Financial Reporting is changing, and I don't mean only in ACCA exams. Even when we look at the Financial Statements of most companies, we can see a drastic expansion of focus. I specifically avoided the word "change". The focus has not changed. But more and more items are coming under the ambit of financial reporting. And if the world is moving ahead, ACCA has to jump the bandwagon.
This change has been visible over the course of last 8 attempts at least. The Strategic Business Reporting (SBR) paper of ACCA is no longer about just Consolidation, Leases and Financial Instruments. It tests the students on a whole range of issues and current issues and developments have become a mainstay of the paper. Question 4 in the SBR exam focusses on Current Issues and Developments and answering them, while not daunting, requires the candidates to be well versed with the concepts.
This question type tests the students on the following areas
- Additional Performance Measures
- Climate Change
- Natural Disasters
- Digital Assets and Cryptocurrencies
- Accounting for a Global Event
- Sustainability Reporting
- Crowdfunding etc.
The questions on current issues are easier to tackle as compared to pure technical questions.
Follow the guidelines below to tackle questions on current issues of Natural Disasters, Climate Change and Global Events.
- A situation of natural disaster will often invite massive damage to the environment and other side effects like oil spills or destruction of land etc. There will be environmental liabilities and a reference to IAS 37 for recognition and disclosure could be the first step in your answer.
- Where the management decides to sell a business division or terminate the business line post disaster, restructuring provision might be required as per IAS 37.
- Be careful about not creating provisions for future repairs or future operating losses.
- Impairment testing of Non Current Assets will be required - IAS 36
- A natural disaster might affect the ability of customers to pay, thereby necessitating the re-calculation of expected credit losses - IFRS 9
- Inventories might have to be written down - IAS 2
- Businesses affected by natural disasters might face liquidity issues, thereby prompting an assessment of Going Concern - IAS 1
Climate change and climate related matters
- Additional disclosures to enable users to understand the impact of climate-related issues on amounts reported in the financial statements - IAS 1
- Climate change itself, as well as the actions of governments, other companies and individuals may result in material uncertainty about events or conditions and so cast significant doubt on a company’s ability to continue as a going concern - IAS 1
- Climate change may result in companies acquiring new types of “green” asset or altering existing assets to make them more environmentally friendly. Companies will need to determine carefully whether expenditure on these items meets the definition of an asset - IAS 16
- Climate change may also affect inputs to accounting estimates related to PPE - IAS 16
- The measurement of a provision for decommissioning may increase as a result of new environmental legislation. Equally a reduction in the useful life of the underlying asset as a result of climate change will result in the need to unwind a discount on such a provision more aggressively - IAS 37
- Additional provisions may be required in respect of new climate change legislation, business restructuring in response to climate-related risks or contracts that become onerous because they require a company to purchase components that will no longer be used in new, climate-friendly products - IAS 37
- Climate-related matters may affect the measurement of financial instruments
- Impacting the ability of a counterparty to pay (e.g. disruption to a business’ operations due to bushfires or flooding could impact its ability to repay loans or settle accounts payable). In this case IFRS 9 credit losses guidance should be applied to the financial asset in the lender’s financial statements.
Accounting for Global Events
- A pandemic is likely to affect the level of activity in the market, resulting in a lack of observable market data. Other factors that may influence fair value measurement include rent concessions and/or deferrals, the exercise of break clauses (e.g. because lessees require less office space) and the renegotiation of leases - IFRS 13
- The economic effects of a pandemic are likely to trigger an impairment test for non-current assets, both tangible and intangible. Estimates of future cash flows and earnings are likely to be significantly affected by direct or indirect impacts - IAS 36
- Given the economic impacts of a pandemic , lessees may seek rent concessions from lessors. If granted, these may take the form of reduced or rent-free periods, deferred payments or other relief (e.g. fixed payments becoming variable). The accounting implications of an agreed change to rent will depend on whether the change was envisaged in the original lease agreement - IFRS 16
- A pandemic could affect management’s assumptions in measuring revenue from goods or services already delivered, particularly concerning variable consideration and the outcome of performance obligations satisfied over time - IFRS 15
In all these three circumstances, ensure that you touch upon the following standards
- IAS 37 - Provisions, Contingent Liabilities and Contingent Assets
- IAS 10 - Events after reporting date
- IAS 1 - Going Concern Issues and Other necessary disclosures
- IAS 36 - Impairment read with IAS 16
- IFRS 15 - Revenue from Contract with Customers
- IFRS 16 - Leases
ACCA Tutor | IFRS | Financial accounting | Chartered Accountant
2 个月This is so useful Satyamedh Nandedkar , thanks for sharing