ACCA APPROVED CONTENT PROVIDER ACCA Passcards Paper P2 Corporate Reporting (International and United Kingdom) Passcards for exams up to June 2015 ACP2(INT)PC14.indd 29/05/2014 17:30 (000)ACP2PC14 Int_FP_Ricoh.qxp 5/16/2014 2:06 AM Page i Professional Paper P2 Corporate Reporting (International and UK ) (000)ACP2PC14 Int_FP_Ricoh.qxp 5/16/2014 First edition 2007, Ninth edition June 2014 ISBN 9781 4727 1130 e ISBN 9781 4727 1186 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by BPP Learning Media Ltd, BPP House, Aldine Place, 142-144 Uxbridge Road, London W12 8AA Printed in the UK by RICOH UK Limited Unit Wells Place Merstham RH1 3LG www.bpp.com/learningmedia Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources 2:06 AM Page ii All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media © BPP Learning Media Ltd 2014 (000)ACP2PC14 Int_FP_Ricoh.qxp 5/16/2014 2:06 AM Page iii Preface Contents Welcome to BPP Learning Media’s new syllabus ACCA Passcards for Professional Paper P2 Corporate Reporting (International and UK Stream) They focus on your exam and save you time They incorporate diagrams to kick start your memory They follow the overall structure of BPP Learning Media’s Study Texts, but BPP Learning Media’s ACCA Passcards are not just a condensed book Each card has been separately designed for clear presentation Topics are self contained and can be grasped visually ACCA Passcards are still just the right size for pockets, briefcases and bags Run through the Passcards as often as you can during your final revision period The day before the exam, try to go through the Passcards again! You will then be well on your way to passing your exams Good luck! Page iii (000)ACP2PC14 Int_FP_Ricoh.qxp 5/16/2014 2:06 AM Page iv Preface Contents Page Financial reporting framework Professional and ethical duty of the accountant Environmental and social reporting 13 Non-current assets 21 Employee benefits 33 Income taxes 41 Financial instruments Share-based payment Page 12 Revision of basic groups 81 13 Complex groups and joint arragements 95 14 Changes in group structures 103 15 Continuing and discontinued interests 109 16 Foreign currency transactions and entities 113 17 Group statements of cash flows 121 47 18 Performance reporting 127 63 19 Current developments 145 Provisions, contingencies and EARP 67 20 Reporting for specialised entities 151 10 Related parties 71 21 11 Leases 75 Reporting for small and medium-sized entities 159 (001)ACP2PC14 Int_CH01.qxp 5/16/2014 2:07 AM Page 1: Financial reporting framework Topic List This chapter sets the scene for your Corporate Reporting studies Regulatory framework The reporting environment changes constantly through new regulations, standards etc Conceptual framework Revenue recognition International influences are increasing, through the IASB and multinational business (001)ACP2PC14 Int_CH01.qxp 5/16/2014 2:07 AM Page Regulatory framework Conceptual framework Regulatory framework International Accounting Standards European Union IASC Foundation Trustees International Standing Standards Accounting Interpretations Advisory Standards Committee Council Board (SIC) (SAC) (IASB) Listed companies have complied with IAS since 2005 Stock Exchange National Listing Rules to be complied with by listed companies Revenue recognition Other National laws Take precedence over IFRS/IAS OECD Undertakes its own research into accounting standards, via ad hoc working groups, issuing guidelines for members (001)ACP2PC14 Int_CH01.qxp 5/16/2014 2:07 AM Regulatory framework Page Conceptual framework Revenue recognition Conceptual framework – a statement of generally accepted theoretical principles which form the frame of reference for financial reporting Advantages ✓ Avoids ‘patchwork’ or firefighting approach ✓ Less open to criticism of political/external pressure ✓ Some standards may concentrate on the income statement, others on the SOFP Page Disadvantages ✗ Financial statements are intended for a variety of users – single framework may not suit all ✗ May need different standards for different purposes ✗ Preparing and implementing standards is still difficult with a framework 1: Financial reporting framework (001)ACP2PC14 Int_CH01.qxp 5/16/2014 2:07 AM Page Regulatory framework Conceptual framework Revenue recognition IASB Conceptual Framework The IASB Framework for the Preparation and Presentation of Financial Statements was produced in 1989 and is gradually