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SBR > Chapters 17-20 > Flashcards

Chapters 17-20 Flashcards

1
Q

whats a foreign operation

A

a sub that operates in a foreign currency

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2
Q

can a foreign operation have its own functional currenvy

A

yes if it can be a stand alone company - not if its just an extension of the parents

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3
Q

what rate do you use for equity when translating the sub

A

historical rate

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4
Q

what rate do you use for dividends when translating the sub

A

actual

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5
Q

what rate do you use for P/L when translating the sub

A

average

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6
Q

exchange differences in the year on translation of net assets working

A

closing net assets at closing rate
less opening net assets at opening rate
less retained profit
plus or minus difference on goodwill

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7
Q

how do you calculate exchange difference in goodwill

A

calculate as normal in foreign currency

translate it at closing rate

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8
Q

for impairment losses what exchange rate do you use

A

you can use average or year end as the IAS does not state which one

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9
Q

what is the net investment in foreign operations

A

the amount of the reporting entitys in the net assets of a foreign operation

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10
Q

whats a cash equivalent

A

short term highly liquid investments

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11
Q

two methods of cash flows

A

indirect and direct - indirect is much more detailed operating cash flows but will result in same figure

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12
Q

what method does IAS prefer for cash flows

A

direct - but it is a choice as its just presentational

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13
Q

what do you need to eliminate from a consolidated cash flow

A

anything internal

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14
Q

what section are dividends to NCI

A

Financing

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15
Q

proforma for NCI Dividends

A 
opening balance from SOFP
\+ NCI share of total comp income
\+ acquisition of sub
-disposal of sub
- non cash ie gain on foreign exchange 
-dividends to sub ( Balancing figure)
closing balance from SOFP
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16
Q

How to calculate dividends received from associate

A 
opening balance ( SOFP)
\+group share of profit for the year
\+group share of OCI
\+acquisition of associate or joint venture
-disposal of associate or joint venture
-non cash items
-dividends ( Balancing figure )
closing balance (SOFP)
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17
Q

how to calculate cash paid from acquiring a sub

A
  • cash paid + subs cash
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18
Q

how to calculate cash received from disposal of a sub

A

+ cash proceeds - subs cash

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19
Q

what is the effect on assets and liabilities if the sub is acquired in the year

A

they need to be added in to the cash flow as they have been consolidated for the first time

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20
Q

what is the effect on assets and liabilities if the sub is acquired in the year

A

they need to be deducted as they have been deconsolidated for the first time

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21
Q

criticisms of IAS 7

A

Direct method of cash flow is preferred but rarely used in practice as it requires lots of additional workings

harder for users of FS to compare if people are using seperate methods

easier to hide the misclassifications in the indirect method and manipulate the cash flow

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22
Q

why is relevance an issue when doing FS for an SME

A

some standards are just not relevant such as IAS 33 - Earnings per share. SME’s dont always operate on the stock market so this is irrelevant

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23
Q

why is relevance an issue when doing FS for an SME

A

an underlying principle is that cost and effort required to prepare FS should not outweigh the benefits to users

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24
Q

what is the IFRS for SME’s focus on

A

needs of lendors and creditors

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25
Q

who counts for an SME

A

companies who do not have public accountability and do not publish general purpose financial statements

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26
Q

if you transition to an SME how do you apply the IFRS

A

retrospectively

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27
Q

what are the key omissions from the IFRS for SMEs

A

earnings per share
iterim reporting
segmental reporting
assets held for sale

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28
Q

difference in IFRS for SMEs and full IFRS - investment property

A

FV through P/L must be used - usually you can choose between FV and cost model

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29
Q

difference in IFRS for SMEs and full IFRS - intangible assets

A

revaluation is not permitted, must be held at cost - depreciation

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30
Q

difference in IFRS for SMEs and full IFRS - gov grants

A

SMEs recognise is at income straight away unless its on performance obligations, then they recognise as soonas the obligation is met.

usually grants are recognised over a period and presented as deferred income

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31
Q

difference in IFRS for SMEs and full IFRS - borrowing costs

A

SME’s cannot capitalised borrowing costs

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32
Q

difference in IFRS for SMEs and full IFRS - development costs

A

cannot be capitalised, non SME’s can when IAS 38 is met

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33
Q

difference in IFRS for SMEs and full IFRS - pension actuarial gains and losses

A

SME’s can recognise in P/L or OCI, usually you can only measure in OCI

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34
Q

difference in IFRS for SMEs and full IFRS - financial instruments

A

classified at cost, amortised cost or FV

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35
Q

How is revenue recognised differently for SME’s

A

recognised when risks and rewards are transferred, instead of when performance obligations are satisfied as per IFRS 15 revenue recognition

