FR - Topic Finder Tool - 3rd Edition.

FINANCIAL REPORTING3RD EDITION TOPIC FINDER TOOL
Module 1: The role and importance of financial reporting
Page Notes
Preview 15
Introduction 15
Teaching materials 16
Information to CPA Program candidates studying Financial Reporting 16

2016 International Financial Reporting Standardsthe Red Book 17
Rounding 17
The role and importance of financial reporting 17
The role of financial reporting 17
The importance of financial reporting 18
What are the different types of financial reporting for users? 21

Non-IFRS reporting 21
Limitations of general purpose financial reporting 22
Who must prepare general purpose financial reports? Interaction between 22

financial reporting and the regulatory environment
International initiatives to decrease financial reporting complexity 23
The Conceptual Framework for Financial Reporting 26
The purpose and application of the Conceptual Framework 27
Principles established in the Conceptual Framework 28
Page 1 of 30
Qualitative characteristics of useful financial information 29

Fundamental qualitative characteristics 30
Enhancing qualitative characteristics 33
The cost constraint on useful financial reporting 35
Application of qualitative characteristics in the IFRSs 36

The elements of financial statements 36
Defining the elements of financial statements 37
Criteria for recognising elements of financial statements 41
Constraints on frameworks 42
Page 2 of 30
Measurement of elements of financial statements 42
Valuation techniques 53
Application of measurement principles in the IFRSs 56
Employee benefits 56
Accounting for share-based payments 62
Investment property 64
Page 3 of 30
Professional judgment 65
Disclosures 67
Review 69
Suggested answers 71
References 77
Module 2: Presentation of financial statements
Page Notes
Preview 83
Introduction 83
Objectives 85
Assumed knowledge 86
Case study data 86
Part A: Presentation of financial statements 87

Introduction 87
Complete set of financial statements 88
Components of complete set of financial statements 88
Page 4 of 30
Segment reporting 90
Fair presentation and compliance with IFRSs 91
Other general features 92
Accounting policies 94
Selection of accounting policies 95
Disclosure of accounting policies 96
Changes in accounting policies 96
Revision of accounting estimates and correction of errors 99

Changes in accounting estimates 99
Material errors in a prior period 100
Events after the reporting period 102
Summary 107
Page 5 of 30
Part B: Statement of profit or loss and other 109

comprehensive income
Introduction 109
Presentation of comprehensive income 109
The concept of other comprehensive income and total 110

IAS 1disclosures and classification 111
1. Single statement (statement of profit or loss and other comprehensive 112

income)
2. Two statements (statement of profit or loss and a statement of profit or loss 117
and other comprehensive income)
Tips on how to analyse the statement of profit or loss and other 117
Summary 118
Part C: Statement of changes in equity 119
Introduction 119
IAS 1disclosures of changes in equity 119
Part D: Statement of financial position 121

Introduction 121
Page 6 of 30
Format of the statement of financial position 121
Presentation of assets and liabilities 122
Current assets and current liabilities 123
IAS 1disclosures in the notes to the statement of 124

financial position
Tips on how to analyse a statement of financial position 125
Summary 126
Part E: IAS 7 Statement of Cash Flows 127
Introduction 127
Information to be disclosed 128
Reporting cash flows on a net basis 128
Other information to be disclosed in the statement of cash flow 128
Classification of cash flows 129
Page 7 of 30
Common methods adopted on how to prepare a statement 131

of cash flows
Formula method 132

How does a statement of cash flows assist users of the 133
financial statements?
Consolidated financial statements 133
Tips on how to analyse the statement of cash flows 134
Assumed knowledge review 145

Assumed knowledge review questions 145
Assumed knowledge review answers 147
Module 3: Revenue from contracts with customers; Provisions, contingent liabilities and contingent
assets
Page Notes
Preview 181
Introduction 181
Part A: Revenue from contracts with customers 183

