WIXLIB

Studying P2Paper P2 Corporate Reporting is a tough paper, reflecting the demands that will be made upon theprofessional accountant in his or her working life. At the Fundamentals level, you will have studied theessentials of financial statement preparation and analysis, including those of group accounts. At theProfessional level, these essentials will be assumed knowledge. You will be required to apply them,assuming the role of a professional adviser and analyst to the management as well as the shareholdersand other stakeholders.What is the paper about?The P2 syllabus comprises eight main areas:ABCDEFGHThe professional and ethical duty of the accountantThe financial reporting frameworkReporting the financial performance of entitiesFinancial statements of groups of entitiesSpecialised entitiesImplications of changes in accounting regulation on financial reportingThe appraisal of financial performance and position of entitiesCurrent developmentsThere is, of course, some overlap between these areas. For example, if you are discussing currentdevelopments (H), you might be talking about the proposed changes to accounting for businesscombinations (D) and considering the implications of changes in accounting regulation (F) and perhapseven the ethical duty of the accountant to report those changes fairly and accurately (A).What skills must you demonstrate?At the Fundamentals level, the questions would be more easily categorised into syllabus areas. However,at this level you may need to demonstrate knowledge, skills and thinking from outside the syllabus areathat the question seems to be about on the surface. The examiner has stated:Students should be capable of relating professional issues to relevant concepts and practicalsituations. The evaluation of alternative accounting practices and the identification andprioritisation of issues will be a key element of the paper. Professional and ethical judgement willneed to be exercised, together with the integration of technical knowledge when addressingcorporate reporting issues in a business context.So the paper is not predictable. That said, clear guidance has been given. The compulsory Section Aquestion, worth 50 marks, will always be on group accounts. It will also deal with issues in financialreporting and will be case study based. In Section B, questions could be on any area of the syllabus, butwe have been told that two questions will be scenario based and one question will be an essay. You have achoice of two from three.Increasingly, questions are discursive rather than numerical, so it is vital that you get practice atanswering this type of question.Important note for UK studentsIf you are sitting the UK P2 paper you will be studying under International standards and up to 20 markswill be for comparisons between International and UK standards.This Text covers all the topics you need to know under International standards and we have produced asupplement covering the additional UK issues.Introductionvii

Exam technique for P2Do not be needlessly intimidatedThere is no shortcut to passing this exam. It looks very difficult indeed, and many students wonder if theywill ever pass. But many do. How do they do this?Easy marksAll the questions are demanding, but there are many easy marks to be gained. Suppose, for example, youhad a consolidated statement of cash flows with a disposal, some foreign exchange complications and animpairment calculation. There will be easy marks available simply for the basic cash flow aspects, settingout the proforma, setting up your workings, presenting your work neatly. If you recognise, as you should,that the disposal needs to be taken into account, of course you will get marks for that, even if you make amistake in the arithmetic. If you get the foreign exchange right, so much the better, but you could pass thequestion comfortably omitting this altogether. If you’re short of time, this is what you should do.Be ruthless in ignoring the complicationsLook at the question. Within reason, if there are complications – often only worth a few marks – that youknow you will not have time or knowledge to do, cross them out. It will make you feel better. Than tacklethe bits you can do. This is how people pass a seemingly impossible paper.Answer all questions and all parts of questionsThe examiner frequently comments that students don't do this, so they miss easy opportunities to gainmarks.Be ruthless in allocating your timeAt BPP, we have seen how very intelligent students do one almost perfect question, one averagely goodand one sketchy. For a fifty mark question, the first twenty marks are the easiest to get. Then you have topush it up to what you think is thirty to get yourself a clear pass. For a twenty-five mark question, the firsteight to ten marks are the easiest to get, and then you must try to push it up to fifteen.Do your best question either first or second, and the compulsory question either first or second. Thecompulsory question, being on groups, will always have some easy marks available for consolidationtechniques.viiiIntroduction

