Exam Guidance for ACCA Strategic Business Reporting

150 Pages·2017·2.67 MB·English

Exam Guidance for
Thursday 6 September 2018
ACCA Strategic Business
Reporting

Abibu Dumbuya
SEKOYEN ACCOUNTING SOLUTIONS
September 2018 Exam Guidance

Standard/Area/guide Qn Core assessment requirements & priorities for the upcoming exam Anticipated question features and practice suggestions
Study guide . Read March 2018 Examiner’s report (annotated)
No
Examinable documents Read December 2017 Examiner’s report (annotated)
Read September 2017 Examiner’s report (annotated)
IASB Work plan
Read June 2017 Examiner’s report (annotated)
Prepare to pass
Examining team “…it is important to note that only a portion of the marks is allocated to
knowledge of the standard itself and the rest to application. It then becomes
NEW ADDITIONS obvious why candidates do not score well as many simply set out the requirements of Personal leadership
(items added since … email the IFRS without application to the scenario.” Examiner’s report, June 2013 Having a clear mission for the course can be energising because it can sharpen
are shaded with this colour your focus on the contribution you can make with the tools that the course
and listed here) “The Corporate Reporting examination requires a deep understanding and allows you to acquire. Awakened to your self-actualisation needs, and the
knowledge of the Conceptual Framework, IFRSs and Code of Ethics. Questions at means to fulfil them, you will think clearly about how to vigorously harness
professional level will challenge the candidate to show this knowledge and then to your potential to master the course. Personal leadership sets some benchmarks
apply it to a particular scenario, and this requires extensive preparation.” to consider.
Examiners report, September 2016

Reading effectively for the professional exams Critical thinking
Reading effectively is a prerequisite for learning effectively. Reading effectively is a Critical thinking is implicit in the syllabus aims because corporate reporting is a
skill that can be mastered by learning the principles and developing a routine for complex process where successful outcomes depend on making a series of
effective regular practice. The skill development guides, reading and practice plans active and integrated choices through structured critical thinking. These
aim to cover all the different types of reading challenges of the syllabus including the resources alert, spur and support you to develop the requisite capabilities.
language aspects which tend to be overlooked.

Your SBR compass Effective writing skills
Managing your learning can be a difficult task especially when you have access to so Effective writing is a core capability: you earn professional marks for the
much advice and resources on the internet? Your SBR compass assists in setting your “clarity and quality of presentation” of your answers.
direction, and navigating an increasingly congested resource landscape, towards
successful outcomes. The Exam guidance acts as your anchor to the syllabus – Here you can find an assortment of practice examples as stimulus. You are
preventing you from drifting away from its aims, rationale and approach. Whether encouraged to work at these methodically to improve this essential component
you are studying on your own, or following a course, the compass helps you monitor of your professional skillset
and evaluate your learning activities so that you can keep your exam preparation on
track. With such a reliable companion you can aspire to high performance in the
upcoming exams and beyond.
How to use SBR terms and techniques (SBRTT) Annotations
This document is being developed as a study and exam dictionary to support in-depth Annotations are provided to some of the questions and answers to help you
learning required at SBR cognitive level (Level 3 – synthesis and evaluation). focus on the salient features which you might otherwise miss. Use the SBR-
Reading the dictionary can help you think about the issues in an exam focused way. colour codes to annotations.
E.g. part of “Deem” relates to December 2015 q3aiii (irrecoverable gas is PPE as it
is an integral part of the plant); “Impairment” relates to March 2016 q4aii. You don’t Understanding the examiner’s craft
get these exam insights by simply googling the item. Understanding the examiner’s distinctive craft is an advantage in learning and
answering questions. Working through these examples diligently can be
rewarding.
The transition guide Real-time Exam technique
Success in studying SBR requires an effective transition from FR. The transition Question selection, exam time management and suggested final practice
guide can be useful. programme: please go to the section before the last on this document for
guidance on question selection on exam day!
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September 2018 Exam Guidance

