Association of Chartered Certified Accountants (ACCA) Strategic Business Reporting (SBR) Syllabus

State the order in which an impairment loss is allocated to assets within a cash-generating unit (CGU) under IAS 36.

First to any goodwill allocated to the CGU; then to the other assets of the unit pro rata on the basis of their carrying amounts. No individual asset is reduced below the highest of its fair value less costs of disposal, value in use, or zero.

Under IFRS 16, how does a lessee initially account for a lease, and what is excluded?

The lessee recognises a right-of-use asset and a lease liability at the present value of lease payments. The liability is measured at the PV of unpaid payments discounted at the interest rate implicit in the lease (or incremental borrowing rate). Exemptions: short-term leases (≤12 months) and leases of low-value assets, expensed on a straight-line basis.

How does a lessor classify leases under IFRS 16, and what distinguishes the two types?

As a finance lease (transfers substantially all the risks and rewards incidental to ownership) or an operating lease (does not). Indicators of finance lease: ownership transfers, bargain purchase option, lease term is major part of economic life, PV of payments ≈ fair value, or asset is specialised.

Under IAS 19, distinguish a defined contribution plan from a defined benefit plan and where the actuarial risk lies.

In a defined contribution plan the employer pays fixed contributions and bears no further obligation — actuarial/investment risk lies with the employee. In a defined benefit plan the employer guarantees specified benefits — the employer bears actuarial and investment risk and must recognise a net defined benefit asset/liability.

What are the components of the defined benefit cost under IAS 19, and where is each recognised?

(1) Service cost (current + past service cost and any settlement gains/losses) — in P&L; (2) Net interest on the net defined benefit liability/asset — in P&L; (3) Remeasurements (actuarial gains/losses and the return on plan assets excluding amounts in net interest) — in OCI, not reclassified to P&L.

Under IFRS 2, how are equity-settled and cash-settled share-based payments measured and remeasured?

Equity-settled: measured at the fair value of the goods/services or, for employees, at the grant-date fair value of the equity instruments — not remeasured (only the number expected to vest is revised). Cash-settled: measured at the fair value of the liability and remeasured at each reporting date with changes in P&L.

Under IFRS 2, how are vesting conditions treated when estimating the share-based payment expense?

Market conditions (and non-vesting conditions) are reflected in the grant-date fair value and are not revised. Service and non-market performance (vesting) conditions are not in fair value but are reflected by adjusting the number of instruments expected to vest, with a 'true-up' to the actual number vesting.

Under IFRS 9, what are the three classification categories for financial assets and what determines classification?

Amortised cost; Fair value through other comprehensive income (FVOCI); and Fair value through profit or loss (FVTPL). Classification depends on the business model for managing the assets and the contractual cash flow characteristics (the SPPI test — solely payments of principal and interest).

Under IFRS 9, when is a financial asset measured at amortised cost?

When both: (1) the business model objective is to hold the asset to collect contractual cash flows; and (2) the contractual cash flows are solely payments of principal and interest on the principal outstanding (SPPI test).

Describe the IFRS 9 'three-stage' expected credit loss (ECL) impairment model.

Stage 1 (no significant increase in credit risk): recognise 12-month ECL, interest on gross carrying amount. Stage 2 (significant increase in credit risk, not yet credit-impaired): lifetime ECL, interest on gross amount. Stage 3 (credit-impaired): lifetime ECL, interest on net (amortised cost) carrying amount.

Under IFRS 9, when can hedge accounting be applied and what are the three types of hedge relationship?

Hedge accounting requires a formally designated and documented hedge relationship that is expected to be highly effective. The three types are: fair value hedge, cash flow hedge, and hedge of a net investment in a foreign operation.

Distinguish between a financial liability and equity under IAS 32 using a key test.

An instrument is a financial liability if there is a contractual obligation to deliver cash or another financial asset (or to exchange under potentially unfavourable conditions). It is equity if there is no such obligation and it evidences a residual interest in the entity's assets after deducting liabilities. Substance over legal form governs (e.g. redeemable preference shares with mandatory dividends are liabilities).

Under IAS 12, how is a deferred tax liability/asset defined in terms of temporary differences?

A temporary difference is the difference between the carrying amount of an asset/liability and its tax base. Taxable temporary differences give rise to deferred tax liabilities; deductible temporary differences (and unused tax losses/credits) give rise to deferred tax assets, recognised only to the extent future taxable profit is probable.

Give the formula for the tax base of an asset and explain a deferred tax liability arising from accelerated tax depreciation.

Tax base of an asset = future deductible amount for tax purposes (often cost less tax depreciation/capital allowances claimed). If tax depreciation exceeds accounting depreciation, carrying amount > tax base, creating a taxable temporary difference and a deferred tax liability.

Under IAS 21, how do you distinguish monetary and non-monetary items for retranslation at the reporting date?

Monetary items (units of currency held and assets/liabilities to be received/paid in fixed determinable amounts, e.g. cash, receivables, payables, loans) are retranslated at the closing rate. Non-monetary items measured at historical cost stay at the historical rate; non-monetary items at fair value use the rate at the date fair value was determined.

Under IAS 21, where are exchange differences on monetary items recognised in an individual entity's financial statements?

