ACCA P2 Corporate Reporting (CR) Syllabus Information
The P2 Corporate Reporting ACCA course addresses in much greater depth many of the areas covered in the fundamental level of the ACCA syllabus and assumes that candidates possess the necessary skills to prepare and analyse financial reports for single and combined entities.
It also covers the financial reporting framework which should inform the accountant’s analyses and reports, and also looks at the wider professional duties and responsibilities of the accountant to the stakeholders of an organisation in an advisory and analytical capacity.
The ACCA P2 sub module consists of eight topic areas as follows:
A. The professional and ethical duty of the accountant
1) Professional behaviour and compliance with accounting standards
2) Ethical requirements of corporate reporting and the consequences of unethical behaviour
3) Social responsibility
B. The legal and financial reporting framework
1) The applications, strengths and weaknesses of an accounting framework
2) Critical evaluation of principles and practices
3) The legal requirements relating to the preparation of single entity financial reporting statements
C. Reporting the financial performance of entities including key differences between IFRS and UK GAAP
1) Performance reporting
2) Non-current assets
3) Financial instruments
5) Segment reporting
6) Employee benefits
8) Provisions, contingencies and events after the reporting date
9) Related parties
10) Share-based payment
11) Reporting requirements of small and medium sized entities (SMEs)
D. Financial statements of groups of entities including key differences between IFRS and UK GAAP
1) Group accounting including cash flow statements
2) Continuing and discontinued interests
3) Changes in group structures
4) Foreign transactions and entities
E. Specialised entities and specialised transactions
1) Financial reporting in specialised, not-for-profit and public sector entities
2) Entity schemes of arrangement and reconstructions
F. Implications of changes in accounting regulation on financial reporting
1) The effect of changes in accounting standards on accounting systems
2) Proposed changes to accounting standards
G. The appraisal of financial performance and position of entities
1) The creation of suitable accounting policies
2) Analysis and interpretation of financial information and measurement of performance
H. Current developments
1) Environmental and social reporting
2) Convergence between national and international reporting standards
3) Current reporting issues
ACCA P2 Paper, Past Questions
It is argued that there is limited revenue recognition guidance available from IFRS with many companies following the current provisions of US GAAP. The revenue recognition standard, IAS 18 Revenue, has been criticised because an entity applying the standards might recognise amounts in the financial statements that do not faithfully represent the nature of the transactions. It has been further argued that current standards are inconsistent with principles used in other accounting standards, and further that the notion of the risks and rewards of ownership has also been subjectively applied in sale transactions.
I. Discuss the main weaknesses in the current standard on revenue recognition; (11 marks)
II. Discuss the reasons why it might be relevant to take into account credit risk and the time value of money in assessing revenue recognition.
Professional marks will be awarded in part (a) for clarity and expression of your discussion.
I. Venue enters into a contract with a customer to provide computers at a value of $1 million. The terms are that payment is due one month after the sale of the goods. On the basis of experience with other contractors with similar characteristics, Venue considers that there is a 5% risk that the customer will not pay the amount due after the goods have been delivered and the property transferred. Venue subsequently felt that the financial condition of the customer has deteriorated and that the trade receivable is further impaired by $100,000.
II. Venue has also sold a computer hardware system to a customer and, because of the current difficulties in the market, Venue has agreed to defer receipt of the selling price of $2 million until two years after the hardware has been transferred to the customer. Venue has also been offering discounts to customers if products were sold with terms whereby payment was due now but the transfer of the product was made in one year. A sale had been made under these terms and payment of $3 million had been received. A discount rate of 4% should be used in any calculations.
Discuss how both of the above transactions would be treated in subsequent financial statements under IAS 18 and also whether there would be difference in treatment if the collectability of the debt and the time value of money were taken into account.
Scramble, a public limited company, is a developer of online computer games.
a) At 30 November 2011, 65% of Scramble’s total assets were mainly represented by internally developed intangible assets comprising the capitalised costs of the development and production of online computer games. These games generate all of Scramble’s revenue. The costs incurred in relation to maintaining the games at the same standard of performance are expensed to the statement of comprehensive income. The accounting policy note states that intangible assets are valued at historical cost. Scramble considers the games to have an indefinite useful life, which is reconsidered annually when the intangible assets are tested for impairment. Scramble determines value in use using the estimated future cash flows which include maintenance expenses, capital expenses incurred in developing different versions of the games and the expected increase in turnover resulting from the above mentioned cash outflows. Scramble does not conduct an analysis or investigation of differences between expected and actual cash flows. Tax effects were also taken into account.
b) Scramble has two cash generating units (CGU) which hold 90% of the internally developed intangible assets. Scramble reported a consolidated net loss for the period and an impairment charge in respect of the two CGUs representing 63% of the consolidated profit before tax and 29% of the total costs in the period. The recoverable amount of the CGUs is defined, in this case, as value in use. Specific discount rates are not directly available from the market, and Scramble estimates the discount rates, using its weighted average cost of capital. In calculating the cost of debt as an input to the determination of the discount rate, Scramble used the risk-free rate adjusted by the company specific average credit spread of its outstanding debt, which had been raised two years previously. As Scramble did not have any need for additional financing and did not need to repay any of the existing loans before 2014, Scramble did not see any reason for using a different discount rate. Scramble did not disclose either the events and circumstances that led to the recognition of the impairment loss or the amount of the loss recognised in respect of each cash-generating unit. Scramble felt that the events and circumstances that led to the recognition of a loss in respect of the first CGU were common knowledge in the market and the events and the circumstances that led to the recognition loss of the second CGU were not needed to be disclosed.
c) Scramble wished to diversify its operations and purchased a professional football club, Rashing. In Rashing’s financial statements for the year ended 30 November 2011, it was proposed to include significant intangible assets which related to acquired players’ registration rights comprising registration and agents’ fees. The agents’ fees were paid by the club to players’ agents either when a player is transferred to the club or when the contract of a player is extended. Scramble believes that the registration rights of the players are intangible assets but that the agents fees do not meet the criteria to be recognised as intangible assets as they are not directly attributable to the costs of players’ contracts. Additionally, Rashing has purchased the rights to 25% of the revenue from ticket sales generated by another football club, Santash, in a different league. Rashing does not sell these tickets nor has any discretion over the pricing of the tickets. Rashing wishes to show these rights as intangible assets in its financial statements. (9 marks)
Discuss the validity of the accounting treatments proposed by Scramble in its financial statements for the year ended 30 November 2011.
The mark allocation is shown against each of the three accounting treatments above.
Professional marks will be awarded for clarity and expression of your discussion.
The is two sections in the Corporate Reporting exam paper with ONE compulsory question in section A and only TWO out of THREE questions requiring completion in section B. Exams are three hour long paper-based assessments with an additional 15 minute period before the exam for reading and planning. The pass mark is 50%.