A.1 Professional behaviour and 2 WHAT ARE ETHICS FOR? HOW YOU WILL BE ASSESSED
compliance with accounting
standards Ethics are standards of professional conduct that regulate the way accountants Refers to A.1 and A.2
discharge their duties to their clients and the public. Ethics impose red lines that must Scenario type Exam What is the examiner assessing?
not be crossed, and thus provide a basis for sanctions against misconduct. As a result,
Make the case for Dec 2013 Can you provide justification for ethics
public confidence is maintained in the work of the profession. Accountants’ unique ethics q1c from all perspectives? Stakeholders, the
selling point is their reputation: maintaining reputation with their client requires organisation, the accountant.
demonstrable ethical commitment – work must be seen to be done to the highest
ethical and professional standards. This engenders trust. Can ethical behaviour be contingent on
the context, culture and environment of the
organisation?
“The syllabus …examines professional competences within the corporate reporting

environment.” Approach to examining the syllabus, p7
Can ethical conduct be less important than

the profit motive?
As ethical conduct and professional behaviour are intertwined, this section combines

A.1 and A.2 June 2013 Are moral beliefs the same as ethics?
q1c Is compliance with GAAP the same as
What is trust? compliance with the ACCA Code of ethics
A judgement one makes on the trustworthiness of the object of our assessment, e.g. and conduct?
an institution such as the accounting profession. It is based on competence, reliability
and consistency. Principles-based or June 2015 Can you identify the advantages and
rules-based? disadvantages of each in terms of meeting

the requirements of the
What is the public interest?
Conceptual Framework; public interest
What members of the public stand to lose if their interests are not protected. The
duty; protecting the accountant/auditor
public interest can be a collective interest or it can be the individual interests of against litigation and loss of office due to
members of the public in the institutions that serve them, such as banks, auditors, adverse perception of his work.
insurers, charities, public listed companies, public sector institutions such as Ethical issues related Dec 2013 Application of objective classification
regulators, etc. to classification of q1b principles to cash flows: operating,
cash flows investing and financing.
The public therefore needs assurance that everything is being done to protect it from Dec 2010
q1b,c Can you explain why this classification
loss and needless obligations while receiving value-added services as private or
basis would be useful to stakeholders?
public goods or both. The public requires openness and transparency and access to

information for accountability.
Are you aware that the classification

boundaries in IAS 7 are not watertight?
The role of professional bodies in facilitating trust Pushing boundaries to accommodate
Trust is essential for the effective and efficient functioning of society; but nobody preferred but unethical outcomes is
has time and resources to evaluate everything and everyone, so we need professional possible. If managerial rewards are linked
bodies to guarantee quality control. This is the role of ethics in professions. to this classification basis what ethical
issues can you expect?

How do professional bodies guarantee quality control?
June 2009 IFRS principles-based classification is
- Examinations to confer certificates evidencing attainment of minimum standards
open to abuse because of the inherent
of ethics and professional competence.
flexibility necessary to accommodate
- Ethical probity
variety.
- Maintain records to prove competence, integrity and reliability
Raising debt capital Dec 2014 Can you deal with the ethical dilemma
- Disciplinary action for misconduct by falsifying financial faced by the “new accountant” desperate to
statements to meet keep his job, but expected to do the right
Approach to examining the syllabus bank’s lending thing in accordance with the ACCA Code of
“Students must demonstrate their understanding of the fact that ethics and integrity criteria. ethics and conduct contrary to what the
are central to the accounting profession and be able to exercise sensitive management require of him in order to meet
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September 2018 Exam Guidance
professional and moral judgments. Ethics will feature in every exam, and it is the bank’s criteria for lending business
essential that candidates understand the implications of these ethical issues. Two critical cash?
professional marks will be awarded to this question and these marks relate to the Classification of You should be able to identify malpractice
discussion of the ethical issues set out in the question.” Examiner’s Approach liability where transactions are camouflaged. The
exam technique is to evaluate the potential
article, q2 25 marks
or actual impact of the classification on the