Introduction 183
Existing practice 183
Page 8 of 30
Overview of IFRS 15 Revenue from Contracts with Customers 185
Recognition of revenue 188
Step 1: Identify the contract(s) with the customer 189
Step 2: Identify the performance obligation(s) in the contract 192
Step 3: Determine the transaction price of the contract 194
Step 4: Allocate the transaction price to each performance obligation 200
Page 9 of 30
Step 5: Recognise revenue when each performance obligation is satisfied 204
Contract costs 207
Incremental costs of obtaining a contract 207
Costs to fulfil a contract 208
Amortisation and impairment 208
Disclosure 209
Contracts with customers 210
Significant judgments in the application of IFRS 15 212
Assets recognised from contract costs 212
Part B: Provisions 213

Introduction 213
Page 10 of 30
Scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets 213
Definition of provisions 214
Recognition of provisions 214
Measurement of provisions 217
Discounting 218
IAS 37disclosure 218

Provisions 218
Exemptions 219
Provisions and professional judgment 220
Part C: Contingent liabilities and contingent assets 222

Introduction 222
Contingent assets 222
Page 11 of 30
Recognition of assets 222
Contingent assets 223
Contingent liabilities 224
Liabilities versus contingent liabilities 225
Contingencies and professional judgment 225
Module 4: Income taxes
Page Notes
Preview 241
Introduction 241
Objectives 242
Part A: Income tax fundamentals 243
Introduction 243
Page 12 of 30
Tax expense 245
Current tax 246

Calculating current tax 247
Recognition of current tax 248
Deferred tax 249
Step 1: Determining the tax base of assets and liabilities 252
Step 2: Compare the tax base to the carrying amount to determine 255
temporary differences
Step 3: Measure deferred tax assets and deferred tax liabilities 260
Part B: Recognition of deferred tax assets and liabilities 264

Introduction 264
Page 13 of 30
Recognition of deferred tax liabilities 264
Recognition of deferred tax assets 266
Recognition of deferred tax 270
Recognition rules for unused tax losses and unused tax credits 272
Recoupment of tax losses 274
Reassessment of the carrying amounts of deferred tax assets and liabilities 278
Summary 279
Part C: Special considerations for assets measured 280
at revalued amounts
Introduction 280
Assets carried at revalued amounts 280
Page 14 of 30
Recognition of deferred tax on revaluation 282
Recovery of assets through use or through sale 283
Additional guidance on recovery of non-depreciable assets 287
Summary 288
Part D: Financial statement presentation and disclosure 289
Introduction 289
Presentation of current tax and deferred tax 290
Offsetting tax assets and liabilities 291
Major components of tax expense 292
Relationship between tax expense (income) and accounting profit 293
Information about each type of temporary difference 296
Summary 299
Part E: Comprehensive example 300
Page 15 of 30
Introduction 300
Background to AAA Ltd 300
Carrying amounts and tax base of buildings 302
Other deferred tax assets and liabilities 303
Taxable profit and current tax expense 305
Illustrative disclosures 306

Summary 308
Review 309
References 327
Module 5: Business combinations and group accounting
Page Notes
Preview 333
Page 16 of 30
Introduction 333
Objectives 338
Part A: Business combinations 339
Introduction 339
Identifying a business combination 341
The acquisition method 342

(a) Identifying the acquirer 342
(b) Determining the acquisition date 344
(c) Recognising and measuring the identifiable assets acquired, 345

liabilities assumed and any non-controlling interest in the acquiree
(d) Recognising and measuring goodwill or a gain from a bargain purchase 348
Applying the acquisition method to different forms of business 351

combinations
Page 17 of 30
Deferred tax arising from a business combination 354

Deferred tax related to assets and liabilities acquired in a business combination 354
Disclosures: Business combinations 357

Summary 357
Part B: Consolidated financial statements 359

Introduction 359
Introduction to consolidated financial statements 361
The group 362

Defining the group 362
Concept of control 363
Preparation of consolidated financial statements 367
Parent with an equity interest in a subsidiary 369