being replaced by the new Conceptual Framework for Financial Reporting It is a joint IASB/FASB project and is being produced in phases Phase 1: Chapters and 3, published in September 2010 – Chapter 1: The objective of general purpose financial reporting – Chapter 3: Qualitative characteristics of useful financial information Chapter The Reporting Entity has not yet been published and is still an ED Chapter includes the remaining chapters of the 1989 Framework: – Underlying assumption – The elements of financial statements – Recognition of the elements of financial statements – Measurement of the elements of financial statements – Concepts of capital and capital maintenance Discussion paper issued in July 2013 proposing topical areas for revision and amendment (001)ACP2PC14 Int_CH01.qxp 5/16/2014 2:07 AM Page Regulatory framework Conceptual framework Revenue recognition IAS 18 Revenue is that which arises in the course of ordinary activities such as that from sales, services provided, interest, royalties and dividends Measurement Fair value of consideration received/receivable Deferred amounts discounted In a sale financed by the seller, any difference between the fair value of the item and the nominal sales value should be accounted for as interest revenue Page Includes only those amounts receivable by the entity on its own account Not sales, goods and sales tax collected by agent to be passed to the principal Recent developments IAS 18 was amended to give guidance on whether an entity acts as principal or agent In addition, an ED issued in 2010 and re-issued in November 2011 proposes changes to the accounting for revenue recognition in contracts with customers 1: Financial reporting framework (020)ACP2PC14 Int_CH20.qxp 5/16/2014 1:49 AM Notes Page 158 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Page 159 21: Reporting for small and medium-sized entities Topic List Big GAAP/Little GAAP IFRS for SMEs Areas of difference Most companies are small, and have different accounting needs from the larger, listed companies for which IFRS was largely designed (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Page 160 Big GAAP/Little GAAP Big GAAP/Little GAAP IFRS for SMEs Areas of difference Possible solutions Most companies are small owned and managed by one person or family Differential reporting (standards specifically for smaller entities) Should there be two GAAPs? Exemptions from IFRS or some requirements of IFRS Simple for smaller companies More detailed for longer ones In the UK, the FRSSE was developed for small companies, ie companies below certain legally defined limits In 2009, the IASB published the IFRS for SMEs (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Page 161 BIg GAAP/Little GAAP IFRS for SMEs Areas of difference IFRS for Small and Medium-sized Entities Published in 2009 Applies to companies without public accountability (rather than using a size test) Much less guidance than full IFRS Simplified recognition and measurement rules Only one option where full IFRS gives a choice Topics irrelevant to SMEs omitted Significantly fewer disclosures Written in clear language Advantages: simpler, clearer, more relevant Disadvantages: still onerous for very small companies, scope too wide, and there is room for further simplification Page 161 21: Reporting for small and medium-sized entities (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Page 162 Big GAAP/Little GAAP IFRS for SMEs Areas of difference Key areas of difference – test yourself (look back to the text if you need to) Presentation and disclosure Financial instruments Investment property Property, plant and equipment Intangible assets Investments in subsidiaries and associates in the consolidated and separate accounts of the investor Government grants Borrowing costs Impairment of assets (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 163 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 164 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 165 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 166 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 167 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 168 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 169 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 170 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 171 (021)ACP2PC14 Int_CH21.qxp 5/16/2014 1:49 AM Notes Page 172 [...]