quality of financial statements,
“Professional and ethical judgement will need to be exercised, together with the
underpinning the discussion with the
integration of technical knowledge when addressing business reporting issues in a
references to the Conceptual Framework,
business context.” Approach to examining the syllabus, Syllabus and Study guide directors’ fiduciary duty, conflict of interest
and other legal obligations.
Refer to The professional and ethical duties of the accountant. Relates professional
and ethical issues within practical business contexts. The structure of transactions that occur
around the year end should be closely
scrutinised to see if they are linked, so that
TYPES OF ETHICAL CASE STUDY
their substance, rather than their legal
Objective: understand the assessment focus of ethics questions so that you can
form, may be determined for faithful
match your learning and exam practice to the scoring criteria: technical (IFRS and
representation.
CF); ethical (know your ethical principles; develop the right attitude towards them);

discursive skill (analyse, evaluate, comment, scepticism, judgement). The trend is June 2016 Loan incorrectly classified in accordance
from the general to the technical. q1c & with its legal form.
answer
Determine your learning and assessment practice methods based on these. June 2009 Loan to director
Shown as cash – classification malpractice
Key questions intended to conceal.
Classification of a June 2014 Can you determine whether there is a lease?
How should you think ethically? Think ethical fair presentation. What is that? Fair
lease and implications Can you identify the potential for
presentation that reflects ethical principles and the directors’ fiduciary duty to the
for tax and gearing malpractice? Can you apply ACCA Code of
shareholders. This implies being efficiency conscious, practically expedient to
ethics and conduct to discuss the potential
safeguard resources and obtain best value for their application. Understand matters
consequences of classification malpractice
about which you need to be professionally sceptical. What is the “professional” in from all sides?
“professional scepticism”? How do you analyse an ethical case study? Talk about Management of Dec 2015 The directors intend to transfer a proportion
the distinct features of the process from start to finish. Is it always the same for all earnings through of exchange differences deferred in OCE
the ethics questions? What is ethical reasoning? How is it different from technical misallocation of to retained earnings on the sale of a holding
IFRS reasoning? exchange differences of 5% (equity transaction as control
in OCE (other retained).
components of
How do I approach the study of ethics?
equity). Do you know the conditions for the
You should approach it as a complement to the accounting and financial reporting
transfer of exchange differences deferred in
process – an integral component that enhances the professional ethos and the quality
equity to profit or loss?
of the products and services of the accountant. This means that ethics must be
considered positively and negatively in all aspects of the accounting, reporting and When the conditions are met the transfer
advisory functions. Positively – what the accountant must be committed to: that occurs is not a transfer between
competence, trustworthiness and reliability; negatively (preventative) – what the reserves. Why not, and what is the
accountant must not do, for example, must not tell lies or mislead, must not have difference between a transfer from OCE to
conflict of interest with clients. profit or loss and a transfer from OCE
direct to retained earnings?

Safeguarding the public interest
When the conditions are not met the
The accounting profession has developed and introduced safeguarding standards
transfer is to NCI: DR OCE and CR NCI
which must be adhered to. For this reason, there are “right” answers for ethics assuming a gain is realised on sale. This is
questions about reporting or accounting issues. The accountant ought to know what an equity transaction as the transfer of
is not permissible when engaged in professional activities. The accountant ought to interest does not result in a loss of control.
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September 2018 Exam Guidance
act in accordance with the right ethical standards. The fact that there are “right”
answers explains why sanctions are imposed for deviant behaviour. Management of December The classification of income/gains between
earnings through 2016 OCI and income (profit or loss) has ethical
Critical thinking skills are the tools by which the right answers can be found. Hence classification implications.
malpractice.
the development of your critical thinking skills ought to be a key priority.
Consider the risk that gains and losses can