Revaluation of assets 371
Depreciation adjustments related to revaluation of depreciable assets 373
Page 18 of 30
Transactions within the group 376
Non-controlling interest 383
Disclosures: Consolidated financial statements 398

Consolidated statement of financial position 398
Consolidated statement of profit or loss and other comprehensive income 398
Consolidated statement of changes in equity 399
Consolidated statement of cash flows 399
Notes including accounting policies and explanatory notes 399
Summary 400
Part C: Investments in associates 401
Introduction 401
Identifying associates 402
Use of equity method 403
Page 19 of 30
Basis of equity method 403
Application of the equity method 406

Basic features 406
Identifying the share of the associate that belongs to the investor 408
Recognising the initial investment at cost 408
Recognising the dividends provided by the associate 411
Recognising the investors share of the associate post-acquisition other 411

Transactions between associate and investor (or its subsidiaries) 414
Investors share of losses 416
Disclosures for associates 416
Summary 417
Part D: Joint arrangementsoverview 418
Page 20 of 30
Appendix 5.1 421

Assumed knowledge review 425
Module 6: Financial instruments
Page Notes
Preview 477
Introduction 477
Objectives 478
Part A: What are financial instruments? 479
Introduction 479
Claims 479
Definition of a financial instrument 480

Equity instruments 480
Fixed-for-fixed test 480
Financial assets 481
Liability or equity? 483

Instruments that are a mix of liability and equity 484
Contracts to buy or sell non-financial items 484
Derivative financial instruments 484
Forward contracts 485

Futures contract 487
Option contract 487
Swap contract 488
Page 21 of 30
Interest rate swaps 488
Summary 489
Part B: Recognition and derecognition of financial assets 490
and financial liabilities
Introduction 490
Recognition of financial assets and financial liabilities 490
Derecognition of financial assets and financial liabilities 491

Derecognising financial assets 491
Transfers of financial assets 492
Derecognition of a financial liability 499
Summary 500
Part C: Classification of financial assets and financial 501
liabilities
Introduction 501
Page 22 of 30
Classification of financial assets 501
Business model 503
Contractual cash flows that are solely payments of principal and interest 503
on the principal amount outstanding
Option to designate a financial asset at fair value through profit or loss 504
Classification of financial liabilities 505
Option to designate a financial liability at fair value through profit or loss 505
Embedded derivatives 506
Reclassification 507
Summary 508
Part D: Measurement 509
Introduction 509
Initial measurement 509
Subsequent measurement of financial assets 510

Impairment of financial assets carried at amortised cost 511
Subsequent measurement of financial liabilities 513

Reclassification of financial assets 514
Gains and losses 515
Page 23 of 30
Investments in equity securities 516
Liabilities designated at fair value through profit or loss 516
Compound financial instruments 517
Summary 519
Part E: Hedge accounting 520
Introduction 520
Hedging relationships 520
Hedging instruments 521
Accounting for hedging relationships 522
Types of hedges 523
Special accounting rules 531

Accounting for the time value of options 531
Assessing hedge effectiveness 533
Discontinuing hedge relationships 533
Page 24 of 30
Increased disclosures 534
Summary 534
Part F: Disclosure issues 535
Introduction 535
Scope and level of disclosure 535
Significance of financial instruments for financial position 536

and performance
Statement of financial position 536
Statement of profit or loss and other comprehensive income 539

Other disclosures 539
Nature and extent of risks arising from financial instruments 541
Credit risk 542

Financial assets that are past due or impaired 543
Collateral and other credit enhancements 544

Liquidity risk 545
Market risk 546
Transfers of financial assets 547
Page 25 of 30
Summary 548
Review 549
References 555
Module 7: Impairment of assets
Page Notes
Preview 559
Introduction 559
Objectives 560
Relevant paragraphs from IAS 36 561
Part A: Impairment of assetsan overview 562
Introduction 562
Basic principles of impairment of assets 562
Overview of impairment requirements 562
Why is impairment important for users? 563
Page 26 of 30
Key definitions 564
Scope of IAS 36 565
Identifying assets that may be impaired 565