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36
Q

How is intangibles recognised differently for SME’s

A

all intangibles are amortised and useful life cannot exceed 10 years. impairment test is only required if its indicated.
this differs from full IFRS standards where you amortise only if theres a finite life and an impairment test is requird annually

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37
Q

How are separate financial statements of investors recognised differently for SME’s

A

investments for SMEs can be held at cost or fair value through the P/L, FV for IFRS is through OCI

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38
Q

3 current issues

A

presentation and disclosures
materiality in the context of financial reporting
management commentary

39
Q

what are digital assets

A

crypto currency and crypto assets

40
Q

hierarchy for accounting for cryptocurrency

A

look for IFRS standards looking at similair issues
look at the framework
look at annoucements for other GAAPs

41
Q

can cryptocurrency be considered any type of financial or tangible asset

A

no - they dont meet the definiton of cash and they dont have any physical substance

42
Q

what is the IAS most close to accounting to crypto

A

IAS 38 intangible assets

43
Q

what is an official coin offering

A

is a means by which an entity raises funds through the issue of cryptoassets

44
Q

accounting for ICOs

A

the entity receives cash from supporters of the ICO - this is recorded as an asset

45
Q

if there is event after the reporting period, when do you adjust for it

A

if it happens between the time of the year end and the preparation of the FS

46
Q

what might you need to consider for a major event

A

Gov grants
going concern
adjusting or non adjusting events
impairment of assets

47
Q

what are the key features of the new proposal ( ED 2019/7) to replace IAS 1 Presentation of FS

A

Defined sub totals in P/L
Disaggregate information in a more useful way
disclose information about alternative performance measures

48
Q

what does ED 2019/7 proposal suggest the P/L Categories should be

A

operating
integral associated and joint ventures
investing
financing

49
Q

why would dis aggregation be useful

A

to not be able to lump large expenses together such as large balances in other expenses

50
Q

what does ED 2019/7 proposal suggest for disaggregation

A

for operating expenses to be analysed by nature (eg depreciation or employee benefits) OR function (eg admin exps, cost of sales) but not both

for unusual income and expenses - define why it is unusual and present a single note to disclose each unusual item

it also states useful descriptions must be used and not other

51
Q

what does ED 2019/7 proposal suggest for performance management measured

A

define the measures and measures should be disclosed in a single note

52
Q

what does ED 2019/7 proposal suggest for improvements to IAS 7

A

Operating profit must be the starting point for cash flows from operating activities when using indirect method

requite cash flows from investments and ventures to be split between integral and non integral

remove choice for interest and dividends to go into financing or investing. the proposal states paid must be financing and received should be investing

53
Q

what is the disclosure problem

A

too much irrelevant info
ineffective communication
not enough relevant info

54
Q

new definition of materiality from IFRS Practice Statement 2

A

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions ( added obscuring)

55
Q

why was IFRS Practice Statement 2 made

A

companies were unsure on materiality judgements, so it encourages a greater application of judgement

56
Q

what two areas does materiality judgements apply to

A

recognition and measurement - you only need to use the recognition criteria when the effect of applying them is material

Presentation and disclosure - you don’t need to make a disclosure if its on something immaterial even if the IAS states you have to

57
Q

who should disclosures focus on

A

for primary users - investors, lenders, creditors (existing and potential)

58
Q

if you assessing materiality on a quantitative factor, what percentage would be material

A

5%

59
Q

what is IFRS 1

A

First-time adoption of IFRS’s

60
Q

what do you need to comply with IFRS 1

A

You need to adjust your prior year to IFRS’s so you can compare, any adjustments go through retained earnings

61
Q

examples of alternative performance measures in which the focus on is increasing

A

economic value added
employee well being
environmental impact

62
Q

why are financial performance measures useful

A 
PY Comparision
comparison to other companies 
industry averages
benchmarks
budgets or forecasts
63
Q

what is IAS 33

A

Earnings per share

64
Q

which two EPS figures must be disclosed

A

Basic EPS and diluted EPS

65
Q

What is basic EPS

A

dividing net profit attributable to ord share holders by weighted average number of ord shares