be erroneously classified to present a
How ethical reasoning works
preferred position that is advantageous to
Reasoning that shows how ethical principles, concepts and standards apply to the
the management.
public-intertest duty of the accountant in specific financial reporting contexts. It is a
deductive reasoning process: the ethical standards are the premises. Ethical Key areas for consideration:
reasoning consists of assessing whether the standards have been complied with or Pension (define benefit and defined
not, in specific financial accounting and corporate reporting contexts. If the ethical contribution impacts on financial
standards have been complied with an inference is drawn that, as far as ethics is statements)
Financial instruments
concerned, the financial statements have not been misstated. If, on the other hand, the
Exchange rates
ethical standards have not been complied with, then the inference is drawn that the
Property
financial statements are at risk of being misstated. Evidence needs to be found to
Management of Sep 2015 Financial accounting malpractice:
prove either of these inferences conclusively. Therefore, study the case details
earnings through overstatement of impairment to reduce
carefully; identify and appraise issues thoughtfully. Infer only what can be supported overstatement of employee share options.
with evidence and clear ethical standards. Don’t jump to conclusions. impairment.

HOW TO APPROACH THE DEVELOPMENT OF CRITICAL THINKING Management of June 2010 Evaluate the practices that may result in
Explain the method of critical thinking earnings management of earnings. Examples:
Identify areas where it will benefit the study of SBR e.g. ethical analysis and changes in accounting policies, correction
of errors, reclassifications between OCI and
reasoning; IFRS study and application.
profit or loss.
Identify the developmental and practice activities
Set standards of critical thinking learning
Set targets for development
Set self-evaluation template to enable identification of gaps: am I a critical thinker? Management of Dec 2012 Can you analyse a series of transactions
financial position by (question & that take place either side of the end of the
Ethics should not be underrated revaluing property answer) financial year; some completed before, and
Ethics should not be regarded as an accompaniment (an optional extra), but as a prior to the year-end others intended to be completed after, the
complement (an essential ingredient) to the professional process. on fair value basis end of the financial year?
having previously

valued the property on Can you evaluate whether the transactions
HOW YOU SHOULD PRACTISE AND LEARN
historical cost basis. comply with IFRS and the Conceptual
The practice standard (Learning outcome focused: know what is expected of you. So
Framework? E.g. does the situation warrant
you know the gaps you need to close by improving your skills, knowledge and
you to apply substance over form?
attitudes). The practice of ethical reasoning – an example from past questions.
In dealing with the technical implications
The practice target (Learning outcome focused: raise your competence to the required can you determine whether the conduct of
standard) the directors is in accordance with the
What gets done repeatedly gets understood and remembered. “Knowing is not ACCA Code of ethics and conduct?
enough, we must apply.” Change in measurement basis from
historical cost basis to revaluation basis.

A change in measurement basis which is
Study a relevant model: guidance is provided
accounted for prospectively in accordance
Practise to the model: assimilate and replicate
with IAS 8, being a change in an
Mark to the model: internalize scoring criteria accounting estimate. However, this change
Reflect on what you learn (metacognitive monitoring p27 Thought & knowledge); is not explained.
evaluate your learning in relation to the standards and targets.
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September 2018 Exam Guidance
If a cost basis is adopted it should be
Articulate what you learn: what gets written gets learned. applied consistently; a change to
Articulate what you need to learn and practice further. revaluation basis should be explained.

Review common mistakes and how to overcome them
Revision points:

