Financial Accounting and Reporting

1. Financial Accounting and Reporting Lynne Woolley, FCCA, CTA Reed Business School

2. The Exam • Three hours! • 1.8 minutes per mark • Four or five questions • 55% pass mark • Dec 13 exam - 123.5 marks available

3. Pass rates for December 2013 • ICAEW • First attempt • 869 sat • 693 passed • 79.7% pass rate • Reed Business School • First attempts • 49 sat • 48 passed • 98% pass rate (and a first place global Prizewinner)

4. FAR specifications grid • Syllabus area Weighting (%) • 1 Accounting and reporting concepts and ethics 10 • 2 Single entity financial statements 60 • 3 Consolidated financial statements 30 100

5. Question types 1. Preparation of single entity financial statements from trial balance or draft financial statements: • Statement of profit or loss (SOPL) • Statement of comprehensive income (SOCI) • Statement of financial position (SOFP) • Statement of changes in equity (SOCIE) • Notes/extracts

6. Question types continued… 2. Preparation of consolidated financial statements from single company financial statements or draft consolidated financial statements • CSOPL • CSOCI • CSOFP • CSOCIE • Calculation of single figures eg goodwill, non controlling interest • Journals

7. Question types continued… 3. Written question explaining the application of IFRS to specific scenarios • Full narrative explanations • Redrafting of figures from draft financial statements • Calculations eg EPS, distributable profits

8. Question types continued… 4. Mixed or single topic questions requiring extracts and/or calculations • Mix of topics in one question • Single company and/or consolidated

9. Question types continued… 5. Statement of cash flows – single company or consolidated • Single company – likely to be a redraft as preparation tested in accounting • Consolidated – could include an acquisition or a disposal • Extracts of single company or consolidated

10. Also tested… • Conceptual framework (six marks in December 2013) • UK GAAP differences (approx. four - six marks) • Ethics (approx. four – six marks)

11. How to tackle question type one • TB or redraft – same approach • Read the requirement – SOPL, SOFP, SOCIE • Set up your answer pages SOPL SOCIE SOFP SOFP ctd Workings

12. The statement of profit or loss X PLC statement of profit or loss for the year ended 31 March 2014 £ Revenue Cost of sales (w1) Gross profit Distribution costs (w1) Operating expenses (w1) Finance costs Taxation

13. The SOCIE X Plc statement of changes in equity for year ended 31 March 2014 Share Share Revaluation Retained capital premium surplus earnings Balance b/f Prior period Adjusted balance b/f Share issue Dividends Total comprehensive Income for the year Balance c/f

14. The statement of financial position X Plc statement of financial position as at 31 March 2014 £ Assets Non Current Assets Current Assets X Plc Statement of financial Position as at 31 March 2014 ctd £ Equity and Liabilities Equity Non Current Liabilities Current Liabilities

15. Workings

16. Your next step • Take all the figures from the trial balance or the draft accounts and put them on one of the pages you have already set up: • SOPL • SOCIE • SOFP • Workings

17. Finally the adjustments • You do not have to do them in order! • Choose the nice ones first, such as: • Taxation • Closing inventory etc • Remember: do try and attempt them all • Once you are happy you have dealt with everything – tidy up and total up your statements

18. Question type two • The consolidation question • Similar approach to accounts prep • Pro formas • Easy numbers in brackets on face of your answer (parent and sub) • Workings • Group structure • Net assets • Goodwill • NCI • Retained earnings • Investment in associate

19. Question type three • Written question explaining the application of IFRS to specific scenarios • Usually three - five different topics • Don’t just write down the answer – explain how you got there • Brief description of the relevant IFRS • How the item should be treated • How it has been treated (if applicable) • What the effect on the financial statements will be • Dec 13 Q3 26 marks max (available 36!)

20. Question type four • Extracts • Students do not like these questions • Usually lots of presentation marks • Write everything in full eg, non current assets • Set up your extracts page(s) • Start workings on the next page

21. Question type five • Statement of cash flows • Single co – tested in Accounting • Extracts • Or full consolidated • Perhaps with an acquisition or disposal

22. Set up your pro forma X Plc Consolidated statement of cash flows for the year ended 31 March 2013 £ £ Operating activities Investing activities Financing activities Net ….. in cash and cash equivalents X Cash & cash equivalents b/fX Cash & cash equivalents c/f X

23. Set up a page for the notes • Reconciliation of operating profit to net cash from operating activities (indirect method) • Starts with PBT (leave half a page) • Cash and cash equivalents • A note showing where your answer came from • Cash and cash equivalents – bank overdraft for current year and prior year

24. Workings • Finally set up a page for your workings • T accounts • Common accounts required: • PPE • Tax paid • Dividends paid • Interest paid • Retained earnings • Share capital and share premium

25. UK GAAP differences • Four - six marks • Usually tagged onto the end of a longer question • Always in the exam • Answer first if possible (especially if it is at the end of a large computation question) • Preparation: • Leave these bits until revision • Do a one page summary of each IAS/IFRS and then add a few lines on the differences at the bottom and try to learn as many as possible (some are easier than others!)

26. Ethics • Four – six marks in every paper • Usually tagged onto the end of a longer question • Answer first if possible • Usually scenario-based – formulate an approach • Relevant facts • Relevant parties • Ethical issues involved • Fundamental principles related to the matter • Established internal procedures • Alternative courses of action • Don’t forget to apply professional scepticism

27. Revision • Question practice is key – to time! • One page summary of each IAS/IFRS including UK differences • Tab your open book • Key pro formas • Illustrative examples • Specific criteria eg, held for sale, development expenditure etc

28. In the exam • Stick to time • Scribble on the exam paper • Go with your instinct • Write all your workings down and reference them • Use the open book • If you make a mistake and it is too time consuming to change – write a note to the examiner

29. In the exam: keep the examiner happy! • Clear/easy to follow workings • Workings referenced in the main answer • Neat answers • No scribbling out – cross it out • Leave lots of space • Answer the question asked

30. Finally… • Big syllabus so start your revision in good time • Practice different styles of questions so that you can hone your technique • Practice key pro formasand workings so you get quicker at them • Remember – there are more marks available than you can score – especially in the written areas! Dec 13 had a total of 123.5 marks • Be confident and trust your instinct Good Luck!

31. More information • Access exam resources from your dashboard at icaew.com/dashboard • If you have a question about your studies, please post it at icaew.com/studentcommunity