Financial Reporting is designed to provide you with financial reporting and business skills that are applicable in an international professional environment. The segment is based on International Financial Reporting Standards (IFRSs) which are issued by the International Accounting Standards Board (IASB). Many 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 internationally understood. 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 state that the financial statements are fairly stated. These examples reinforce the importance of financial reporting. In addition to the completion of this subject, CPA Australia encourages continuous professional learning in financial reporting, which is constantly evolving.
This subject’s technical content includes linkages with the other subjects 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 encouraged to learn beyond the syllabus. Financial reporting is a significant part of an entity’s governance and accountability process, issues which are covered in the Ethics and Governance subject. Compliance with the IFRSs is important because it results in the presentation of fairly-stated financial statements. This presentation outcome is also the aim of audit and assurance services. The assurance knowledge and audit skills are taught in the subject, Advanced Audit and Assurance. While taxation is covered in the subject, Advanced Taxation, and is distinct from financial reporting, the accounting for tax is recognised as material information and therefore included in this subject. Financial reporting provides information about the business operations and the financial results. As a result, there is a relevant topical link with the subject, Contemporary Business Issues.
Financial Reporting is a compulsory subject in the CPA Program for candidates commencing from semester 2, 2009. It is an elective subject for candidates who commenced prior to semester 2, 2009.
The Financial Reporting exam is comprised of a combination of multiple-choice and extended-response questions.
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 subject 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 subject, you should be able to:
- explain the application and basis of selected IFRSs issued by the IASB
- apply IFRSs in the preparation of general purpose financial statements
- explain details relating to general purpose financial statements; and
- prepare general purpose financial statements for designated entities, including the exercise of professional judgement.
The subject is divided into seven modules.
The ‘weighting’ column in the following table provides an indication of the emphasis placed on each module in the exam, while the ‘proportion of study time’ column is a guide for you to allocate your study time for each module.
||Recommended proportion of study time
|1.The role and importance of 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 role and importance of financial reporting
This module explains the role and importance of financial reporting, including the use of a Conceptual Framework in the development of accounting standards. 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.
The application of the Conceptual Framework's definitions and recognition criteria of elements of financial statements in selected accounting standards is evaluated. 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, long service leave, share-based payments, investment property, agriculture and customer loyalty programs. The concepts, principles and measurement bases included in this module form an important foundation for your study of subsequent modules.
The role and importance of financial reporting
- The Conceptual Framework for Financial Reporting
- The objective of general purpose financial reporting
- Assumptions of general purpose financial statements
- Qualitative characteristics of useful financial information
- Definition and recognition criteria of elements of financial statements
- Constraints on frameworks
- The role of accounting standards
- Measurement of elements of financial statements
- Application of measurement principles in IFRSs
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 and IAS 7 Statement of Cash Flows. 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
- Complete set of financial statements
- Accounting policies
- Revision of accounting estimates and correction of errors
- Events after the reporting period
Part B: Statement of profit or loss and other comprehensive income
- Presentation of comprehensive income
- Determination of comprehensive income
- IAS 1—disclosures and classification
Part C: Statement of changes in equity
- IAS 1—disclosures of changes in equity
Part D: Statement of financial position
- Presentation of assets and liabilities
- IAS 1—disclosures in the statement of financial position or in the notes
Part E: IAS 7 Statement of Cash Flows
- Information to be disclosed
- Preparation of a statement of cash flows using a worksheet
- Consolidated financial statements
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, accounting for decommissioning, restoration and similar liabilities and the disclosures required for contingent assets and contingent liabilities.
Part A: Provisions
- Recognition of provisions
- Measurement of provisions
- IAS 37—disclosure
Part B: Specific applications
- Future operating losses
- Onerous contracts
- Accounting for decommissioning, restoration and similar liabilities
- IFRIC 1 Changes in Existing Decommissioning, Restoration and
- Similar Liabilities
Part C: Contingent liabilities and contingent assets
- Contingent assets
- Contingent liabilities
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
- Background to tax-effect accounting
- Calculating tax expense
- Deferred tax assets and deferred tax liabilities
Part B: Recognition of deferred tax assets and deferred tax liabilities
- Recognition of deferred tax liabilities
- Recognition of deferred tax assets
- Application of the probable criterion
- Tax losses and unused tax credits
- Entities with a history of recent losses
Part C: Assets carried at fair value or revalued amounts
- Assets carried at fair value or revalued amounts
- Recognition of deferred tax on revaluation
- Recovery of non-depreciable assets
Part D: Financial statement presentation and disclosure
- Presentation of current tax and deferred tax
- Relationship between tax expense (income) and accounting profit
- Information about each type of temporary difference
- Other disclosures
Part E: Comprehensive example
- Carrying amounts and tax base of buildings
- Other deferred tax assets and liabilities
- Taxable profit and current tax expense
- Illustrative disclosures
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 (e.g. fair value, amortised costs) and hedging. The impairment test for financial instruments is also considered. 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
- Derecognition of financial assets and financial liabilities
Part C: Classification of financial assets and financial liabilities
- Classification of financial assets
- Classification of financial liabilities
Part D: Measurement
Part E: Impairment of financial assets and hedge accounting
- Impairment of financial assets measured at amortised cost
Part F: Presentation issues
- Classification as liabilities or equity
- Compound financial instruments
- Transactions in an entity’s own equity instruments
- Classification of interest, dividends, gains and losses
- Set-off of a financial asset and a financial liability
Part G: Disclosure issues
- Scope and level of disclosure
- Significance of financial instruments for financial position and performance
- Statement of profit or loss and other comprehensive income
- Collateral and other credit enhancements
Module 6: Business combinations and group accounting
This module reviews the main features of the 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
- Identifying a business combination
- The acquisition method
- Deferred tax arising from a business combination
- Business combinations involving an investment in a subsidiary
- IFRS 3—disclosures
Part C: Investments in associates
- Introduction to IFRS 10 Consolidated Financial Statements
- The group
- Preparation of consolidated financial statements
- Disclosures—consolidated financial statements
Part D: Joint arrangements – Overview
- Identifying associates
- Use of equity method
- Basis of equity method
- Application of the equity method
- Disclosures for associates
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
- Basic principles of impairment of assets
- Identifying assets that may be impaired
Part B: Impairment of individual assets
- Measurement of recoverable amount
- Fair value less costs of disposal
- Value in use
- Recognising and measuring an impairment loss
- Reversals of impairment losses
Part C: Impairment of CGUs
Part D: IAS 36 – Disclosure
- Identification of CGUs 549
- Recoverable amount and carrying amount of a CGU (Impairment of CGUs)
Study and exam reference materials
Throughout this subject we are applying the accounting standards as presented in the International Financial Reporting Standards (or ‘Red Book’) issued on 1 January 2014. This book is presented in two parts:
- Part A includes the Conceptual Framework as well as all of the accounting standards and interpretations as issued at 1 January 2014;
- Part B includes all of the supporting documents for the Conceptual Framework accounting standards and interpretations as issued at 1 January 2014.
A copy of the IFRSs is provided on My Online Learning in the ‘Useful resources’ folder. Candidates are not required to search for the IFRSs from other sources.
CPA Australia encourages you to access the IASB’s website regularly, as it contains many relevant resources for continuing professional development. However, the IFRSs on the IASB’s website may not be aligned with the version of IFRSs used for your study materials.