Financial Reporting is designed to provide you with financial reporting, technical accounting and business skills and values that are applicable in a professional and global environment. The segment is based on International Financial Reporting Standards (IFRSs) which are issued by the International Accounting Standards Board (IASB), thereby remaining jurisdiction neutral for professional learning and development purposes. Most international jurisdictions have adopted, or are progressively adopting, the IFRSs.
In a competitive international environment, financial reporting provides users with information to formulate corporate strategies, business plans and leadership initiatives. There is also a common acceptance of IFRSs to communicate financial information which is commonly understood by an international audience. This reduces the cost of capital for the international reporting entities.
Financial reporting provides information for corporate leadership. Members of the accounting profession with financial reporting skills and knowledge provide business advice to board directors, analysts, shareholders, creditors, colleagues and other stakeholders. Members of the accounting profession who provide assurance services for financial reports also require a good understanding of the IFRSs. Directors are also required to declare that the financial statements are fairly stated. These examples underscore the importance of the skills taught in this segment. In addition to the completion of this segment, CPA Australia encourages continuous professional learning to further develop in financial reporting, which is constantly evolving.
This segment's technical content includes linkages with the other segments in the
CPA Program. The boundaries of the syllabus do not restrict the knowledge expected in a professional environment, hence candidates and members of the profession are strongly encouraged to learn beyond the syllabus. Financial reporting is a significant part of an entity’s governance and accountability process. This segment builds on the themes contained in the segment, Ethics and Governance. Compliance with the IFRSs results in the presentation of fairly stated financial statements except in rare circumstances. This compliance outcome is also the aim of audit and assurance services. The assurance knowledge and audit skills are taught in the segment, Advanced Audit and Assurance. While taxation is covered in the segment, Advanced Taxation, and is by and large distinct from financial reporting, the accounting for tax is recognised as material information and therefore included in this segment. Financial reporting provides information about the business operations and the financial results. As a result, there is a relevant topical link with the segment, Contemporary Business Issues.
Financial Reporting is a compulsory segment in the CPA Program professional level for candidates commencing from semester 2, 2009. It is an elective segment for candidates who commenced prior to semester 2, 2009.
The Financial Reporting exam generally consists of 70 per cent multiple-choice questions and 30 per cent written response questions. Check the information sent with your exam notification letter for the most up-to-date and detailed information about the exam structure.
The primary aim of Financial Reporting is to provide you with globally transferable skills to prepare a set of general purpose financial statements in different jurisdictions. The segment encourages high quality financial reporting and the practice of strong ethical values in the accounting profession.
The secondary aim is to provide:
- effective financial analytical skills
- the ability to comprehend and use a stock-exchange listed entity's financial statements
On completion of this segment, you should be able to:
- understand the application and basis of selected IFRSs issued by the IASB
- develop the necessary skills to apply IFRSs including the Conceptual Framework in the preparation of general purpose financial statements
- develop the financial analytical skills and ability to comprehend and explain details relating to general purpose financial statements
- attain skills and experience in the design and development of an entity's accounting system to maintain financial information and facilitate the preparation of general purpose financial statements
The segment is divided into seven modules. A brief outline of each module is provided below.
||Recommended proportion of study time
|1. The Conceptual Framework and its application in financial reporting
|2. Presentation of financial statements
|3. Provisions, contingent liabilities and contingent assets
|4. Income taxes
|5. Financial instruments
|6. Business combinations and group accounting
|7. Impairment of assets
Module 1: The Conceptual Framework and its application in financial reporting
This module explains the role of a Conceptual Framework in the development of accounting standards, and identifies the constraints in light of other influences and factors in standard setting and in the application of principles in practice. It focuses on the major components of the Conceptual Framework issued by the IASB. The objectives of general purpose financial statements and the diversity of users’ information needs are considered, as well as the underlying assumptions and qualitative characteristics of financial reporting. Cases are used to explore the challenges that can arise in applying the qualitative characteristics.
The application of the Conceptual Framework's definitions and recognition criteria of elements of financial statements in selected accounting standards is evaluated. We have included accounting standards that are currently under review, thus demonstrating the application of concepts and introducing you to some emerging developments in financial reporting.
The module considers the complex issue of measurement, including the measurement bases in the Conceptual Framework as well as others identified by the IASB. The application of the mixed measurement model is considered from a practical perspective in the context of accounting for leases, employee benefits, share-based payments and customer loyalty programs. The concepts, principles and measurement bases included in this module form an important foundation for your study of subsequent modules.
- Part A: The role of a framework of accounting in global financial markets
- Part B: The Conceptual Framework for Financial Reporting
Module 2: Presentation of financial statements
This module focuses on the preparation of a complete set of financial statements in accordance with IAS 1 Presentation of Financial Statements. IAS 10 Events after the Reporting Period is also discussed to highlight the importance of how post-reporting-date events are dealt with when preparing financial statements.
Another area of emphasis is IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors which deals with changes in accounting policies, correction of errors and estimates. The differences between prospective application and retrospective application are included to provide a practical understanding and application skills of how changes in accounting policies are adopted.