- Measurement basis Conceptual
HOW TO ANALYSE AND DISCUSS AN ETHICAL SCENARIO
Framework chapter 6
“In order to succeed at far transfer tasks, workers must be able to represent a
- IAS 8 change in measurement basis
problem in terms of its structural features. To do so they need a schema that is
flexible enough to transfer to many situations. Instructional methods that help Transfer Intention of subsidiary to sell asset to
students build flexible schemas will impose additional cognitive load. …this type of Distribution parent at a significant discount to the
load is productive.” P221 Efficiency in learning. Sale market price: when is a transfer of assets
Abandon
a distribution, rather than a sale?
Standards: identify and specify success criteria (learning efficiently) e.g. information Adequate Is there enough to cover the distribution?
distributable Assess: existing retained earnings + gain
literacy competency standards
profits? on sale => distribution of £1m.
Principles: guide action and attitude towards success criteria e.g. the convergence
IFRS 5 Separately disclose as required by IFRS 5:
principle (varied context examples to facilitate abstracting schemas for versatile
compliant? transfer from Noncurrent asset to current
application)
asset and describe as Noncurrent asset held
Process/tasks/activities: selecting materials, learning (reading to learn), revising, for sale.
practising, exam practice, making notes – writing to learn Is it legal? Probably, depends on the applicable laws.
Cognitive skills: assessment, evaluation, comparisons, integration, self-explanations,
computations
Related party Related party disclosures under IAS 24
Decisions: select supplementary materials; integrate knowledge from different
IAS 24 for transparency: subsidiary and parent’s
sources
financial statements but not the group’s as
Supplements: discourse conventions; technical articles, Ethics Code, media articles; the group is a single economic entity
IASB resources. which cannot sell to itself.
Success indicators: monitor and evaluate progress against learning outcomes and Management of Jun 2012 Can you evaluate a series of transactions
standards. financial position by (question & that take place either side of the end of the
Attitude check: thoroughness; attention to task requirements; growth mindset. selling property to a answer) financial year (reporting date); some
third party completed before, and others intended to be
Logical incrementalism.
immediately prior to completed after, the end of the financial
Progress tracker: self-assessment questions prior, during, after
the year end (to year?

improve liquidity)
What are the parts of an ethical scenario?
subject to an option to Continuing The option to repurchase the land from the
- The introduction (background information: at the beginning and end of the buy it back at the involvement? third party in the new year is a continuing
scenario; can be placed anywhere.) beginning of the next involvement which links the transactions
- The inciting event: the trigger event that makes action imminent or that financial year for the either side of the balance sheet date .
precipitates action or action that raises ethical questions e.g. risk of loan same price but at a Improve the The motivation for selling the land is to
covenant breach. premium. financial clear the overdraft and thereby improve the
- The climax: Tilting circumstances: managerial susceptibility to the trigger event; position? liquidity position of the group.

entity vulnerabilities.
Revision Intra group transactions
- The resolution: Ending.
points Share-based payments

Loans
Understanding sources of ethical pressures
Guarantees
- External pressures: environmental, legal, competition and other PEST factors
Group accounts March 2018 NCI: retrospective revaluation.
SWOT analysis, strategic planning. March 2017 Exercise critical thinking over the choice
- Internal conditions: resource pressures, weaknesses, mistakes, impact of group of rate; consider the choice from cost or
structures, controls, rewards, efficiency perspective and evaluate
- Vulnerabilities that tilt the management towards unethical behaviour (the tilting whether the choice is ethical from that
factors). perspective. That implies cost benefit
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September 2018 Exam Guidance
assessments to safeguard resources and
What is an ethical dilemma? financial practice integrity.
A situation necessitating a choice between two equal, especially equally undesirable, Treatment of an associate
alternatives. Undesirable because the available options each involve ethical breaches Consolidation of SPV
if exercised. Dec 2012 Distribution: transfer of property to parent
by a subsidiary at a discount to the market

price. The discount is a distribution rather
Refer also to the answer quality standards in Practice programme
than a loss on sale.

Rendering Dec 2009 Professional behaviour. Safeguarding the
What are the scenarios about?
professional services public interest through ethical conduct.
- Mostly about malpractice opportunities (as outlined in the table) to the public
- You may also be presented scenarios about the strengths and weaknesses of the
rules-based versus the principles-based approaches to standard setting.
- You may also be presented scenarios where the management challenge the WHAT YOU SHOULD EXPECT
premise that ethics are sound and necessary for business practices.
“The second question in Section A will require candidates to consider the
What are the parts of the scenario and how do they work? reporting implications and the ethical implications of specific events in a given
- Facts are given about a business situation (often mission critical) scenario.” Approach to examining the syllabus, SBR Syllabus
- A case is made about how the facts should be interpreted
- The case made is usually skewed to achieve a preferred position contrary to HOW YOU SHOULD PREPARE
faithful representation (no bias, no omission, no errors).
Read the study guide A.1 and A.2: with the aid of the above table ensure you
- As a result there would be lack of fair presentation of the financial statements
are entirely clear about the assessment requirements.
- You are required to discuss (note that word: examine, evaluate but only be
Pay attention to exam verbs: explain, evaluate, analyse, discuss.
prescriptive about ethics) the interpretations of the facts, the motivations of
Refer also to the answer quality standards in Practice programme
management and the implications for fair presentation from an ethical
Set exam practice objectives e.g. master integration of ethical with professional
perspective.
Ascertain the principles of the ACCA Code of Ethics

