Institute of Chartered Accountants in England and Wales (ICAEW) ACA Advanced Level: Corporate Reporting Syllabus

Advanced Level: Corporate Reporting syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Advanced Level: Corporate Reporting in Institute of Chartered Accountants in England and Wales (ICAEW) ACA, not a summary of it.

1. 1

   Advanced Group Accounting

   4 topics

   • Complex group structures
     • Sub-subsidiaries and indirect holdings
     • Step acquisitions and disposals
   • Changes in group composition and control
     • Loss of control and deemed disposals
     • Acquisitions achieved in stages
   • Foreign subsidiaries and translation (IAS 21)
   • Group statement of cash flows
2. 2

   Complex Financial Reporting Issues

   4 topics

   • Financial instruments in depth (IFRS 9 and IFRS 7)
     • Classification, measurement and impairment
     • Hedge accounting
   • Share-based payment (IFRS 2)
   • Employee benefits and pensions (IAS 19)
   • Deferred tax (IAS 12) and revenue recognition complexities
3. 3

   Reporting Performance and Disclosure

   4 topics

   • Analysis and interpretation of financial statements
     • Ratio analysis and trend analysis
     • Limitations and the impact of accounting choices
   • Segment reporting, related parties and earnings per share
   • Sustainability and non-financial reporting
     • IFRS Sustainability Disclosure Standards
     • Integrated and narrative reporting
   • Current developments and ethical reporting judgements
4. 4

   Assurance and Reporting Ethics at Advanced Level

   3 topics

   • Ethical and professional issues in corporate reporting
     • Creative accounting and earnings management
     • Applying the ICAEW Code of Ethics to reporting
   • Assurance reports on financial information
   • Reporting to those charged with governance

Advanced Level: Corporate Reporting flashcards for Institute of Chartered Accountants in England and Wales (ICAEW) ACA

19 of 50 cards from the Advanced Level: Corporate Reporting deck — real questions with worked answers.

1. In a complex group with a sub-subsidiary held via an intermediate (vertical group), how is the parent's effective interest in the sub-subsidiary calculated?

   Multiply the ownership percentages down the chain. If P owns 80% of S, and S owns 75% of T, the parent's effective interest in T is $0.80 \times 0.75 = 0.60$, i.e. 60%. The non-controlling interest in T is therefore 40% (20% indirect + 20% direct via S's NCI).

2. In a 'D-shaped' (mixed/indirect) group, how do you determine the date control over the sub-subsidiary is gained for consolidation purposes?

   Control over the sub-subsidiary is gained on the later of the date the parent acquired control of the intermediate parent and the date the intermediate parent acquired the sub-subsidiary. Goodwill and pre/post-acquisition reserves of the sub-subsidiary are measured from that later date.

3. What is the accounting treatment when a parent increases its stake in an existing subsidiary (e.g. from 70% to 90%) while retaining control?

   It is treated as a transaction between owners (equity transaction), not a re-measurement. No gain/loss or goodwill arises. The difference between the consideration paid and the carrying amount of the NCI acquired is adjusted directly in the parent's equity (typically a 'NCI adjustment' within reserves).

4. What is the accounting treatment when a parent disposes of part of its interest in a subsidiary but retains control?

   It is an equity transaction. NCI is increased by the share of net assets transferred, and the difference between proceeds and the increase in NCI is recognised directly in equity (parent's reserves). No gain or loss goes to profit or loss and goodwill is unchanged.

5. On disposal of a controlling interest such that control is lost, how is the gain or loss on disposal in the consolidated financial statements calculated?

   $$\text{Gain/loss} = (\text{Fair value of consideration} + \text{Fair value of any retained interest}) - (\text{Net assets} + \text{Goodwill} - \text{NCI})\text{ at disposal date}$$ Any related amounts in other comprehensive income are also reclassified/transferred as required by the relevant standard.

6. When control is lost but a residual interest is retained (e.g. becoming an associate), how is the retained investment measured?

   The retained interest is re-measured to its fair value at the date control is lost. That fair value becomes the new carrying amount (e.g. the deemed cost of an associate under IAS 28) and forms part of the gain/loss on disposal calculation.