- Part A: Presentation of financial statements
- Part B: Statement of profit or loss and other comprehensive income
- Part C: Statement of changes in equity
- Part D: Statement of financial position
- Part E: IAS 7 Statement of Cash Flows
Module 3: Provisions, contingent liabilities and contingent assets
This module focuses on the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets including the accounting for restructuring and the disclosures required for contingent assets and contingent liabilities.
- Part A: Provisions
- Part B: Specific applications
- Part C: Contingent liabilities and contingent assets
Module 4: Income taxes
This module focuses on the requirements of IAS 12 Income Taxes and explores the methodology of tax-effect accounting. The module discusses the recognition and measurement of deferred tax assets and liabilities in detail, including the accounting for tax losses, and the tax effect of revaluation of assets.
- Part A: Income tax fundamentals
- Part B: Recognition of deferred tax assets and deferred tax liabilities
- Part C: Assets carried at fair value or revalued amounts
- Part D: Financial statement presentation and disclosure
- Part E: Comprehensive example
Module 5: Financial instruments
The module focuses on the requirements of IFRS 9 Financial Instruments, IAS 32 Financial Instruments: Presentation, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosure. The emphasis is on the measurement of financial instruments (such as fair value, amortised costs) and hedging. The impairment test for financial instruments is also highlighted as being different from that in IAS 36 Impairment of Assets. Presentation and disclosure matters are given some focus, particularly the classification of liabilities and equity and IFRS 7 disclosures on the different types and characteristics of risk.
• Part A: What are financial instruments?
• Part B: Recognition and derecognition of financial assets and financial liabilities
• Part C: Classification of financial assets and financial liabilities
• Part D: Measurement
• Part E: Impairment of financial assets and hedge accounting
• Part F: Presentation issues
• Part G: Disclosure issues
Module 6: Business combinations and group accounting
This module reviews the main features of IFRS 3 Business Combinations’ acquisition method. This module also explores group accounting as required by IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements and accounting for associates in accordance with IAS 28 Investments in Associates and Joint Ventures. Disclosures in accordance with IFRS 12 Disclosure of Interests in Other Entities are also covered. Preparation and presentation of consolidated financial statements is discussed with emphasis on pre-acquisition equity, intra-group transactions and non-controlling interests.
A set of consolidated financial statements is used to illustrate the nature of information provided.
- Part A: IFRS 3 Business Combinations
- Part B: Consolidated financial statements
- Part C: Investments in associates
- Part D: Joint arrangements – Overview
Module 7: Impairment of assets
The module focuses on the requirements of IAS 36 Impairment of Assets. The module includes the impairment requirements relating to individual assets such as property, plant and equipment, intangible assets as well as the impairment requirements of cash-generating units, including goodwill.
- Part A: Impairment of assets – An overview
- Part B: Impairment of individual assets
- Part C: Impairment of CGUs
- Part D: IAS 36 – Disclosure
Study and exam reference materials
The IFRSs are important reference materials for the study of Financial Reporting. There are various sources of IFRSs which provide different versions of pronouncements. The study materials for Semester 1 2013 are based on the IFRS 2012 (Red Book). A PDF copy is available on My Online Learning (MYOL).
Only the IFRSs used in the study guide are required for study and assessment purposes. The reference to IFRSs will be based on the coverage of the study materials and will therefore differ from one standard to another.
This study guide refers to the different sections of the IFRSs including:
- unaccompanied IFRS
- bases for conclusions
- implementation guidance
The basis for conclusions and implementation guidance are not part of an unaccompanied IFRS, but they provide useful explanations underpinning the IFRS.
For your CPA Program studies, the recommended source for the IFRSs and best reference for your Financial Reporting studies and exam is through MYOL. The instructions for accessing these are provided with the segment study materials.
Note: Other sources may not provide IFRSs that are aligned with the versions used for your studies, or may not provide the accompanied sections which are required.
The following list highlights the key pronouncements for the segment. You will require a printed copy for your studies and exam.
- Conceptual Framework (2010)
International Accounting Standards
- IAS 1 Presentation of Financial Statements
- IAS 7 Statement of Cash Flows
- IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
- IAS 10 Events after the Reporting Period
- IAS 11 Construction Contracts
- IAS 12 Income Taxes
- IAS 17 Leases
- IAS 18 Revenue
- IAS 19 Employee Benefits
- IAS 27 Separate Financial Statements
- IAS 28 Investments in Associates and Joint Ventures
- IAS 32 Financial Instruments: Presentation
- IAS 36 Impairment of Assets
- IAS 37 Provisions, Contingent Liabilities and Contingent Assets
- IAS 38 Intangible Assets
- IAS 39 Financial Instruments: Recognition and Measurement
International Financial Reporting Standards
- IFRS 3 Business Combinations
- IFRS 7 Financial Instruments: Disclosures
- IFRS 9 Financial Instruments
- IFRS 10 Consolidated Financial Statements
- IFRS 11 Joint Arrangements
- IFRS 12 Disclosure of Interests in Other Entities
- IFRS 13 Fair Value Measurement
IFRS Interpretations Committee
In relation to the pronouncements developed by the IFRS Interpretations Committee (IFRIC), the following pronouncements are also required for study and are available for printing from the same source:
- IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities
- IFRIC 13 Customer Loyalty Programmes
- IFRIC 15 Agreements for the Construction of Real Estate
These pronouncements are also required as reference materials in the exam.