1、 Financial Reporting Paper F7 (International) Course Notes ACF7CN07 INT (i) BPP provides revision courses, question days, mock days and specific material to assist you in this important phase of your studies. F7 Financial Reporting (International) Study Programme Page Introduction to the paper and t
2、he course. (ii) 1 The conceptual framework 1.1 2 Home study chapter The regulatory framework . 2.1 3 Presentation of published financial statements . 3.1 4 Tangible non-current assets 4.1 5 Intangible assets . 5.1 6 Impairment of assets . 6.1 7 Reporting financial performance 7.1 End of Day 1 refer
3、to Course Companion for Home Study null Progress test 1 null 8 Introduction to groups 8.1 9 The consolidated balance sheet 9.1 10 The consolidated income statement 10.1 11 Accounting for associates 11.1 End of Day 2 refer to Course Companion for Home Study null Progress test 2 null Course exam 1 nul
4、l 12 Inventories and construction contracts 12.1 13 Provisions, contingent liabilities and contingent assets. 13.1 14 Financial assets and liabilities . 14.1 15 The legal versus the commercial view of accounting 15.1 16 Leases. 16.1 17 Taxation. 17.1 End of Day 3 refer to Course Companion for Home S
5、tudy null Progress test 3 null 18 Earnings per share 18.1 19 Calculation and interpretation of accounting ratios and trends 19.1 20 Limitations of financial statements and interpretation techniques . 20.1 21 Cash flow statements 21.1 22 Alternative models and practices. 22.1 23 Specialised, not-for-
6、profit and public sector entities 23.1 End of Day 4 refer to Course Companion for Home Study null Progress test 4 null Course exam 2 null 24 Answers to Lecture Examples. 24.1 25 Question and Answer bank . 25.1 26 Pilot Paper questions. 26.1 Dont forget to plan your revision phase! Revision of syllab
7、us Testing of knowledge Question practice Exam technique practice INTRODUCTION (ii) Introduction to Paper F7 Financial Reporting (International) Overall aim of the syllabus To develop knowledge and skills in understanding and applying accounting standards and the theoretical framework in the prepara
8、tion of financial statements of entities, including groups and how to analyse and interpret those financial statements. The syllabus The broad syllabus headings are: A A conceptual framework for financial reporting B A regulatory framework for financial reporting C Financial statements D Business co
9、mbinations E Analysing and interpreting financial statements Main capabilities On successful completion of this paper, candidates should be able to: Discuss and apply a conceptual framework for financial reporting Discuss a regulatory framework for financial reporting Prepare and present financial s
10、tatements which conform with International Financial Reporting Standards Account for business combinations in accordance with International Financial Reporting Standards Analyse and interpret financial statements Links with other papers This diagram shows where direct (solid line arrows) and indirec
11、t (dashed line arrows) links exist between this paper and other papers that may precede or follow it. The financial reporting syllabus assumes knowledge acquired in paper F3 Financial Accounting, and develops and applies this further and in greater depth. Paper P2 Corporate Reporting, assumes knowle
12、dge acquired at this level including core technical capabilities to prepare and analyse financial reports for single and combined entities. Business Analysis (P3) Audit indicate when income and expense recognition should occur. Describe what is meant by financial statements achieving a faithful repr
13、esentation. Discuss whether faithful representation constitutes more than compliance with accounting standards. Indicate the circumstances and required disclosures where a true and fair override may apply. Exam Context The conceptual framework is very important for this exam. In most exams you will
14、be required to evaluate an accounting treatment in the context of the conceptual framework. Qualification Context The objectives of financial statements, the qualitative characteristics of financial information and the fundamental bases of accounting are examined in Paper F3 Financial Accounting. Th
15、ese and the other aspects of the conceptual framework are explored in more detail this Paper. Business Context The conceptual framework allows the evaluation of the adequacy and effectiveness of existing accounting standards in meeting users needs. The primary user of financial statements is identif
16、ied by the International Accounting Standards Board as being the worlds capital markets. The conceptual framework 1: THE CONCEPTUAL FRAMEWORK 1.2 Overview The conceptual framework Conceptual framework and GAAP The IASBs framework Advantages and disadvantages Need for a conceptual framework Generally
17、 accepted accounting practice (GAAP)True and fair view 1: THE CONCEPTUAL FRAMEWORK 1.3 1 Conceptual framework and GAAP The need for a conceptual framework Definition 1.1 A conceptual framework is a statement of generally accepted theoretical principles, which form the frame of reference for a partic
18、ular field of enquiry. A conceptual framework for the development of accounting standards has been defined as: a constitution, a coherent system of interrelated objectives and fundamentals which can lead to consistent standards and which prescribe the nature, function and limits of financial account
19、ing and financial statements FASB, 1976. Purpose 1.2 The purpose of a financial reporting conceptual framework is twofold. Its theoretical principles provide the basis for: The development of new reporting practices, and The evaluation of existing ones. Advantages and disadvantages 1.3 Advantages (a
20、) A consistent conceptual base should lead to standardised consistent accounting practices. (b) The development of standards is less subject to political pressure. (c) A consistent balance sheet driven or income statement driven approach is used. (d) Avoids a fire-fighting (or patchwork quilt) appro
21、ach to setting standards. 1.4 Disadvantages (a) Different users have different needs. The needs of all users cannot be considered. (b) Different purposes or uses may require different conceptual bases. (c) A conceptual framework does not necessarily make preparing standards any easier, and may hampe
22、r their development. 1: THE CONCEPTUAL FRAMEWORK 1.4 Generally accepted accounting practice (GAAP) 1.5 In most countries, GAAP does not have any statutory or regulatory authority or definition, but the major components are normally: National accounting standards Many countries have their own standar
