received when the liability was incurred. It is a traditional form of accounting. Current Value
- Fair Value
- Value in use ( for assets)
- Current cost Fair Value: It is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
- IFRS 13 Value In Use: It is the present value of the cash flows or other economic benefits that an entity expects to derive from the use of an assets and from its ultimate disposal. (Future value) Current Cost: Current Cost of An Asset: It is the cost of equivalent asset at the measurement date, comprising the consideration that would be paid at the measurement ate plus the transaction costs that would be incurred at that date.
12 Understanding the Conceptual Framework is vital as the principles within it underpin the whole of IFRS. The Conceptual Framework is useful to preparers of financial statements, especially when considering how to account for emerging issues.
13 Chapter 2 Ethics What are ethics? Ethics are a code of moral principles that people follow with respect to what is right or wrong. Ethical principles are not necessarily enforced by law, although the law incorporates moral judgements. Ethical Principles in Corporate Reporting
- Integrity: To be straightforward and honest in all professional and business relationships
- Objectivity: Not to allow bias, conflict of interest or undue influence of others to override professional or business judgements
- Professional competence and due care: To maintain professional knowledge and skill at the level required and act diligently and in accordance with applicable technical and professional standard.
- Confidentiality: To respect the confidentiality of information acquired as a result of professional and business relationships and not disclose any such information to third unless there is a legal or professional right or duty to disclose.
- Professional behavior: To comply with relevant laws and regulations and avoid any action that discredits the profession
15 ➢ IAS 1 states that departures from international standards are only allowed:
- In extremely rare cases; or
- Where compliance with IFRS would be so misleading as to conflict with the objectives of financial statements ‘Compliance’ is necessary, but not sufficient for fair presentation. ‘Fairness’ is an ethical concept to see the full picture of an entity’s position and performance. Framework For Decisions
- What are the relevant facts?
- What are the ethical issues involved?
- Which fundamental principles are threatened?
- Do internal procedures exist that mitigate the threats?
- What are the alternative courses of action?
- Finally, can you look yourself in the mirror after making the decision and applying any necessary safeguards? Related Parties (IAS 24) Transactions reflected in financial statements have been carried out on an arm’s length basis, unless disclosed otherwise. Arm’s length means on the same terms as could have been negotiated with an external party, in which each side bargained knowledgeably and freely, unaffected by any relationship between them. Related parties : A person or entity that is related to the entity that is preparing its financial statements (the ‘reporting entity’) a) A person (or close family member) if that person: (i) Has control or joint control (over the reporting entity).
16 (ii) Has significant influence; or (iii) Are key management personnel of the entity or of its direct or indirect parents b) An entity if: (i) A member of the same group (each parent, subsidiary and fellow subsidiary is related) (ii) One entity is an associate*/joint venture* of the other (iii) Both entities are joint ventures* of the same third party (iv) One entity is a joint venture* of a third entity and the other entity is an associate of the third entity. (v) It is a post-employment benefit plan for employees of the reporting entity/related entity (vi) It is controlled or jointly controlled by any person identified above (vii) A person with control/joint control has significant influence over or is key management personnel of the entity (or of a parent of the entity) (viii) It (or another member of its group) provides key management personnel services to the reporting entity (or to its parent)
- Including subs of the associate/joint venture In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. Not Related Parties The following are not related parties (a) Two entities simply because they have a director or other member of key management personnel in common, or because a member of key management personnel of one entity has significant influence over the other entity. (b) Two ventures simply because they share joint control over a joint venture. (c) (i) Providers of finance.
18 Items of a similar nature may be disclosed in aggregate except where separate disclosure is necessary for understanding purposes. Government-Related Entities If the reporting entity is a government-related entity (i., a government has control, joint control or significant influence over the entity), an exemption is available from full disclosure of transactions, outstanding balances and commitments with the government or with other entities related to the same government. However, if the exemption is applied, disclosure is required of: (a) The name of the government and nature of the relationship (b) The nature and amount of each individually significant transaction IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Accounting Policies Specific principles, bases, conventions applied by an entity in preparing/presenting financial statements
- To choose: (1) Apply relevant IFRS (choice within IFRS is a matter of accounting policy) (2) Consult IFRS dealing with similar issues (3) Conceptual Framework (4) Other national GAAP A change in accounting policy is only permitted if the change :
- Is required by an IFRS; or
- Results in financial statements providing reliable and more relevant information
19 Change In Policy: Apply retrospectively unless transitional provision of IFRS specifies otherwise
- Adjust the opening balance of each affected component of equity
- Restate comparatives Accounting Estimates Many items in financial statements cannot be measured with precision but can only be estimated. Examples:
- Warranty obligations
- Useful lives of depreciable assets
- Fair values of financial assets. A change in an accounting estimate may be necessary if new information arises or if circumstances change. Change should be applied prospectively which means that it should be adjusted in the period of the change. No prior period adjustment is required. Prior Period Errors Omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that: (a) Was available when the financial statements for those periods were authorized for issue (b) Could reasonably be expected to have been obtained and considered in the preparation and presentation of those financial statements. They may arise from: (a) Mathematical mistakes (b) Mistakes in applying accounting policies (c) Oversights (d) Misinterpretation of facts
Accasbrsample Notes - Summary ACCA accounting
Course: ACCA accounting (SBR P3)
University: Sunway University
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