ACCA FR Section A Mind Map 2.
Recognition & measurement
IASB published a new set of Conceptual Framework in March 2018.
1. Conceptual Framework
Items which meet the definition of assets or liabilities may still not be recognised in financial
Conceptual framework states that: 'The objective of general purpose financial reporting is to statements because they must also meet certain recognition criteria.
provide information about the reporting entity that is useful to existing and potential investors,
lenders and other creditors in making decisions about providing resources to the entity.‘ Going concern is the underlying assumption in preparing financial statements.
Going concern is the underlying assumption in preparing financial statements. A number of different measurement bases are used in financial statements. They include:
The Conceptual Framework states that qualitative characteristics are the attributes that make – Historical cost
financial information useful to users.
– Current cost
Transactions and other events are grouped together in broad
classes and in this way their financial effects are shown in the – Realisable (settlement) value
financial statements. These broad classes are the elements of The conceptual and
financial statements. – Present value of future cash flows
regulatory framework for
3. Regulatory Framework
Financial Reporting 4. The concepts and principles of groups
The regulatory framework is the most important element in
Discuss and apply a conceptual and and consolidated financial statements
ensuring relevant and faithfully presented financial information regulatory frameworks for financial
Many large businesses consist of several companies controlled
and thus meeting the needs of shareholders and other users. reporting
by one central or administrative company. Together these
Without a single body overall responsible for producing financial companies are called a group. The controlling company, called
reporting standards (the IASB) and a framework of general the parent or holding company, will own some or all of the
principles within which they can be produced (the Conceptual shares in the other companies, called subsidiaries.
Framework), there would be no means of enforcing compliance IFRS 10 requires a parent to present consolidated financial statements.
with GAAP. Also, GAAP would be unable to evolve in any
structured way in response to changes in economic conditions. It is important to distinguish between the parent company individual accounts and the
group accounts.
A principles-based system works within a set of laid down principles. A rules-based system
regulates for issues as they arise. Both of these have advantages and disadvantages
Consolidated financial statements. The financial statements of a group in which the assets,
liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are
IFRSs are developed through a formal system of due process and broad international
presented as those of a single economic entity.
consultation involving accountants, financial analysis and other users and regulatory bodies
from around the world.
Non-controlling interest. The equity in a subsidiary not attributable, directly or indirectly, to
a parent.
ACCA FR Section B Mind Map Accounting for Transactions in Financial Statements
Account for transactions in accordance with International accounting standards.
1. Revenue
IFRS 15, Revenue from Contracts with Customers 5. Tangible non- 6. Intangible 7. Impairment of 8. Inventory &
replaced IAS 18 on revenue recognition. current assets Material assets biological assets
The core principle of IFRS 15 is that an entity shall variances Impairment is determined by IAS 2 lays out the required
recognise revenue from the transfer of promised good or IAS 16 covers all aspects of comparing the carrying
Intangible assets are defined accounting treatment for
services to customers at an amount that reflects the accounting for property, amount of the asset with its
by IAS 38 as non-monetary inventories. The use of LIFO
consideration to which the entity expects to be entitled in plant and equipment. This recoverable amount.
assets without physical is prohibited under IAS 2.
exchange for those goods and services. represents the bulk of items This is the higher of its fair
which are 'tangible' non- substance. value less costs of disposal
2. Taxation IAS 41 applies the
current assets. and its value in use. requirements of IFRS to the
Current tax is the amount payable to the tax authorities Intangible assets should When it is not possible to treatment of biological
in relation to the trading activities during the initially be measured at cost,
Where assets held by an calculate the recoverable assets, it demonstrates
period. It is generally straightforward. but subsequently they can
entity have a limited useful amount of a single asset, fundamental differences in
Deferred tax is an accounting measure, used to match be carried at cost or at a
life it is necessary to then that of its cash its nature and characteristics
the tax effects of transactions with their accounting revalued amount.
apportion the value of an generating unit should be to other business activities.
impact. It is quite complex.
asset over its useful life. measured instead.
3. Foreign currency transactions 9. Financial 10. Leasing 11. Provisions & 12. Government
IAS 21 sets out the accounting treatment for foreign instruments IFRS 16 defines a lease as events after the grans
currency transactions. A financial instrument gives “A contract, or part of a
rise to a financial asset of
reporting period IAS 20 requires grants to be
contract, that conveys the recognised as income over
There are two distinct types of foreign currency one entity and a financial According to IAS 37, 3
right to use an asset for a the relevant periods to
transaction, conversion and translation. liability or equity instrument criteria are required to be
period of time in exchange match them with related
of another. met before a provision can
for consideration”. costs which they have been
be recognised. These are:
1. There needs to be a received to compensate.
IAS 32 is to help users The user of the asset needs
understand how financial present obligation from
to have the right to: This should be done on a
4. Reporting financial performance instruments may have past event
• Obtain substantially all of systematic basis. Grants
affected the entity's financial 2. There needs to be a
IAS 8 deals with changes in accounting estimates, the economic benefits should not, therefore, be
position, financial reliable estimate
changes in accounting policies and errors. from the use of the asset. credited directly to equity.
performance and cash flows. 3. There needs to be a
• The right to direct the use
probable outflow
IFRS 5 requires assets 'held for sale' to be presented of the asset.