Be thorough with the standard modes of analysis, interpretation and reasoning
How you should interpret
Practise answering discursive case study: use the SBR specimens and past
- Identify business critical threat (BCT): may induce unethical behaviour such as
question list below
unwarranted change of accounting policy, unjustifiable mark-up on inventory
Claim two professional marks for your effective communication of insightful
sold, classification malpractice, revaluation of assets, etc.
analysis, synthesis and evaluation.
- Identify personal incentives to deceive (PID) e.g. contracted bonus based on
Exploit the benefits of the Examiner’s reports to overcome common mistakes
performance; fear of dismissal or adverse perception of performance that may be
Use the marking scheme.
punished. This may induce management to hide losses and other “bad news”.

- Identify critical power relationships (CPR): note how this affects the behaviour
MODES OF PRACTICE
of subordinates such as the “new accountant”.
- Identify business change event (BCE): this may induce new investment to deal
WHAT IS DELIBERATE PRACTICE?
with pressure of competition and survival issues
Think about what knowledge, skill and attitudes you need to develop.
- Identify critical time frame (CTF): this may cause pressure and indicate the
Identify the best way to achieve the ends that you seek
temptation to take unethical action. Check dates, periods between dates and
Select appropriate methods, materials accordingly.
deadlines. Appraise their potential for tilting managerial behaviour unethically.
Apply the methods in a disciplined manner with time and quality targets.
- Watch for critical language use (CLU): e.g. word choice to indicate certain
Monitor and evaluate outcomes against standards set
pressures, behaviours that are causing pressure.
Process errors for optimal benefit
- Directors’ indifference or hostility to ethics (DIH) reflected in lack of
Correct the errors
commitment and cynicism. The accountant’s duty is to explain and apply
Repeat as necessary to improve the standard
standards with rigour.

- Distinguish between “claims of fact” (COF), and “factual claims” (FAC). What
WHAT IS MASSED PRACTICE?
may seem like authority can be only an opinion; it may be challenged by seeking
Practise intensity concentrated over a limited time span
independent support. For example, “management believe that” signals an
After first learning new material
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September 2018 Exam Guidance
opinion (a possible “claim of facts” which must be challenged for independent Develop conceptual understanding, application competence, transfer of learning
support). To convert this to a factual claim it is necessary to provide verifiable to unfamiliar situations
evidence e.g. the evidence in the published annual report. According to the
annual report, historically, the cash provided by the company’s operating WHAT IS DISTRIBUTED PRACTICE?
activities has grown at a rate of 3%. This is a factual claim. Practice scope (coverage) spread over an extended time span.
Sustained activation develops long-term retention
How you should discuss Develops complex problem solving abilities.
- Where relevant use the above as your base to launch your discussion: say why Reflective capacity
the issue contravenes an ethical standard (which one? Independence, etc.) and Ability to make links and comparisons
explain the effect (e.g. as a result, the lack of bias required for faithful Mental models (enlarged knowledge schemas) well formed.
representation may not be attained by the proposed treatment).
- Then, if the scenario details warrant it, cite specific malpractice e.g. Common mistakes
misclassification that they have done, such as classifying a short term loan as Offering opinion without analysis
accounts payable in accordance with its form, even though it is a short-term Not referring to the scenario
loan and should be classified as “borrowing” in accordance with its substance.) Not grounding analysis in professional and ethical principles
- Then, develop the point by analysing and explaining (state, analyse, explain, Not connecting the evidence to the assertions
infer, imply) the consequences of classifying incorrectly. Not identifying issues
- Then develop the points further by referring to the reasons why they have done Not framing assertions in appropriate rhetorical style
this, noting any further issues. For example, interest cover and gearing would be Not addressing the ethics in the case study
incorrectly calculated as a result of classifying the loan as AP (current liability),
rather than as borrowing (also current liability but included in gearing
calculation). Further, marks are earned by using all the data given.

