Strategic Business Reporting Revision · result or past events. An economic resource is a right...

StrategicBusiness ReportingRevision

30th June 2020

Tom Wang

SBR China Tutor Guru

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Classified as Business

Webinar agenda

1. Key principles on answering SBR questions;

2. Walk-through with SBR frequently examinable areas;

3. Challenging and key topics

- Conceptual framework (2018)

- Financial instruments

- Better communications

- Ethics

4. How to read questions in SBR exam

5. A final note

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Key principles on answering SBR questions

1. Mark is given for any valid, relevant and specific point;

2. Generally 1 mark per relevant point;

3. Application is everything in SBR, Technical knowledge in context of the given scenario not theory;

4. Time management 1 mark allocates 1.8 minutes;

5. Own figure rule, no negative marking and no marks lost for poor spelling or grammar;

6. Please read the requirement carefully and do not omit anything;

7. Understand the business model for each case.

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Walk-through with SBR examinable areas

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https://cn.accaglobal.com/promotion/vhall.html?webinar_id=717336190

General purpose financial reports are not designed to show the value of a reporting entity; but they

provide information to help existing and potential investors, lenders and other creditors to estimate the

value of the reporting entity.

1. The fundamental qualitative characteristics are relevance and faithful representation. (Key topic)

2. Comparability, verifiability, timeliness and understandability are qualitative characteristics that

enhance the usefulness of information that is relevant and faithfully represented.

3. Cost is a pervasive constraint on the information that can be provided by financial reporting. Reporting

financial information imposes costs, and it is important that those costs are justified by the benefits of

reporting that information.

Conceptual framework (2018)


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Reflect Element Definition or description

Resources An asset

An asset is a present economic resource controlled by the entity as a

result or past events.

An economic resource is a right that has the potential to produce

economic benefits.

Claims

A liabilityA liability is a present obligation of the entity to transfer an economic

resource as a result of past events.

EquityEquity is the residual interest in the assets of the entity after deducting

all its liabilities.

Financial

Performance

(changes in

resources and

claim)

Income

Income is increases in assets or decreases in liabilities that result in

increases in equity.

Other than those relating to contributions from holders of equity claims.

Expenses

Expenses are decreases in assets or increases in liabilities that result in

decreases in equity, other than those relating to distributions to holders of

equity claims.

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An entity recognizes an asset or a liability (and any related income, expenses or changes in equity) if such

recognition provides users of financial statements with:

(a) relevant information about the asset or the liability and about any income, expenses or changes in

equity;

(b) a faithful representation of the asset or the liability and of any income, expenses or changes in equity;

and

(c) information that results in benefits exceeding the cost of providing that information.


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Measurement is the process of quantifying, in monetary terms, information about an entity’s assets,

liabilities, equity, income and expenses.

Measurement bases can be categorized as historical cost or current value.

Current value measurement bases (Key topic) include: fair value , value in use for assets and fulfilment

value for liabilities and current cost.

Net realizable value are only used in IAS 2 inventory, which is not described in Conceptual Framework

(2018).


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Forward-looking information about likely or possible future transactions and events is included in the

financial statements only if it provides relevant information about an entity’s assets, liabilities and equity

that existed at the end of, or during, the period (even if they are unrecognized) or income and expenses for

the period. Other types of forward-looking information (Key topic) are sometimes provided outside the

financial statements, for example, in:

• Management commentary;

• Integrated reporting;

• Sustainability report; https://cn.accaglobal.com/promotion/vhall.html?webinar_id=709473001



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The challenges of financial instruments questions in SBR comes from:

• Financial products characteristics especially complex product e.g. embedded derivatives, SWAP; and

• Financial instruments valuation and accounting for implications.

Financial instruments


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Financial asset – Equity instrument

• FVTPL: All financial asset – equity instrument should use FVTPL except those under FVTOCI.

• FVTOCI: Financial asset – equity instrument not held for trading and make an selection to use (i.e.

other comprehensive income option);

Financial asset – Debt instrument (Key topic)

• Amortized cost

• FVTOCI

• FVTPL

Financial liability – Debt instrument

• FVTPL: Financial liabilities held for trading or make a selection (fair value option);

• Amortized Cost: All financial liability – debt instrument should use amortized cost except those under

FVTPL.


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Classification as liability or equity (Key topic)

The fundamental principle of IAS 32 is that a financial instrument should be classified as either a financial

liability (i.e. contractual obligation to deliver cash or another financial assets to another entity) or an equity

instrument (i.e. no contractual obligation to deliver cash or another financial assets to another entity)

according to the substance of the contract, not its legal form, and the definitions of financial liability and

equity instrument.

The entity must make the decision at the time the instrument is initially recognized. The classification is

not subsequently changed based on changed circumstances.

Compound Financial Instruments

• Section A Issue of convertible bond

• Specimen Exam 2 applicable from September 2018


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Additional performance measures (Key topic)

European Securities and Markets Authority (ESMA) has developed

draft guidelines that address the concept and description of APMs:

• Issuers should define the APM used, the basis of calculation

and give it a meaningful label and context.

• APMs should be reconciled to the financial statements.

• APMs that are presented outside financial statements should be

displayed with less prominence.

• An issuer should provide comparatives for APMs and the

definition and calculation of the APM should be consistent over

time.

• If an APM ceases to be used, the issuer should explain its

removal and the reasons for the newly defined APM.

Better communications


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Principles of management commentary:

• provide users of financial statements with integrated information that provides a context for the related

financial statements.

• complements and supplements the financial statements.

• looks not only at the present, but also at the past and the future.

• help users of financial reports to assess the performance of the entity and the actions of its management

relative to stated strategies and plans for progress.