66
Q

what is dluted EPS

A

Adjusting net profit and weighted average number of ord shares to reflect the impact of potential shares - then calc using basic way

67
Q

how should you attempt an ethics question

A

state the relevant standard(s) and state whether they are allowed to do this
apply the rule to the scenario
explain the ethical issues and link to fundamental principles

68
Q

advantages of EBITDA ( Earnings before interest, tax, depreciation and amortisaion)

A

used by managers as it represents earnings of a business that management actually have control over

69
Q

disadvantages of EBITDA ( Earnings before interest, tax, depreciation and amortisaion)

A

can be manipulated as managers can choose whats included

70
Q

advantages of EVA ( Economic Value added)

A

maximisation of EVA will create real wealth for shareholders

71
Q

disadvantages of EVA ( Economic Value added)

A

can encourage focus on short term performance

large number of adjustments required

72
Q

advantages of APM’s (alternative performance measurements )

A

ehances understanding the users
gives management more freedom to tailor measures to entity
allows users to evaluate the FS through eyes of management

73
Q

disadvantages of APM’s (alternative performance measurements )

A

terminology used is not defined
may be subject to management bias
no standards governing use of APMs

74
Q

guidelines for APM’s

A 
define APM 
Reconcile APM to closest IFRS Line item
explain why APM is included
do not present them more prominently than IFRS
If you stop using one - explain why
75
Q

what must non financial performance measures be

A

specific and measurable

76
Q

4 parts of a balanced scorecard

A

customers - what do they value about is
internal - how can we achieve targets
innovation and learning - Can we continue to improve?
financial - value for SH’s

77
Q

definition of sustainability

A

limiting the use of depleting resources to a level that can be replenished

78
Q

definition of sustainable development

A

development that meets the needs to the present without compromising the ability of future generations to meet their own needs

79
Q

what is sustainability reporting

A

an organisations practise of reporting publicly on its economic, environment and or social impacts

80
Q

what are things involved in social accountability

A

human rights, modern slavery

81
Q

what is integrated reporting

A

traditional financial reporting + sustainability reporting

82
Q

3 fundamental concepts of IR framework ( integrated reporting)

A

value creation - increases, decreases or transformations in the entitys capitals
the capitals - stocks of value that are increased, decreased or transformed
the value creation process - the process by which an enity uses its capital as inputs and converts them into outputs

83
Q

6 examples of the capitals

A

financial capitals ( loans)
manufactured capitals - man made
intellectual capital- R&D
natural capital - includes water fish etc
social and relationship capital - relationships with other entity’s and stakeholders
human capital - Management and employees

84
Q

7 guiding principles that IR framework requires an organisation to demonstrate

A 
strategic focus
connectivity of info
stakeholder relationships 
materiality 
conciseness 
reliability & completeness
consistency and comparability
85
Q

what is management commentary

A

a narrative report that relates to FS that have been prepared in accordance with IFRS can give historical explanations, entity’s prospects

86
Q

what is the issue with non binding guidance on management commentary

A

management can give positive spin and it will be difficult to compare between company’s

87
Q

when is segmental reporting required

A

when debt or equity instruments are sold on a public market

88
Q

what is the operating segment (IFRS 8: Appendix A)

A

A component of an entity:
that engages in business activities from which it may earn income or expenses
whose operating results are regularly reviewed buy chief operating decision maker
for which discrete financial info is available

89
Q

criterial for reportable segment

A

must meet operating segment rules and ANY of the below:

its revenue is 10% more of total revenue

its reported profit or loss is 10% or more of all segmental profit or loss ( whichever is greater)

its assets are 10% of more

90
Q

what is the extra rule for reportable segments

A

if external revenue is at least 75% of revenue it must also be reported

91
Q

what is IAS 34

A

Interim financial reporting

92
Q

what are the minimum requirement of IAS 34

A 
Condensed SOFP
Condended P/L and OCI
Condensed Cash flow
Condensed SOCIE
Selected explanatory notes
93
Q

3 main factors in deciding on functional currency

A

currency that influences sales prices for goods and services

currency of the country whose competitive forces and regulations determine the sales price

currency that mainly influences labour, material and other costs

94
Q

2 additional factors in deciding on functional currency

A

currency in which funds from financing activities are received

currency in which receipts from operating activities are usually retained

SBR (8 decks)

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