IFRS 7 replaces the
separately in the statement of financial position. It IAS 10 sets out criteria for
disclosure requirements
sets out the criteria for recognising a discontinued recognising events occurring
which were previously in IAS
operation. after the reporting date.
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ACCA FR Section C Mind Map
Analysing and interpreting the financial statements of single entities and groups
Analyse and interpret financial statements.
Limitations of financial statements Limitations of interpretation techniques
Financial statements are affected by the obvious shortcomings of historical cost information The choice of accounting policy and the effect of its implementation are almost as
and are also subject to manipulation. Examples are: important as its disclosure in that the results of a company can be altered significantly by
1. Problems of historical cost information; the choice of accounting policy:
2. Creative accounting; 1. The effect of choice of accounting policies
3. Intragroup transactions; 2. Changes in accounting policy
4. Seasonal trading; 3. Limitations of ratio analysis –
5. Asset acquisitions; i. Ratios based on historical cost accounts;
6. Acquisitions and disposals. ii. Ratios are influenced by the choice of accounting policy;
iii. Comparison against industry averages may not be the revealing.
Specialised, not-for-profit and public sector entities Calculation and interpretation of accounting ratios and trends to address users’ and
stakeholders’ needs
The accounting requirements for not-for-profit and public sector entities are moving closer to Performance appraisal requires good interpretation and a good understanding of what the
those required for profit-making entities. However, they do have different goals and information means in the context of the question.
purposes.
You will often be required to make use of ratios to aid interpretation of the financial
There is a general move to get public bodies reporting under the accruals system. Many statements for the current year and to compare them to the results of a prior period,
private not-for-profit organisations still use cash accounting. another entity, or against industry averages.
Not-for-profit and public sector entities are required to manage their funds efficiently but are Profitability:
not expected to show a profit. Their performance is measured in terms of achievement of 1. Return on Capital Employed (ROCE); 2. Asset Turnover; 3. Profit Margins
their stated purpose.
Liquidity:
1. Current Ratio; 2. Quick Ratio; 3. Receivable Collection Period; 4. Payable Collection
Period; 5. Inventory Days; 6. Gearing
ACCA FR Section D Mind Map
Preparation of financial statements
Prepare and present financial statements for single entities and business combinations in accordance with International accounting standards.
Preparation of single entity financial statements Preparation of consolidated financial statements including an associate
IAS 1 covers the form and content of financial statements. The main components are:
– Statement of financial position Consolidated statement of financial position
– Statement of profit or loss and other comprehensive income • IFRS 10 lays out the basic procedures for preparing consolidated financial statements
– Statement of changes in equity • In consolidated statement of financial position it needs to distinguish non-controlling
– Statement of cash flows interests from those net assets attributable to group & financed by shareholders' equity.
– Notes to the financial statements • Goodwill is the excess of the amount transferred plus the amount of non-controlling
interests over the fair value of the net assets of the subsidiary.
IAS 1 suggests a format for the statement of financial position. Certain items are specified • Intra-group trading gives rise to unrealised profit which is eliminated on consolidation.
for disclosure on the face of the financial statements. • When a parent company acquires a subsidiary during its accounting period the only
accounting entries made at the time will be those recording the cost of the acquisition
In June 2011 the IASB published an amendment to IAS 1 called 'Presentation of items of in the parent company's books. At the end of the accounting period the consolidation
other comprehensive income'. This changed the name of the 'statement of comprehensive adjustments will be made.
income' to 'statement of profit or loss and other comprehensive income'.
Consolidated statement of profit or loss
IAS 1 offers two possible formats for the statement of profit or loss or separate profit or loss • Only post-acquisition profits of ubsidiary are brought into onsolidated profit or loss.
section – by function or by nature. Classification by function is more common. • Intra-group sale & purchase are eliminated from consolidated statement of profit or loss.
• In the consolidated statement of profit or loss, non-controlling interest is brought in as a
IAS 1 requires a statement of changes in equity. This shows the movement in the equity one-line adjustment at the end of the statement.
section of the statement of financial position. A full set of financial statements includes a • The consolidated statement of profit or loss will include the results of the subsidiary
statement of changes in equity. disposed of up to the date of disposal.
IAS 1 suggests a certain order for notes to the financial statements. This will assist users Accounting for Associates (This is covered by IAS 28 Investments in associates)
when comparing the statements of different entities. • The investing company does not have control, but it does have significant influence.
(a) Statement of compliance with IFRSs • In consolidated statement of profit or loss the investing group takes credit for its share of
(b) Statement of the measurement basis (bases) and accounting policies applied the after-tax profits of associates, whether or not they are distributed as dividends.
(c) Supporting information for items presented in each financial statement in the same • In the consolidated statement of financial position the investment in associates should be
order as each line item and each financial statement is presented shown as: 1) Cost of the investment in the associate; plus 2) Group share of post-
(d) Other disclosures, eg: (i) Contingent liabilities, commitments and other financial acquisition profits; less 3) Any amounts paid out as dividends; less 4) Any amount written
disclosures; (ii) Non-financial disclosures off the investment
