ACA ADVANCED STAGE SYLLABUS BUSINESS REPORTING

Transcription

1 C DVNCED STGE SYLLUS USINESS REPORTING ICEW 2013

2 C OVERVIEW im The C is regarded globally as one of the leading business and finance qualifications and is recognised and valued in practice, industry, commerce and the public sector. The C qualification aims to ensure that all newly qualified chartered accountants have the technical and professional skills required to meet the professional challenges likely to be faced and to provide a platform on which to build continuing professional development. Structure The syllabus has been designed to develop core technical, commercial, and ethical skills and knowledge in a structured and rigorous manner. Progression through the C modules, in combination with integrated and monitored work experience, will equip and prepare candidates for the demanding multi-disciplinary case study. This final module assesses key skills of analysis, synthesis and communication, commercial and ethical awareness and the application of professional judgement. The diagram above shows the twelve modules at the Professional Stage, where the focus is on the acquisition and application of technical skills and knowledge, and the dvanced Stage which comprises two technical integration modules and the Case Study. Ethics is embedded throughout the qualification and there are specific learning outcomes included in a number of the modules. The syllabus has been designed to ensure candidates understand the fundamental principles of ethics, can apply relevant ethical guidance and are able to recommend actions to resolve ethical issues. ICEW 2013

3 DVNCED STGE im The dvanced Stage of the C qualification is designed to ensure that candidates are able to integrate and apply their technical, professional and ethical skills in a variety of business environments. The dvanced Stage has been constructed to ensure that candidates: are able to identify and evaluate a broad range of business issues and communicate appropriate advice provide relevant and correct technical advice, whilst ensuring that the business implications of the advice given are understood apply the highest level of professional and ethical skills to business and technical issues maintain their awareness of important emerging business issues are provided with the platform to develop their skills within a continuing professional development framework Structure and progression There are three dvanced Stage modules: the Case Study and two underpinning technical integration modules. The two technical integration modules are usiness Reporting and usiness Change. The Professional Stage consists of knowledge modules and application modules. The Knowledge modules introduce the core technical knowledge and skills required by a chartered accountant. The application modules further develop and assess practical application of technical knowledge and skills. ICEW

4 The technical knowledge acquired at the Professional Stage is developed to an advanced level and integrated in a broader range of business scenarios in the dvanced Stage technical integration modules. The application of technical knowledge in these modules requires an appreciation of the typical issues and problems facing businesses and their relationship to corporate reporting, assurance and taxation. greater depth of business and financial analysis will be required to understand the implications and risks arising from the business issues. New technical topics are introduced in the technical integration modules, that are not dealt with elsewhere in the syllabus. deeper level of technical ability is expected of candidates across the entire C syllabus to reflect the greater financial and business awareness needs of trainee chartered accountants approaching qualification. This is reflected particularly in assessing candidates proficiency and ability to integrate knowledge and skills both within and across technical subjects in a range of complex business scenarios. Candidates will also be required to apply professional knowledge using more advanced skills in the technical integration modules. These professional skills are then examined to a greater extent in the final C module: the Case Study. This module requires higher level cognitive skills, analytical and evaluative skills and emphasises the importance of communication and articulation skills. The table on page 8 identifies the skills progression through the C qualification. Syllabus This document presents the high level learning outcomes for the two technical integration modules and sets out the skills requirements for the Case Study. The learning outcomes and technical knowledge set out in this document apply to all sittings in 2014 and the final sitting in July The appendix contains details of the technical knowledge required for the dvanced Stage. ssessment The two technical integration modules will be examined using traditional paper based assessments. Each paper based exam will be 3.5 hours in length. These exams will contain questions requiring the integration of knowledge both within technical disciplines and across technical disciplines. Questions integrated across all subject streams are an essential step towards the Case Study but will generally have more structure and guidance than those at the Case Study. The Case Study will continue in its present format of a 4 hour written exam with advance information provided to candidates ahead of the exam and impact information issued in the exam, containing the Case Study requirements. Flexibility There are no regulations stipulating the order in which candidates must attempt the technical integration modules. The Case Study must be the final module attempted and can only be attempted in the final year of a training contract. There is no restriction on the number of attempts permitted at each advanced stage module. Open ook Policy Candidates may take any written or printed material into the exam hall subject to practical space restrictions. ICEW

5 THE LINK TO WORK EXPERIENCE The work experience requirements for students provide a framework to develop appropriate work experience, completion of which is essential in order to qualify for membership. Work experience is also an essential component for examination preparation. The work experience framework is built around five key skills: usiness awareness being aware of the internal and external issues and pressure for change facing an organisation and assessing an organisation s performance. Technical and functional expertise applying syllabus learning outcomes and where appropriate, further technical knowledge to real situations. Ethics and professionalism recognising issues, using knowledge and experience to assess implications, making confident decisions and recommendations. Professional judgement making recommendations and adding value with appropriate, targeted and relevant solutions. Personal effectiveness developing, maintaining and exercising skills and personal attributes necessary for the role and responsibilities. The examinations, and in particular the dvanced Stage, embrace all of these skills. The link between work experience and the examinations is demonstrated by the skills development grids produced by the examiners. This will help candidates see that their practical knowledge and skills gained in the workplace feed back into the exam room and vice-versa. ICEW