InternationalIntroductionix

xIntroduction

Introductionxi

xiiIntroduction

Introductionxiii

xivIntroduction

Introductionxv

xviIntroduction

Introductionxvii

xviiiIntroduction

Introductionxix

xxIntroduction

United KingdomIntroductionxxi

xxiiIntroduction

Introductionxxiii

xxivIntroduction

Introductionxxv

xxviIntroduction

Introductionxxvii

xxviiiIntroduction

Introductionxxix

xxxIntroduction

Introductionxxxi

xxxiiIntroduction

Introductionxxxiii

The exam paperThe paper will comprise two sections.Section A:Section B:1 compulsory case studyChoice of 2 from 3 questions (25 marks each)Number of marks5050100Section A will be a scenario-based question which will include: The preparation of consolidated financial statements (including consolidated statements of cash flows)with adjustments on other syllabus areas A written part normally covering a particular accounting treatment and ethical and social issues infinancial reporting.Section B will normally include: Two scenario or case study-based questions (covering a range of standards and syllabus topics, oneusually in the context of a particular industry) A essay-style discussion question, often encompassing current developments in corporate reporting,which may also include some short calculations.Analysis of past papers – by sittingJune 2012Section A1Consolidated statement of financial position with business combination achieved in stages and jointoperation; de-recognition of financial asset; ethicsSection B234Sale and leaseback, defined benefit pension plan, cash-settled share-based payment and contingentliability in the context of a business combinationMeasuring fair value, impairment of goodwill, deferred tax liabilities and the fair value option for anaccounting mismatch; shares as financial liability or equityChanging rules on provisions (discussion and calculation)December 2011Section A1Consolidated statement of financial position with business combination achieved in stages; segmentreporting; ethicsSection B234xxxivIntroductionInternal reconstructionIntangible assets and impairment testing rulesRevenue recognition: principles and application

June 2011Section A1Groups with a foreign subsidiary, other adjustments and the remainder on ethical issuesSection B234Specialised industry question with IFRS 1, IFRS 3 intangible assets and restructuring plans andprovisionsSpecialised industry question with reclassification of long-term debt, correction of an error, revenuerecognition, related party disclosures and classification of a employee benefit planChange to IFRS 9 rules for financial assets; change to expected loss model for impairment offinancial assetsDecember 2010Section A1Consolidated statement of cash flows; ethics of changing methodSection B234Share-based payment; derivativesProvisions, contingent liability, significant influence; share-based paymentSmall and medium-sized entitiesJune 2010Section A1Groups with complex group and two disposals and the remainder on ethical issuesSection B234A range of topics including deferred tax, impairments, a deemed disposal/discontinuation andretirement benefitsSpecialised industry with derivatives, hedge accounting, brands and the purchase of retail outletsthrough companiesFlaws in lease accounting; application of Framework, sale and leasebackDecember 2009Section A1Consolidated statement of financial position with changes in group structureSection B234Impairment: discussion and calculationRevenue recognition; recognition of assets; joint controlComplexity in financial instrumentsJune 2009Section A1Business combination achieved in stages; ethicsSection B234Financial instruments: fair value, convertible bonds, derecognition, foreign subsidiary’s debt, intereston employee loanRevenue recognition, assetsEmployee benefits: problems of current treatmentsIntroductionxxxv

December 2008Section A1Group statement of cash flows with adjustments and interpretation; ethicsSection B234Changes to accounting for business combinationsTangibles, intangibles and revenue recognitionAccounting standards and disclosureJune 2008Section A1Groups with a foreign subsidiary, other adjustments and the remainder on ethical issuesSection B234Segment reporting and revenue recognition in a specialised industryRetirement benefits and financial instrumentsTransition to IFRSDecember 2007Section A1Piecemeal acquisition; factored receivables; environmental provision and report; ethical and socialattitudesSection B234Employee benefits; provisionsDiscontinued operations; deferred tax; impairment; leaseConceptual FrameworkPilot paperSection A1Statement of cash flows; criteria for consolidation; ethical behaviourSection B234xxxviIntroductionEnvironmental provision; leasing; EARP; share-based paymentDeferred tax with pension scheme and financial instrumentsAdoption of IFRS; proposals on business combinations