... or services (002)ACP2PC14 Int_CH02.qxp 5/16/2014 2:07 AM Page 7 2: Professional and ethical duty of the accountant Topic List Ethical theories Individual influences Ethics in organisations Professional ethics Ethics in the exam Ethics are an important part of the ACCA qualification This chapter is concerned with the professional integrity of the accountant and director (002)ACP2PC14 Int_CH02.qxp... values, aspirations and pattern of thought and conduct (002)ACP2PC14 Int_CH02.qxp Ethical theories Code of ethics and conduct 5/16/2014 Individual influences 2:07 AM Page 11 Ethics in organisations Professional ethics Ethics in the exam This lays out ACCA s rules stating the ethics and behaviour required by all members and students of the ACCA Guidance is in the form of fundamental principles (see below),... accountant (002)ACP2PC14 Int_CH02.qxp Ethical theories 5/16/2014 Individual influences 2:07 AM Page 12 Ethics in organisations Professional ethics Ethics in the exam Ethics are most likely to be considered in the context of the accountant’s role as adviser to the directors Question 1, the case study, nearly always involves an ethical dilemma relating to ‘creative’ accounting (003)ACP2PC14 Int_CH03.qxp... Deterioration in attitudes is a cost to the company Human asset accounting was developed, later broadened into intellectual assets Page 19 3: Environmental and social reporting (003)ACP2PC14 Int_CH03.qxp 5/16/2014 2:06 AM Notes Page 20 (004)ACP2PC14 Int_CH04.qxp 5/16/2014 2:06 AM Page 21 4: Non-current assets Topic List You should have met IAS 16 in your earlier studies It is a fairly uncontroversial standard,...(001)ACP2PC14 Int_CH01.qxp 5/16/2014 2:07 AM Regulatory framework Page 6 Conceptual framework Revenue recognition Recognition Goods Services When the following are met: Conditions 3 to 5 as for goods 1 Transfer... and not as means to an end Act as if acting in accordance with universal laws Pluralism Different views may exist but it should be possible to reach a consensus; morality is a social phenomenon (002)ACP2PC14 Int_CH02.qxp Ethical theories 5/16/2014 2:07 AM Individual influences Page 9 Ethics in organisations Professional ethics Ethics in the exam National and cultural beliefs Psychological factors Differences... Environmental reporting Environmental issues came up under the previous syllabus in connection with directors’ social responsibility Sustainability Social responsibility Human resource accounting (003)ACP2PC14 Int_CH03.qxp 5/16/2014 Environmental reporting 2:06 AM Page 14 Sustainability Social responsibility Human resource accounting Environmental accounting Environmental issues are likely to have a growing... conventional accounting practice Devising new forms of financial and non-financial accounting systems, information systems and control systems to encourage more environmentally benign management decisions (003)ACP2PC14 Int_CH03.qxp 5/16/2014 2:06 AM What is environmental reporting? Developing new forms of performance measurement, reporting and appraisal for both internal and external purposes Identifying, examining... environmental liabilities (including site restoration costs) Questions on environmental accounting are a good bet – you can always write something! Page 15 3: Environmental and social reporting (003)ACP2PC14 Int_CH03.qxp 5/16/2014 Environmental reporting 2:06 AM Page 16 Sustainability Social responsibility Human resource accounting Pressure is mounting for companies to become more publicly accountable... Governance structure and management systems 4 GRI content index 5 Performance indicators – Economic An increasing number of companies follow GRI guidelines eg Shell, BA – Environmental – Social (003)ACP2PC14 Int_CH03.qxp 5/16/2014 2:06 AM Page 17 Sustainability Environmental reporting Social responsibility Human resource accounting Few organisations would admit to being irresponsible However, social ... permission of BPP Learning Media © BPP Learning Media Ltd 2014 (000)ACP2PC14 Int_FP_Ricoh.qxp 5/16/2014 2:06 AM Page iii Preface Contents Welcome to BPP Learning Media’s new syllabus ACCA Passcards. .. but BPP Learning Media’s ACCA Passcards are not just a condensed book Each card has been separately designed for clear presentation Topics are self contained and can be grasped visually ACCA Passcards. ..(000)ACP2PC14 Int_FP_Ricoh.qxp 5/16/2014 2:06 AM Page i Professional Paper P2 Corporate Reporting (International and UK ) (000)ACP2PC14 Int_FP_Ricoh.qxp 5/16/2014 First