6 The message is clear students should use the work experience framework and skills development grids to ensure success in exam performance and success in their workplace performance. The appendices to this syllabus contain the following grids: ppendix : Technical Knowledge ppendix : usiness Reporting ppendix C: usiness Change ppendix D: Case Study The grid below together with those in appendices,c and D set out the learning outcomes that are addressed under each of the skills areas. In addition, for each skills area, there is a description of: The specific skills that are assessed How these skills are assessed ll appendices should be read in conjunction with the technical syllabus for each subject. ICEW

7 SKILLS PROGRESSION THROUGH THE C QULIFICTION ssessed skills Professional Stage dvanced Stage ssimilating and using information Understanding the subject matter and identifying issues ccessing, evaluating and managing information Using technical knowledge and professional experience Structuring problems and solutions Knowledge modules pplication modules Technical Integration Case Study Specific issues Simple scenarios Complex scenarios Unstructured complex business scenarios Information/data as provided Highly structured application of non-integrated knowledge Single information source provided Structured application of nonintegrated knowledge Multiple information sources provided Structured application of integrated and non-integrated knowledge and experience Using analytical tools Specified tools Specified tools Tools inferred by nature of problem nalysing and evaluating problems pplying judgement ssessing quality of information ssessing options and priorities including ethical issues Considering other perspectives Highly specified tasks Specified non-integrated problems Specified integrated and nonintegrated problems Multiple information sources including own research Unstructured application of integrated knowledge and experience Unspecified tools Defined output but unspecified problems Objective testing Specified in simple scenario Specified in complex scenario Underlying requirement within complex scenario Options given Conclusions and recommendations and communication Drawing conclusions and making recommendations Presenting data and written work Options included in simple scenario Options included in complex scenario alanced judgement of priorities and risks in unstructured scenario Not assessed Possible alternative provided lternative(s) provided lternatives identified using professional experience Not assessed Prescribed exam format Specified conclusions and recommendations in simple scenarios Exam requirements, including some professional presentation Specified conclusions and recommendations in complex scenarios Short written professional presentations Conclusions and recommendations supported by own evidence Professional report with appendices and executive summary ICEW 2013

8 USINESS REPORTING Module aim To ensure that candidates can apply analysis techniques, technical knowledge and professional skills to resolve real-life compliance issues faced by businesses. Candidates may be put, for example, in the role of a preparer of financial statements, or other corporate reports such as on sustainability and corporate responsibility, an advisor or in an assurance role facing business issues where there are reporting implications. Compliance issues relating to taxation will also feature in this module. Candidates will be required to use professional judgement to identify and evaluate alternatives and determine the appropriate solution(s) to compliance issues, giving due consideration to the commercial impact of their recommendations. Specification grid This grid provides a general guide as to the subject matter within this module and assessment coverage over a period of time. Syllabus area Weighting (%) Ethics and law 5-10 Taxation udit and assurance Corporate reporting usiness analysis 0 Examples of usiness scenarios The business scenarios listed below provide an understanding of the likely context in which technical knowledge and ethical awareness will be assessed. The scenarios relate to things that have happened or are happening within a business and will be presented in individual, group and international contexts. 1. usiness and ethical issues including situations of business risk in the process of stakeholder communication 2. usiness and ethical issues in the process of tax compliance work including situations with corporate reporting implications 3. Current taxation and corporate reporting issues for businesses 4. Undertaking controls and systems process assurance projects including review and testing of controls and reporting to management 5. ssessment of controls including IT and E-commerce controls 6. reaches of laws and regulations that may require forensic accounting and investigation projects to assess risk and provide management with information to decide upon appropriate actions 7. Issues of earnings management, creative accounting and aggressive earnings management 8. usinesses undertaking major projects and/or organisational or process transformation 9. Issues arising from raising finance, including issues of compilation of financial information, production of prospective financial information and implications for corporate reporting 10. Issues arising from corporate transformations and group reorganisations 11. Issues arising from International corporate expansion including situations with taxation and corporate reporting implications 12. Issues arising from use of complex financial instruments in business finance and risk management ICEW