7. Under IAS 21, what is an entity's functional currency?

   The currency of the primary economic environment in which the entity operates — normally the currency that mainly influences sales prices for its goods/services and the currency that mainly influences labour, material and other costs. It is a matter of fact, not choice.

8. Under IAS 21, how are a foreign subsidiary's results and financial position translated into the group's presentation currency?

   Assets and liabilities are translated at the closing (year-end) rate; income and expenses are translated at the rates at the dates of the transactions (often an average rate as an approximation); resulting exchange differences are recognised in other comprehensive income (a separate translation reserve in equity).

9. Under IAS 21, how is goodwill arising on the acquisition of a foreign subsidiary treated for translation?

   Goodwill is treated as an asset of the foreign operation, expressed in the subsidiary's functional currency, and retranslated at the closing rate at each reporting date. The exchange difference on goodwill is recognised in other comprehensive income (translation reserve).

10. Under IAS 21, what happens to cumulative exchange differences in the translation reserve when a foreign operation is disposed of?

    On disposal (loss of control), the cumulative amount of exchange differences relating to that foreign operation, previously recognised in OCI, is reclassified from equity to profit or loss as part of the gain or loss on disposal.

11. Under IAS 21, how are monetary versus non-monetary items measured at the reporting date for foreign currency transactions in an entity's own functional currency?

    Monetary items are retranslated at the closing rate (differences to P&L). Non-monetary items measured at historical cost stay at the rate at the transaction date. Non-monetary items measured at fair value are translated at the rate when fair value was determined.

12. In a group statement of cash flows, what general principle applies to intra-group cash flows?

    All intra-group cash flows (e.g. inter-company loans, intra-group dividends, intra-group trading) are eliminated; only cash flows between the group and parties external to the group are reported.

13. How is the cash effect of acquiring a subsidiary during the year presented in a group statement of cash flows (IAS 7)?

    It is shown as a single net line within investing activities: cash consideration paid less cash and cash equivalents acquired with the subsidiary. The subsidiary's individual assets and liabilities acquired are excluded from the movements used to derive operating cash flows.

14. In a group statement of cash flows, how are dividends paid to non-controlling interests calculated and presented?

    Presented under financing activities. The amount is derived from the NCI balance: $$\text{Dividends to NCI} = \text{Opening NCI} + \text{NCI share of profit/TCI} + \text{NCI on acquisitions} - \text{NCI on disposals} - \text{Closing NCI}$$

15. How is the cash flow relating to an associate accounted for under the equity method presented in a group statement of cash flows?

    The group's share of the associate's profit is a non-cash item, so it is removed in arriving at operating cash flows. Only actual cash flows — dividends received from the associate — are reported (commonly under investing activities).

16. Under IFRS 9, what are the three classification categories for financial assets that are debt instruments, and what determines the category?

    Amortised cost; fair value through OCI (FVOCI); and fair value through profit or loss (FVTPL). Classification depends on the entity's business model for managing the assets and whether the contractual cash flows are solely payments of principal and interest (the SPPI test).

17. Under IFRS 9, which business model and cash-flow conditions lead to a debt asset being measured at amortised cost?

    Both must hold: (1) the business model is to hold the asset to collect contractual cash flows, and (2) the contractual cash flows are solely payments of principal and interest (SPPI) on the outstanding principal.

18. Under IFRS 9, how may an entity elect to present gains and losses on an equity investment not held for trading?

    It may make an irrevocable election at initial recognition to present fair value changes in OCI (FVOCI). Dividends still go to P&L, but the OCI gains/losses are never recycled to profit or loss — they may only be transferred within equity on derecognition.

19. Under IFRS 9, describe the 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 but not credit-impaired — recognise lifetime ECL, interest on gross. Stage 3: credit-impaired — lifetime ECL, interest on net (amortised) carrying amount.

See more Advanced Level: Corporate Reporting flashcards →

Planning Advanced Level: Corporate Reporting for Institute of Chartered Accountants in England and Wales (ICAEW) ACA

Advanced Level: Corporate Reporting (Institute of Chartered Accountants in England and Wales (ICAEW) ACA) FAQ