• provide management’s perspective of the entity’s performance, position and progress.

Management Commentary


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Elements/contents of management commentary:

• The nature of the business;

• Management’s objectives and its strategies for meeting those objectives;

• The entity’s most significant resources, risks and relationships;

• The results of operations and prospects; and

• The critical performance measures and indicators that management uses to evaluate the entity’s

performance against stated objectives.

Management Commentary

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Principles of integrated reporting:

• Strategic focus and future orientation

• Connectivity of information and conciseness

• Stakeholder relationships

• Materiality

• Reliability and completeness

• Consistency and comparability

Integrated Reporting


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Elements/contents of integrated reporting:

• Organizational overview and external environment

• Governance

• Business model (key element)

• Risks and opportunities

• Strategy and resource allocation

• Performance

• Outlook

• Basis of presentation

Integrated Reporting

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Threats to ethical behavior :

• Self-interest threat: a financial or other interest will inappropriately influence a professional accountant’s

judgement or behavior.

• Familiarity threat: owing to an established or close relationship with a client or employer, a professional

accountant will be too sympathetic to that party’s interests or too accepting of their work.

• Intimidation threat: a professional accountant will be deterred from acting objectively because of actual

or perceived pressures, including attempts to exercise undue influence over the professional accountant.

• Self-review: a professional accountant will not evaluate appropriately the results of a previous judgement,

made earlier in the course of providing a current service.

• Advocacy: a professional accountant will promote a client’s or employer’s position to the point that the

professional accountant’s objectivity is compromised.

Ethics – General


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The Fundamental Principles set out the obligations placed on all members, whether or not they are in practice.

The five principles are set out below:

• Integrity – Members shall be ‘straightforward and honest in all professional and business relationships.’

• Objectivity – Members shall not allow bias, conflicts of interest or the undue influence of others to

compromise their professional or business judgement.

• Professional competence and due care – Members have a continuing duty ‘to maintain professional

knowledge and skill at a level required to ensure that clients or employers receive competent professional

service’. Members shall ‘act diligently in accordance with applicable technical and professional standards

when providing professional services’.

• Confidentiality – Members shall respect the confidentiality of information ‘acquired as a result of

professional and business relationships’, and shall not disclose any such information to third parties

‘without proper and specific authority or unless there is a legal or professional right or duty to disclose’.

• Professional behavior – Members shall comply with relevant laws and regulations and shall avoid any

action that may discredit the profession.

Ethics – General

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The following ethical issues may arise for the accountant:

• Artificial intelligence, like human intelligence, may be used maliciously.

• Data theft is the most immediate and common impact of a breach in cybersecurity.

• IT security is a technology issue but the accountant is a custodian of sensitive data and needs to be aware

of the risks.

• Regulation on data collection and analytics is increasing and organizations need to ensure the

involvement of all relevant stakeholders.

• There are risks of bias in the system in unexpected and potentially detrimental ways.

• AI will be a threat to certain categories of employment.

• There is the question of technical safety and failure.

Ethics – Digital time

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Section A (30 marks)

Draft an explanatory note to the directors of Hummings Co, addressing the following:

(a) how the functional currency of Crotchet Co should be determined; (5 marks)

(b) (i) how Crotchet Co’s customer contracts should be accounted for in the consolidated financial statementsof Hummings Co, which are presented in dollars ($), for the year ended 31 December 20X4; (4 marks)

(b) (ii) a calculation of the goodwill on acquisition of Crotchet Co (in grommits) and how it would beaccounted for in the consolidated statement of financial position of Hummings Co at 31 December 20X4 aftertranslation. Include a brief explanation and calculation of how the impairment and exchange difference ongoodwill will impact on the consolidated financial statements; (6 marks)

(c) how Quaver Co should be accounted for in the consolidated financial statements at 31 December 20X4;and (4 marks)

(d) a calculation and discussion of how the bonds should be accounted for in the financial statements ofHummings Co as at 31 December 20X3 and for the year ended 31 December 20X4, including anyimpairment losses. (11 marks)

How to read questions in SBR exam

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Section A (20 marks)

Required:

(a) (i) Discuss the appropriate accounting treatment of the restructuring costs in the financial statements of

Bagshot Co for the year ended 31 December 20X5. (6 marks)

(a) (ii) Discuss what is meant by good stewardship of a company and whether the restructure and the

recognition of a restructuring provision in the financial statements are examples of good stewardship. (4

marks)

(a) (iii) Discuss briefly whether Mrs Shaw’s acquisition of the equity shares in Bagshot Co should be

disclosed as a related party transaction. (3 marks)

(b) Identify and discuss the ethical issues arising from the scenario which Mr Shaw needs to consider and

what actions he should take as a consequence. (5 marks)

Professional marks will be awarded in part (b) for the clarity of discussion. (2 marks)


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Section B (8 marks)

Required:

Discuss why the disclosure of sustainable information has become an important and influential consideration

for investors.


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Volume and format of writing

• Driven by the number of marks available or allocated

• 1 good, well developed point = 1 mark

• Identify each distinct point

• Use headings

Style of writing

• Avoid long, complex, hard to read sentences

• Short, succinct points

• Avoid rambling and repetition

A final note

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Learning support

Step 1: Complete the APM Progress test (PT) under exam condition

Step 2: Refer to suggested answer and carefully read the PT feedback report

Step 3: Join the Debriefing live webinar for PT (NOW)

Step 4: Watch recorded videos to address the problems identified

Step 5: Join the final preparation live webinar 1 week prior to the exam

Please refer to https://cn.accaglobal.com/trainee/c61/free-online-course/sp-practice-videos.html for more details

https://cn.accaglobal.com/trainee/c61/free-online-course/sp-practice-videos.html

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