9 Integrated learning outcomes The following learning outcomes should be read in conjunction with the Technical Knowledge Grids contained in ppendix. On completion of this module candidates will be able to: 1. identify and explain ethical issues and recommend appropriate actions to solve ethical dilemmas in a given business scenario 2. report objectively in a complex environment of business opportunities and threats within the legal, regulatory and compliance environment when: preparing and presenting corporate reports - including preparing and presenting financial statements, other information included in reports and interim financial reporting presenting corporate governance reports in accordance with the revised combined code presenting corporate responsibility, environment, sustainability and social reports 3. evaluate and apply appropriate corporate reporting treatments to given scenarios 4. evaluate and apply appropriate corporate reporting treatments, including corporate governance reports and sustainability and/or corporate responsibility reports 5. evaluate and apply auditing, assurance and related services standards in complex scenarios 6. analyse and evaluate business risks and their implications for corporate reporting and audit opinions 7. analyse and evaluate financial risks (Including financing, currency and interest rate risks) and their implications for corporate reporting and audit opinions 8. analyse, evaluate and calculate the tax consequences of given scenarios, including circumstances where overseas taxes affect national taxes 9. analyse, evaluate and assist entities in the adherence to regulations surrounding taxation 10. recognise opportunities to use alternative tax treatments arising from past events and transactions 11. analyse and evaluate controls, including IT and E-commerce controls 12. analyse and evaluate appropriate management actions where laws and regulations have been breached 13. recognise the implications for auditors of engagements in connection with investment circulars 14. evaluate and apply appropriate laws and regulations in situations of insolvency, administration, liquidation and bankruptcy 15. evaluate and advise on appropriate corporate governance mechanisms 16. recognise money laundering transactions and related offences and the reporting responsibilities for accountants and auditors (Including proceeds of Crime ct) 17. analyse and evaluate controls over financial reporting (including in the context of COS and S404(a) of the Sarbanes-Oxley ct) 18. analyse and evaluate strengths and weaknesses of corporate governance mechanisms and processes 19. explain and communicate current issues in corporate reporting and assurance 20. undertake appropriate financial analysis to: develop an understanding of a business from financial and operational data and information, provided in draft or published format. assess the quality of such information, by reference to its truth, fairness, credibility and plausibility as a basis for a meaningful analysis of a business s current position, future prospects and risks. apply suitable financial analysis techniques to analyse financial and operational data to bring out and explain a business s position, prospects and risks. review the output of such analysis to identify key sensitivities and risks. communicate the results of such analysis, including any reservations regarding transparency and objectivity of data and information. ICEW

10 PPENDIX TECHNICL KNOWLEDGE The tables contained in this section show the technical knowledge in the disciplines of financial reporting, audit and assurance, business analysis, ethics and taxation covered in the C syllabus by module. For each individual standard the level of knowledge required in the relevant Professional Stage module and at the dvanced Stage is shown. The knowledge levels are defined as follows: Level D n awareness of the scope of the standard. Level C general knowledge with a basic understanding of the subject matter and training in its application thereof sufficient to identify significant issues and evaluate their potential implications or impact. Level working knowledge with a broad understanding of the subject matter and a level of experience in the application thereof sufficient to apply the subject matter in straightforward circumstances. Level thorough knowledge with a solid understanding of the subject matter and experience in the application thereof sufficient to exercise reasonable professional judgement in the application of the subject matter in those circumstances generally encountered by Chartered ccountants. Key to other symbols: the knowledge level reached is assumed to be continued ICEW

11 SSURNCE ND UDIT DVNCED STGE Level The International uditing and ssurance Standards oard C The uthority ttaching to Standards Issued by the International uditing and ssurance Standards oard The uthority ttaching to Practice Statements Issued by the International uditing and ssurance Standards oard Discussion Papers C Working Procedures C International Standards on uditing (UK and Ireland) 200 Overall Objectives of the Independent uditor and the Conduct of an udit in ccordance with International Standards on uditing 210 greeing the Terms of udit Engagements 220 Quality Control for an udit of Financial Statements 230 udit Documentation 240 The uditor s Responsibilities Relating to Fraud in an udit of Financial Statements 250 Consideration of Laws and Regulations in an udit of Financial Statements 250 The uditor s Right and Duty to Report to Regulators in the Financial Sector C 260 Communication with Those Charged with Governance 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Management 300 Planning an udit of Financial Statements 315 Identifying and ssessing the Risks of Material Misstatement Through Understanding the Entity and its Environment 320 Materiality in Planning and Performing an udit 330 The uditor s Responses to ssessed Risks 402 udit Considerations Relating to an Entity Using a Service Organisation 450 Evaluation of Misstatements Identified during the udit 500 udit Evidence 501 udit Evidence - Specific Considerations for Selected Items 505 External Confirmations 510 Initial udit Engagements - Opening alances 520 nalytical Procedures 530 udit Sampling 540 uditing ccounting Estimates, Including Fair Value ccounting Estimates and Related Disclosures 550 Related Parties 560 Subsequent Events 570 Going Concern 580 Written Representations 600 Special Considerations udits of Group Financial Statements (including the Work of Component uditors) 610 Using the Work of Internal uditors 620 Using the Work of an uditor s Expert 700 The uditor s Report on Financial Statements 705 Modifications to the Opinion in the Independent uditor s Report 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent uditor s Report 710 Comparative Information Corresponding Figures and Comparative Financial ICEW