Core competences you should develop
- Critical reading skills of discernment and interpretation (make your own
meaning with insight and understanding). You can show insight by explaining
the motivations of the participants such that it becomes clear how their actions
would adversely impact the quality of the financial statements.
- Analysis and interpretation of consequences for the financial statement
presentation and disclosure for fair presentation.
- Ability to use scenario data: you’re not answering the question if you don’t use
the data. So, practise using the data. Read regularly and analyse what you read –
at least ½ hour a day.
- Write clear and coherent answers: analyse the claims; justify your response to
what you find by reference to ethical standards.

Practice intensity and regularity
- You must practise regularly to hone the skills. At least once a week.
- You must write out answers and compare the answers with a model, ensuring
that you address the marking scheme.
- What the examiner really wants you to think. At this level this is not obvious;
you need to think carefully and discern meaning from the words in the question
and on the case study.
- You must learn to show depth of understanding through analysis of the data:
observe, infer, imply. These correspond to perception, comprehension and
prediction. The hallmarks of effective critical reading.

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September 2018 Exam Guidance
ETHICS IN THE NEWS
Grant Thornton and Robert Napper fined April 2017 (lapse of professional
scepticism)

A.2 Ethical requirements of 2 The examiner’s central concerns are that candidates can discuss ethical issues and For September2018, the following areas are priority:
corporate reporting and the attitudes in a professional manner and reach conclusions that reflect their
consequences of unethical
behaviour understanding and commitment to ethical principles. Additional practice questions:

Therefore, all accounting solutions must be viewed through an ethical conceptual Attempt the past question and study the model answer.
framework e.g. you should always ask: i) does the attitude or behaviour comply with
professional ethics? ii) is the accounting treatment proposed or adopted supported by Make sure you cover all the past questions and focus on the core themes:
the conceptual framework? iii) if not can it be justified by the general principles of
financial reporting and the guidelines of IAS 8 Hierarchy? - March 2018 q1c (answer): ethics of retrospective revaluation of NCI to
current fair value basis from proportional share of fair value of net assets at
Refer to question strategy particularly q1c strategy table for a review of the types time of acquisition “some years ago”.
of questions that have been asked and the learning approach that is entailed by these
requirements. The scope and style of questions is identical to the new syllabus: - December 2017 q1c (answer): ethical issues in intra-group transactions
question 2 of Specimen1 and Specimen 2 involving mark-up.

“As previously reported, many candidates focus on the reporting issues to the - September 2017 q1c (answer): the ethical implications of unsubstantiated
detriment of the ethical issues. The marks in this part of the question are often split claims in integrated reports e.g. greenwashing
equally and therefore not to discuss the ethical or accounting issues is a serious
omission by candidates.” Examiner’s report, December 2016 q1c - June 2017 q1c (answer): contrary to IFRS 9 treat factoring according to its
legal form (regardless of its substance) to maintain liquidity and
Unfortunately, candidates often perform below expectation because they fail to profitability under covenant obligations.
recognize and develop the required competences. Guidance is provided on the
competences the examiner assesses and how to go about developing them. Refer to - March 2017 q1c: discuss the ethics of applying the average rate to translate
The professional and ethical duties of the accountant. individual foreign transactions for consolidation purposes, causing
excessive translations and undue costs.
A suggested approach
List all the key areas for professional judgement in the financial reporting process - December 2016 q1c (answer): Operating profit-based bonus motivates a
and think about the opportunities for manipulation driven by the pressures described change in accounting policy for recognising all pension scheme gains and
in “The professional duties of the accountant. losses in other comprehensive income ostensibly to achieve consistency
Examples: and fair presentation. The question requires an analysis and evaluation of
- IAS 2 Inventory valuation (optimistic valuation that boosts earnings and inflate the financial reporting and ethical implications of the proposed change.
rewards linked to earnings)
- September 2016 q1c (answer): Should the holding company of a special
- IAS 7 masking borrowing/lending as operating cash flow to boost performance purpose vehicle (SPV) consolidate it? The terms are: the holding company
and gain performance rewards as in bonus linked to level of operating cash owns only small interest in the SPV, participates in board and guarantees
flows. SPV’s debt. What are the ethical issues if not consolidated?