In profit or loss in the period in which they arise (except for exchange differences on a monetary item forming part of a net investment in a foreign operation in consolidated statements, or on certain qualifying hedges).

Under IFRS 3, how is goodwill on a business combination calculated (full goodwill method)?

Goodwill = (consideration transferred + non-controlling interest measured at fair value + fair value of any previously held equity interest) − the fair value of identifiable net assets acquired. Under the partial method, NCI is measured at its proportionate share of identifiable net assets instead.

In a complex group with a sub-subsidiary (D-shaped/indirect holding), how is the effective interest and NCI determined?

The effective interest of the parent in the sub-subsidiary = parent's % in the intermediate subsidiary × the intermediate subsidiary's % in the sub-subsidiary. NCI is the remaining interest. Control is assessed first (the group controls the sub-subsidiary if it controls the chain), then ownership percentages drive the NCI calculation.

Under IFRS 10, what three elements must all be present for an investor to control an investee?

(1) Power over the investee (existing rights giving the current ability to direct the relevant activities); (2) exposure or rights to variable returns from involvement; and (3) the ability to use power over the investee to affect the amount of those returns.

When a parent acquires a subsidiary in stages (step acquisition) achieving control, how is the previously held interest treated under IFRS 3?

The previously held equity interest is remeasured to its fair value at the date control is obtained, and the resulting gain or loss is recognised in profit or loss. This fair value is then included in the goodwill calculation as part of the consideration.

How is a change in a parent's ownership interest in a subsidiary that does not result in loss of control accounted for?

As an equity transaction (transaction between owners). No gain/loss is recognised in profit or loss and goodwill is not remeasured; the difference between the consideration and the adjustment to NCI is recognised directly in equity (attributable to the parent).

When a parent loses control of a subsidiary (disposal), how is the gain or loss on disposal calculated under IFRS 10?

Gain/loss = (fair value of consideration received + fair value of any retained interest + carrying amount of NCI derecognised) − (carrying amount of net assets disposed of including goodwill) ± reclassification of related amounts from OCI. Any retained interest is recognised at fair value at the date control is lost.

In consolidating a foreign subsidiary under IAS 21, which exchange rates are used for assets/liabilities, income/expenses, and how are differences treated?

Assets and liabilities are translated at the closing rate; income and expenses at the rate at the dates of transactions (average rate as approximation). The resulting exchange differences are recognised in OCI (translation reserve) and reclassified to P&L on disposal of the foreign operation.

In a consolidated statement of cash flows, how are dividends received from associates and dividends paid to NCI typically classified?

Dividends received from associates are usually shown under investing activities (or operating). Dividends paid to non-controlling interests are shown under financing activities. The group cash flow excludes the associate's own cash flows (only the dividend received is included).

Under IAS 28, define an associate and significant influence, including the rebuttable presumption.

An associate is an entity over which the investor has significant influence — the power to participate in financial and operating policy decisions but not control or joint control. Significant influence is presumed when the investor holds 20%–50% of voting power (rebuttable in either direction by evidence).

Outline the equity method for an associate under IAS 28.

The investment is initially recognised at cost and subsequently adjusted for the investor's share of the associate's post-acquisition profit or loss (in P&L) and OCI. Dividends received reduce the carrying amount. The investment is tested for impairment as a single asset.

Under IFRS 11, distinguish a joint operation from a joint venture and how each is accounted for.

A joint operation gives the parties rights to the assets and obligations for the liabilities — each party recognises its share of assets, liabilities, revenue and expenses. A joint venture gives the parties rights to the net assets — accounted for using the equity method (IAS 28).

What is the key recognition and measurement principle of IAS 41 Agriculture for biological assets?

Biological assets are measured at fair value less costs to sell, with changes recognised in profit or loss. At the point of harvest, agricultural produce is measured at fair value less costs to sell, which becomes its deemed cost under IAS 2 thereafter.

Under IFRS for SMEs, name two key simplifications compared with full IFRS.

Examples: goodwill and indefinite-life intangibles are amortised (default useful life if not reliably estimable, e.g. 10 years) rather than annually impairment-tested; all borrowing and development costs are expensed (no capitalisation); fewer disclosures; cost model for investment property unless fair value is readily available. (An entity using IFRS for SMEs must have no public accountability.)

What is integrated reporting (<IR>), and what are the six capitals it considers?

Integrated reporting communicates how an organisation's strategy, governance, performance and prospects create value over time. The six capitals are: Financial, Manufactured, Intellectual, Human, Social and relationship, and Natural capital.

In analysis and interpretation for stakeholders, why must ratios be used with caution and what are limitations of ratio analysis?

Ratios are affected by accounting policy choices, estimates and one-off items; they ignore qualitative/non-financial factors; comparability is reduced by different policies, year-ends, sizes and industries; historical cost figures may not reflect current values; and creative accounting/off-balance-sheet items can distort them. They show symptoms, not causes.

Critically appraise why off-balance-sheet finance and the 'substance over form' issue concern users of financial statements.

Off-balance-sheet finance structures transactions so liabilities/assets are not recognised (e.g. some leases historically, special purpose entities, factoring with recourse), understating gearing and overstating performance. Applying substance over form (and standards like IFRS 16, IFRS 10) ensures the economic reality is reported so users are not misled about risk and solvency.