12 DVNCED STGE Level Statements 720 The uditor s Responsibility Relating to Other Information in Documents Containing udited Financial Statements 720 The uditor s Statutory Reporting Responsibility in Relation to Directors Reports International Standards on uditing 800 Special Considerations udits of Financial Statements prepared in ccordance with Special Purpose Frameworks 805 Special Considerations udits of Single Financial Statements and Specific Elements, ccounts or items of a Financial Statement 810 Engagements to Report on Summary Financial Statements International uditing Practice Note (IPN) 1000 Special Considerations in uditing Financial Instruments C International Standards on Review Engagements (ISREs) 2400 Engagements to Review Financial Statements 2410 Review of Interim Financial Information Performed by the Independent uditor of the Entity International Standards on ssurance Engagements (ISEs) 3000 ssurance Engagements Other than udits or Reviews of Historical Financial Information 3400 The Examination of Prospective Financial Information 3402 ssurance Reports on Controls at a Service Organisation International Standards on Related Services (ISRSs) 4400 Engagements to Perform greed-upon Procedures Regarding Financial Information 4410 Engagements to Compile Financial Statements IFC Statements ISQC1 Quality Control for Firms that Perform udits and Reviews of Financial Statements, and Other ssurance and Related Services Engagements P ulletins 2010/2 Compendium of illustrative uditor s Reports on UK Private Sector Financial Statements 21. ICEW

13 USINESS NLYSIS DVNCED STGE Level STRTEGIC NLYSIS Environmental and market analysis tools PESTEL analysis Porter s five forces Product life cycle oston consulting group matrix Competitor analysis Positional and other analysis tools Resource audit Resource-based strategy Value chain analysis SWOT analysis Gap analysis Marketing analysis Competitive advantage enchmarking Directional policy matrix usiness process analysis Strategic risk analysis alanced scorecard STRTEGIC CHOICE Strategy formulation, evaluation and choice usiness risk management Financial analysis and data analysis Stakeholder analysis Objectives and stakeholders preferences Corporate responsibility and sustainability STRTEGIC IMPLEMENTTION usiness plans Organisational structure Information management Change management Project management COST NLYSIS FOR DECISION MKING Costing Cost classification Costing systems direct, marginal, absorption ctivity based costing (C) reak even analysis Multi-product break even analysis udgeting and performance management Pricing ICEW

14 DVNCED STGE Level Pricing decisions Transfer pricing USINESS ND SHREHOLDER VLUE Valuation Techniques Income dividend yield Income P/E Income discounted cash flow sset based measures Options approach Shareholder value Value based management (VM) Value drivers Shareholder value analysis (SV) Short and long term growth rates and terminal values Economic profit Cash flow return on investment (COI) Total shareholder return (TSR) Market value added (MV) INVESTMENT PPRISL ND SIC RISK NLYSIS Project appraisal NPV IRR Payback Relevant cash flows Tax and inflation Replacement nalysis Capital rationing djusted present value (PV) ssessing risk Project appraisal and sensitivity analysis Project appraisal and simulation Expected values Scenario planning Gap analysis Continuous vs. event risk FINNCIL NLYSIS Cost of capital Cost of equity Cost of debt Cost of preference shares Cost of bank loans Weighted average cost of capital (WCC) Effective interest rates Splitting convertibles into equity and debt elements Public sector discount rates Portfolio theory and CPM Portfolio theory CPM PT and MCPM ICEW

15 DVNCED STGE Level CPM and cost of capital International cost of capital onds ond pricing using NPV Yields to maturity Duration and price volatility Convexity Term structure of interest rates Corporate borrowing and default risk SOURCES OF FINNCE ND FINNCING RRNGEMENTS Short, medium and long term sources of finance Loan agreement conditions (warranties; covenants; guarantees) Raising capital Gearing and capital structure Loan agreements and covenants Dividend policy Financing reconstructions (eg: group reconstruction, spin off, purchase of own shares, use of distributable profits) Working capital management FINNCIL ENGINEERING Futures, options and swaps Options Interest rate futures Interest rate options Interest forward rate agreements (s) Interest rate swaps Foreign exchange Currency forward contracts Currency money market cover Currency options Currency swaps Operational techniques for managing currency risk Theoretical determinants of foreign exchange rates Option value Value of a call and put option lack Scholes option pricing model inomial Option Pricing Model Real options ICEW