- IAS 16 changes in depreciation policies, asset transfers (without commercial - June 2016 q1c (answer): loan misclassified as accounts payable to
substance), etc. that avoid eligible costs impacting earnings. improve gearing ratio and evade severe penalty that would otherwise be
incurred for breach of covenant terms regarding gearing.
- IAS 19 changes in accounting policy that misallocates current and past service
cost to OCI (or allow actuarial gains to be recognised in profit or loss) to allow a
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September 2018 Exam Guidance
favourable operating profit on which management bonus is based (December - Mar 2016 q1c (answer): ethical and professional issues arising from the
2016 q1c - answer) treatment of a 30% interest in an associate where the other shareholder is a
company
- IAS 21 making decisions to defer exchange differences in equity to stave off
losses, or to include deferrable exchange gains in profit or loss to boost - Dec 2015 q1c (answer): financial reporting fraud risk involving the
performance. possible misuse of exchange differences to boost earnings

- IAS 38 classification of items as goodwill to defer impact of related expenditure - Sep 2015 q1c (answer): financial reporting fraud (impairment overstated
on earnings and incorrectly netted off revenue to depress profits and understate
employee share options)
Consequences of unethical behaviour
Tesco fined for overstating profits in 2014 - June 2015 q1c (answer): principles-based v rules-based approaches to
standard setting and their differing implications for ethical conduct

- Ethical dilemma (Dec 2014 q1c & answer; June 2014 q1c & answer; June
2010 q1c & answer management of earnings)

- Ethics denial (Dec 2013 q1c & answer; June 2013 q1c & answer)

- Ethical critique of management decisions or intentions (Dec 2012 q1c &
answer; June 2012 q1c & answer; Dec 2010 q1c & answer: the ethics of
loan proceeds presentation; June 2009 q1c & answer: the ethics of cash &
cash equivalents presentation)

- Ethics affirmation

- Ethics misunderstanding Dec 2009 q1c & Answer should the Finance
Director consider ethics in offering credit rating for a customer he knows is
having financial difficulties?

B.1 Conceptual WHAT IS IT FOR? HOW YOU WILL BE ASSESSED
Framework (CF) ED
2015/3 The conceptual Framework is a coherent set of ideas and reasoning about how the
economic events within a boundary of reporting should be identified, measured and Critical learning and skill development guide
recorded, such that their economic effects can be fairly communicated and Critical issues Active Passive
Factor types and meaningfully evaluated. Thus, the Conceptual framework is an authoritative The role of general Understands the nature Aware of, but does not
significance reference for standard setters, preparers and users of financial statements and purpose financial and role of general purposefully enquire
Commercial regulators, enabling a common language of business to be developed and maintained. statements purpose financial about, the nature of the
Behavioural: personal, Through sound arguments and explanations the Conceptual Framework establishes Reporting purpose statements and the need links between financial
ethical, contractual consensus for its ideas and guidance, embracing diversity in international Reporting basis for a coherent and statements and the
Regulatory convergence. This persuasive approach makes critical thinking essential to Boundary of reporting unified framework to conceptual framework.
Organisational accounting practice. Hence, the Conceptual Framework is a resource for the entity deliver it.
Primary financial
development of a comprehensive accounting toolkit that focuses explicitly on the This student loses vital
Strategic intelligence statements
Strategic learning ways of thinking like an accountant to develop the culture of the discipline. Primary users Understands how the marks by not
Strategic exam preparation user perspective underpinning his
Focus of exam questions influences the conceptual assertions about the
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