Analysis of past papers – by syllabus topicThe table below provides details of when each element of the syllabus has been examined and thequestion number and section in which each element appeared. Further details can be found in the ExamFocus Points in the relevant chapters.Coveredin ne2012Q1(b)Q1(b)Q1(c)Q1(c)3(b)Q4Q2(c)Q1(a)THE PROFESSIONAL AND ETHICAL DUTYOF THE ACCOUNTANT3Professional behaviour and compliancewith accounting standardsEthical requirements of corporate reportingand the consequences of unethicalbehaviourQ1(c)33Social responsibilityQ1(c)Q1(c)Q1(c)Q1(c)Q3Q1 (a)Q2, Q3Q1(a)Q1(a)Q3Q1(a)Q1(a),THE FINANCIAL REPORTING FRAMEWORK1The contribution and limitations of financialstatements in meeting users' and capitalmarkets' needs1The applications, strengths and weaknessesof an accounting framework1Q4(c)Critical evaluation of principles andpractices–Revenue recognition–Substance over form issuesQ2(b)Q3Q3REPORTING THE FINANCIALPERFORMANCE OF ENTITIES18Performance reportingNon-current assets4–Property, plant and equipment–Intangible assets–Impairment–Investment properties–Government grants–Borrowing costs7Financial instruments11Leases18Segment reporting5Employee benefits6Income taxesQ3Q3Q2,Q3Q1(a),Q3(c)Q1(b)Q1(a),Q33(c)Q3Q1(a), Q3Q2, Q3(d)Q1(a),Q2Q1,2(a)Q3Q3Q1(b),Q3, Q4Q1(a), Q1(a), Q2,(b) 2Q1(a)Q1(a)Q2Q1(a)–Provisions, contingency liabilities andcontingent assets–Events after the reporting period10Related parties8Share-based payment11LeasesQ3(d)Q1(a),Q2(b)Q3Q1(a),Q2Q1, ions, contingencies and events afterthe reporting period9Q1(a), Q3 Q1(a), Q3Q4Q3(c)Q2, Q3Q2Q4Introductionxxxvii

Coveredin NCIAL STATEMENTS OF GROUPS OFENTITIESQ3(c)Group accounting including statements ofcash flow12, 13,1713–Complex groups–Associates–Joint venturesQ1(a),Q2Q3–Group statements of cash flowsQ1(a)Q1Q1(a)Q3Q1(a)Q1(a)Continuing and discontinued interests–Discontinued operations–Non-current assets held for saleQ2Q3(a)Q2Changes in group structure14–Mid year acquisitions–Disposals–Business combinations achieved instages–Group reorganisationsQ2Q1(a)Q2Q1(a),(b)Q1(a),(b)Q 1(b)Q1(a),Q2Q1(a)Q1(a)Q2Foreign transactions and entities16–Foreign currency transactions–Foreign )Q1(a),(b)SPECIALISED ENTITIES20Financial reporting in specialised, not-forprofit and public sector entitiesQ2Q3Q3Q2, Q3IMPLICATIONS OF CHANGES INACCOUNTING REGULATION ONFINANCIAL REPORTING21The effect of changes in accountingstandards on accounting systems12Proposed changes to accounting standardsQ4(a)Q2(a),(b)THE APPRAISAL OF FINANCIALPERFORMANCE AND POSITION ENTITIES18The creation of suitable accounting policies18Analysis and interpretation of financialinformation and measurement ofperformanceQ2(b),Q3Q1(b)CURRENT DEVELOPMENTS3, 19Environmental and social reportingQ1(b)19Convergence between national andinternational reporting standardsQ4(a)19Comparison of national reportingrequirementsQ4(b)Current reporting issues1, 6, 19xxxviii–Conceptual Framework–Fair value measurement–Management commentary–Pensions–Revenue recognitionIntroductionQ4Q1(a)Q4Q1(a)

PARTARegulatory and ethicalframework1

2

Financial reportingframeworkTopic listSyllabus reference1 International Financial Reporting Standards (IFRSs)A12 Corporate governanceC13 Conceptual frameworkB24 Revenue recognitionA2, B1IntroductionWelcome to the Corporate Reporting paper using International FinancialReporting Standards (IFRS). This paper is about thinking and applying yourknowledge of the IFRS. Most of the standards and topics have been covered inyour earlier studies. However, at the Professional level, you need to thinkcritically about them and show an understanding of topical issues. In the exam,you will need to put yourself in the role of an adviser to a business entity, usingyour knowledge to give practical advice.In the exam, you will often be required to consider the impact of proposedchanges to IFRS. Any such proposals are dealt with in this Study Text withinthe topic to which they relate.3