16 ccounting Financial ccounting Financial Reporting dvanced Stage FINNCIL REPORTING Professional Stage Preface to International Financial Reporting Standards Conceptual Framework for Financial Reporting C IS1 Presentation of Financial Statements IS2 Inventories C IS7 Statement of Cash Flows IS8 ccounting Policies, Changes in ccounting Estimates and Errors IS10 Events after the Reporting Period IS11 Construction Contracts IS12 Income Taxes C IS16 Property, Plant and Equipment C IS17 Leases IS18 Revenue IS19 Employee enefits IS20 ccounting for Government Grants and Disclosure of Government ssistance IS21 The Effects of Changes in Foreign Exchange Rates IS23 orrowing Costs IS24 Related Party Disclosures IS26 ccounting and Reporting by Retirement enefit Plans D IS27 Consolidated and Separate Financial Statements IS28 Investments in ssociates IS29 Financial Reporting in Hyperinflationary Economies D IS31 Interests in Joint Ventures IS32 Financial Instruments: Presentation C IS33 Earnings per Share IS34 Interim Financial Reporting IS36 Impairment of ssets IS37 Provisions, Contingent Liabilities and Contingent ssets IS38 Intangible ssets C IS39 Financial Instruments: Recognition and Measurement C IS40 Investment Property IS41 griculture D IS1 First-Time doption of IS IS2 Share-based Payment IS3 usiness Combinations IS4 Insurance Contracts D IS5 Non-current ssets Held for Sale and Discontinued Operations IS6 Exploration for and Evaluation of Mineral Resources D IS7 Financial Instruments: Disclosures IS8 Operating Segments IS9 Financial Instruments C IS for SMEs C 22. ICEW

17 First Module DIFFERENCES ETWEEN IS ND UK GP The following table identifies the scope of the differences examinable in the C qualification and where they will be introduced. In general, the differences will become examinable where the relevant IS is set at knowledge level. The differences may also be examined in subsequent modules but only in a different context, for example at the dvanced Stage where knowledge of the differences forms part of an integrated question. Where a general awareness only of an accounting standard is expected (knowledge level D ) any differences will also be dealt with at this level. Key: First Module = Financial Reporting S = dvanced Stage 23. Key examinable differences between IS and UK GP Preface to International Financial Reporting Standards Conceptual Framework for Financial Reporting No examinable differences S Statement of Principles for Financial Reporting Qualitative characteristics are based on the IS Framework rather than the revised chapters that form part of the new Conceptual Framework Includes chapters on the reporting entity, presentation and accounting for interests in other entities where there is no direct equivalent in the Conceptual Framework Measurement chapter is more detailed with an emphasis on the deprival value model. Companies ct Format 1 and 2 profit & loss account classifications of expenses are similar to IS1. However, IS1 requires further detail, but not necessarily as individual line items in the statement of comprehensive income. C balance sheet formats are less flexible than IS1 formats that allow a wider choice of classification formats. Differences in terminology used, including a balance sheet which is described as a statement of financial position under IS 1. ICEW

18 First Module Key examinable differences between IS and UK GP IS1 Presentation of Financial Statements S3 Reporting Financial Performance Specifies certain mezzanine exceptional items that must be presented on the face of the profit & loss account after operating profit. IS1 doesn t specify items and doesn t contain the strict concept of exceptional items. Requires separate presentation of profit & loss account and STRGL. IS1 allows a single statement of comprehensive income which combines both. Requires a sub-total for operating profit which is not explicitly required by IS1. S18 ccounting Policies The disclosure requirements for estimation techniques are not as extensive. S18 only requires a discussion of significant estimation techniques. S28 Corresponding mounts Does not specifically require comparative information for narrative and descriptive information to be disclosed. IS2 Inventories IS7 Statement of Cash Flows SSP9 Stocks and Long Term Contracts No examinable differences. S1 Cash Flow Statements llows certain exemptions from preparing a cash flow statement for certain subsidiaries and small companies. No exemptions in IS7. The definition of cash is more restrictive and only includes cash and deposits repayable on demand (within 24 hours). IS7 uses the wider terminology of cash and cash equivalents. Cash flows are classified under eight standard headings rather than three. There is less flexibility as to where certain cash flows, such as interest paid, are presented. ICEW

19 First Module Key examinable differences between IS and UK GP IS8 ccounting Policies, Changes in ccounting Estimates and Errors IS10 Events after the Reporting Period S3 Reporting Financial Performance Comparative financial information is restated where a fundamental prior period error has occurred which is more restrictive than IS 8 which requires restatement for material prior period errors. S18 ccounting Policies Impending changes to accounting policies are not required to be disclosed S28 Corresponding mounts No examinable differences S21 Events fter the alance Sheet Date No examinable differences IS11 Construction Contracts IS12 Income Taxes S SSP9 Stocks and Long-Term Contracts Unlike IS11, service contracts may fall within its scope. Requires the asset representing the gross amount due from customers for contract work to be split between amounts recoverable on contracts (debtors) and long-term contract balances (stocks). Inequalities in profit generation from different stages of a contract should be considered in determining the attributable profit. IS11 is silent on this. S19 Deferred tax Requires deferred taxation to be recognised on the basis of timing differences rather than IS12 s temporary differences. May require deferred taxation to be recognised at a different rate than IS12 for intra-group transactions eliminated on consolidation. S19 permits, but does not require, the discounting of deferred tax balances, whereas IS12 prohibits this. S 19 does not normally recognise deferred taxation on the revaluation of assets ICEW