23、d setting bodies, e.g. the Financial Accounting Standards Board (FASB) in the USA and the Accounting Standards Board (ASB) in the UK. National company law In some countries accounting is regulated by statute law. Other countries, e.g. the UK, operate a hybrid system where some accounting requirement
24、s are governed by law while detail is left to the standard setting body. Stock exchange requirements Companies quoted on a recognised stock exchange must comply with the requirements of the exchange. Stock exchanges often require disclosures in addition to those required by local law. Regional bodie
25、s Regional bodies such as the European Union and Mercosur in Latin America can require implementation of legislation across member states. For example, the European Union issues Accounting Directives to ensure certain issues are accounted for in the same way across member states, and now requires th
26、e use of IFRSs for the consolidated accounts of listed entities across the Union. 1.6 GAAP is a dynamic concept: it changes constantly as circumstances alter through new legislation, standards and practice. 2 The IASBs Framework Intended role 2.1 IFRSs are based on the Framework for the Preparation
27、and Presentation of Financial Statements, which addresses the concepts underlying the information presented in general purpose financial statements. 2.2 The objective of the Framework is to facilitate the consistent and logical formulation of IFRSs. The Framework also provides a basis for the use of
28、 judgement in resolving accounting issues. Status 2.3 The Framework is not an International Financial Reporting Standard and hence does not define standards for any particular measurement or disclosure issue. It does not override any IFRS, but instead forms the conceptual basis for the development o
29、f IFRS. Section 2.1-2.2Section 1.31: THE CONCEPTUAL FRAMEWORK 1.5 However, IAS 1 (revised 2003) states that in order to achieve fair presentation, an entity must comply with both: International Financial Reporting Standards; and The Framework. Contents 2.4 The Framework is broken into seven sections
30、 as follows: The objective of financial statements Underlying assumptions Qualitative characteristics of financial statements The elements of financial statements Recognition of the elements of financial statements Measurement of the elements of financial statements Concepts of capital and capital m
31、aintenance. The objective of financial statements 2.5 The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. The needs of users will
32、 generally be satisfied normally by a balance sheet, income statement and cash flow statement, but additional information may also be beneficial to some users. Underlying assumptions 2.6 Accruals basis The effects of transactions and other events are recognised when they occur (and not as cash or it
33、s equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the period to which they relate. Going concern The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operati
34、on for the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations; if such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis
35、used is disclosed. 1: THE CONCEPTUAL FRAMEWORK 1.6 The elements of financial statements 2.7 The Framework defines elements of financial statements. The definitions reduce confusion over which items ought to be recognised and which should not (if an item is not one of the defined elements of financia
36、l statements it should not feature in the financial statements). The five elements of financial statements and their definitions are: Asset A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity. Liability A present ob
37、ligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Equity The residual interest in the assets of an entity after deducting all its liabilities, so EQUITY = NET ASSETS = SHARE CAPITAL +
38、 RESERVES Income Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Expenses Decreases in economic benefits d
39、uring the accounting period in the form of outflows or depletions of assets or increases of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. 2.8 The Framework definitions demonstrate that IFRS is based on a balance sheet approach to r
40、ecognition, i.e. income and expenses are defined as changes in assets and liabilities, rather than the other way round. 1: THE CONCEPTUAL FRAMEWORK 1.7 Qualitative characteristics of financial information 2.9 The qualitative characteristics of financial information are those that make the informatio
41、n useful to the users. The four principal characteristics are: Understandability Relevance (including materiality) Reliability Comparability. Reliability Relevance Materiality Faithful representation Substance over form Neutrality Prudence Completeness More of one can mean less of the other Comparab
42、ilityUnderstandability1: THE CONCEPTUAL FRAMEWORK 1.8 Recognition of the elements of financial statements 2.10 Recognition is the process of showing an item in the financial statements, with a description in words and a number value. 2.11 An item is recognised in the balance sheet or the income stat
43、ement when: (a) It meets the definition of an element of the financial statements; and (c) It is probable that any future economic benefit associated with the item will flow to or from the entity; and (c) The item has a cost or value that can be measured with reliability. Hence, recognition relies h
44、eavily upon a good assessment of probability of whether economic benefits will flow to or from the entity. Lecture example 1 Preparation Required Asses whether each of the following would be recognised in the financial statements: (a) A gift of cash received by a company (b) A government grant in ca
45、sh received to relocate to a depressed area (c) A payment of a dividend to shareholders (d) An upwards revaluation of a building (e) Pollution released into the sea, destroying marine life. No government fines exist for this in the country of operation. Solution 1: THE CONCEPTUAL FRAMEWORK 1.9 Measu
46、rement of the elements of financial statements 2.12 Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement. The choices available for measurement are: Historical cost
47、Realisable value Current cost Present value. This topic is covered in more detail in Chapter 22. Concepts of capital and capital maintenance 2.13 These are discussed in Chapter 22. 3 True and fair view 3.1 The concept of a true and fair view is referred to as fair presentation in IFRS: Financial sta
48、tements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabiliti
49、es, income and expenses set out in the Framework. The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. An entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IFRSs unless they comply with all the requirements of IFRSs. IAS 1 (revised 2003) 3.2 Consequently, in orde