General requirements for an impairment review 565
Specific requirements for certain intangible assets and goodwill 566
Impairment indicators 567
Summary 570
Part B: Impairment of individual assets 571
Introduction 571
Measurement of recoverable amount 571
Fair value less costs of disposal 573
Value in use 574

Step 1: Estimating expected future cash flows 575
Step 2: Determining an appropriate discount rate 580
Page 27 of 30
Recognising and measuring an impairment loss 582
Reversals of impairment losses 583
Summary 584
Part C: Impairment of CGUs 585
Introduction 585
Recoverable amount: Individual asset or CGU? 585
Identifying CGUs 586
Recoverable amount and carrying amount of a CGU (impairment of 588

CGUs)
Testing CGUs with goodwill for impairment 589
Timing of impairment tests 589
Allocating goodwill to CGUs 590
Corporate assets 593
Identifying and allocating an impairment loss for a CGU 593
Intangible assets 596
Reversal of impairment losses 597
Summary 597
Part D: IAS 36disclosure 598
Introduction 598
Page 28 of 30
Disclosures of impairment losses and reversals 598
Disclosures of estimates used to measure recoverable amounts in CGUs 599
Summary 599
Review 600
References 605
Page 29 of 30

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FINANCIAL REPORTING3RD EDITION TOPIC FINDER TOOL

Module 1: The role and importance of financial reporting

Information to CPA Program candidates studying Financial Reporting 16

The importance of financial reporting 18

What are the different types of financial reporting for users? 21

Who must prepare general purpose financial reports? Interaction between 22

International initiatives to decrease financial reporting complexity 23

The Conceptual Framework for Financial Reporting 26

The purpose and application of the Conceptual Framework 27

Principles established in the Conceptual Framework 28

Qualitative characteristics of useful financial information 29

Enhancing qualitative characteristics 33

The cost constraint on useful financial reporting 35

Application of qualitative characteristics in the IFRSs 36

Defining the elements of financial statements 37

Criteria for recognising elements of financial statements 41

Measurement of elements of financial statements 42

Application of measurement principles in the IFRSs 56

Accounting for share-based payments 62

Part A: Presentation of financial statements 87

Components of complete set of financial statements 88

Fair presentation and compliance with IFRSs 91

Other general features 92

Disclosure of accounting policies 96

Changes in accounting policies 96

Revision of accounting estimates and correction of errors 99

Material errors in a prior period 100

Events after the reporting period 102

Part B: Statement of profit or loss and other 109

The concept of other comprehensive income and total 110

IAS 1disclosures and classification 111

1. Single statement (statement of profit or loss and other comprehensive 112

Part D: Statement of financial position 121

Format of the statement of financial position 121

Presentation of assets and liabilities 122

Current assets and current liabilities 123

IAS 1disclosures in the notes to the statement of 124

Tips on how to analyse a statement of financial position 125

Reporting cash flows on a net basis 128

Other information to be disclosed in the statement of cash flow 128

Classification of cash flows 129

Common methods adopted on how to prepare a statement 131

Formula method 132

Consolidated financial statements 133

Tips on how to analyse the statement of cash flows 134

Assumed knowledge review 145

Teaching materials 182

Part A: Revenue from contracts with customers 183

Existing practice 183

Overview of IFRS 15 Revenue from Contracts with Customers 185

Recognition of revenue 188

Step 1: Identify the contract(s) with the customer 189

Step 2: Identify the performance obligation(s) in the contract 192

Step 3: Determine the transaction price of the contract 194

Step 4: Allocate the transaction price to each performance obligation 200

Step 5: Recognise revenue when each performance obligation is satisfied 204

Contract costs 207

Incremental costs of obtaining a contract 207

Costs to fulfil a contract 208

Amortisation and impairment 208

Contracts with customers 210

Significant judgments in the application of IFRS 15 212

Assets recognised from contract costs 212