20 First Module Key examinable differences between IS and UK GP IS16 Property, Plant and Equipment IS17 Leases S15 Tangible Fixed ssets Where assets have been revalued S15 requires the use of existing use value (EUV) rather than fair value. S15 specifies a maximum period of five years between full valuations and an interim valuation every three years. IS16 does not specify a maximum period and the timing of revaluations depends on changes in market values. S15 requires impairment losses to be debited first against any revaluation surplus in respect of the asset unless it reflects a consumption of economic benefits. IS16 does not include such a limitation. The residual values of assets are assessed at the date of acquisition and not adjusted for expected future price changes. However, residual values should be reviewed at each balance sheet date and revised if appropriate. IS16 requires them to be reassessed at the end of each reporting period taking into account current price changes. This may affect the depreciation expense. nnual impairment reviews are required for all assets, which are either depreciated over a period of more than 50 years or not depreciated. IS16 does not include such a requirement. SSP21 ccounting For Leases and Hire Purchase Contracts SSP21 contains the 90% test rebuttable presumption for determining the classification of finance and operating leases. IS17 specifically requires leases of land and buildings to be split at inception as a separate lease of the land and a separate lease of the buildings. Under SSP21 they are considered together. The net cash investment method is used for lessor accounting. IS17 requires the net investment method. UK GP requires operating lease rental incentives to be spread over the shorter of the lease term and the period until the next rent review. IS requires any incentives to be spread over the whole lease term. IS18 Revenue There is no comprehensive UK accounting standard covering revenue. The main principles in S 5 Reporting the Substance of Transactions and IS 18 are consistent. ICEW

21 First Module Key examinable differences between IS and UK GP IS19 Employee enefits IS20 ccounting for Government Grants and Disclosure of Government ssistance S S17 Retirement enefits The scope of IS19 is wider and covers different types of employee compensation. IS19 allows a similar immediate recognition approach to actuarial gains and losses as S17. However, it alternatively permits the deferral from recognition of actuarial gains and losses that remain within a 10% corridor. Deferred tax balances are netted off the net pension scheme asset\liability under S17. Under IS19 they must be shown separately. Companies ct There are no examinable differences IS21 The Effects of Change in Foreign Exchange Rates IS23 orrowing Costs S S23 The Effects of Changes in Foreign Exchange Rates No examinable differences. S15 Tangible Fixed ssets S 15 allows the option for borrowing costs to be capitalised and this is a choice of accounting policy. IS 23 requires directly attributable costs, including borrowing costs, to form part of the cost of the asset. S 15 limits the capitalisation of borrowing costs to the finance costs incurred on the expenditure incurred. IS23 limits the amount to the borrowing costs on the total related funds raised less the investment income from any temporary investment of those funds. S8 Related Party Disclosures IS24 Related Party Unlike IS24, parent company s individual financial statements are exempt from providing Disclosures disclosures when consolidated financial statements are presented. ICEW

22 First Module Key examinable differences between IS and UK GP IS26 ccounting and Reporting by Retirement enefit Plans S Unlike IS24, wholly owned UK subsidiaries are exempt from disclosing transactions with the parent entity Disclosure requirements differ. In general S8 requires the disclosure of the name of the related party where a transaction has occurred whereas IS24 does not. Management compensation disclosures are included in C rather than S8 as well as disclosures on loans and other transactions involving directors. IS24 does not consider the materiality of related party transactions. S8 considers materiality from the perspective of both the company and the related party. No examinable differences. IS27 Consolidated and Separate Financial Statements, S S2 ccounting for Subsidiary Undertakings Includes an exclusion of a subsidiary from consolidation on the grounds of severe long-term restrictions. No exemption exists under IS27. () Under IS27 the existence of potential voting rights should be considered in assessing control. No consideration is required under UK GP. () Requires the non-controlling interest to be presented separately from shareholders funds. IS27 requires it to be shown as a separate component of equity. () IS27 requires changes in a parent s ownership interest in a subsidiary that do not result in the loss of control are accounted for within equity. (S) IS27 requires any investment retained in the former subsidiary following a loss of control to be measured at its fair value at the date when control is lost. S2 does not require this. (S) S9 ssociates and Joint Ventures IS28 Investments in ssociates Prescribes detailed format for equity accounting. IS 28 does not prescribe guidance for the statement of comprehensive income. However, IS1 provides limited guidance which uses a pre-tax presentation of the associate s income. S9 shows the components separately. ICEW

23 First Module Key examinable differences between IS and UK GP IS29 Financial Reporting in Hyperinflationary Economies IS31 Interests in Joint Ventures IS32 Financial Instruments: Presentation IS33 Earnings per Share IS34 Interim Financial Reporting S S Requires investors to recognise their share of any interest in net liabilities. IS28 only requires this where there is a legal or constructive obligation to make good those losses. S24 Financial Reporting in Hyperinflationary Environments No examinable differences S9 ssociates and Joint Ventures Requires the use of the gross equity method rather than proportionate consolidation or equity methods allowed by IS31. S25 Financial Instruments: Disclosure and Presentation No examinable differences. S22 Earnings Per Share No examinable differences. No UK accounting standard on interim financial reporting. IS34 is broadly comparable with the S statement on interim reports. S11 Impairment of fixed assets and goodwill IS36 Impairment of ssets Impairment losses on previously revalued assets are taken to the profit & loss account where they relate to a consumption of economic benefits (see IS16\S15 above) Impairment losses are allocated to goodwill, intangible assets and tangible assets in that order. IS36 allocates the losses to goodwill first and then on a pro-rata basis to intangible and tangible ICEW