Study guideIntellectual levelA1Professional behaviour and compliance with accounting standards(a)B1Appraise the ethical and professional issues in advising on corporatereportingAssess the relevance and importance of ethical and professional issues incomplying with accounting standardsEthical requirements of corporate reporting and the consequences ofunethical behaviourAppraise the potential ethical implications of professional and managerialdecisions in the preparation of corporate reportsThe applications, strengths and weaknesses of an accounting framework(a)Evaluate the valuation models adopted by standard settersC1Performance reporting(a)Prepare reports relating to corporate performance for external stakeholdersB2The applications, strength and weaknesses of an accounting framework(a)Evaluate the valuation models adopted by standard setters3(b)Discuss the use of an accounting framework in underpinning the productionof accounting standards3(c)Assess the success of such a framework in introducing rigorous andconsistent accounting standards3(b)A2(a)3333Exam guideThis chapter is partly background knowledge to set the scene about the reporting framework before youlook at ethical issues. It also discusses the Management Commentary and the Conceptual Framework.The examiner has stated that revenue recognition is important.1 International Financial Reporting Standards (IFRSs)One of the competences you need to fulfil Objective 10 of the Practical Experience Requirement (PER) is torecognise and apply the external legal and professional framework and regulations to financial reporting.You can apply the knowledge you obtain from this section of the Text to demonstrate this competence.To date the IASB has the following standards in issue.1.1 Current accounting standards and documents examinable at P2The documents listed as being examinable are the latest that were issued before 30 September 2012, andwill be examinable in sittings up to June 2014. This Study Text is for exams up to and including June2014.[For sittings beyond June 2014, the exam year will run from 1 September to the following 31 August. Thecut off relating to examinable documents will be set 12 months prior to the start of the year. The first examyear that will use this new cycle is the 12 months that commences 1 September 2014, in other words theDecember 2014 exams onwards.]The study guide offers more detail guidance on the depth and level at which the examinable documentswill be examined. The study guide should be read in conjunction with the examinable documents list.41: Financial reporting framework Part A Regulatory and ethical framework

TitleDate issuedInternational Accounting Standards (IASs) / InternationalFinancial Reporting Standards (IFRSs)IAS 1Presentation of financial statementsDec 03, rev. Sept07 and June 11IAS 2InventoriesDec 03IAS 7Statement of cash flowsDec 92IAS 8Accounting policies, changes in accounting estimates anderrorsDec 03IAS 10Events after the reporting periodDec 03IAS 12Income taxesNov 00IAS 16Property, plant and equipmentDec 03IAS 17LeasesDec 03IAS 18RevenueDec 93IAS 19Employee benefitsNov 00, revised2011IAS 20Accounting for government grants and disclosure ofgovernment assistanceJan 95IAS 21The effects of changes in foreign exchange ratesDec 03IAS 23Borrowing costsDec 93IAS 24Related party disclosuresDec 03IAS 27Separate financial statementsDec 03, revised2011IAS 28Investments in associates and joint venturesDec 03, revised2011IAS 32Financial Instruments: presentationDec 03IAS 33Earnings per shareDec 03IAS 34Interim financial reportingFeb 98IAS 36Impairment of assetsJune 98IAS 37Provisions, contingent liabilities and contingent assetsSept 98IAS 38Intangible assetsSept 98IAS 39Financial Instruments: recognition and measurementDec 03IAS 40Investment propertyDec 03IFRS 1First-time adoption of International Financial ReportingStandardsJune 03IFRS 2Share-based paymentFeb 04IFRS 3Business combinationsMar 04, revisedJan 08IFRS 5Non-current assets held for sale and discontinued operationsMar 04IFRS 7Financial instruments: disclosuresAug 05IFRS 8Operating segmentsNov 06IFRS 9Financial instrumentsNov 09IFRS 10Consolidated financial statementsMay 11Part A Regulatory and ethical framework 1: Financial reporting framework5

TitleDate issuedIFRS 11Joint arrangementsMay 11IFRS 12Disclosure of interests in other entitiesMay 11IFRS 13Fair value measurementMay 11IFRSFor Small and Medium-sized EntitiesJuly 09Other StatementsConceptual Framework for Financial Reporting (Chapters 1, 3 and 4)Practice Statement: Management CommentaryEDs, Discussion Papers and Other DocumentsEDAn improved conceptual framework for financial reporting. Chapter 2EDFinancial instruments: amortised cost and impairment (including expected lossapproach)EDMeasurement of liabilities in IAS 37EDRevenue from contracts with customersEDLeasesED/Draft IFRSHedge accountingEDOffsetting financial assets and liabilitiesEDImprovements to IFRSsEDImprovements to IFRSsEDInvestm

1 Financial reporting framework 3 2 Professional and ethical duty of the accountant 25 3 Environmental and social reporting 55 Part B Accounting standards 4 Non-current assets 81 5 Employee benefits 125 6 Income t