24 First Module Key examinable differences between IS and UK GP IS37 Provisions, Contingent Liabilities and Contingent ssets IS38 Intangible ssets assets. S11 is more restrictive on the recognition of the reversal of intangible assets other than goodwill. Unlike IS36, where cash flows have been used to demonstrate the recoverable amount, S11 requires future cash flows to be monitored against those forecasts for the 5 subsequent years (look back test). S12 Provisions, Contingent Liabilities and Contingent ssets No examinable differences SSP13 ccounting for Research and Development The capitalisation of development expenditure is optional. IS38 requires it to be capitalised where it meets the recognition criteria. Development expenditure recognition criteria include a requirement to have a reasonable expectation of future benefits. IS38 is more stringent as the requirement is to demonstrate future benefits. S10 Goodwill and Intangible ssets Only intangible assets that can be sold separately from the business are recognised under UK GP. IS38 allows non-separable assets to be recognised where they arise from contractual or other legal rights. llows amortisation of intangibles over economic life or no amortisation where an indefinite life is assessed. Under IS38 goodwill and indefinite life assets should not be amortised but instead tested annually for impairment. S26 Financial Instruments: Measurement IS39 Financial S No examinable differences Instruments: Recognition ICEW

25 First Module Key examinable differences between IS and UK GP and Measurement IS40 Investment Property SSP19 ccounting for Investment Properties Requires measurement at open market value. IS40 allows a choice between cost and fair value. Investment gains and losses are taken to STRGL unless they represent a permanent deficit in fair value. Under IS40 all gains and losses are recognised in profit or loss. IS41 griculture S No equivalent UK accounting standard. IS1 First-Time doption of IS IS2 Share-based Payment S S Not applicable not relevant to UK GP S20 Share-based Payment No examinable differences S6 cquisitions and Mergers Merger accounting is required when criteria are met. Not permitted under IS. Group reconstructions are merger accounted for (S). Common control transactions are not within scope of IS3 (S). IS3 contains explicit option (not in UK GP) to measure minority interest (or non-controlling interest (NCI)) as fair value. S7 Fair Values in cquisition ccounting IS3 usiness Combinations, S Provides specific guidance on fair value measurement. IS3 only offers brief guidance on fair value measurement. Only requires separable intangible assets to be fair valued. Hence, more intangibles could be recognised under IS3. Requires acquisition-related costs to be included in the cost of the investment. IS3 requires them to be treated as period costs. ICEW

26 First Module Key examinable differences between IS and UK GP IS4 Insurance Contracts IS5 Non-current ssets Held for Sale and Discontinued Operations S Post-acquisition changes to the estimates of contingent consideration affect the amounts of goodwill recognised. IS3 permits few subsequent changes to be reflected in goodwill. S10 Goodwill and Intangible ssets Goodwill is often amortised over its estimated useful economic life. There is a rebuttable presumption that it is not more than 20 years. IS3 prohibits amortisation and requires annual impairment reviews. Negative goodwill is capitalised as a separate item within goodwill and amortised over the period over which any related losses are expected and as acquired non-monetary assets are realised. IS3 requires immediate recognition as a gain in the profit & loss account. Companies ct Contains specific requirements for insurance companies Specific requirements in SORP and S27, Life ssurance S3 Reporting Financial Performance Continuing and discontinued activities must be analysed. Unlike IS5 detailed analysis is shown on face of P&L account. Discontinued classification will often be at a later date than IS5 as disposal must be completed during the reporting period or before the earlier of the approval of the financial statements and three months after year-end. S15 Tangible Fixed ssets Classification and measurement of assets generally continues as normal without regard for the disposal. This includes depreciation until the date of disposal. IS5 on the other hand requires depreciation to cease while a non-current asset is held for sale. S1 Cash flow Statements Encourages the separate disclosure of cash flows from discontinued operations. This is required ICEW

27 First Module Key examinable differences between IS and UK GP IS6 Exploration for and Evaluation of Mineral Resources S rather than encouraged by IS5. SORP discusses the issues surrounding oil and gas exploration and production. IS7 Financial Instruments: Disclosures IS8 Operating Segments 24. S S29 Financial Instruments: Disclosures No examinable differences SSP25 Segmental Reporting Omission of segment information is allowed where disclosure may be seriously prejudicial to the entity s interests. No exemption exists under IS8. Requires disclosures for both geographic and business segments. IS8 requires disclosure about the components of the entity that management uses to make decisions about operating matters. Requires segment information to be prepared in accordance with accounting policies. IS8 requires the amounts reported to be on the same basis as for internal decision making. SSP25 does not require unlisted subsidiaries of listed parents to disclose segment information where the parent has prepared such information. IS in individual company accounts. Candidates may be required to discuss the key issues that need to be considered when considering whether UK companies should retain UK GP for their individual company accounts or to move to IS. This is examinable in the Financial Reporting module. ICEW

28 Principles of Taxation Taxation dvanced Stage TXTION Professional Stage Objectives of taxation C Ethics HM Revenue & Customs Tax evasion and avoidance C USINESS TXTION dministration ppeals C Payments Penalties and interest Self assessment Chargeable gains Chargeable assets C Chargeable disposals C Chargeable persons C Chattels: wasting and non-wasting Costs of acquisition and disposal C Indexation Leases Nil gain/nil loss transfers Part disposals Pre 31 March 1982 assets Qualifying corporate bonds Relief for capital losses Reorganisations and reconstructions Shares and securities (including bonus and rights issues) Chargeable gains reliefs Entrepreneurs relief Gift relief Incorporation relief Rollover relief Substantial shareholding exemption Trading profits djustments to profits adges of trade Capital allowances Foreign currency transactions Long periods of account C Pension contributions Royalty payments Royalty receipts Unincorporated businesses asis of assessment current year basis Change of accounting date Commencement and cessation of trade Overlap profits ICEW

29 Principles of Taxation Taxation dvanced Stage Professional Stage Partnerships Trading losses Companies Taxable total profits Property income (including lease premiums) Trading profits Loan relationships Loan relationships worldwide debt cap Intangible assets Research and development expenditure Research and development tax credits Miscellaneous income Chargeable gains Relief for capital losses Indexation Qualifying donations Trading losses Use of deficit on non-trading loan relationships Corporation tax computation Chargeable accounting periods C Close companies Corporation tax liability Distributions Double tax relief (including underlying tax and withholding tax) Liquidation Provision of services through a company Rates of tax Residence C Groups ssociated companies C Capital gains groups Changes in group structure Change in ownership Consortium relief Controlled foreign companies Degrouping charges Group loss relief Group relationships Non-coterminous accounting periods Overseas companies and branches Pre-acquisition gains and losses Rollover relief Transfer of assets Transfer of pricing Stamp Duty and Stamp Duty Land Tax asic principles Chargeable occasions Exemptions ICEW

30 Principles of Taxation Taxation dvanced Stage Professional Stage VT dministration ppeals C Capitals goods scheme Group aspects Input VT Output VT Overseas aspects Partial exemption Payments Penalties and interest Property transactions Registration and deregistration Small business reliefs Taxable person Taxable supplies Transfer of a business as a going concern VT records and accounts PERSONL TXTION dministration dministration ppeals C PYE Payments Penalties and interest Self assessment Employees llowable deductions against employment income Employment income Share schemes Statutory Mileage Rates Scheme Taxable and exempt benefits Termination payments Other income Dividends from UK companies Enterprise Investment Scheme Investment income ISs Property income C Lease premiums Savings income Venture Capital Trusts Income tax computation Exempt income Gift id Income tax liable and payable Income tax charge on child benefit ICEW

31 Principles of Taxation Taxation dvanced Stage Professional Stage Independent taxation and jointly owned assets Married couples allowance Pension contributions: provision for retirement Pension contributions: tax reliefs Personal age allowance Personal allowance Rates of tax Taxable persons C Capital gains tax nnual exempt amount Chargeable assets C Chargeable disposals C Chargeable persons C Chattels: wasting and non wasting Connected persons Converted trading losses Costs of acquisition and disposal C Leases Nil gain/nil loss transfers Part disposals Pre 31 March 1982 assets Qualifying corporate bonds Rate of tax Relief for capital losses Reorganisations and reconstructions Shares and securities (including bonus and rights issues) Capital gains tax reliefs Letting relief Principal private residence relief Reinvestment relief under EIS National insurance contributions dministration C Classes of NIC C Directors Maximum contributions C Taxable benefits asic principles of inheritance tax Chargeable persons Chargeable property Excluded property Inter-spouse transfers Rates of tax Related property Seven year accumulation period Inheritance tax on lifetime transfers Discretionary trusts Potentially exempt transfers ICEW

32 Principles of Taxation Taxation dvanced Stage Professional Stage Inheritance tax on death Death estate Deeds of variation Lifetime transfers Reliefs and exemptions from inheritance tax gricultural property relief nnual exemption usiness property relief Gifts to charities and political parties Gifts with reservation of benefit Marriage exemption Normal expenditure out of income Quick succession relief Small gifts exemption Taper relief Overseas aspects of personal taxation rising basis Deemed domicile for IHT Domicile Foreign assets income and gains Double tax relief Ordinary residence Remittance basis Residence Temporary absence UK taxation of non-domiciled individuals ICEW